The accompanying notes are an integral part of the consolidated financial statements
The accompanying notes are an integral part of the consolidated financial statements
The accompanying notes are an integral part of the consolidated financial statements
The accompanying notes are an integral part of the consolidated financial statements
Notes to Consolidated Financial Statements
(1) NATURE OF OPERATIONS
Global Boatworks Holdings, Inc., (the Company, or Global Boatworks), was formed on May 11, 2015, under the laws of the State of Florida. At formation the Company acquired 100% of the membership interests of Global Boatworks, LLC, (LLC) which was formed on June 16, 2014, under the laws of the State of Florida. The Companys business activities to date have primarily consisted of the formation and implementation of a business plan for building luxury floating vessels on a barge bottom, the rental activities relating to the vessels, the sale of the Miss Leah, the construction of a new vessel, the Luxuria I and the rental activities of and marketing for sale and the sale of the Luxuria I.
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) PRINCIPLES OF CONSOLIDATION, USE OF ESTIMATES AND GOING CONCERN
a) Principles of Consolidation
The Companys consolidated financial statements include the financial statements of Global Boatworks Holdings, Inc. and its wholly owned subsidiary Global Boatworks, LLC. All intercompany balances and transactions have been eliminated.
b) Use of Estimates
The preparation of the consolidated 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 consolidated 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 consolidated financial statements involved the valuation of construction in progress, depreciable life of the floating vessel, valuation of long lived assets, valuation of derivatives, valuation of common and preferred stock issued as compensation and valuation allowance on deferred income tax assets.
c) Going Concern
The accompanying 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 deficiency in stockholders equity of $1,691,425; $5,988,352 and $1,812,336, respectively, at December 31, 2019. In addition the Company had net loss of $34,886 and used cash of $91,746 in operating activities in 2019. In addition the Company defaulted on seven of its notes during the year ended December 31, 2018, of which 4 remain outstanding at December 31, 2019. It is managements opinion that these matters raise substantial doubt about the Companys ability to continue as a going concern for a period of twelve months from the issuance of this report. The Company has expenses as a result of being a publicly held company and constructing new vessels without immediate increases in revenues as the Company continues to implement its plan of operations. The ability of the Company to continue as a going concern is dependent upon increasing operations, developing sales and obtaining additional capital and financing. The Company is seeking to raise sufficient equity capital to enable it to build the second new style luxury floating vessels. The Company also is seeking to raise sufficient equity capital to enable it to pay off its existing indebtedness. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Cash and cash equivalents
The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. The Company had no financial instruments that qualified as cash equivalents at December 31, 2019 or 2018.
b) Construction in progress
Costs to construct vessels are capitalized during the construction phase. Upon completion of a vessel the Company will either sell the vessel or place it in 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.
F-7
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
e) Financial instruments and Fair value measurements
ASC 825-10 Financial Instruments, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
ASC 825 also requires disclosures of the fair value of financial instruments. The carrying value of the Companys current financial instruments, which include cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values because of the short-term maturities of these instruments.
FASB ASC 820 Fair Value Measurement clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following reflects the Companys assets and liabilities that are measured at fair value on a recurring and nonrecurring basis at December 31, 2019 and 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
2019
|
|
2018
|
Level 3 - Embedded Derivative Liability
|
$
|
38,361
|
|
$
|
349,107
|
Changes in Level 3 assets measured at fair value for the year ended December 31, 2018 were as follows:
|
|
|
Balance, December 31, 2017
|
$
|
369,570
|
Portion of initial valuation recorded as debt discount
|
|
16,500
|
Extinguishment upon conversion or repayment
|
|
(41,060)
|
Initial and change in fair value
|
|
4,097
|
Balance, December 31, 2018
|
|
349,107
|
Extinguishment upon conversion or repayment
|
|
(991,859)
|
Initial and change in fair value
|
|
681,113
|
Balance, December 31, 2019
|
$
|
38,361
|
F-8
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
f) Revenue recognition
The Company recognizes revenues under the framework prescribed in ASC 606 Revenues from Contracts with Customers.
