NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Boatim Inc. formerly known as Emerald Data Inc. (“we”, “our, “Boatim”, the “Company”) is a for profit corporation established under the corporate laws of the State of Nevada on August 15, 2014. On January 24, 2019 the Company´s board and shareholders passed a motion to change the Company name to “BOATIM INC.” Its fiscal year end is August 31.
Boatim, Inc. established Boatim Europe S.L. (“Boatim Europe”) as a private limited company pursuant to the laws of Spain on December 18, 2019, with the Company having indirect ownership of one hundred percent of the issued and outstanding membership interests of Boatim Europe. Boatim Europe is currently structured and treated as a wholly owned subsidiary of the Company. In December 2020, the Company finalized the process of collecting and submitting all required paperwork to the Spanish authorities to enter Boatim Inc. as direct owner on public records in Spain.
Originally in the business of producing and distributing furniture, the business was changed to online food blogging as a promotion channel for restaurants, bars and fine dining. Subsequently, following the acquisition of the Boatim software platform, the Company expanded into the boating industry by further developing the software platform. The Boatim software platform is an online boat trading marketplace, combining data-driven technology and our digital marketing capabilities to offer a rolling subscription for service model of access to the platform for the extensive market of global boat dealers.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company with its fiscal year end of August 31, and its wholly owned subsidiary. All intercompany accounts, balances and transactions have been eliminated in the consolidation as at November 30, 2020.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. The unaudited interim financial statements should be read in conjunction with the financial statements for the year ended August 31, 2020 included in the Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended November 30, 2020 are not necessarily indicative of the results that may be expected for the year ending August 31, 2021.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets are stated at historical cost less accumulated depreciation. The historical cost of acquiring an item of fixed assets includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use. Costs associated with repairs and maintenance are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 3 years.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.
Fair Value of Financial Instruments
ASC 825, “Disclosures about Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments. ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of August 31, 2020 and 2019.
Authoritative literature provides a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement as follows:
Level 1 - Quoted market prices available in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accrued liabilities, convertible notes and notes payable. Fair values were assumed to approximate carrying values for these financial instruments due to their short term maturities.
Foreign Currency
Assets and liabilities of Boatim Europe are translated into U.S. dollars at the respective rates of exchange prevailing at the end of the reporting period. Income and expense accounts are translated at average exchange rates prevailing during the reporting period. Translation adjustments resulting from this process are recorded directly in equity as accumulated other comprehensive (loss) income (“AOCI”) and will be included as income or expense only upon sale or liquidation of the underlying entity. Boatim Europe considers its local currency (EURO) as its functional currency.
In accordance with ASC Topic 830-30, “Translation of Financial Statements”, monetary asset and liability accounts are translated into the Company’s reporting currency, the US dollar, using the closing exchange rate in effect at the balance sheet date, nonmonetary accounts are translated using historical exchange rates and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.
Translation of amounts from the local currency of Boatim Europe into US$ has been made at the following exchange rates:
|
|
|
November 30,
2020
|
|
|
August 31,
2020
|
|
|
Current EUR: US$ exchange rate
|
|
|
1.1946
|
|
|
|
1.1991
|
|
|
Average EUR: US$ exchange rate
|
|
|
1.1903
|
|
|
|
1.1136
|
|
Capitalized Software Development Costs
Computer software development costs related to software developed for internal use falls under the accounting guidance of ASC Topic 350-40, Intangibles Goodwill and Other–Internal Use Software, in which computer software costs are expensed as incurred during the preliminary project stage and capitalization begins in the application development stage once the capitalization criteria are met. Costs associated with post implementation activities are expensed as incurred.
Costs capitalized during the application development stage include external direct costs of materials and services consumed in developing or obtaining internal-use software. During the three months ended November 30, 2020 and for the fiscal year ended to August 31, 2020, a total of $174,847 and $259,156 in software development costs has been incurred, respectively.
Impairment of Long-Lived Assets
The Company’s long-lived assets, including intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Long-lived assets were evaluated for impairment and the Company recorded impairment loss on Capitalized software development costs of $0 during the the three months ended November 30, 2020 and 2019, respectively.
