Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
|
1.
|
ORGANIZATION
AND BUSINESS OPERATIONS
|
Globe
Photos, Inc. (“we”, “our”, the “Company”) sells and manages classic and contemporary, limited
edition photographic images and reproductions, with a focus on iconic celebrity images. The Company also makes available its images
for publications and merchandising. 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.
Going
Concern
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
Management
evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date
the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability
to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s
ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide
sufficient cash flows to enable the Company to finance its operations internally. As of June 30, 2018, the Company had $25,317
cash on hand. At June 30, 2018 the Company has an accumulated deficit of $4,114,878. For the six months ended June 30, 2018, the
Company had a net loss of $592,223 and cash used in operations of $199,436. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
The Company intends to invest its
working capital resources in sales and marketing in order to increase the distribution and demand for its products. If the Company
fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company
may be forced to scale back or discontinue its sales and marketing efforts. However, there is no guarantee the Company will generate
sufficient revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
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2.
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SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of Presentation
The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP)
and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain
information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have
been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial
statements for the six months ended June 30, 2018 should be read in conjunction with the consolidated financial statements and
accompanying notes included in the Company’s Form 10-K for the Company’s fiscal year ended December 31, 2017 as filed
with the SEC pursuant to Rule 12(b) under the Securities Act of 1934.
The consolidated balance sheet as of
December 31, 2017, included herein was derived from the audited financial statements as of that date, but does not include all
disclosures including notes required by GAAP.
The accompanying unaudited consolidated
financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations,
and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the
year ended December 31, 2018.
Globe Photos, Inc.
(
Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
The accompanying unaudited consolidated
financial statements represent the results of operations, financial position and cash flows of Globe Photos, Inc., and its 100%
owned subsidiary Capital Art, LLC for the three and six months ended June 30, 2018 and 2017. 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.
Inventory
The Company’s inventory is comprised
of rare photos of movie stars and other famous people, and is stated at the lower of cost or 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.
Revenue Recognition
The Company recognizes revenue related to product sales
when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay
for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future
performance to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition.
Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date. 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 statements of operations for the three and
six months ended June 30, 2018 as a result of applying Topic 606.
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. Revenues
from royalties as of June 30, 2018 and 2017 were insignificant.
Recent Accounting Pronouncements
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.
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
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3.
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FAIR VALUE OF FINANCIAL INSTRUMENTS
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The Company’s derivative liability
measured at fair value on a recurring basis was determined using the following inputs:
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|
Fair Value Measurements at June 30, 2018
|
|
|
|
|
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Quoted Prices in Active Markets for Identical Assets
|
|
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Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
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Put option derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair Value Measurements at December 31, 2017
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Put option derivative liability
|
|
$
|
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:
|
|
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
|
|
|
|
Embedded
Derivative Liability
|
|
|
|
June
30, 2018
|
|
|
|
December
31, 2017
|
Balance beginning of period
|
|
$
|
9,195
|
|
|
$
|
57,922
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Change in fair market value of derivative liability
|
|
|
(9,195
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)
|
|
|
(48,727)
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Balance end of period
|
|
$
|
—
|
|
|
$
|
9,195
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The Company’s derivative instruments 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 $0.17; b) risk-free rate of 1.63%; c) volatility factor of 276%; d) dividend yield of 0% and e) remaining term of 0.14
years. During the six months ended June 30, 2018, all derivative instruments were settled by the Company.
4.
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GLOBE PHOTO 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 Photo ( Globe Photo Assets)
for total purchase price of $400,000 payable in $250,000 cash and $150,000 payable in the common stock of the Company.
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
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, 2017 and
2016, 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 options 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 options, 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 June 30, 2018, the Company has repurchased 352,941 shares from Globe for cash payments of $120,000.
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5.
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PROPERTY AND EQUIPMENT, NET
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Property and equipment
as of June 30, 2018 and December 31, 2017 comprise of the following:
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June
30,
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|
December
31,
|
|
Estimated Useful
|
|
|
2018
|
|
2017
|
|
Lives
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Frank Worth Collection
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$
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2,770,000
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|
|
$
|
2,770,000
|
|
|
10 years
|
Other archival images
|
|
|
952,265
|
|
|
|
939,343
|
|
|
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
|
|
|
|
3,891,064
|
|
|
|
3,878,142
|
|
|
|
Less accumulated deprecation
|
|
|
(1,591,609
|
)
|
|
|
(1,384,918
|
)
|
|
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Total
archival images, property and equipment, net
|
|
$
|
2,299,455
|
|
|
$
|
2,493,224
|
|
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Depreciation
expense was $206,691, and $203,835 for the six months ended June 30, 2018 and 2017, respectively of which $210,507
and $210,039 are reported in cost of revenue, respectively.
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
|
6.
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INTANGIBLE ASSETS, NET
|
Identifiable intangible assets comprise
of the following at June 30, 2018 and December 31, 2017:
|
|
June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Content provider and photographic agreements
|
|
$
|
400,000
|
|
|
$
|
120,000
|
|
|
$
|
280,000
|
|
|
$
|
400,000
|
|
|
$
|
100,000
|
|
|
$
|
300,000
|
Copyrights
|
|
|
35,000
|
|
|
|
10,500
|
|
|
|
24,500
|
|
|
|
35,000
|
|
|
|
8,750
|
|
|
|
26,250
|
Total
|
|
$
|
435,000
|
|
|
$
|
130,500
|
|
|
$
|
304,500
|
|
|
$
|
435,000
|
|
|
$
|
108,750
|
|
|
$
|
326,250
|
Amortization
expense in connection with the photographic agreements and copyrights for the six months ended June 30, 2018 and 2017 was $21,750
and is included in cost of revenue in the consolidated
statements of operations
.
