Table of Contents
As filed with the U.S. Securities and
Exchange Commission on April 30, 2019
Registration No.
333-229658
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Globe Photos, Inc.
(Exact Name of Registrant as Specified in
Its Charter)
Delaware
|
|
5990
|
|
27-0746744
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
6445 South Tenaya Way, B-130
Las Vegas, Nevada 89113
(702)722-6113
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of Registrant’s Principal Executive Offices)
Stuart Scheinman
Chief Executive Officer
Globe Photos, Inc.
6445 South Tenaya Way, B-130
Las Vegas, Nevada 89113
(702) 722-6113
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Christopher L. Tinen, Esq.
|
|
M. Ali Panjwani, Esq.
|
Procopio, Cory, Hargreaves & Savitch LLP
|
|
Pryor Cashman LLP
|
12544 High Bluff Drive, Suite 400
|
|
7 Times Square
|
|
|
|
San Diego, California 92130
|
|
New York, New York 10036
|
(858) 720-6320
|
|
(212) 326-0820
|
Approximate date of commencement of
proposed sale to the public
: As soon as practicable after this registration statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box
x
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the
same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
Large accelerated filer
|
|
¨
|
|
Accelerated filer
|
|
¨
|
Non-accelerated filer
|
|
x
|
|
Smaller reporting company
|
|
x
|
|
|
|
|
Emerging growth company
|
|
x
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
¨
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
Title of Each Class of
Securities To be Registered
|
|
Proposed
Maximum Aggregate
Offering Price (1)
|
|
Amount of
Registration Fee
|
Units, each consisting of one share of common stock, par value $0.0001 per share and one warrant to purchase one share of common stock, par value $0.0001 per share (4)
|
|
$______
|
|
$___
|
Common Stock, par value $0.0001 per share, included in the units
|
|
—
|
|
— (2)
|
Warrants included in the units
|
|
—
|
|
— (2)
|
Common Stock, par value $0.0001 per share, underlying the warrants included in the units (3)
|
|
$_____
|
|
$___
|
Unit Warrants to be issued to the Underwriters (5)
|
|
$_____
|
|
$___
|
Units underlying the Unit Warrants to be issued to the Underwriters (3)
|
|
—
|
|
— (2)
|
Common Stock, par value $0.0001 per share, included in the units underlying the Unit Warrants to be issued to the Underwriters (3)
|
|
—
|
|
— (2)
|
Warrants included in the units underlying the Unit Warrants to be issued to the Underwriters (3)
|
|
—
|
|
— (2)
|
Common Stock, par value $0.0001 per share, underlying the warrants included in the units underlying the Unit Warrants to be issued to the Underwriters (3)
|
|
$_____
|
|
$___
|
Convertible Promissory Notes(3)
|
|
—
|
|
— (2)
|
Common Stock, par value $0.0001 per share, underlying the convertible promissory notes to be issued to the selling stockholders(3)
|
|
$_____
|
|
$___
|
Warrants
(3)
|
|
—
|
|
—
(2)
|
Common
Stock, par value $0.0001 per share, underlying the Warrants to be issued to the selling stockholders(3)
|
|
$_____
|
|
$___
|
Total
|
|
$13,000,000
|
|
$1,575.60
|
|
|
(1)
|
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
|
(2)
|
No fee required pursuant to Rule 457(g).
|
(3)
|
Pursuant to Rule 416 under the Securities Act, there are also being registered such additional securities as may be issued to prevent dilution resulting from share splits, share dividends or similar transactions.
|
(4)
|
Includes the offering price of securities that the underwriter has the option to purchase to cover over-allotments, if any.
|
(5)
|
We have agreed to issue warrants, exercisable within five years after the effective date of this registration statement, representing 8% of the securities issued in the offering (excluding the over-allotment securities) (the “Underwriter Warrants”) to Roth Capital Partners for nominal consideration. Resales of the Underwriter Warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, are registered hereby. Resales of units, shares and warrants issuable upon exercise of the Underwriter Warrants or the component securities thereof are also being similarly registered on a delayed or continuous basis hereby.
|
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), shall determine.
The information in this preliminary
prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO
COMPLETION, DATED APRIL 30, 2019
PRELIMINARY PROSPECTUS
___________Units
____________ Shares of Common Stock
This is a public offering of securities
of Globe Photos, Inc. We are offering to sell to the public _____________________units in this offering (the “Units”),
each Unit consisting of one share of our common stock, par value $0.0001 per share (each, a “Share”), and a warrant
to purchase our common stock, par value $0.0001 per share (each, a “Warrant”). Each Warrant entitles the holder to
purchase one Share at an initial exercise price per share of $ . The Warrants may
only be exercised for cash. The Warrants will expire on ________ , _____ at 5:00 p.m., New York City time.
The selling stockholders identified in the
prospectus are offering ____________ shares of our common stock. We will not receive any proceeds from the sale of any shares by
the selling stockholders.
Our common stock is quoted on the
OTCQB under the symbol “GBPT.” On April 24, 2019, the last reported sale price of our common stock on the OTCQB was
$0.28. The public offering price per Unit will be determined between us, the underwriter and investors based on market conditions
at the time of pricing, and may be at a discount to the current market price of our common stock. Therefore, the recent market
price used throughout this prospectus may not be indicative of the final offering price.
We have applied to list the Units,
Shares and Warrants on the Nasdaq Capital Market under the symbol “GBPT”, “GBPTU” and “GBPTW”,
respectively. We plan to have the Warrants trade together with the Shares only as Units until _____________ ,
201_, and thereafter we plan for each of the Shares and Warrants to trade separately. However, there is currently no established
public trading market for the Units or the Warrants and our Shares of common stock are currently quoted on the OTCQB. Though we
have applied to list the Units, Shares and Warrants on the Nasdaq Capital Market, in the event we are unable to list said securities,
an active public market may not develop and the liquidity of the Units, Shares an d Warrants may be limited.
We are an “emerging growth company”
and a “smaller reporting company” under the federal securities laws and will be subject to reduced public company reporting
requirements. See “
Risk Factors
” beginning on page 10 for a discussion of the factors you should
consider before you make your decision to invest in our securities.
|
|
|
Per Unit
|
|
|
|
Total
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions (1)
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to selling stockholders
|
|
|
|
|
|
|
|
|
(1)
|
See “
Underwriting
” beginning on page 59 for disclosure regarding compensation payable to the underwriters by us.
|
The offering is being underwritten on
a firm commitment basis. We have granted the underwriter an option for a period of 30 days from the date of this prospectus
to purchase up to an additional Units at the public offering price less the underwriting discount and commissions. If the underwriter
exercises this option in full, the total underwriting discounts and commissions payable by us will be $
, and the total proceeds to us, before expenses, will be $ . See “
Underwriting
”
beginning on page 59.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Delivery of the Units will be made on or
about , 2019.
Roth Capital Partners
The date of this prospectus is ,
2019
TABLE OF CONTENTS
You should rely only on the information
contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different
from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, our securities
only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our
securities. Our business, financial condition, results of operations, and prospects may have changed since that date.
For investors outside of the United States:
Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
Our name, our logo, and other trademarks
or service marks of ours appearing in this prospectus are the property of Globe Photos, Inc. Trade names, trademarks, and service
marks of other companies appearing in this prospectus are the property of their respective holders.
PROSPECTUS SUMMARY
The following summary highlights information
contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment
decision in our securities. Before investing in our securities, you should carefully read this entire prospectus, including our
financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As
used in this prospectus, unless the context otherwise requires, references to “we,” “us,” “our,”
“Company,” and “Globe Photos,” refer to Globe Photos, Inc., a Delaware corporation, and its consolidated
subsidiaries.
Our Company
We are currently engaged in the business
of acquiring, selling, licensing and merchandising officially licensed sports, classic and contemporary photographic images and
reproductions. Over the last few years, we have been primarily in a developmental phase, focused mostly on acquiring ownership
or rights to collections of rare or unpublished negatives and photographs of iconic celebrity images.
We believe we have now assembled one of
largest collections of iconic pop culture imagery photography in the world. It is comprised of more than 15 million images taken
by more than 3,500 photographers from around the world over the last century. The collection features iconic personalities and
seminal moments from the worlds of entertainment, sports, history and politics.
More recently, we have been focused on acquiring
assets that would provide us the ability to sell, license and merchandise licensed sports photography and on developing an operational
platform to monetize the photographic assets and associated memorabilia that we have acquired.
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.
In addition to valuable licenses and photo
assets, the Photo File transaction provided us immediate access to its well-established sales and marketing organization comprised
of more than 50 employees, and it has already opened new distribution channels for our existing product lines. We also expect to
benefit from Photo File’s reputation for excellent customer service, as well as its strong ties to its professional and collegiate
sports leagues and large retail customers. This will be important as we further develop relationships with top retail clients and
distributors including Costco, Walmart, Target, Bed Bath and Beyond, USPS, Scheels and others.
Prior to the Photo File transaction, we
had taken preliminary steps to monetize the value of our collection by establishing various sales channels and marketing methodologies.
We had sold on a limited basis some of our photographic images and reproductions through auctions, third-party galleries, art consultants,
interior decorators, brick and mortar locations, specialty and big box retailers, as well as through various online outlets, including
Amazon and 1stdibs, and directly to end consumers via our Globe Photos website. We have tested various ways to reach customers
through diverse marketing channels, including our websites, events and interactive campaigns.
In many respects, the Company believes it
has turned the corner with the Photo File acquisition, allowing Globe Photos to emerge from our development stage into a full-scale
commercialization phase to take advantage of the growing market demand for sports and pop culture imagery and related memorabilia.
Our mission is to operate as a global marketplace
for licensed sports and pop culture imagery, which includes both sold physical prints as well as licensed digital photography that
our customers can use in their communications, such as social media, websites, digital and print marketing materials, books and
publications.
Through our online and in-store platforms
and manufacturing processes, consumers are able to customize, personalize, share, print and download licensed prints and physical
products both for personal use and for creating thoughtful and personalized gifts. These may include such photo-based products
as framed photos, canvases, books, calendars, greeting cards, mugs, bags, and apparel. There are numerous ways for our customers
to avail themselves of our vast library of digital images.
Our Growth Strategy
We expect to become a major provider of
licensed products and services by using a combination of traditional methods and merchandizing, along with innovative new approaches.
Traditional methods, such as licensing, online downloads and subscriptions, and manufacturing and selling framed products, have
built billion-dollar photo-based enterprises like Getty Images, Shutterstock and Shutterfly. However, with the goal of becoming
the leader in our space, we are also developing new sales and marketing concepts that we believe will change the way people purchase
images across online and retail channels. We expect our growth to be driven by several initiatives:
|
§
|
Develop our customer base:
We plan to expand our customer base and promote our Globe Photos brand by leveraging our existing channels. This includes word-of-mouth referrals from customers, auctions, catalogs, online advertising and direct marketing that will continue to expand our customer reach. We plan to leverage the latest methods and technologies in social media and eCommerce marketing, including A.I. (artificial intelligence) to build out our customer database with valuable demographic and customer preference information in order to enhance our customer experience and increase sales.
|
|
§
|
Expand products and services offerings:
We plan to innovate as a way to increase the breadth and value proposition of our products and services. We will continually explore new marketing possibilities, and have a number of programs at various stages of development. These programs are based on the strategy of leveraging industry partners and technology to lower or eliminate capital requirement for deployment and ongoing program management.
|
|
§
|
Increase sales to existing customers:
We intend to increase both average order size and repeat orders per customer by expanding our products and services, tailoring our offerings to encourage additional purchases for different use occasions, and increasing our cross-selling and up-selling activities.
|
|
§
|
Growth through acquisitions:
We will continue to consider strategic business or asset acquisitions that will help us secure additional photographic assets, products, market share, talent, and revenue. We continue to seek photographic archives that are undervalued, to purchase them or secure rights to these archives through representation or consignment agreements with the owners.
|
|
§
|
Expand our sports licenses.
We are looking to expand our sports licenses to include more products related to the core licenses we currently have with the NFL, NBA, MLB and NHL, as well as to expand our licensing relationships with additional major college teams and other sports organizations. We expect sales of products generated by the sports licensing part of our business, particularly with the launch of new sales and marketing concepts, to grow the fastest.
|
|
§
|
Expand upon and leverage partnerships:
We plan to expand upon and leverage our retail and distribution partners which include Costco, Walmart, Bed Bath & Beyond and CVS. We also plan to increase our sales presence on Amazon and 1stdibs. We expect to expand upon our licensing partnerships with Wendover Art Group, Zuma Press, Artspace, Fanatics,PersonalizationMall.com and others.
|
Sales, Marketing and Distribution
Our photographic assets and licenses are
delivered or manufactured in a variety of physical and digital formats that can be sold through several different distribution
channels and markets. This creates numerous potential revenue streams and multiple revenue-generating activities per asset.
We sell photographs in the form of open
edition or fine art prints. In some instances, prints can be paired with other memorabilia to create unique collectibles, such
as photo footballs, original concert tickets, and autographed items.
Since we own many original prints and negatives,
these prints can be also be paired with memorabilia or sold separately as collectibles after we digitize the original print or
negative. We retain the exclusive copyright to the image, so we can then resell the digitalized image on a recurring basis in different
formats and sizes, and at different price-points, from digital download and postcard collectibles, to open edition prints and large-format
fine art framed limited editions. We are not aware of any other public company that has as many original-source photo assets as
Globe Photos.
To address opportunities created by the
many products and distribution channels, we plan to expand our in-house sales staff as we scale up our commercialization efforts.
Currently, approximately 90% of our licensed sports business is through major big-box and specialty retailers. We also reach customers
through diverse marketing channels, including our website, events and interactive campaigns. Our marketing activities aim to build
awareness for our brands and drive revenue by promoting both existing and newly-acquired images in our collection.
We are currently completing the development
of a new robust enterprise web platform that will support the automation of product personalization and expand our online reach.
We anticipate that a direct-to-consumer and print-on-demand approach will enable us to rapidly and efficiently scale our business
while avoiding the costly investment and charges typically associated with the procurement and management of inventory and traditional
manufacturing.
We plan to continue to implement marketing
programs, although on a larger scale, designed to target non-traditional retail outlets, as well as the interior design, fund-raising
and hospitality industries. We are also in discussions with several independent sales representatives to market the Company’s
products to these market segments on a commission basis.
We also expect to continue to sell our pop
culture photographic images and reproductions through auctions, third-party galleries, art consultants, interior designers and
directly to consumers. We will reproduce large quantities of different photographs from our collection, which may be sold through
third party on-line retailers.
Our Globe Photos’ licensing division
currently services more than 2,500 global clients, including every major news organization in the world, production companies,
publishing houses and more. We have recently begun testing an online direct-to-consumer digital subscription model designed to
license individual images for use in personal documents, prints, screen savers, and other uses.
We expect to generate significant growth
over the next several years through interactive sales and marketing campaigns conducted in partnership with big-box and online
retailers, including Wal-Mart, Costco and Fanatics, as well as fine art websites like 1stdibs.com, particularly as we take advantage
of new sports photo licenses we acquired in the Photo File transaction. In fact, we anticipate the sport imagery aspect of our
business will be the fastest growing area for us for the foreseeable future.
We plan to continue to pursue opportunities
that can to diversify revenues, such as developing additional websites for retail clients to purchase our prints and also as a
portal for interior decorators, and a new store-within-a-store gallery concept in New York City and Santa Monica, California.
We are also pursuing other opportunities,
such as the development of an immersive interactive retail experience. We would structure such a partnership with a well-established
industry player to require a minimal capital expenditure by Globe Photos, as our part would require use of our existing licenses,
and overseeing fulfillment by outsourcing manufacturing, fulfillment and customer service. We project that such a program would
also provide the opportunity for customer acquisition at minimal to no cost, after which we can then remarket other products and
services to these customers via our other channels, such as online.
Risk Factors
An investment in our securities involves
risks. Please see the section of this prospectus entitled “Risk Factors” for a discussion of the factors you should
consider before deciding to invest in our securities. These risks include, among other things:
|
·
|
|
our ability to protect our intellectual property;
|
|
·
|
|
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
|
|
|
·
|
|
general economic conditions, nationally and globally, and their effect on the market for our services;
|
|
·
|
|
our dependence on a limited number of clients;
|
|
·
|
|
our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business;
|
|
·
|
|
competitive pressures and trends in our industry and our ability to successfully compete with our competitors; and
|
|
·
|
|
other factors identified throughout this prospectus, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”
|
Implications of Being an Emerging
Growth Company
As a company with less than $1.07 billion
in gross revenues during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart
Our Business Startups Act, or the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain
exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies, including,
but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and stockholder
advisory votes on golden parachute compensation.
Under the JOBS Act, we will remain an emerging
growth company until the earliest of:
|
·
|
|
the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more;
|
|
·
|
|
December 31, 2021, which is the last day of the fiscal year following the fifth anniversary of our initial public registration;
|
|
|
|
|
|
·
|
|
the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, or the Exchange Act (we will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months; the value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter).
|
We have elected to take advantage of certain
of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage
of other reduced reporting requirements in future filings. As a result, the information we provide to our stockholders may differ
from information you might receive from other public reporting companies in which you hold equity interests.
We have elected to use the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting
standards that have different effective dates for public and private companies until the earlier of the date we (i) are no
longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided
in Section 7(a)(2)(B).
Corporate Information
We were incorporated on September 20, 2004,
as a Delaware corporation under the name “Blog8.” Since incorporation, we have changed our name several times, having
been named “Securiteyes,” “Medify Solutions Limited,” “Petel Incorporated” and “Gleeworks,
Inc.” We amended our Certificate of Incorporation and changed our name to Capital Art, Inc. on April 28, 2011. On June 6,
2018, we changed our name to Globe Photos, Inc. Our principal executive offices are located at 6445 South Tenaya Way, B-130 Las
Vegas, Nevada 89113 and our telephone number is (702) 722-6113. Our website address is www.globephotos.com. The information
on our website is not incorporated by reference into this prospectus and should not be considered to be a part of the prospectus.
OFFERING SUMMARY
|
|
|
Securities offered by us
|
|
Units
|
|
|
Securities offered by the selling stockholders
|
|
Shares of common stock
|
|
|
|
Common stock outstanding after this offering
|
|
shares, including Shares included as part of the Units offered hereby.
|
|
|
Warrants to be outstanding after this offering
|
|
Warrants included as part of the Units offered hereby. See “
Description of Capital Stock
” on page 52 for more information.
|
|
|
Terms of Warrants issued as a part of a Unit offered in the offering
|
|
Exercise price
– $ , which is equal to % of the offering price of a Unit in this offering. The Warrants do not have any price protection features or cashless exercise provisions.
|
|
|
|
|
Exercisability
– each Warrant is exercisable for one Share, subject to adjustment as described herein.
|
|
|
|
|
Exercise period
– each Warrant will be immediately exercisable beginning on , 2019 (the “Separation Date”) and will expire on , 20 or earlier upon redemption.
|
|
|
Redemption of Warrants issued as a part of
a Unit in the offering
|
|
We may call the Warrants for redemption as follows: (i) at a
price of $0.001 for each Warrant at any time while the Warrants are exercisable, so long as a registration statement relating to
the common stock issuable upon exercise of the Warrants is effective and current; (ii) upon not less than 30 days’ prior
written notice of redemption to each Warrant holder; and (iii) if, and only if, the reported last sale price of the common stock
equals or exceeds $ per share (200% of the offering price of a Unit in this
offering) for the 20-trading-day period ending on the third business day prior to the notice of redemption to Warrant holders.
If the foregoing conditions are satisfied and we call the Warrants
for redemption, each Warrant holder will then be entitled to exercise his or her Warrant prior to the date scheduled for redemption.
However, there can be no assurance that the price of the common stock will exceed the call price or the Warrant exercise price
after the redemption call is made.
|
Separation Date
|
|
We
plan for the Warrants to trade together with the Shares only as Units until the Separation Date. Upon their separation from
the Shares, we plan for the Shares and Warrants to each be eligible for trading on the Nasdaq Capital Market.
|
|
|
Use of proceeds
|
|
We intend to use the net proceeds to us from this offering primarily
for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and
capital expenditures.
We will not receive any proceeds from the sale of any shares
by the selling stockholders.
|
|
|
Dividend policy
|
|
We do not anticipate declaring or paying any cash dividends on our common stock following our public offering.
|
|
|
Risk factors
|
|
You should carefully read and consider the information set forth under the heading “Risk Factors” and all other information set forth in this prospectus before deciding to invest in the Units.
|
|
|
Proposed Nasdaq Capital Market symbol
|
|
GBPTU (Units)
GBPT (Shares)
GBPTW (Warrants)
|
The number of shares of common stock
to be outstanding following this offering is based on 326,428,584 shares outstanding as of April 12, 2019, and excludes:
|
·
|
20,033,333 shares of common stock issuable
upon the exercise of stock options outstanding as of December 31, 2018, at a weighted average exercise price of $0.07 per
share;
|
|
·
|
8,566,667 unallocated shares of common stock
reserved for future issuance under our equity incentive plan as of December 31, 2018;
|
|
·
|
34,407,553 shares of common stock issuable upon the conversion of convertible promissory notes
and accrued interest outstanding as of December 31, 2018 at a conversion price of $0.10 per share.
|
|
·
|
6,500,000
shares of common stock issuable upon the exercise of warrants outstanding as of December
31, 2018, at a weighted average exercise price of $0.10 per share;
|
Unless otherwise indicated, this prospectus
reflects and assumes the following:
|
·
|
the rounding of all fractional share amounts to the nearest whole number;
|
|
·
|
the effectiveness of a one for reverse split of our stock to be effected immediately prior to the consummation of this offering;
|
|
·
|
no exercise or conversion of the outstanding options, warrants and convertible securities described above;
|
|
·
|
no exercise by purchasers of Units in this offering of the Warrants included therein; and
|
|
·
|
no exercise by Roth Capital Partners of the Underwriter Warrants or any Warrants included therein.
|
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth the summary
financial and operating data as of the dates and for the periods indicated. The consolidated statements of operations data for
the year ended December 31, 2018, and the consolidated balance sheet data as of December 31, 2017, have been derived from the audited
financial statements of Globe Photos, which are included elsewhere in this prospectus. Our historical results are not necessarily
indicative of the results that may be expected in any future period, and our interim results are not necessarily indicative of
the results to be expected for the full fiscal year.
You should read the following financial
and other data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated financial statements and related notes included elsewhere in this prospectus.
Balance Sheet Data
|
|
December
31,
2018
|
|
|
December 31,
2017
|
|
Cash
|
|
$
|
304,267
|
|
|
$
|
1,297
|
|
Total Assets
|
|
$
|
22,223,367
|
|
|
$
|
2,940,940
|
|
Total liabilities
|
|
$
|
12,684,120
|
|
|
$
|
2,394,795
|
|
Total Stockholders’ Equity
|
|
$
|
9,539,247
|
|
|
$
|
546,145
|
|
Statement of Operations
|
|
Year Ended
December 31,
2018
|
|
|
Year
Ended
December 31,
2017
|
|
Revenue
|
|
$
|
3,183,142
|
|
|
$
|
939,252
|
|
Net loss
|
|
$
|
(493,975
|
)
|
|
$
|
(847,860
|
)
|
RISK FACTORS
Investing in our securities involves
a high degree of risk. Before making an investment in our securities, you should carefully consider the following risks and the
other information contained in this prospectus, including our consolidated financial statements and related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” The risks described below are those that we believe
are the material risks we face. Any of the risks described below, and others that we did not anticipate, could significantly and
adversely affect our business, prospects, financial condition, results of operations, and liquidity. As a result, the trading price
of our securities could decline, and you may lose all or part of your investment.
Risks Related to Our Business
Because we have a limited operating
history, you may not be able to accurately evaluate our operations.
We have had limited operations to date and
have generated only a small amount of revenue. Therefore, we have a limited operating history upon which to evaluate the merits
of investing in our company. Because we are in the early stages of operating our business, we are subject to many of the same risks
inherent in the operation of a business with a limited operating history, including the potential inability to continue as a going
concern.
Although we have a large customer
base, currently the Company is dependent on only one of its divisions for a significant amount of its revenues.
For the year ended December 31, 2018,
the collectibles division accounted for over 82% of total revenues. For the twelve months ended December 31, 2017, the collectibles
division accounted for over 72% of total revenues. Management has instituted aggressive direct-to-consumer marketing and implemented
programs with third-party re-sellers, brick and mortars and online retailers. We have also begun to enhance and market our licensing
division, Globe Photos LLC. Additionally, we have invested considerable time and monies in the development of software to more
efficiently process images and push them through to our retail and licensing channels, which is expected to help scale each division
considerably. Despite these efforts, there is no certainty regarding how or if the market for our products will continue to develop,
or whether such market will decline. Our ability to attract and retain customers will depend in part on our ability to sign up
a significant number of galleries, third party websites, interior decorators and charities that will market to their clients,
and our ability to drive business to our website. Moreover, the market for our products is comprised primarily of collectors,
which market is limited and subject to changes in popular trends, demographics, disposable income, and overall interest in such
products. There can be no guarantee that the market for our products will grow or that demand for our products will continue.
If it does not, our business could be significantly and adversely impacted.
If we are unable to compete in our
industry, our business could be significantly and adversely impacted.
The photographic art industry is and has
been intensely competitive, and we expect competition to intensify in the future. We expect competition to increase because of
changes in the media industry, changing advertising practices, technological advances leading to relatively inexpensive creation,
marketing and distribution of visual content, and a lack of substantial barriers to entry. Our competitors range in size from significant
media companies to individual visual content and digital media content producers. While we believe the breadth of our businesses
and product and service portfolio offers benefits to our customers that are a competitive advantage, our current or potential competitors
may develop products, licensing models, technology or services comparable or superior to those that we develop or may adapt more
quickly than we do to new or emerging technologies or evolving industry trends. Increased competition or more effective competitors
could result in lost market share, require us to reduce prices or otherwise reduce our revenue, lower margins, increase capital
expenditures, or otherwise negatively impact our operating results. There can be no assurance that we will be able to compete successfully
against current and future competitors.
Unless we increase market awareness of our brand and our
existing and new products and services, our revenue may not continue to grow.
We believe that the development of our brand
identity will have a significant impact on the success of our products and services and that our ability to attract and retain
new customers and contributors depends in large part on our ability to increase our brand awareness. We plan to expend significant
resources on advertising, marketing, and other brand-building efforts to preserve and enhance customer and contributor awareness
of our brands, products and services. Our competitors may be able to achieve and maintain brand awareness and market share more
quickly and effectively than we can.
Our brands may be impaired by a number of
factors, including the effectiveness of our marketing campaigns, disruptions in service due to technology, data privacy and security
issues, and exploitation of our trademarks and other intellectual property by others without our permission. Maintaining and enhancing
our brands will depend largely on our ability to develop a leading e-commerce platform for high-quality digital content and to
continue to provide a user experience that anticipates our customers’ needs. Additionally, our marketing campaigns or other
efforts to increase our brand awareness may not succeed in bringing new visitors to our platform or converting such visitors to
paying customers and may not be cost-effective. It is possible that, as our industry becomes increasingly competitive, maintaining
and enhancing our brands may become increasingly difficult and expensive and our efforts may not be successful.
Our success is dependent in part
on obtaining, maintaining and enforcing our intellectual property rights and our ability to avoid infringing on the intellectual
property rights of others.
Our intellectual property rights are very
important to our business. We rely on a combination of copyright, trade secret, trademark, and other rights in the United States
and other jurisdictions, as well as on contractual restrictive covenants such as confidentiality, to protect our intellectual property.
As most of our assets relate to photographs, we deal primarily in copyrights, which do not necessarily have to be registered rights
until enforced.
