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 September 30, 2018
Commission File Number: 333-205604
Global Boatworks Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Florida |
| 81-0750562 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
2637 Atlantic Blvd. #134
Pompano Beach, FL 33062
(Address of principal executive offices) (Zip Code)
954-934-9400
(Registrants telephone number, including area code)
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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] 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).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, \ accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [ ] | Smaller reporting company | [X] |
(Do not check if a smaller reporting company) |
| Emerging Growth Company | [X] |
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 [ ] No [X]
As of November 16, 2018, we had 2,403,125,170 shares of common stock outstanding.
TABLE OF CONTENTS
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-1
Global Boatworks Holdings, Inc.
Consolidated Balance Sheets
ASSETS | September 30, 2018 |
| December 31, 2017 |
CURRENT ASSETS | (unaudited) |
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|
Cash | $ 6,019 |
| $ 1,107 |
Other receivable | 7,267 |
| - |
Short-term loan to stockholder, net of reserve of $30,000 and $30,000 | - |
| - |
Prepaid expenses | 9,134 |
| 5,636 |
Total current assets | 22,420 |
| 6,743 |
PROPERTY AND EQUIPMENT - HELD FOR SALE |
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Floating vessel held for sale, net of depreciation of $84,647 and $33,859 | 592,533 |
| 643,321 |
PROPERTY AND EQUIPMENT - OTHER |
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Other, net of depreciation of $2,536 and $962 | 3,760 |
| 5,334 |
Architectural plans, net of $4,559 and $3,192 amortization | 8,207 |
| 9,574 |
Net property and equipment | 604,500 |
| 658,229 |
Total Assets | $ 626,920 |
| $ 664,972 |
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS DEFICIT |
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CURRENT LIABILITIES |
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Accounts payable and accrued liabilities | $ 561,283 |
| $ 198,657 |
Deferred revenue | 2,252 |
| - |
Short-term loan from related parties | 12,215 |
| 16,046 |
Short-term loans, net of discounts | 670,634 |
| 428,660 |
Short-term convertible notes, net of discounts | 402,043 |
| 501,962 |
Short-term convertible note, related party, net of discounts | 17,660 |
| 10,297 |
Fair value of derivative liability | 236,860 |
| 369,570 |
Current portion of long-term debt | 5,389 |
| 5,130 |
Due to related party predecessor | 3,888 |
| 3,888 |
Total current liabilities | 1,912,224 |
| 1,534,210 |
LONG TERM LIABILITIES |
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Long term debt to third party | 22,692 |
| 26,766 |
Note Payable and accrued interest for the vessel - related party | 107,934 |
| 106,455 |
Total long-term liabilities | 130,626 |
| 133,221 |
Total Liabilities | 2,042,850 |
| 1,667,431 |
Commitments and Contingencies (note 10) |
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Redeemable preferred stock series A, 1,000,000 shares designated; 1,000,000 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively ($1,000 redemption value) | 1,000 |
| 1,000 |
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STOCKHOLDERS DEFICIT |
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Preferred stock, par $0.0001, 10,000,000 shares authorized, 9,000,000 available for issuance | - |
| - |
Common stock, par $0.0001, 5,000,000,000 shares authorized, 2,403,105,170 and 732,952,883 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 240,311 |
| 73,295 |
Additional paid-in capital | 3,934,041 |
| 3,570,786 |
Accumulated deficit | (5,591,282) |
| (4,647,540) |
Total stockholders deficit | (1,416,930) |
| (1,003,459) |
Total Liabilities, Temporary Equity and Stockholders Deficit | $ 626,920 |
| $ 664,972 |
The accompanying unaudited notes are an integral part of the unaudited consolidated financial statements
F-2
Global Boatworks Holdings, Inc.
Consolidated Statements of Operations
(unaudited)
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
REVENUES |
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Vessel sales | $ - |
| $ 222,187 |
| $ - |
| $ 222,187 |
Rental revenue | 1,392 |
| 14,840 |
| 15,550 |
| 30,955 |
Total revenues | 1,392 |
| 237,027 |
| 15,550 |
| 253,142 |
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OPERATING EXPENSES |
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Cost of revenues, excluding depreciation shown below | 14,435 |
| 17,731 |
| 57,355 |
| 21,448 |
General and administrative | 58,975 |
| 768,005 |
| 216,459 |
| 1,505,305 |
Depreciation and amortization | 17,910 |
| 17,822 |
| 53,730 |
| 18,734 |
Professional fees | 18,577 |
| 115,027 |
| 74,544 |
| 577,148 |
Professional fees - related party | 72,000 |
| 626,567 |
| 192,000 |
| 626,567 |
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Total operating expenses | 181,897 |
| 1,545,152 |
| 594,088 |
| 2,749,202 |
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Loss from operations | (180,505) |
| (1,308,125) |
| (578,538) |
| (2,496,060) |
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Other income (expense) |
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Interest expense | (54,167) |
| (84,067) |
| (214,545) |
| (351,088) |
Gain (loss) on extinguishment of debt and debt conversions, net | - |
| 177,489 |
| (258,809) |
| 180,952 |
Loss on accrued expense settlement | - |
| - |
| - |
| (14,400) |
Change in fair value of derivative | 14,662 |
| (108,326) |
| 108,150 |
| 97,815 |
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Total other income (expense) | (39,505) |
| (14,904) |
| (365,204) |
| (86,721) |
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Net loss | $ (220,010) |
| $ (1,323,029) |
| $ (943,742) |
| $ (2,582,781) |
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Loss per weighted average common share | $ (0.00) |
| $ (0.01) |
| $ (0.00) |
| $ (0.03) |
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Number of weighted average common shares outstanding - Basic and Diluted | 2,403,105,170 |
| 180,527,875 |
| 1,821,509,479 |
| 79,682,785 |
The accompanying unaudited notes are an integral part of the unaudited consolidated financial statements
F-3
Global Boatworks Holdings, Inc.
Consolidated Statement of Changes in Stockholders Deficit
Nine Months Ended September 30, 2018
(unaudited)
| Preferred Stock Number of Shares |
| Preferred Stock Par Value |
| Common Stock Number of Shares |
| Common Stock Par Value |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Total Stockholders Deficit |
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BALANCE, December 31, 2017 | - |
| $ - |
| 732,952,883 |
| $ 73,295 |
| $ 3,570,786 |
| $ (4,647,540) |
| $ (1,003,459) |
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Shares issued for services | - |
| - |
| 1,000,000 |
| 100 |
| 100 |
| - |
| 200 |
Shares issued upon debt conversion | - |
| - |
| 1,669,152,287 |
| 166,916 |
| 363,155 |
| - |
| 530,071 |
Net loss, period ended September 30, 2018 | - |
| - |
| - |
| - |
| - |
| (943,742) |
| (943,742) |
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Balance, September 30, 2018 (unaudited) | - |
| $ - |
| 2,403,105,170 |
| $ 240,311 |
| $ 3,934,041 |
| $ (5,591,282) |
| $ (1,416,930) |
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The accompanying unaudited notes are an integral part of the unaudited consolidated financial statements
F-4
Global Boatworks Holdings, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
(unaudited)
| 2018 |
| 2017 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | $ (943,742) |
| $ (2,582,781) |
Adjustments to reconcile net loss to net cash provided (used) in operating activities: |
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Change in fair value of derivative | (108,150) |
| (97,815) |
Gain on extinguishment of debt | - |
| (223,952) |
Loss (Gain) on conversion of debt | 258,809 |
| 43,000 |
Loss on accrued expenses conversion | - |
| 1,129,400 |
Common and preferred stock issued for services | 200 |
| 487,375 |
Accrued rental fee capitalized in note balance | 2,676 |
| - |
Depreciation and amortization | 53,730 |
| 18,734 |
Amortization of common stock issued for prepaid services | - |
| 533,246 |
Amortization of debt discounts, prepaid interest and OID | 183,913 |
| 311,874 |
Changes in operating assets and liabilities |
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(Increase) in Luxuria construction in progress | - |
| (245,679) |
(Increase) in other receivables | (7,267) |
| - |
(Increase) decrease in prepaid expenses | (3,498) |
| (221) |
Increase (decrease) in accounts payable and accrued expenses | 363,160 |
| 336,045 |
Increase in deferred revenue | 2,252 |
| - |
Net cash used in operating activities | (197,917) |
| (290,774) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from investment receivable | - |
| 20,000 |
Purchase of property and equipment | - |
| (6,295) |
Net cash used in investing activities | - |
| 13,705 |
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from officer advances | 14,506 |
| 20,000 |
Proceeds from third party loans, net of commissions paid | 210,260 |
| 443,000 |
Loan repayments | (6,680) |
| (185,040) |
Officer advances repayments | (15,257) |
| (2,032) |
Net cash provided by financing activities | 202,829 |
| 275,928 |
Net increase (decrease) in cash | 4,912 |
| (1,141) |
CASH, beginning of period | 1,107 |
| 10,511 |
CASH, end of period | $ 6,019 |
| $ 9,370 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Interest paid in cash | $ 30,632 |
| $ 19,151 |
Income tax paid in cash | $ - |
| $ - |
Non-Cash Investing and Financing Activities: |
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Conversion of debt to common stock | $ 530,071 |
| $ 83,444 |
Interest charges for loan extensions | $ 67,435 |
| $ 35,568 |
Common stock issued to settle accrued expenses | $ - |
| $ 271,000 |
Construction in progress costs purchased with third party loan | $ - |
| $ 35,000 |
Transfer of construction in progress to fixed asset held for sale or rent | $ - |
| $ 677,180 |
Discounts recorded on notes payable | $ 24,000 |
| $ 110,631 |
Common stock issued for loan fees | $ - |
| $ 15,000 |
Modification of note to convertible note | $ - |
| $ 60,000 |
Common stock issued for prepaid services | $ - |
| $ 62,834 |
The accompanying unaudited notes are an integral part of the unaudited consolidated financial statements
F-5
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(1) NATURE OF OPERATIONS
Global Boatworks Holdings, Inc., (the Company, Successor or Global), was formed on May 11, 2015, under the laws of the State of Florida. At formation the Company acquired 100% of the membership interests of Global Boatworks, LLC, (LLC) which was formed on June 16, 2014, under the laws of the State of Florida. The Companys business activities to date have primarily consisted of the formation and implementation of a business plan for building luxury floating vessels on a barge bottom, the rental activities relating to the vessels, the sale of the Miss Leah vessel, the construction of a new vessel, the Luxuria I and the marketing for sale of the Luxuria I vessel.