Leases
As of September 1, 2019, the Company adopted the provisions of “Accounting Standards Codification Topic 842 Leases (ASC 842)” using the modified retrospective basis for all agreements
The Company recognizes a right-of-use asset and lease liability for all financing and operating leases with terms greater than twelve months. The lease liability is measured based on the present value of the lease payments not yet paid. The right-of-use asset is measured based on the initial measurement of the lease liability adjusted for any direct costs incurred upon commencement of the lease. The right-of-use assets are amortized on a straight-line basis over the lease term, and are tested for impairment in a manner consistent with the other long-lived assets held by the Company.
Derivative Instrument Liability
The Company accounts for derivative instruments in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedging relationships and the types of relationships designated are based on the exposures hedged. At November 30, 2020 and August 31, 2020, the Company had a derivative liability of $614,530 and $307,446, respectively,
Use of Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period. Management makes its best estimate of the outcome for these items based on information available when the financial statements are prepared. Actual results could differ from those estimates.
Basic and Diluted Loss Per Share
The Company computes earnings (loss) per share in accordance with ASC 260-10-45 “Earnings per Share”, which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings (loss) per share excludes all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments, and therefore, basic and diluted earnings (loss) per share are equal.
Stock Based Compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors and non-employees (effective September 1, 2019), the fair value of the award is measured on the grant date. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the consolidated statements of operations, as if such amounts were paid in cash.
Recent Accounting Pronouncements
On December 18, 2019, the FASB issued ASU 2019-12, which modifies ASC 740 to simplify the accounting for income taxes. The ASU’s amendments are based on changes that were suggested by stakeholders as part of the FASB’s simplification initiative (i.e., the Board’s effort to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is evaluating the impact of this on its consolidated financial statements.
On January 16, 2020, the FASB issued ASU 2020-01 in response to an EITF consensus. The ASU makes improvements related to the following two topics: (a) Accounting for certain equity securities when the equity method of accounting is applied or discontinued — The ASU clarifies that “an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.” (b) Scope considerations related to forward contracts and purchased options on certain securities — The ASU clarifies that “for the purpose of applying paragraph 815-10- 15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825.” This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is evaluating the impact of this on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 – GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company had no revenues for the three months ended November 30, 2020 and incurred recurring losses. In addition, the Company had a negative working capital as of November 30, 2020 and has not completed its efforts to establish a stable source of revenues sufficient to cover operating costs over an extended period of time. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on borrowings from related party to fund operating expenses. In light of management’s efforts, there are no assurances that the Company will be successful in any of its endeavors or become financially viable and continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
NOTE 4 – RELATED PARTY TRANSACTIONS
Mr. Robert Glass, a lawyer, is providing services free of charge from time to time, such services involving advice on accounting matters and processing of information for reporting services.
On September 12, 2019, Veng Kun Lun, an officer and director of the Company, forgave all amounts due to him from the Company, totaling $81,290, which was recorded as additional paid in capital.
During the three months ended November 30, 2020, Cayo Ventures GmbH (“Cayo”), a related party, advanced a total of $490,212 to the Company. Cayo is owned by the former majority shareholder and former officer, Mr. Yves Toelderer. As of November 30, 2020, the Company owed a total of $838,243 to Cayo, which includes $2,833 owed to Yves Toelderer. These loans are unsecured, non-interest bearing and due on demand.
During the year ended August 31, 2019, the Company issued a note in the amount of $500,000 to Cayo for the purchase of the Boatim software platform. The note matured on January 23, 2020 but was extended to January 23, 2021. On July 21, 2020, the Company cancelled the note when Cayo transferred its claim against the Company to an unrelated party. On the same date, Cayo also assigned a portion of the related party loans (see above) amounting to $560,000 to another unrelated party. The Company then issued convertible notes to these unrelated parties. (See Note 7).
On June 1, 2020, the Company entered into services agreement with Mr. Wolfgang Tippner, as Chief Executive Officer. The agreement calls for a sign-on bonus of $24,000, payable within 6 months from the date of the agreement and a cash compensation for his services of $8,000 per month. During the three months ended November 30, 2020, a total of $0 has been paid to Mr. Tippner. As of November 30, 2020, $72,000 in accrued compensation remains outstanding.
