The accompanying unaudited notes are an integral part of the unaudited financial statements
The accompanying unaudited notes are an integral part of the unaudited financial statements
Notes to Consolidated Financial Statements
(Information as to the six months ended June 30, 2017 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 to reorganize Global Boatworks, LLC. 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 of a business plan for building luxury floating vessels on a barge bottom, rental activities of the existing vessel, the Miss Leah, and the construction of the first new vessel, Luxuria I. On September 25, 2014, effective the close of business September 24, 2014, the Company acquired a luxury floating vessel from Financial Innovators Corp., (Predecessor or Financial Innovators), and operates it as a rental property, based in Boston harbor.
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 comparative figures shown throughout these unaudited consolidated financial statements are the historical results of Global Boatworks Holdings, Inc. inclusive of its wholly owned subsidiary Global Boatworks, LLC. The Company has retroactively restated amounts within certain components of Stockholders' Deficit on the accompanying unaudited consolidated financial statements and footnotes to account for the acquisition and reorganization of 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"). 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 the June 30, 2017 unaudited 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 for the year ended December 31, 2016, filed in Form 10-K filed on March 30, 2017 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 and resulting completed floating vessel, depreciable life of the luxury floating vessel, valuation of other long lived assets, the valuation of derivatives, the valuation of common and preferred stock issued as compensation, and valuation allowance of deferred income tax benefit.
F-6
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 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 Companys financial position and operating results raise substantial doubt about the Companys ability to continue as a going concern for the period of twelve months from the issuance date of this report, as reflected by the working capital deficit, accumulated deficit and stockholders deficit of $1,559,943; $2,862,839 and $1,008,335 (unaudited) at June 30, 2017. The Company had a net loss of $1,257,928 and used cash of $356,470 in operating activities in the six months ended June 30, 2017 (unaudited). In addition several of our promissory note obligations are in default of maturity date payments. The Company is expected to have increasing expenses as a result of becoming a publicly held company and constructing new vessels without immediate increases in revenues as they continue to implement their 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 vessel. It is also seeking to raise sufficient equity capital to enable it to pay off its existing debt. The unaudited consolidated 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 June 30, 2017 (unaudited) or December 31, 2016.
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.
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 and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
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 June 30, 2017 (unaudited) and December 31, 2016, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
June 30, 2017
(unaudited)
|
|
December 31, 2016
|
Level 3 Embedded Derivative Liability
|
$
|
614,503
|
|
$
|
780,685
|
Changes in Level 3 assets measured at fair value for the quarter ended June 30, 2017 (unaudited) were as follows:
|
|
|
Balance, December 31, 2016
|
$
|
780,685
|
Portion of initial valuation recorded as debt discount
|
|
86,422
|
Amortization to gain on extinguishment upon conversion
|
|
(46,463)
|
Initial and change in fair value of derivative
|
|
(206,141)
|
Balance, June 30, 2017
(unaudited)
|
$
|
614,503
|
f) Revenue recognition
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 605-45. Cost of Revenue includes the marina dockage fees and fees charged by the third party web site, where the floating vessel is advertised for rent.
F-8
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f) Revenue recognition
(continued)
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 605-45. Cost of Revenue includes the 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 measurement 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 LLC is a pass through entity for income tax purposes, therefore there is no income tax provision or liability for this entity through the Companys incorporation date of May 11, 2015. As a result of the reorganization the Company became a taxable entity on May 11, 2015. Upon becoming a taxable entity, the Company began to use 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 June 30, 2017 tax years 2014, 2015 and 2016 for the LLC and 2015 and 2016 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 and Financial Statements
(Information as to the six months ended June 30, 2017 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. The costs associated with the issuance of debt are recorded as debt discount and amortized over the life of the underlying debt instrument.
k) 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.
l) 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 83,382,147 and 16,511,370 common stock equivalents at June 30, 2017 (unaudited) and December 31, 2016, respectively.
m)
Recent accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time based on when control of goods and services transfer to a customer. As a result, we do not expect significant changes in the presentation of our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and entities are permitted to apply either prospectively or retrospectively; early adoption is permitted.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
F-10
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m)
Recent accounting pronouncements
(continued)
As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and entities are permitted to apply either prospectively or retrospectively; early adoption is permitted. The Company is currently evaluating the effects, if any, that the adoption of this guidance will have on the Companys financial position, results of operations and cash flows.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new standard principally affects accounting standards for equity investments, financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for financial instruments. Upon the effective date of the new standards, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification and therefore, no changes in fair value will be reported in other comprehensive income for equity securities with readily determinable fair values. The new guidance on the classification and measurement will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-01 on the Companys financial position, results of operations and cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases 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.