Despite our efforts to protect our proprietary
rights, third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual
property rights. Misappropriation, piracy, or infringement of our intellectual property and proprietary rights could impair our
competitive position. Policing unauthorized use of our proprietary rights is difficult and nearly impossible on a worldwide basis.
We cannot ensure that the steps we have taken or will take in the future will prevent misappropriation of our products and intellectual
rights or that the agreements entered into for that purpose will be enforceable. Effective trademark, service mark, patent, copyright
and trade secret protection may not be available where our products and services are made available on-line. In addition, litigation
may be necessary to enforce or protect our intellectual property rights or to defend against claims of infringement or invalidity.
Litigation, even if successful, could result in substantial costs and diversion of resources and management attention and could
materially and adversely affect our business, results of operations and financial condition and may not always be successful.
Moreover, in the event a competitor or other
party successfully challenges our intellectual property or claims that we have infringed upon their intellectual property, we could
incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or
be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating
results and financial condition.
If we are unable to manage our
growth and expand our operations successfully, our business and operating results will be harmed and our reputation may be damaged.
We have expanded our operations significantly
since inception and anticipate that further significant expansion will be required to achieve our business objectives. The growth
and expansion of our business and product offerings places a continuous and significant strain on our management, operational and
financial resources. Any such future growth would also add complexity to and require effective coordination throughout our organization.
To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure,
our operating and administrative systems and controls, and our ability to manage headcount, capital and processes in an efficient
manner. We may not be able to successfully implement improvements to these systems and processes in a timely or efficient manner,
which could result in additional operating inefficiencies and could cause our costs to increase more than planned. If we do increase
our operating expenses in anticipation of the growth of our business and this growth does not meet our expectations, our operating
results may be negatively impacted. If we are unable to manage future expansion, our ability to provide high quality products and
services could be harmed, which could damage our reputation and brand and may have a material adverse effect on our business, operating
results and financial condition.
Our growth strategy requires us to
expand our website which can expose us to data security breaches.
The risk of a data security breach caused
by computer hackers and cyber criminals has increased as the frequency, intensity and sophistication of attempted attacks and intrusions
from around the world have increased. Such risk also increases as we expand our presence on the web and increase on-line sales.
Our systems have not been, but may in the future be, the target of various forms of cyber-attacks. Our cybersecurity measures and
the cybersecurity measures taken by our third-party hosting facilities may be unable to anticipate, detect or prevent all attempts
to compromise our systems. Any security breach, whether successful or not, could harm our reputation, subject us to lawsuits and
other potential liabilities and ultimately could result in the loss of customers and loss of revenue.
Technological interruptions that impair access to our
website could damage our reputation and brand and adversely affect our results of operations.
The satisfactory performance, reliability
and availability of our websites and our network infrastructure are critical to our reputation, our ability to attract and retain
customers and contributors to our platform and our ability to maintain adequate customer service levels. Any system interruptions
that result in the unavailability of our websites could result in negative publicity, damage our reputation and brand or adversely
affect our results of operations. Even a disruption as brief as a few minutes could have a negative impact on our operations and
could result in a loss of revenue. Because some of the causes of system interruptions may be outside of our control, we may not
be able to remedy such interruptions in a timely manner, or at all.
If we do not successfully make, integrate and maintain
acquisitions and investments, our business could be adversely impacted.
We have acquired, invested in and entered
into strategic relationships with companies, and we may acquire, invest in or enter into strategic relationships with additional
companies to complement our existing business and the breadth of our offerings. These transactions are inherently risky and expose
us to risks which include:
|
•
|
disruption of our ongoing business, including diverting management’s attention from existing businesses and operations;
|
|
•
|
difficulties integrating acquired technology and assets, including content collections, into our systems and offerings;
|
|
•
|
risks associated with any acquired liabilities;
|
|
•
|
difficulties integrating personnel;
|
|
•
|
information security vulnerabilities;
|
|
•
|
difficulties integrating accounting, financial reporting, management, infrastructure and information security, human resources and other administrative systems;
|
|
•
|
the potential impairment of tangible and intangible assets and goodwill;
|
|
•
|
the potential damage to employee, customer, contributor and other supplier relationships; and
|
|
•
|
other unknown liabilities.
|
Future acquisitions or investments could
also result in potential dilutive issuances of equity securities, use of significant cash balances or the incurrence of debt, any
of which could adversely affect our stock price, financial condition and results of operations.
We cannot make assurances that our investments
will be successful. If we fail to effectively integrate the companies we acquire, invest in or enter into strategic relationships
with, we may not realize the benefits expected from the transaction and our business may be harmed.
Our profitability and liquidity
could be negatively affected as a result of future tax liabilities that differ from managements estimates.
The application of tax laws and regulations
is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change
as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the
actual liability for U.S., or the various state jurisdictions, may be materially different from management’s estimates,
which could result in the need to record additional tax liabilities that could negatively affect the Company’s profitability
and liquidity.
If we fail to attract and retain
qualified senior executive and key technical personnel, our business will not be able to expand.
We are dependent on the continued availability
of the services of our employees, many of whom are individually key to our future success, and the availability of new employees
to implement our business plans. We rely heavily on the experience of our officers and directors in overseeing and implementing
our business plan. As we move forward we will need to engage professionals with various specific experience. We will need individuals
experienced in design, photo editing and creativity. We will also need to identify sales and marketing professionals with specific
experience in selling into certain channels of distribution.
The market for skilled employees is highly
competitive, especially for employees in technical fields. There can be no assurance that we will be able to retain the services
of all our key employees or a sufficient number to execute our plans, nor can there be any assurance we will be able to continue
to attract new employees as required.
Our personnel may voluntarily terminate
their relationship with us at any time, and competition for qualified personnel, is intense. The process of locating additional
personnel with the combination of skills and attributes required to carry out our strategy could be lengthy, costly and disruptive.
If we lose the services of key personnel,
or fail to replace the services of key personnel who depart, we could experience a severe negative effect on our financial results
and stock price. In addition, there is intense competition for highly qualified industry specific and business savvy personnel
in the locations where we principally operate. The failure to acquire the services of any key design, marketing or other personnel
or our failure to attract, integrate, motivate and retain additional key employees could have a material adverse effect on our
business, operating and financial results and stock price.
Our business, operating results and
growth rates may be adversely affected by current or future unfavorable economic and market conditions.
Our business depends on the economic health
and general willingness of our current and prospective end-customers to make those capital commitments necessary to purchase our
products. If the conditions in the U.S. and global economies remain uncertain or continue to be volatile, or if they deteriorate,
our business, operating results and financial condition may be materially adversely affected. Economic weakness, end-customer financial
difficulties, limited availability of credit and constrained capital spending have at times in the past resulted, and may in the
future result, in challenging and delayed sales cycles, slower adoption of new technologies and increased price competition, and
could negatively affect our ability to forecast future periods, which could result in an inability to satisfy demand for our products
and a loss of market share.
Because we have material weaknesses
in our internal control procedures, our stock price could decline significantly.
Section 404 of the Sarbanes-Oxley Act requires
annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent
auditors addressing these assessments. We have documented material weaknesses in our internal controls. Because of these material
weaknesses, our management believes that, as of December 31, 2018, our internal controls over financial reporting were
not effective and investors could lose confidence in our Company and result in a decline in our stock price and consequently affect
our financial condition. In addition, if we fail to achieve and maintain the adequacy of our internal controls, 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.
If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.
In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will
not be discovered in the future. Furthermore, if our efforts to comply with the Sarbanes-Oxley Act fail, we or our officers may
be subject to civil or criminal penalties that could have a material adverse effect on our business, operating results and financial
condition.
Any future litigation could have
a material adverse impact on our results of operations, financial condition and liquidity.
From time to time we may be subject to litigation,
including potential stockholder derivative actions. Risks associated with legal liability are difficult to assess and quantify,
and their existence and magnitude can remain unknown for significant periods of time. We have acquired (“D&O”)
liability insurance to cover such risk exposure for our directors and officers. In addition, the Company is increasing its general
liability insurance and acquiring errors and omissions coverage (“E&O”). The Company also carries Fine Art Commercial,
employee health and workman’s compensation policies. Despite the measures taken, such policies may not cover future litigation
or the damages claimed may exceed our coverage. The amounts we would have to pay to indemnify our officers and directors should
they be subject to legal action or any other action that we are exposed to could have a material adverse effect on our financial
condition, results of operations and liquidity.
Government regulation of the Internet
and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm
our business and results of operations.
We are subject to general business regulations
and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations
may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, user privacy, data
protection, rights of publicity and rights of privacy, pricing, content, copyrights, distribution, electronic contracts and other
communications, consumer protection, the provision of online payment services, broadband residential Internet access and the characteristics
and quality of products and services. It is not clear how existing laws governing issues such as property use and ownership, sales
and other taxes, fraud, libel and personal privacy and the rights of publicity apply to the Internet and e-commerce as the vast
majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised
by the Internet or e-commerce. Those laws that do reference the Internet continue to be interpreted by the courts and their applicability
and reach are therefore uncertain.
The costs of compliance with these and other
regulations may increase in the future as a result of changes in the regulations or the interpretation of them. Further, any failures
on our part to comply with these regulations may subject us to significant liabilities. Those current and future laws and regulations
or unfavorable resolution of these issues may substantially harm our business and results of operations.
Risks Related to Our Securities and this Offering
There is no active market for our securities, and we do
not know if one will develop to provide you with adequate liquidity.
Immediately prior to this offering, our
common stock was quoted on the OTCQB under the symbol “GBPT.” Although we have applied to list our Units, Warrants
and common stock on the Nasdaq Capital Market, there is no guarantee our application is accepted or that an active public
market for our Units, Warrants and common stock may develop or be sustained following this offering. If an active market for our
Units, Warrants and common stock does not develop, it may be difficult for you to sell your Units, Warrants or shares of common
stock without depressing the market price for those securities or at all. Even if we do obtain such a listing, there can be no
assurance that we will be able to maintain such listing in the future. As a result, investors may find it difficult to buy or
sell or obtain accurate quotations for our Units, Warrants and common stock, and the liquidity of our Units, Warrants and common
stock may be limited. These factors may have an adverse impact on the trading and price of our securities.
The price of our securities may fluctuate significantly,
and you could lose all or part of your investment.
Volatility in the market price of our securities
may prevent you from being able to sell your Units, Warrants or common stock at or above the price you paid. The market price of
our securities could fluctuate significantly for various reasons, which include, among other things:
|
•
|
|
our quarterly or annual earnings or earnings of other companies in our industry;
|
|
•
|
|
our operating performance and the results of our collection efforts and portfolio performance;
|
|
•
|
|
the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission, or the SEC;
|
|
•
|
|
changes in earnings estimates or recommendations by research analysts who track our securities or the stocks of other companies in our industry;
|
|
•
|
|
new laws or regulations or new interpretations of laws or regulations applicable to our business;
|
|
•
|
|
changes in accounting standards, policies, guidance, interpretations, or principles;
|
|
•
|
|
changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war, incidents of terrorism, or responses to such events;
|
|
•
|
|
litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; and
|
|
•
|
|
sales of common stock by our directors, executive officers, and significant stockholders.
|
Penny stock regulations may impose certain restrictions
on marketability of our securities.
The SEC has adopted
regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain exceptions. A security listed on a national securities
exchange is exempt from the definition of a penny stock. Our Common Stock is not currently listed on a national security exchange.
Our Common Stock is therefore subject to rules that impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors (generally those 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 such rules, the broker-dealer
must make a special suitability determination for the purchase of such securities and have received the purchaser’s written
consent to the transaction prior to the purchase.
Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the
sole market maker, the broker dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally,
monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on
the limited market in penny stocks. Broker-dealers must wait two business days after providing buyers with disclosure materials
regarding a security before effecting a transaction in such security. Consequently, the “penny stock” rules restrict
the ability of broker-dealers to sell our securities and affect the ability of investors to sell our securities in the secondary
market and the price at which such purchasers can sell any such securities, thereby affecting the liquidity of the market for our
Common Stock.
In addition, the stock market can at times,
and for extended periods of time, experience extreme price and volume fluctuations. This volatility has a significant impact on
the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to
occur without regard to the operating performance of these companies. The price of our securities could fluctuate based upon factors
that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price.
Our directors and principal stockholders
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our directors, executive officers and significant
stockholders will continue to have substantial control over us after this offering and could delay or prevent a change in corporate
control. After this offering, as described in the section entitled “Principal and Selling Stockholders,” our directors,
executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in
the aggregate, approximately % of our outstanding common stock, based on the number of shares outstanding as of April 12, 2019.
As a result, these stockholders, acting together, would be able to significantly influence and may be able to control the
outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation
or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would be able to significantly
influence and may be able to control the ability to control the management and affairs of our company. Accordingly, this concentration
of ownership might adversely affect the market price of our common stock by:
|
•
|
|
delaying, deferring or preventing a change in control of the Company;
|
|
•
|
|
impeding a merger, consolidation, takeover, or other business combination involving us; or
|
|
•
|
|
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.
|
As an emerging growth company within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”), we will utilize certain modified disclosure requirements,
and we cannot be certain whether these reduced requirements will make our securities less attractive to investors
.
We are an emerging growth company within
the meaning of the rules under the Securities Act. We have in this prospectus utilized, and we plan in future filings with the
SEC to continue to utilize, the modified disclosure requirements available to emerging growth companies, including reduced disclosure
about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of
holding a nonbinding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404
of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur when
outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access
to certain information they may deem important.
We could remain an “emerging growth
company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual
gross revenue exceed $1 billion, (ii) the date that we become a ‘‘large accelerated filer’’ as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the
market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently
completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during
the preceding three-year period.
We are a “smaller reporting
company,” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will
make our common stock less attractive to investors.
We are currently a “smaller reporting
company”, meaning that we are not an investment company, an asset- backed issuer, or a majority-owned subsidiary of a parent
company that is not a smaller reporting company and have a non-affiliated public float of less than $250.0 million or annual revenues
of less than $100.0 million and a non-affiliated public float of less than $700.0 million as of the end of the second quarter of
our most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at
such time as we cease being an “emerging growth company,” we will be required to provide additional disclosure in our
SEC filings. However, similar to an “emerging growth companies”, “smaller reporting companies” are able
to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of
the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness
of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including,
among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures
in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our
results of operations and financial prospects.
Substantial future sales of shares of our common stock
could cause the market price of our common stock to decline.
Following the completion of this offering,
our board of directors will have the authority, without action or vote of our stockholders, to issue all or any part of our authorized
but unissued shares of common stock, including shares of common stock issuable upon the exercise of options, shares of common stock
that may be issued to satisfy our payment obligations under our incentive plans, or shares of our authorized but unissued preferred
stock. Issuances of common stock or preferred stock would reduce your influence over matters on which our stockholders vote, and,
in the case of issuances of preferred stock, likely would result in your interest in us being subject to the senior rights of holders
of that preferred stock.
Sales
of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of
a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will
have outstanding shares of our common
stock, based on the number of shares outstanding as of April 12, 2019, as well as Warrants
to purchase shares of our common stock. This includes the Units included in this offering to be sold by us, which may be resold
in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. In connection
with this offering, each of our directors and executive officers, together with their affiliated entities, and each of the selling
stockholders have agreed to a lock-up restriction for a period of 180 days after the date of this prospectus. In addition, each
of the selling stockholders have agreed to a lock-up restriction for a period of 90 days after the date of this prospectus. When
the various lock-up restrictions expire, these shares will become eligible for public sale thereafter if they are registered under
the Securities Act or if they qualify for an exemption from registration under the Securities Act including under Rules 144 or
701. In addition, our directors and executive officers may establish programmed selling plans under Rule 10b5-1 of the Exchange
Act for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders under such programmed
selling plans could cause the market price of our common stock to decline.
You will incur immediate and substantial dilution in the
net tangible book value of your Shares.
If you purchase Units in this offering,
the value of your Shares based on our actual book value will immediately be less than the price you paid. This reduction in the
value of your equity is known as dilution. This dilution occurs in large part because our existing stockholders paid substantially
less than the public offering price when they acquired their shares of common stock. Based upon the issuance and sale of Units
by us in this offering at the public offering price of $ per Unit, and assuming no value is attributed
to the Warrants included in the Units we are offering by this prospectus, you will incur immediate dilution of $ in
the net tangible book value per Share included in each Unit. A $ increase or decrease in the assumed
public offering price of $ per Unit would increase or decrease, as applicable, our as adjusted net
tangible book value per Share included in each Unit by $ , and increase or decrease, as applicable,
the dilution per Share included in each Unit to new investors by $ , assuming the number of Units
offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option,
or if outstanding options to purchase our common stock are exercised, investors will experience additional dilution. For more information,
see “Dilution.”
We may choose to redeem our outstanding Warrants at a
time that is disadvantageous to our Warrant holders.
Subject to there being an effective and
current registration statement under the Securities Act with respect to the common stock issuable upon exercise of the Warrants,
we may redeem the Warrants issued as a part of the Units at any time after the Warrants become exercisable, in whole and not in
part, at a price of $0.001 per Warrant, upon a minimum of 30 days’ prior written notice of redemption, if and only if the
last sales price of our common stock equals or exceeds $ per Share (which
is equal to 200% of the offering price per Unit set forth on the cover page of this prospectus) for any 20-trading-day period ending
three business days before we send the notice of redemption. Redemption of the Warrants could force the Warrant holders to (i) exercise
the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, (ii) sell the Warrants
at the then-current market price when they might otherwise wish to hold the Warrants, or (iii) accept the nominal redemption
price which, at the time the Warrants are called for redemption, is likely to be substantially less than the market value of the
Warrants.
An effective registration statement may not be in place
when an investor desires to exercise Warrants, thus precluding such investor from being able to exercise their Warrants and causing
such Warrants to be practically worthless.
No Warrant held by public stockholders will
be exercisable and we will not be obligated to issue shares of common stock unless at the time such holder seeks to exercise such
Warrant, a registration statement relating to the common stock issuable upon exercise of the Warrant is effective and current.
Under the terms of the Warrant, we have agreed to use our reasonable best efforts to meet these conditions and to maintain a current
and effective registration statement relating to the common stock issuable upon exercise of the Warrants until the expiration of
the Warrants. However, we cannot assure you that we will be able to do so, and if we do not maintain a current and effective registration
statement related to the common stock issuable upon exercise of the Warrants, holders will be unable to exercise their Warrants
and we will not be required to settle any such Warrant exercise. If the registration statement relating to the common stock issuable
upon the exercise of the Warrants is not current, the Warrants held by public stockholders may have no value, the market for such
Warrants may be limited, and such Warrants may expire worthless. Such expiration would result in each holder paying the full unit
purchase price solely for the Share underlying the unit. Notwithstanding the foregoing, the Underwriter Warrants may be exercisable
for unregistered Shares even if no registration statement relating to the common stock issuable upon exercise of the Underwriter
Warrants is effective and current.
At the time that the Warrants become exercisable
(following the Separation Date), we expect to continue to be listed on a national securities exchange, which would provide an exemption
from registration in every state. Accordingly, we believe holders in every state will be able to exercise their Warrants as long
as our registration statement relating to the common stock issuable upon exercise of the Warrants is current. However, we cannot
assure you of this fact. As a result, the Warrants may be deprived of any value, the market for the Warrants may be limited, and
the holders of Warrants may not be able to exercise their Warrants if the common stock issuable upon such exercise is not qualified
or exempt from qualification in the jurisdictions in which the holders of the Warrants reside.
Provisions in our charter documents and the Delaware General
Corporation Law could make it more difficult for a third party to acquire us and could discourage a takeover and adversely affect
existing stockholders.
Anti-takeover provisions in our certificate
of incorporation and bylaws, and in the Delaware General Corporation Law, could diminish the opportunity for stockholders to participate
in acquisition proposals at a price above the then-current market price of our common stock. For example, while we have no present
plans to issue any preferred stock, our board of directors, without further stockholder approval, will be able to issue shares
of undesignated preferred stock and fix the designation, powers, preferences, and rights and any qualifications, limitations, and
restrictions of such class or series, which could adversely affect the voting power of your Shares. In addition, our bylaws will
provide for an advance notice procedure for nomination of candidates to our board of directors that could have the effect of delaying,
deterring, or preventing a change in control. Further, as a Delaware corporation, we are subject to provisions of the Delaware
General Corporation Law regarding “business combinations,” which can deter attempted takeovers in certain situations.
We may, in the future, consider adopting additional anti-takeover measures. The authority of our board of directors to issue undesignated
preferred or other capital stock and the anti-takeover provisions of the Delaware General Corporation Law, as well as other current
and any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter, or prevent takeover attempts
and other changes in control of our company not approved by our board of directors. See “Description of Capital Stock”
for further information.
We currently do not intend to pay dividends on our shares
of common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our shares appreciates.
We do not expect to pay dividends on our
shares of common stock in the foreseeable future and intend to use cash to grow our business. The payment of cash dividends in
the future, if any, will be at the discretion of our board of directors and will depend upon such factors as the extent to which
our financing arrangements permit the payment of dividends, earnings levels, capital requirements, our overall financial condition,
and any other factors deemed relevant by our board of directors. Consequently, your only opportunity to achieve a return on your
investment in us will be if the market price of our securities appreciates.
We will have broad discretion in applying the net proceeds
of this offering and may not use those proceeds in ways that will enhance the market value of our common stock.
We have significant flexibility in applying
the net proceeds we will receive in this offering. We intend to use the proceeds that we receive from the sale of stock in this
offering to pay the expenses of this offering and for general corporate purposes. As part of your investment decision, you will
not be able to assess or direct how we apply these net proceeds. If we do not apply these funds effectively, we may lose significant
business opportunities. Furthermore, our stock price could decline if the market does not view our use of the net proceeds from
this offering favorably.
Our inability to raise additional
capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and
expand our operations.
If our available cash balances, net proceeds
from this offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including
because of lower demand for our products as a result of other risks described in this “Risk Factors” section, we may
seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements. We may also
consider raising additional capital in the future to expand our business, pursue strategic investments, take advantage of financing
opportunities, or other reasons.
Additional funding may not be available
to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result.
Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock.
The terms of debt securities issued or borrowings could impose significant restrictions on our operations. The incurrence of indebtedness
or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive
covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to
acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct
our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the
market price of our common stock to decline. If we do not have, or are not able to obtain, sufficient funds, we may have to delay
development or commercialization of our products or license to third parties the rights to commercialize products or technologies
that we would otherwise seek to commercialize. If we raise additional funds through collaboration and licensing arrangements with
third parties, it may be necessary to relinquish some rights to our products, or to grant licenses on terms that are not favorable
to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope
of or eliminate some or all of our development programs. We also may have to reduce marketing, customer support or other resources
devoted to our products or cease operations. Any of these actions could harm our business, operating results and financial condition.
We will incur significant increased
costs as a result of operating as a public company, and our management will be required to devote substantial time to comply with
the laws and regulations affecting public companies, particularly after we are no longer an emerging growth company.
As a public company, particularly after
we complete our proposed “uplisting” to the Nasdaq Capital Market, we will incur significant legal, accounting
and other expenses, including costs associated with public company reporting and corporate governance requirements, to comply
with the rules and regulations imposed by the Sarbanes-Oxley Act and the Dodd-Frank Act, as well as rules implemented by the SEC
and Nasdaq, most of which are continually changing and evolving. Our management and other personnel will need to devote a substantial
amount of time to these compliance initiatives and our legal and accounting compliance costs will increase. We also expect these
new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board
of directors or as executive officers. We are evaluating and monitoring developments regarding these rules, and we cannot predict
or estimate the amount of additional costs we may incur or the timing of such costs.
For example, the Sarbanes-Oxley Act requires,
among other things, that we maintain effective internal controls over financial reporting and disclosure controls and procedures.
In particular, as a public company, we are required to perform system and process evaluations and testing of our internal control
over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting,
as required by Section 404 of the Sarbanes-Oxley Act. As described above, as an emerging growth company, we will not need to comply
with the auditor attestation provisions of Section 404 for several years. Our testing, or the subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to
be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and management
time on compliance-related issues. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner,
or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses, we could lose investor confidence in the accuracy and completeness of our financial
reports, which could cause our stock price to decline.
When the available exemptions under the
JOBS Act, as described above, cease to apply, we expect to incur additional expenses and devote increased management effort toward
ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming
a public company or the timing of such costs.
FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements,” which include information relating to future events, future financial performance, strategies, expectations,
competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation,
statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operating
results, and future economic performance; and statements of management’s goals and objectives and other similar expressions
concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,”
“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,”
“intends,” “plans,” “believes,” “estimates” and similar expressions, as well as
statements in future tense, identify forward-looking statements.
Forward-looking statements should not be
read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which
such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements
are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties
that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking
statements. Important factors that could cause such differences include, but are not limited to:
|
·
|
|
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
|
|
·
|
|
changes in demand from the clients that we serve;
|
|
·
|
|
general economic conditions, nationally and globally, and their effect on the market for our services;
|
|
·
|
|
fluctuations in our results of operations;
|
|
·
|
|
the possibility that our contracts may be terminated by our clients;
|
|
·
|
|
our ability to win new contracts and renew existing contracts;
|
|
·
|
|
our dependence on a limited number of clients;
|
|
·
|
|
our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies, employees or assets into our business;
|
|
·
|
|
our ability to successfully manage our growth strategy;
|
|
·
|
|
competitive pressures and trends in our industry and our ability to successfully compete with our competitors;
|
|
·
|
|
changes in applicable laws, regulations, or policies;
|
|
·
|
|
the risk of employee misconduct or our failure to comply with laws and regulations;
|
|
·
|
|
our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties;
|
|
·
|
|
control by our principal stockholder and the existence of certain anti-takeover measures in our governing documents;
|
|
|
|
|
|
·
|
|
improper use of our products without payment for their use; and
|
|
|
|
|
|
·
|
|
other factors identified throughout this prospectus, including those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”
|
Forward-looking statements speak only as
of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation
to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements,
no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
USE OF PROCEEDS
The net proceeds from the sale of the Units
offered by us in this offering will be approximately $ million
(or approximately $ million if the underwriters exercise their over-allotment
option in full), assuming a public offering price of $ per Unit, and
after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed
public offering price of $ per Unit would increase or decrease, as
applicable, the aggregate amount of the net proceeds to us by approximately $
million, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and, with
respect to the net proceeds to us, after deducting estimated underwriting discounts and commissions and estimated offering expenses
payable by us. Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease
our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting
discounts and commissions.
We will have broad discretion over the use
of the net proceeds in this offering. As of the date of this prospectus, we cannot specify all of the particular uses for the net
proceeds from this offering. We currently intend to use the net proceeds to us from this offering primarily for general corporate
purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures.
The Company plans to prioritize sales and marketing activities if less than the maximum aggregate proceeds is sold herein and,
in the event that substantially less than the maximum aggregate proceeds is sold herein, we may have to modify the planned expansion
of our sales presence until such time as we have sufficient capital resources to do so.
We will not receive any of the proceeds
from the sale of shares in this offering by the selling stockholders.
Some of the other principal purposes of
this offering are to create a broader public market for our securities, facilitate an orderly distribution of shares for the selling
stockholders and increase our visibility in the marketplace. A public market for our securities will facilitate future access to
public equity markets and enhance our ability to use our securities as a means of attracting and retaining key employees and as
consideration for acquisitions.
The amounts and timing of our actual expenditure,
including expenditure related to sales and marketing activities will depend on numerous factors, including the status of our product
commercialization efforts, our sales and marketing activities, expansion, the amount of cash generated or used by our operations,
competitive pressures and other factors described under “Risk Factors” in this prospectus. We therefore cannot estimate
the amount of net proceeds to be used for the purposes described above. As a result, we may find it necessary or advisable to use
the net proceeds for other purposes. Our management will have broad discretion in the application of the net proceeds, and investors
will be relying on our judgment regarding the application of the net proceeds from this offering.
