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, 2019


Commission File Number: 333-205604


Global Boatworks Holdings, Inc.

(Exact name of registrant as specified in its charter)


 

 

 

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

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: None


Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

 

 


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 every Interactive Data File required to be submitted 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.


 

 

 

 

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 15, 2019, we had 2,901,311 shares of common stock outstanding.




TABLE OF CONTENTS


 

 

 

 

 

PAGE

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Index to Unaudited Consolidated Financial Statements

F-1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

1

Item 3. Quantitative and Qualitative Disclosures about Market Risk

4

Item 4. Controls and Procedures

4

 

 

PART II-- OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

6

Item 1A. Risk Factors

6

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

6

Item 3. Defaults Upon Senior Securities

6

Item 4. Mine Safety Disclosures

6

Item 5. Other Information

6

Item 6. Exhibits

6

 

 

SIGNATURES

7




INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Balance Sheets

F-2

Consolidated Statements of Operations (unaudited)

F-3

Consolidated Statement of Changes in Stockholders’ Deficit (unaudited)

F-4

Consolidated Statements of Cash Flows (unaudited)

F-6

Notes to Consolidated Financial Statements (unaudited)

F-7




F-1




Global Boatworks Holdings, Inc.

Consolidated Balance Sheets

ASSETS

September 30, 2019

 

December 31, 2018

CURRENT ASSETS

(unaudited)

 

 

 Cash

$

186 

 

$

961 

 Short-term loan to stockholder, net of reserve of $11,177 and $30,000

 

 Prepaid expenses and deposit

 

6,760 

          Total current assets

186 

 

7,721 

PROPERTY AND EQUIPMENT - HELD FOR SALE

 

 

 

  Floating vessel held for sale, net of depreciation of $0 and $101,577

 

575,603 

PROPERTY AND EQUIPMENT - OTHER

 

 

 

  Other, net of depreciation of $0 and $3,060

 

3,235 

  Architectural plans, net of $6,383 and $5,016 amortization

6,383 

 

7,751 

          Net property and equipment

6,383 

 

586,589 

Total Assets

$

6,569 

 

$

594,310 

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ DEFICIT

 

 

 

CURRENT LIABILITIES

 

 

 

  Accounts payable

$

313,919 

 

$

217,349 

  Accrued liabilities

817,584 

 

511,023 

  Short-term loan from related parties

3,380 

 

6,158 

  Short-term loans

224,782 

 

723,313 

  Short-term convertible notes

393,315 

 

426,393 

  Fair value of derivative liability

474,185 

 

349,107 

  Current portion of long term debt

5,755 

 

5,478 

  Due to related party predecessor

3,888 

 

3,888 

          Total current liabilities

2,236,808 

 

2,242,709 

LONG TERM LIABILITIES

 

 

 

  Long term debt to third party

16,937 

 

21,288 

  Note payable and accrued interest for the vessel - related party

109,907 

 

108,427 

           Total long term liabilities

126,844 

 

129,715 

Total Liabilities

2,363,652 

 

2,372,424 

 

 

 

 

Commitments and Contingencies (note 10)

 

 

 

 

 

 

 

Redeemable preferred stock series A, 1,000,000 shares designated; 1,000,000

      shares issued and outstanding at September 30, 2019 and December 31,

      2018, respectively ($1,000 redemption value)

1,000 

 

1,000 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

  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, 2,901,311 and

      2,403,311 shares issued and outstanding at September 30, 2019 and December

      31, 2018, respectively

290 

 

240 

  Additional paid-in capital

4,175,726 

 

4,174,111 

 Accumulated deficit

(6,534,099)

 

(5,953,465)

          Total stockholders’ deficit

(2,358,083)

 

(1,779,114)

Total Liabilities, Temporary Equity and Stockholders’ Deficit

$

6,569 

 

$

594,310 


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,

 

2019

 

2018

 

2019

 

2018

REVENUES

 

 

 

 

 

 

 

   Vessel sales

$

 

$

 

$

750,000 

 

$

   Rental revenue

 

1,392 

 

 

15,550 

          Total revenues

 

1,392 

 

750,000 

 

15,550 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

   Cost of revenues, excluding depreciation

       shown below

 

14,435 

 

583,710 

 

57,355 

   General and administrative

71,380 

 

58,975 

 

234,599 

 

216,459 

   Depreciation and amortization

456 

 

17,910 

 

23,476 

 

53,730 

   Professional fees

14,638 

 

18,577 

 

86,130 

 