In April 2016, FASB issued Accounting Standards Update (ASU), 2016-10Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year to annual reporting periods beginning after December 15, 2017. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition
In May 2016, FASB issued Accounting Standards Update (ASU), 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year to December 15, 2017. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
F-11
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m)
Recent accounting pronouncements
(continued)
In December 2016, FASB issued Accounting Standards Update (ASU), 2016-20 Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this Update affect the guidance in Update 2014-09, which is not yet effective. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This updated guidance is not expected to 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 complete and 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 at June 30, 2017 (unaudited) and December 31, 2016:
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
Miss Leah floating vessel
|
$
|
-
|
|
$
|
-
|
Luxuria I floating vessel
|
|
677,180
|
|
|
-
|
Less: accumulated depreciation
|
|
-
|
|
|
-
|
Total P&E held for sale
|
$
|
677,180
|
|
$
|
0
|
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 is based at a marina in Boston harbor. It is 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 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 will record depreciation over a 20 year period.
F-12
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(5) PROPERTY AND EQUIPMENT, (continued)
Property and Equipment consists of the following at June 30, 2017 (unaudited) and December 31, 2016:
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
Architectural plans
|
|
$
12,766
|
|
|
$
12,766
|
Less: accumulated amortization
|
|
(2,280)
|
|
|
(1,368)
|
Total P&E
|
|
$
10,486
|
|
|
$
11,398
|
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 six months ended June 30, 2017, was $912.
(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 is based at a marina in Boston harbor. It is 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 $105,468 at June 30, 2017 (unaudited).
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES
a) Short term notes
Short term debt was, as follows, at June 30, 2017 (unaudited):
|
|
Note 1
|
$
40,000
|
Note 2
|
280,000
|
Note 3
|
13,977
|
Note 4
|
2,166
|
Less: unamortized debt discounts
|
(12,184)
|
Total short term notes, net
|
$
323,959
|
F-13
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
a) Short term notes
, (continued)
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) and 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 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 August and the fourth quarter 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 is payable in cash monthly. The Company paid $8,400 in interest during the six months ended June 30, 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 June 30, 2017, is $40,000 (see following assignments) and $459 (unaudited).
This $100,000 note holder sold $60,000 of this note to three third parties on May 17, 2017, (unaudited) and the Company modified the new $20,000 notes to add a conversion feature at a conversion rate of $0.002 per share. The Company recorded a beneficial conversion feature discount of $20,000 for each of these three notes to be amortized over the life of these notes. These third parties converted $13,500 of these notes in exchange for 6,750,000 common shares in June 2017. (See Note 7 b))
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. 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. At June 30, 2017, the balance of this note and the unamortized discount is $280,000 and $11,725, respectively.
F-14
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
a) Short term notes
, (continued)
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.
NOTES 3 AND 4: On April 19, 2017, the Company entered into an eight month financing of the $14,500 Luxuria I annual insurance premium. On June 15, 2017, the Company entered into a six month financing of the $3,211 Miss Leah 10 month insurance premium.
b) Short term convertible notes
Short term convertible debt was, as follows, at June 30, 2017 (unaudited):
|
|
Convertible note 1
|
$
200,000
|
Convertible note 2
|
416,249
|
Convertible note 3
|
15,000
|
Convertible note 4
|
15,500
|
Convertible note 5
|
15,500
|
Convertible note 6
|
15,500
|
Convertible note 7
|
63,000
|
Less: unamortized debt discounts
|
(115,444)
|
Total convertible notes, net
|
$
625,305
|
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 is being 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 are being amortized over the six month life of the note. Also, the Company is 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 and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
b) Short term convertible notes
, (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 is being 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 are being 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 Conversion) all or any part of the Conversion Eligible Outstanding Balance into shares (Conversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (Common Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the Conversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the Conversion Price) for each Conversion shall be equal to 60% (the Conversion 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 was the Black-Scholes model with the following assumptions: Expected life in years 0.50 to 0.10; conversion price range of $0.021 to $0.036; Bond equivalent yield rate between 0.29% to 0.63% and volatility ranging from 240% to 277%. At June 30, 2017, (unaudited) the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at June 30, 2017 $0.017 with the conversion price of $0.01; Bond equivalent yield rate 1.12%.
