The accompanying notes are an integral part of these audited consolidated financial statements
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.
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.
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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 $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. 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.
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.