The accompanying consolidated financial statements include the activities of Global Boatworks Holdings, Inc. and Global Boatworks, LLC, its wholly owned subsidiary.
(2) BASIS OF PRESENTATION, USE OF ESTIMATES AND GOING CONCERN
a) Basis of Presentation and Principles of Consolidation
The Companys consolidated financial statements include the financial statements of Global Boatworks Holdings, Inc. and its wholly owned subsidiary Global Boatworks, LLC. All intercompany balances and transactions have been eliminated.
The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States of America ("U.S.") as promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") and with the rules and regulations of the U.S Securities and Exchange Commission ("SEC") for interim financial information. The consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for any future period. The information included in these consolidated financial statements should be read in conjunction with Managements Discussion and Analysis and Results of Operations contained elsewhere in this report and the audited consolidated financial statements and accompanying notes filed in Form 10-K filed on April 30, 2018 with the U.S. Securities and Exchange Commission.
b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in the accompanying unaudited consolidated financial statements involved the valuation of construction in progress, depreciable life of the luxury floating vessel, valuation of long-lived assets, valuation of derivatives, the valuation of common and preferred stock issued as compensation, and valuation allowance on the deferred income tax asset.
F-6
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(2) BASIS OF PRESENTATION, USE OF ESTIMATES AND GOING CONCERN, continued
c) Going Concern
The accompanying unaudited financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a working capital deficit, accumulated deficit and stockholders deficit of $1,889,804; $5,591,282 and $1,416,930 (unaudited) at September 30, 2018. The Company had a net loss of $943,742 and used cash of $197,917 in operating activities in the nine months ended September 30, 2018 (unaudited). In addition, the Company defaulted on maturity date payments of seven notes for approximately $184,827 as of September 30, 2018. It is managements opinion that these matters raise substantial doubt about the Companys ability to continue as a going concern for a period of twelve months from the issuance of this report. The Company has expenses as a result of being a publicly held company and constructing new vessels without immediate increases in revenues as the Company continues to implement its plan of operations. The ability of the Company to continue as a going concern is dependent upon increasing operations, developing sales and obtaining additional capital and financing. The Company is seeking to raise sufficient equity capital to enable it to build the second new style luxury floating vessels. The Company is seeking to raise sufficient equity capital to enable it to pay off its existing debt. It is also attempting to sell the Luxuria I. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Cash and cash equivalents
The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. The Company had no financial instruments that qualified as cash equivalents at September 30, 2018.
b) Construction in progress
Costs to construct vessels are capitalized during the construction phase. Upon completion of a vessel the Company will either sell the vessel or place in it service as a rental property. If the vessel is to be leased the construction costs are transferred to property and equipment and depreciated over its useful life.
c) Property and equipment
All property and equipment are recorded at cost and depreciated over their estimated useful lives, using the straight-line method. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from their respective accounts, and the resulting gain or loss is included in the results of operations. Repairs and maintenance charges, which do not increase the useful lives of the assets, are charged to operations as incurred. Vessels constructed and then held for sale or rent are classified as Property and Equipment held for sale and depreciated until sold.
d) Impairment of long-lived assets
A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying value amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived assets exceeds its fair value.
F-7
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
e) Financial instruments and Fair value measurements
ASC 825-10 ] Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
ASC 825 also requires disclosures of the fair value of financial instruments. The carrying value of the Companys current financial instruments, which include cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values because of the short-term maturities of these instruments.
FASB ASC 820 Fair Value Measurement clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following is the Companys assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2018 (unaudited) and December 31, 2017, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
| September 30, 2018 (unaudited) |
| December 31, 2017
| ||
Level 3 - Embedded Derivative Liability | $ | 236,860 |
| $ | 369,570 |
Changes in Level 3 assets measured at fair value for the nine months ended September 30, 2018 (unaudited) were as follows:
Balance, December 31, 2017 | $ | 369,570 |
Portion of initial valuation recorded as a debt discount |
| 16,500 |
Amortization to gain on extinguishment upon conversion or repayment |
| (41,060) |
Change in fair value |
| (108,150) |
Balance, September 30, 2018 (unaudited) | $ | 236,860 |
f) Revenue recognition
The Company adopted ASC 606 ARevenues from Contracts with Customers on January 1, 2018. There was no cumulative effect upon this adoption.
F-8
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f) Revenue recognition (continued)
Rental Revenue - Revenue is recognized when earned, generally starting when the rental customer takes temporary possession of the floating vessel and through their contracted stay. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the marina dockage fees and fees charged by the web sites Homeaway and Air BnB, where the floating vessel is advertised for rent.
Sale Revenue - Revenue is recognized when earned, generally at closing of the sale of a vessel. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the depreciated capitalized cost of constructing a vessel.
g) Stock compensation for services rendered
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the shorter of period the employee or director is required to perform the services in exchange for the award or the vesting period. The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC 505-50, for share-based payments to non-employees, compensation expense is determined at the Ameasurement date. The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
h) Income Taxes
The Company uses the asset and liability method of ASC 740 to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.
The Company follows the provisions of ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
As of September 30, 2018 tax years 2014, 2015, 2016 and 2017 for the LLC and 2015, 2016 and 2017 for the corporation remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
F-9
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i) Convertible Notes With Fixed Rate Conversion Features
The Company may issue convertible notes, which are convertible into common shares at a fixed discount to the price of the common stock at the time of conversion. The Company measures the fair value of the note at the time of issuance at the fixed monetary value of the payable and records any premium as interest expense on the issuance date.
j) Debt issue costs
The Company accounts for debt issuance cost paid to lenders, or third parties as debt discounts which are amortized over the life of the underlying debt instrument.
k) Net income (loss) per share
Basic loss per share excludes dilution and is computed by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless consideration of such dilutive potential shares would result in anti-dilution. There were 5,359,396,745 common stock equivalents at September 30, 2018 (unaudited).
l) Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a convertible note containing an embedded derivative instrument, the instrument is marked to fair value at the conversion date and the debt and derivative are removed from the balance sheet. The shares issued upon conversion of the note are recorded at their fair value and a gain or loss on extinguishment is recognized, as applicable.
Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
m) Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, ALeases which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Companys consolidated financial statements.
F-10
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m) Recent accounting pronouncements (continued)
In May 2017, FASB issued Accounting Standards Update (AASU), 2017-09 - Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met:
1 - The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
2- The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
3 - The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update.
Effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. This updated guidance did not have a material impact on our results of operations, cash flows or financial condition.
