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 June 30, 2018                                           
|     |                                                                                        
|[  ] | 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). [X] Yes [ ] 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.

|                             |                              
|---------------------------- | -----------------------------
|[  ] Large accelerated filer | [  ] Accelerated filer       
|[  ] 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: 325,218,584
common shares as of August 9, 2018







1


Table of Contents
















|TABLE OF CONTENTS             
|------------------------------
|                              
|PART I – FINANCIAL INFORMATION
|Item 1:                       
|Item 2:                       
|Item 3:                       
|Item 4:                       
|PART II – OTHER INFORMATION   
|Item 1:                       
|Item 1A:                      
|Item 2:                       
|Item 3:                       
|Item 4:                       
|Item 5:                       
|Item 6:                       





2


Table of Contents




PART I - FINANCIAL INFORMATION



Item 1. Financial Statements



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



|F-1 | Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (unaudited);                          
|--- | ------------------------------------------------------------------------------------------------------------
|F-2 | Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited);
|F-3 | Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited); and      
|F-4 | Notes to Consolidated Financial Statements (unaudited).                                                     



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 June 30, 2018 are not necessarily indicative of the results
that can be expected for the full year.





3


Table of Contents






GLOBE
PHOTOS, INC.

(Formerly
CAPITAL ART, INC.)

CONSOLIDATED
BALANCE SHEETS

(Unaudited)



|                                                                                                                                                              |  | June 30, 2018 |            | December 31, 2017
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | -----------------
|Assets                                                                                                                                                        |  |               |            |                  
|                                                                                                                                                              |  |               |            |                  
|Current Assets                                                                                                                                                |  |               |            |                  
|Cash                                                                                                                                                          |  | $             | 25,317     |                  
|Accounts receivable, net                                                                                                                                      |  |               | 29,730     |                  
|Inventory, net                                                                                                                                                |  |               | 56,500     |                  
|Prepaid expenses                                                                                                                                              |  |               | 35,582     |                  
|Total Current Assets                                                                                                                                          |  |               | 147,129    |                  
|                                                                                                                                                              |  |               |            |                  
|Property and equipment, net                                                                                                                                   |  |               | 2,299,455  |                  
|Security deposit                                                                                                                                              |  |               | 6,356      |                  
|Intangible Assets, net                                                                                                                                        |  |               | 304,500    |                  
|                                                                                                                                                              |  |               |            |                  
|Total Assets                                                                                                                                                  |  | $             | 2,757,440  |                  
|                                                                                                                                                              |  |               |            |                  
|Liabilities and Stockholders' Equity                                                                                                                          |  |               |            |                  
|                                                                                                                                                              |  |               |            |                  
|Current Liabilities                                                                                                                                           |  |               |            |                  
|Accounts payable and accrued liabilities                                                                                                                      |  | $             | 590,402    |                  
|Payable to Globe Photo, Inc.                                                                                                                                  |  |               | 10,000     |                  
|Due to related parties                                                                                                                                        |  |               | 294,455    |                  
|Notes payable - related parties                                                                                                                               |  |               | 643,755    |                  
|Notes payable, net of debt discount                                                                                                                           |  |               | 355,000    |                  
|Deferred revenue                                                                                                                                              |  |               | 50,000     |                  
|Derivative liability                                                                                                                                          |  |               | —          |                  
|Loans payable, net of unamortized discounts                                                                                                                   |  |               | 564,418    |                  
|Total Current Liabilities                                                                                                                                     |  |               | 2,508,030  |                  
|                                                                                                                                                              |  |               |            |                  
|Total Liabilities                                                                                                                                             |  |               | 2,508,030  |                  
|                                                                                                                                                              |  |               |            |                  
|Stockholders' Equity                                                                                                                                          |  |               |            |                  
|                                                                                                                                                              |  |               |            |                  
|Preferred stock, $0.0001 par value, 50,000,000 shares authorized; none issued and outstanding at June 30, 2018 and December 31, 2017.                         |  |               | —          |                  
|Common stock par value $0.0001: 450,000,000 shares authorized; 325,218,583 and 325,570,524 issued and  outstanding as of  June 30, 2018 and December 31, 2017 |  |               | 32,522     |                  
|Additional paid in capital                                                                                                                                    |  |               | 4,331,766  |                  
|Treasury stock; 0 and 258,823 shares as of June 30, 2018 and December 31, 2017.                                                                               |  |               | —          |                  
|Accumulated deficit                                                                                                                                           |  |               | (4,114,878 | )                
|Stockholders' Equity                                                                                                                                          |  | $             | 249,410    |                  
|                                                                                                                                                              |  |               |            |                  
|Total Liabilities and Stockholders' Equity                                                                                                                    |  | $             | 2,757,440  |                  



