11. Shareholders' Equity

9 Months Ended

Sep. 30, 2019

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 September 30, 2019, there were no shares of Preferred Stock issued and outstanding.

Common Stock

On June 18, 2018, the Company’s stockholders voted to give discretionary authority to the Board of Directors of the Company, to effect a reverse split of our issued and outstanding common stock in a range of not less than 1-for-5 and not more than 1-for-500, Effective as of June 6, 2019, FINRA approved the effectiveness of a 1-for-40 reverse stock split of the Company’s common stock. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto, have been retroactively adjusted for the Reverse Stock Split as if such Reverse Stock Split occurred on the first day of the first period presented.

The Company is authorized to issue up to 450,000,000 shares of common stock with a par value of $0.0001. As of September 30, 2019, and December 31, 2018, there were 8,588,679 and 8,161,679 shares of common stock (post-split) issued and outstanding, respectively.

On June 4, 2019, the Company sold 407,500 shares of common stock for net proceeds of $1,291,285.

On April 22, 2019, the Company issued 5,000 shares for services with a fair value of $99,600.

On May 23, 2019, the Company issued 2,000 shares of common stock valued at $18,000 for the settlement of $8,000 in accrued liabilities. The Company recorded the difference between the fair value of common stock and accrued liability as loss on settlement of accrued liabilities in the amount of $10,000.

On July 29, 2019, the Company issued 12,500 shares of common stock valued at $112,500 for services.

STOCK WARRANTS

On January 30, 2019, we granted 20,000 5-year warrants with exercise prices of $4.00 valued at $312,000 for services. The warrants above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $15.60; b) risk-free rate of 2.49%; c) volatility factor of 242%; d) dividend yield of 0%.

During the three months ended September 30, 2019, we granted 295,051 3-year warrants with exercise prices of $9.00 valued at $2,238,065 to our convertible noteholders as consideration to extend the maturity date of our debt. The warrants above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $8.00; b) risk-free rate of 1.49%-1.55%; c) volatility factor of 244-249%; d) dividend yield of 0%.

During the three months ended September 30, 2019, we granted 13,333 3-year warrants with exercise prices of $6.00 valued at $103,553, in connections with convertible notes issued during the period. The warrants above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $8.00; b) risk-free rate of 1.44%-1.89%; c) volatility factor of 245.00%; d) dividend yield of 0%.

The following is a summary of stock warrant activity during the nine months ended September 30, 2019.

	Number of Shares		Weighted Average Exercise Price

Balance, December 31, 2018		162,500	$	4.00
Warrants granted and assumed		328,384	$	8.57
Warrants expired		–		–
Warrants canceled		–		–
Warrants exercised		–		–
Balance outstanding, September 30, 2019		490,884	$	6.93
Balance exercisable, September 30, 2019		490,884	$	6.93

As of September 30, 2019, the outstanding warrants have a weighted average remaining term of was 2.41 years and an intrinsic value of $756,670.

STOCK OPTIONS

On June 24, 2019, we granted, 12,500 5-year options with an exercise price of $7.00 valued at $92,629 for services. The options above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $9.00; b) risk-free rate of 1.92%; c) volatility factor of 254.67%; d) dividend yield of 0%.

On August 14, 2019, we granted, 225,000 unvested 10-year options with an exercise price of $8.00 valued at $1,800,000 for services. The options above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $8.00; b) risk-free rate of 1.59%; c) volatility factor of 393.00%; d) dividend yield of 0%. The options vest as follows:

100,000 options which shall vest and become exercisable on the earlier of (1) the first anniversary of the effective date of the Prior Agreement, or (2) the consummation of an underwritten public offering and listing with Nasdaq;

125,000 options of which vest in $12,500 increments beginning the first fiscal quarter in which the Company’s trailing twelve month revenues exceed $10,000,000 and completely vest when trailing twelve month revenues exceed $30,000,000.

During the three months ended September 30, 2019, we granted, 8,750 10-year options with an exercise price of $2.00 valued at $87,850 for services. The options above were valued using the Black-Scholes option pricing model. Assumptions used in the valuation include the following: a) market value of stock on measurement date of $10.04; b) risk-free rate of 2.52%; c) volatility factor of 307.59%; d) dividend yield of 0%. The options vest in 20,000 share increments through April 1, 2021 and the Company has recognized option expense of $52,609 for these options for the nine months ended September 30, 2019.

During the nine months ended September 30, 2019, the Company recognized stock option expense of $818,930 for options granted in the prior year.

The following is a summary of stock option activity during the nine months ended September 30, 2019:

	Number of Shares		Weighted Average Exercise Price

Balance, December 31, 2018		500,833	$	2.80
Options granted and assumed		246,250	$	7.74
Options expired		–		–
Options canceled		–		–
Options exercised		–		–
Balance outstanding, September 30, 2019		747,083	$	4.52
Balance exercisable, September 30, 2019		495,083	$	2.97

As of September 30, 2019, the outstanding options have a weighted average remaining term of was 6.97 years and an intrinsic value of $2,589,833.

Globe Photos, Inc. 10-Q