(4) CONSTRUCTION IN PROGRESS
Construction in progress represents the capitalized construction of its Luxuria floating vessel(s) being constructed for sale. At June 30, 2017, the Luxuria I was completed and $677,180 was transferred to fixed assets as it is held for rental and/or sale.
(5) PROPERTY AND EQUIPMENT
Property and Equipment held for sale consists of the following:
|
| September 30, 2018 |
|
| December 31, 2017 |
|
| (unaudited) |
|
|
|
Luxuria I floating vessel | $ | 677,180 |
| $ | 677,180 |
Less: accumulated depreciation |
| (84,647) |
|
| (33,859) |
Total P&E held for sale | $ | 592,533 |
| $ | 643,321 |
F-11
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(5) PROPERTY AND EQUIPMENT, (continued)
On September 25, 2014, the Company acquired the Miss Leah, a two story luxury floating vessel in the Cape Cod architectural style built on a barge platform. The Miss Leah was based at a marina in Boston harbor. It was rented out primarily through a third party rental management company on a short term vacation type basis. The Miss Leah was built in 2004 by the founder of the Company and subsequently sold in 2006 to his brother who established the Predecessors rental business. Due to the related party relationship between the Company and the Predecessor the luxury floating vessel was recorded on the Companys books at its original cost basis of $0 based on its fully depreciated value at the transfer date. As the Miss Leah has been recorded on the books of the Company at a value of $0, there is no depreciation recorded. On September 14, 2017, the Company sold the Miss Leah and recorded sales proceeds of $222,187, net of estimated sales tax due of $14,813.
On June 30, 2017, the Company transferred the Luxuria I, a two story luxury floating living vessel in the South Florida architectural style, built on a barge platform, from construction in progress to fixed assets as it is complete. The Company has the Luxuria I available for either vacation rental or outright sale. As long as it is available for vacation rental the Company is recording depreciation over a 20 year period. Depreciation expense for the nine months ended September 30, 2018 was $50,788.
Property and Equipment consists of the following:
|
| September 30, 2018 |
|
| December 31, 2017 |
|
| (unaudited) |
|
|
|
Architectural plans | $ | 12,766 |
| $ | 12,766 |
Furniture and equipment |
| 6,296 |
|
| 6,296 |
Less: accumulated amortization and depreciation |
| (7,095) |
|
| (4,154) |
Total P&E | $ | 11,967 |
| $ | 14,908 |
The Company capitalized the costs of developing the architectural plans for the Luxuria model floating vessel and has begun amortizing the costs over their estimated useful life of seven years, beginning April 1, 2016. Amortization expense for the nine months ended September 30, 2018 and 2017, was $2,941 and $1,368, respectively.
(6) RENTAL PROPERTY AND RELATED NOTE PAYABLE
On September 25, 2014, the Company acquired the Miss Leah, a two story luxury floating vessel in the Cape Cod architectural style built on a barge platform. The Miss Leah was based at a marina in Boston harbor. It was rented out primarily through a third party rental management company on a short term vacation type basis. The Miss Leah was built in 2004 by the founder of the Company and subsequently sold in 2006 to his brother who established the Predecessors rental business.
The terms of this acquisition are for a payable to the related party Predecessor in the amount of $100,000, carrying interest at 2% per annum from the effective date of the transfer date of September 25, 2014 with all principal and interest due on the maturity date of June 20, 2022, which was memorialized in the form of a promissory note in June 2015, effective September 25, 2014. Due to the related party relationship between the Company and the Predecessor the luxury floating vessel was recorded on the Companys books at its original cost basis of $0 based on its fully depreciated value at the transfer date. Accordingly, the Company charged additional paid-in capital as a distribution for $100,000. Outstanding principal and interest totaled $107,934 at September 30, 2018 (unaudited).
F-12
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT-TERM CONVERTIBLE NOTES
a) Short term notes
Short term debt including accrued interest was, as follows:
| September 30, 2018 |
| December 31, 2017 |
| (unaudited) |
|
|
Note 1 | $ 40,000 |
| $ 40,000 |
Note 2 | 572,115 |
| 345,050 |
Note 3 | 53,717 |
| 52,217 |
Note 4 | 6,668 |
|
|
Less: unamortized debt discounts | (1,866) |
| (8,607) |
Total short-term notes, net | $ 670,634 |
| $ 428,660 |
NOTE 1: On July 9, 2015, the company entered into a loan agreement in the amount of $151,700 with a shareholder. The company issued 250,000 common shares to the shareholder as consideration for providing us the loan. The shares were valued at $25,000, or $0.10 per share (based on the recent private placement sales) was recorded as a discount and is being amortized at a rate of $2,083 per month over the life of the loan. The note bears interest at the rate of 10%. Prepaid interest in the amount of $15,000 and a loan fee of $1,700 were deducted from the proceeds of the loan. These were amortized each month at the rate of $1,250 and $142 over the life of the loan, respectively. We were obligated to pay the principal and interest due on July 9, 2016. The loan was secured by the Miss Leah, our company owned vessel. The Company paid $6,000 in interest to the holder during the third quarter 2016.
The note holder sold $51,700 of this note to a third party in August 2016, and the Company modified the new $51,700 note to add a conversion feature at a conversion rate of 60% of the trading price of the Companys common stock. This note is considered stock settled debt and accordingly the Company recorded a premium on the debt of $34,467 as a charge to interest expense on the modification date. This third party converted $51,700 of this in exchange for 1,574,740 shares in fiscal 2016, and the premium was reclassified to additional paid in capital.
The $100,000 remaining balance of the original note was renegotiated into a new note on December 5, 2016 which matured on July 15, 2017. This new note carries interest at a rate of 16.8% which was payable in cash monthly. The Company paid $14,443 in interest during the year ended December 31, 2017. This new note required the Company to issue 100,000 shares which were valued at $6,000 which was recorded as a discount to be amortized over the remaining life of the note. The remaining note balance and unamortized discount balance at December 31, 2017, is $40,000 (see following assignments). The $40,000 balance of Note 1 matured on July 15, 2017, and is in default. The Company and the lender are negotiating the terms of an extension.
NOTE 2: On January 5, 2017, pursuant to a securities purchase agreement and a secured promissory note for $830,000 available in five tranches, the Company drew $170,000 and received $150,000 in cash net of $15,000 OID and $5,000 legal fees under this nine-month secured promissory note. This note is secured by all the assets of the Company, inclusive of the Luxuria I and the Luxuria II, the member interests of its wholly owned LLC and personally guaranteed by Robert Rowe, CEO of the Company.
F-13
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT-TERM CONVERTIBLE NOTES, (continued)
a) Short term notes, (continued)
NOTE 2: (continued) The lenders security interests are subordinate by law to the security interests of the August 11, 2016 lender. This note is structured in multiple parts, first the initial $170,000 as drawn and a subsequent $660,000 which can be drawn at the Companys option. This note does not carry a stated interest rate, (except it is 22% in event of default as defined in the promissory note), but carries an Original Issue Discount (OID) that totals $75,000 and is pro-rata on each tranche drawn. The OID will be amortized over the remaining life of the note from the date drawn. In addition, the Company is required to pay $5,000 of the lenders legal fees which was applied to the first tranche drawn. which will also be recorded as debt discount and will be amortized over the nine-month life of the note. The Company received the second tranche of $110,000 and received $100,000 in cash net of $10,000 OID under this note in March 2017. The Company received the third tranche of $55,000 and received $50,000 in cash net of $5,000 OID under this note in November 2017. On November 16, 2017, the lender agreed to extend the note for a three month period and an extension fee of $10,050 was added to the principal balance of note. The note in the remaining balance of $345,050 matured on January 11, 2018. On January 17, 2018, the lender agreed to extend this note for an additional three-month period for an extension fee of $10,351. On April 4, 2018, the lender agreed to extend this note for an additional three-month period for an extension fee of $11,712.
On February 9, 2018, $38,500 was extended to the Company as a draw on this note, including $3,500 OID. On April 6, 2018, $33,000 was extended to the Company as a draw on this note, including $3,000 OID. The note in the remaining balance of $416,550 matured on April 6, 2018. On April 6, 2018, the lender agreed to extend this note for an additional three-month period for an extension fee of $11,712. On May 18, 2018, $33,000 was extended to the Company as a draw on this note, including $3,000 OID. At June 30, 2018, the balance of this note and the unamortized discount is $474,723 and $1,337, respectively. On July 6, 2018, the lender agreed to extend this note for an additional three-month period for an extension fee of $14,613.