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



F-1


Table of Contents




GLOBE
PHOTOS, INC.

(Formerly
CAPITAL ART, INC.)

CONSOLIDATED
STATEMENTS OF OPERATIONS

(Unaudited)



|                                                     |  | For the three months ended |             | For the six months ended
|---------------------------------------------------- |  | -------------------------- | ----------- | ------------------------
|                                                     |  | June 30, 2018              |             | June 30, 2017           
|                                                     |  |                            |             |                         
|License revenue                                      |  | $                          | 83,818      |                         
|Image revenue                                        |  |                            | 120,614     |                         
|Total revenue                                        |  |                            | 204,432     |                         
|                                                     |  |                            |             |                         
|Cost of revenue                                      |  |                            | 190,329     |                         
|                                                     |  |                            |             |                         
|Gross margin                                         |  |                            | 14,103      |                         
|                                                     |  |                            |             |                         
|Operating expenses                                   |  |                            |             |                         
|Product development, sales and marketing             |  |                            | 108,632     |                         
|General and administrative                           |  |                            | 208,252     |                         
|Depreciation and amortization                        |  |                            | 11,221      |                         
|                                                     |  |                            |             |                         
|Total operating expenses                             |  |                            | 328,105     |                         
|                                                     |  |                            |             |                         
|                                                     |  |                            |             |                         
|Loss from operations                                 |  |                            | (314,002    | )                       
|                                                     |  |                            |             |                         
|Other income (expenses)                              |  |                            |             |                         
|Loss of settlement of accrued liability              |  |                            | (208,322    | )                       
|Interest expense                                     |  |                            | (145,715    | )                       
|Change in fair value of derivative liabilities       |  |                            | 4,810       |                         
|Other income (expenses)                              |  |                            | (349,227    | )                       
|                                                     |  |                            |             |                         
|Net loss                                             |  |                            | (663,229    | )                       
|                                                     |  |                            |             |                         
|Per-share data                                       |  |                            |             |                         
|Basic and diluted loss per share                     |  | $                          | (0.00       | )                       
|                                                     |  |                            |             |                         
|Weighted average number of common shares outstanding |  |                            | 325,221,721 |                         





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

F-2


Table of Contents




GLOBE
PHOTOS, INC.

(Formerly
CAPITAL ART, INC.)

CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  | For the six months ended
|--------------------------------------------------------------------------- |  | ------------------------
|                                                                            |  | June 30, 2018           
|                                                                            |  |                         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                         
|Net loss                                                                    |  | $                       
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                         
|Depreciation and amortization                                               |  |                         
|Amortization of debt discount                                               |  |                         
|Options issued for services                                                 |  |                         
|Loss of settlement of accrued liability                                     |  |                         
|Change in fair value of embedded derivative                                 |  |                         
|Changes in operating assets and liabilities:                                |  |                         
|Accounts receivable                                                         |  |                         
|Prepaid expenses                                                            |  |                         
|Inventory                                                                   |  |                         
|Deferred revenue                                                            |  |                         
|Accounts payable and accrued liabilities                                    |  |                         
|Net Cash Used In Operating Activities                                       |  |                         
|                                                                            |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                         
|Net cash paid for minority investment in business                           |  |                         
|Purchase of archival images, property and equipment                         |  |                         
|Net Cash Provided By (Used In) Investing Activities                         |  |                         
|                                                                            |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                         
|Proceeds from loans payable                                                 |  |                         
|Repayment of loans payable                                                  |  |                         
|Proceeds from related party advances                                        |  |                         
|Repayment of related party advances                                         |  |                         
|Proceeds from notes payable                                                 |  |                         
|Repayment of note payable                                                   |  |                         
|Proceeds from note payable - related party                                  |  |                         
|Repayment of note payable - related party                                   |  |                         
|Purchase of treasury stock                                                  |  |                         
|Net Cash Provided By Financing Activities                                   |  |                         
|                                                                            |  |                         
|Net Change in Cash                                                          |  |                         
|                                                                            |  |                         
|Cash - Beginning of Period                                                  |  |                         
|                                                                            |  |                         
|Cash - End of Period                                                        |  | $                       
|                                                                            |  |                         
|SUPPLEMENTARY CASH FLOW INFORMATION:                                        |  |                         
|Cash Paid During the Period for:                                            |  |                         
|Interest                                                                    |  | $                       
|                                                                            |  |                         
|SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:    |  |                         
|Purchase of third party notes by related party                              |  | $                       
|Options issued to settle accrued liabilities                                |  | $                       



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

F-3


Table of Contents




Globe Photos, Inc.

(Formerly Capital Art, Inc.)

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.







| | 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 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.



F-4


Table of Contents






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.







F-5


Table of Contents








Globe Photos, Inc.

(Formerly Capital Art, Inc.)

Notes to Consolidated Financial Statements

June 30, 2018 and 2017

(Unaudited)







| | 3. | FAIR VALUE OF FINANCIAL INSTRUMENTS
| | -- | -----------------------------------



The Company’s derivative liability
measured at fair value on a recurring basis was determined using the following inputs:



|                                |  | Fair Value Measurements at June 30, 2018
|------------------------------- |  | ----------------------------------------
|                                |  |                                         
|                                |  | Total                                   
|Put option derivative liability |  | $                                       





|                                |  | Fair Value Measurements at December 31, 2017 |      
|------------------------------- |  | -------------------------------------------- | -----
|                                |  |                                              |      
|                                |  | Total                                        |      
|Put option derivative liability |  | $                                            | 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)
|--------------------------------------------------- |  | ---------------------------------------------------------------------------
|                                                    |  |                                                                            
|                                                    |  |                                                                            
|Balance beginning of period                         |  | $                                                                          
|Change in fair market value of derivative liability |  |                                                                            
|Balance end of period                               |  | $                                                                          







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. | 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.



F-6


Table of Contents






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.







| | 5. | PROPERTY AND EQUIPMENT, NET
| | -- | ---------------------------



Property and equipment
as of June 30, 2018 and December 31, 2017 comprise of the following:



|                                                       |  | June
    30, |            | December
    31, |  | Estimated Useful
|------------------------------------------------------ |  | ------------ | ---------- | ---------------- |  | ----------------
|                                                       |  | 2018         |            | 2017             |  | Lives           
|Frank Worth Collection                                 |  | $            | 2,770,000  |                  |  | $               
|Other archival images                                  |  |              | 952,265    |                  |  |                 
|Leasehold improvements                                 |  |              | 12,446     |                  |  |                 
|Computer and other equipment                           |  |              | 72,687     |                  |  |                 
|Furniture and fixtures                                 |  |              | 83,666     |                  |  |                 
|                                                       |  |              | 3,891,064  |                  |  |                 
|Less accumulated deprecation                           |  |              | (1,591,609 | )                |  |                 
|Total
    archival images, property and equipment, net |  | $            | 2,299,455  |                  |  | $               







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.







