UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2019
[_]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to__________
Commission File Number: 000-55370

Globe Photos, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-0746744
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
6445 South Tenaya Way, B-130 Las Vegas, Nevada 89113
(Address of principal executive offices)
702-722-6113
(Registrant’s telephone number)
_______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[X] Yes [_] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

[_] Large accelerated filer	[_] Accelerated filer
[X] Non-accelerated filer	[X] Smaller reporting company
[X] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

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

[_] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 326,428,583shares of common stock as of May 13, 2019.

 

TABLE OF CONTENTS
		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	1
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4:	Controls and Procedures	24
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	26
Item 1A:	Risk Factors	26
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3:	Defaults Upon Senior Securities	26
Item 4:	Mine Safety Disclosures	26
Item 5:	Other Information	26
Item 6:	Exhibits	27

i

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited consolidated financial statements included in this Form 10-Q are as follows:

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited);	2
Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited);	3
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited);	4
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited); and	5
Notes to Consolidated Financial Statements (unaudited).	6

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2019 are not necessarily indicative of the results that can be expected for the full year.

1

GLOBE PHOTOS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2019			December 31, 2018
Assets
Current Assets
Cash	$	378,014		$	304,267
Accounts receivable, net		368,020			559,255
Prepaid expenses		59,021			21,513
Total Current Assets		805,055			885,035
Right to use asset		174,399			–
Property and equipment, net		5,288,964			5,533,680
Security deposit		16,678			38,402
Intangible Assets, net		15,443,730			15,766,250
Total Assets	$	21,728,826		$	22,223,367
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	2,488,769		$	2,462,563
Contingent purchase consideration		6,279,000			6,279,000
Payable to Photo File, Inc.		940,568			686,943
Payable to Globe Photo, Inc.		10,000			10,000
Due to related parties		287,455			287,455
Operating lease liability		83,118			–
Notes payable - related parties		631,935			635,675
Notes payable		185,000			185,000
Loans payable, net of unamortized discounts		482,862			481,784
Convertible Notes, net of debt discount and issuance costs		3,206,826			1,655,700
Total Current Liabilities		14,595,533			12,684,120
Operating lease liability, net of current portion		115,617			–
Total Long-term Liabilities		115,617			–
Total Liabilities		14,711,150			12,684,120
Stockholders' Equity
Preferred stock, $0.0001 par value, 50,000,000 shares authorized; none issued and outstanding at March 31, 2019 and December 31, 2018.		–			–
Common stock par value $0.0001: 450,000,000 shares authorized; 326,428,583 issued and outstanding as of March 31, 2019 and December 31, 2018.		32,643			32,643
Additional paid in capital		11,296,799			10,114,075
Accumulated deficit		(7,630,950	)		(4,016,630	)
Stockholders' equity attributable to Globe Photos, Inc.		3,698,492			6,130,088
Non controlling interest		3,319,184			3,409,159
Stockholders' Equity		7,017,676			9,539,247
Total Liabilities and Stockholders' Equity	$	21,728,826		$	22,223,367

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

2

GLOBE PHOTOS, INC.

Consolidated Statements of Operations

(Unaudited)

	For the quarter ended
	March 31, 2019			March 31, 2018
License revenue	$	118,287		$	230,775
Image revenue		1,359,165			319,046
Total revenue		1,477,452			549,821
Cost of revenue		1,427,485			296,143
Gross margin		49,967			253,678
Operating expenses
Product development, sales and marketing		156,790			4,532
General and administrative		1,903,208			157,447
Depreciation and amortization		8,526			6,714
Total operating expenses		2,068,524			168,693
Loss from operations		(2,018,557	)		84,985
Other income (expenses)
Interest expense		(1,664,596	)		(18,364	)
Change in fair value of derivative liabilities		–			4,385
Other income (expenses)		(1,664,596	)		(13,979	)
Net income (loss)	$	(3,683,153	)	$	71,006
Net loss attributable to non controlling interest		(89,975	)		–
Net income (loss) attributable to Globe Photos, Inc.	$	(3,593,178	)	$	71,006
Per-share data
Basic and diluted income (loss) per share	$	(0.01	)	$	0.00
Weighted average number of common shares outstanding - basic		326,428,583			325,355,361
Weighted average number of common shares outstanding - diluted		326,428,583			325,451,145

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

3

GLOBE PHOTOS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited) 

	Common Stock						Additional Paid-in			Treasury			Accumulated			Non controlling			Stockholders'
	Shares			Amount			Capital			Stock			(deficit)			interest			Equity
Balance, December 31, 2017		325,570,524		$	32,557		$	4,124,243		$	(88,000	)	$	(3,522,655	)	$	–		$	546,145
Repurchase and cancellation of shares		(329,412	)		(33	)		(111,967	)		88,000			–			–			(24,000	)
Net Income		–			–			–			–			71,006			–			71,006
Balance, March 31, 2018		325,241,112			32,524			4,012,276			–			(3,451,649	)		–			593,151
Balance, December 31, 2018		326,428,583			32,643			10,114,075			–			(4,016,630	)		3,409,159			9,539,247
Cumulative effect adjustment of Topic 842		–			–			–			–			(21,142	)		–			(21,142	)
Warrants issued for services		–			–			312,000			–			–			–			312,000
Stock option expense								297,800												297,800
Beneficial conversion feature		–			–			572,924			–			–			–			572,924
Net loss		–			–			–			–			(3,593,178	)		(89,975	)		(3,683,153	)
Balance, March 31, 2019		326,428,583		$	32,643		$	11,296,799		$	–		$	(7,630,950	)	$	3,319,184		$	7,017,676