On July 3, 2018, August 2, 2018 and September 14, 2018 $25,000, $25,000 and $25,000 was extended to the Company as a draw on this note, including $2,500, $2,500 and $2,500 OID. The note in the remaining balance of $499,113 matured on July 6, 2018. On July 6, 2018, the lender agreed to extend this note for an additional three-month period for an extension fee of $14,613. At September 30, 2018, the balance of this note and the unamortized discount is $572,115 and $1,866, respectively. See Note 14.
This note requires a partial prepayment if and when the Company sells the Luxuria I and Luxuria II, upon the receipt of which the lender has agreed to release the security interest in the vessels. This prepayment is 10% of the profits on the Luxuria I and 33% of the profits on the Luxuria II. If the Company rents/leases either the Luxuria I or II, then the prepayment is 20% of the gross rental revenue. The balance owed for rental revenue at September 30, 2018 is $3,388 and is included in the note balance.
NOTE 3: On July 17, 2017, the company entered into a loan agreement in the amount of $50,000 with a shareholder. The company issued 1,000,000 common shares to the shareholder as consideration for providing us the loan. The shares were valued at $15,000, or $0.015 per share based on the quoted market price which was recorded as a debt discount and was amortized at a rate of $1,250 per month over the life of the loan. The note bears interest at the rate of 12%, payable at maturity of July 17, 2018. The unamortized balance of the discount is $0 at September 30, 2018. Total unpaid principal and interest is $53,717 at September 30, 2018. This note is currently in default.
NOTE 4: On April 18, 2018, the Company entered into a loan agreement in the amount of $14,501 with a third party to finance the insurance on the Luxuria I. This note carries an 8.2% interest rate and matures February 18, 2019.
F-14
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
b) Short term convertible notes
Short term convertible debt including accrued interest was, as follows:
| September 30, 2018 | December 31, 2017 |
| (unaudited) |
|
Convertible note 1 | $ - | $ - |
Convertible note 2 | 315,058 | 417,368 |
Convertible note 3 | 17,202 | 16,069 |
Convertible note 4 | 11,511 | 10,760 |
Convertible note 5 | 11,511 | 10,760 |
Convertible note 6 - related party | 17,661 | 16,498 |
Convertible note 7 | - | 47,004 |
Convertible note 8 | 33,226 | 30,493 |
Convertible note 9 | - | 44,046 |
Convertible note 10 | 17,725 | - |
Less: unamortized debt discounts | (4,190) | (80,739) |
Less: related party note, net | (17,661) | (10,297) |
Total convertible notes, net | $ 402,043 | $ 501,962 |
NOTES 1 AND 2: On August 11, 2016, pursuant to a securities purchase agreement and a secured convertible promissory note for $610,000, the Company drew $305,000 and received $227,500 in cash under this six month secured convertible promissory note. This note is secured by all the assets of the Company, inclusive of the Miss Leah and the Luxuria 1, and the member interests of its wholly owned LLC. This note is structured in two parts, first the initial $305,000 as drawn and a subsequent $305,000 which can be drawn at the Companys option in amount/s determined by the Company. This note does not carry a stated interest rate, but carries an Original Issue Discount (OID) that totals $100,000 and is proportional to the total amount borrowed. An OID of $50,000 was recorded as a discount to the note for the initial draw and were amortized over the six month life of the note. In addition, the Company is required to pay $10,000 of the lenders legal fees (pro rata to the draws) and $22,500 of brokerage commission which was withheld from the initial $305,000 draw, both of which were also recorded as debt discounts and were amortized over the six month life of the note. Also, the Company was required to issue 100,000 shares of restricted common stock which was valued at $0.10 per share based on recent stock sales and recorded as a discount to the note and is being amortized over the six month life of the note. This note requires a $200,000 partial prepayment if and when the Company sells the Miss Leah. The note is personally guaranteed by the Companys CEO, Robert Rowe. In event of default the note carries an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law.
F-15
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTES 1 AND 2: (continued) On October 5, 2016, the Company drew an additional $122,000 and received $92,000 in cash under this six month secured convertible promissory note. An OID of $20,000 was recorded as a discount to the note for the second draw and was amortized over the remaining life of the note. On November 3, 2016, the Company drew an additional $183,000 and received $150,000 in cash under this six month secured convertible promissory note. An OID of $30,000 and legal costs of $3,000 were recorded as discounts to the note for the third draw and was amortized over the remaining life of the note.
The total note is convertible into common stock upon an event of default as follows:
Lender has the right at any time following an Event of Default, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 60% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the twenty (20) Trading Days immediately preceding the applicable Conversion. Additionally, if at any time after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Effective Date (other than an Event of Default for failure to pay the Conversion Eligible Outstanding Balance on the Maturity Date), the Conversion Factor shall automatically be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time the Conversion Shares are not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 60% to 55% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(a), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been bifurcated and recorded as a derivative liability at an initial fair value of $378,624 with $217,500 recorded as a debt discount and $161,124 as a derivative expense. The October 5, 2016 draw resulted in an initial fair value of $113,616 with $92,000 recorded as a debt discount and $21,616 as a derivative expense. The November 3, 2016 draw resulted in an initial fair value of $190,356 with $150,000 recorded as a debt discount and $40,356 as a derivative expense. The valuation method utilized during 2016 through 2018 was the Black-Scholes model with the following range of assumptions: Expected life in years 0.50 to 0.05; the conversion price range of $0.21 to $0.0001; Bond equivalent yield rate between 0.29% and 1.77%.
F-16
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTES 1 AND 2: (continued) On February 4, 2017, the maturity date was extended to May 11, 2017. Under the terms of this extension, the Company agreed to pay an additional $18,300 in interest at maturity. The Company recorded this interest as a debt discount and amortized it to maturity. On November 16, 2017, the lender agreed to extend the note for a three month period and an extension fee of $10,050 was added to the principal balance of note. On February 14, 2018, the lender agreed to extend the maturity of the August 4, 2016 Note from February 11, 2018 to May 11, 2018, in exchange for additional interest of $11,076, due at maturity. On May 11, 2018, the lender agreed to extend the maturity of the August 4, 2016 Note from May 11, 2018 to August 11, 2018, in exchange for additional interest of $8,911, due at maturity. On August 7, 2018, the lender agreed to extend the maturity of the August 4, 2016 Note from August 11, 2018 to November 11, 2018, in exchange for additional interest of $9,178, due at maturity. See Note 14.
On March 22, 2017, the Company issued 1,000,000 shares of common stock to settle $30,000 of this note. These shares were valued at $0.073 per share, or $73,000, based on the quoted trading price, and after relieving the related derivative value a gain of $3,463 was recorded.
In May 2017, the lender bifurcated the original note, which had a then remaining balance of $598,300, into two new notes, Note 1 with a principal balance of $200,000 and Note 2 with a principal balance of $416,249, which included a maturity extension fee of $17,949. Note 1 is collateralized with the Miss Leah and Note 2 with all Companys assets including the Luxuria I. At March 31, 2018, the unamortized balance of the extension fee is $0.
Note 1 required a mandatory partial prepayment of up to $200,000 if and when the Company sells the Miss Leah, upon the receipt of which the lender has agreed to release the security interest in the vessel. Note 2 contains no such provision. All other provisions of the original note are carried over to these two new notes. The maturity date of these two notes was August 11, 2017. On August 11, 2017, the lender agreed to negotiate three month extensions for both notes which was completed August 14, 2017, and combined extension fee of $17,619 was added to the principal balance of the notes.
On July 18, 2017, the Company issued 2,307,692 shares of common stock upon conversion $18,000 of Note 1. On August 10, 2017, the Company issued 3,800,000 shares of common stock upon conversion $10,944 of Note 1. The bifurcated convertible Notes 1 and 2 in the remaining balances of $182,000 and $416,249 matured on August 11, 2017. On November 11, 2017, the lender agreed to extend Note 2 for an additional three month period and an extension fee of $12,595 was added to the principal balance of note 2.
On September 14, 2017 the Company paid off the balance of Note 1 in the amount of $176,986 from the proceeds of the sale of the Miss Leah.
On October 13, 2017, the Company issued 6,190,000 shares of common stock upon conversion of Note 2 principal in the amount of $8,914. On December 27, 2017, the Company issued 25,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $15,000.
On January 30, 2018, the Company issued 41,666,667 shares of common stock upon conversion of Note 2 principal in the amount of $15,000. On February 6, 2018, the Company issued 50,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $18,000. On February 12, 2018, the Company issued 50,750,000 shares of common stock upon conversion of Note 2 principal in the amount of $15,225. On February 19, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $17,100. On February 23, 2018, the Company issued 93,750,000 shares of common stock upon
F-17
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTES 1 AND 2: (continued) conversion of Note 2 principal in the amount of $11,250. On March 2, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 12, 2018, the Company issued 94,500,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 20, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 28, 2018, the Company issued 94,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,280. On April 16, 2018, the Company issued 158,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $9,480.