74,544 

   Professional fees - related party

48,000 

 

72,000 

 

176,000 

 

192,000 

 

 

 

 

 

 

 

 

          Total operating expenses

134,474 

 

181,897 

 

1,103,915 

 

594,088 

 

 

 

 

 

 

 

 

 Loss from operations

(134,474)

 

(180,505)

 

(353,915)

 

(578,538)

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

   Interest expense

(10,902)

 

(54,167)

 

(33,122)

 

(214,545)

   Gain (loss) on extinguishment of debt and

      debt conversions, net

 

 

9,570 

 

(258,809)

   Recovery of loan receivable

 

 

18,823 

 

   Loss on insurance settlement

 

 

(28,747)

 

   Loss on settlement

(50,000)

 

 

(50,000)

 

   Change in fair value of derivative

(236,465)

 

14,662 

 

(143,243)

 

108,150 

 

 

 

 

 

 

 

 

          Total other income (expense)

(297,367)

 

(39,505)

 

(226,719)

 

(365,204)

 

 

 

 

 

 

 

 

Net loss

$

(431,841)

 

$

(220,010)

 

$

(580,634)

 

$

(943,742)

 

 

 

 

 

 

 

 

Loss per weighted average common share, basic and diluted

$

(0.15)

 

$

(0.09)

 

$

(0.21)

 

$

(0.52)

 

 

 

 

 

 

 

 

Number of weighted average common shares outstanding - Basic and Diluted

2,901,311 

 

2,403,105 

 

2,832,043 

 

1,821,509 



The accompanying unaudited notes are an integral part of the unaudited consolidated financial statement



F-3





Global Boatworks Holdings, Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

For the Three, Six and Nine Months ended September 30, 2019

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2018

-

 

$

-

 

2,403,311

 

$

240

 

$

4,174,111

 

$

(5,953,465)

 

$

(1,779,114)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued upon debt conversion

-

 

-

 

498,000

 

50

 

1,615

 

 

1,665 

Net loss, three months ended March 31, 2019

-

 

-

 

-

 

-

 

-

 

(105,718)

 

(105,718)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

-

 

-

 

2,901,311

 

290

 

4,175,726

 

(6,059,183)

 

(1,883,167)

Net loss, three months ended June 30, 2019

-

 

-

 

-

 

-

 

-

 

(43,075)

 

(43,075)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

-

 

-

 

2,901,311

 

290

 

4,175,726

 

(6,102,258)

 

(1,926,242)

Net loss, three months ended September 30, 2019

-

 

-

 

-

 

-

 

-

 

(431,841)

 

(431,841)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2019

-

 

-

 

2,901,311

 

$

290

 

$

4,175,726

 

$

(6,534,099)

 

$

(2,358,083)

 

 

 

 

 

 

 

 

 

 

 

 

 

 



The accompanying unaudited notes are an integral part of the unaudited consolidated financial statement




F-4




Global Boatworks Holdings, Inc.

Consolidated Statement of Changes in Stockholders’ Deficit

For the Three, Six and 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2017

-

 

$

-

 

732,953

 

$

73

 

$

3,644,008

 

$

(4,647,540)

 

$

(1,003,459)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

-

 

-

 

1,000

 

1

 

199

 

 

200 

Shares issued upon debt

     conversion

-

 

-

 

848,541

 

84

 

327,193

 

 

327,277 

Net loss, three months ended March 31, 2018

-

 

-

 

-

 

-

 

-

 

(308,508)

 

(308,508)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

-

 

-

 

1,582,494

 

158

 

3,971,400

 

(4,956,048)

 

(984,490)

Shares issued upon debt

     conversion

-

 

-

 

820,611

 

82

 

202,712

 

 

202,794 

Net loss, three months ended June 30, 2018

-

 

-

 

-

 

-

 

-

 

(415,224)

 

(415,224)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

-

 

-

 

2,403,105

 

240

 

4,174,112

 

(5,371,272)

 

(1,196,920)

Net loss, three months ended September 30, 2018

-

 

-

 

-

 

-

 

-

 

(220,010)

 

(220,010)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2018

-

 

-

 

2,403,105

 

$

240

 

$

4,174,112

 

$

(5,591,282)

 

$

(1,416,930)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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



F-5





Global Boatworks Holdings, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

(unaudited)

 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net loss

$

(580,634)

 

$

(943,742)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

         Change in fair value of derivative

143,243 

 

(108,150)

         Gain on extinguishment of debt

(1,664)

 