Rental Revenue - Revenue is recognized when earned, generally starting when the rental customer takes temporary possession of the floating vessel and through their contracted stay. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the marina dockage fees and fees charged by the web sites Homeaway and Air BnB, where the floating vessel is advertised for rent.
Sale Revenue - Revenue is recognized when earned, generally at closing of the sale of a vessel. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the depreciated capitalized cost of constructing a vessel.
g) Stock compensation for services rendered
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the 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. Pursuant to ASC 505-50, for share-based payments to non-employees, compensation expense is determined at the measurement date. The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
On June 20, 2018, the FASB issued ASU 2018-07, CompensationStock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This ASU requires an entity to apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The Company adopted the provisions ASU 2018-07 on January 1, 2019.
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 December 31, 2019, the tax years 2018, 2017, and 2016 for the LLC and the corporation remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
F-9
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(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 a debt discount and amortizes it over the life of the debt.
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 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 553,724 and 5,881,336 common stock equivalents for the years ended December 31, 2019 or 2018, respectively.
l) Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a convertible note containing an embedded derivative instrument, the instrument is marked to fair value at the conversion date and the debt and derivatives are removed from the consolidated balance sheets. The shares issued upon conversion of the note are recorded at their fair value with extinguishment 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.
m) Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adopted ASU 2016-02 effective January 1, 2019 and it has had no effect on the Companys consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting which is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. The existing guidance on nonemployee share-based payments is significantly different from current guidance for employee share-based payments. This ASU expands the scope of the employee share-based payments guidance to include share-based payments issued to nonemployees. It requires a company to apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2018-07 did not have a material effect on the Companys consolidated financial statements, as no share based awards were issued in 2019.
F-10
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(4) PROPERTY AND EQUIPMENT
Property and Equipment held for sale consisted of the following at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
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 has 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 years ended December 31, 2019 and 2018 was $22,109 and $67,718, respectively. 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 consisted of the following at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
Architectural plans
|
$
|
12,766
|
|
$
|
12,766
|
Furniture and equipment
|
|
-
|
|
|
6,296
|
Less: accumulated amortization and depreciation
|
|
(6,839)
|
|
|
(8,076)
|
Total P&E
|
$
|
5,927
|
|
$
|
10,986
|
The Company capitalized the costs of developing the architectural plans for the Luxuria model floating vessel and has begun amortizing the costs over their estimated useful life of seven years, beginning April 1, 2016. Amortization expense for the years ended December 31, 2019 and 2018, was $1,824 and $1,824, respectively.
For property and equipment- other, depreciation expense for the years ended December 31, 2019 and 2018 was $665 and $2,098, 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 Predecessors 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 Companys books at its original cost basis of $0 based on its fully depreciated value at the transfer date. Accordingly, the Company charged additional paid-in capital in 2014 as a distribution for $100,000. Outstanding principal and accrued interest totaled $110,400 and $108,427 at December 31, 2019 and 2018, respectively.
F-11
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES
a) Short term notes
Short term debt including accrued interest was, as follows, at December 31:
|
|
|
|
|
2019
|
|
2018
|
Note 1
|
$
-
|
|
$
40,000
|
Note 2
|
-
|
|
632,782
|
Note 3
|
106,500
|
|
50,000
|
Note 4
|
-
|
|
531
|
Note 5
|
10,000
|
|
-
|
Note 6
|
80,000
|
|
-
|
Note 7
|
77,500
|
|
-
|
Less: unamortized debt discounts
|
-
|
|
-
|
Total short term notes, net
|
$
274,000
|
|
$
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 $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 carried 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 and was amortized over the remaining life of the note. (see following assignments). The $40,000 balance of Note 1 matured on July 15, 2019 and was combined with Note 3 in December 7, 2018, amendment.