At September 30, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.07; Stock price at September 30, 2018 $0.0001; conversion price of $0.00006; Bond equivalent yield rate 2.12%. At September 30, 2018 the balance was $315,058 and the unamortized discount was $4,190. See Note 14.
NOTE 3: On April 15, 2017, the Company entered into a six month 10% convertible promissory note in the amount of $15,000. In event of default the note carries an interest rate of 18%.
The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below). Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 60% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the fifteen (15) Trading Days immediately preceding the applicable Conversion.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been recorded as a derivative liability at an initial fair value of $13,472 recorded as a debt discount. The valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at April 15, 2017, $0.025 with the conversion price of $0.015; Bond equivalent yield rate 0.92%. At September 30, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at September 30, 2018 $0.0001; conversion price of $0.00006; Bond equivalent yield rate 2.12%. The principal and interest balance was $17,202 and the unamortized discount balance was $0 at September 30, 2018. The note is currently in default. This lender is not able to convert into shares.
F-18
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTES 4, 5 AND 6: On May 17, 2017, as discussed in section a) above, the $100,000 note holder sold $60,000 of this note to three third parties, one of whom subsequently became a related party, and the Company modified the new $20,000 notes to add a conversion feature at a conversion rate of $0.002 per share, with a maturity date of May 16, 2018. This was treated as a debt extinguishment and a beneficial conversion feature was recorded at issuance of $20,000 per note and will be amortized over the life of the notes. These third parties converted an aggregate of $13,500 of these notes in exchange for 6,750,000 shares in June 2017. On July 26, 2017, two of these third parties converted an aggregate of $11,000 of these notes in exchange for 5,500,000 shares. In September 2017, the Company modified the conversion rate of these notes to $0.0005 per share, which was treated as debt extinguishment whereby the then remaining balance of the discount was amortized as interest expense and new discounts totaling $35,500 were recorded which are being amortized over the remaining life of the notes. At September 30, 2018, the total principal and interest under these notes was $40,683 and the unamortized discounts were $0. These notes are currently in default. Two of these lenders are not able to convert into shares.
NOTE 7: On June 8, 2017, pursuant to a securities purchase agreement and a one year convertible promissory note for $63,000 the Company received $60,000. In addition, the Company is required to pay $2,500 of the lenders legal fees and $500 of due diligence fees which were withheld from the funds provided. This note carried a 12% interest rate, with all interest due at maturity.
The total note is convertible into common stock as follows:
Lender had the right at any time, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 61% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the ten (10) Trading Days immediately preceding the applicable Conversion.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been recorded as a derivative liability at an initial fair value of $54,651 recorded as a debt discount. The valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at June 15, 2017, $0.017 with the conversion price of $0.0104; Bond equivalent yield rate 1.11%. At March 31, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at March 31, 2018 $0.0002 with the conversion price of $0.00011; Bond equivalent yield rate 1.63%.
On December 15, 2017, the Company issued 10,126,582 shares of common stock upon conversion of $8,000 of Note 7. On December 20, 2017, the Company issued 16,438,356 shares of common stock upon conversion of $12,000 of Note 7.
F-19
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTE 7: (continued) On January 30, 2018, the Company issued 25,378,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On January 31, 2018, the Company issued 25,378,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On February 5, 2018, the Company issued 25,391,892 shares of common stock upon conversion of Note 7 principal in the amount of $9,395. On February 6, 2018, the Company issued 25,387,097 shares of common stock upon conversion of Note 7 principal in the amount of $7,870. On February 12, 2018, the Company issued 25,338,709 shares of common stock upon conversion of Note 7 principal in the amount of $6,955. On March 16, 2018, the Company issued 12,000,000 shares of common stock upon conversion of Note 7 principal and accrued interest in the amount of $2,880. At September 30, 2018, the balance of this note was $0.
NOTE 8: On August 31, 2017, the Company entered into a six month 10% convertible promissory note
in the amount of $30,000. In event of default the note carries an interest rate of 18%.
The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below). Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 80% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the fifteen (15) Trading Days immediately preceding the applicable Conversion. Due to the variable conversion terms and certain default provisions, the embedded conversion option has been recorded as a derivative liability at an initial fair value of $24,210 recorded as a debt discount. The valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at August 31, 2017, $0.0028 with the conversion price of $0.0018; Bond equivalent yield rate 1.08%. At September 30, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price $0.0001 with the conversion price of $0.00006; Bond equivalent yield rate 2.12%. The principal and interest balance was $33,226 and the unamortized balance was $0 at September 30, 2018. The note is currently in default. This lender is not able to convert into shares.
NOTE 9: On October 18, 2017, pursuant to a securities purchase agreement and a one year convertible promissory note for $43,000 the Company received $40,000, net of $2,500 of the lenders legal fees and $500 of due diligence fees which were withheld from the funds provided. This note carries a 12% interest rate, with all interest due at maturity.
The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below).
F-20
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 51% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the ten (10) Trading Days immediately preceding the applicable Conversion.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been recorded as a derivative liability at an initial fair value of $41,119 recorded as a debt discount. The valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 1.00; Stock price at October 18, 2017, $0.0028 with the conversion price of $0.0014; Bond equivalent yield rate 0.99%.
On May 1, 2018, the Company issued 78,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $4,730. On May 1, 2018, the Company issued 49,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $2,990. On May 3, 2018, the Company issued 53,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $3,230. On May 8, 2018, the Company issued 58,666,667 shares of common stock upon conversion of Note 9 principal in the amount of $3,520. On May 11, 2018, the Company issued 53,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $6,460. On May 22, 2018, the Company issued 88,500,000 shares of common stock upon conversion of Note 9 principal in the amount of $10,620. On May 25, 2018, the Company issued 71,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $8,520.
On June 11, 2018, the Company issued 60,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600. On June 12, 2018, the Company issued 41,500,000 shares of common stock upon conversion of Note 9 principal in the amount of $2,490, which was $870 greater than the then remaining note and accrued interest balance, therefore 14,500,000 shares were issued in excess. On June 13, 2018, the Company issued 60,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600, which was $3,600 greater than the then remaining note and accrued interest balance, therefore 60,000,000 shares were issued in excess. On June 14, 2018, the Company issued 41,444,500 shares of common stock upon conversion of Note 9 principal in the amount of $2,487, which was $2,487 greater than the then remaining note and accrued interest balance, therefore 41,444,500 shares were issued in excess. On June 18, 2018, the Company issued 5,166,667 shares of common stock upon conversion of Note 9 accrued interest in the amount of $310, which was $310 greater than the then remaining note and accrued interest balance, therefore 5,166,667 shares were issued in excess. The Company has instructed the lender to either return the 133,611,167 excess shares or remit $13,361 in cash to the Company (par value of the excess shares). The principal and interest was $0 and the unamortized discounts at September 30, 2018 totaled $0.
On April 17, 2018, due to the failure to timely file the Annual Report on Form 10-K, the lender automatically issued a default notice for this note. This default notice required the Company to pay the outstanding principal balance plus all accrued interest. This amount includes a default penalty of $21,500 for note 9, or 50% of the then outstanding principal balance. The lender agreed to waive the penalty after the Companys Quarterly Report on 10-Q for the period ending March 31, 2018 was filed timely.
NOTE10: On March 20, 2018, pursuant to a securities purchase agreement and a nine month convertible promissory note for $16,500 the Company received $16,000, net of $500 of the lenders legal fees which was withheld from the funds provided. This note carries a 14% interest rate, with all interest due at maturity.
F-21
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
NOTE10: (continued) The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a AConversion) all or any part of the Conversion Eligible Outstanding Balance into shares (AConversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (ACommon Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the AConversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the AConversion Price) for each Conversion shall be equal to 51% (the AConversion Factor) multiplied by the lowest Closing Bid Price in the ten (10) Trading Days immediately preceding the applicable Conversion.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been recorded as a derivative liability at an initial fair value of $41,119 recorded as a debt discount. The valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 1.00; Stock price at March 20, 2018, $0.0004 with the conversion price of $0.000122; Bond equivalent yield rate 01.76%.
At September 30, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.22; Stock price $0.0001; conversion price of $0.000051; Bond equivalent yield rate 2.12%. The principal and interest was $17,725 and the unamortized discounts at September 30, 2018 totaled $0.