F-7


Table of Contents






Globe Photos, Inc.

(Formerly Capital Art, Inc.)

Notes to Consolidated Financial Statements

June 30, 2018 and 2017

(Unaudited)





| | 6. | 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
|Intangible assets with determinable lives:   |  |                         |         |                          |  |                   |         |                        
|                                             |  |                         |         |                          |  |                   |         |                        
|Content provider and photographic agreements |  | $                       | 400,000 |                          |  | $                 | 120,000 |                        
|Copyrights                                   |  |                         | 35,000  |                          |  |                   | 10,500  |                        
|Total                                        |  | $                       | 435,000 |                          |  | $                 | 130,500 |                        





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.





| | 7. | NOTES PAYABLE
| | -- | -------------



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.



F-8


Table of Contents






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.

F-9


Table of Contents




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 $1,000for
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.





|                                                          |  | June
    30, 2018 |         | December
    31, 2017
|--------------------------------------------------------- |  | ----------------- | ------- | ---------------------
|Due
    to related parties:                               |  |                   |         |                      
|ICONZ
    Art, LLC, beneficial interest shareholder       |  |                   | 266,423 |                      
|MSN
    Holding Co., beneficial interest shareholder      |  |                   | 12,947  |                      
|Premier
    Collectibles, beneficial interest shareholder |  |                   | 15,085  |                      
|Total
    due to related parties                          |  | $                 | 294,455 |                      



F-10


Table of Contents






Globe Photos, Inc.

(Formerly Capital Art, Inc.)

Notes to Consolidated Financial Statements

June 30, 2018 and 2017

(Unaudited)





| | 9. | 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 six months ended
June 30, 2018 and 2017, interest expense related to these loans amounted to $14,597and
$11,153 respectively, which has been included in interest expense and a corresponding increase in loans payable. During the six
months ended June 30, 2018 and 2017, the Company made payments of $3,984 and $7,195to
the loan holders, respectively. As of June 30, 2018, loan payable net of unamortized debt discount amounted $364,418.

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 six months ended June 30, 2018.

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.

F-11


Table of Contents




Globe Photos, Inc.

(Formerly Capital Art, Inc.)

Notes to Consolidated Financial Statements

June 30, 2018 and 2017

(Unaudited)



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 June 30, 2018,
the Company has paid $25,000 toward the guaranteed royalties.



Operating Lease Agreements



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



Future minimum lease payments are below:



|2018  |  | $ | 21,441 | 
|----- |  | - | ------ | 
|2019  |  |   | 36,807 | 
|Total |  | $ | 58,248 | 





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.



| | 10. | 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 June 30, 2018, 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 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











F-12


Table of Contents








Capital Art, Inc.

(Formerly Capital Art, Inc.)

Notes to Consolidated Financial Statements

June 30, 2018 and 2017

(Unaudited)





STOCK OPTIONS



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%





|                                       |  | Number
    of Shares |           | Weighted
    Average Exercise Price
|-------------------------------------- |  | -------------------- | --------- | -----------------------------------
|Balance,
    December 31, 2017         |  |                      | 100,000   |                                    
|Options
    granted and assumed        |  |                      | 2,183,333 |                                    
|Options
    expired                    |  |                      | —         |                                    
|Options
    canceled                   |  |                      | —         |                                    
|Options
    exercised                  |  |                      | —         |                                    
|Balance
    outstanding, June 30, 2018 |  |                      | 2,283,333 |                                    
|Balance
    exercisable, June 30, 2018 |  |                      | 2,283,333 |                                    



| | 11. | SUBSEQUENT EVENTS
| | --- | -----------------









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.







F-13


Table of Contents




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 and History



We were originally incorporated on September
20, 2004, in the State of Delaware under the name “Blog8.” Since incorporation, we have changed our name numerous times
and have been known as “Securiteyes,” “Medify Solutions Limited,” “Petel Incorporated” and
“Gleeworks, Inc.” We amended our Certificate of Incorporation and changed our name to Capital Art, Inc. on April 28,
2011.   On June 6, 2018, we changed our name to Globe Photos, Inc.