         (Gain) loss on conversion or repayment of debt

(7,906)

 

258,809 

         Recovery of loan receivable

(18,823)

 

         Common stock issued for services

 

200 

         Accrued rental fee capitalized in note balance

 

2,676 

         Depreciation and amortization

23,476 

 

53,730 

        Amortization of debt discounts, prepaid interest and OID

 

183,913 

Changes in operating assets and liabilities

 

 

 

        (Increase) in other receivables

 

(7,267)

        Decrease (increase) in prepaid expenses and deposits

6,758 

 

(3,498)

        Decrease in property held for sale

565,107 

 

        Increase in accounts payable and accrued liabilities

403,132 

 

363,160 

        Increase in deferred revenue

 

2,252 

Net cash provided by (used in) operating activities

532,689 

 

(197,917)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from officer advances

15,424 

 

14,506 

Proceeds from third party loans

115,000 

 

210,260 

Loan repayments

(645,686)

 

(6,680)

Short term loan - related party repayments

(18,202)

 

(15,257)

 

 

 

 

Net cash (used in) provided by financing activities

(533,464)

 

202,829 

 

 

 

 

Net increase (decrease) in cash

(775)

 

4,912 

CASH, beginning of period

961 

 

1,107 

CASH, end of period

$

186 

 

$

6,019 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 Interest paid in cash

$

16,436 

 

$

30,632 

 Income tax paid in cash

$

 

$

 

 

 

 

Non-Cash Investing and Financing Activities:

 

 

 

 Conversion of debt to common stock

$

1,665 

 

$

530,071 

 Interest charges for loan extensions

$

 

$

67,435 

 Convertible note payable offset to short term note receivable - related party

$

18,823 

 

$

 Discounts recorded on notes payable

$

 

$

24,000 



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



F-6





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 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 Company’s 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, the construction of a new vessel, the Luxuria I and the rental activities of and marketing and subsequent 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. The Company completed a 1 for 1,000 reverse split of the common stock in December 2018, and all share and per share data in the accompanying consolidated financial statements and footnotes for all periods presented have been retroactively adjusted for this reverse stock split.


(2) BASIS OF PRESENTATION, USE OF ESTIMATES AND GOING CONCERN


a) Basis of Presentation and Principles of Consolidation

The Company’s 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 Management’s 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, 2018, which were included in the Company’s annual report in Form 10-K as filed with the U.S. Securities and Exchange Commission on April 16, 2019.


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-7





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(2) BASIS OF PRESENTATION, USE OF ESTIMATES AND GOING CONCERN, continued


c) Going Concern

The accompanying unaudited consolidated 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 stockholder’s deficit of $2,236,622; $6,534,099 and $2,358,083 at September 30, 2019. The Company had a net loss of $580,634 for the nine months ended September 30, 2019. In addition, the Company is in default of six of its notes payable and has no revenue stream. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of this report. The Company is expected to have ongoing expenses as a result of being a publicly held company and marketing for contracts to sell new vessels, however the Company does not intend to build any new vessels without firm contracts for sale which include reasonable deposits and progress payments to completion. 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. The Luxuria I was sold on April 24, 2019. 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, 2019.


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 their 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-8





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued


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 Company’s 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 Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2019 (unaudited) and December 31, 2018, 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, 2019

(unaudited)

 

December 31, 2018

 

Level 3 - Derivative Liability

$

474,185

 

$                     

349,107


Changes in Level 3 assets measured at fair value for the nine months ended September 30, 2019 were as follows:


Balance, December 31, 2018

$

349,107 

Amortization to gain on extinguishment upon conversion or repayment

 


        (1,665)   

Gain on extinguishment upon note repayment in cash

 

(16,500)

Change in fair value

 

143,243 

Balance, September 30, 2019

$

474,185 


f) Revenue recognition

The Company adopted ASC 606 “Revenues from Contracts with Customers” on January 1, 2018. There was no cumulative effect upon this adoption.






F-9





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 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, including any sales costs such as sales commissions.


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 consolidated 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.


The Company adopted ASU 2018-07 on January 1, 2019 and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718.  The Company used the modified prospective method of adoption.  There was no cumulative effect of adoption on January 1, 2019.

 

The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model.


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, 2019, tax years 2016, 2017 and 2018 for the LLC and 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-10





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 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 5,927,241 common stock equivalents at September 30, 2019, which were not considered as their effect would be anti-dilutive.


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 repayment 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.