On April 17, 2018, due to the failure to timely file the Annual Report on Form 10-K, the lender automatically issued a default notice for this note. This default notice required the Company to pay the outstanding principal balance plus all accrued interest. This amount includes a default penalty of $8,250 for note 10, or 50% of the then outstanding principal balance. The lender agreed to waive the penalty when the Companys Quarterly Report on 10-Q for the period ending March 31, 2018 was filed timely.
(8) SHORT TERM LOANS - RELATED PARTY
On May 4, 2017, the Company borrowed $20,000 from the Companys CEO under an informal agreement. This loan carries an interest rate of 8.98% and has a 36 month term. At September 30, 2018, this note balance is $10,765.
During 2018, the CEO advanced $14,506 to the Company under an undocumented advance which carries no interest and has no stated maturity. The Company has repaid $15,257 of this advance. At September 30, 2018, this advance balance is $1,450.
As a result of the September 5, 2017, conversion of accrued liability due to a former third-party consultant for 192,000,000 shares of common stock this third party consultant became a related party. Convertible Note 6 discussed in Note 7b) is owed to this party. The total amount owed net of discount was $17,660 at September 30, 2018.
(9) LONG TERM DEBT
In April 2017 the Company entered into a six year loan in the amount of $35,000 to purchase the Suzuki outboard engines for the Luxuria I. This loan carries an interest rate of 6.49% with monthly payments. At September 30, 2018 the balance of this loan was $28,081, of which $5,389 is due within one year.
F-22
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(10) COMMITMENTS AND CONTINGENCIES
a) Stockholders deficit
At September 30, 2018, the Company had the obligation to issue 1,000,000 shares of common stock on July 1, 2017 and 1,000,000 shares on January 1, 2018, under a three year consulting agreement entered into on December 9, 2016. These shares were valued at the market price for shares at the date they are earned.
At September 30, 2018, the Company had the obligation to issue 1,000,000 shares of common stock on May 22, 2018 under a three month consulting agreement entered into on that date. These shares were valued at the market price for shares at the date they are earned.
At September 30, 2018, the Company had the obligation to issue 6,000,000 shares of common stock on April 6, 2018 under a consulting agreement entered into in April 2017. These shares were valued at the market price for shares at the date they are earned.
b) Leases
The Company occupies dockage space for the Luxuria I pursuant to an annual lease with Bahia Mar Marina Bay, LLC dated May 1, 2018. We pay monthly rent of approximately $4,600. We occupy approximately four hundred (400) square feet of office space without charge at the residence of our Chief Executive Officer, President, Treasurer and Director, and our Secretary.
c) Material Contracts and Agreements
On November 1, 2016, the Company entered into a three year employment agreement with its CEO, Robert Rowe. This agreement calls for him to be paid $20,000 per month in cash and for the Company to issue him 10,000,000 shares of restricted common stock. These shares were issued and valued at the market price on the grant date, $0.0577 per share, for a total of $577,700, which was recorded as prepaid officer compensation and was amortized over the one year vesting period. The agreement allows him to elect to convert any accrued compensation due him for common stock at a 40% discount market or at such lower price that may have been provided to other parties. The Company recognizes gains or losses on such conversions, on conversion date, as compensation expense. On September 5, 2017, upon conversion the Company recognized a $515,000 conversion loss as additional officer compensation.
On December 9, 2016, we entered into an agreement (the Agreement) with Oceanside Equities, Inc., (Oceanside), a Florida corporation that provides consulting services. Oceanside agreed to provide us with services from December 9, 2016 until December 8, 2019, in exchange for a one time fee of $20,000 in cash; $16,000 per month accrued and payable in either cash or shares of restricted common stock at the Companys election and three million one hundred thousand (3,100,000) shares of our restricted common stock, to be issued 1,100,000 on January 1, 2017, 1,000,000 issued on July 1, 2017 and 1,000,000 issued on January 1, 2018. We will value these shares at the market price on the date they are earned which will be recognized over the term of the contract at the rate of 172,222 shares per month. The agreement allows Oceanside to elect to convert any accrued compensation due him for common stock at a 50% discount market or at such lower price that may have been provided to other parties. The Company recognizes gains or losses on such conversions, on conversion date, as consulting fee expense. On September 5, 2017, upon conversion the Company recognized a $480,000 conversion loss as related party professional fees.
F-23
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(10) COMMITMENTS AND CONTINGENCIES (continued)
c) Material Contracts and Agreements, continued
On May 19, 2017, as amended in September 2017, the Company entered into a two year consulting agreement with a related party, Ron Rowe II. This agreement calls for him to be paid $8,000 per month in cash and for the Company to issue him 5,000,000 shares of restricted common stock. These shares were issued and valued at the market price on the grant date, $0.029 per share, for a total of $145,000, which was recorded as an immediate consulting expense as it was for past services. The agreement allows the consultant to elect to convert any accrued compensation due him for common stock at a 40% discount market or at such lower price that may have been provided to other parties. The Company recognizes gains or losses on such conversions, on conversion date, as compensation expense. On September 5, 2017, upon conversion the Company recognized a $120,000 conversion loss as related party professional fees.
d) Common Stock Subscription Agreement
In the last quarter of 2014, as memorialized in May 2015, the Company received a stock subscription agreement from a now former officer and director of the Company for 1,500,000 shares of common stock in exchange for $250,000 in cash or cash equivalents, such as labor and materials for the construction of the barge bottom, or $0.167 per share. Through June 30, 2016 this former officer and director has paid $55,000 and received 330,000 shares, respectively. In August 2016, the Company issued 425,000 shares of our restricted common stock to this former officer and director in exchange for the construction of the barge bottom for Luxuria I, delivered in February, valued at $70,000, based on a negotiated agreement.
e) Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of September 30, 2018 (unaudited), there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
This party discussed in d) above has not accepted the stock certificate and informed the Company that they want to renegotiate since the market price of the common stock has fallen below the negotiated signed contractual price per share.
(11) STOCKHOLDERS DEFICIT
At September 30, 2018 (unaudited) and December 31, 2017, the Company has 5,000,000,000 shares of par value $0.0001 common stock authorized and 2,403,105,170 (unaudited) and 732,952,883 issued and outstanding. At September 30, 2018 (unaudited) and December 31, 2017, respectively, the Company has 10,000,000 shares of par value $0.0001 preferred stock authorized and 1,000,000 and 1,000,000 Redeemable Series A preferred shares issued and outstanding, respectively.
On March 7, 2018, the Company issued 1,000,000 shares of common stock under a consulting agreement. These shares were valued at $0.0002 per share, or $200.
F-24
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(11) STOCKHOLDERS DEFICIT, (continued)
On January 30, 2018, the Company issued 41,666,667 shares of common stock upon conversion of Note 2 principal in the amount of $15,000. On February 6, 2018, the Company issued 50,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $18,000. On February 12, 2018, the Company issued 50,750,000 shares of common stock upon conversion of Note 2 principal in the amount of $15,225. On February 19, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $17,100. On February 23, 2018, the Company issued 93,750,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,250. On March 2, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 12, 2018, the Company issued 94,500,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 20, 2018, the Company issued 95,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,400. On March 28, 2018, the Company issued 94,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $11,280.
On January 30, 2018, the Company issued 25,378,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On January 31, 2018, the Company issued 25,378,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On February 5, 2018, the Company issued 25,391,892 shares of common stock upon conversion of Note 7 principal in the amount of $9,395. On February 6, 2018, the Company issued 25,387,097 shares of common stock upon conversion of Note 7 principal in the amount of $7,870. On February 12, 2018, the Company issued 25,338,709 shares of common stock upon conversion of Note 7 principal in the amount of $6,955. On March 16, 2018, the Company issued 12,000,000 shares of common stock upon conversion of Note 7 principal in the amount of $2,880. At March 31, 2018, the balance of this note is $0.