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

4

GLOBE PHOTOS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	For the quarter ended
	March 31, 2019			March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(3,683,153	)	$	71,006
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		650,902			113,868
Amortization of debt discount		1,554,668			1,603
Noncash operating lease expense		11,851			–
Stock option expense		297,800
Warrants issued for services		312,000
Change in fair value of embedded derivative		–			(4,385	)
Changes in operating assets and liabilities:
Accounts receivable		191,235			19,665
Prepaid expenses		(37,508	)		(22,976	)
Deferred revenue		–			(250,000	)
Due to related parties		–			(28	)
Operating lease liability		(12,165	)		–
Accounts payable and accrued liabilities		24,342			(40,170	)
Net Cash Used In Operating Activities		(690,028	)		(111,417	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of archive images		(25,000	)
Purchase of software		(31,570	)		–
Net Cash Provided By (Used In) Investing Activities		(56,570	)		–
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable		(2,464	)		(2,000	)
Repayment of note payable - related party		(3,740	)		(3,740	)
Proceeds from convertible notes payable, net		572,924			–
Advances from related party		253,625			147,350
Purchase of treasury stock		–			(24,000	)
Net Cash Provided By Financing Activities		820,345			117,610
Net Change in Cash		73,747			6,193
Cash - Beginning of Period		304,267			1,297
Cash - End of Period	$	378,014		$	7,490
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest	$	–		$	4,968
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Beneficial conversion feature on convertible debt	$	572,924			–
Assets acquired under operating leases	$	186,250			–
Purchase of third party notes by related party	$	–		$	212,500

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

5

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

1. ORGANIZATION AND BUSINESS OPERATIONS

Globe Photos, Inc. (“we”, “our”, the “Company”) sells and manages classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic celebrity images. The Company also makes available its images for publications and merchandizing. The Company aims to become a leading global photography marketing and distribution company by acquiring rights and ownership to collections of rare iconic negatives and photographs, and to establish worldwide wholesale and retail sales channels.

On June 6, 2018, we filed a Certificate of Merger with the Secretary of State of Delaware in order to effectuate a merger with our wholly-owned subsidiary, Globe Photos, Inc. Shareholder approval was not required pursuant to the Delaware General Corporation Law. As part of the merger, our board of directors authorized a change in our name to “Globe Photos, Inc.” and our Certificate of Incorporation has been amended to reflect this name change.

On October 11, 2018, we acquired substantially all of the assets of Photo File, Inc. (“Photo File”), a New York corporation, a 30-year-old New York-based licensed sports photography company. As part of the Photo File transaction, we acquired licenses to produce and sell licensed sports prints, lithographs and other related items for major U.S. sports leagues, including the NFL, NBA, MLB, and NHL Properties and their respective player associations, as well as most major college sports teams. We also gained licenses from thousands of individuals and organizations, including Babe Ruth, Joe Namath, Vince Lombardi, Marvel Entertainment, Nickelodeon and others. The acquisition also significantly expanded our collection of company-owned iconic sports photography.

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 March 31, 2019, the Company had $378,014 cash on hand. At March 31, 2019 the Company has an accumulated deficit of $7,630,950. For the three months ended March 31, 2019, the Company had a net loss of $3,593,178 and cash used in operations of $690,028. 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.

6

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial statements for the three months ended March 31, 2019 should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form 10-K for the Company’s fiscal year ended December 31, 2018, as filed with the SEC.

The consolidated balance sheet as of December 31, 2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the year ending December 31, 2019.

The accompanying unaudited consolidated financial statements represent the results of operations, financial position and cash flows of 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.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

We did not have a cumulative impact as of January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated statement of operations for the year ended December 31, 2018 as a result of applying Topic 606.

7

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteria be met before revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

Revenue recognition occurs at the time product is shipped to customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is reasonably assured.

The Company’s other revenue represent payments based on net sales from brand licensees for content reproduction rights. These license agreements are held in conjunction with third parties that are responsible for collecting fees due and remitting to the Company its share after expenses. Revenue from licensed products is recognized when realized or realizable based on royalty reporting received from licensees.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning after December 15, 2018.

We adopted ASC 842 effective January 1, 2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures fair value in accordance with Accounting Standards Codification (“ASC”) 820 – Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

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.

8

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

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 March 31, 2019 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at March 31, 2019 and December 31, 2018.

4. PROPERTY AND EQUIPMENT, NET

	March 31,			December 31,		Estimated
	2019			2018		Useful Lives
Frank Worth Collection	$	2,770,000		$	2,770,000	10 years
Other archival images		4,601,768			4,576,768	5-10 years
Leasehold improvements		12,446			12,446	7 years
Computer and other equipment		72,687			72,687	3 – 5 years
Furniture and fixtures		83,666			83,666	7 years
		7,540,567			7,515,567
Less accumulated depreciation		(2,251,603	)		(1,981,887)
Total property and equipment, net	$	5,288,964		$	5,533,680

Depreciation expense was $269,716 and $102,993 for the three months ended March 31, 2019 and 2018, respectively, of which $261,190 and $96,279 are reported in cost of revenue, 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 March 31, 2019 and 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

9

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

Additionally, the seller will endeavor to sell its Vintage Photographic Collection over time after Closing. If at the completion of the sale of the Vintage Photographic Collection, proceeds from net sales but before any expenses other than commissions are less than $2,000,000, the Company will pay the difference between the proceeds and $2,000,000 within 30 days. Any proceeds above $2,000,000 will be divided equally between Seller and the Company with the Seller remitting 50% of the net proceeds after expenses of those sales within 30 days of their receipt. As of December 31, 2018, the Company has recorded the entire $2,000,000 as a contingent purchase consideration.