PRICE
RANGE OF OUR COMMON STOCK
Our common stock is quoted under the symbol
“GBPT” on the OTCQB operated by OTC Markets Group, Inc. The following tables set forth the range of high and low bid
information for our common stock for the each of the periods indicated as reported by the OTCQB. These market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ended December 31, 2019
|
|
Quarter Ended
|
|
|
High $
|
|
|
Low $
|
|
|
June 30, 2019 (through
April 12, 2019)
|
|
|
|
0.55
|
|
|
|
0.24
|
|
|
March 31, 2019
|
|
|
|
0.51
|
|
|
|
0.175
|
|
Fiscal Year Ended December 31, 2018
|
Quarter Ended
|
|
High $
|
|
Low $
|
|
December 31, 2018
|
|
|
|
0.51
|
|
|
|
0.11
|
|
|
September 30,
2018
|
|
|
|
0.45
|
|
|
|
0.16
|
|
|
June 30, 2018
|
|
|
|
0.30
|
|
|
|
0.10
|
|
|
March 31, 2018
|
|
|
|
0.40
|
|
|
|
0.17
|
|
Fiscal Year Ended December 31, 2017
|
Quarter Ended
|
|
High $
|
|
Low $
|
|
December 31, 2017
|
|
|
|
0.35
|
|
|
|
0.15
|
|
|
September 30, 2017
|
|
|
|
0.50
|
|
|
|
0.15
|
|
|
June 30, 2017
|
|
|
|
0.50
|
|
|
|
0.25
|
|
|
March 31, 2017
|
|
|
|
0.78
|
|
|
|
0.25
|
|
On April 11, 2019, the last reported
sale price of our common stock on OTCQB was $0.24.
As of April 12, 2019, there were
326,428,584 shares of common stock outstanding and held of record by 217 stockholders. This number does not include beneficial
owners whose shares are held by nominees in street name.
We have applied to list the Units, Shares
and Warrants on the Nasdaq Capital Market under the symbol “GBPT”, “GBPTU” and “GBPTW”, respectively.
We plan to have the Warrants trade together with the Shares only as Units until _____________ , 201_,
and thereafter we plan for each of the Shares and Warrants to trade separately. However, there is currently no established public
trading market for the Units or the Warrants and our Shares of common stock are currently quoted on the OTCQB. Though we have
applied to list the Units, Shares and Warrants on the Nasdaq Capital Market, in the event we are unable to list said securities,
an active public market may not develop and the liquidity of the Units, Shares an d Warrants may be limited.
DIVIDEND POLICY
We have never declared or paid cash dividends
on our common stock. We do not anticipate declaring or paying any cash dividends on our common stock following our public offering.
The payment of any dividends in the future will be at the discretion of our board of directors and will depend upon our financial
condition, results of operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness, and other
factors deemed relevant by our board of directors. As a result, you will probably need to sell your Units, Shares or Warrants to
realize a return on your investment, and you may not be able to sell such securities at or above the price you paid for them.
CAPITALIZATION
The following table sets forth our cash
and capitalization as of December 31, 2018 on:
|
•
|
|
an as adjusted basis to additionally reflect our receipt of the net proceeds from our sale of Units in this offering at an assumed public offering price of $ per Unit, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
The as adjusted information below is illustrative
only, and our capitalization following the closing of this offering will be adjusted based on the actual public offering price
and other terms of this offering determined at pricing as well as our actual expenses. You should read this table together with
“Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus. The information
provided below is unaudited financial information.
|
|
As of December 31, 2018
|
|
|
|
Actual
|
|
|
As Adjusted(1)
|
|
Cash and Cash Equivalents
|
|
$
|
304,267
|
|
|
$
|
$
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 50,000,000 shares authorized, actual and as adjusted; none issued and outstanding at September 30, 2018, actual and as adjusted
|
|
|
–
|
|
|
|
|
|
Common stock, $0.0001 par value, 450,000,000 shares authorized, actual and as adjusted; 326,428,583
shares issued and outstanding, actual; shares issued and
outstanding, as adjusted
|
|
|
32,643
|
|
|
|
|
|
Treasury stock; none issued and outstanding at December 31, 2018, actual and as adjusted
|
|
|
–
|
|
|
|
|
|
Additional paid-in capital
|
|
|
10,114,075
|
|
|
|
|
|
Accumulated deficit
|
|
|
(4,016,630
|
)
|
|
|
|
|
Total stockholders’ equity attributable to Globe Photos, Inc.
|
|
|
6,130,088
|
|
|
|
|
|
Total capitalization
|
|
$
|
6,130,088
|
|
|
$
|
$
|
|
(1)
|
Each $1.00 increase (decrease) in the assumed public offering price of $ per Unit, would increase (decrease) each of cash, total stockholders’ equity and total capitalization by $ ($ ), assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of in the number of Units offered by us would increase (decrease) the as adjusted amount of each of cash, total stockholders’ equity and total capitalization by approximately $ ($ ), assuming that the public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
|
The number of shares in the table above
excludes:
|
·
|
20,033,333
shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2018, at a weighted
average exercise price of $0.07 per share;
|
|
·
|
8,566,667
unallocated shares of common stock reserved for future issuance under our equity incentive plan as of December 31, 2018;
|
|
·
|
34,407,553
shares of common stock issuable upon the conversion of convertible promissory notes and accrued interest outstanding as of
December 31, 2018 at a conversion price of $0.10 per share.
|
|
·
|
6,500,000
shares of common stock issuable upon the exercise of warrants outstanding as of December
31, 2018, at a weighted average exercise price of $0.10 per share;
|
DILUTION
The difference between the public offering
price per Share, assuming no value is attributed to the Warrants included in the Units we are offering by this prospectus, and
the pro forma net tangible book value per Share after this offering constitutes the dilution to investors in this offering. Such
calculation does not reflect any dilution associated with the sale and exercise of Warrants. Net tangible book value per Share
is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the
value of common stock that may be converted into cash), by the number of outstanding shares of common stock.
As of December 31, 2018, our net
tangible book value was $ million, or $
per share. Net tangible book value per Share represents the amount of our total tangible assets reduced by our total liabilities,
divided by the number of shares of common stock outstanding as of December 31, 2018.
After giving effect to the sale of Units
in the offering at a public offering price of $ per Unit, after deducting
estimated underwriting discounts and commissions and estimated offering expenses, our adjusted net tangible book value as of December
31, 2018 will be $ million, or $
per Share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per Share to new investors purchasing Units in the offering.
The following table illustrates this per
Share dilution:
Assumed public offering price per Unit
|
|
|
|
|
|
$
|
|
|
Net tangible book
value per Share as of December 31, 2018
|
|
$
|
|
|
|
|
|
|
Increase per Share attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per Share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per Share to new investors
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
1
|
|
Our adjusted net tangible book value as
of December 31, 2018 will be $ million, or $
per Share, if the underwriters’ over-allotment option is exercised in full. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders an immediate
dilution of $ per Share to new investors purchasing Units in the offering.
A $
increase or decrease in the assumed public offering price of $ per
Unit would increase or decrease, as applicable, our as adjusted net tangible book value per Share by $
, and increase or decrease, as applicable, the dilution per Share to new investors by $
, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting
the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, any increase or
decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds in proportion to such increase
or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts and commissions and offering
expenses.
The following table sets forth, as of December
31, 2018, on the as adjusted basis described above, the differences between our existing stockholders and new investors with
respect to the total number of Units purchased from us, the total consideration paid, and the average price per Unit paid before
deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed public
offering price of $ per Unit:
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Per Share
|
|
Existing stockholders
|
|
|
326,428,583
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100%
|
|
|
$
|
|
|
|
|
100%
|
|
|
$
|
|
|
A $
increase or decrease in the assumed public offering price of $ per
Unit would increase or decrease, as applicable, total consideration paid by new investors, total consideration paid by all stockholders,
and average price per share paid by all stockholders by $ million,
$ million, and $
, respectively, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same.
Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds
in proportion to such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts
and commissions and offering expenses.
If the underwriters’ over-allotment
option is exercised in full, the number of shares of common stock held by our existing stockholders after this offering would be
, or %, and the number of Shares held by new investors would increase to ,
or %, of the total number of shares of common stock outstanding after this offering.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
related notes that appear elsewhere in this prospectus. In addition to historical financial information, the following discussion
contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed
below and elsewhere in this prospectus, particularly in “Risk Factors” and “Forward-Looking Statements.”
Results of Operations for the Years
Ended December 31, 2018 and 2017
Revenues
Our total revenue reported for the year
ended December 31, 2018 was $3,183,142, compared with $939,252 for the year ended December 31, 2017. The change is primarily a
result the increase in merchandise sales associated with of our acquisition of the Photo File, Inc. (“Photo File”)
in the fourth quarter of 2018.
We have instituted direct-to-consumer marketing
and implemented programs with third-party re-sellers, brick and mortars and online retailers. We have also continued to enhance
and market our licensing division, Globe Photos LLC. Additionally, we have invested considerable time and expense in the development
of software designed to more efficiently process digitized images, and push them through to our retail and licensing channels,
to help scale each division significantly.
Cost of Revenues
Our total cost
of revenues for the year ended December 31, 2018 was $2,605,694, compared with $780,409 for the year ended December 31, 2017.
The change is primarily a result additional royalty and production expenses associated with our acquisition of the assets of Photo
File.
Operating Expenses
Operating expenses increased to $5,487,850
for the year ended December 31, 2018 from $940,514 for the year ended December 31, 2017. The detail by major category is reflected
in the table below.
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Product development, sales and marketing
|
|
$
|
453,364
|
|
|
$
|
317,568
|
|
General and administrative
|
|
|
4,998,506
|
|
|
|
611,403
|
|
Depreciation and amortization expense
|
|
|
35,980
|
|
|
|
61,543
|
|
Gain on sale of property and equipment
|
|
|
–
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
5,487,850
|
|
|
$
|
940,514
|
|
The main reason for the overall increase
in operating expenses for the year ended December 31, 2018 was an increase in general and administrative expenses associated with
the purchase of the Photo File assets.
Product development, sales and marketing
expenses increased by $135,796 for the year ended December 31, 2018. Product development, sales and marketing expenses primarily
consists of website development costs, sales- and marketing-related salaries, as well as other expenses associated with marketing.
We continue to utilize our working capital resources in sales and marketing in order to increase the distribution and demand for
our products and to add content to our product lines along with adding additional channels of distribution.
General and administrative costs increased
by $4,387,103 for the year ended December 31, 2018 primarily due to the additional insurance and salary expenses associated with
the acquisition of Photo File.
Total depreciation expense decreased
by $25,563 for the year ended December 31, 2018. The decrease is the result of assets being fully depreciated during the previous
year ended December 31, 2017.
Gain on sale of property and equipment
decreased by $50,000 for the year ended December 31, 2018 primarily due to the sales of archival assets during 2017. There were
no similar transactions during the year ended December 31, 2018.
Net Loss
We finished the
year ended December 31, 2018 with a loss of $493,975, as compared to a loss of $847,860 during the year ended December 31, 2017,
the decrease in net loss is primarily the result of a bargain purchase gain on the acquisition of Photo File.
Liquidity and Capital Resources
As of December 31, 2018, we had total
current assets of $885,035 and current liabilities of $12,684,120, resulting in a working capital deficit of $11,799,085. This
compares with the working capital deficit of $2,279,685 at December 31, 2017. This increase in working capital deficit, as discussed
in more detail below, is primarily the result of our convertible note offerings and current liabilities assumed in the acquisition
of Photo File.
Our operating activities used $1,034,790
during the year ended December 31, 2018 as compared with $374,271 used in operating activities during the year ended December
31, 2017. Our negative operating cash flow in 2018 was largely the result of additional operating cost associated with the acquisition
of Photo File.
Investing activities used $1,552,425
during the year ended December 31, 2018 compared with $19,149 during the year ended December 31, 2017. Cash used in investing
activities increased as a result of the purchase price paid in connection with our acquisition of assets from Photo File.
Financing activities provided $2,890,185
during the year ended December 31, 2018 compared with $302,385 provided during the year ended December 31, 2017. Our positive
financing cash flow in 2018 was largely the result of our recent offering and sale of convertible notes.
There is no guarantee we will generate
sufficient revenues to continue operations. Our management estimates we will need approximately $10,000,000 in annual revenues
to continue operations at our current operating level, without consideration given to investment in new sales and marketing
channels. For the immediate future we plan to achieve this revenue target by ramping up fees earned from licensing imagery to
media companies growing a network of global sales agents. There is no guarantee that we will generate sufficient revenues to continue
operations. We expect to continue incurring significant operating losses for the near future. If we are not successful in achieving
revenues required to continue operations at our current operating levels within three to four months, or obtaining additional
financing, our operations will be significantly negatively impacted, and we will need to significantly scale back our operations
or liquidate all or a portion of our collections.
We believe that our principal difficulty
in our ability to successfully generate profits has been the lack of available capital to operate and expand our business. We believe
we need a minimum of approximately $6,000,000 in additional working capital to be utilized for key archive acquisitions, inventory
management software, technology development, additional staffing and working capital. As of the date of this report, we have no
commitment from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances
we will obtain such funding in the future. Failure to obtain this additional financing will have a material negative impact on
our ability to generate profits in the future.
Inflation
Although our operations are influenced
by general economic conditions, we do not believe that inflation had a material effect on our results of operations during
the year ended December 31, 2018.
Critical Accounting Polices
In December 2001, the SEC requested that
all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated
that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial
condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed
in Note 2 of our audited consolidated financial statements included in the Form 10-K filed with the SEC.
Off Balance Sheet Arrangements
As of December 31, 2018, there were
no off-balance sheet arrangements.
Recent Accounting Pronouncements
The recent accounting pronouncements that
are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included
herein.
BUSINESS
Overview
The Company was originally incorporated
on September 20, 2004 in the State of Delaware under the name “Blog8.” Since incorporation, we have changed our name
a number of times, having been named “Securiteyes,” “Medify Solutions Limited,” “Petel Incorporated”
and “Gleeworks, Inc.” and “Capital Art, Inc.” 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. As part of
the merger, our board of directors authorized a change in our name from “Capital Art, Inc.” to “Globe Photos,
Inc.” and our Certificate of Incorporation has been amended to reflect this name change.
We are currently engaged in the business
of acquiring, selling, licensing and merchandising classic and contemporary photographic images and reproductions. Over the last
few years, we have been in a developmental phase, focused mostly on acquiring ownership or rights to collections of rare or unpublished
negatives and photographs of iconic celebrity images.
We have been taking advantage of a new market
dynamic, where aging celebrities, retiring photographers, and image rights holders (i.e., family estates) are finally offering
their exclusive photographic collections up for sale. We seized this opportunity to acquire these historic archives over the last
few years, including the acquisition of other companies that have been quietly collecting these rare archives.
We believe we have now assembled one of
largest collections of iconic pop culture imagery photography in the world. It is comprised of more than 15 million images taken
by more than 3,500 photographers from around the world over the last century. It features iconic personalities and seminal moments
from the worlds of entertainment, sports, history and politics. Our branded archives include Frank Worth collection, Movie Star
News, and Globe Photos Agency (from the original Globe Photos founded in 1939).
Archived and stored at our Company’s
secured warehouse, these collections include never before seen negatives, one-of-a kind prints and other memorabilia. They include
rare images of celebrity icons, such as Elvis Presley, James Dean, Marilyn Monroe, Humphry Bogart, Frank Sinatra, the Beatles and
more, as well as many contemporary personalities, performing artists and star athletes.
More recently we have been focused on acquiring
assets that would provide us the ability to sell and merchandise licensed sports photography, as well as an operational platform
for monetizing the photographic assets and associated memorabilia that we have acquired. This effort culminated on October 11,
2018 with the acquisition of substantially all of the assets of Photo File, a 30-year-old New York-based licensed sports photography
company with more than 50 employees engaged in the licensing, production, marketing and sales of sports imagery and related collectibles.
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 NFL, NBA, MLB, and NHL Properties and their respective player associations, as well as most major college sports teams.
We also gained licenses with thousands of individuals and organizations, including Babe Ruth, Joe Namath, Vince Lombardi, Marvel
Entertainment, and others. The acquisition also significantly expanded our collection of company-owned iconic sports photography.
In addition to valuable licenses and photo
assets, the Photo File transaction has provided us access to its well-established sales and marketing organization, and it has
opened new distribution channels for our existing product lines.
We also expect to benefit from Photo File’s
reputation for excellent customer service, as well as its strong ties to its professional and collegiate sports leagues and large
retail customers. This will be important as we further develop relationships with top retail clients and distributors including
Costco, Walmart, Target, Bed Bath and Beyond, USPS, Scheels and others.
Prior to the Photo File transaction, we
had taken preliminary steps to monetize the value of our collection by establishing various sales channels and marketing methodologies.
We have been selling some of our photographic images and reproductions on a limited basis through auctions, third-party galleries,
art consultants, interior decorators, brick and mortar locations, specialty and big box retailers, as well as through various online
outlets, including Amazon and 1stdibs, and directly to end consumers via our Globe Photos website. We have been experimenting with
various ways to reach customers through diverse marketing channels, including our websites, events and interactive campaigns.
In many respects, the Company believes it
has turned the corner with the Photo File transaction, allowing us to emerge from our development stage into a full-scale commercialization
phase and take advantage of the growing market demand for pop culture and sports imagery and related memorabilia.
Our mission is to operate as a global marketplace
for licensed sports and pop culture imagery, which includes both sold physical prints as well as licensed digital photography that
our customers can use in their communications, such as social media, websites, digital and print marketing materials, books and
publications.
Through our online and in-store platforms
and manufacturing processes, consumers are able to customize, personalize, share, print and download licensed prints and physical
products both for personal use and for creating thoughtful and personalized gifts. These may include such photo-based products
as framed photos, canvases, books, calendars, greeting cards, mugs, bags, and apparel. There are numerous ways for our customers
to avail themselves of our vast library of digital images.
As part of increasing our product offerings,
we plan to continue our search for photographic archives that are undervalued by the market. These archives may be acquired outright,
or we may enter into representation or consignment agreements with the owners of the archives. These opportunities are typically
(1) aging photographers who are looking to monetize their archive while still alive via a single large transaction, or (2) media
companies that have aggregated assets (or rights to assets) and are seeking to dispose of the archive or a partner who can help
them grow cash flows related to the archive. These opportunities exist both in the United States and abroad and we continue to
search for value on a global basis.
Our principal place of business is located
at 6445 South Tenaya Way, Suite B-130, Las Vegas, NV 89113. General information about us can be found at www.globephotos.com. The
information contained on or connected to our website is not incorporated by reference into this Prospectus.
Asset Purchase Agreement with Photo File
In 1987, the year it was founded, Photo
File was awarded a license for photography by Major League Baseball and the MLB Players Association, becoming the first company
to be given a license for photography by any major sport in the United States. Photo File is also licensed by thousands of individuals
and organizations, including Muhammad Ali, Babe Ruth, Joe Namath, Vince Lombardi, and Marvel Entertainment. Photo File had become
one of the nation’s leading manufacturers of sports photography, with licenses from the NFL, MLB, NBA, NHL, Collegiate Licensing
Company (CLC), and their respective player associations.
Besides photos in sizes up to 30"x40",
Photo File offered a full range of framed and matted products, plaques, photo sculptures, ceramics tiles, key chains and event
covers. Photo File also produced a line of licensed Framed Gold Records featuring top recording artists, including Elvis Presley,
KISS and many others.
At the time of the asset purchase by Globe
Photos, Photo File employed 54 people, including its owners. The staff was comprised of 51 full-time and three part-time employees.
Photo File’s 43,000 square foot facility, located in Mount Kisco, NY, included a printing lab, a graphics department, framing
operation and sales and marketing divisions.
On October 11, 2018, the Company entered
into an Asset Purchase Agreement (the “Purchase Agreement”) with Photo File, along with its related company Sportphotos.com
(collectively, the “Seller”) and Charles Singer, its CEO and principal stockholder, to acquire the assets of the 30-year-old
private New York-based company.
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 Sportophotos.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 due was recorded as a payable to Photo file, Inc. as of December 31, 2018 in the consolidated balance sheet.
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 has the 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 will 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.
Assets acquired in the Photo File transaction
included more than 1 million sports negatives, 1,000+ autographed lithographs and memorabilia, as well as printing and packaging
equipment. Per the terms of the Purchase Agreement, we have created a new Nevada subsidiary called Photo File, LLC to hold the
assets we have acquired from Photo File.
Post-Acquisition Plans
We see Photo File as a classic turnaround
situation, with present annual revenues of approximately $7 million and losses of approximately $1 million, but at one time having
generated more than $20 million in annual revenues. Currently, of the approximately $7 million in revenue, only about 8% is generated
online. We believe this represents a substantial opportunity to leverage the latest advances in e-Commerce technology and services
to grow sales. Through our experience and our review of successful models of other major sports retailers, we determined that more
than 80% of the business revenue should be generated by online, print-on-demand or direct-to-consumer sales.
We are also currently executing a plan to
right size the organization and move forward efficiently and effectively. In conjunction with this analysis, we have evaluated
areas and processes such as printing, production and fulfillment to reduce inefficiencies and further reduce overhead, along with
expanding capacities. This review and integration will take place over a measured period as to not disrupt current operations and
production. We have identified several viable options to outsource printing and grow the business by including individuals and
companies currently working within the industry.
We believe the inclusion of a sports channel
is complementary to our existing business and allows us to piggy back the photo assets of Globe Photos onto Photo File’s
existing clients and retail opportunities. We plan to leverage the long-term distributor relationships Photo File has developed
over the last 30 years to increase the sales of our existing Globe Photo library.
Business Strategy
We expect to become a major provider of
licensed products and services by using a combination of traditional methods and merchandizing, along with innovative new approaches.
Traditional methods, such as licensing, online downloads and subscriptions, and manufacturing and selling framed products, have
built billion-dollar photo-based enterprises like Getty Images, Shutterstock and Shutterfly. However, with the aspiration to become
the leader in our space, we are also developing new sales and marketing concepts that we believe will change the way people purchase
images across online and retail channels. We expect our growth to be driven several initiatives:
|
§
|
Develop our customer base:
We plan to expand our customer base and promote our Globe Photos brand by leveraging our existing channels. This includes word-of-mouth referrals from customers, auctions, catalogs, online advertising and direct marketing that will continue to expand our customer reach. We plan to leverage the latest methods and technologies in social media and eCommerce marketing, including A.I. (artificial intelligence) to build out our customer database with valuable demographic and customer preference information in order to enhance our customer experience and increase sales.
|
|
§
|
Expand products and services offerings:
We plan to innovate as a way to increase the breadth and value proposition of our products and services. We will continually explore new marketing possibilities, and have a number of programs at various stages of development. These programs are based on the strategy of leveraging industry partners and technology to lower or eliminate capital requirement for deployment and ongoing program management.
|
|
§
|
Increase sales to existing customers:
We intend to increase both average order size and repeat orders per customer by expanding our products and services, tailoring our offerings to encourage additional purchases for different use occasions, and increasing our cross-selling and up-selling activities.
|
|
§
|
Growth through acquisitions:
We will continue to consider strategic business or asset acquisitions that will help us secure additional photographic assets, products, market share, talent, and revenue. We continue to seek photographic archives that are undervalued, to purchase them or secure rights to these archives through representation or consignment agreements with the owners.
|
|
§
|
Expand our sports licenses.
We are looking to expand our sports licenses to include more products related to the core licenses we currently have with the NFL, NBA, MLB and NHL, as well as to expand our licensing relationships with additional major college teams and other sports organizations. We expect sales of products generated by the sport licensing part of our business, particularly with the launch of new sales and marketing concepts, to grow the fastest.
|
|
§
|
Expand upon and leverage partnerships:
We plan to expand upon and leverage our retail and distribution partners that include Costco, Walmart, Bed Bath & Beyond and CVS. We also plan to increase our sales presence on Amazon and 1stdibs. We expect to expand upon our licensing partnerships with Wendover Art Group, Zuma Press, Artspace, Fanatics, PersonalizationMall.com and others.
|
Sales, Marketing and Distribution
Our photographic assets and licenses are
delivered or manufactured in a variety of physical and digital formats that can be sold through several different distribution
channels and markets. This creates numerous potential revenue streams.
We sell photographs in the form of open
edition or fine art prints. In some instances, prints can be paired with other memorabilia to create unique collectibles, such
as photo footballs, original concert tickets, and autographed items.
Since we own many original prints and negatives,
these prints can be also be paired with memorabilia or sold separately as collectibles after we digitize the original print or
negative. We retain the exclusive copyright to the image, so we can then resell the digitalized image in different formats and
sizes, and at different price-points, from digital download and postcard collectibles, to open edition prints and large-format
fine art framed limited editions. We are not aware of any other pubic company that has as many original-source photo assets as
Globe Photos.
To address opportunities created by the
many varieties of products and distribution channels, we plan to expand our in-house sales staff as we scale up our commercialization
efforts. Currently, approximately 90% of our licensed sports business is through major big-box and specialty retailers. We also
reach customers through diverse marketing channels, including our website, events and interactive campaigns. Our marketing activities
aim to build awareness for our brands and drive revenue by promoting both existing and newly-acquired images in our collection.
We are currently completing the development
of a new robust enterprise web platform that will support the automation of product personalization and expand our online reach.
We anticipate that a direct-to-consumer and print-on-demand approach will enable us to rapidly and efficiently scale our business
while avoiding the costly investment and charges typically associated with the procurement and management of inventory and traditional
manufacturing.
We plan to continue to implement marketing
programs, although on a larger scale, designed to target non-traditional retail outlets, as well as the interior design, fund-raising
and hospitality industries. We are also in discussions with several independent sales representatives to market the Company’s
products to these market segments on a commission basis.
We also expect to continue to sell our pop
culture photographic images and reproductions through auctions, third-party galleries, art consultants, interior decorators and
directly to consumers. We will reproduce large quantities of different photographs from our collection, which may be sold through
third party on-line retailers.
Our Globe Photos’ licensing division
currently services more than 2,500 global clients, including every major news organization in the world, production companies,
publishing houses and more. We have recently begun testing an online direct-to-consumer digital subscription model designed to
license individual images for use in personal documents, prints, screen savers, and other uses.
We expect to generate significant growth
over the next several years through interactive sales and marketing campaigns conducted in partnership with big-box and online
retailers, including Wal-Mart, Costco and Fanatics, as well as fine art websites like 1stdibs.com, particularly as we take advantage
of new sport photo licenses we acquired from Photo File. In fact, we anticipate the sport imagery aspect of our business will be
the fastest growing area for us for the foreseeable future.
We plan to continue to pursue opportunities
that can to diversify revenues, such as developing additional websites for retail clients to purchase our prints and also as a
portal for interior decorators, and a new store-with-a-store gallery concept in New York City, New York and Santa Monica, California.
We are also developing an immersive interactive
retail experience in partnership with a well-established industry player that is designed to require significantly small capital
expenditure by Globe Photos, as our part will require use of our existing licenses, and overseeing fulfillment by outsourcing manufacturing,
fulfillment and customer service. We expect this program to also provide the opportunity for customer acquisition at minimal to
no cost, after which we can then remarket to them other products and services via our other channels, such as online.
Licenses
Our major sports licenses include NFL Properties,
NFL Players Association, MLB Properties, MLB Players Association, NHL Properties, NHL Players Association, NBA Properties, and
NBA Players Association, which comprise over 1,000 individual licenses to produce officially licensed sports prints, canvas, memorabilia
and other related items.