We currently are engaged in the business
of selling and managing classic and contemporary, limited edition photographic images and reproductions, with a focus on iconic
celebrity images, by acquiring ownership or rights to collections of rare iconic negatives and photographs. We also make available
images for publications and merchandising by third parties. Our business is in its early stages and consequently our financial
results are difficult to compare from one period to the next. We expect such period-to-period differences to continue to be significant
over the next several quarters, until we have a number of full years of operations.



Our objective is to become the largest
repository of archival pop culture photography in the online world. To this end, we have been and continue to search for photographic
archives. We have amassed our current inventory and rights to photographic images and reproductions from a series of acquisitions
that started in 2011. These past few years of acquisitions have resulted in an impressive collection for our company, including
the rights to the Frank Worth collection, Globe Photos and the rights or ownership to millions of photos and negatives. Archived
and stored in our warehouse are boxes of never seen before negatives, one-of-a kind prints and other memorabilia. We have rare
images of celebrity icons, such as Elvis Presley, James Dean, Marilyn Monroe, and many others, which have never been seen by the
public.



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 wherever it may be geographically located.



4


Table of Contents




Our business is to monetize the value
of our collection. We sell our photographic images and reproductions through auctions, third-party galleries, art consultants,
interior decorators, bricks and mortar locations, specialty and big box retailers and directly to end consumers. We reach our customers
through diverse marketing channels, including our websites, events and interactive campaigns. We also reproduce mass quantities
of different photographs from our collection, which are sold through third party on-line retailers. We are continually exploring
these and other marketing possibilities and we expect to continue our efforts to pursue contracts and to diversify our revenues.





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.capitalart.com. The
information contained on or connected to our website is not incorporated by reference into this Quarterly Report on Form 10-Q and
should not be considered part of this or any other report filed with the SEC.



Results
of Operations



Revenues





Our total revenue reported for the three
months ended June 30, 2018 was $204,432, compared with $305,479 for the three months ended June 30, 2017. Our total revenue reported
for the six months ended June 30, 2018 was $754,253, compared with $458,044 for the three months ended June 30, 2017, the increase
in revenue was primarily driven by a $213,051 or 210% increase in license revenue.





The decrease in revenue for the three
months ended June 30, 2018 over the same period ended 2017 is largely the result of the following: (i) our auction has been postponed
from Q2 2018 to Q3 2018, as we had acquired another photo agency, Retna USA, and we wanted to include vintage prints and negatives
into the auction; (ii) a new retail program with Restroation Hardware was pushed from Q2 2018 to Q3 2018; and (iii) a large sale
through our interior design division was pushed back to Q3 2018. In addition, we have spent considerable time on a potential acquisition,
which held the attention of our management team for the past 6 months.





For the six months ended June 30, 2018,
the collectibles division accounted for over 70% of total revenues. Management has instituted aggressive direct-to-consumer marketing,
implemented programs with third-party re-sellers as well as bricks and mortar, and online retailers. We have also continued to
enhance and market our licensing division, Globe Photos, LLC. Additionally, we have invested considerable time and monies in the
development of software to more efficiently ingest images and push them through to our retail and licensing channels that is expected
to help scale each division considerably.





There is significant financial risk
associated with a dependence upon a small number of distributors and customers which could have an adverse effect on our future
consolidated financial statements if these distributors or customers were to leave. We intend to continue our investment in sales
and marketing in order to increase distribution and demand for our products and adding content to our product lines, along with
adding additional channels of distribution. There are no assurances this will result in increased revenues.



Cost of Revenues





Our total cost of revenues for the three
months ended June 30, 2018 increased to $190,329, compared with $148,892 for the three months ended June 30, 2017. Our total cost
of revenues for the six months ended June 30, 2018 increased to $486,472, compared with $294,565 for the six months ended June
30, 2017. The increase in cost of revenue is due to increased depreciation and amortization expenses during the current period.