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, 2018.

	For the three months ended
	March 31, 2018
Total revenue		2,884,744
Cost of revenue		1,334,597
Gross margin		1,550,147
Total operating expenses		1,268,591
Other income (expenses)		(15,135	)
Net income		266,421

10

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

6. INTANGIBLE ASSETS, NET

	March 31, 2019						December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net book value		Gross Carrying Amount		Accumulated Amortization		Net book value
Intangible assets with determinable lives:
Content provider and photographic agreements	$	400,000	$	150,000	$	250,000	$	400,000	$	140,000	$	260,000
Copyrights		35,000		13,125		21,875		35,000		12,250		22,750
Internal use software		58,667		-		58,667		-		-		-
Copyrighted Image Library		4,100,000		203,315		3,896,685		4,100,000		102,500		3,997,500
Non-Compete and Non-Solicitation Covenants		90,000		14,878		75,122		90,000		7,500		82,500
Trade name		340,000		–		340,000		340,000		–		340,000
License agreements		9,000,000		297,534		8,702,466		9,000,000		150,000		8,850,000
Customer relationships		2,330,000		231,085		2,098,915		2,330,000		116,500		2,213,500
Total	$	16,353,667	$	909,937	$	15,443,730	$	16,295,000	$	528,750	$	15,766,250

Total amortization expense for the three months ended March 31, 2019 and 2018 was $381,186 and $10,875, respectively and is included in cost of sales in the consolidated statements of operations. Estimated amortization expense over the next five years is $1,549,500 per year.

7. NOTES PAYABLE

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 $4,505 and $4,130 as of March 31, 2019 and December 31, 2018, 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 March 31, 2019, and 2018, 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 $22,500 as of March 31, 2019 and December 31, 2018, respectively.

11

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

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.

8. CONVERTIBLE NOTES

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 account payable. During the three months ended March 31, 2019, we issued an additional $651,050 notes under the same private placement.

The convertible notes bear interest at a rate of 10% per annum, 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 $3,029,628 related to the beneficial conversion feature (“BCF”), of which $572,924 was recorded during the three months ended March 31, 2019, with a corresponding credit to additional paid-in capital. The debt discount is being accreted to interest expense over the term of the notes.

As part of the private placement, the Company paid a consultant financing fees equivalent to 12% of the gross proceeds received from the issuance of convertible notes or $403,472, of which $78,126 was recorded during the three months ended March 31, 2019 and was recorded as a debt discount and accreted to interest expense over the term of the notes.

During the three months ended March 31, 2019 and 2018, the Company recorded interest expense of $1,452,303 of which $1,376,029 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 $667,908.

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.

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 three months ended March 31, 2019, the Company recorded interest expense of $187,426 related to this note, of which $175,097 was related to the accretion of the debt discount. As of March 31, 2019, the convertible note is shown net of unamortized discount of $58,366.

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Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

9. RELATED PARTY TRANSACTIONS

Notes payable to related parties

In December 2015, the Company entered into a secured promissory note agreement with an unrelated party for working capital purposes for total proceeds of $120,000. The note bears interest at the rate of 10% per annum and is payable on the 1st day of each month commencing in February 2016. On February 15, 2016, the Company entered into an additional promissory note agreement with the same unrelated party for additional proceeds of $62,500 and under the same terms as the first note. As of March 31, 2019, and December 31, 2018, a balance of $162,500 on these two notes remains outstanding. Both notes are secured by certain inventory and archival images of the Company in the amount of up to $200,000. Accrued interest payable due under the unsecured note agreement was $54,724 and $34,412 as of March 31, 2019 and December 31, 2018, respectively. The notes matured on December 31, 2017; however, on January 22, 2018, the outstanding balance on the notes was purchased by a related party (ICONZ Art, LLC, beneficial interest shareholder) and the notes were extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand. All the accrued interest through 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 $8,977 and $8,277 as of March 31, 2019 and December 31, 2018, 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 three months ended March 31, 2019, the Company made payment of $3,740. As of March 31, 2019, and December 31, 2018, $42,435 and $46,175 was outstanding under the unsecured promissory note agreement, respectively. Interest expense for the three months ended March 31, 2019 and 2018 was $750 and $717 respectively. The loan matured on July 14, 2014 and was extended to July 31, 2016. Effective March 30, 2018, the note agreement was extended to June 30, 2018 and on June 30, 2018, the note was further extended to December 31, 2018 and on February 11, 2019 the note was further extended to December 31, 2019.

On September 11, 2014, the Company entered into an unsecured promissory note agreement for $20,500 with Dino Satallante, a beneficial interest shareholder which bear interest at a rate of 6% per annum. The loan matured on September 10, 2015 and has been extended multiple times up to December 31, 2018. On February 11, 2019, the note was further extended to December 31, 2019.