In 2017, the Company entered into a licensing
arrangement with Authentic Brands Group to license our images of Muhammad Ali, Marilyn Monroe, and Elvis Presley, incorporating
their respective signatures and iconic sayings onto the images, as “Officially Licensed Products.”
Intangible Assets; Photographic Image
and Memorabilia Archive
We believe we have now assembled one of
largest collections of iconic pop culture imagery photography in the world. It is comprised of more than 15 million images taken
by more than 3,500 photographers from around the world over the last century. It features iconic personalities and seminal moments
from the worlds of entertainment, sports, history and politics. Our branded archives include Frank Worth collection, Movie Star
News, and Globe Photos Agency (from the original Globe Photos founded in 1939).
Archived and stored at our Company’s
secured warehouse, these collections include never before seen negatives, one-of-a kind prints and other memorabilia. They include
rare images of celebrity icons, such as Elvis Presley, James Dean, Marilyn Monroe, Humphry Bogart, Frank Sinatra, the Beatles and
more, as well as many contemporary personalities, performing artists and star athletes. The collection features iconic personalities
and unforgettable moments from the worlds of entertainment, sports, history and politics.
We have been taking advantage of a new market
dynamic, where aging celebrities, retiring photographers, and image rights holders (i.e., family estates) are finally offering
their exclusive photographic collections up for sale. We seized this opportunity to acquire these historic archives over the last
few years, including the acquisition of other companies that have been quietly collecting these rare archives.
The Company’s new Photo File division
currently holds licenses with the NFL, NBA, MLB, NHL, and major colleges including Alabama, Clemson, Ohio State and others, to
produce sports prints, lithographs and other related items. Photo File also holds licenses for thousands of additional individuals
and organizations, including Babe Ruth, Joe Namath, Vince Lombardi, and others.
The Company regards its archival images
and related proprietary rights as valuable intangible assets. The Company, with the assistance of Corporate Valuation Advisors,
Inc. (CVA), an independent appraiser, undertook an estimate of the value of the Company’s intangible assets.
The Company engaged CVA to value the identifiable
assets acquired in the acquisition of Photo File in accordance with ASC 805, and separately from Globe Photo’s existing intangible
assets, in order to assist with the accounting treatment for the combined entities.
The valuation of Photo File’s
identifiable assets included memorabilia of $3.6 million, copyrighted image library of $4.1 million, tradename of $0.340 million,
and other intangible assets including license agreements, customer relationships, and non-competes of $11.42 million. Altogether,
CVA determined a total estimated value of the assets acquired in the acquisition of Photo File to be approximately $19.46 million.
In addition, the Company wanted to get
an independent analysis of Globe Photo’s existing assets that are comprised of copyrights for use in licensing and
image sales. CVA’s valuation of Globe Photo’s existing assets indicated a fair market value of $24.1 million.
CVA applied a discount rate to this amount to arrive at $18.2 million as an orderly liquidation value of these copyrights.
The aggregate of both segments of the
business represents an estimated $37.66 million to $43.56 million in asset value, which the Company intends to exploit for
growth as part of its business model.
Industry Overview
According to
IBISWorld Industry Report
OD5070 Online Art Sales in the U.S
., IBISWorld estimated that over the next five years industry revenue will grow at an annualized
rate of 3.5% to $597.2 million. The report points out how growth in macroeconomic conditions and the increased number of broadband
connections have been the primary drivers of industry expansion over the last five years. Rapidly changing technology and the increasing
acceptance of e-Commerce have shaped the online art sales industry over the last five years. IBISWorld projects the online art
sales industry will continue to grow at an annualized rate of 3.2% over the next five years reflecting a slower rate of growth
as the industry becomes more saturated and matures.
The art industry is subject to the same
general economic conditions affecting the marketplace for branded products. When the economy is good, discretionary consumer spending
increases. In economic downturns, consumers have less discretionary income and purchases of art products tends to decline.
Analysts at Technavio, a global technology
research and advisory firm, forecast the global still images market at $4.46 billion by 2021, growing at a compound annual growth
rate (“CAGR”) of close to 8% over the forecast period. The Americas is the leading regional segment of the market,
responsible for generating the high revenue and incremental growth over the forecast period. The top three emerging trends driving
the global still images market, according to Technavio’s consumer and retail research analysts are: 1) growth of microstock
images; 2) increased demand for authenticity; and 3) growing popularity of premium still images with brand managers and publishers
looking for images that are unique, culturally relevant, and provide fresh perspectives.
Technavio also expects the global market
for personalized gifts will reach $31.63 billion by 2021, growing at a CAGR of more than 9%. Technavio analysts highlight the following
three key factors that are contributing to the growth of the global personalized gifts market: 1) growing gifting culture and increasing
demand for seasonal decorations; 2) innovative gifting solutions and advancements in technology; and 3) expanding online retail,
kiosks, and online distribution channels. Technavio notes that gifting culture is evolving with an increasing number of occasions
when gifts are exchanged. Consumers are looking to customize their gifts through personalization, configuration, or on-demand printing
to add value and make their gifts unique. We have taken note of these trends, particularly personalization, and are currently designing
innovative new programs designed to take advantage of them.
The recent acquisition of a controlling
interest in Getty Images, Inc. by the Getty family from the Carlyle Group in a deal which reportedly values Getty Images at approximately
$3 billion suggests an active market exists for copyrighted photographic libraries.
The U.S. sports memorabilia market is estimated
at $5.4 billion annually, according to Collectible.com. This estimate considers the total gross merchandise volume from eBay, independent
auction houses, online retail venues and other sources. According to Zion Market Research, the global licensed sports merchandise
market was valued at approximately $31.3 billion in 2017 and is expected to reach approximately $48.7 billion by 2024, growing
at a CAGR of about 6.7% from 2018 to 2024. Zion reports that sports licensing is one of the fastest growing categories worldwide,
and it states that the rise in the number of sports leagues may help growth in licensed sports merchandise industry.
Furthermore, an article published in Fortune
magazine on September 1, 2018 estimates the size of the U.S. sports licensed apparel market at approximately $7.8 billion per year,
growing at a rate of 3% per year. Fanatics, Inc., an online retailer of licensed sportswear and merchandise, is believed to have
grown from approximately $250 million in revenues in 2010 to an expected $2.3 billion in 2018. Fortune views the sports merchandise
market as “ripe for e-commerce.” In the article, an analyst for IBISWorld claims that online sales of sports merchandise
has grown from 1% of sales to 20% of sales over the past decade alone.
Competition
Most of our competitors have substantially
greater financial, technical and human resources than we have. The market for iconic photographic images and related services is
highly competitive. We believe that the principal competitive factors include our licenses, name recognition, company reputation,
the quality, relevance and breadth of the content in a company’s collections, and the quality of contributing photographers
and other partners under contract with a company. Additionally, we also face competition in connection with factors relating to
the business and our infrastructure such as effective use of current and emerging technology, customer service and customer relationships,
pricing and licensing models, policies and practices and accessibility of content and speed and ease of search and fulfillment.
Some of our current and potential significant
competitors include other general visual content providers such as Getty and Shutterstock, and photo personalization providers
like ShutterFly. We believe that we can be highly competitive with these companies because we own many of our photographic original
prints and negatives, and therefore do not have to split sales proceeds with photographers who own intellectual property right
which is a typical industry standard. Our competitors in this area could also potentially become license clients or partners, as
they look to access the many unique images in our library.
We also face significant competition from
specialized visual content companies that are well established in their local, content or product-specific market segments such
as Reuters Group, the Associated Press, and ZUMA Press, Inc. There are also thousands of small photography agencies, image content
aggregators and individual photographers throughout the world with whom we compete. Our Globe Photos’ licensing division
is small in relation to these larger firms, but our photo assets have unique historical value with a name representing one of the
nation’s first pop culture-licensing agencies founded in 1939. As a result, our licensing division services over 2,500 global
clients, including every major news organization in the world, production companies, publishing houses and more.
Our competition also includes retail photography
galleries and websites selling photography such as Art.com, Artspace.com and Rockpaperphoto.com. However, in some instances we
have or can partner with these online sellers to also sell our products.
Intellectual Property
Much of our collection of iconic photographic
images was acquired and are owned by us. A small percentage of the images in our collection are obtained through reproduction or
licensing agreements, wherein we pay a royalty based on the percentage of revenues we receive from the use of the licensed images.
As such, currently such agreements are limited and not material.
To this end, we have been and continue to
search for photographic archives. We believe that these archives can be monetized multiple ways, through our collectibles, licensing
and retail divisions, depending upon the structure and content of each archive. These archives may be acquired outright, or we
may enter into representation or consignment agreements with the owners of the archives. These opportunities are typically (1)
aging photographers who are looking to monetize their archive while still alive via a single large transaction, or (2) media companies
that have aggregated assets (or rights to assets) and are seeking to dispose of the archive or a partner who can help them grow
cash flows related to the archive. These opportunities exist both in the United States and abroad and we continue to search for
value on a global basis.
Our management believes that the market
is significantly undervaluing physical photographic assets for both individual photographers seeking to monetize their collections
and media companies seeking to dispose of their archives because of the investment required to digitize and then monetize them.
We have created an infrastructure and workflow process in order to digitize these assets at a low cost, which we believe gives
us a competitive advantage for purchasing from all sources.
We utilize the following criteria when evaluating
archives:
|
§
|
The age of the archives;
|
|
§
|
How/if the archive is organized;
|
|
§
|
The type of media in the archive;
|
|
§
|
The subject matter of the archive;
|
|
§
|
The rarity of the subject matter;
|
|
§
|
The photographer(s) represented in the archive; and
|
|
§
|
The nature and the strength of the intellectual property rights associated with the archive.
|
Based on these factors, single photographer
archives are desirable because copyrights are most commonly owned by the person who photographed an image. We can market and build
the reputation of the photographer to enhance the value of the archive. In addition, we believe we can better control the market
for the works of individual photographers. Reproduction and licensing agreements are often more desirable because they typically
require low or no upfront cash commitments. In these agreements, content providers are usually paid mostly through royalties on
sales. Owning copyright or having rights to copyrights significantly impact our gross margins. On the other hand, purchasing copyrights
outright while reducing cash, increases intangible assets and generates higher gross margins. Reproduction and licensing agreements
do not significantly impact our balance sheet but generate lower gross margins.
Our ability to acquire such depository is
dependent on our ability to raise additional capital in order to have funds to make such acquisitions.
Employees
As of April 12, 2019, we had approximately
48 employees. We also utilize consultants on an as-needed basis. None of our employees are members of any union. We believe our
relationship with those employees is excellent. With the acquisition of the assets of Photo File, we acquired 45 employees (which
number is included in the figure above). There will be an integration period over the coming months that will include employee
retraining, and we anticipate an adjustment in the number of employees to “right size” the company in preparation
for our next growth phase.
Government Regulations
We are subject to certain regulations as
it relates to the Internet, data privacy and security. See “Risk Factors” for more information.
Facilities
Our principal executive office
and headquarters is located at 6445 South Tenaya Way, B-130, Las Vegas, Nevada 89113 where we lease 4,606 square feet of commercial
space for a monthly rental payment of $3,270 per month effective October 10, 2014. The lease expires on October 10, 2019. We also
lease storage space locally to house art and photography stock. Our printing, framing, packing and shipping facilities are provided
by third-parties. We also rent storage space on a month-to month basis in Brooklyn, NY, at a cost of $325 per month. This storage
space has been historically used by our existing Globe Photos business operations.
As part of our acquisition
of substantially all of the assets of Photo File, while we did not assume the lease, we did assume its existing lease payments
as follows: we will pay 50% of the lease payments through December 31, 2018, or until such earlier date as the lease may be
terminated. Photo File's 43,000 square foot leased facility, located in Mount Kisco, NY, includes a state-of-the-art digital photographic
printing lab and a complete framing operation. On January 30, 2007, Photo File signed a twelve year and nine-month lease, expiring
on March 1, 2020, for approximately 43,000 square feet of office and warehouse space with rent starting at $41,988 per month with
annual increases of 2% per year.
Legal Proceedings
We are not party to and none of our property
is the subject of any outstanding litigation, nor have we received notice of any pending action to be filed against us or any of
our property. From time to time, we may be a party to legal proceedings and subject to claims incident in the ordinary course of
business. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of
such matters would not have a material adverse effect on our financial condition or business. Regardless of the outcome, litigation
can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names,
ages, and positions of our executive officers and directors as of April 30, 2019. There are no arrangements or understandings
between any director and any other person pursuant to which any director or executive officer was or is to be selected as a director
or executive officer, as applicable. There currently are no legal proceedings and during the past ten years there have been no
legal proceedings that are material to the evaluation of the ability or integrity of any of our executive officers or directors.
Name
|
|
Age
|
|
Position(s)
|
|
Stuart Scheinman
|
|
53
|
|
President, Chief Executive Officer, Principal Executive Officer and Director
|
Scott C. Black
|
|
66
|
|
Secretary, Chief Legal Officer and Director
|
Tucker DiEdwardo
|
|
71
|
|
Chief Operating Officer
|
Evan Bedell
|
|
56
|
|
Chief Financial Officer, Principal
Financial Officer and Principal Accounting Officer
|
Sam D. Battistone
|
|
79
|
|
Chairman of the Board of Directors
|
Jerry Nadal(1)(2)
|
|
59
|
|
Director
|
Barbara D’Amato(1)(2)(3)
|
|
48
|
|
Director
|
Luisa Ingargiola(1)(3)
|
|
51
|
|
Director
|
George Smith(2)(3)
|
|
61
|
|
Director
|
|
|
|
|
|
|
|
|
(1)
|
Member of the Nominating and Corporate Governance Committee.
|
(2)
|
Member of the Compensation Committee.
|
(3)
|
Member of the Audit Committee.
|
Executive Officers
Stuart Scheinman
was appointed as
our CEO, President and a director on December 27, 2016. Mr. Scheinman and Mr. Battistone served as Co-CEO’s until November
1, 2018. Mr. Scheinman previously served as president of Movie Star News, Inc., Las Vegas, NV, a privately-held company engaged
in the sale of classic and vintage Hollywood photographs, until we acquired this company in October 2014. Earlier, he was president
and founder of Animaland, an interactive toy manufacturing company from December 2003 to September 2012. The interactive store
within a store experience grew to over 500 locations worldwide. For over two decades Mr. Scheinman has been involved with sports
and entertainment marketing, developing licensed products for the NBA, NHL and most major Football Clubs in Europe, and working
with 200 major athletes worldwide. Mr. Scheinman received a Bachelor of Arts degree from Long Island University in 1987. Mr. Scheinman
is qualified to serve on our board of directors because of his sales, marketing and business development experience.
Scott C. Black
, Lieutenant General
US Army (Ret.), was appointed as our Secretary, CFO, in-house counsel and a director on December 27, 2016. On November 1, 2018,
he was formally appointed as our Chief Legal Officer and resigned as our Chief Financial Officer. Mr. Black previously served as
CFO of Movie Star News, Inc., Las Vegas, NV, a privately-held company engaged in the sale of classic and vintage Hollywood photographs,
until we acquired this company in October 2014. From November 2009 through August 2012, he was vice president and general manager
of BAE Systems, Inc., where he supervised and managed the Global Mission Solutions business unit with more than $300 million in
annual revenue. He joined BAE Systems after retiring from the U.S. Army where he had a distinguished 35-year career of service,
rising to serve as the Army’s judge advocate general. As the Judge Advocate General of the U.S. Army, Mr. Black directed
a legal services organization of more than 10,000 lawyers and paralegals, both soldiers and civilians, who were deployed around
the world in 650 offices in 19 countries, including Iraq and Afghanistan. He served as the legal advisor to the Secretary of the
Army, the Army Chief of Staff, and all Army Staff principals. He was also responsible for all Military Justice operations, the
legal support for contracting, ethics, and environmental programs, and for supervising the training and deployment of Rule of Law
and Governance Advisors around the world. Previously, he served as Commanding General and Commandant of the Judge Advocate General's
Legal Center and School in Charlottesville, Virginia, and as the Assistant Judge Advocate General for Military Law and Operations
in the Pentagon. His past positions include Chief Counsel for the Secretary of the Army’s Congressional Liaison Office, Staff
Judge Advocate (General Counsel) for the Army’s Fifth Corps in Germany, and Assistant Counsel to the President in the White
House. Mr. Black received a bachelor’s degree in political science from California Polytechnic State University in 1974 and
a Juris Doctor from the California Western School of Law in 1980. He also holds a Master’s Degree in National Resource Strategy
from the Industrial College of the Armed Forces, National Defense University. His awards include the Distinguished Service Medal,
the Legion of Merit with Oak Leaf Cluster, and the Meritorious Service Medal with four Oak Leaf Clusters. He is also entitled to
wear the Parachutist Badge, the Ranger Tab, and the Army Staff Identification Badge. Mr. Black is qualified to serve on our board
of directors because of his sales, marketing and business development experience.
Tucker DiEdwardo
has served as our
Chief Operating Officer since November 15, 2018. Prior to his appointment as our COO, Mr. DiEdwardo has owned TD Ventures, LLC,
a special events and entertainment marketing company. From 2005 to 2013, Mr. DiEdwardo worked as president of LVI Global, LLC,
an internationally recognized leader in postgraduate live-patient dental education, with over 9,500 alumni from 46 countries. Mr.
DiEdwardo holds both Bachelor and Master of Science/Education degrees from Southern Connecticut State University.
Evan Bedell
was appointed as
our Chief Financial Officer on April 29, 2019. Mr. Bedell was previously CEO of View Capital, a business development and capital
markets advisory focused on financial technology which he founded in 2008. From 2002-2008, he was co-founder and chief operating
officer of Silver Pacific Advisors, a boutique investment bank where he oversaw $2 billion in capital formation and M&A. From
1997-2002, he served as vice president for the investment banking division of Lehman Brothers, executing on more than $9 billion
in securities and M&A transactions. Earlier in his career, Mr. Bedell was a global manager at KPMG Consulting, and served
as an associate at the commercial real estate services and investment firm, CBRE Group. He received his Master of Business Administration
from the UCLA Anderson School of Management and Bachelor of Arts from the University of California Santa Barbara, and holds a
Chartered Financial Analyst (CFA) designation.
Board of Directors
Sam D. Battistone
was appointed as
the Chairman of our board of directors on December 27, 2016. He previously served as Co-CEO with Mr. Scheinman from December 27,
2016 to November 1, 2018. Mr. Battistone is the Founder, Chairman and CEO of Dreamstar, a Nevada corporation. He was the Founder
and Chairman of Dreams, Inc., a public company traded on the New York Stock Exchange and Field of Dreams, a national chain of sports
and celebrity retail stores. Dreams, Inc. was ultimately purchased by Fanatics, Inc. He was the Principal Owner and Founder of
the Utah Jazz (formerly New Orleans Jazz) National Basketball Association team, and served as Chairman, President and Governor
of the team from 1974 to 1986. He was appointed by the Commissioner of the NBA as a member of the Advisory Committee of the Board
of Governors of the NBA. He was a founding Director of Sambo's Restaurants, Inc. and served in the positions of President, CEO
and Chairman of the Board during the years of 1967 to 1979. He directed the efforts of Sambo's Initial Public Offering in 1969
and the move to the New York Stock Exchange. During that period, Sambo's grew from a regional operation of 59 units to a chain
of over 1100 restaurants nationwide. He also was a member of the board of directors of the National Restaurant Association. Mr.
Battistone is qualified to serve on our board of directors because of his sales, marketing and business development experience.
Barbara D’Amato
has served
on our board of directors since March 10, 2019. Ms. D’Amato is a highly accomplished global deal maker, career banker, financier
and operator with 25+ years of experience with a prominent ability to drive rapid growth and value creation through operational
leadership, leveraging the power of strategic partnerships, financial and strategic professional and capital markets networks
in the US and globally. From 2004 to 2018, Ms. D’Amato was the Founder and CEO of Trilogy Brands Group, a brand development
licensing and franchising international growth firm in the retail industry, and Trilogy Capital Corp., an international advisory
firm specializing in growth capital and project development to middle market and large companies. Prior to Trilogy, Ms. D’Amato
served as Senior Relationship Manager and Team Leader, Vice President and Chief Risk Officer for Global Multinational Banks such
as BNP Paribas US and Global Banking, a $2.5 trillion in assets and a presence in over 75 countries, and Bank of America’s
Global Capital Markets Group among the top 10 largest banks in the world. She currently serves as an Advisor to the Board of Directors
of TriLinc Global a leading $1.1 billion global private debt alternative investment fund whose strategy is to generate attractive
financial returns and meet the sustainable investment needs of investors by achieving global social, economic and environmental
impact worldwide. Ms. D’Amato obtained her bachelor’s degree in International Business from California State University
Pomona, and post-graduate degree from Harvard Business School. Ms. D’Amato’s extensive investment and international
markets experience, as well as her independence, judgment and exceptional leadership experience makes her a valuable addition
to the Board.
Jerry Nadal
has served on our board
of directors since November 20, 2018. Mr. Nadal brings more than 30 years of experience in the entertainment industry to our board
of directors, specializing in the production of live performances. He currently serves as senior vice president of the resident
shows division of Cirque du Soleil, where he is responsible for all six ongoing Las Vegas shows and others in several cities worldwide
involving more than 2,000 performers from over 40 countries. His operational responsibilities also include supervising the Cirque
du Soleil sales and marketing team that oversees $500 million in annual revenues, and managing Cirque du Soleil’s operating
partnerships with Disney, Universal, MGM Resorts International, Treasure Island Hotel & Casino, Stage Entertainment, Michael
Jackson Estate, and Apple Records. Mr. Nadal is qualified to serve on our board of directors because of his entertainment industry
experience.
Luisa Ingargiola
has served as a
member of our board of directors since December 27, 2018. From 2017 to present, Ms. Ingargiola serves as Chief Financial Officer
of Avalon GloboCare. From 2007 to 2016, Ms. Ingargiola served as Chief Financial Officer of MagneGas Corporation (and board member
from 2016 to June 2018). Ms. Ingargiola currently serves as board member and audit committee chair of FTE Networks and ElectraMeccanica.
She also serves as board member for Operation Transition Assistance Corporation and The JBF Foundation Worldwide. Ms. Ingargiola
received her Bachelors of Science from Boston University and her Masters of Business Administration from the University of Florida.
Ms. Ingargiola’s public company reporting and accounting experience make her well qualified for service as a member of our
board of directors.
George Smith
was appointed as a member
of our board of directors on December 27, 2018. Mr. Smith has been in the entertainment and amusement business for more than thirty
years. During his industry tenure he has been involved in all facets of facilities operations and management. Currently, Mr. Smith
is President/COO of Family Entertainment Group/Skymart and Chief Operating Officer of IVC Interactive Vending Corporation. In 2014,
Mr. Smith was Co-Founder of Face to Face Entertainment Conferences F2FEC (conferences aimed at the owners and senior management
of the top FEC’s and parks in the industry). Mr. Smith received his B.S.B.A from Clark University. Mr. Smith’s entertainment
industry experience makes him qualified to serve as a member of our board of directors.
Family Relationships
There are no family relationships between
or among the directors, executive officers, or persons nominated or chosen by us to become directors or executive officers.
Terms of Office
Our Directors are appointed for a one-year
term to hold office until the next annual meeting of our stockholders or until removed from office in accordance with our bylaws.
Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment
agreements.
Other Directorships
Other than as disclosed above, during the
last 5 years, none of our directors held any other directorships in any company with a class of securities registered pursuant
to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment
company under the Investment Company Act of 1940.
Board
of Directors Composition
Director Independence
Our board of directors consists of seven
members. Our board of directors has determined that Barbara D’Amato, Luisa Ingargiola, Jerry Nadal and George Smith
are all independent directors in accordance with the listing requirements of the Nasdaq Capital Market. The Nasdaq independence
definition includes a series of objective tests, including that the director is not, and has not been for at least three years,
one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings
with us. In addition, as required by Nasdaq rules, our board of directors has made a subjective determination as to each independent
director that no relationships exist, which, in the opinion of our board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and
discussed information provided by the directors and us with regard to each director’s business and personal activities and
relationships as they may relate to us and our management.
Role of Board in Risk Oversight
Process
Our board of directors has responsibility
for the oversight of the Company’s risk management processes and, either as a whole or through its committees, regularly
discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them.
The risk oversight process includes receiving regular reports from board committees and members of senior management to enable
our board of directors to understand the Company’s risk identification, risk management and risk mitigation strategies with
respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.
The audit committee reviews information
regarding liquidity and operations, and oversees our management of financial risks. Periodically, the audit committee reviews our
policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee
includes direct communication with our external auditors, and discussions with management regarding significant risk exposures
and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for
assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. While each
committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors
is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board
of directors as a whole.
Board of Directors and Stockholder
Meetings and Attendance
During fiscal year 2018, there were four
formal Board meetings. None of our directors attended fewer than 75% of the total number of meetings of the Board. The Company
encourages, but does not require, directors to attend annual meetings of stockholders. The Company did not hold an annual meeting
of stockholders during fiscal year 2018.
Board
Committees and Independence
Our
board of directors
has established an audit committee, a compensation committee and
a nominating and governance committee. The composition and responsibilities of each committee are described below. Members serve
on these committees until their resignations or until otherwise determined by the board of directors. The committees were established
on December 28, 2018 and, as such, no committee meetings were held during the last fiscal year.
Audit
Committee
.
Our audit committee oversees the integrity of our accounting and financial reporting process and
the audits of our financial statements. Among other matters, the audit committee is directly responsible for: the selection, compensation,
retention and oversight of our independent registered public accounting firm; reviewing our independent registered public accounting
firm’s continuing independence; approving the fees and other compensation to be paid to our independent registered public
accounting firm; pre-approving all audit and non-audit related services provided by our independent registered public accounting
firm; reviewing and discussing with management and our independent registered public accounting firm the results of the quarterly
and annual financial statements; reviewing and discussing with management and our independent registered public accounting firm
our selection, application and disclosure of our critical accounting policies; discussing with our independent registered public
accounting firm both privately and with management the adequacy of our accounting and financial reporting processes and systems
of
internal control; reviewing any significant deficiencies and material weaknesses in the design or operation over internal
control over financial reporting; and annually reviewing and evaluating the composition and performance of the audit committee,
including the adequacy of the audit committee charter.
The
current members of our audit committee are Luisa Ingargiola, who is the chair of the audit committee, Barbara D’Amato,
and George Smith. We believe that each member of our audit committee meets the requirements for independence and financial
literacy under the applicable rules and regulations of the SEC and the Nasdaq Capital Market. Ms. Ingargiola qualifies as an
“audit committee financial expert,” as defined under applicable SEC rules. The audit committee operates under
a written charter that satisfies the applicable standards of the SEC and the Nasdaq Capital Market.
Compensation
Committee
.
Our compensation committee evaluates, recommends and approves policy relating to compensation and
benefits of our officers and employees. Among other matters, the compensation committee is responsible for annually reviewing and
approving corporate goals and objectives relevant to the compensation of our chief executive officer and other executive officers;
evaluating the performance of these officers in light of those goals and objectives and setting the compensation of these officers
based on such evaluations; administering and interpreting our cash and equity-based compensation plans; annually reviewing and
making recommendations to the board of directors with respect to all cash and equity-based incentive compensation plans and arrangements;
and annually reviewing and evaluating the composition and performance of the compensation committee, including the adequacy of
the compensation committee charter. The compensation committee shall have the authority, in its sole discretion, to select, retain
and obtain the advice of a compensation consultant as necessary to assist with the execution of its duties and responsibilities
as set forth in its charter, but, to date, has not retained services of any compensation consultants. The compensation committee
consists of entirely “independent directors” (as defined below) and no executive officers have a role in determining
or recommending the amount or form of executive and director compensation.