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 was secured by all the assets of the Company, inclusive of the Luxuria I and the Luxuria II, the member interests of its wholly owned LLC and personally guaranteed by Robert Rowe, CEO of the Company. The lenders security interests were subordinate by law to the security interests of the August 11, 2016 lender. This note is structured in multiple parts, first the initial $170,000 as drawn and a subsequent $660,000 which can be drawn at the Companys option. This note does not carry a stated interest rate, (except that the rate was 22% due to an event of default as defined in the promissory note), but carried an Original Issue Discount (OID) that totals $75,000 and is pro-rata on each tranche drawn. The OID was amortized over the remaining life of the note from the date drawn.
In addition, the Company was required to pay $5,000 of the lenders legal fees which was applied to the first tranche drawn, which was recorded as debt discount and was 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. 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 further extend this note for an additional three month period for an extension fee of $11,712.
On February 9, 2018, $38,500 was extended to the Company as a draw on this note, including $3,500 OID. On April 6, 2018, $33,000 was extended to the Company as a draw on this note, including $3,000 OID. The note in the remaining balance of
F-12
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
$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 December 31, 2018, the balance of this note and the unamortized discount was $632,782 and $0, respectively.
This note required a partial prepayment if and when the Company sells the Luxuria I and Luxuria II, upon the receipt of which the lender agreed to release its 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. 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 payment upon the closing of the sale of the Luxuria I and a payment of $72,500 due December 5, 2019. The lender agreed to forgive the $273,675 balance. This second tranche was paid on December 5, 2019. The balance owed for rental revenue at December 31, 2019 and 2018 was $0 and $3,388, respectively, and was included in the note balance.
NOTE 3: On July 17, 2017, the company entered into a loan agreement in the amount of $50,000 with a shareholder. The company issued 1,000 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 unamortized balance of the discount is $0 at December 31, 2018. Total unpaid principal and interest is $50,000 at December 31, 2018.The $50,000 balance of Note 1 matures on July 15, 2019 and was combined with Note 1 in December 7, 2018, amendment.
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 December 31, 2019 and 2018 was $0 and $531, respectively.
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 December 31, 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 series A preferred stock held by the Companys CEO. The note required a principal reduction of $50,000 on or before May 20, 2019 with the balance of $55,000 plus $10,000 in interest due on or before October 25, 2019. The Company paid $25,000 of this note at the closing of the sale of the Luxuria I. The balance at December 31, 2019 was $80,000. The note maturity has been amended to on demand.
NOTE 7: In November 2019, the stockholder holding Note 6 agreed to loan the Company $5,000 and on December 5, 2019, loaned the Company $72,500 to pay-off the second tranche of the settlement agreement for Note 2 above and convertible Note 2 below on an undocumented basis carrying no interest. The balance at December 31, 2019 is $77,500.
F-13
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
b) Short term convertible notes
Short term convertible debt including accrued interest was as follows at December 31:
|
|
|
|
|
2019
|
|
2018
|
Convertible note 1
|
$
-
|
|
$
-
|
Convertible note 2
|
-
|
|
315,056
|
Convertible note 3
|
19,093
|
|
17,581
|
Convertible note 4
|
12,761
|
|
11,761
|
Convertible note 5
|
12,761
|
|
11,761
|
Convertible note 6 - related party
|
-
|
|
18,048
|
Convertible note 8
|
36,925
|
|
33,966
|
Convertible note 10
|
-
|
|
18,220
|
Less: related party note
|
-
|
|
(18,048)
|
Total convertible notes, net
|
$
81,540
|
|
$
408,345
|
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 was 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 was structured in two parts, first the initial $305,000 as drawn and a subsequent $305,000 which can be drawn at the Companys option in amount/s determined by the Company. This note does not carry a stated interest rate, but carries an Original Issue Discount (OID) that totals $100,000 and is proportional to the total amount borrowed. An OID of $50,000 was recorded as a discount to the note for the initial draw and were amortized over the six month life of the note. In addition, the Company is required to pay $10,000 of the lenders legal fees (pro rata to the draws) and $22,500 of brokerage commission which was withheld from the initial $305,000 draw, both of which also were 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 requires a $200,000 partial prepayment when the Company sells the Miss Leah. The note is personally guaranteed by the Companys CEO, Robert Rowe. In event of default the note carried 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
F-14
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time the Conversion Shares are not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 60% to 55% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(a), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been bifurcated and recorded as a derivative liability at an initial fair value of $378,624 with $217,500 recorded as a debt discount and $161,124 as a derivative expense. The October 5, 2016 draw resulted in an initial fair value of $113,616 with $92,000 recorded as a debt discount and $21,616 as a derivative expense. The November 3, 2016 draw resulted in an initial fair value of $190,356 with $150,000 recorded as a debt discount and $40,356 as a derivative expense. The valuation method utilized during 2017 was the Black-Scholes model with the following assumptions: Expected life in years 0.10; Stock price at December 31, 2017 of $1.10 with 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 was amortized to maturity. At December 31, 2019, the unamortized balance is $0.