Effective July 21, 2015, the Company entered into a promissory note agreement with a related party Dino Satallante, a beneficial interest shareholder of the Company, for total proceeds of $160,000. The Company utilized $80,000 of the proceeds for payments due in connection with the Globe Photo assets acquired. The remainder of the proceeds were used for working capital purposes. The note matured on July 20, 2016, with monthly interest only payments commencing July 22, 2015. Interest accrues at the rate of 12% per annum. The note is secured by the Globe Photo Assets. Total interest expense in connection with the secured promissory note agreement for the three months ended March 31, 2019 and 2018 is $4,800 and $4,800. Effective March 30, 2018 the note was extended to June 30, 2018, and on June 30, 2018, the note was further extended to December 31, 2018, and on February 11, 2019 the note was further extended to December 31, 2019.

On April 4, 2016 the Company entered into a secured promissory note agreement with Premier Collectibles, a beneficial interest shareholder for total proceeds of $65,000 to be used for acquisition of archive agreement. The promissory note bears interest at the rate of 8% per annum, is secured by the archive collection which the proceeds were used and matured on April 1, 2017. On March 30, 2018, the note was extended to June 30, 2018 and on June 30, 2018 was extended indefinitely and will now be considered due on demand. Interest expense on the note was $1,300 and $1,300 for the three months ended March 31, 2019 and 2018, respectively.

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Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(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 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 $750 and $750 for both the three months ended March 31, 2019 and 2018, 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 $750 and $750 for the three months ended March 31, 2019 and 2018, respectively.

On December 2, 2016, the Company entered into an unsecured promissory note agreement with Sean Goodchild, a beneficial interest shareholder, for total proceeds of $31,500. The promissory note bears interest at the rate of 6% per annum and 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 $473 and $473 for both the three months ended March 31, 2019 and 2018, respectively.

The Company evaluated the modification of the notes resulting from the extensions in maturity dates under ASC 470-50 and determined that the modifications were not considered substantial and would not qualify for extinguishment accounting under such guidance.

Due to Related Parties

The following table summarizes amounts due to the Company from related parties related to contractual agreements and amounts due to related parties for expenses paid for on the behalf of the Company as of March 31, 2019 and December 31, 2018. The amounts due are non-interest bearing and due upon demand. These amounts have been included in the consolidated balance sheets as current assets due from related parties and current liabilities due to related parties, respectively.

	March 31,		December 31,
	2019		2018
Due to related parties:
ICONZ Art, LLC, beneficial interest shareholder	$	259,423	$	259,423
MSN Holding Co., beneficial interest shareholder		12,947		12,947
Premier Collectibles, beneficial interest shareholder		15,085		15,085
Total due to related parties	$	287,455	$	287,455

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Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

10. COMMITMENTS AND CONTINGENCIES

Proceeds from Auctions of Royalty Rights

On March 8, 2016, the Company entered into a Listing Agreement with Royalty Network, LLC, doing business as Royalty Exchange for auction of a 50% ownership of photographic copyrights of certain celebrity archival images owned by the Company. In addition, the sale also assigns the winning bidder the right to receive 50% of the future share of income derived from the assigned images.

During 2016, the Company received gross proceeds of $396,000, less 12.5% auction broker fee, from five separate auctions of these rights. The Company retains all exclusive licensing authority over the images and may exercise a buyback option to buy back the 50% ownership of the rights for two times the original auction proceeds over a period ranging from 1 to 2 years.

The Company accounted for the 50% profit consideration for the above agreement in accordance with ASC 470-10-25 and 470-10-35 which requires amounts recorded as debt to be amortized under the interest method as described in ASC 835-30, Interest Method. The Company determined an effective interest rate based on future expected cash flows to be paid to the loan holders. This rate represents the discount rate that equates estimated cash flows with the initial proceeds received from the loan holders and is used to compute the amount of interest to be recognized each period. Estimating the future cash outflows under this agreement requires the Company to make certain estimates and assumptions about future revenues and such estimates are subject to significant variability. Therefore, the estimates are likely to change which may result in future adjustments to the accretion of the interest expense and the amortized cost based carrying value of the related loans.

Accordingly, the Company has estimated the cash flows associated with the images and determined a discount of $151,316 which is being accounted as interest expense over a 10-year estimated life of the asset based on expected future revenue streams. For the three months ended March 31, 2019 and 2018, interest expense related to these loans amounted to $3,542 and $1,603, respectively, which has been included in interest expense and a corresponding increase in loans payable. During the three months ended March 31, 2019 and 2018, the Company made payments of $2,464 and $2,000 to the loan holders, respectively. As of March 31, 2019, loan payable net of unamortized debt discount amounted to $282,862.

Asset purchase agreements

On March 3, 2017, the Company entered into an agreement to sell 20% of its ownership in a certain photographic archive asset for $200,000. As part of the agreement the buyer received preferential distributions of their entire purchase price of the asset. If, however the entire purchase price is not paid back after 24 months then all net revenues from the Company will be paid to the buyer until the full purchase price has been paid. On March 30, 2018, the Company entered into an addendum to the agreement to remove the preferential distributions clause from the agreement. Additionally, on May 1, 2018, the Company entered into a second addendum to the agreement whereby the Company agreed to repay the seller the total purchase price of $200,000 and 1,000,000 shares of common stock within 120 days of the effective date of the agreement. The Company valued the 1,000,000 shares at $100,000 as of the agreement date and recorded the value as interest expense during the year ended December 31, 2018.

The Company accounted for the above transaction as debt and recognized the amount received as a loan payable. As of March 31, 2019, other debt, net of unamortized debt discount amounted to $200,000.