The
current members of our compensation committee are Jerry Nadal, who is the chair of the compensation committee, Barbara D’Amato
and George Smith. We believe that each of Ms. D’Amato, Mr. Smith and Mr. Nadal is an “independent director”
under the applicable rules and regulations of the Nasdaq Capital Market, and that each member of our compensation committee is
a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and an
“outside director,” as that term is defined under Section 162(m) of the Internal Revenue Code of 1986.
Nominating
and Governance Committee
.
The nominating and governance committee is responsible for making recommendations
to the board of directors regarding candidates for directorship and the structure and composition of our board of directors and
committees of the board of directors. Among other things, the nominating and governance committee is responsible for identifying,
evaluating and nominating candidates for appointment or election as members of our board of directors; developing, recommending
and evaluating a code of conduct and ethics applicable to all of our employees, officers and directors and a code applicable to
our chief executive officer and a senior finance department personnel; recommending that our board of directors establish special
committees as may be necessary or desirable from time to time; recommending policies and procedures for stockholder nomination
of directors and annually reviewing and evaluating the composition and performance of the nominating and governance committee,
including the adequacy of the nominating and governance committee charter.
The
current members of the nominating and governance committee are Barbara D’Amato, who is the chair of the nominating
and governance committee, Luisa Ingargiola and Jerry Nadal. We believe that all of the members of our nominating and governance
committee are “independent directors” under the applicable rules and regulations of the Nasdaq Capital Market.
Copies of our audit committee, compensation
committee and nominating and governance committee charters are available under the “Investors” section of our website
at www.globephotos.com. The reference to our website address does not constitute incorporation by reference of the information
contained at or available through our website, and you should not consider it to be a part of this prospectus.
Board Diversity
Our nominating
and corporate governance committee is responsible for reviewing with the board of directors, on an annual basis, the appropriate
characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating
the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee,
in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such
candidates, will take into account many factors, including the following:
|
·
|
|
Personal and professional integrity, ethics and values;
|
|
·
|
|
Experience in corporate management, such as serving as an officer or former officer of a publicly-held company;
|
|
·
|
|
Experience as a board member or executive officer of another publicly-held company;
|
|
·
|
|
Strong finance experience;
|
|
·
|
|
Diversity of expertise and experience in substantive matters pertaining to our business relative to other board members;
|
|
·
|
|
Diversity of background and perspective, including, but not limited to, with respect to age, gender, race, place of residence and specialized experience;
|
|
·
|
|
Experience relevant to our business industry and with relevant social policy concerns; and
|
|
·
|
|
Relevant academic expertise or other proficiency in an area of our business operations.
|
Currently, our board of directors evaluates,
and following the closing of this offering will evaluate, each individual in the context of the board of directors as a whole,
with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests
through the exercise of sound judgment using its diversity of experience in these various areas.
We have not adopted a policy regarding the
handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our
Board has not considered or adopted such a policy as we have never received a recommendation from any stockholder for any candidate
to serve on our Board. We do not know if any of our stockholders will make a recommendation for any candidate to serve on our Board
in the future.
Code of Business Conduct and Ethics
We have adopted a written code of business
conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of business conduct
and ethics is available under the “Investors” section of our website at www.globephotos.com. In addition, we post on
our website all disclosures that are required by law or the listing standards of the Nasdaq Capital Market concerning any amendments
to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference
of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
EXECUTIVE COMPENSATION
The table below summarizes all compensation
awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended December 31, 2018 and
2017.
Name
and principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All Other
Compensation
($) (1)
|
Total
($)
|
Stuart
Scheinman
CEO and Director
|
2018
2017
|
84,500
91,000
|
–
–
|
–
–
|
–
–
|
–
–
|
84,500
91,000
|
Shamar Tobias(1)
CFO
|
2018
2017
|
12,000
–
|
–
–
|
–
–
|
297,715
–
|
–
–
|
309,715
–
|
Sam
Battistone
Director and former Co-CEO
|
2018
2017
|
–
–
|
–
–
|
–
–
|
–
–
|
–
–
|
–
–
|
Scott
Black
Secretary, Treasurer and Director
|
2018
2017
|
–
–
|
–
–
|
–
–
|
825,000
–
|
–
–
|
$825,000
–
|
Tucker DiEdwardo
COO
|
2018
2017
|
84,000
–
|
–
–
|
–
–
|
577,500
–
|
–
–
|
$661,500
–
|
|
(1)
|
Mr. Tobias resigned as Chief
Financial Officer on April 29, 2019.
|
Narrative Disclosure to Summary Compensation
Table
We have not entered into any written employment
agreements with any of our executive officers.
On October 24, 2018, we entered into a
consulting agreement with SLT Holding, LLC, an entity owned and controlled by Shamar Tobias, our Chief Financial Officer. The
agreement may be terminated by either party with or without cause on 30 days’ notice. We agreed to compensate SLT Holding,
LLC $6,000 monthly and we granted Mr. Tobias a 5 year option to purchase 2,000,000 shares of our common stock at an exercise
price of $0.10 per share. 500,000 option shares are vested on the date of grant and 500,000 option shares vest every six months
of service thereafter up to the maximum of 2,000,000 option shares.
On November 15, 2018, we entered into a
consulting agreement with TD Ventures, LLC, an entity owned and controlled by Tucker DiEdwardo, our Chief Operating Officer. The
agreement may be terminated by either party with or without cause on 90 days’ notice. We agreed to compensate TD Ventures,
LLC $7,000 monthly and we granted Mr. DiEdwardo a 10 year option to purchase 5,250,000 shares of our common stock at an
exercise price of $0.05 per share. The option is 100% vested on issuance.
On November 15, 2018, we entered into a
consulting agreement with Scott Black, our Chief Legal Officer. The agreement may be terminated by either party with or without
cause on 30 days’ notice. We granted Mr. Black a ten year option to purchase 7,500,000 shares of our common stock at an exercise
price of $0.05 per share. The option is 100% vested on issuance.
Other Elements of Compensation
We do not currently maintain any forms of
retirement savings, employee benefit, nonqualified deferred compensation, change in control or pension plans for use by our executive
officers or employees.
Outstanding Equity Awards at Fiscal
Year End
The following table summarizes the
number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31,
2018.
|
|
Option
Awards
|
|
Stock
Awards
|
Name
|
|
Grant
Date
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
|
Equity
Incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
expiration
date
|
|
Number
of shares
or units of
stock that
have not
vested (#)
|
|
|
Market
value
of shares
of units
of stock
that have
not
vested ($)
|
|
|
Equity
Incentive
plan
awards:
Number of
unearned
shares,
units or
other rights
that have
not
vested (#)
|
|
Equity
Incentive
plan
awards:
Market or
payout
value of
unearned
share,
units or
other right
that have
not
vested ($)
|
Scott
Black
|
|
11/15/2018
|
|
|
7,500,000
|
|
|
|
|
|
7,500,000
|
|
|
$
|
0.05
|
|
|
11/15/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shamar Tobias
|
|
10/24/2018
|
|
|
2,000,000
|
|
|
|
|
|
2,000,000
|
|
|
$
|
0.10
|
|
|
11/01/2023
|
|
|
1,500,000
|
|
|
|
223,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tucker DiEdwardo
|
|
11/15/2018
|
|
|
5,250,000
|
|
|
|
|
|
5,250,000
|
|
|
$
|
0.05
|
|
|
11/15/2028
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Compensation
Our directors did not receive any compensation
during the years ended December 31, 2018 and 2017, in consideration for their services rendered in their capacity as directors
and no arrangements are presently in place regarding compensation to directors for their services as directors or for committee
participation or special assignments.
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
We describe below the transactions and series
of similar transactions, since January 1, 2016, to which we were a party or will be a party, in which:
|
·
|
the amounts involved exceeded or will exceed the lesser of $120,000 or one percent of our average total assets at year-end over the last two completed fiscal years; and
|
|
·
|
any of our directors, executive officers, holders of more than 5% of our capital stock or any member of their immediate family had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements with directors and executive officers, which are described where required under the section above titled “Executive Compensation.”
|
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 December 31, 2018 and 2017, the balance of $162,500 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 $50,662 and $34,412 as of December 31, 2018 and 2017, 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 the 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 $8,227 and $5,227 as of December 31, 2018 and 2017, respectively. All the accrued interest through the 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 year ended December 31, 2018, the Company made payment of $14,960. As of December
31, 2018 and 2017, $46,175 and $61,135 was outstanding under the unsecured promissory note agreement, respectively. Interest expense
for the year ended December 31, 2018 and 2017 was $2,309 and $3,057 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.
Effective September
11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related parties,
Dreamstar an entity owned and controlled by Sam Battistone, a Company officer and director and a principal shareholder, and Dino
Satallante, a beneficial interest shareholder of the Company, for working capital purposes. The loans bear interest at the rate
of 6% per annum. The loans matured on September 10, 2015 and were extended to December 31, 2016. In December 2016, both loans
were extended to December 31, 2017 and on March 30, 2018, the notes were extended to June 30, 2018 and on June 30, 2018, one of
the note was further extended to December 31, 2018. The outstanding balance on the note issued to Dreamstar was fully paid during
the year ended December 31, 2018, and on February 11, 2019 the note was further extended to December 31, 2019. As of December
31, 2018, $20,500 and $0 was outstanding to Dino Satallante and Dreamstar, respectively. At December 31, 2017, $20,500 and $18,100
was outstanding to Dino Satallante and Dreamstar, respectively. Aggregate interest expense in connection with the two unsecured
promissory note agreements for the year ended December 30, 2018 and 2017 was $5,536 and 5,584.
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 Photos 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 Photos Assets. Total interest expense in connection with the secured promissory note agreement for the
years ended December 31, 2018 and 2017 is $19,200 and $19,200. Per the terms of the agreement the Company incurred loan fees totaling
$8,000 which was fully amortized in 2016. 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.
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 $5,200 and $5,200 for the years ended December 31, 2018 and 2017.
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 matures 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 $3,000 and $3,000 for the years ended December 31, 2018 and 2017, respectively. All the accrued interest
through the 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 matures 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 $3,000 and $3,000 for the years ended December 31, 2018 and 2017.
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 matures 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 $1,890 and $1,890 for the years ended December 31, 2018 and 2017, respectively.
See “Executive Compensation”
for certain consulting agreements and equity grants to officers.
PRINCIPAL AND SELLING
STOCKHOLDERS
Principal Stockholders
The following table sets forth information
regarding beneficial ownership of our common stock, as of April 12, 2019, and as adjusted to reflect the shares of common
stock to be issued and sold in this offering, by:
|
·
|
|
each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our common stock;
|
|
·
|
|
each of our named executive officers;
|
|
·
|
|
each of our directors; and
|
|
·
|
|
all of our executive officers and directors as a group.
|
We have determined beneficial ownership
in accordance with SEC rules. The information does not necessarily indicate beneficial ownership for any other purpose. Under
these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of stock options held
by the respective person or group that may be exercised or converted within 60 days after April 12, 2019. For purposes
of calculating each person’s or group’s percentage ownership, stock options and warrants exercisable within 60 days
after April 12, 2019 are included for that person or group but not for any other person or group.
Applicable
percentage ownership is based on
326,428,584
shares of common stock outstanding at
April 12, 2019. The number of shares and percentage of shares beneficially owned after the offering also gives effect to
the issuance by us of Units in
this offering and assumes no exercise of the underwriters’ option to purchase additional Units.
Unless otherwise indicated below, to our
knowledge, all persons listed below have sole voting and investment power with respect to their shares of voting stock, except
to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each entity or person listed
below maintains an address of 6445 South Tenaya Way, B-130 Las Vegas, Nevada 89113.
|
|
Beneficial
Ownership Prior to the Offering
|
|
|
|
Number of Shares
Being
|
|
|
Beneficial
Ownership After the Offering
|
|
Name
and address of beneficial owner
|
|
Number
|
|
|
Percent
|
|
|
|
Offered
|
|
|
Number
|
|
|
Percent
|
|
5% or Greater Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dino Satallante (1)
|
|
|
71,149,408
|
|
|
|
21.8%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Sam Battistone (1)
|
|
|
70,247,410
|
|
|
|
21.5%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Stuart Scheinman (1)
|
|
|
71,149,408
|
|
|
|
21.8%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Scott Black(2)
|
|
|
7,500,000
|
|
|
|
2.3%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Tucker DiEdwardo(3)
|
|
|
5,250,000
|
|
|
|
1.6%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Shamar Tobias(4)
|
|
|
2,000,000
|
|
|
|
*
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Jerry Nadal
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Barbara D’Amato
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Luisa Ingargiola
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
George Smith
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
All executive officers and directors as a
group (9 persons)(5)
|
|
|
156,146,818
|
|
|
|
47.8%
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
(1)
|
These shares are held under the name Movie
Star News LLC, which owns an aggregate of 220,238,226 shares of our Common Stock. Mr. Satallante and Mr. Scheinman each own
32.3% of that company. As such, they have the voting and dispositive power over these shares. Mr. Battistone owns the remaining
31.9% and has the voting and dispositive power over those shares.
|
(2)
|
Mr. Black is granted the option to purchase
7,500,000 shares of the Company's Common Stock, at $0.0001 par value under the Company's 2018 Incentive Plan, and at an exercise
price of $0.05 per share. The 7,500,000 will be 100% vested on the date issued and exercisable on the day following with the
options expiring ten (10) years from the date of vesting.
|
(3)
|
Consists of the option to purchase 5,250,000
shares of the Company's Common Stock, $0.0001 par value under the Company's 2018 Incentive Plan at an exercise price of $0.05
per share. The 5,250,000 will be 100% vested on the date issued and exercisable on the day following with the options expiring
ten (10) years from the date of vesting.
|
(4)
|
Consists of the option to purchase 2,000,000
options of the Company's Common Stock, $0.0001 par value under the Company's 2018 Incentive Plan at an exercise price of $0.10
per share. 500,000 options will be 100% vested on the date issued with the rest of the options vesting every six months and
exercisable on the day following. The options expire five (5) years from the date of vesting. Mr. Tobias resigned
as CFO on April 29, 2019, but will continue to provide services to the company as a controller on a consulting basis.
|
(5)
|
Includes shares of common stock issuable
upon the exercise of outstanding options, as set forth in the previous footnotes.
|
Selling
Stockholders
We are registering
for resale certain shares of our common stock. The term “selling stockholder” includes the stockholders listed below
and their transferees, pledgees, donees or other successors. Information concerning the selling stockholders may change after
the date of this prospectus and changed information will be presented in a supplement to this prospectus if and when required.
Except as provided below, none of the selling stockholders has held any position or office or had any other material relationship
with us or any of our predecessors or affiliates within the past three years other than as a result of the ownership of our securities.
We may amend or supplement this prospectus from time to time to update the disclosure set forth in it.
Secured
Convertible Promissory Note Holders
The following table
sets forth certain information as of April 29, 2019 with respect to certain noteholders who purchased certain secured convertible
promissory notes from July 2018 through February 2019 in the aggregate principal amount of $3,425,130 (the “Notes”).
The Notes bear interest at a rate of 10% per annum, and are secured by certain archival images owned by the Company. The notes
and accrued interest are convertible at the option of the noteholder into our common stock at $0.10 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. A copy of the form of Note is filed as Exhibit 10.1
to our Current Report on Form 8-K filed with the SEC on October 26, 2018. These securities were offered and sold without registration
under the Securities Act by virtue of Section 4(a)(2) of the Securities Act (or Regulation D promulgated thereunder).
|
|
Ownership Before Offering
|
|
|
|
|
|
Ownership After Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Percent of
|
|
|
Number of
|
|
|
Number of
|
|
|
Percent of
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares That
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
May be
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Selling Stockholder(3)
|
|
Owned(1)
|
|
|
Owned(1)
|
|
|
Offered
|
|
|
Owned(2)
|
|
|
Owned(2)
|
|
James B. Sunley
|
|
|
2,161,096
|
|
|
|
*
|
|
|
|
2,161,096
|
|
|
|
–
|
|
|
|
–
|
|
Orca Capital
|
|
|
1,622,466
|
|
|
|
*
|
|
|
|
1,622,466
|
|
|
|
–
|
|
|
|
–
|
|
City Securities Ltd
|
|
|
1,474,932
|
|
|
|
*
|
|
|
|
1,474,932
|
|
|
|
–
|
|
|
|
–
|
|
Andrew Eugene Paul Wates
|
|
|
1,083,014
|
|
|
|
*
|
|
|
|
1,083,014
|
|
|
|
–
|
|
|
|
–
|
|
Kalai Chelvan Arumugam
|
|
|
1,082,192
|
|
|
|
*
|
|
|
|
1,082,192
|
|
|
|
–
|
|
|
|
–
|
|
Edwin Guyton
|
|
|
1,081,644
|
|
|
|
*
|
|
|
|
1,081,644
|
|
|
|
–
|
|
|
|
–
|
|
Brett Smythe
|
|
|
1,079,726
|
|
|
|
*
|
|
|
|
1,079,726
|
|
|
|
–
|
|
|
|
–
|
|
Lip Koon Hwang
|
|
|
1,080,000
|
|
|
|
*
|
|
|
|
1,080,000
|
|
|
|
–
|
|
|
|
–
|
|
Alexandra Elizabeth Collins
|
|
|
1,057,945
|
|
|
|
*
|
|
|
|
1,057,945
|
|
|
|
–
|
|
|
|
–
|
|
Renata Gaipa
|
|
|
1,025,479
|
|
|
|
*
|
|
|
|
1,025,479
|
|
|
|
–
|
|
|
|
–
|
|
George Brooksbank
|
|
|
1,016,712
|
|
|
|
*
|
|
|
|
1,016,712
|
|
|
|
–
|
|
|
|
–
|
|
Kia Song "Jim"Heng
|
|
|
955,960
|
|
|
|
*
|
|
|
|
955,960
|
|
|
|
–
|
|
|
|
–
|
|
David Haig Thomas
|
|
|
892,701
|
|
|
|
*
|
|
|
|
892,701
|
|
|
|
–
|
|
|
|
–
|
|
Richard De Basto
|
|
|
805,891
|
|
|
|
*
|
|
|
|
805,891
|
|
|
|
–
|
|
|
|
–
|
|
Hannah's Oil Properties, Inc.
|
|
|
796,027
|
|
|
|
*
|
|
|
|
796,027
|
|
|
|
–
|
|
|
|
–
|
|
Amaratus Capital LLC
|
|
|
791,096
|
|
|
|
*
|
|
|
|
791,096
|
|
|
|
–
|
|
|
|
–
|
|
Fa Jyh Huang
|
|
|
794,726
|
|
|
|
*
|
|
|
|
794,726
|
|
|
|
–
|
|
|
|
–
|
|
Timothy Coulson
|
|
|
743,439
|
|
|
|
*
|
|
|
|
743,439
|
|
|
|
–
|
|
|
|
–
|
|
Tim Brouwer
|
|
|
639,617
|
|
|
|
*
|
|
|
|
639,617
|
|
|
|
–
|
|
|
|
–
|
|
Jonathon T. Suder
|
|
|
592,534
|
|
|
|
*
|
|
|
|
592,534
|
|
|
|
–
|
|
|
|
–
|
|
Rees Family
|
|
|
551,912
|
|
|
|
*
|
|
|
|
551,912
|
|
|
|
–
|
|
|
|
–
|
|
Chai Ding Pei
|
|
|
539,315
|
|
|
|
*
|
|
|
|
539,315
|
|
|
|
–
|
|
|
|
–
|
|
Richard J. Merryweather
|
|
|
539,315
|
|
|
|
*
|
|
|
|
539,315
|
|
|
|
–
|
|
|
|
–
|
|
Mark Lawrenson
|
|
|
538,493
|
|
|
|
*
|
|
|
|
538,493
|
|
|
|
–
|
|
|
|
–
|
|
Siong Tan Chun
|
|
|
538,356
|
|
|
|
*
|
|
|
|
538,356
|
|
|
|
–
|
|
|
|
–
|
|
Jonathan Eddis
|
|
|
538,082
|
|
|
|
*
|
|
|
|
538,082
|
|
|
|
–
|
|
|
|
–
|
|
Abundant Life Superannuation PTY, LTD at The Abundant Life Superannuation Fund
|
|
|
535,616
|
|
|
|
*
|
|
|
|
535,616
|
|
|
|
–
|
|
|
|
–
|
|
Teik Keong (Eddie)Chung
|
|
|
534,384
|
|
|
|
*
|
|
|
|
534,384
|
|
|
|
–
|
|
|
|
–
|
|
Lesley Elizabeth Collins
|
|
|
533,699
|
|
|
|
*
|
|
|
|
533,699
|
|
|
|
–
|
|
|
|
–
|
|
Joseph O. (III) Oltmans
|
|
|
527,534
|
|
|
|
*
|
|
|
|
527,534
|
|
|
|
–
|
|
|
|
–
|
|
Mark Burgio
|
|
|
513,151
|
|
|
|
*
|
|
|
|
513,151
|
|
|
|
–
|
|
|
|
–
|
|
Adam Healy
|
|
|
423,425
|
|
|
|
*
|
|
|
|
423,425
|
|
|
|
–
|
|
|
|
–
|
|
Mark Ladd
|
|
|
424,603
|
|
|
|
*
|
|
|
|
424,603
|
|
|
|
–
|
|
|
|
–
|
|
Mustafa Jumabhoy
|
|
|
428,096
|
|
|
|
*
|
|
|
|
428,096
|
|
|
|
–
|
|
|
|
–
|
|
Ai Swan Chua
|
|
|
305,014
|
|
|
|
*
|
|
|
|
305,014
|
|
|
|
–
|
|
|
|
–
|
|
Ed Simons
|
|
|
282,671
|
|
|
|
*
|
|
|
|
282,671
|
|
|
|
–
|
|
|
|
–
|
|
Walter Ruffinoni
|
|
|
270,753
|
|
|
|
*
|
|
|
|
270,753
|
|
|
|
–
|
|
|
|
–
|
|
Rosita Binti Haji Ramli
|
|
|
269,658
|
|
|
|
*
|
|
|
|
269,658
|
|
|
|
–
|
|
|
|
–
|
|
Kean Beng "Peter"Chung
|
|
|
269,589
|
|
|
|
*
|
|
|
|
269,589
|
|
|
|
–
|
|
|
|
–
|
|
Soon Y.Poh
|
|
|
269,384
|
|
|
|
*
|
|
|
|
269,384
|
|
|
|
–
|
|
|
|
–
|
|
Yee Suen Thian
|
|
|
269,384
|
|
|
|
*
|
|
|
|
269,384
|
|
|
|
–
|
|
|
|
–
|
|
Susie Hardwick
|
|
|
267,397
|
|
|
|
*
|
|
|
|
267,397
|
|
|
|
–
|
|
|
|
–
|
|
Simon Manning
|
|
|
267,123
|
|
|
|
*
|
|
|
|
267,123
|
|
|
|
–
|
|
|
|
–
|
|
Christopher John Eves
|
|
|
265,205
|
|
|
|
*
|
|
|
|
265,205
|
|
|
|
–
|
|
|
|
–
|
|
Jonathan Sale
|
|
|
265,137
|
|
|
|
*
|
|
|
|
265,137
|
|
|
|
–
|
|
|
|
–
|
|
Andy Gleeson & Patricia Reader
|
|
|
264,452
|
|
|
|
*
|
|
|
|
264,452
|
|
|
|
–
|
|
|
|
–
|
|
Winston Lo
|
|
|
256,849
|
|
|
|
*
|
|
|
|
256,849
|
|
|
|
–
|
|
|
|
–
|
|
Jerome Olivier N. Nurenberg
|
|
|
256,849
|
|
|
|
*
|
|
|
|
256,849
|
|
|
|
–
|
|
|
|
–
|
|
Yew Lee Chia
|
|
|
256,781
|
|
|
|
*
|
|
|
|
256,781
|
|
|
|
–
|
|
|
|
–
|
|
Cheng Kin Poh
|
|
|
256,575
|
|
|
|
*
|
|
|
|
256,575
|
|
|
|
–
|
|
|
|
–
|
|
Grae Scott
|
|
|
256,301
|
|
|
|
*
|
|
|
|
256,301
|
|
|
|
–
|
|
|
|
–
|
|
Gian Piero Lauro
|
|
|
255,479
|
|
|
|
*
|
|
|
|
255,479
|
|
|
|
–
|
|
|
|
–
|
|
Anne Therese Simons
|
|
|
258,288
|
|
|
|
*
|
|
|
|
258,288
|
|
|
|
–
|
|
|
|
–
|
|
Anita Stearns
|
|
|
257,671
|
|
|
|
*
|
|
|
|
257,671
|
|
|
|
–
|
|
|
|
–
|
|
Jye Sing Ling
|
|
|
256,164
|
|
|
|
*
|
|
|
|
256,164
|
|
|
|
–
|
|
|
|
–
|
|
Mark E. Henke
|
|
|
216,110
|
|
|
|
*
|
|
|
|
216,110
|
|
|
|
–
|
|
|
|
–
|
|
Lee Tiong Li
|
|
|
215,562
|
|
|
|
*
|
|
|
|
215,562
|
|
|
|
–
|
|
|
|
–
|
|
Huat Goh Keng
|
|
|
213,699
|
|
|
|
*
|
|
|
|
213,699
|
|
|
|
–
|
|
|
|
–
|
|
Guentur Taus
|
|
|
237,535
|
|
|
|
*
|
|
|
|
237,535
|
|
|
|
–
|
|
|
|
–
|
|
Colin Van Sickle
|
|
|
204,685
|
|
|
|
*
|
|
|
|
204,685
|
|
|
|
–
|
|
|
|
–
|
|
Neil Andrew Brimble
|
|
|
211,452
|
|
|
|
*
|
|
|
|
211,452
|
|
|
|
–
|
|
|
|
–
|
|
Marcus Heinrich Isedor John
|
|
|
205,479
|
|
|
|
*
|
|
|
|
205,479
|
|
|
|
–
|
|
|
|
–
|
|
Loon Teik Tung
|
|
|
161,548
|
|
|
|
*
|
|
|
|
161,548
|
|
|
|
–
|
|
|
|
–
|
|
Lip Koon Hwang
|
|
|
153,616
|
|
|
|
*
|
|
|
|
153,616
|
|
|
|
–
|
|
|
|
–
|
|
Rees Pension
|
|
|
136,848
|
|
|
|
*
|
|
|
|
136,848
|
|
|
|
–
|
|
|
|
–
|
|
Matthew O’Reilly
|
|
|
133,322
|
|
|
|
*
|
|
|
|
133,322
|
|
|
|
–
|
|
|
|
–
|
|
Taizoon Hyder Tyebkhan
|
|
|
108,055
|
|
|
|
*
|
|
|
|
108,055
|
|
|
|
–
|
|
|
|
–
|
|
Jack Pieter Theron
|
|
|
106,877
|
|
|
|
*
|
|
|
|
106,877
|
|
|
|
–
|
|
|
|
–
|
|
Chee Wai Chan
|
|
|
102,630
|
|
|
|
*
|
|
|
|
102,630
|
|
|
|
–
|
|
|
|
–
|
|
Simon Hepden
|
|
|
101,671
|
|
|
|
*
|
|
|
|
101,671
|
|
|
|
–
|
|
|
|
–
|
|
Nick Moody
|
|
|
101,671
|
|
|
|
*
|
|
|
|
101,671
|
|
|
|
–
|
|
|
|
–
|
|
Frazer Roberts
|
|
|
101,671
|
|
|
|
*
|
|
|
|
101,671
|
|
|
|
–
|
|
|
|
–
|
|
Naveen Takiar
|
|
|
89,867
|
|
|
|
*
|
|
|
|
89,867
|
|
|
|
–
|
|
|
|
–
|
|
Juan Costain
|
|
|
78,306
|
|
|
|
*
|
|
|
|
78,306
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
36,400,506
|
|
|
|
|
|
|
|
36,400,506
|
|
|
|
|
|
|
|
|
|
(1)
|
Percentage of beneficial ownership for the selling stockholder
is based on 326,428,584 shares of our common stock outstanding as of April 12, 2019. Beneficial
ownership is determined in accordance with the rules of the SEC. In computing the number of
shares beneficially owned by a person, shares for which the named person has sole or shared
power over voting or investment decisions are included.
|
(2)
|
Because each selling stockholder may sell all, some or none
of the shares of common stock which they hold, no estimate can be given of the number of shares
of common stock that will be held by each of them upon termination of the offering.
|
(3)
|
Unless otherwise indicated, the column “Number of Shares
Beneficially Owned” refers to the number of shares of common stock held by such selling
stockholder assuming conversion of the secured convertible promissory notes, because such notes
are exercisable within 60 days of April 29, 2019.
|
Bridgewater
Common Stock and Warrants
The following table
sets forth certain information as of April 12, 2019 with respect to a consultant of the Company who acquired certain shares of
common stock and warrants convertible into shares of common stock at $0.10 per share in exchange for services to the Company.