In July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.  For the Company, ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted Part 1 “accounting for certain financial instruments with down round features” effective January 1, 2019. There was no cumulative effect adjustment upon this adoption.



F-11





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


m) Leases

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Lease  (Topic 842)” whereby lessees need to recognize leases on their balance sheet as a right of use asset and a  corresponding lease liability. The Company adopted this standard as of January 1, 2019 using the effective date method.  As a part of our policy, we have chosen to exclude leases with a lease term of one year or less. Accordingly, we have no leases over one year and thus the adoption of this standard did not have any effect on the accompanying consolidated financial statements.


n) Recent accounting pronouncements

Certain FASB Accounting Standard Updates (“ASU”) that are not effective until after September 30, 2019 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.


o) Reclassifications

Certain reclassifications have been made on prior period balances to conform to the current year presentation. Regarding the December 31, 2018 balance sheet, $511,023 was moved from Accounts payable and Accrued liabilities to a separate account titled Accrued liabilities. These reclassifications had no impact on net loss, stockholders’ deficit or cash flows as previously reported.


(4) PROPERTY AND EQUIPMENT


Property and Equipment - held for sale, consists of the following:


 

 

September 30, 2019

 

 

December 31, 2018

 

 

(unaudited)

 

 

 

Luxuria I floating vessel

$

-

 

$

677,180 

Less: accumulated depreciation

 

-

 

 

(101,577)

    Total P&E held for sale

$

-

 

$

575,603 


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 had the Luxuria I available for either vacation rental or outright sale. As long as it was available for vacation rental the Company was recording depreciation over a 20-year period. Depreciation expense for the period from January 1, 2019 ended April 24, 2019 was $22,109. The Luxuria I was sold on April 24, 2019 for $750,000. At the date of the sale the net book value of the Luxuria I was $554,159.


Property and Equipment - other, consists of the following:


 

 

September 30, 2019

 

 

December 31, 2018

 

 

(unaudited)

 

 

 

Architectural plans

$

12,766 

 

$

12,766 

Furniture and equipment

 

 

 

6,296 

Less: accumulated amortization and depreciation

 

(6,383)

 

 

(8,076)

    Total P&E

$

6,383 

 

$

10,986 




F-12




Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(4) PROPERTY AND EQUIPMENT, continued


The Company capitalized the costs of developing the architectural plans for the Luxuria model floating vessel and is amortizing the costs over their estimated useful life of seven years, beginning April 1, 2016. Amortization expense for the nine months ended September 30, 2019 and 2018, was $1,368 and $1,368, respectively. For property and equipment- other, depreciation expense for the nine months ended September 30, 2019 and 2018 was $665 and $4,928, respectively.


In April 2019, when the sale of the Luxuria I closed, the Company wrote off the undepreciated balance of $2,571 of furniture and equipment that was directly related to the Luxuria I.


(5) 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 Predecessor’s rental business.


The terms of this acquisition were 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 Company’s 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 in 2014. Outstanding principal and interest totaled $109,907 at September 30, 2019.


(6) ACCRUED LIABILITIES


The major components of accrued liabilities are:


 

September 30, 2019

 

December 31, 2018

Accrued officer pay

$

322,979

 

$

178,485

Accrued professional fees - related party

128,405

 

97,905

Accrued professional fees - third party

352,000

 

208,000

Other

14,200

 

26,633

   Total accrued liabilities

$

817,584

 

$

511,023






F-13





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 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, 2019

 

December 31, 2018

 

(unaudited)

 

 

Note 1

$

-

 

$

-

Note 2

32,782

 

632,782

Note 3

102,000

 

90,000

Note 4

-

 

531

Note 5

10,000

 

-

Note 6

80,000

 

-

Total short term notes

$

224,782

 

$

723,313


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 common shares to the shareholder as consideration for providing us the loan. The shares were valued at $25,000, or $100 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 Company’s 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 1,575 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 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) and $0. The $40,000 balance of Note 1 matured on July 15, 2017. In an amendment dated December 7, 2018, as stated below this note balance was combined with Note 3.





F-14





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


a) Short term notes, (continued)

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 lender’s 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 Company’s 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 lender’s 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, $35,000 was extended to the Company as a draw on this note. 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 was $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 $27,500, $27,500 and $27,500 was extended to the Company as a draw on this note, including $2,500, $2,500 and $2,500 OID. 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 October 19, 2018,  and November 21, 2018 $27,500 and $27,500 was extended to the Company as a draw on this note, including $2,500 and $2,500 OID. On October 6, 2018, the lender agreed to extend this note for an additional one month period for an extension fee of $5,667. At March 31, 2019, the balance of this note and the unamortized discount is $629,394 and $0, respectively.