Estimated amortization expense over the next five years is $43,500 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. 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. Interest accrues at the rate of 10% per annum and is payable monthly beginning October 28, 2015. Accrued
interest payable due under the note agreement was $13,904 and $15,154 at June 30, 2018 and December 31, 2017, respectively. 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.
On April 1, 2016, the Company entered
into a unsecured promissory note agreements 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 bear interest at the rate of 6% per annum. Accrued interest payable due under the
unsecured note agreement was $3,380 and $2,630 as of June 30, 2018 and December 31, 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, as of March 28, 2018, was extended to June 30, 2018, and on June 30, 2018
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 June
30, 2018 and December 31, 2017, a balance of $20,000 remains outstanding, respectively.
On
December 20, 2017, the Company entered into a short-term unsecured note with an unrelated party for working capital purposes for
total proceeds of $10,000. As of June 30, 2018, the note was still outstanding.
On
April 13, 2018, the Company entered into an unsecured promissory note agreements with an unrelated party for total proceeds of
$150,000. The note is due upon demand and carries 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 June 30, 2018 and December 31,
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.
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
|
8.
|
RELATED
PARTY TRANSACTIONS
|
Notes
payable to related parties
In December 2015, the Company entered
into a secured promissory note agreement with an unrelated party for working capital purposes for total proceeds of $120,000.
The note bears interest at the rate of 10% per annum, and is payable on the 1st day of each month commencing in February 2016.
On February 15, 2016, the Company entered into an additional promissory note agreement with the same unrelated party for additional
proceeds of $62,500 and under the same terms as the first note. As of June 30, 2018 and December 31, 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 $42,537 and $34,412 as of June 30, 2018 and December 31, 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 a unsecured promissory note agreements with an unrelated party 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 $6,727 and $5,228
as
of June 30, 2018 and December 31, 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 six months ended June 30, 2018, the Company made
payment of $7,480. As of June 30, 2018 and December 31, 2017, $53,655 and $61,355 was outstanding under the unsecured
promissory note agreement, respectively. Interest expense for the six months ended June 30, 2018 and 2017 was $1,341 and
$1,214
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.
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 shareholders 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,
the note was further extended to December 31, 2018. As of June 30, 2018, $20,500 and $600 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.
Interest expense in connection with the two unsecured
promissory note agreements for the six months ended June 30, 2018 and 2017 was $633
and 579, respectively.
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 six months ended June 30, 2018 and 2017 was $9,600. Per the terms of the agreement the Company incurred
loan fees totaling $8,000 which were 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.
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 $2,600 for the six months ended June 30, 2018 and 2017.
Globe Photos, Inc.
(Formerly Capital Art, Inc.)
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
(Unaudited)
On
April 15, 2016, the Company entered into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder,
for total proceeds of $50,000. The promissory note bears interest at the rate of 6% per annum and matured on December 15, 2017.
However, on January 22, 2018, the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial
interest shareholder) and the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now
be considered due on demand.. Interest expense was $1,500 and $1,000
for
the six months ended June 30, 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 matured on December 31, 2017. However, on January 22, 2018,
the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial interest shareholder) and
the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand.
Interest expense was $1,500 for the six months ended June 30, 2018 and 2017. All the accrued interest through the December 31,
2017, was still due to the original noteholder.
On December 2, 2016, the Company entered
into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder, for total proceeds of $31,500.
The promissory note bears interest at the rate of 6% per annum and matured on December 31, 2017. However, on January 22, 2018,
the outstanding balance on the notes was purchased by another related party (ICONZ Art, LLC, beneficial interest shareholder)
and the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on
demand.. Interest expense was $945 for the six months ended June 30, 2018 and 2017, respectively. All the accrued interest through
the December 31, 2017, was still due to the original noteholder.
The Company evaluated the modification
of the notes resulting from the extensions in maturity dates under ASC 470-50 and determined that the modifications were not considered
substantial and would not qualify for extinguishment accounting under such guidance.
Due To Related Parties
The following table summarizes amounts
due to related parties for cash advances and expenses paid for on the behalf of the Company as of June 30, 2018 and December 31,
2017. The amounts due are non-interest bearing and due upon demand. These amounts have been included in the consolidated balance
sheets as current assets due from related parties and 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.
The Company accounted for the
above transaction as debt and recognized the amount received as a loan payable. As of June 30, 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 six months ended June 30, 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 six months ended June 30, 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 June 30, 2018,
the Company has paid $25,000 toward the guaranteed royalties.
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.
Total rent expense for six months ended
June 30, 2018 and 2017 was $27,442 and $26,791, 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 June 30, 2018, 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 June 30, 2018, and December 31, 2017, there were 325,218,583
and 325,570,524 shares of common stock issued and outstanding, respectively.
During the six months ended June
30, 2018, the Company repurchased 94,118 shares of common stock for $32,000 related to the Globe Photo Asset Purchase
Agreement entered into on July 22, 2015. As of June 30, 2018, the Company has repurchased 352,941 shares from Globe for total
cash payments of $120,000
The following is a summary of stock
option activity during six months ended June 30, 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 six months ended June
30, 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%
Subsequent to June 30, 2018, Company entered into various
debt extension agreements with noteholders extending the payment terms of certain notes with term ranging from due on demand through
December 31, 2018. (See Note 7 and Note 8)
Subsequent to June 30, 2018, the Company entered issued various
convertible notes for total proceeds of $1,480,000. The notes matured 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.