Operating Expenses





Operating expenses increased to $328,105
for the three months ended June 30, 2018 from $193,731 for the three months ended June 30, 2017. Operating expenses increased to
$496,798 for the six months ended June 30, 2018 from $409,458 for the six months ended June 30, 2017. The detail by major category
is reflected in the table below.





5


Table of Contents




|                                         |  | Three Months Ended June 30 |         | Six Months Ended June 30
|---------------------------------------- |  | -------------------------- | ------- | ------------------------
|                                         |  | 2018                       |         | 2017                    
|Product development, sales and marketing |  | $                          | 108,632 |                         
|General and administrative               |  |                            | 208,252 |                         
|Depreciation expense                     |  |                            | 11,221  |                         
|                                         |  |                            |         |                         
|Total operating expenses                 |  | $                          | 328,105 |                         





The main reason for the overall
increase in operating expenses in 2018 was an increase in the general and administrative expense category.



Product development, sales and marketing
expenses increased in both the three and six months ended June 30, 2017 over the same periods in 2017. Product development, sales
and marketing expenses primarily consists of website development costs, sales and marketing 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 its products and to add content to its product lines along with adding additional channels of distribution.



General and administrative costs
also increased in 2018 over 2017 for both periods as a result of expenses related to professional fees.



Total depreciation expense also increased
in 2018 over 2017. We record archival images, and property and equipment at cost for purchases over $500. Archival images, property
and equipment are depreciated using the straight-line method over the estimated useful lives ranging from three to ten years. We
capitalize direct costs associated with improvements to archival images, and property and equipment in accordance with ASC 360
– Property, Plant, and Equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of their
useful life or the term of the related lease.



Other Expenses





We had other expenses of $349,227 for
the three months ended June 30, 2018, as compared with other expenses of $4,855 for the same period ended 2017. We had other expenses
of $363,206 for the six months ended June 30, 2018, as compared with other expenses of $53,360 for the same period ended 2017.
The increase in other expenses is primarily a result of 2,083,000 options valued at $312,489 issued to settle $104,167 in debt,
resulting in a loss on settlement of accrued liability of $208,322 and $164,079 in interest expense, which primarily consist of
our obligation to issue 1,000,000 shares of common stock valued $100,000 to amend a purchase agreement.





Net Loss



We finished the three months ended June
30, 2018 with a loss of $663,229, as compared to a loss of $41,999 during the three months ended June 30, 2017. We finished the
six months ended June 30, 2018 with a loss of $592,223, as compared to a loss of $299,339 during the three months ended June 30,
2017. The reasons for specific components are discussed above. Overall, we had an increase in revenue and resulting gross margin
along with increased operating expenses to support future growth.



Liquidity and Capital Resources





As of June 30, 2018, we had total current
assets of $147,129 and current liabilities of $2,508,030, resulting in a working capital deficit of $2,360,901. This compares with
the working capital deficit of $ 2,279,685 at December 31, 2017. This increase in working capital deficit, as discussed in more
detail below, is primarily the result of an increase in notes payable and related party notes payable.





Our operating activities used $199,436
in the six months ended June 30, 2018 as compared with $234,039 used in operating activities in the six months ended June 30, 2017.
Our negative operating cash flow in 2018 was largely the result of our net loss and deferred revenue, offset by depreciation and
amortization and the loss on settlement of accrued liabilities.



6


Table of Contents




Investing
activities used $12,922 in the six months ended June 30, 2018 compared with $107,202in
the six months ended June 30, 2017. Our negative investing cash flow in 2017 is largely the result of purchasing images, property
and equipment. We anticipate that our investing expenditures will increase as we expand our collection.



Financing activities provided $236,378
in the six months ended June 30, 2018 compared with $288,236 provided in the six months ended June 30, 2017. Our positive financing
cash flow in 2018 was largely the result of related party advances and loans payable.