On April 16, 2018, the Company issued 158,000,000 shares of common stock upon conversion of Note 2 principal in the amount of $9,480. On May 1, 2018, the Company issued 78,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $4,730. On May 1, 2018, the Company issued 49,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $2,990. On May 3, 2018, the Company issued 53,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $3,230. On May 8, 2018, the Company issued 58,666,667 shares of common stock upon conversion of Note 9 principal in the amount of $3,520. On May 11, 2018, the Company issued 53,833,333 shares of common stock upon conversion of Note 9 principal in the amount of $6,460. On May 22, 2018, the Company issued 88,500,000 shares of common stock upon conversion of Note 9 principal in the amount of $10,620. On May 25, 2018, the Company issued 71,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $8,520. On June 11, 2018, the Company issued 60,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600. On June 12, 2018, the Company issued 41,500,000 shares of common stock upon conversion of Note 9 principal in the amount of $2,490, which was $870 greater than the then remaining note and accrued interest balance, therefore 14,500,000 shares were issued in excess. On June 13, 2018, the Company issued 60,000,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600, which was $3,600 greater than the then remaining note and accrued interest balance, therefore 60,000,000 shares were issued in excess. On June 14, 2018, the Company issued 41,444,500 shares of common stock upon conversion of Note 9 principal in the amount of $2,487, which was $2,487 greater than the then remaining note and accrued interest balance, therefore 41,444,500 shares were issued in excess. On June 18, 2018, the Company issued 5,166,667 shares of common stock upon conversion of Note 9 accrued interest in the amount of $310, which was $310 greater than the then remaining note and accrued interest balance, therefore 5,166,667 shares were issued in excess. The Company has instructed the lender to either return the 133,611,167 excess shares or remit $13,361 in cash to the Company (par value of the excess shares).
At September 30, 2018 the Company is obligated to issue 1,000,000 shares, valued at $300, to a consultant under an agreement entered into May 22, 2018.
F-25
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(12) RELATED PARTIES
a) Rental property
On September 25, 2014, the Company acquired the Miss Leah, a luxury floating vessel built on a barge platform from the Predecessor which is owned by the founders brother. As part of this acquisition transaction the Company issued a promissory note in June 2015 to the Predecessor in the amount of $100,000, carrying an interest rate of 2% effective September 25, 2014, with a maturity date of June 20, 2022. The Company recorded the payable in September 2014 which was formalized with this promissory note in June 2015. At September 30, 2018 (unaudited) and December 31, 2017, the Company had accrued interest of $7,934 and $6,455, respectively.
b) Related party payable
In the last quarter 2014, the Predecessor continued to receive some of the revenue from and to pay some of the expenses related to the rental of the Miss Leah. The Company has established a payable to the Predecessor for the net differential of $3,888.
c) Common stock subscription receivable
In the last quarter 2014 as memorialized in May 2015, the Company received a stock subscription agreement from a now former director of the Company for 1,500,000 shares of common stock in exchange for $250,000 in cash or cash equivalents, or $0.167 per share. In 2014 and 2015 this now former director contributed $5,000 and $50,000 and received 30,000 and 300,000 shares, respectively. In 2016 he constructed the barge bottom for the Luxuria I and received 425,000 shares valued at $70,000.
d) Cash payments to related parties during the periods ended September 30:
| 2018 |
| 2017 |
Commissions - daughter of founder | $ - |
| $ 2,383 |
Construction management - brother of founder | $ - |
| $ 28,500 |
Construction management - nephew of founder | $ 2,000 |
| $ 24,000 |
Professional fees - significant stockholder | $ - |
| $ 2,500 |
e) Common stock issued to related party
On May 19, 2017, the Company issued 5,000,000 shares of common stock to the nephew of the Companys CEO in exchange for services rendered. These shares were valued at $0.029 per share, or $145,000. These shares were issued under a one year consulting agreement dated in May 2017, which pays the nephew $8,000 per month.
(13) CONCENTRATIONS OF RISK
The Company has only one revenue producing asset at September 30, 2018, the Luxuria I floating vessel, and that asset is located in Bahia Mar Marina, Ft Lauderdale, FL. The rental season at this location is generally year round. The Company primarily utilizes two booking agents to schedule bookings from customers and collect the revenue. If required, the Company believes it could obtain bookings through an alternative provider.
The Company maintains its cash in bank deposit accounts, which may, at times, may exceed federally insured limits. The Company had no cash balances in excess of FDIC insured limits at September 30, 2018 (unaudited) and December 31, 2017, respectively.
F-26
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the nine months ended September 30, 2018 is unaudited)
(14) SUBSEQUENT EVENTS
a) Short Term Notes
On October 6, 2018, the Note 2 lender in Note 7a) agreed to a 1 month maturity extension of this note for a fee of $5,667. The note is currently past due, although the lender has verbally agreed to an extension.
On October 19, 2018, the Note 2 lender in Note 7a) advanced $25,000 to the Company under this note.
b) Short Term Convertible Notes
Note 2 in Note 7b) is currently past due, although the lender has verbally agreed to an extension.
F-27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
We were founded in June of 2014 to commercialize luxury stationary floating vessels. We plan to generate revenues from the sale of and rental of the vessels initially in South Florida. Our newly developed Luxuria model features a South Florida modern style, and is approximately one thousand six hundred (1,600) square feet under air. The vessel offers amenities typically found in a luxury home.
Three Months Ended September 30, 2018 and 2017
We had revenues of $1,392 and $14,840 for the three months ended September 30, 2018 and 2017, respectively. Our only source of revenue at this time is the rental of the Luxuria I luxury floating vessel located in Ft Lauderdale, FL.
Cost of revenues, (exclusive of depreciation shown separately below), was $14,435 compared to $17,731 for the three months ended September 30, 2018 and 2017, respectively, or a 18.6% decrease. This decrease was primarily due to a decrease in marina rent.
General and administrative expenses were $58,975 compared to $768,005 for the three months ended September 30, 2018 and 2017, respectively, a decrease of 92.3%. General and administrative expenses are principally composed of insurance, maintenance, officer pay and travel. The primary decrease was in officer pay as a result of stock based compensation in 2017.
Our professional fees were $18,577 compared to $115,027 for the three months ended September 30, 2018 and 2017, respectively. This decrease is principally the result of stock based compensation for some of our consultants and amortization of prepaid professional fees in 2017.
Our interest expense was $54,167 compared to $84,067 for the three months ended September 30, 2018 and 2017, respectively, a decrease of $29,900 or 35.6%.
Our change in fair value of derivative was $14,662 and ($108,326) for the three months ended September 30, 2018 and 2017, respectively.
We recorded a net loss of ($220,010) compared to ($1,323,029) for the three months ended September 30, 2018 and 2017, respectively.
Nine Months Ended September 30, 2018 and 2017
We had rental revenues of $15,550 and $30,955 for the nine months ended September 30, 2018 and 2017, respectively. Our only source of revenue at this time is the rental of the Luxuria I luxury floating vessel located in Ft Lauderdale, FL.
Cost of revenues, (exclusive of depreciation shown separately below), was $57,355 compared to $21,448 for the nine months ended September 30, 2018 and 2017, respectively, or a 167.4% increase. This increase was primarily due to an increase in marina fees, as marina fees were capitalized into the cost of the Luxuria I before it was transferred from construction in process to fixed asset - held for sale or rent.
General and administrative expenses were $216,459 compared to $1,505,305 for the nine months ended September 30, 2018 and 2017, respectively, a decrease of 85.6%. General and administrative expenses are principally composed of insurance, maintenance, officer pay and travel. The primary decrease was in officer pay as a result of stock based compensation in 2017.
Our professional fees were $74,544 compared to $577,148 for the nine months ended September 30, 2018 and 2017, respectively. This decrease is principally the result of stock based compensation for some of our consultants and amortization of prepaid professional fees in 2017.
Our interest expense was $214,545 compared to $351,088 for the nine months ended September 30, 2018 and 2017, respectively, a decrease of $136,543 or 38.9%.
Our change in fair value of derivative was $108,150 and $97,815 for the nine months ended September 30, 2018 and 2017, respectively.
We recorded a net loss of ($943,742) compared to ($2,582,781) for the nine months ended September 30, 2018 and 2017, respectively.
1
Liquidity and Capital Resources
Cash Flow Activities
Our cash increased $4,912 for the nine months ended September 30, 2018. We used $197,917 of cash in operating activities during the nine months ended September 30, 2018. Our operating activities consisted primarily of marketing the Luxuria I for sale, showing the Luxuria in the Miami International Boat Show in January, ongoing showings of the Luxuria I to potential buyers, educating the buying public about the Luxuria I and rental activities of the Luxuria I. During the third quarter we retained a new real estate agency as well as a new yacht brokerage.
Investing Activities
There were no investing activities during the nine months ended September 30, 2018.
Financing Activities
During the nine months ended September 30, 2018 we funded our working capital requirements principally through the use of proceeds of $202,829 consisting mainly from additional debt proceeds.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:
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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, prepaid expenses, payables and accrued expenses. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value, due to their short-term nature.
Revenue Recognition
The Company adopted ASC 606 Revenues from Contracts with Customers on January 1, 2018. There was no cumulative effect upon this adoption.