License Agreements

Effective June 1, 2016 the Company entered into three separate non-exclusive license agreements use of licensed images and trademarks through December 31, 2019. Under the terms of the agreements, the Company is required to pay royalties of 10% on net sales. The agreements call for combined annual guaranteed minimum royalties per year of $150,000 based on combined minimum sales of $1,500,000 per year. As of March 31, 2019, the Company has paid $18,750 toward the guaranteed royalties.

15

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

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 March 31, 2019, the Company has paid $181,742 in royalty expenses associated with these agreements which has been included in cost of sales. 

Operating Lease Agreements

The Company has entered into lease agreements as a lessee for the use of office space. These lease agreements are classified as operating leases and the liability and right-of-use asset are recognized on the balance sheet at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. As a result of the adoption of ASC 842, the Company recognized an operating lease liability of $112,480 and a corresponding right-of-use asset of $87,830, net of deferred rent of $3,508 and the cumulative effect adjustment to retained earnings of $21,142 as a result of applying hindsight in determining the lease term.

The Company determines whether or not a contract contains a lease based on whether or not it provides the Company with the use of a specifically identified asset for a period of time, as well as both the right to direct the use of that asset and receive the significant economic benefits of the asset. The Company elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less.

The discount rate utilized for classification and measurement purposes as of the inception date of the lease is based on the Company's collateralized incremental interest rate to borrow of 10%, as the rate implicit in the lease is not determinable.

On September 6, 2012 the Company entered into a 25-month operating lease agreement for approximately 4,606 square foot warehouse and office facilities located in Las Vegas, NV. Monthly base rent due under the agreement is $3,270, plus common area maintenance fees. The agreement calls for 3% annual increase in base rental payments. On October 10, 2014, the Company entered into a First Amendment to Lease agreement extending the lease term for 60-months, beginning November 1, 2014. All other terms of the agreement remain unchanged. On February 19, 2019 the Company extended the operating lease agreement for the lease originally entered into September 6, 2012 for an additional 24 months.

On February 26, 2019 the Company entered into a 24-month operating lease agreement for approximately 4,672 square foot warehouse and office facilities located in Las Vegas, NV. Monthly base rent due under the agreement is $4,437, plus common area maintenance fees. The agreement calls for 3% annual increase in base rental payments. The Company recorded a right-to-use asset and lease liability during the three month period ended March 31, 2019 of $98,420 for this new lease. During the three months ended March 31, 2019, the Company recorded depreciation associated with the right to use asset of $11,851 and made payment on the lease liability of $12,165.

Undiscounted Cash Flows

As of March 31, 2019, the right to use asset and lease liability were shown on the consolidated balance sheet at $174,399 and $198,735, respectively. The table below reconciles the fixed component of the undiscounted cash flows and the total remaining years to the operating lease liability recorded on the consolidated balance sheet as of March 31, 2019:

Amounts due as of March 31, 2019	Operating Leases
2019	$	84,297
2020		100,088
2021		43,234
Total minimum lease payments	$	227,619
Less: effect of discounting		(28,884	)
Present value of future minimum lease payments	$	198,735
Less: current obligations under leases		(83,118	)
Long-term lease obligations	$	115,617

18

Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

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. The Company paid $180,032 in rent related to the lease for the three months ended March 31, 2019.

Total rent expense for the three months ended March 31, 2019 and 2018 was $187,049 and $13,695, respectively, in connection with short term operating lease agreements.

11. SHAREHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue up to 50,000,000 shares of preferred stock authorized with a par value of $0.0001. The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by the Company’s stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, and conversion rights. As of March 31, 2019, there were no shares of Preferred Stock issued and outstanding.

Common Stock

The Company is authorized to issue up to 450,000,000 shares of common stock with a par value of $0.0001. As of March 31, 2019, and December 31, 2018, there were 326,428,583 and 326,428,583 shares of common stock issued and outstanding, respectively.

STOCK WARRANTS

On January 30, 2019, we granted 800,000 5-year warrants with exercise prices of $0.10 valued at $312,000 for services. The warrants above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $0.39; b) risk-free rate of 2.49%; c) volatility factor of 521.46%; d) dividend yield of 0%.

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Globe Photos, Inc.

Notes to Consolidated Financial Statements

March 31, 2019 and 2018

(Unaudited)

The following is a summary of stock warrant activity during the quarter ended March 31, 2019.

	Number of Shares		Weighted Average Exercise Price
Balance, December 31, 2018		6,500,000	$	0.10
Warrants granted and assumed		800,000	$	0.10
Warrants expired		–		–
Warrants canceled		–		–
Warrants exercised		–		–
Balance outstanding, March 31, 2019		7,300,000	$	0.10
Balance exercisable, December 31, 2018		7,300,000	$	0.10

As of March 31, 2019, the outstanding warrants have a weighted average remaining term of was 2.04 years and an intrinsic value of $2,920,000.

STOCK OPTIONS

The Company did not grant any options during the quarter ended March 31, 2019. The Company recognized stock option expense of $297,800 for options granted in the prior year.

The following is a summary of stock option activity during the three months ended March 31, 2019:

	Number of Shares		Weighted Average Exercise Price
Balance, December 31, 2018		20,033,333	$	0.07
Options granted and assumed
Options expired		–		–
Options canceled		–		–
Options exercised		–		–
Balance outstanding, March 31, 2019		20,033,333	$	0.07
Balance exercisable, March 31, 2019		20,033,333	$	0.07

As of March 31, 2019, the outstanding options have a weighted average remaining term of was 8.30 years and an intrinsic value of $8,547,333.