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. (See Note 11)
In May 2017, the lender bifurcated the original note, which had a then remaining balance of $598,300, into two new notes, Note 1 with a principal balance of $200,000 and Note 2 with a principal balance of $416,249, which included a maturity extension fee of $17,949. Note 1 is collateralized with the Miss Leah and Note 2 with all Companys assets including the Luxuria I.
Note 1 required a mandatory partial prepayment of up to $200,000 when the Company sold the Miss Leah, upon the receipt of which the lender agreed to release the security interest in the vessel. Note 2 contains no such provision. All other provisions of the original note are carried over to these two new notes. The maturity date of theses two notes was August 11, 2017. On August 11, 2017, the lender agreed to negotiate three month extensions for both notes which was completed August 14, 2017, and combined extension fee of $17,619 was added to the principal balance of the notes.
On July 18, 2017, the Company issued 2,308 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. At December 31, 2017, the balance was $417,368 and the unamortized discount was $5,750.
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,
F-15
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
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%. At December 31, 2018, the balance of the note was $315,056 and the unamortized discount was $0 and the note was in default.
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 $72,500 due December 5, 2019. The lender agreed to forgive the $273,675 balance, which was recorded as a debt extinguishment gain. This second tranche was paid on December 5, 2019.
NOTE 3: On April 15, 2017, the Company entered into a six month 10% convertible promissory note in the amount of $15,000. In event of default the note carries an interest rate of 18%.
The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a 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 December 31, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.0; Stock price at December 31, 2019 $0.199 with the conversion price of $0.0895; Bond equivalent yield rate 1.48%. The principal and interest balance was $19,093 and $17,581 and the unamortized discount balance was $0 and $0 at December 31, 2019 and 2018, respectively. The note is in default at December 31, 2019 and 2018.
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 to 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. (see note 11) On July 26, 2017, two of these third parties converted an aggregate of $11,000 of these notes in exchange for 5,500 shares. (see note 11) 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. At December 31, 2019 and 2018, the total principal and interest was $25,522 and $41,570 and the unamortized discounts were $0 and $0, respectively. Notes 4 and 5 are in default at December 31, 2019 and 2018.
NOTE 8: On August 31, 2017, the Company entered into a six month 10% convertible promissory note in the amount of $30,000. In event of default the note carries an interest rate of 18%.
The total note is convertible into common stock as follows:
Lender has the right at any time, at its election, to convert (each instance of conversion is referred to herein as a 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
F-16
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
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 $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 December 31, 2019, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.00; Stock price at December 31, 2018 $0.199 with the conversion price of $0.0895; Bond equivalent yield rate 1.48%. The principal and interest balance was $36,925 and $33,966 and the unamortized balance was $0 and $0 at December 31, 2019 and 2018, respectively.