There is no guarantee we will generate
sufficient revenues to continue operations. Our management estimates we will need approximately $1,000,000 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 obtain additional financing, our
operations will be significantly negatively impacted, and we will need to significantly scale back our operations or liquidate
all or a portion of our collections.

We believe that our principal
difficulty in our ability to successfully generate profits has been the lack of available capital to operate and expand our business.
We believe we need a minimum of approximately $3,000,000 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 June 30, 2018.



Critical Accounting Polices



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



Off Balance Sheet Arrangements



As of June 30, 2018, there were no off
balance sheet arrangements.



Recent Accounting Pronouncements



The recent accounting pronouncements
that are material to our financial statements are disclosed in Note 2 of our consolidated audited financial statements included
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.



7


Table of Contents




Item 4.  Controls and Procedures



Disclosure Controls and Procedures -Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.



These controls are designed to ensure
that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission,
and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.



Based on this evaluation, our CEO and
CFO have concluded that our disclosure controls and procedures were not effective as of June 30, 2018, at reasonable assurance
level, due to the following material weaknesses:



| | § | ineffective control environment
and lack of qualified full-time CFO who has SEC experience to focus on our financial affairs;
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | § | lack of qualified and
sufficient personnel, and processes to adequately and timely identify making any and all required public disclosures;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| | § | deficiencies in the period-end
reporting process and accounting policies;
| | - | -------------------------------------------------------------------------

| | § | inadequate internal controls
over the application of new accounting principles or the application of existing accounting principles to new transactions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | § | inadequate internal controls
relating to the authorization, recognition, capture, and review of transactions, facts, circumstances, and events that could have
a material impact on the Company’s financial reporting process;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | § | inadequate controls over
maintenance of records;
| | - | ------------------------------------------------

| | § | inadequate internal controls
with respect to inventory transactions; and
| | - | ------------------------------------------------------------------------

| | § | improper and lack of
timely accounting for accounts such as prepaid expenses, accounts payable and accrued liabilities.
| | - | -----------------------------------------------------------------------------------------------------------------------



Our Board of Directors has assigned
a priority to the short-term and long-term improvement of our internal control over financial reporting. We intend to retain a
qualified Chief Financial Officer in 2018 to remedy the processes that would eliminate the issues that may arise due to the absence
of separation of duties within the financial reporting functions. Additionally, our Board of Directors will work with management
to continuously review controls and procedures to identified deficiencies and implement remediation within our internal controls
over financial reporting and our disclosure controls and procedures.



We believe that our financial statements
presented in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations,
and cash flows for all periods presented herein.



Inherent Limitations -Our
management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures
will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part
upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely
upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of
financial data.



Changes in Internal Control over Financial Reporting -
There were no changes in our internal control over financial reporting during the three month period ended June 30, 2018, which
were identified in conjunction with management’s evaluation required by paragraph
(d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

8


Table of Contents




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



See Risk Factors contained in our Form 10-K filed with the
SEC on November 24, 2017.



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.



On June 1, 2018, we granted 2,183,333 10-year stock options
with exercise prices of $0.01 valued at $327,488 for services and settlement of accrued liabilities.



These securities were issued pursuant
to Section 4(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



N/A



Item 5. Other Information



None



9


Table of Contents




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**          | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 formatted in Extensible Business Reporting Language (XBRL).     
|               | **Provided herewith                                                                                                                                                          



10


Table of Contents




SIGNATURES



Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on August 14, 2018 on its behalf by the undersigned thereunto
duly authorized.



|GLOBE PHOTOS, INC.                                               
|-----------------------------------------------------------------
|                                                                 
|/s/Stuart Scheinman                                              
|Stuart Scheinman
        Principal Executive Officer             
|                                                                 
|                                                                 
|/s/Scott C. Black                                                
|Scott C. Black
        Principal Financial and Accounting Officer



11