This note requires a partial prepayment if and when the Company sells the Luxuria I and Luxuria II if applicable, 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 Company repaid $600,000 of this note at the closing of the sale of the Luxuria I in April 2019 in accordance with the March 2019, settlement agreement. The lender of Note 2 each in Notes 7a and b (with a combined total due of $947,840) agreed to a global settlement of $600,000 upon the closing of the sale of the Luxuria I and $70,000 due six months thereafter. The lender extended the date of the second tranche to November 30, 2019 and increased the payment to $72,500. The lender agreed to forgive the $276,175 balance. Upon the payment of the second tranche the Company will record a gain on debt settlement of $276,175 plus a gain on the embedded derivative value of approximately $208,000. The balance owed for rental revenue at September 30, 2019 is $3,388 and is included in the note balance of $32,782 at September 30 2019.



F-15





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


a) Short term notes, (continued)

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 common shares to the shareholder as consideration for providing us the loan. The shares were valued at $15,000, or $15 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 $40,000 balance of Note 1 matured on July 15, 2017. On December 7, 2018, notes 1 and 3 were combined into Note 3.Total unpaid principal and interest is $102,000 at September 30, 2019, which includes $12,000 in accrued interest.


NOTE 4: On April 18, 2018, the Company entered into an eight month financing of the $14,450 Luxuria I annual insurance premium. The balance at September 30, 2019 was $0.


NOTE 5: On March 4, 2019, a third party individual loaned the Company $10,000 on an undocumented basis with no stated interest or maturity Terms. The balance at September 30, 2019 was $10,000.


NOTE 6: On March 25, 2019, a third party stockholder loaned the Company $105,000. This note is collateralized with the 1,000,000 shares of super voting preferred stock held by the Company’s CEO. $50,000 of this note is payable on or before May 20, 2019 with the balance of $55,000 plus $10,000 in interest due on or before October 25, 2019. 500 shares of the super voting preferred stock will be released as collateral at each payment. The Company paid $25,000 of this note at the closing of the sale of the Luxuria I. The lender has agreed that the second $25,000 of the initial $50,000 repayment shall be paid upon the release of the $50,000 hold-back in escrow, which is subject to certain repairs being completed. The holdback was paid to obtain a release of the lien on the barge bottom, as agreed to by the lender. The note is now in default. The balance at September 30, 2019 was $80,000.


b) Short term convertible notes

Short term convertible debt including accrued interest was, as follows:


 

September 30, 2019

December 31, 2018

 

(unaudited)

 

Convertible note 1

$

-

$

-

Convertible note 2

313,393

315,056

Convertible note 3

18,715

17,581

Convertible note 4

12,511

11,761

Convertible note 5

12,511

11,761

Convertible note 6

-

18,048

Convertible note 7

36,185

33,966

Convertible note 8

-

18,220

Total convertible notes

$

393,315

$

426,393




F-16





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


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 Company’s 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 lender’s 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 shares of restricted common stock which was valued at $100 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 required a $200,000 partial prepayment if and when the Company sells the Miss Leah. The note is personally guaranteed by the Company’s 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.


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 “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





F-17





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


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 2017 was the Black-Scholes model with the following range of assumptions: Expected life in years 0.10; the conversion price of $0.54; Bond equivalent yield rate 1.28%.


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 March 22, 2017, the Company issued 1,000 shares of common stock to settle $30,000 of this note. These shares were valued at $73 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 Company’s assets including the Luxuria I. At September 30, 2019, 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.




F-18




Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


On July 18, 2017, the Company issued 2,308 shares of common stock upon conversion $18,000 of Note 1. On August 10, 2017, the Company issued 3,800 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 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 shares of common stock upon conversion of Note 2 principal in the amount of $15,000.


On January 30, 2018, the Company issued 41,667 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 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 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 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 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 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 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 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 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 shares of common stock upon conversion of Note 2 principal in the amount of $9,480. At December 31, 2018, the valuation method utilized to compute the embedded derivative liability was the Black-Scholes model with the following assumptions: Expected life in years 0.0; Stock price at December 31, 2018 $0.10; conversion price of $0.06; Bond equivalent yield rate 2.44%.