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 is amortizing it to maturity. At June 30, 2017, (unaudited) the unamortized balance is $0.
F-16
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
b) Short term convertible note
s, (continued)
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. (See Note 10)
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 June 30, 2017, (unaudited) the unamortized balance of the extension fee is $8,194.
Note 1 requires a mandatory partial prepayment of $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 theses two notes was August 11, 2017. On August 11, 2017, the lender agreed to negotiate a three month extension which is expected to be completed before August 21, 2017.
NOTE 3: On April 15, 2017, the Company entered into a 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 Conversion) all or any part of the Conversion Eligible Outstanding Balance into shares (Conversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (Common Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the Conversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the Conversion Price) for each Conversion shall be equal to 60% (the Conversion 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, (unaudited) $0.025 with the conversion price of $0.015; Bond equivalent yield rate 0.92%. At June 30, 2017, (unaudited) the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at June 30, 2017 $0.017 with the conversion price of $0.01; Bond equivalent yield rate 1.12%. The unamortized balance is $7,846 at June 30, 2017.
NOTES 4, 5 and 6: On May 17, 2017, (unaudited) (as discussed in section a) above, the $100,000 note holder sold $60,000 of this note to three third parties and the Company modified the new $20,000 notes to add a conversion feature at a conversion rate of $0.002 per share. 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. At June 30, 2017, the unamortized discount was $44,175, after amortization of $15,825 for the six months ended June 30, 2017.
F-17
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)
b) Short term convertible note
s, (continued)
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 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 Conversion) all or any part of the Conversion Eligible Outstanding Balance into shares (Conversion Shares) of fully paid and non-assessable common stock, $0.0001 par value per share (Common Stock), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the Conversion Amount) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the Conversion Price) for each Conversion shall be equal to 61% (the Conversion 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, (unaudited) $0.017 with the conversion price of $0.0104; Bond equivalent yield rate 1.11%. At June 30, 2017, (unaudited) the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at June 30, 2017 $0.017 with the conversion price of $0.01; Bond equivalent yield rate 1.12%. The unamortized discount at June 30, 2017 was $55,229.
(8) PROMISSORY NOTE - 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 June 30, 2017, (unaudited) this note balance is $19,515.
(9) COMMITMENTS AND CONTINGENCIES
a) Stockholders deficit
At June 30, 2017, the Company has 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 new three year consulting agreement entered into on December 9, 2016. These shares will be valued at the market price for shares at the date they are earned.
b) Leases
The Company occupies dockage space for the Miss Leah pursuant to an agreement with SHM Marina Bay, LLC dated October 1, 2016. We pay annual rents of approximately $12,000. The Company occupies dockage space for the Luxuria I pursuant to an agreement with Bahia Mar Marina Bay, LLC dated May 1, 2017. We pay annual rents of approximately $53,636. We occupy approximately four hundred (400) square feet of office space without charge at the residence of Robert Rowe our Chief Executive Officer, President, Treasurer and Director, and Leah Rowe, our Secretary.
F-18
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(9) COMMITMENTS AND CONTINGENCIES, (continued)
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 hin 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 will be amortized over the one year vesting period.
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, 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.
d) Investment Banking Agreement
In February 2016 the Company entered into a two year investment banking agreement to raise capital. Pursuant to this agreement the Company is obligated to pay a cash success fee between 6% and 10%, depending on the amount raised as well as issue common stock in the amount of 4% of the amount raised. This agreement has been terminated.
e) 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 signed negotiated agreement.
f) 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 June 30, 2017 (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 e) above has not accepted the stock certificate and recently 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.
F-19
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(10) STOCKHOLDERS DEFICIT
At June 30, 2017 (unaudited) and December 31, 2016, the Company has 1,000,000,000 shares of par value $0.0001 common stock authorized and 50,436,407 (unaudited) and 21,333,629 issued and outstanding; 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 January 1, 2017, the Company issued 927,778 shares of common stock under a consulting agreement. These shares were valued at $0.08 per share, or $62,834. On January 12, 2017, the Company issued 100,000 shares of common stock pursuant to the replacement $100,000 promissory note. These shares were valued at $0.06 per share, or $6,000, which was recorded as a debt discount and is being amortized over the remaining life of the loan. On January 18, 2017, the Company issued 200,000 shares of common stock under a consulting agreement. These shares were valued at $0.08 per share, or $16,000. On January 23, 2017, the Company issued 250,000 shares of common stock under a consulting agreement. These shares were valued at $0.14 per share, or $33,750.