12. SUBSEQUENT EVENTS

Subsequent to March 31, 2019, the Company sold 11,120,000 shares for $1,120,000. As of the date of the filing the Company has received $800,000. As of the date of filing the shares have not been issued.

Subsequent to March 31, 2019, the Company made the final payment due per the asset purchase agreement with Photo File, Inc. dated October 11, 2018. 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

The Company was originally incorporated on September 20, 2004 in the State of Delaware under the name “Blog8.” Since incorporation, we have changed our name a number of times, having been named “Securiteyes,” “Medify Solutions Limited,” “Petel Incorporated” and “Gleeworks, Inc.” and “Capital Art, Inc.” On June 6, 2018, we filed a Certificate of Merger with the Secretary of State of Delaware in order to effectuate a merger with our wholly-owned subsidiary, Globe Photos, Inc. As part of the merger, our board of directors authorized a change in our name from “Capital Art, Inc.” to “Globe Photos, Inc.” and our Certificate of Incorporation has been amended to reflect this name change.

We are currently engaged in the business of acquiring, selling, licensing and merchandising classic and contemporary photographic images and reproductions. Over the last few years, we have been in a developmental phase, focused mostly on acquiring ownership or rights to collections of rare or unpublished negatives and photographs of iconic celebrity images.

We have been taking advantage of a new market dynamic, where aging celebrities, retiring photographers, and image rights holders (i.e., family estates) are finally offering their exclusive photographic collections up for sale. We seized this opportunity to acquire these historic archives over the last few years, including the acquisition of other companies that have been quietly collecting these rare archives.

We believe we have now assembled one of largest collections of iconic pop culture imagery photography in the world. It is comprised of more than 15 million images taken by more than 3,500 photographers from around the world over the last century. It features iconic personalities and seminal moments from the worlds of entertainment, sports, history and politics. Our branded archives include Frank Worth collection, Movie Star News, and Globe Photos Agency (from the original Globe Photos founded in 1939).

Archived and stored at our Company’s secured warehouse, these collections include never before seen negatives, one-of-a kind prints and other memorabilia. They include rare images of celebrity icons, such as Elvis Presley, James Dean, Marilyn Monroe, Humphry Bogart, Frank Sinatra, the Beatles and more, as well as many contemporary personalities, performing artists and star athletes.

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More recently we have been focused on acquiring assets that would provide us the ability to sell and merchandise licensed sports photography, as well as an operational platform for monetizing the photographic assets and associated memorabilia that we have acquired. This effort culminated on October 11, 2018 with the acquisition of substantially all of the assets of Photo File, Inc. (“Photo File”), a 30-year-old New York-based licensed sports photography company with more than 50 employees engaged in the licensing, production, marketing and sales of sports imagery and related collectibles.

As part of the Photo File transaction, we acquired licenses to produce and sell licensed sports prints, lithographs and other related items for major U.S. sports leagues, including NFL, NBA, MLB, and NHL Properties and their respective player associations, as well as most major college sports teams. We also gained licenses with thousands of individuals and organizations, including Babe Ruth, Joe Namath, Vince Lombardi, Marvel Entertainment, and others. The acquisition also significantly expanded our collection of company-owned iconic sports photography.

In addition to valuable licenses and photo assets, the Photo File transaction has provided us access to its well-established sales and marketing organization, and it has opened new distribution channels for our existing product lines.

We also expect to benefit from Photo File’s reputation for excellent customer service, as well as its strong ties to its professional and collegiate sports leagues and large retail customers. This will be important as we further develop relationships with top retail clients and distributors including Costco, Walmart, Target, Bed Bath and Beyond, USPS, Scheels and others.

Prior to the Photo File transaction, we had taken preliminary steps to monetize the value of our collection by establishing various sales channels and marketing methodologies. We have been selling some of our photographic images and reproductions on a limited basis through auctions, third-party galleries, art consultants, interior decorators, brick and mortar locations, specialty and big box retailers, as well as through various online outlets, including Amazon and 1stdibs, and directly to end consumers via our Globe Photos website. We have been experimenting with various ways to reach customers through diverse marketing channels, including our websites, events and interactive campaigns.

In many respects, the Company believes it has turned the corner with the Photo File transaction, allowing us to emerge from our development stage into a full-scale commercialization phase and take advantage of the growing market demand for pop culture and sports imagery and related memorabilia.

Our mission is to operate as a global marketplace for licensed sports and pop culture imagery, which includes both sold physical prints as well as licensed digital photography that our customers can use in their communications, such as social media, websites, digital and print marketing materials, books and publications.

Through our online and in-store platforms and manufacturing processes, consumers are able to customize, personalize, share, print and download licensed prints and physical products both for personal use and for creating thoughtful and personalized gifts. These may include such photo-based products as framed photos, canvases, books, calendars, greeting cards, mugs, bags, and apparel. There are numerous ways for our customers to avail themselves of our vast library of digital images.

As part of increasing our product offerings, we plan to continue our search for photographic archives that are undervalued by the market. These archives may be acquired outright, or we may enter into representation or consignment agreements with the owners of the archives. These opportunities are typically (1) aging photographers who are looking to monetize their archive while still alive via a single large transaction, or (2) media companies that have aggregated assets (or rights to assets) and are seeking to dispose of the archive or a partner who can help them grow cash flows related to the archive. These opportunities exist both in the United States and abroad and we continue to search for value on a global basis.