Rental Revenue - Revenue is recognized when earned, generally starting when the rental customer takes temporary possession of the floating vessel and through their contracted stay. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the marina dockage fees and fees charged by the web sites AirBnB and Homeaway, where the floating vessel is advertised for rent.
Sale Revenue - Revenue is recognized when earned, generally at closing of the sale of a vessel. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the capitalized cost of constructing a vessel.
Construction in progress
Costs to construct vessels are capitalized during the construction phase. Upon completion of a vessel the Company will either sell the vessel or place in it service as a rental property. If the vessel is to be leased the construction costs are transferred to property and equipment and depreciated over its useful life.
2
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets.
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a convertible note containing an embedded derivative instrument, the instrument is marked to fair value at the conversion date and that fair value is reclassified to equity. The shares issued upon conversion of the note are recorded at their fair value with gain or loss recognition as applicable.
Equity instruments that are initially classified as equity that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the instrument on the reclassification date.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
Recent Accounting Pronouncements
(See Recently Issued Accounting Pronouncements in Note 3 m) of Notes to the unaudited Consolidated Financial Statements.)
Plan of Operations
Historically, we generated revenue from the short-term vacation rental of the Miss Leah, a company owned vessel located in Boston Harbor, Massachusetts. We sold the Miss Leah in September 2017. We have the Luxuria I listed both for sale and for rental.
As of September 30, 2018, we had cash on hand of $6,019 for our operational needs. Currently, our operating expenses are approximately $14,500 per month.
We were obligated to repay an outstanding loan in one lump payment in the amount of $40,000 on July 15, 2017, which is past due as of the date of this filing and is under negotiations for an extension. We are obligated to repay an outstanding loan in the amount of $474,723 on November 11, 2018. We are obligated to repay an outstanding loan in one lump payment in the amount of $305,880 on October 5, 2018. We are obligated to repay an outstanding loan in one lump payment in the amount of $15,000 on October 15, 2017, which is past due as of the date of this filing but is expected to be converted to common stock. We were obligated to repay three outstanding loans in one lump payment in the amounts of $10,000; $10,000 and $15,500 on May 17, 2018, which are past due as of the date of this filing but is expected to be converted to common stock. We are obligated to repay an outstanding loan in one lump payment in the amount of $16,500 on December 30, 2018. As a result of not filing our Annual Report on Form 10-K timely, we received notification that these last two convertible notes in the amounts of $43,000 and $16,500 were in default, which required us to pay a default penalty of $29,750, or 50% of the then outstanding loan balances. The lender agreed to waive this penalty if the Companys 03/31/2018 Quarterly Report on Form 10-Q is filed timely, which it was, therefore the penalties were waived.
If we fail to generate sufficient revenues or raise additional funds to meet our monthly operating costs we would have available cash for our operating needs for approximately zero (0) months.
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We are focusing our efforts on commercializing luxury stationary vessels designed in a South Florida modern style. We completed the design of the Luxuria model in the first quarter of 2015, and began construction in March 2016. It was completed as of September 30, 2017. Luxuria I is approximately 1,900 square feet, with two (2) bedrooms and bathrooms, and sleeps up to nine people. We are also marketing the concept of custom built smaller versions of the Luxuria that would cost less to build and have a lower selling price.
We currently have the Luxuria listed with two brokers as a short-term vacation rental property in South Florida and also have it listed for outright sale. We believe that using the Luxuria as a short-term vacation rental in South Florida could provide a year round source of cash flow.
While rental of the Luxuria is expected to provide a relatively steady revenue stream to us, the construction and sale of custom designed and built luxury floating vessels are expected to generate significantly greater revenues and potential profits.
We anticipate that each non-custom vessel will cost approximately $650,000 to construct. Construction will take between three (3) to four (4) months, per vessel. We will require additional funds to develop and carry out our future plans including construction of our second Luxuria class vessel which has not yet commenced. We plan to begin marketing each vessel when manufacturing commences.
Our first Luxuria barge bottom was delivered to us in late February 2016. We issued 425,000 shares of our common stock as payment for this barge bottom, valued at $70,000, or $0.16 per share, under an agreement dated August 11, 2016, at which time the market price of the stock was $0.23 per share. This party has not accepted the stock certificate and informed the Company that they want to renegotiate since the market price of the common stock has fallen below the negotiated price per share.
The retail price of the Luxuria is between $1,200,000 and $1,500,000. The subsequent sale of the Luxuria vessel would provide sufficient capital to repay the remaining balance of the Companys debt.
We are currently marketing the Luxuria models to yacht brokers, real estate brokers and boat dealerships.
Our cash balance at September 30, 2018 was $6,019, which is approximately zero (0) months of net cash outflow.
We have an accumulated deficit of $5,591,282 from inception to September 30, 2018. A significant portion of this accumulated deficit is the result of a non-cash expenses such as the issuance of common stock for services rendered, amortization of beneficial conversion feature discounts and amortization of embedded derivative value discounts on convertible debt.
Our future plans are contingent upon the receipt of capital from either: (i) the receipt of at least $500,000 from the sale of our securities or (ii) the sale of our company owned vessel.
Until such time as the Luxuria I is sold, we will continue to rent the vessel on a vacation rental basis. We are marketing the Luxuria models to yacht brokers, real estate brokers and boat dealerships and have showed it in the Ft Lauderdale boat show in November 2017.
Should we receive funding of $500,000 from the sale of our securities in the future we plan to construct a second Luxuria model vessel.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company’ s management, including its Chief Executive Officer and Chief Financial Officer the Company conducted an evaluation of the effectiveness of the Company’ s disclosure controls and procedures, as defined in Rule 13a − 15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “ Exchange Act ” ), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2018 that the Companys disclosure controls and procedures were not effective such that the information required to be disclosed in the Companys United States Securities and Exchange Commission (the SEC) reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, currently the same person to allow timely decisions regarding required disclosure. Further, certain other deficiencies involving internal controls over financial reporting constituted a material weakness as discussed below.
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Managements Report on Internal Control over Financial Reporting
Based on its evaluation under the framework in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of December 31, 2017, the Companys management, with the participation of its Chief Executive Officer and Chief Financial Officer, concluded that its internal control over financial reporting were not effective as of December 31, 2017, and there was no change in the Companys internal control over financial reporting during the quarter ended September 30, 2018. Based on its evaluation, our management concluded that our internal control over financial reporting as of the end of our most recent fiscal year is not effective because there is a material weakness in our internal control over financial reporting as discussed below. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis.
Material Weakness Identified
The Company does not have a full time Controller or Chief Financial Officer and utilizes a part time consultant to perform these critical responsibilities. This lack of full-time accounting staff results in a lack of segregation of duties and accounting technical expertise and lack of monitoring controls necessary for an effective system of internal control. Additionally, certain IT controls have not been developed nor adhered to. Because of the size of the Company and the Companys administrative staff, as well as other reasons noted above, controls related to the segregation of certain duties, and additionally, controls and processes involving the communication, dissemination, and disclosure of information and monitoring controls, have not been developed and the Company has not been able to adhere to them. Furthermore, we have not formally adopted a written code of business conduct and ethics that governs the Companys employees, officers, and directors. Since these entity level programs have a pervasive effect across the organization, as well as other deficiencies, management has determined that these circumstances constitute a material weakness. Additionally, the Board of Directors does not currently have a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO/CFO, does not expect that the Disclosure Controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. 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. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or 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 breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on 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. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions of deterioration in the degree of compliance with policies or procedures.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. To the best of our knowledge, we are not subject to any proceeding which would reasonably be likely to have a material adverse effect on the Company.
Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 3, 2018 the Company obtained consent from holders of a majority of the common stock of the Company in favor of a reverse stock split in the ratio of 1,000 for 1 and an amendment to the Companys Articles to increase the authorized shares of Common Stock of the Company to 5,000,000,000 (Five Billion), $0.0001 par value, on post-split basis. The Company has not yet implemented these corporate actions pending FINRAs agreement to process the corporate actions.
On April 17, 2018, due to the failure to timely file the Annual Report on Form 10-K, the lender automatically issued a default notice for these notes. This default notice requires the Company to pay $89,250 plus all accrued interest. This amount includes a default penalty of $29,750 for the two notes combined, or 50% of the then outstanding principal balances of $59,500 combined.
The lender agreed to waive this penalty upon the Company filing its Quarterly Report on Form 10-Q for the period ended March 31, 2018, which the Company has done.
Item 6. Exhibits
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| Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended
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| Certification Pursuant to 18 U.S.C. Section 1350 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
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Global Boatworks Holdings, Inc. /s/ Robert Rowe Name: Robert Rowe Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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