NOTE 9: On October 18, 2017, pursuant to a securities purchase agreement and a one year convertible promissory note for $43,000 the Company received $40,000, net of $2,500 of the lenders legal fees and $500 of due diligence fees which were withheld from the funds provided. This note carries a 12% interest rate, with all interest due at maturity.
The total note was 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 October 18, 2017, $2.80 with the conversion price of $1.40; Bond equivalent yield rate 0.99%.
On May 1, 2018, the Company issued 78,833 shares of common stock upon conversion of Note 9 principal in the amount of $4,730. On May 1, 2018, the Company issued 49,833 shares of common stock upon conversion of Note 9 principal in the amount of $2,990. On May 3, 2018, the Company issued 53,833 shares of common stock upon conversion of Note 9 principal in the amount of $3,230. On May 8, 2018, the Company issued 58,667 shares of common stock upon conversion of Note 9 principal in the amount of $3,520. On May 11, 2018, the Company issued 53,833 shares of common stock upon conversion of Note 9 principal in the amount of $6,460. On May 22, 2018, the Company issued 88,500 shares of common stock upon conversion of Note 9 principal in the amount of $10,620. On May 25, 2018, the Company issued 71,000 shares of common stock upon conversion of Note 9 principal in the amount of $8,520.
On June 11, 2018, the Company issued 60,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600. On June 12, 2018, the Company issued 41,500 shares of common stock upon conversion of Note 9 principal in the amount of $2,490, which was $870 greater than the then remaining note and accrued interest balance, therefore 14,500 shares were issued in excess. On June 13, 2018, the Company issued 60,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600, which was $3,600 greater than the then remaining note and accrued interest balance, therefore 60,000 shares were issued in excess. On June 14, 2018, the Company issued 41,445 shares of common stock upon conversion of Note 9 principal in the amount of $2,487, which was $2,487 greater than the then remaining note and accrued interest balance, therefore 41,445 shares were issued in excess. On June 18, 2018, the Company issued 5,167 shares of common stock upon conversion of Note 9 accrued interest in the amount of $310, which was $310 greater than the then remaining note and accrued interest balance, therefore 5,167 shares were issued in excess. The Company has instructed the lender to either return the 121,112 excess shares or remit $7,267 in cash to the Company (par value of the excess shares). At December 31, 2018, the Company has recorded an impairment reserve for this receivable balance. The principal and interest was $0 and the unamortized discounts at December 31, 2018 totaled $0.
F-17
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(6) SHORT TERM LOANS AND SHORT TERM CONVERTIBLE NOTES, continued
On April 17, 2018, due to the failure to timely file the Annual Report on Form 10-K, the lender automatically issued a default notice for this note. This default notice required the Company to pay the outstanding principal balance plus all accrued interest. This amount includes a default penalty of $21,500 for note 9, or 50% of the then outstanding principal balance. The lender agreed to waive the penalty after the Companys Quarterly Report on 10-Q for the period ending March 31, 2018 was filed timely.
NOTE 10: On March 19, 2018, pursuant to a securities purchase agreement and a one year convertible promissory note for $16,500 the Company received $16,000. In addition, the Company is required to pay $500 of the lenders legal fees which were withheld from the funds provided. This note carried a 14% interest rate, with all interest due at maturity.
The total note was 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 was recorded as a derivative liability.
At December 31, 2018, the valuation method utilized was the Black-Scholes model with the following assumptions: Expected life in years 0.0; Stock price at December 31, 2018 $0.10 with the conversion price of $0.054; Bond equivalent yield rate 2.44%. The principal and interest balance was $18,220 and the unamortized balance was $0 at December 31, 2018. This note was in default at December 31, 2018.
This note was settled in cash on March 27, 2019, and the Company recorded a loss on repayment of the debt of $8,594.
(7) SHORT TERM LOAN - RELATED PARTY
On May 4, 2017, the Company borrowed $20,000 from the Companys CEO under an informal agreement. This loan carries an interest rate of 8.98% and has a 36 month term. At December 31, 2019 and 2018, this note balance is $0 and $6,362, respectively.