On January 15, 2019, the Company issued 238,000 shares of common stock upon conversion of Note 2 principal in the amount of $729. On March 1, 2019, the Company issued 260,000 shares of common stock upon conversion of Note 2 principal in the amount of $936. At September 30, 2019, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.0001; Stock price at September 30, 2019 $0.14 with the conversion price of $0.06; Bond equivalent yield rate 1.91%. At September 30, 2019 the balance was $313,393 and the unamortized discount was $0.


In March 2019, the lender of Note 2 each in Notes 7a and b (with a combined total due of $947,840) agreed to a global settlement of $600,000 upon the closing of the sale of the Luxuria I and $70,000 due six months thereafter. The lender agreed to forgive the $276,175 balance. Upon the payment of the second tranche the Company will record a gain on debt settlement of $276,175 plus a gain on the embedded derivative value of approximately $414,000. The lender agreed to extend the due date of the final payment to November 30, 2019, and increased the payment to $72,500.


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:




F-19





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


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, $25 with the conversion price of $15; Bond equivalent yield rate 0.92%. At September 30, 2019, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.0001; Stock price at September 30, 2019 $0.14 with the conversion price of $0.06; Bond equivalent yield rate 1.91%. The principal and interest balance was $18,715 and the unamortized discount balance was $0 at September 30, 2019.The note is currently in default.


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 $2 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 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 shares. In September 2017, the Company modified the conversion rate of these notes to $0.50 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. On June 30, 2019, the holder of one of these notes agreed to offset a portion of the $30,000 note they owed the Company, (which the Company had previously established a $30,000 allowance for), with the balance of this note payable to them. The Company offset $18,823 of the note receivable with this note. At September 30, 2019, the total principal and interest under these notes was $25,022 and the unamortized discounts were $0. The two remaining notes are in default.


NOTE 7: 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 “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 80% (the “Conversion Factor”) multiplied by the lowest Closing Bid Price in the fifteen (15) Trading Days immediately preceding the applicable Conversion.




F-20





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(7) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, (continued)


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, $2.80 with the conversion price of $1.80; Bond equivalent yield rate 1.08%. At September 30, 2019, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.0001; Stock price at September 30, 2019 $0.14 with the conversion price of $0.06; Bond equivalent yield rate1.91%. The principal and interest balance was $36,185 at September 30, 2019. The note is currently in default.


NOTE 8: On March 19, 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 lender’s legal fees which was withheld from the funds provided. This note carries a 14% 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 $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, $0.40 with the conversion price of $0.122; Bond equivalent yield rate 1.76%.


This note was paid in cash on March 27, 2019, and the Company recorded a loss on repayment of the debt of $8,594.


(8) SHORT TERM LOANS - RELATED PARTY


On May 4, 2017, the Company borrowed $20,000 from the Company’s CEO under an informal agreement. This loan carries an interest rate of 8.98% and has a 36 month term. $6,362 was repaid during the nine months ended September 30, 2019. At September 30, 2019, this loan balance is $0.


During the nine months ended September 30, 2019, the CEO advanced $15,424 to the Company, and was repaid $11,840, under an undocumented advance which carries no interest and has no stated maturity. At September 30, 2019, this loan balance is $3,380.




F-21





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements and Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(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, 2019 the balance of this loan was $22,692, of which $5,755 is due within one year. The lender retains a security interest in the outboard motors for the Luxuria I even though the vessel has been sold.


(10) COMMITMENTS AND CONTINGENCIES


a) Stockholders deficit

At September 30, 2019, the Company had the obligation to issue 1,000 shares of common stock on July 1, 2017 and 1,000 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, 2019, the Company had the obligation to issue 1,000 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 were earned.


At September 30, 2019, the Company had the obligation to issue 6,000 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 were earned.


The $5,050 value of these 8,000 shares has been recorded in accrued liabilities at September 30, 2019. (Note 6)


b) Leases

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 shares of restricted common stock. These shares were issued and valued at the market price on the grant date, $57.70 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. The Company is also obligated to pay Leah Rowe, spouse of Bob Rowe, $600 per week as Corporate Secretary. At September 30, 2019, $322,979 is accrued under these agreements as noted in Note 6.


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 Company’s election and three thousand one hundred (3,100) shares of our restricted common stock, to be issued 1,100 on January 1, 2017, 1,000 issued on July 1, 2017 and 1,000 issued on January 1, 2018. These shares were valued at the market price on the date they are earned which were recognized over the term of the contract at the rate of $12,500 per month.




F-22





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements and Financial Statements

(Information as to the nine months ended September 30, 2019 is unaudited)


(10) COMMITMENTS AND CONTINGENCIES (continued)


c) Material Contracts and Agreements, continued

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. At September 30, 2019, $352,000 is accrued under this agreement as noted in Note 6.