On March 22, 2017, the Company issued 1,000,000 shares of common stock to settle $30,000 of the outstanding convertible debt. 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. (See Note 7)
On May 4, 2017, the Company issued 75,000 shares of common stock under a consulting agreement. These shares were valued at $0.035 per share, or $2,625. On May 19, 2017, the Company issued 5,000,000 and 5,000,000 shares of common stock to the Companys two officers in exchange for services rendered. These shares were valued at $0.029 per share, or $145,000 and $145,000. On May 19, 2017, the Company issued 5,000,000 shares of common stock to the brother of the Companys CEO in exchange for services rendered. These shares were valued at $0.029 per share, or $145,000. On May 25, 2017, the Company issued 4,800,000 shares of common stock to settle $48,000 of expenses accrued under a consulting agreement. These shares were valued at $0.013 per share, or $62,400. Accordingly, the Company recorded $14,400 as a loss on accrued expenses settlement. On June 17, 2017, the Company issued 2,250,000; 2,250,000 and 2,250,000 shares of common stock to three parties to settle an aggregate $13,500 of debt of Convertible Notes 4, 5 and 6. These shares were valued at $0.002 per share, or $4,500; $4,500 and $4,500.
Share valuations for services and settlements were based on the quoted trading price on the requisite measurement dates.
(11) 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 June 30, 2017 (unaudited) and December 31, 2016, the Company had accrued interest of $5,468 and $4,482, 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 and recorded the related revenue and expenses in the Companys records.
F-20
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(11) RELATED PARTIES, (continued)
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. (See Note 9 f))
d) Payments to related parties during each period of operations presented:
|
|
|
|
|
Six Months ended June 30, 2017
|
|
Six Months ended June 30, 2016
|
|
(Unaudited)
|
|
(Unaudited)
|
Commissions - daughter of founder
|
$
971
|
|
$
2,640
|
Construction management - brother of founder
|
$
28,500
|
|
$
-
|
e) Promissory note
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 June 30, 2017, (unaudited) this note balance is $19,515.
(12) CONCENTRATIONS OF RISK
The Company has only one revenue producing asset at June 30, 2017, the Miss Leah floating vessel which is located in Boston Harbor. The rental season at this location is generally from March through October. The Company primarily utilizes one booking agent to schedule bookings from customers and collect the revenue. If required the Company believes it could obtain bookings through an alternative provider.
The Company transferred the Luxuria I, which is located in Pompano Beach, Florida, from Construction in progress to Property and equipment held for sale on June 30, 2017. The Company has this vessel listed with two booking agents to schedule bookings from customers and collect the revenue and also has it listed for sale.
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 June 30, 2017 (unaudited) and December 31, 2016, respectively.
F-21
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements and Financial Statements
(Information as to the six months ended June 30, 2017 is unaudited)
(13) SUBSEQUENT EVENTS
a) Short term notes
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.
b) Short term convertible note
s
On July 14, 2017, the Company issued 2,307,692 shares of common stock to settle $18,000 of this note.
The bifurcated convertible Notes 1 and 2 in the remaining balances of $171
,
056 and $416,249 matured on August 11, 2017. On August 11, 2017, the lender agreed to extend these notes for an additional three month period.
On August 10, 2017, a lender converted $10,944 of the outstanding Note 1 convertible debt.
c) Stockholders deficit
At June 30, 2017, the Company has 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 new three year consulting agreement entered into on December 9, 2016. These shares will be valued at the market price for shares at the date they are earned.
On May 26, 2017 the Board of Directors of the Company and a majority in interest of the shareholders of the Company approved an increase in the number of authorized common shares from 90,000,000 (Ninety Million) to 1,000,000,000 (One Billion). The articles of incorporation of the Company were amended effective July 17, 2017, effecting the increase.
On July 17, 2017, the Company issued 2,750,000 and 2,750,000 shares of common stock to two parties to convert an aggregate $11,000 of debt of Convertible Notes 5 and 6. These shares were converted at $0.002 per share, or $5,500 and $5,500.
On August 10, 2017, the Company issued 3,800,000 shares of common stock upon conversion of $10,944 of the outstanding Note 1 convertible debt. These share were valued at $0.04 per share, or $15,200 based on the quoted trading price.
F-22