During 2018, the CEO advanced $22,182 to the Company under an undocumented advance which carries no interest and has no stated maturity. During 2018, the Company repaid $22,386 of this advance. At December 31, 2018, this note balance is a receivable of $204.
During 2019, the CEO advanced $26,029 to the Company under an undocumented advance which carries no interest and has no stated maturity. During 2019, the Company repaid $15,172 of this advance. At December 31, 2019, the balance of this advance is $10,653.
(8) LONG TERM DEBT
In April 2017 the Company entered into a six year unsecured 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 December 31, 2019 and 2018 the balance of this loan was $21,288 and $26,766, respectively, of which $5,850 is due within one year of December 31, 2019.
F-18
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(9) COMMITMENTS AND CONTINGENCIES
a) Deficiency in Stockholders Equity
At December 31, 2019 and 2018, 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 were earned.
At December 31, 2018, 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 December 31, 2018, 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 value of these 8,000 shares ($5,050) has been recorded in accrued liabilities at December 31, 2019 and 2018.
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, as amended in September 2017, 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 will be 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. At December 31, 2019, $342,979 is accrued under this agreement.
On December 9, 2016, the Company entered into an agreement (the Agreement) with Oceanside Equities, Inc., (Oceanside), a Florida corporation that provides consulting services. Oceanside agreed to provide us with services from December 9, 2016 until December 8, 2019, in exchange for a one time fee of $20,000 in cash; $16,000 per month accrued and payable in either cash or shares of restricted common stock at the Companys election and 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. We valued these shares at the market price on the date they were earned which will be recognized over the term of the contract at the rate of 172 shares per month. The agreement allows Oceanside to elect to convert any accrued compensation due him for common stock at a 50% discount market or at such lower price that may have been provided to other parties. The Company recognizes gains or losses on such conversions, on conversion date, as consulting fee expense. At December 31, 2019, $384,000 is accrued under this agreement.
During 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. 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. At December 31, 2019, $128,405 is accrued under this agreement.
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 services, 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.
F-19
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(9) COMMITMENTS AND CONTINGENCIES, continued
f) Legal Matters
From time to time, the Company may be involved in asserted claims or litigation relating to claims arising out of our operations in the normal course of business. As of December 31, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
This former officer discussed in e) above has not accepted the stock certificate and has informed the Company that he wants to renegotiate the stock purchase price since the market price of the common stock has fallen below the signed contractual price per share. In addition, this former officer unlawfully placed a lien against the Luxuria I in April 2019, resulting in the Company being compelled to pay him $50,000 to release the lien concurrently with the sale of the Luxuria I. The Company is exploring its options to seek restitution.