These securities were offered and sold without registration under the Securities Act by virtue of Section 4(a)(2) of the
Securities Act (or Regulation D promulgated thereunder).
|
|
Ownership Before Offering
|
|
|
|
|
|
Ownership After Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Percent of
|
|
|
Number of
|
|
|
Number of
|
|
|
Percent of
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares That
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
May be
|
|
|
Beneficially
|
|
|
Beneficially
|
|
Selling Stockholder
|
|
Owned(1)
|
|
|
Owned(1)
|
|
|
Offered
|
|
|
Owned(2)
|
|
|
Owned(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgewater Capital Corp. (3)
|
|
|
2,090,000
|
|
|
|
*
|
|
|
|
1,090,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,090,000
|
|
|
|
|
|
|
|
1,090,000
|
|
|
|
|
|
|
|
|
|
(1)
|
Percentage of beneficial
ownership for the selling stockholder is based on 326,428,584 shares of our common stock outstanding as of April 12, 2019.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect
to those shares.
|
|
|
(2)
|
Because the selling stockholder may sell
all, some or none of the shares of common stock which it holds, no estimate can be given of the number of shares of common
stock that will be held by it upon termination of the offering.
|
|
(3)
|
Includes 1,290,000 shares of common
stock and warrants to purchase 800,000 shares of common stock.
|
DESCRIPTION OF CAPITAL
STOCK
General
The following description of our capital
stock summarizes provisions of our certificate of incorporation and bylaws. Our authorized capital stock consists of 500,000,000
shares, of which (i) 450,000,000 shares are common stock, $0.0001 par value per share, and (ii) 50,000,000 shares are undesignated
preferred stock, $0.0001 par value per share.
The following description of the material
provisions of our capital stock and our charter and bylaws is only a summary, does not purport to be complete and is qualified
by applicable law and the full provisions of our charter and bylaws. You should refer to our charter and bylaws as in effect upon
the closing of this offering, which are included as exhibits to the registration statement of which this prospectus is a part.
As of April 12, 2019, there were
326,428,584 shares of common stock outstanding and held of record by 217 stockholders. This number does not include beneficial
owners whose shares are held by nominees in street name.
Proposed Reverse Split
On June 18, 2018, our board of directors
and a majority-in-interest of our stockholders, taking action by written consent in lieu of a meeting, approved the grant of discretionary
authority to the board of directors, at any time or times for a period of 12 months after the date of the written consent, to adopt
an amendment to our certificate of incorporation 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 (the “Reverse Split”). A Definitive Information Statement on Schedule
14C was filed on July 2, 2018 for this purpose. As a result of the foregoing, the board of directors currently possesses discretion
to implement the Reverse Split.
Our board of directors plans to formally
approve an amendment to our Certificate of Incorporation to implement the Reverse Split within the range approved as described
above to be effected prior to the effectiveness of the registration statement of which this prospectus is a part.
Common Stock
Voting rights
. Holders of common
stock are entitled to one vote per share on any matter to be voted upon by stockholders. All shares rank equally as to voting and
all other matters. The shares of common stock have no preemptive or conversion rights, no redemption or sinking fund provisions,
are not liable for further call or assessment and are not entitled to cumulative voting rights.
Dividend rights
. For as long as such
stock is outstanding, the holders of common stock are entitled to receive ratably any dividends when and as declared from time
to time by our board of directors out of funds legally available for dividends. We currently intend to retain all future earnings
for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable
future.
Liquidation rights
. Upon a liquidation
or dissolution of our company, whether voluntary or involuntary, creditors will be paid before any distribution to holders of our
common stock. After such distribution, holders of common stock are entitled to receive a pro rata distribution per Share of any
excess amount.
Options
As of December 31, 2018, options
to purchase 20,033,333 shares of our common stock were outstanding, of which 15,533,333 were vested and exercisable as of
that date.
Secured Convertible Promissory Notes;
Registration Rights
Secured Convertible Promissory Notes
From July 2018 to December 31, 2018,
we issued convertible promissory notes in the aggregate principal amount of $3,282,050 to several accredited investors through
a private placement. Subsequent to December 31, 2018, the Company issued additional convertible notes to accredited investors
totaling to $651,050.
We intend to raise up to an additional $1,000,000
on similar terms prior to the effectiveness of this offering.
The Notes bear interest at a rate of
10% per annum, mature on April 30, 2019 and are secured by certain archival images owned by the Company. The notes and accrued
interest are convertible at the option of the noteholder into our common stock at $0.10 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.
Piggyback Registration Rights
If we propose to register any shares of
our common stock under the Securities Act, subject to certain exceptions, the holders of registrable securities will be entitled
to notice of the registration and to include their shares of registrable securities in the registration. Each of the selling stockholders
have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose
of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers,
in whole or in part, the economic consequence of ownership of, directly or indirectly, or make any demand or request or exercise
any right with respect to the registration of, or file with the SEC a registration statement under the Securities Act relating
to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written
consent of Roth Capital Partners for a period of 90 days after the date of the underwriting agreement.
Units
Each Unit consists of one Share and one
Warrant. The Units will begin trading on , 2019. The Units
will automatically separate and each of the Shares and Warrants will trade separately commencing on ___________, 2019.
Warrants to Be Issued as part of a Unit in this Offering
In connection with the purchase of each
Unit, each investor will receive one Share and one Warrant. Each full Warrant entitles the registered holder to purchase one Share
at an initial exercise price of $______. The Warrants may only be exercised for cash. The Warrants will expire on _______________,
2019 at 5:00 p.m., New York City time. We may call the Warrants for redemption as follows:
|
•
|
|
at a price of $0.001 for each Warrant at any time while the Warrants are exercisable, so long as a registration statement relating to the common stock issuable upon exercise of the Warrants is effective and current;
|
|
•
|
|
upon not less than 30 days prior written notice of redemption to each Warrant holder; and
|
|
•
|
|
if, and only if, the reported last sale price of the common stock equals or exceeds $ per Share (200% of the offering price of a Unit in this offering) for the 20-trading-day period ending on the third business day prior to the notice of redemption to Warrant holders.
|
If the foregoing conditions are satisfied
and we call the Warrants for redemption, each Warrant holder will then be entitled to exercise his or her Warrant prior to the
date scheduled for redemption. However, there can be no assurance that the price of the common stock will exceed the call price
or the Warrant exercise price after the redemption call is made.
The Warrants will initially be represented
by the certificate representing a Unit, and from and after the Separation Date, will be issued in registered form, in each case
pursuant to a Warrant Agreement between Registrar and Transfer Company, as Warrant agent, and us. Until the Separation Date, the
Warrants may not be transferred, split up or combined separately from the Shares with which they were sold as a Unit. You should
review a copy of the Warrant agreement, which has been filed as an exhibit to the registration statement of which this prospectus
is a part, for a complete description of the terms and conditions applicable to the Warrants.
The exercise price and number of Shares
issuable on exercise of the Warrants may be adjusted in certain circumstances, including but not limited to in the event of a stock
split, stock dividend, recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for
the issuances of common stock or securities convertible or exercisable into common stock at a price below the then current exercise
price of the Warrants.
The Warrants may be exercised upon surrender
of the Warrant certificate on or prior to the expiration date at the offices of the Warrant agent, with the exercise form on the
reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price,
by certified check payable to us or by wire transfer of immediately available funds to an account designated by us, for the number
of Warrants being exercised. The Warrant holders do not have the rights or privileges of holders of common stock and any voting
rights until they exercise their Warrants and received Shares. After issuance of Shares upon exercise of the Warrants, each holder
will be entitled to one vote for each Share held of record on all matters to be voted on by stockholders.
No Warrants will be exercisable unless at
the time of exercise a prospectus relating to common stock issuable upon exercise of the Warrants is current and the common stock
has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the
Warrants. Under the terms of the Warrant agreement, we have agreed to meet these conditions and use our best efforts to maintain
a current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. However,
we cannot assure you that we will be able to do so, and if we do not maintain a current prospectus related to the common stock
issuable upon exercise of the Warrants, holders will be unable to exercise their Warrants and we will not be required to settle
any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the Warrants is not current
or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants
reside, we will not be required to net cash settle or cash settle the Warrant exercise, the Warrants may have no value, the market
for the Warrants may be limited and the Warrants may expire worthless.
Undesignated Preferred Stock
Under our charter, our board of directors
has authority to issue undesignated preferred stock without stockholder approval. Our board of directors may also determine or
alter for each class of preferred stock the voting powers, designations, preferences, and special rights, qualifications, limitations,
or restrictions as permitted by law. Our board of directors may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the holders of the common stock. Issuing preferred stock
provides flexibility in connection with possible acquisitions and other corporate purposes, but could also, among other things,
have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price
of our common stock and the voting and other rights of the holders of common stock.
Anti-Takeover Provisions in Our Charter and Bylaws
Our charter and bylaws include a number
of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include
the items described below.
Removal of directors and filling board
vacancies
. Our bylaws provide that directors may be removed with or without cause by the affirmative vote of the holders of
a majority of the voting power of all the outstanding Shares of capital stock entitled to vote generally in the election of directors
voting together as a single class. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting
from an increase in the size of our board of directors, may only be filled by the affirmative vote of a majority of our directors
then in office even if less than a quorum.
Undesignated preferred stock
. Our
charter authorizes 50,000,000 shares of preferred stock. The existence of authorized but unissued shares of preferred stock may
enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger,
tender offer, proxy contest, or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors
were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could
cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions
that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard,
our certificate of incorporation grants our board of directors’ broad power to establish the rights and preferences of authorized
and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of shares. The issuance may also adversely affect the rights and powers, including voting
rights, of these holders and may have the effect of delaying, deterring, or preventing a change in control of us.
Section 203 of the Delaware General Corporation Law
Upon completion of this offering and proposed
listing on the Nasdaq Capital Market, we will be subject to the provisions of Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination”
with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested
stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes,
among other things, a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder.
An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three
years prior to the determination of interested stockholder status, 15% or more of the corporation’s voting stock. Under
Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies
one of the following conditions:
|
•
|
|
before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
|
|
•
|
|
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or
|
|
•
|
|
at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
|
Limitations of Director Liability and Indemnification of
Directors, Officers, and Employees
As permitted by the Delaware General Corporation
Law, provisions in our charter and bylaws that will be in effect at the closing of this offering will limit or eliminate the personal
liability of our directors.
Our certificate of incorporation provides
that “No director shall be personally liable to the Corporation or its stockholders for monetary damages for any branch of
fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent
provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit.”
We also intend to maintain general liability
insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their
capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, or persons who control our company, we have been informed
that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
These provisions may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent
we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We
believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and
experienced directors and officers.
At present, there is no pending litigation
or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware
of any threatened litigation or proceedings that might result in a claim for such indemnification.
Transfer Agent and Registrar and Warrant Agent
Our transfer agent is Colonial Stock Transfer
at 66 Exchange Place, Suite 100, Salt Lake City, UT 84111; Ph. (801) 355-5740.
Exchange Listing
Our common stock is currently quoted on
the OTCQB under the symbol “GBPT” operated by OTC Markets Group, Inc. We have applied to list the Units, Shares and
Warrants on the Nasdaq Capital Market under the symbol “GBPT”, “GBPTU” and “GBPTW”, respectively.
We plan to have the Warrants trade together with the Shares only as Units until _____________ , 201_,
and thereafter we plan for each of the Shares and Warrants to trade separately. However, there is currently no established public
trading market for the Units or the Warrants and our Shares of common stock are currently quoted on the OTCQB. Though we have
applied to list the Units, Shares and Warrants on the Nasdaq Capital Market, in the event we are unable to list said securities,
an active public market may not develop and the liquidity of the Units, Shares an d Warrants may be limited.
SHARES ELIGIBLE FOR
FUTURE SALE
Future sales of our common stock in the
public market, including shares issued upon exercise of outstanding options or warrants, or the availability of such shares for
sale in the public market, could adversely affect the trading price of our common stock. As described below, only a limited number
of shares will be available for sale by our existing stockholders shortly after this offering due to contractual and legal restrictions
on resale. Sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may
occur, could adversely affect the trading price of our common stock or Warrants at such time and our ability to raise equity capital
in the future. Our common stock is quoted on the OTCQB under the symbol “GBPT.” Additionally, we have applied to list
the Units, Shares and Warrants on the Nasdaq Capital Market under the symbol “GBPT”, “GBPTU” and “GBPTW”,
respectively. We plan to have the Warrants trade together with the Shares only as Units until _____________ ,
201_, and thereafter we plan for each of the Shares and Warrants to trade separately. However, there is currently no established
public trading market for the Units or the Warrants and our Shares of common stock are currently quoted on the OTCQB. Though we
have applied to list the Units, Shares and Warrants on the Nasdaq Capital Market, in the event we are unable to list said securities,
an active public market may not develop and the liquidity of the Units, Shares an d Warrants may be limited.
Based on the number of shares of our common
stock outstanding as of April 12, 2019 and assuming (1) an issuance of Units
by us in this offering and (2) no exercise of the underwriters’ option to purchase additional Units, upon the closing
of this offering we will have outstanding an aggregate of (i) shares
of common stock, and (ii) Warrants
to purchase shares of common stock. Of these, all Units, Shares and Warrants sold by us and the shares of common stock sold by
the selling stockholders in this offering will be freely tradable, except that any shares purchased by our “affiliates,”
as that term is defined in Rule 144 under the Securities Act, generally may be sold in the public market only in compliance
with Rule 144 under the Securities Act.
The remaining shares
of common stock will be deemed “restricted securities” as that term is defined in Rule 144 under the Securities
Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify
for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below.
In addition, of the 20,033,333 shares
of our common stock that were subject to stock options outstanding as of December 31, 2018, options to purchase 15,533,333
shares of common stock were vested as of December 31, 2018 and will be eligible for sale 180 days following the effective
date of this offering.
Rule 144
In general, under Rule 144, beginning
90 days after the date of this prospectus, a person who is not our affiliate, has not been our affiliate for the previous
three months, and who has beneficially owned Shares for at least six months may sell all such shares. An affiliate or a person
who has been our affiliate within the previous 90 days, and who has beneficially owned shares for at least six months, may
sell within any three-month period a number of shares that does not exceed the greater of:
|
•
|
|
one percent of the number of shares then outstanding, which will equal approximately shares immediately after this offering; and
|
|
•
|
|
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
|
All sales under Rule 144 are subject to
the availability of current public information about us. Sales under Rule 144 by affiliates or persons who have been affiliates
within the previous 90 days are also subject to manner of sale provisions and notice requirements. Upon expiration of the 180-day
lock-up period, subject to any extension of the lock-up period under circumstances described below, approximately shares
of our outstanding restricted securities will be eligible for sale under Rule 144.
Registration Statement on Form S-8
We intend to file a registration statement
on Form S-8 under the Securities Act covering up to 30,000,000 shares reserved for issuance under our 2018 Equity Incentive Plan.
This registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective
upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless
such shares are subject to vesting restrictions with us or are otherwise subject to the lock-up agreements and manner of sale and
notice requirements that apply to affiliates under Rule 144 described above.
Lock-up Agreements
For a description of the lock-up agreements
with the underwriters that restrict sales of shares by us, and our executive officers and directors, and certain holders of our
securities, see the information under the heading “Underwriting.”
Registration Rights
We have granted certain registration rights
to holders of our secured convertible promissory notes which provide that such noteholders have the right to demand that we file
a registration statement or request that their shares of our common stock be covered by registration statement that we are otherwise
filing. See “Description of Capital Stock— Secured Convertible Promissory Notes; Registration Rights” in this
prospectus. Registration of their shares under the Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act immediately upon effectiveness of the registration statement, subject to the expiration of
the lock-up period described above and under “Underwriting” in this prospectus.
UNDERWRITING
We have entered into an underwriting
agreement with Roth Capital Partners, LLC as the underwriter, with respect to the Units in this offering. Under the terms and
subject to the conditions in an underwriting agreement dated as of the date of this prospectus, the underwriter has agreed to
purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus,
Units.
The underwriter is committed to purchase
all the Units, other than those covered by the over-allotment option described below, if they purchase any Units. The obligations
of the underwriter may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore,
pursuant to the underwriting agreement, the underwriter’s obligations are subject to customary conditions, representations
and warranties contained in the underwriting agreement, including the absence of any material adverse change in our business or
in the financial markets and the receipt of certain legal opinions, certificates and letters from us, our counsel and the independent
auditors. The underwriter may, but is not obligated to, retain other selected dealers that are qualified to offer and sell the
Units and that are (i) either members of the Financial Industry Regulatory Authority, Inc., or FINRA, or (ii) a non-U.S. bank,
broker, dealer or other institution not required to register for membership with FINRA. The underwriter proposes to offer the
Units to investors at the public offering price, and will receive the underwriting commissions, set forth on the cover of this
prospectus.
If we complete this offering, then on the
closing date, we will pay the underwriter a commission fee of 8% of the value of the Units sold in this offering.
The following table summarizes the compensation
and estimated expenses we will pay in the offering:
|
|
Per Unit
|
|
Total
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
We have also agreed to reimburse the underwriter
for all of its reasonable out-of-pocket expenses, including reasonable fees and expenses of its legal counsel and costs of third
party due diligence reports, in an amount not to exceed $150,000, in connection with the offering.
We expect our total cash expenses for this
offering to be approximately $ , exclusive of the above commissions.
If we complete this offering, then on the closing date, we will issue Units to investors.
We have agreed to indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriter may be
required to make in respect of those liabilities.
The underwriter intends to offer our Units
to its retail customers only in states in which we are permitted to offer our Units.
In connection with this offering, the underwriter
or certain of the securities dealers may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses
and electronically distributed prospectuses that are printable in Adobe PDF format will be used in connection with this offering.
We
granted the Underwriter a right of first refusal for a period of 12 months to act as lead managing underwriter and book runner
or as co-lead manager and co-book runner and/or co-lead placement agent for all future offerings of public or private equity,
equity-linked or debt securities.
Underwriter Compensation Warrants
Subject to the completion of this Offering,
we have agreed to issue to the underwriters up to a total of warrants, with each warrant being exercisable for one Unit (8% of
the securities sold in this offering) (the “Underwriter Compensation Warrants”). The warrants will be exercisable
at any time, and from time to time, in whole or in part, during the five-year period commencing 360 days from the effective date
of the offering, which period shall not extend further than five years from the effective date of the offering in compliance with
FINRA Rule 5110(f)(2)(H)(i). The warrants are exercisable at a per unit price equal to 115% of the public offering price per unit
in the offering.
The warrants have been deemed compensation
by FINRA and are therefore subject to a 360 day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or permitted assignees
under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these
warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of the warrant or the underlying securities for a period of 360 days from the date of effectiveness. The
exercise price and number of units issuable upon exercise of the warrants may be adjusted in certain circumstances including in
the event of a stock dividend or our recapitalization, reorganization, merger or consolidation.
Over-allotment Option
Pursuant to the underwriting agreement,
we will grant the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional
15% of the Units offered herein, at the offering price less the underwriting discount. By way of example, assuming an offering
price of $ , the Units subject to the underwriters’ option, or
Units, may be sold by us. The underwriters may exercise the option
solely to cover over-allotments, if any, in the sale of the Units that the underwriters have agreed to purchase. If the over-allotment
option is exercised in full, the aggregate offering price, underwriting discount and proceeds to us before offering expenses will
be $ , $
and $ , respectively.
Foreign Regulatory Restrictions on Purchase of our Shares
We have not taken any action to permit a
public offering of our Units outside the United States or to permit the possession or distribution of this prospectus outside the
United States. People outside the United States who come into possession of this prospectus must inform themselves about and observe
any restrictions relating to this offering of our Units and the distribution of this prospectus outside the United States.
Notice to Prospective Investors in the European Economic
Area
In relation to each member state of the
European Economic Area, no offer of Units which are the subject of the offering has been, or will be made to the public in that
Member State, other than under the following exemptions under the Prospectus Directive:
|
(a)
|
to any legal entity which is a qualified investor as defined in the Prospectus Directive;
|
|
(b)
|
to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the underwriter for any such offer; or
|
|
(c)
|
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
|
provided that no such offer of Units referred to in (a) to
(c) above shall result in a requirement for the Company or any underwriter to publish a prospectus pursuant to Article 3 of the
Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each person located in a Member State to
whom any offer of Units is made or who receives any communication in respect of an offer of Units, or who initially acquires any
Units will be deemed to have represented, warranted, acknowledged and agreed to and with the underwriter and the Company that (1) it
is a “qualified investor” within the meaning of the law in that Member State implementing Article 2(1)(e) of the Prospectus
Directive; and (2) in the case of any Units acquired by it as a financial intermediary as that term is used in Article 3(2)
of the Prospectus Directive, the Units acquired by it in the offer have not been acquired on behalf of, nor have they been acquired
with a view to their offer or resale to, persons in any Member State other than qualified investors, as that term is defined in
the Prospectus Directive, or in circumstances in which the prior consent of the underwriter has been given to the offer or resale;
or where Units have been acquired by it on behalf of persons in any Member State other than qualified investors, the offer of those
Units to it is not treated under the Prospectus Directive as having been made to such persons.
The Company, the underwriter and their respective
affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.
This prospectus has been prepared on the
basis that any offer of Units in any Member State will be made pursuant to an exemption under the Prospectus Directive from the
requirement to publish a prospectus for offers of Units. Accordingly, any person making or intending to make an offer in that Member
State of Units which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no
obligation arises for the Company or the underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive
in relation to such offer. Neither the Company nor the underwriter have authorized, nor do they authorize, the making of any offer
of Units in circumstances in which an obligation arises for the Company or the underwriter to publish a prospectus for such offer.
For the purposes of this provision, the
expression an “offer of Units to the public” in relation to any Units in any Member State means the communication in
any form and by any means of sufficient information on the terms of the offer and the Units to be offered so as to enable an investor
to decide to purchase or subscribe the Units, as the same may be varied in that Member State by any measure implementing the Prospectus
Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (as amended) and includes
any relevant implementing measure in each Member State.
The above selling restriction is in addition
to any other selling restrictions set out below.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this
document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons
who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in
matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise
be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to
as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not
relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available
to, and will be engaged in with, relevant persons.
Notice to Prospective Investors in Switzerland
The Units may not be publicly offered in
Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading
facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under
art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff.
of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither
this document nor any other offering or marketing material relating to the Units or the offering may be publicly distributed or
otherwise made publicly available in Switzerland.
Neither this document nor any other offering
or marketing material relating to the offering, the Company, the Units have been or will be filed with or approved by any Swiss
regulatory authority. In particular, this document will not be filed with, and the offer of Units will not be supervised by, the
Swiss Financial Market Supervisory Authority (“FINMA”), and the offer of Units has not been and will not be authorized
under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers
of interests in collective investment schemes under the CISA does not extend to acquirers of Units.
Notice to Prospective Investors in Hong Kong
The securities have not been offered or
sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors”
as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in
other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance
(Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement,
invitation or document relating to the securities has been or may be issued or has been or may be in the possession of any person
for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed
or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect
to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors”
as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The securities have not been and will not
be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly,
will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or
resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations
and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time.
For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation
or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered
as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection
with the offer or sale, or invitation for subscription or purchase, of Non-CIS Securities may not be circulated or distributed,
nor may the Non-CIS Securities be offered or sold, or be made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274
of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1),
or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA,
or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Non-CIS Securities are
subscribed or purchased under Section 275 of the SFA by a relevant person which is:
|
(a)
|
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
|
|
(b)
|
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
|
securities (as defined in Section 239(1) of the SFA) of
that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within
six months after that corporation or that trust has acquired the Non-CIS Securities pursuant to an offer made under Section 275
of the SFA except:
|
(a)
|
to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
|
|
(b)
|
where no consideration is or will be given for the transfer;
|
|
(c)
|
where the transfer is by operation of law;
|
|
(d)
|
as specified in Section 276(7) of the SFA; or
|
|
(e)
|
as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
|
Lock-Up Agreements
All of our executive officers and directors
and certain stockholders have agreed not to register, offer, sell, contract to sell or grant (except for private transfers and
in such case only with the express requirement that such shares continue to be subject to the same lock-up) any of our shares of
common stock or any securities convertible into or exercisable or exchangeable for our shares of common stock or any warrants to
purchase our shares of common stock (including, without limitation, securities of our company which may be deemed to be beneficially
owned by such individuals in accordance with the rules and regulations of the SEC and securities which may be issued upon the exercise
of a stock option or warrant) for a period of 180 days after the closing date of this offering.
In addition, each of the selling stockholders
have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose
of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers,
in whole or in part, the economic consequence of ownership of, directly or indirectly, or make any demand or request or exercise
any right with respect to the registration of, or file with the SEC a registration statement under the Securities Act relating
to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written
consent of Roth Capital Partners for a period of 90 days after the date of the underwriting agreement.
Upon the expiration of these lock-up agreements,
additional shares of common stock will be available for sale in the public market.
Market and Pricing Considerations
Prior to this offering, our common stock
was quoted on the OTCQB Marketplace, and there was a limited public market for our common stock. The public offering price was
determined based upon the price at which our common stock was quoted on the OTCQB Marketplace, as well as by negotiations between
us and the underwriter. Among the factors considered in determining the public offering price are the future prospects of our company
and our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the
price-earnings ratios, market prices of securities and certain financial and operating information of companies engaged in activities
similar to those of our company.
An active public market for our
Units, Warrants and common stock may not develop. It is possible that after this offering the Units, Warrants and Shares will
not trade in the public market at or above the offering price.
Discretionary Shares
The underwriter will not sell any Units
in this offering to accounts over which it exercises discretionary authority, without first receiving written consent from those
accounts.
Application for Listing on the Nasdaq Capital Market
We have applied to list our Units, Shares
and Warrants on the Nasdaq Capital Market under the symbol “GBPT”, “GBPTU” and “GBPTW”,
respectively. However, there is no guarantee that our Units, Shares and Warrants will be listed on the exchange upon completion
of this offering. If our Units, Shares and Warrants are listed on the Nasdaq Capital Market, we will be subject to continued listing
requirements and corporate governance standards. We expect these rules and regulations to significantly increase our legal, accounting
and financial compliance costs.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate the offering of our
Units, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. These
activities may raise or maintain the market price of our common stock above independent market levels or prevent or retard a decline
in the market price of our common stock. The underwriter is not required to engage in these activities and may end any of these
activities at any time. We and the underwriter have agreed to indemnify each other against certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the securities offered by
this prospectus and other legal matters will be passed upon for us by Procopio, Cory, Hargreaves & Savitch, LLP, San Diego,
California. The underwriters are represented by Pryor Cashman LLP, New York, New York.