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 shares of restricted common stock. These shares were issued and valued at the market price on the grant date, $29 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. At September 30, 2019, $128,405 is accrued under this agreement as noted in Note 6.


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 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 $167 per share. Through June 30, 2016 this former officer and director has paid $55,000 and received 330 shares, respectively. In August 2016, the Company issued 425 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 2017, valued at $70,000, based on a negotiated agreement.


This party, a former officer of the Company, 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. In the third quarter 2019, the Company discovered this party had placed a lien on the barge bottom. This party agreed to release this lien upon payment of $50,000 in cash, which was made in the third quarter 2019.


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, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.


(11) STOCKHOLDERS’ DEFICIT


At September 30, 2019 and December 31, 2018, the Company has 5,000,000,000 shares of par value $0.0001 common stock authorized and 2,901,311 and 2,403,311 issued and outstanding, respectively. At September 30, 2019 and December 31, 2018, 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 15, 2019, the Company issued 238,000 shares of common stock upon conversion of Note 2 principal in the amount of $729. On March 1, 2019, the Company issued 260,000 shares of common stock upon conversion of Note 2 principal in the amount of $936. At September 30, 2019, the balance of this note is $313,393, (see Note 7b).





F-23





Global Boatworks Holdings, Inc.

Notes to Consolidated Financial Statements and Financial Statements

(Information as to the nine months ended September 30, 2019 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 founder’s 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, 2019 and December 31, 2018, the Company had accrued interest of $9,907 and $8,427, 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) Payments to related parties during the nine months ended September 30

During the second quarter the Company paid $4,000 to a company controlled by the brother of the founder for repairs to the Luxuria I.


(13) CONCENTRATIONS OF RISK


The Company has no revenue producing assets at September 30, 2019.  The Luxuria I floating vessel was sold with a closing date of April 24, 2019.


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, 2019 (unaudited) and December 31, 2018, respectively.


(14) SUBSEQUENT EVENTS


a) Short-term loans,

In November 2019, the $80,000 short-term note was increased by an additional $5,000 loan to the Company. (See Note 7a))





F-24




Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation


MANAGEMENT’S 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 nine hundred (1,900) square feet under air. The vessel offers amenities typically found in a luxury home. We have sold our first Luxuria model and are marketing the concept to enter into custom design and build versions which will be under contract for sale prior to beginning to build.


Three (3) Months Ended September 30, 2019 and 2018


We had rental revenues of $0 and $1,392 for the three (3) months ended September 30, 2019 and 2018, respectively. We had vessel sale revenues of $0 and $0 for the three (3) months ended September 30, 2019 and 2018, respectively.


Cost of revenues, (exclusive of depreciation shown separately below), was $0 compared to $14,435 for the three (3) months ended September 30, 2019 and 2018, respectively.


General and administrative expenses were $71,380 compared to $58,975 for the three (3) months ended September 30, 2019 and 2018, respectively, an increase of twenty one percent (21.0%). General and administrative expenses are principally composed of insurance, maintenance, officer pay and travel.


Our professional fees were $14,638 compared to $18,577 for the three (3) months ended September 30, 2019 and 2018, respectively. This decrease is principally the result of increased expenses relating to the marketing of the Luxuria vessel.


Our interest expense was $10,902 compared to $54,167 for the three (3) months ended September 30, 2019 and 2018, respectively, The decrease is primarily due to entering into a settlement agreement with our largest creditor that was tied to the sale of the Luxuria vessel.


Our change in fair value of derivative was ($236,465) and $14,662 for the three months ended September 30, 2019 and 2018, respectively.


We recorded a net loss of ($431,841) compared to ($220,010) for the three (3) months ended September 30, 2019 and 2018, respectively.


Nine (9) Months Ended September 30, 2019 and 2018


We had rental revenues of $0 and $15,550 for the nine (9) months ended September 30, 2019 and 2018, respectively.  We had vessel sale revenues of $750,000 and $0 for the nine (9) months ended September 30, 2019 and 2018, respectively.


Cost of revenues, (exclusive of depreciation shown separately below), was $583,710 compared to $57,355 for the nine (9) months ended September 30, 2019 and 2018. This increase was primarily due to the net book value of the Luxuria vessel sold.


General and administrative expenses were $234,599 compared to $216,459 for the nine (9) months ended September 30, 2019 and 2018, respectively, an increase of eight point four percent (8.4%). General and administrative expenses are principally composed of insurance, maintenance, officer pay and travel.