(10) DEFICIENCY IN STOCKHOLDERS EQUITY
Common Stock
At December 31, 2019 and 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 shares issued and outstanding, respectively. At December 31, 2019 and 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 30, 2018, the Company issued 41,667 shares of common stock upon conversion of Note 2 principal in the amount of $15,000. On January 30, 2018, the Company issued 25,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On January 31, 2018, the Company issued 25,378 shares of common stock upon conversion of Note 7 principal in the amount of $9,390. On February 5, 2018, the Company issued 25,392 shares of common stock upon conversion of Note 7 principal in the amount of $9,395. On February 6, 2018, the Company issued 25,387 shares of common stock upon conversion of Note 7 principal in the amount of $7,870. 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 12, 2018, the Company issued 25,339 shares of common stock upon conversion of Note 7 principal in the amount of $6,955. 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 7, 2018, the Company issued 1,000 shares of common stock under a consulting agreement. These shares were valued at $0.20 per share, or $200. 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 16, 2018, the Company issued 12,000 shares of common stock upon conversion of Note 7 principal in the amount of $2,880. 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. On May 1, 2018, the Company issued 78,833 shares of common stock upon conversion of Note 9 principal in the amount of $4,730. On May 1, 2018, the Company issued 49,833 shares of common stock upon conversion of Note 9 principal in the amount of $2,990. On May 3, 2018, the Company issued 53,833 shares of common stock upon conversion of Note 9 principal in the amount of $3,230. On May 8, 2018, the Company issued 58,667 shares of common stock upon conversion of Note 9 principal in the amount of $3,520. On May 11, 2018, the Company issued 53,833 shares of common stock upon conversion of Note 9 principal in the amount of $6,460. On May 22, 2018, the Company issued 88,500 shares of common stock upon conversion of Note 9 principal in the amount of $10,620. On May 25, 2018, the Company issued 71,000 shares of common stock upon conversion of Note 9 principal in the amount of $8,520. On June 11, 2018, the Company issued 60,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600. On June 12, 2018, the Company issued 41,500 shares of common stock upon conversion of Note 9 principal in the amount of $2,490, which was $870 greater than the then remaining note and accrued interest balance, therefore 14,500 shares were issued in excess. On June 13, 2018, the Company issued 60,000 shares of common stock upon conversion of Note 9 principal in the amount of $3,600, which was greater than the $0 remaining note principal and interest balance, therefore the 60,000 shares were issued in excess.
On June 14, 2018, the Company issued 41,445 shares of common stock upon conversion of Note 9 principal in the amount of $2,487, which was $2,487 greater than the then remaining note and accrued interest balance, therefore 41,445 shares were issued in excess. On June 18, 2018, the Company issued 5,167 shares of common stock upon conversion of Note 9 accrued
F-20
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(10) DEFICIENCY IN STOCKHOLDERS EQUITY, continued
interest in the amount of $310, which was greater than the $0 remaining note principal and interest balance, therefore the 41,445 shares were issued in excess. In 2018, the Company instructed the lender to either return the 121,112 excess shares or remit $7,267 in cash to the Company. The lender declined and the Company wrote off this amount as a bad debt.
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 December 31, 2019, the balance of this note is $0, (see Note 7b).
At December 31, 2019 the Company is obligated to issue 1,000 shares of common stock, valued at $300, to a consultant under an agreement entered into May 22, 2018.
Valuation of shares issued for services and settlements were based upon the quoted market price on the requisite measurement dates.
Redeemable Preferred Stock
The rights and privileges of these shares is super voting rights at the rate of 1,000 votes for each preferred share and the right to redeem the shares for $1,000 in total.
The holder of the 1,000,000 shares of Series A Preferred stock has pledged the shares as collateral in support of Note 6 discussed in footnote 6a).
(11) RELATED PARTIES
a) Rental property
On September 25, 2014, the Company acquired the Miss Leah, a luxury floating vessel built on a barge platform from the predecessor entity which is owned by the founders brother. As part of this acquisition transaction the Company issued a promissory note in June 2015 to the Predecessor in the amount of $100,000, carrying an interest rate of 2% effective September 25, 2014, with a maturity date of June 20, 2022. The Company recorded the payable in September 2014 which was formalized with this promissory note in June 2015. At December 31, 2019 and 2018, the Company had accrued interest of $10,400 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 of $3,888 for the net differential resultant therefrom and recorded the related revenue and expenses in the Companys records.
c) Payments to related parties
During the second quarter 2019, the Company paid $4,000 to a company controlled by the brother of the founder for repairs to the Luxuria I.
d) Cash expenses paid to related parties during each the years ended December 31, presented is as follows:
|
|
|
|
|
2019
|
|
2018
|
Construction management - brother of founder
|
$
4,000
|
|
$
-
|
Construction management - nephew of founder
|
$
-
|
|
$
2,000
|
(12) - INCOME TAXES
There was no Federal or State Income Tax expense for the years ended December 31, 2019 and 2018 due to the Companys net loss.