EXPERTS
Our financial statements as of December
31, 2017 and 2018, and for the years then ended, have been included in this prospectus and elsewhere in the registration statement
have so been included in reliance upon the report of MaloneBailey, LLP, independent registered public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
We have included certain opinions on the
valuation of the assets of the Company provided by Corporate Valuation Advisors, Inc.
WHERE YOU CAN FIND
MORE INFORMATION
We have filed with the SEC a registration
statement on Form S-1 under the Securities Act and the rules and regulations under the Securities Act for the registration of the
securities being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration
statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our securities,
we refer you to the registration statement, including the exhibits and the financial statements and notes filed as a part of the
registration statement. Statements contained in this prospectus concerning the contents of any contract, or any other document,
are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see
the copy of the contract or document that has been filed. Each statement is this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed exhibit. The exhibits to the registration statement should be referenced
for the complete contents of these contracts and documents. You may obtain copies of this information by mail from the Public Reference
Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website that contains
reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that
website is www.sec.gov.
We are subject to information and periodic
reporting requirements of the Exchange Act and, in accordance with this law, are required to file periodic reports, proxy statements,
and other information with the SEC. These periodic reports, proxy statements and other information are available for inspection
and copying at the SEC’s public reference facilities and the website of the SEC referred to above.
GLOBE PHOTOS, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2018
|
|
Page
|
Financial Statements
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
C
onsolidated
Balance Sheets as of December 31, 2018 and 2017
|
|
F-3
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2018 and 2017
|
|
F-4
|
|
|
|
Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2018 and 2017
|
|
F-5
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017
|
|
F-6
|
|
|
|
Notes to Consolidated
Financial Statements
|
|
F-7
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Globe Photos, Inc. and its subsidiaries (collectively, the “Company”) as of December
31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years
then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, 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.
Going Concern Matter
The accompanying 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 from operations and has a net capital deficiency that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's
auditor since 2017.
Houston, Texas
April 16, 2019
GLOBE PHOTOS, INC.
(FKA CAPITAL ART, INC.)
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
304,267
|
|
|
$
|
1,297
|
|
Accounts receivable, net
|
|
|
559,255
|
|
|
|
44,548
|
|
Inventory, net
|
|
|
–
|
|
|
|
56,500
|
|
Prepaid expenses
|
|
|
21,513
|
|
|
|
12,765
|
|
Total Current Assets
|
|
|
885,035
|
|
|
|
115,110
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
5,533,680
|
|
|
|
2,493,224
|
|
Security deposit
|
|
|
38,402
|
|
|
|
6,356
|
|
Intangible Assets, net
|
|
|
15,766,250
|
|
|
|
326,250
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
22,223,367
|
|
|
$
|
2,940,940
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,462,563
|
|
|
$
|
540,947
|
|
Contingent purchase consideration
|
|
|
6,279,000
|
|
|
|
–
|
|
Payable to Photo File, Inc.
|
|
|
686,943
|
|
|
|
–
|
|
Payable to Globe Photos, Inc.
|
|
|
10,000
|
|
|
|
10,000
|
|
Due to related parties
|
|
|
287,455
|
|
|
|
147,113
|
|
Notes payable - related parties
|
|
|
635,675
|
|
|
|
456,235
|
|
Notes payable, net of debt discount
|
|
|
185,000
|
|
|
|
417,500
|
|
Deferred revenue
|
|
|
–
|
|
|
|
75,000
|
|
Derivative liability
|
|
|
–
|
|
|
|
9,195
|
|
Loans payable, net of unamortized discounts
|
|
|
481,784
|
|
|
|
738,805
|
|
Convertible Notes, net of debt discount and issuance costs
|
|
|
1,389,163
|
|
|
|
–
|
|
Convertible Notes - related party, net of debt discount
|
|
|
266,537
|
|
|
|
–
|
|
Total Current Liabilities
|
|
|
12,684,120
|
|
|
|
2,394,795
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
12,684,120
|
|
|
|
2,394,795
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 50,000,000 shares authorized; none issued and outstanding at December 31, 2018 and 2017.
|
|
|
–
|
|
|
|
–
|
|
Common stock par value $0.0001: 450,000,000 shares authorized; 326,428,583 and 325,570,524 issued and 326,428,583 and 325,570,524 outstanding as of December 31, 2018 and 2017
|
|
|
32,643
|
|
|
|
32,557
|
|
Additional paid in capital
|
|
|
10,114,075
|
|
|
|
4,124,243
|
|
Treasury stock; 0 and 258,823 shares as of December 31, 2018 and 2017
|
|
|
–
|
|
|
|
(88,000
|
)
|
Accumulated deficit
|
|
|
(4,016,630
|
)
|
|
|
(3,522,655
|
)
|
Stockholders' equity attributable to Globe Photos, Inc.
|
|
|
6,130,088
|
|
|
|
546,145
|
|
Non controlling interest
|
|
|
3,409,159
|
|
|
|
–
|
|
Stockholders' Equity
|
|
|
9,539,247
|
|
|
|
546,145
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
22,223,367
|
|
|
$
|
2,940,940
|
|
The accompanying notes are an integral part of these audited consolidated financial statements
GLOBE PHOTOS, INC.
(FKA CAPITAL ART, INC.)
Consolidated
Statements of Operations
|
|
For the years ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
License revenue
|
|
$
|
567,553
|
|
|
$
|
259,212
|
|
Image revenue
|
|
|
2,615,589
|
|
|
|
680,040
|
|
Total revenue
|
|
|
3,183,142
|
|
|
|
939,252
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
2,605,694
|
|
|
|
780,409
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
577,448
|
|
|
|
158,843
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Product development, sales and marketing
|
|
|
453,364
|
|
|
|
317,568
|
|
General and administrative
|
|
|
4,998,506
|
|
|
|
611,403
|
|
Depreciation and amortization
|
|
|
35,980
|
|
|
|
61,543
|
|
Gain on sale of property and equipment
|
|
|
–
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,487,850
|
|
|
|
940,514
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,910,402
|
)
|
|
|
(781,671
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Loss of settlement of accrued liabilities
|
|
|
(210,422
|
)
|
|
|
–
|
|
Interest expense
|
|
|
(2,019,953
|
)
|
|
|
(114,916
|
)
|
Change in fair value of derivative liabilities
|
|
|
9,195
|
|
|
|
48,727
|
|
Bargain purchase gain on acquisition of Photo File assets
|
|
|
7,296,766
|
|
|
|
–
|
|
Other income (expenses)
|
|
|
5,075,586
|
|
|
|
(66,189
|
)
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
165,184
|
|
|
|
(847,860
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
659,159
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Globe Photos, Inc.
|
|
$
|
(493,975
|
)
|
|
$
|
(847,860
|
)
|
|
|
|
|
|
|
|
|
|
Per-share data
|
|
|
|
|
|
|
|
|
Income (loss) per share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
325,646,169
|
|
|
|
325,441,
032
|
|
The accompanying notes are an integral part of these audited consolidated financial statements
GLOBE PHOTOS, INC.
(FKA CAPITAL ART, INC.)
Consolidated
Statement of Stockholders’ Equity
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Non controlling
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
(deficit)
|
|
|
interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
325,570,524
|
|
|
$
|
32,557
|
|
|
$
|
4,097,711
|
|
|
$
|
–
|
|
|
$
|
(2,674,795
|
)
|
|
$
|
–
|
|
|
$
|
1,455,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(88,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(88,000
|
)
|
Options issued for the purchase of fixed assets
|
|
|
–
|
|
|
|
–
|
|
|
|
26,532
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
26,532
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(847,860
|
)
|
|
|
–
|
|
|
|
(847,860
|
)
|
Balance, December 31, 2017
|
|
|
325,570,524
|
|
|
$
|
32,557
|
|
|
$
|
4,124,243
|
|
|
$
|
(88,000
|
)
|
|
$
|
(3,522,655
|
)
|
|
$
|
–
|
|
|
$
|
546,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase and cancellation of shares
|
|
|
(351,941
|
)
|
|
|
(35
|
)
|
|
|
(119,965
|
)
|
|
|
88,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(32,000
|
)
|
Stock issued for cash
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
24,900
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
Stock issued for settlement of accrued expenses
|
|
|
210,000
|
|
|
|
21
|
|
|
|
23,079
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
23,100
|
|
Options issued for debt settlement and services
|
|
|
–
|
|
|
|
|
|
|
|
312,489
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
312,489
|
|
Beneficial conversion feature
|
|
|
–
|
|
|
|
–
|
|
|
|
2,956,704
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,956,704
|
|
Stock option issued for services
|
|
|
–
|
|
|
|
–
|
|
|
|
1,492,499
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,492,499
|
|
Warrants issued services
|
|
|
–
|
|
|
|
–
|
|
|
|
1,300,126
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,300,126
|
|
Non controlling interest granted on Photo File acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,750,000
|
|
|
|
2,750,000
|
|
Net Income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(493,975
|
)
|
|
|
659,159
|
|
|
|
165,184
|
|
Balance, December 31, 2018
|
|
|
326,428,583
|
|
|
$
|
32,643
|
|
|
$
|
10,114,075
|
|
|
$
|
–
|
|
|
$
|
(4,016,630
|
)
|
|
$
|
3,409,159
|
|
|
$
|
9,539,247
|
|
The
accompanying notes are an integral part of these audited consolidated financial statements
GLOBE PHOTOS, INC.
(FKA CAPITAL ART, INC.)
Consolidated
Statements of Cash Flows
|
|
For the year ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
165,184
|
|
|
$
|
(847,860
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
129,204
|
|
|
|
|
|
Inventory reserve
|
|
|
56,500
|
|
|
|
|
|
Gain on bargain purchase options
|
|
|
(7,296,766
|
)
|
|
|
–
|
|
Depreciation and amortization
|
|
|
1,016,969
|
|
|
|
451,246
|
|
Amortization of debt discount
|
|
|
1,670,480
|
|
|
|
34,193
|
|
Options issued for services
|
|
|
1,492,499
|
|
|
|
–
|
|
Warrants issued for services
|
|
|
1,300,126
|
|
|
|
–
|
|
Loss of settlement of accrued liabilities
|
|
|
208,322
|
|
|
|
–
|
|
Change in fair value of embedded derivative
|
|
|
(9,195
|
)
|
|
|
(48,727
|
)
|
Inventory allowance
|
|
|
–
|
|
|
|
10,741
|
|
Gain on sale of property and equipment
|
|
|
–
|
|
|
|
(50,000
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(330,654
|
)
|
|
|
46,953
|
|
Prepaid expenses
|
|
|
(8,748
|
)
|
|
|
5,576
|
|
Inventory
|
|
|
–
|
|
|
|
(56,500
|
)
|
Deposits
|
|
|
(32,046
|
)
|
|
|
–
|
|
Deferred revenue
|
|
|
(250,000
|
)
|
|
|
75,000
|
|
Due to related parties
|
|
|
–
|
|
|
|
(12,607
|
)
|
Accounts payable and accrued liabilities
|
|
|
853,
335
|
|
|
|
17,714
|
|
Net Cash Used In Operating Activities
|
|
|
(1,034,790
|
)
|
|
|
(374,271
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of archival images, property and equipment
|
|
|
(37,425
|
)
|
|
|
(30,851
|
)
|
Proceeds for note receivable
|
|
|
–
|
|
|
|
50,000
|
|
Purchase of Photo File, Inc.
|
|
|
(1,515,000
|
)
|
|
|
–
|
|
Net Cash Provided By (Used In) Investing Activities
|
|
|
(1,552,425
|
)
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from loans payable
|
|
|
–
|
|
|
|
375,000
|
|
Repayment of loans payable
|
|
|
(96,801
|
)
|
|
|
(7,041
|
)
|
Proceeds from notes payable
|
|
|
150,000
|
|
|
|
35,000
|
|
Repayment of note payable
|
|
|
(170,000
|
)
|
|
|
(125,000
|
)
|
Repayment of note payable - related party
|
|
|
(33,060
|
)
|
|
|
(15,049
|
)
|
Proceeds from convertible notes payable, net
|
|
|
2,406,704
|
|
|
|
–
|
|
Proceeds from convertible notes payable, net – related party
|
|
|
500,000
|
|
|
|
–
|
|
Advances from related party
|
|
|
140,342
|
|
|
|
127,475
|
|
Proceeds from the sale of common stock
|
|
|
25,000
|
|
|
|
–
|
|
Purchase of treasury stock
|
|
|
(32,000
|
)
|
|
|
(88,000
|
)
|
Net Cash Provided By Financing Activities
|
|
|
2,890,185
|
|
|
|
302,385
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
302,970
|
|
|
|
(52,737
|
)
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of Period
|
|
|
1,297
|
|
|
|
54,034
|
|
|
|
|
|
|
|
|
|
|
Cash - End of Period
|
|
$
|
304,267
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15,037
|
|
|
$
|
16,882
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of third party notes by related party
|
|
$
|
212,500
|
|
|
$
|
–
|
|
Options issued to settle accrued liabilities
|
|
$
|
104,157
|
|
|
$
|
–
|
|
Beneficial conversion feature on convertible debt
|
|
$
|
2,956,704
|
|
|
$
|
–
|
|
Options issued for purchase of fixed assets
|
|
$
|
–
|
|
|
$
|
26,532
|
|
Notes payable issued for the settlement of accounts payable
|
|
$
|
50,000
|
|
|
$
|
–
|
|
Share issued for settlement of liability
|
|
|
23,100
|
|
|
|
–
|
|
Expenses paid on behalf of the company
|
|
$
|
–
|
|
|
$
|
21,000
|
|
The accompanying notes are an integral part of these audited consolidated financial statements
GLOBE PHOTOS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2018 and 2017
|
1.
|
ORGANIZATION AND BUSINESS OPERATIONS
|
Globe
Photos, Inc. (“we”, “our”, or 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.
Going Concern
The accompanying
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 December 31, 2018, the Company had $304,267 cash on hand.
At December 31, 2018 the Company has an accumulated deficit of $4,016,630. For the twelve months ended December 31, 2018, the Company
had a net loss of $493,975, and cash used in operations of $1,034,790. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
Over
the next twelve months the Company intends to invest its working capital resources in sales and marketing in order to increase
the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital
to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing
efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation and Principles of Consolidation
The
accompanying consolidated financial statements represent the results of operations, financial position and cash flows of Globe
Photos, Inc. 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, and Photo File, LLC. All inter-company balances and transactions have been eliminated.
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.
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.
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 December 31, 2018 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 December 31, 2018 and 2017.
The carrying
value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets
and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
Financial assets and liabilities
measured at fair value on a recurring basis are summarized below as of December 31, 2018:
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Financial assets and liabilities measured at fair
value on a recurring basis are summarized below as of December 31, 2017:
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
9,195
|
|
|
$
|
9,195
|
|
The following table provides
a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured
at fair value on a recurring basis using significant unobservable inputs:
|
|
|
Amount
|
|
Balance December 31, 2017
|
|
$
|
9,195
|
|
Change in fair market value of derivative liability
|
|
|
(9,195
|
)
|
Balance December 31, 2018
|
|
$
|
–
|
|
Related parties
The
Company follows ASC 850, "Related Party Disclosures" for reporting activities with related parties. A party is considered
to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled
by, or is under common control with the Company. Related parties also include principal owners of the Company, its management,
members of the immediate families of principal owners of the Company and its management and other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that
one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly
influence management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting
parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from
fully pursuing its own separate interests is also a related party.
Accounts receivable, net
The Company sells
its products through various means, including distributors, auction houses, retailers, and via the internet. The Company also
licenses its images to third parties for which royalty income is received by the Company. The Company continually monitors the
collectability of its trade accounts receivables based on a combination of factors, including the aging of the accounts receivable,
historical experience, and other currently available evidence and provides for an allowance for doubtful accounts equal to estimated
uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable.
There was an allowance for bad debt of $203,553 and $10,381 recorded during the years ended December 31, 2018 and 2017, respectively.
Inventory
Inventories are stated
at the lower of cost (average cost) or market (net realizable value). Direct labor and raw material costs associated with the
process of making the photos available for sale are also included in inventory at cost. These costs are expensed to cost of sales
pro-ratably as sold. Our inventory reserve reflects items that were deemed to be defective or obsolete based on an analysis of
all inventories on hand. As of December 31, 2018, and 2017, the Company has recorded allowance related to slow moving inventory
in the amount of $455,741 and $128,194, respectively.
Archival Images, and Property and Equipment
Archival images, and
property and equipment are recorded at cost for purchases over $500, and depreciated using the straight-line method over the estimated
useful lives ranging from three to ten years. The Company capitalizes direct costs associated with improvements to archival images,
and property and equipment in accordance with ASC 360 – Property, Plant, and Equipment. Leasehold improvements are amortized
on a straight-line basis over the shorter of their useful life or the term of the related lease. Expenditures for ordinary repairs
and maintenance are expensed as incurred.
Business Combination
The Company accounts
for its business combination using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”.
The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities
incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition
are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values
as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of
acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest
in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. Alternatively,
the excess of the (i) the fair value of the identifiable net assets of the acquire over (ii) the total costs of acquisition, fair
value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree
is recorded as a gain on bargain purchase.
Intangible Assets
Intangible
assets, consisting of content provider and photographic agreements, copyrights, trade name, non-competition, license agreements,
and customer relationships, are accounted for in accordance with ASC 350 Intangibles - Goodwill and Other. Intangible assets that
have finite lives are amortized using the straight-line method over their estimated useful lives of three to fifteen years.
Impairment of Long-Lived Assets
Long-lived
assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. In such situations, long-lived assets are considered impaired when future
undiscounted cash flows resulting the use of the asset and its eventual disposition are less than the asset’s carrying amount.
In such situations, the asset is written down to the present value of the estimated future cash flows. Factors that are considered
when evaluating long-lived assets for impairment include a current expectation that it is more likely than not that the long-lived
asset will be sold significantly before the end of its useful life, a significant decrease in the market price of the long-lived
asset, and a change in the extent of manner in which the long-lived asset is being used. Based on management’s assessment
there were no impairments to its long-lived assets at December 31, 2018 and 2017.
In the
acquisition of Photo File, Inc. we acquired trade names which are considered to have indefinite lives. An intangible asset with
an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in
circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.
Derivative Financial Instruments
The
Company accounts for derivative instruments in accordance with the provisions of ASC 815 - Derivatives Hedging: Embedded Derivatives.
ASC 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities.
The
Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms in agreements
are reviewed to determine whether or not they contain embedded derivatives that are required under ASC 815 to be accounted for
and separated from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities
is required to be revalued at each reporting date, with the corresponding changes in fair value recorded in current period operating
results.
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.
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.
Shipping and Handling
Shipping and handling
activities that occur after control over a product has transferred to a customer are accounted for as fulfillment activities rather
than performance obligations, as allowed under a practical expedient provided by Topic 606. The shipping and handling fees charged
to customers are recognized as revenue and the related costs are included in cost of revenue at the point in time when ownership
and control of the product is transferred to the customer.
Royalty expenses
Royalty
expense related to our license agreements, which are generally based on a percentage of our actual net sales for the agreement
or a contractually determined minimum royalty amount, are recorded based upon the guaranteed minimum levels and adjusted based
on net sales of the licensed products, as appropriate. In some cases, we may be required to make certain up-front payments for
the license rights, which are deferred and recognized as royalty expense over the term of the license agreement.
Stock-based Compensation
The
Company recognizes stock-based compensation issued to employees in accordance with ASC 718 – Compensation: Stock Compensation,
based on the fair value of the equity instrument in exchange for employee services and the resulting recognition of compensation
expense.
The
Company’s accounts for stock-based payment transactions with nonemployees for services in accordance with ASC 50-550 Equity:
Equity-based Payments to Non-Employees. If the fair value of the services received in a stock-based payment with nonemployees is
more reliably measurable than the fair value of the equity instrument issued, the fair value of the services received is used to
measure the transaction. Conversely, if the fair value of the equity instruments issued in a stock-based transaction with nonemployees
is more reliably measurable than the fair value of the consideration received, the transaction is measured at the fair value of
the equity instruments issued. The Company recognizes an increase in equity or a liability, depending on whether the equity instruments
granted have satisfied the equity or liability classification criteria.
Advertising
The Company expenses
the cost of advertising, including promotional expenses, as incurred. Advertising expenses for the twelve months ended December
31, 2018 and 2017 was $103,249 and $1,824, respectively.
Income Taxes
The
Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and
regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s
estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions
as of December 31, 2018 and 2017.
Deferred
income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates.
Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and
equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined
that it is more likely than not that some or all of the deferred tax assets will not be realized.
The application
of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations
themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations
and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from
management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously
recorded tax liabilities. Interest and penalties are included in tax expense.
The
Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision
for income taxes. As of December 31, 2018, and 2017, the Company had no accrued interest or penalties related to uncertain tax
positions.
Concentrations of Credit Risk and Financial Instruments
Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.
The
Company’s cash balances are placed at financial institutions, which at times, may exceed federally insured limits. Generally,
these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risk on cash.
Basic and Diluted Loss per Share
The Company computes
loss per share in accordance with ASC 260 - Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings
per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net loss
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible notes payable using the if-converted method. Diluted EPS excludes all dilutive potential shares if their effect
is antidilutive. During periods of net loss, all common stock equivalents are excluded from the diluted EPS calculation because
they are antidilutive.
As of December 31,
2018, the Company has common stock equivalents related to options and warrants outstanding to acquire 26,553,333 shares of
the Company’s common stock and convertible notes payable which convert into 26,070,500 shares of common stock.
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. The Company is evaluating the adoption of ASC 842, but has not determined the
effects it may have on the Company’s financial statements.
In November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective
for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. Management
evaluated ASU 2016-18 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s
consolidated financial statements.
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. We do not expect the
adoption of the standard will impact our financial position or results of operations.
In August 2018, the FASB issued ASU 2018-15,
"Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation
costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective
adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for us for annual periods beginning
January 1, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and
results of operations.
The Company has
evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's
financial position, results of operations or cash flows.
|
3.
|
GLOBE PHOTOS ASSET PURCHASE AGREEMENT
|
On July 22, 2015, the
Company entered into an Asset Purchase Agreement with Globe Photos, Inc. (“Globe”), a New York corporation, to purchase
of substantially all of the assets of Globe, which principally comprises of photographer contracts granting the Company the right
to exploit copyrights, digital and tangible photographs, and related copyrights and trademarks, of Globe Photos ( Globe Photos
Assets) for total purchase price of $400,000 payable in $250,000 cash and $150,000 payable in the common stock of the Company.
Per the agreement,
$180,000 in cash was held in reserve by the Company against Globe’s full performance and compliance with all terms of the
agreement. This amount is to be released to Globe at the rate of $10,000 per month beginning August 22, 2015. As of December 31,
2018, and 2017, the total reserve payable to Globe Photos, Inc. is $10,000.
The Agreement called for the
Common stock to be transferred to Globe sixty (60) days after closing subject to satisfaction of successful termination of certain
subagent agreements by Globe. Globe retained these certain subagent agreements but was not able to successfully terminate these
agreements. As such, the amount payable in common stock of the Company was reduced by $30,000, thereby reducing the total purchase
price of the assets acquired from $400,000 to $370,000. Under the terms of the Agreement the Company issued 352,941 shares of its
common stock based on the closing price of the Company’s common shares as traded on the OTC market on the measurement date
July 22, 2015 of $0.34 per share for a total of $120,000.
The Company evaluated the
Asset Purchase Agreement in accordance with ASC 805 – Business Combinations which notes the threshold requirements of a business
combination that includes the expanded definition of a “business” and defines elements that are to be present to be
determined whether an acquisition of a business occurred. No “activities” of Globe were acquired. Instead, the Company
obtained control of a set of inputs (the acquired assets). Thus, the Company determined agreement is an acquisition of assets,
not an acquisition of a business in accordance with ASC 805. The total purchase price of $370,000 in connection with the assets
acquired is included in archival images, and property and equipment, net, in the consolidated balance sheets.
As a form of liquidity
protection, Globe shall have limited put Warrants in connection with the common stock beginning eighteen (18) months after the
closing date, whereas the Company shall have up to fifteen (15) successive monthly Warrants , with no less than thirty (30) days’
notice for each, which requires the Company to repurchase from Globe up to 1/15th of the shares of common stock in Globe’s
possession that were granted in connection with the agreement, at a price per share equity to the market price per share ($0.34)
on the effective date of the original share transfer to Globe. The exercise of any put option is not conditioned upon exercise
of any prior put option. Beginning in January 2017, Globe exercised its option and elected to sell 1/15th of the shares of common
stock for $8,000 per month. As of December 31, 2018, the Company has repurchased 352,941 shares from Globe for cash payments of
$120,000.
|
4.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment as of December 31, 2018 and
2017 comprise of the following:
|
|
December 31,
|
|
|
Estimated
|
|
|
|
2018
|
|
|
2017
|
|
|
Useful Lives
|
|
Frank Worth Collection
|
|
$
|
2,770,000
|
|
|
$
|
2,770,000
|
|
|
10 years
|
|
Other archival images
|
|
|
4,576,768
|
|
|
|
939,343
|
|
|
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
|
|
|
|
|
7,515,567
|
|
|
|
3,878,142
|
|
|
|
|
Less accumulated deprecation
|
|
|
(1,981,887
|
)
|
|
|
(1
384,918)
|
|
|
|
|
Total property and equipment, net
|
|
$
|
5,533,680
|
|
|
$
|
2,493,224
|
|
|
|
|
Depreciation expense
for the years ended December 31, 2018 and 2017 was $596,969 and $407,746, respectively.
|
5.
|
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 Sportophotos.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 due was recorded as a payable to Photo File, Inc. as of December 31, 2018 in
the consolidated balance sheet.
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 has the 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 will 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.
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”.
The following table summarizes the acquisition
date fair value of the consideration paid, identifiable assets acquired and liabilities assumed.
Cash
|
|
|
2,000,000
|
|
10% Interest in sub
|
|
|
2,750,000
|
|
Royalty payments
|
|
|
4,279,000
|
|
Contingent consideration
|
|
|
2,000,000
|
|
Total Purchase Price
|
|
|
11,029,000
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
313,257
|
|
Other assets
|
|
|
–
|
|
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
|
|
$
|
18,325,766
|
|
|
|
|
|
|
Total bargain purchase gain
|
|
$
|
(7,296,766
|
)
|
Pro Forma
The following table below shows the unaudited
pro-forma information which assumes that the acquisition had been completed as of January 1, 2017.
|
|
For the years ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,871,458
|
|
|
|
7,632,707
|
|
Cost of revenue
|
|
|
5,638,308
|
|
|
|
4,786,126
|
|
Gross margin
|
|
|
2,233,150
|
|
|
|
2,846,581
|
|
Total operating expenses
|
|
|
8,232,369
|
|
|
|
4,654,091
|
|
Other income (expenses)
|
|
|
4,392,739
|
|
|
|
(109,288
|
)
|
Net loss
|
|
|
(1,606,480
|
)
|
|
|
(1,916,798
|
)
|
|
6.
|
INTANGIBLE ASSETS, NET
|
|
|
December 31, 2018
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
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
|
|
|
$
|
140,000
|
|
|
$
|
260,000
|
|
|
$
|
400,000
|
|
|
$
|
100,000
|
|
|
$
|
300,000
|
|
Copyrights
|
|
|
35,000
|
|
|
|
12,250
|
|
|
|
22,750
|
|
|
|
35,000
|
|
|
|
8,750
|
|
|
|
26,250
|
|
Copyrighted Image Library
|
|
|
4,100,000
|
|
|
|
102,500
|
|
|
|
3,997,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Non-Compete and Non-Solicitation
Covenants
|
|
|
90,000
|
|
|
|
7,500
|
|
|
|
82,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Trade name
|
|
|
340,000
|
|
|
|
–
|
|
|
|
340,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
License agreements
|
|
|
9,000,000
|
|
|
|
150,000
|
|
|
|
8,850,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Customer relationships
|
|
|
2,330,000
|
|
|
|
116,500
|
|
|
|
2,213,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
16,295,000
|
|
|
$
|
528,750
|
|
|
$
|
15,766,250
|
|
|
$
|
435,000
|
|
|
$
|
108,750
|
|
|
$
|
326,250
|
|
Total amortization
expense for the twelve months ended December 31, 2018 and 2017 was $420,000 and $43,500, respectively and is included in cost
of sales in the consolidated statements of operations. Estimated amortization expense over the next five years is $1,629,500 per
year.