Our professional fees were $86,130 compared to $74,544 for the nine (9) months ended September 30, 2019 and 2018, respectively. This increase is principally the result of increased expenses relating to the marketing of the Luxuria vessel.


Our interest expense was $33,122 compared to $214,545 for the nine (9) months ended September 30, 2019 and 2018. The decrease is primarily due to entering into a settlement agreement with our largest creditor that was tied to the sale of the Luxuria vessel.


Our change in fair value of derivative was ($143,243) and $108,150 for the nine (9) months ended September 30, 2019 and 2018, respectively.


We recorded a net loss of ($580,634) compared to ($943,742) for the nine (9) months ended September 30, 2019 and 2018, respectively.




1




Liquidity and Capital Resources


Cash Flow Activities


Our cash decreased $775 for the nine months ended September 30, 2019. Our operating activities provided $532,689 of cash during the nine months ended September 30, 2019. Our operating activities consisted primarily of marketing and related sale of the Luxuria I for sale, marketing the concept to enter into custom design and build versions which are under contract for sale prior to beginning to build.


Financing Activities


During the nine (9) months ended September 30, 2019, we funded our working capital requirements principally through the use of additional debt proceeds of $130,424. We also reduced outstanding debt by $663,888 during the nine (9) months ended September 30, 2019.


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 and sales commissions.


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.


Property and Equipment




2




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 3n) 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 formerly located in Boston Harbor, Massachusetts. We sold the Miss Leah in September 2017. We sold the Luxuria I in April 2019.


As of September 30, 2019, we had cash on hand of $186 for our operational needs. Currently, our operating expenses are approximately $15,000 per month. We were obligated to repay an outstanding loan in one lump payment in the amount of $94,500 on July 19, 2019, which is past due as of the date of this filing. We were obligated to pay a lump sum of $50,000 on May 20, 2019, and $65,000 on October 25, 2019, which is past due as of the date of this filing. We were 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. We were obligated to repay two outstanding loans in one lump payment in the amounts of $10,000 and $10,000 on May 17, 2018, which are currently in default. We were obligated to repay an outstanding loan in one lump payment in the amount of $30,000 on October 6, 2018, which is currently in default. We are obligated to pay $72,500 in one lump payment on November 30, 2019.


If we fail to generate sufficient revenues or raise additional funds to meet our monthly operating costs we would not have any cash for our operating needs.


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 June 30, 2017. Luxuria I is approximately 1,900 square feet, with two (2) bedrooms and bathrooms, and sleeps up to nine (6) 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 closed on the sale of the Luxuria I on April 24, 2019.


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



3




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 shares of our common stock as payment for this barge bottom, valued at $70,000, or $165 per share, under an agreement dated August 11, 2016, at which time the market price of the stock was $230 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. We discovered that this party had placed a lien on the barge bottom and were required to pay them $50,000 to get this lien released, which was paid in the third quarter 2019.


The retail price of the Luxuria is between $1,200,000 and $1,500,000.


We are currently marketing the Luxuria models to yacht brokers, real estate brokers and boat dealerships.


Our cash balance at September 30, 2019 was $186 which is not enough cash to fund current operations.


We have an accumulated deficit of $6,534,099 from inception to September 30, 2019. 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) entering into new contracts to build Luxuria style vessels which will require substantial deposits and progress payments during the build.


Should we receive funding of $500,000 from the sale of our securities in the future we plan to construct a second, but smaller version of the 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 Companys Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2019 that the Company’s disclosure controls and procedures were not effective such that the information required to be disclosed in the Company’s 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 Company’s 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.


Management’s 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, 2018, the Company’s 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, 2018, and there was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2019. 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 Company’s annual or interim financial statements will not be prevented or detected on a timely basis.


Material Weakness Identified




4




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 Company’s 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 Company’s 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, 2019, 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 system’s 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.



5




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


None


Item 6.  Exhibits


 

 

 

 

 

 

 

 

 

 

 

Exhibit

No.

 

Exhibit Description

 

Incorporated By Reference

 

Filed

Herewith

 

 

 

 

Form

 

Date

 

Number

 

 

31.1

 

Certification Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934 as amended

 

 

 

 

 

 

 

 

X

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350

 

 

 

 

 

 

 

X




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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.


 

Global Boatworks Holdings, Inc.


/s/ Robert Rowe

Name: Robert Rowe

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

Dated: November 19, 2019




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