F-21
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(12) - INCOME TAXES, continued
The Company's effective income tax expense (benefit) differs from the expected tax expense for Federal income tax purposes, (computed by applying the United States Federal tax rate of 21% to loss before taxes) as follows:
|
|
|
|
|
2019
|
|
2018
|
Tax (benefit) on net loss before income tax
|
$
(104,849)
|
|
$
(274,244)
|
Effect of state taxes (net of federal benefit)
|
(29,148)
|
|
(56,742)
|
Stock compensation
|
-
|
|
51
|
(Gain) loss on extinguishment on debt and debt conversions
|
-
|
|
65,594
|
Debt premiums
|
-
|
|
50,610
|
Derivatives
|
(126,571)
|
|
1,038
|
Change in valuation allowance
|
260,568
|
|
(213,693)
|
Income tax provision
|
$
-
|
|
$
-
|
The Company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statements and tax basis of assets and liabilities.
The components of net deferred tax assets and liabilities that have been presented in the Company's financial statements are as follows at December 31:
|
|
|
|
Deferred income tax assets:
|
2019
|
|
2018
|
Net operating loss carryforward
|
$
868,190
|
|
$
608,342
|
Total deferred tax assets
|
868,190
|
|
608,342
|
Valuation allowance
|
(868,190)
|
|
(608,342)
|
Net deferred taxes
|
$
-
|
|
$
-
|
The Company records a valuation allowance to reduce deferred tax assets, based on the weight of the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, an assessment of all available evidence both positive and negative was required. The Company recorded a valuation allowance of $868,190 and $608,342 in 2019 and 2018, respectively.
At December 31, 2019, the Company has a net operating loss carryforward from prior years of $1,557,109 available to offset future net income through 2037 and $1,178,511 that may be carried forward indefinitely subject to IRS defined annual usage limitations. The utilization of the net operating loss carryforward is dependent on the ability of the Company to generate sufficient taxable income during the carryforward period. In the event that a significant change in ownership of the Company occurs as a result of the issuance of common stock, the utilization of the NOL carry forward will be subject to limitation under certain provisions of the Internal Revenue Code. Management does not presently believe that such a change has occurred.
In accordance with the provisions of ASC 740: Income Taxes, the Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At December 31, 2018, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
As of December 31, 2019, the tax years 2018, 2017, and 2016 for the LLC and 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-22
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(13) CONCENTRATIONS OF RISK
The Company has no revenue producing assets at December 31, 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 December 31, 2019 and 2018, respectively.
(14) SUBSEQUENT EVENTS
a) US Small Business Administration Economic Injury Disaster Loan (SBA EIDL)
In May 2020, the Company, through its wholly owned subsidiary, received an SBA EIDL in the amount of $96,700. This is a 30 year loan, carrying a 3.25% interest rate, with the first payment due in May 2021.
b) COVID-19 pandemic
The Companys management is unable to predict the full impact of COVID-19 on the Company.
The corona virus pandemic and subsequent State of Florida ordered shut down had a significant effect upon the Companys operations. The Companys access to capital was severely curtailed to totally eliminated, during the pandemic. The Company had also entered into a letter of intent for a custom design and build floating vessel. The Company will not know for some time if this letter of intent can be converted into a contract or not. The Company is continuing to negotiate with several other parties for custom design and build floating vessel opportunities, but as yet does not know what the ultimate consequences of the pandemic will be upon its business model.
The Luxuria series of floating homes is constructed in marine facilities and appeals to those that seek a lifestyle that incorporates being on the water. The Companys product is more expensive than a traditional home built on land. Because of COVID-19 and the uncertainty surrounding economic conditions moving forward the Company cannot predict the willingness of buyers to absorb the additional cost of a luxury floating home as compared to a traditional home. Additionally, the Companys management cannot predict the availability of marine construction facilities or personnel during this time due to Broward County, Florida Administrator's Emergency Order 20-03 limiting which businesses may stay open. The Companys primary facility where the Luxuria I was constructed is located in Broward County, Florida.
F-23