On September 28, 2015,
the Company entered into a promissory note agreement for working capital purposes with an unrelated party for total proceeds of
$150,000. Interest accrues at the rate of 10% per annum and is payable monthly beginning October 28, 2015. The note matured on
September 28, 2016. Effective September 28, 2016, the note was extended to March 31, 2017 and is secured by approximately 240,000
vintage photographs. The note was further extended to July 31, 2017 and then to December 31, 2017. Effective March 30, 2018, the
note was extended to June 30, 2018. Effective June 30, 2018 the note was extended to August 31, 2018. During the year ended December
31, 2018, the Company made a payment of $150,000 to settle principal balance of the note.
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 June
30, 2019. The notes bear interest at the rate of 6% per annum. Accrued interest payable due under the unsecured note agreement
was $4,130 and $2,630 as of December 31, 2018 and 2017, respectively.
On April
7, 2016, an unrelated party advanced the Company $75,000 plus an original issue discount of $25,000 for the purchase of a Marilyn
Monroe archive. The advance is secured by the archive for which it was used and is to be repaid on or before April 7, 2017. As
of May 3, 2017, the note was extended to December 31, 2017; on March 28, 2018, the note was extended to June 30, 2018; and on June
30, 2018, the note was further extended to September 30, 2018. The Company has agreed to pay 50% of the proceeds derived from the
Marilyn Monroe archives up to a guaranteed total of $100,000. Once the $100,000 is paid, the Company has no further obligations.
As of December 31, 2018 and 2017, a balance of $0 and $20,000 remains outstanding, respectively.
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 December 31, 2018 and 2017, 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 December 31, 2018. 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
$0 as of December 31, 2018 and 2017, 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.
From July 2018
to December 31, 2018, we issued 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 accounts payable.
The convertible notes bear interest at a rate of 10% per annum, mature on April 30, 2019 and are secured by certain archival images
owned by the Company. The notes and accrued interest are convertible at the option of the noteholder into our common stock at $0.10
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 $2,456,704 related to the beneficial conversion feature
(“BCF”) 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 $325,346 which was recorded as a debt discount and accreted to interest expense over the term of the notes. The Company
is also required to issue an equity fee in the form of warrants with an exercise price of $0.10 per share equivalent to 10% of
amounts raised. Likewise, upon receipt of $1.5 million proceeds from the financing, the Company is also required to issue 1 million
warrants with an exercise price of $0.10 per share as a milestone bonus for reaching financing milestones goals. As of December
31, 2018, the Company has issued 6,500,000 warrants valued at $1,300,126 related to the equity fee and milestone bonuses.
During the year ended
December 31, 2018, the Company recorded interest expense of $2,019,203 of which $1,389,163 was related to the accretion of the
debt discount and financing cost. As of December 31, 2018, the convertible notes are shown net of unamortized debt discount and
financing cost of $1,392,887.
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, mature on April 30, 2019 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 $0.10 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. As of December 31, 2018, this note is showing as
Convertible
Notes - related party, net of debt discount
.
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 year ended December 31, 2018, the Company recorded interest expense of $285,304 of which $266,537 was related to the accretion
of the debt discount. As of December 31, 2018, the convertible note is shown net of unamortized discount of $233,463.
|
9.
|
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 December 31, 2018 and 2017, 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 $50,662 and $34,412 as of December 31, 2018
and 2017, 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 the 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 $8,227 and $5,227 as of December 31, 2018 and 2017, respectively. All the accrued interest through the 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 year ended December 31, 2018, the Company made payment of $14,960. As of December 31, 2018
and 2017, $46,175 and $61,135 was outstanding under the unsecured promissory note agreement, respectively. Interest expense for
the year ended December 31, 2018 and 2017 was $2,309 and $3,057 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.
Effective September
11, 2014 the Company entered into two separate unsecured promissory note agreements for $20,500 each with two related parties,
Dreamstar an entity owned and controlled by Sam Battistone, a Company officer and director and a principal shareholder, and Dino
Satallante, a beneficial interest shareholder of the Company, for working capital purposes. The loans bear interest at the rate
of 6% per annum. The loans matured on September 10, 2015 and were extended to December 31, 2016. In December 2016, both loans
were extended to December 31, 2017 and on March 30, 2018, the notes were extended to June 30, 2018 and on June 30, 2018, one of
the note was further extended to December 31, 2018, and on February 11, 2019 the note was further extended to December 31, 2019.
The outstanding balance on the note issued to Dreamstar was fully paid during the year ended December 31, 2018. As of December
31, 2018, $20,500 and $0 was outstanding to Dino Satallante and Dreamstar, respectively. At December 31, 2017, $20,500 and $18,100
was outstanding to Dino Satallante and Dreamstar, respectively. Aggregate accrued interest in connection with the two unsecured
promissory note agreements for the year ended December 30, 2018 and 2017 was $5,386 and 5,584.
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 years ended December 31, 2018 and 2017 is $19,200 and $19,200. Per the terms of the agreement the Company incurred loan fees
totaling $8,000 which was fully amortized in 2016. 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,
a
nd on February 11, 2019 the
note was further extended to December 31, 2019.
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 $5,200 for both the years ended December 31, 2018 and 2017.
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 matures 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 $3,000 for both the years ended December 31, 2018 and 2017, respectively. All the accrued interest
through the 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 matures 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 $3,000 for both the years ended December 31, 2018 and 2017.
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 matures 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 $1,890 for both the years ended December 31, 2018 and 2017, 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.
|
10.
|
RELATED PARTY TRANSACTIONS
|
Due From/To Related Parties
The following
table summarizes amounts due to related parties for expenses paid for on the behalf of the Company as of December 31, 2018 and
2017. 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.
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Due to related parties:
|
|
|
|
|
|
|
|
|
ICONZ Art, LLC, beneficial interest shareholder
|
|
$
|
259,392
|
|
|
$
|
119,081
|
|
MSN Holding Co., beneficial interest shareholder
|
|
|
12,947
|
|
|
|
12,947
|
|
Premier Collectibles, beneficial interest shareholder
|
|
|
15,085
|
|
|
|
15,085
|
|
Total due to related parties
|
|
$
|
287,455
|
|
|
$
|
147,113
|
|
|
11.
|
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. For the year ended December 31, 2018
and 2017, interest expense related to these loans amounted to $14,781 and $21,028, respectively, which has been included in interest
expense and a corresponding increase in loans payable. During the years ended December 31, 2018 and 2017, the Company made payments
of $96,801 and $7,041 to the loan holders, respectively. As of December 31, 2018, loan payable net of unamortized debt discount
amounted $481,785.
Asset purchase agreements
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 1,000,000 shares of common stock within
120 days of the effective date of the agreement. The Company valued the 1,000,000 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 December 31, 2018, other debt, net of unamortized debt discount amounted
to $200,000.
On July 21, 2017,
the Company entered into an agreement to sell 25% of its ownership in a certain photographic archive asset for $175,000. As part
of the agreement the buyer received preferential distributions of their entire purchase price of the asset plus a 30% return.
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 plus a 30% return has been paid. During the year ended December 31, 2018, the Company
entered into an addendum to the agreement to remove the preferential distributions clause from the agreement. As such, the Company
has reclassified the debt to revenue for the year ended December 31, 2018.
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 December 31, 2018,
the Company has paid $75,000 toward the guaranteed royalties.
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 December 31, 2018, the Company has paid $355,575 in royalty expenses associated with
these agreements which has been included in cost of sales.
Operating Lease Agreements
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.
The Company 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.
Photo File's 43,000
square foot leased facility, located in Mount Kisco, NY. On January 30, 2007, Photo File signed a twelve year and nine-month lease,
expiring on March 1, 2020, for approximately 43,000 square feet of office and warehouse space with rent starting at $41,988 per
month with annual increases of 2% per year.
Total rent expense
for the year ended December 31, 2018 and 2017 was $238,238 and $54,076, respectively, in connection with the operating lease agreements.
Future minimum lease
payments are below:
2019
|
|
|
62,922
|
|
2020
|
|
|
65,793
|
|
2021
|
|
|
20,354
|
|
Total
|
|
|
149,069
|
|
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 December 31, 2018 and 2017, there were no shares of Preferred Stock issued and outstanding.
Common Stock
The Company is authorized to issue up to 450,000,000
shares of common stock with a par value of $0.0001. As of December 31, 2018, and 2017, there were 326,428,583 and 325,570,524 shares
of common stock issued and outstanding, respectively.
During the year ended
December 30, 2018, the Company repurchased 94,118 shares of common stock for $32,000 related to the Globe Photos Asset Purchase
Agreement entered on July 22, 2015.
As of December 31,
2018, the Company has repurchased 351,941 shares from Globe for cash payments of $120,000
During the year ended
December 31, 2018, the Company in connection with a consulting agreement issued 1,000,000 shares of common stock for $25,000.
On October 11, 2018,
the Company issued 210,000 shares of common stock valued at $23,100 for the settlement of consulting fees.
STOCK WARRANTS
On December 17, 2018,
we granted 6,500,000 2-year warrants to various individuals in relation to our debt offering with exercise prices of $0.10 valued
at $1,300,126 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 $0.21; b) risk-free rate of 2.72%; c) volatility
factor of 359.82%; d) dividend yield of 0%
The following is a summary of
stock warrant activity during the year ended December 31, 2018.
|
|
|
Number
of Shares
|
|
|
|
Weighted
Average Exercise Price
|
Balance, December 31, 2017
|
|
|
–
|
|
|
$
|
–
|
Warrants granted and assumed
|
|
|
6,500,000
|
|
|
$
|
0.10
|
Warrants expired
|
|
|
–
|
|
|
|
–
|
Warrants canceled
|
|
|
–
|
|
|
|
–
|
Warrants exercised
|
|
|
–
|
|
|
|
–
|
Balance outstanding, December 31, 2018
|
|
|
6,500,000
|
|
|
$
|
0.10
|
Balance exercisable, December 31, 2018
|
|
|
6,500,000
|
|
|
$
|
0.10
|
As of December 31, 2018, the
outstanding warrants have a weighted average remaining term of was 1.95 years and an intrinsic value of $845,000.
STOCK OPTIONS
The following is a summary of stock option activity
during the year ended December 31, 2018:
On June 1, 2018, the
Company granted 2,183,333, 10-year stock Options of which 2,083,333 was in lieu of common stock with exercise prices of $0.01 valued
at $327,488 for services and settlement of $104,167 in accrued liabilities. The difference between the fair value of the Options
and accrued liability was recorded as a loss on settlement of accrued liability in the amount of $208,322 during the year ended
December 31, 2018. The Options 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 $0.15; b) risk-free rate of 2.89%; c) volatility factor of 238%;
d) dividend yield of 0%
On October 24, 2018, we granted Shamar
Tobias, our Chief Financial Officer 2,000,000 five-year stock Options at an exercise price of $0.10 per share valued $297,715.
500,000 option shares are vested on the date of grant and 500,000 option shares vest every six months of service thereafter up
to the maximum of 2,000,000 option shares.
On November 15, 2018, we
granted Daniel DiEdwardo our Chief Operating Officer 5,250,000 ten-year option to purchase at an exercise price of $0.05 per share
valued at $577,500. The option is 100% vested on issuance.
On November 15, 2018, we
granted Scott Black our Chief Legal Officer 7,500,000 ten-year option to purchase at an exercise price of $0.05 per share valued
at $825,000. The option is 100% vested on issuance.
On December 30, 2018,
we granted, 3,000,000 5-year cashless Options to our investor relations firm with an exercise price of $0.20 valued at $744,501
for services.
As of the December
31, 2018, we had total expense related to the issuance of stock option of $1,492,499. 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 $0.11- $0.25; b) risk-free rate of 2.65 – 3.11%; c) volatility factor of 227-314%; d) dividend yield of 0%.
Summary of option
activity as of December 31, 2018 is presented below:
|
|
|
Number of Shares
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance, December 31, 2016
|
|
|
–
|
|
|
|
–
|
|
Options granted and assumed
|
|
|
100,000
|
|
|
$
|
0.10
|
|
Options expired
|
|
|
–
|
|
|
|
–
|
|
Options canceled
|
|
|
–
|
|
|
|
–
|
|
Options exercised
|
|
|
–
|
|
|
|
–
|
|
Balance, December 31, 2017
|
|
|
100,000
|
|
|
$
|
0.10
|
|
Options granted and assumed
|
|
|
19,933,333
|
|
|
$
|
0.02
|
|
Options expired
|
|
|
–
|
|
|
|
–
|
|
Options canceled
|
|
|
–
|
|
|
|
–
|
|
Options exercised
|
|
|
–
|
|
|
|
–
|
|
Balance exercisable, December 31, 2018
|
|
|
15,533,333
|
|
|
$
|
0.07
|
|
As of December 31, 2018, the
outstanding options have a weighted average remaining term of was 8.55 years and an intrinsic value of $3,138,333.
Significant components of the
Company’s deferred tax assets and liabilities for federal and state income taxes as of December 31, 2018 and 2017 are as
follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
1,051,000
|
|
|
$
|
766,000
|
|
Provisions and accrued liabilities
|
|
|
–
|
|
|
|
29,000
|
|
Deferred tax liabilities:
|
Total deferred tax asset
|
|
|
1,051,000
|
|
|
|
795,000
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(1,051,000
|
)
|
|
|
(795,000
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
As of December 31,
2018 and 2017, the Company had gross federal net operating loss carryforwards of approximately $5,005,458 and $2,538,208, respectively.
The Company expects the limitation placed on the federal net operating loss carryforwards prior to the ownership change will likely
expire unused. As of December 31, 2018, all tax years are open for examination by the taxing authorities.
Due to the enactment of the Tax Reform Act of 2017, the corporate
tax rate for those tax years beginning with 2018 has been reduced to 21%.
Subsequent to December 31, 2018, the Company issued additional convertible notes to accredited investors
totaling to $651,050. The notes mature on April
30, 2019, bear interest at the rate of 10% per annum, and are convertible along with accrued interest at $0.10 per share at the
option of the note holders. In connection with the private placement, the Company paid a consultant fees of $84,106.
On February 22, 2019,
the Company entered into an asset purchase agreement to purchase various images, prints, slides, negatives, and transparencies
for $100,000. Additionally, the Company assumed the lease where the assets are located at a cost of approx. $10,500 per year and
agreed to pay a 10% royalty on all reproduction print sold.
Subsequent to December
31, 2018, the Company sold 11,120,000 shares for $1,120,000. As of the date of the filing the Company has received $800,000. As
of the date of filing the shares have not been issued.
Subsequent to December
31, 2018, the Company made the final payment due to per the asset purchase agreement dated October 11, 2018 (See Note 5) .
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.
Units
Shares
of Common Stock
PROSPECTUS
Roth Capital Partners
,
2019
Until ,
2019 (25 days after the date of this prospectus), all dealers, whether or not participating in this offering, that effect transactions
in these securities may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling previously unsold allotments or subscriptions.
Information Not Required in Prospectus
Item 13.
|
Other expenses of issuance and distribution.
|
The following table indicates estimated
expenses to be incurred in connection with the issuance and distribution of the securities registered under this registration statement,
other than underwriting discounts and commissions, all of which will be paid by us. All amounts shown are estimated except the
SEC registration fee and the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee.
SEC registration fee
|
|
$
|
1,575.60
|
|
FINRA filing fee
|
|
$
|
3,000.00
|
|
Exchange listing fee
|
|
$
|
50,000.00
|
|
Legal fees and expenses
|
|
$
|
100,000.00
|
|
Accounting fees and expenses
|
|
$
|
15,000.00
|
|
Transfer agent fees and expenses
|
|
$
|
7,500.00
|
|
Miscellaneous expenses
|
|
$
|
2,500.00
|
|
TOTAL
|
|
$
|
179,575.60
|
|
Item 14.
|
Indemnification of directors and officers.
|
Section 145(a) of the Delaware General
Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees),
judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action,
suit, or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful.
Section 145(b) of the Delaware General
Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment
in its favor because the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to
any claim, issue, or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view
of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or other adjudicating court shall deem proper.
Section 145(g) of the Delaware General
Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify the person against such liability under Section 145 of the Delaware
General Corporation Law.
Our bylaws provide that we will indemnify,
to the fullest extent permitted by the Delaware General Corporation Law, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative,
by reason of the fact that he, or a person for whom he is the legal representative, is or was one of our directors or officers
or, while serving as one of our directors or officers, is or was serving at our request as a director, officer, employee, or agent
of another corporation or of another entity, against all liability and loss suffered and expenses (including attorneys’ fees)
reasonably incurred by such person, subject to limited exceptions relating to indemnity in connection with a proceeding (or part
thereof) initiated by such person. Our bylaws that will be in effect upon completion of this offering will further provide for
the advancement of expenses to each of our officers and directors.
Our certificate of incorporation provides
that “No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent
provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit.”
We also intend to maintain a general liability
insurance policy which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions
in their capacities as directors or officers, whether or not we would have the power to indemnify such person against such liability
under the Delaware General Corporation Law or the provisions of charter or bylaws.
Item 15.
|
Recent sales of unregistered securities.
|
Set forth below is information regarding
unregistered shares of capital stock issued by us within the last three years. Also included is the consideration received by us
for such shares and information relating to the section of the Securities Act, or SEC rule, under which exemption from registration
was claimed.
In April 2017, the board approved the issuance,
but did not issue, 2,083,333 shares of common stock at fair value of $0.05 per share for 2015 services valued at $104,167 rendered
by a consultant. On June 1, 2018, the board granted 2,083,333 10-year stock options with an exercise price of $0.01 valued at $312,489
in lieu of the common stock for settlement of the liability.
On March 30, 2018, the Company entered into
agreements to grant 15,283,333 10-year stock options with exercise prices ranging from $0.01 - $0.05 for services and settlement
of accrued liabilities. However, on May 15, 2018, the Company’s board secured waivers and cancelled the option grant agreements
until such time that the Company’s board of directors approve the Company’s stock incentive plan.
On June 1, 2018, we granted 100,000 10-year
stock options with exercise prices of $0.01 valued at $15,000 for services.
From July 2018 to December 31, 2018, we
executed Convertible Promissory Notes (the “Notes”) in the aggregate principal amount of $3,282,050 to several accredited
investors. The notes mature on April 30, 2019, bear interest at the rate of 10% per annum, and are convertible along with accrued
interest at $0.10 per share at the option of the note holders. The proceeds of the Notes are to be used in connection with our
payment obligations under the asset purchase agreement we signed with Photo File and for our general working capital purposes.
Subsequent to December
31, 2018, the Company issued additional convertible notes to accredited investors totaling $521,030. The notes mature on April
30, 2019, bear interest at the rate of 10% per annum, and are convertible along with accrued interest at $0.10 per share at the
option of the note holders.
During the year ended December 31, 2018
the Company in connection with a consulting agreement issued 1,000,000 shares of common stock for $25,000.
On October 24, 2018, we entered into a consulting
agreement with SLT Holding, LLC, an entity owned and controlled by Shamar Tobias, our Chief Financial Officer. The agreement may
be terminated by either party with or without cause on 30 days’ notice. We agreed to compensate SLT Holding, LLC $6,000 monthly
and we granted Mr. Tobias an option to purchase 2,000,000 shares of our common stock at an exercise price of $0.10 per share. 500,000
option shares are vested on the date of grant and 500,000 option shares vest every six months of service thereafter up to the maximum
of 2,000,000 option shares. These options expire 5 years from vesting.
On November 12, 2018, the Company issued
210,000 shares of common stock valued at $23,100 for the settlement of consulting fees.
On November 15, 2018, we entered into a
consulting agreement with TD Ventures, LLC, an entity owned and controlled by Tucker DiEdwardo, our Chief Operating Officer. The
agreement may be terminated by either party with or without cause on 90 days’ notice. We agreed to compensate TD Ventures,
LLC $7,000 monthly and we granted Mr. DiEdwardo a ten year option to purchase 5,250,000 shares of our common stock at an exercise
price of $0.05 per share. The option is 100% vested on issuance.
On November 15, 2018, we entered into a
consulting agreement with Scott Black, our Chief Legal Officer. The agreement may be terminated by either party with or without
cause on 30 days’ notice. We granted Mr. Black a ten year option to purchase 7,500,000 shares of our common stock at an exercise
price of $0.05 per share. The option is 100% vested on issuance.
On December 17, 2018, we granted 6,500,000
2-year stock options to various individuals with exercise prices of $0.10 valued at for services.
During the year ended December 31, 2018,
we granted, 3,000,000 5-year cashless options to our investor relations firm with an exercise price of $0.20 for services.
We did not, nor do we plan to, pay or give,
directly or indirectly, any commission or other remuneration, including underwriting discounts or commissions, in connection with
any of the issuances of securities listed above. The Registrant believes the offers, sales and issuances of the above securities
were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act (or Regulation D
promulgated thereunder) because the issuance of securities to the recipients did not involve a public offering, or in reliance
on Rule 701 because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided
under such rule. In addition, each of the certificates issued or to be issued representing the securities in the transactions listed
above bears or will bear a restrictive legend permitting the transfer thereof only in compliance with applicable securities laws.
The recipients of securities in each of the transactions listed above represented to us or will be required to represent to us
their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution
thereof. All recipients had or have adequate access, through their employment or other relationship with our company or through
other access to information provided by our company, to information about our company.
Item 16. Exhibits and Financial
Statement Schedules.
(a) Exhibits.
The Registrant has filed the exhibits listed
on the accompanying Exhibit Index of this Registration Statement.
(b) Financial Statement Schedules.
All financial statement schedules are omitted
because the information called for is not required or is shown either in the financial statements or in the notes thereto.
(a)
|
The undersigned registrant hereby undertakes:
|
(1) To file, during any period in which
offers, or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required
by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement.
(iii) To include any material information
with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means
of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(5) (ii) That, for the purpose of
determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying
on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with
a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first
use.
(6) For the purpose of determining liability
of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering
of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus
of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating
to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing
prospectus relating to the offering containing material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an
offer in the offering made by the undersigned registrant to the purchaser.
(f) The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability
under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
EXHIBIT INDEX
Exhibit
Number
|
|
Description of Exhibit
|
|
|
1.1*
|
|
Form of Underwriting Agreement
|
|
|
2.1(1)
|
|
Asset Purchase Agreement by and between Movie Star News LLC and the Company, dated October 8, 2014
|
|
|
2.2(2)
|
|
Asset Purchase Agreement by and between Globe Photos, Inc. and the Company, dated July 22, 2015
|
|
|
2.3(3)
|
|
Asset Purchase Agreement by and between Photo File, Inc. and the Company, dated October 11, 2018
|
|
|
3.1(1)
|
|
Certificate of Incorporation
|
|
|
3.2(1)
|
|
Certificate of Amendment, dated December 2, 2004
|
|
|
3.3(1)
|
|
Certificate of Amendment, dated February 11, 2005
|
|
|
3.4(1)
|
|
Certificate of Amendment, dated April 30, 2007
|
|
|
3.5(1)
|
|
Certificate of Amendment, dated December 7, 2009
|
|
|
3.6(1)
|
|
Certificate of Amendment, dated April 30, 2007
|
|
|
3.7(4)
|
|
Certificate of Merger, dated June 6, 2018
|
|
|
3.8(1)
|
|
Bylaws
|
|
|
4.1*
|
|
Specimen stock certificate evidencing the shares of common stock
|
|
|
4.2*
|
|
Form of Common Stock Warrant
|
|
|
4.3*
|
|
Form of Warrant issued to Roth Capital Partners, LLC in connection with this offering
|
|
|
5.1*
|
|
Opinion of Procopio, Cory, Hargreaves & Savitch LLP
|
|
|
10.1(1)
|
|
Photographic Reproduction and Marketing Rights Agreement, dated November 18, 2011, by and between the Estate of Frank Worth and the Company
|
|
|
10.2(1)
|
|
Purchase Agreement, dated as of December 21, 2011, by and among International Imaged Ltd, Birchley Ltd. And the Company
|
|
|
10.3(1)
|
|
Deed of Variation, dated as of February 28, 2013, by and among International Imaged Ltd., Birchley Ltd. And the Company
|
|
|
10.4(5)
|
|
Form of Secured Convertible Promissory Note
|
|
|
10.5#(7)
|
|
2018
Incentive Plan and related form agreements
|
|
|
10.6#(7)
|
|
Consulting
Agreement, dated October 24, 2018, by and between SLT Holding, LLC and the Company
|
|
|
|
10.7#(6)
|
|
Consulting Agreement, dated November 15, 2018, by and between TD Ventures, LLC and the Company
|
|
|
10.8#(6)
|
|
Consulting Agreement, dated November 15, 2018, by and between Scott C. Black and the Company
|
(1)
|
Incorporated by reference to the Form 10 filed with the SEC on February 10, 2015
|
(2)
|
Incorporated by reference to the Form 10-Q filed with the SEC on November 16, 2015
|
(3)
|
Incorporated by reference to the Form 8-K filed with the SEC on October 15, 2018
|
(4)
|
Incorporated by reference to the Form 8-K filed with the SEC on June 28, 2018
|
(5)
|
Incorporated by reference to the Form 8-K filed with the SEC on October 26, 2018
|
(6)
|
Incorporated by reference to the Form 8-K filed with the SEC on November 28, 2018
|
(7)
|
Incorporated by reference to the Form S-1
filed with the SEC on February 13, 2019
|
(8)
|
Incorporated by reference to the Form 8-K
filed with the SEC on April 30, 2019
|
#
|
Indicated management contract or compensatory plan or arrangement
|
*
|
To be filed by amendment
|
SIGNATURES
Pursuant to
the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Las Vegas, State of Nevada, on this 30
th
day of April,
2019.
|
GLOBE PHOTOS, INC.
|
|
|
|
|
|
By:
|
|
|
/s/ Stuart Scheinman
|
|
|
|
|
Stuart Scheinman
|
|
|
|
|
President and Chief Executive Officer
|
Pursuant to the
requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities
held on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/ Stuart
Scheinman
Stuart Scheinman
|
|
President, Chief Executive Officer and Director (Principal Executive Officer)
|
|
April
30, 2019
|
|
|
|
/s/ Evan
Bedell
Evan Bedell
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
April
30, 2019
|
|
|
|
*
Sam D. Battistone
|
|
Chairman of the Board of Directors
|
|
April
30, 2019
|
|
|
|
/s/ Scott
C. Black
Scott C. Black
|
|
Secretary, Chief Legal Officer and Director
|
|
April
30, 2019
|
|
|
|
*
Jerry Nadal
|
|
Director
|
|
April
30, 2019
|
|
|
|
*
Barbara D’Amato
|
|
Director
|
|
April
30, 2019
|
|
|
|
*
Luisa Ingargiola
|
|
Director
|
|
April
30, 2019
|
|
|
|
*
George Smith
|
|
Director
|
|
April
30, 2019
|
*By:
|
|
|
/s/ Stuart Scheinman
|
|
|
|
Stuart Scheinman
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
*By:
|
|
|
/s/ Scott C. Black
|
|
|
|
Scott C. Black
|
|
|
|
Secretary and Chief Legal Officer
|