Our principal place of business is located at 6445 South Tenaya Way, Suite B-130, Las Vegas, NV 89113. General information about us can be found at www.globephotos.com. The information contained on or connected to our website is not incorporated by reference into this Prospectus.

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Asset Purchase Agreement with Photo File

In 1987, the year it was founded, Photo File was awarded a license for photography by Major League Baseball and the MLB Players Association, becoming the first company to be given a license for photography by any major sport in the United States. Photo File is also licensed by thousands of individuals and organizations, including Muhammad Ali, Babe Ruth, Joe Namath, Vince Lombardi, and Marvel Entertainment. Photo File had become one of the nation’s leading manufacturers of sports photography, with licenses from the NFL, MLB, NBA, NHL, Collegiate Licensing Company (CLC), and their respective player associations.

Besides photos in sizes up to 30"x 40", Photo File offered a full range of framed and matted products, plaques, photo sculptures, ceramics tiles, key chains and event covers. Photo File also produced a line of licensed Framed Gold Records featuring top recording artists, including Elvis Presley, KISS and many others.

At the time of the asset purchase by Globe Photos, Photo File employed 54 people, including its owners. The staff was comprised of 51 full-time and three part-time employees. Photo File’s 43,000 square foot facility, located in Mount Kisco, NY, included a printing lab, a graphics department, framing operation and sales and marketing divisions.

On October 11, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Photo File, along with its related company Sportphotos.com (collectively, the “Seller”) and Charles Singer, its CEO and principal stockholder, to acquire the assets of the 30-year-old private New York-based company.

Pursuant to the Purchase Agreement, the Company and the seller agreed to the following purchase consideration:

§	$2 million cash consideration as follows: $865,000 was advanced at the execution of the Purchase Agreement, which was secured through a pledge of 40% of the outstanding shares of the Seller; $650,000 was paid on the closing of the Agreement; and a $500,000 contingency payment shall be paid to Seller within 72 hours of receiving written consent from the major sports leagues;
§	A 10% interest in the Nevada subsidiary called Photo File, LLC that we have formed to house the assets; and
§	A royalty to Seller that commences upon the initial $6 million in sales from the Nevada subsidiary with a cap of $500,000 annually and $5 million in total. The royalty is calculated on annual sales beginning with the date of closing and will restart each year with no carry forward from one year to the next. As of December 31, 2018, the Company recorded a contingent liability related to the royalty payout of $4,279,000.
§	Additionally, the Seller will endeavor to sell its Vintage Photographic Collection to a third party after Closing. If at the completion of the sale of the Vintage Photographic Collection, proceeds from the sale, but before any expenses other than commissions, are less than $2 million, Globe Photos will pay to the Seller the difference between such proceeds and $2 million within 30 days. Any proceeds from the sale, but before any expenses other than commissions, above $2 million will be divided equally between the Seller and Globe Photos with the Seller remitting 50% of such proceeds within 30 days of their receipt.

Assets acquired in the Photo File transaction included more than 1 million sports negatives, prints and slides, more than 1,000 autographed lithographs and memorabilia, as well as printing and packaging equipment. Per the terms of the Purchase Agreement, we have created a new Nevada subsidiary called Photo File, LLC to hold the assets we have acquired from Photo File.

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Post-Acquisition Plans

We see Photo File as a classic turnaround situation, during 2017 Photo File alone presented annual revenues of approximately $6.7 million and losses of approximately $1 million, but at one time having generated more than $20 million in annual revenues. Of the approximately $7 million in revenue generated during 2017, only about 8% is generated online. We believe this represents a substantial opportunity to leverage the latest advances in e-Commerce technology and services to grow sales. Through our experience and our review of successful models of other major sports retailers, we determined that more than 80% of the business revenue should be generated by online, print-on-demand or direct-to-consumer sales.

We are also currently executing a plan to right size the organization and move forward efficiently and effectively. In conjunction with this analysis, we have evaluated areas and processes such as printing, production and fulfillment to reduce inefficiencies and further reduce overhead, along with expanding capacities. This review and integration will take place over a measured period as to not disrupt current operations and production. We have identified several viable options to outsource printing and grow the business by including individuals and companies currently working within the industry.

We believe the inclusion of a sports channel is complementary to our existing business and allows us to piggy back the photo assets of Globe Photos onto Photo File’s existing clients and retail opportunities. We plan to leverage the long-term distributor relationships Photo File has developed over the last 30 years to increase the sales of our existing Globe Photos library.

Results of Operations

Revenues

Our total revenue reported for the three months ended March 31, 2019 was $1,477,452, compared with $549,821 for the three months ended March 31, 2018. The total increase in revenue is primarily a result the increase in merchandise sales associated with of our acquisition of the assets of Photo File, Inc. (“Photo File”).

We have instituted direct-to-consumer marketing and implemented programs with third-party re-sellers, brick and mortars and online retailers. We have also continued to enhance and market our licensing division, Globe Photos LLC. Additionally, we have invested considerable time and expense in the development of software designed to more efficiently process digitized images, and push them through to our retail and licensing channels, to help scale each division significantly.

Cost of Revenues

Our cost of revenues consists primarily of royalties, depreciation, and amortization expense. For the three months ended March 31, 2019, cost of revenues increased to $1,427,485, compared with $296,143 for the three months ended March 31, 2018. The change is primarily a result additional royalty and production expenses associated with our acquisition of the assets of Photo File.

Operating Expenses

Operating expenses increased to $2,068,524 for the three months ended March 31, 2019 from $168,693 for the three months ended March 31, 2018

	Three Months Ended March 31
	2019		2018
Product development, sales and marketing	$	156,790	$	4,532
General and administrative		1,903,208		157,447
Depreciation and amortization		8,526		6,714
Total operating expenses	$	2,068,524	$	168,693

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The main reason for the overall increase in operating expenses for the quarter ended March 31, 2019 was an increase in general and administrative expenses associated with the purchase of the Photo File assets. 

Product development, sales and marketing expenses increased by $156,790 for the quarter ended March 31, 2019. Product development, sales and marketing expenses primarily consists of website development costs, sales- and marketing-related salaries, as well as other expenses associated with marketing. We continue to utilize our working capital resources in sales and marketing in order to increase the distribution and demand for our products and to add content to our product lines along with adding additional channels of distribution. 

General and administrative costs increased by $1,745,761 for the quarter ended March 31, 2019 primarily due to the stock-based compensation and additional insurance and salary expenses associated with the acquisition of Photo File.

Total depreciation expense increased by $1,812 for the quarter ended March 31, 2019. The increase is the result of additional assets being depreciated during the current compared to the previous quarter ended March 31, 2018.

Other Expenses/Other Income

We had other expenses of $1,664,596 for the three months ended March 31, 2019, as compared to $13,979 for the same period ended 2018. The increase in other expenses is a result increased interest expense and the amortization of debt discount and financing fees associated our debt offering.

Net Loss

We finished the three months ended March 31, 2019 with a loss of $3,593,178, as compared to net income of $71,006 during the three months ended March 31, 2018. The decrease in net income from the prior year is primarily a result of the increased interest expense and stock-based compensation incurred during 2019.

Liquidity and Capital Resources

As of March 31, 2019, we had total current assets of $805,055 and current liabilities of $14,595,533, resulting in a working capital deficit of $13,790,478. This compares with the working capital deficit of $ 11,799,085 at December 31, 2018. This increase in working capital deficit, as discussed in more detail below, is primarily the result of increased current debt resulting from our convertible note offering.

Our operating activities used $690,028 in the three months ended March 31, 2019 as compared with $111,417 used in operating activities in the three months ended March 31, 2018. Our negative operating cash flow in 2019 was largely the result of our net loss for the period.

Investing activities used $56,570 in the three months ended March 31, 2019 compared with $0 in the three months ended March 31, 2018. Our negative investing cash flow in 2019 is largely the result of the purchase of image archives and internal use software.

Financing activities provided $820,345 in the three months ended March 31, 2019 compared with $117,610 provided in the three months ended March 31, 2018. Our positive financing cash flow in 2019 was largely the result of our offering and sale of convertible notes,

There is no guarantee we will generate sufficient revenues to continue operations. Our management estimates we will need approximately $6,000,000 in annual revenues to continue operations at our current operating level, without consideration given to investment in new sales and marketing channels. For the immediate future we plan to achieve this revenue target by ramping up fees earned from licensing imagery to media companies growing a network of global sales agents. There is no guarantee that we will generate sufficient revenues to continue operations. We expect to continue incurring significant operating losses for the near future. If we are not successful in achieving revenues required to continue operations at our current operating levels within three to four months, or obtaining additional financing, our operations will be significantly negatively impacted, and we will need to significantly scale back our operations or liquidate all or a portion of our collections. 

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We believe that our principal difficulty in our ability to successfully generate profits has been the lack of available capital to operate and expand our business. We believe we need a minimum of approximately $6,000,000 in additional working capital to be utilized for key archive acquisitions, inventory management software, technology development, additional staffing and working capital. As of the date of this report, we have no commitment from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future. Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three month period ended March 31, 2019.

Critical Accounting Polices

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 2 of our audited consolidated financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

Off Balance Sheet Arrangements

As of March 31, 2019, there were no off balance sheet arrangements.

 Recent Accounting Pronouncements

The recent accounting pronouncements that are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission and in Note 2 of our unaudited consolidated financial statements included herein.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of March 31, 2019 and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the first quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Remediation

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, we began implementing a remediation plan to address the material weaknesses mentioned above. The weaknesses will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of 2019.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

ITEM 1A: RISK FACTORS

A description of the risk factors associated with our business is included in the Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as updated by our subsequent filings under the Exchange Act. There have been no material changes to such risk factors as previously reported. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act.  The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933, as amended.

On January 30, 2019, we granted 800,000 5-year warrants with exercise prices of $0.10 valued at $312,000 for services.

Subsequent to March 31, 2019, the Company sold 11,120,000 shares for $1,120,000 pursuant to Regulation S. As of the date of the filing the Company has received $800,000. As of the date of filing the shares have not yet been issued.

Except as otherwise noted, these securities were issued pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS	XBRL Instance Document
101 SCH	XBRL Schema Document
101 CAL	XBRL Calculation Linkbase Document
101 LAB	XBRL Labels Linkbase Document
101 PRE	XBRL Presentation Linkbase Document
101 DEF	XBRL Definition Linkbase Document
*	These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GLOBE PHOTOS, INC.
Date: May 14, 2019	By: /s/ Stuart Scheinman Stuart Scheinman Title:    Chief Executive Officer (Principal Executive Officer)
Date: May 14, 2019
	By: /s/Evan Bedell Evan Bedell Title:    Chief Financial Officer (Principal Financial and Accounting Officer)

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