On June 1, 2020, the Company entered into a service agreement with Mr. Patrick Heneise, as Chief Technology Officer. The agreement calls for an equity bonus of 200,000 common shares of the company within 6 months of the date of the agreement (See Note 9). As cash compensation for his services he is to receive a total of €35,000, payable at €2,500 per month for technology consulting services and a €5,000 executive services fee payable annually. During the three months ended November 30, 2020, a total of $7,949 has been paid to Mr. Heneise. As of November 30, 2020 and August 31, 2020, $5,889 and $8,864 in accrued compensation remains outstanding, respectively.
On June 15, 2020, the Company entered into a service agreement with Mr. Chris Roy, as Chief Product Officer. The agreement calls for a base salary of €125,000 per year. In addition, Mr. Roy is eligible to receive a performance bonus equal to 50% of his base salary, based upon targets set by the board of directors of the Company. During the three months ended November 30, 2020, a total of $33,145 has been paid to Mr. Roy. As of November 30, 2020, $23,140 in accrued compensation remains outstanding.
On July 1, 2020, the Company entered into a service agreement with Mr. Patrick Burkert, as Chief Marketing Officer. The agreement calls for a sign on bonus of 500,000 shares of restricted common stock, of which 50,000 shares are due within two weeks of the date of the agreement, 200,000 shares after 6 months, and the remaining shares after 12 months. He will also receive a base salary of €144,000 per year. In addition, Mr. Burkert is eligible to receive a performance bonus equal to 50% of his base salary, based upon targets set by the board of directors of the Company. During the three months ended November 30, 2020, a total of $38,794 has been paid to Mr. Burkert in cash compensation. As of November 30, 2020, $0 in accrued cash compensation remains outstanding. See Note 9.
NOTE 5 – LEASES
On February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The ASU introduces a new leasing model for both lessees and lessors. Topic 842 provides guidance in how to identify whether a lease arrangement exists. Management has evaluated its leasing arrangements and has classified these as operating leases. Additionally, the lease terms of each of our office leases are short term in nature, however, the Company elected to apply ASC Topic 842 to these leases, because we intend to renew each lease for terms longer than 12 months. As a result of the adoption of ASC Topic 842, the Company recognized a right-of-use asset and operating lease liabilities of $250,066 based on the present value of the minimum rental payments utilizing a discount rate of 2.19%.
Operating Lease Obligations
On August 01, 2019, the Company entered into an office lease for a six person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OnCoWork. The lease calls for rent payments of €2,340 plus VAT in monthly payments. The lease begins August 01, 2019, is month to month with a six month permanency clause, of which management intends to renew.
On December 01, 2019, the Company entered into an office lease for a nine person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OneCoWork. The lease calls for rent payments of €3,120 plus VAT in monthly payments. The lease begins December 01, 2019, is month to month with a six month permanency clause, of which management intends to renew.
On April 20, 2020, the Company entered into an office lease for a six person office space located at Marina Port Vell Carrer de l’Escar, 26, 08039 Barcelona Spain with OneCoWork. The lease calls for rent payments of €2,550 plus VAT in monthly payments. The lease begins April 20, 2020 is month to month with a six month permanency clause, of which management intends to renew.
The Company has recorded operating lease expense in the amount of $29,307 during the three months ended November 30, 2020 and $0 for the three months ended November 30, 2019. As of November 30, 2020 and August 31, 2020, the discount rate for these leases is 2.19% and the weighted average remaining term is 12 months.
Future minimum operating lease payments at November 30, 2020 consist of:
|
2021
|
|
$
|
126,457
|
|
|
2022
|
|
|
18,890
|
|
|
2023
|
|
|
0
|
|
|
Total minimum lease payments
|
|
|
145,347
|
|
|
Less: present value discount
|
|
|
(897
|
)
|
|
Present value of minimum lease payments
|
|
|
144,450
|
|
|
Current portion of operating lease obligation
|
|
|
125,560
|
|
|
Operating Lease obligation, net of current portion
|
|
$
|
18,890
|
|
NOTE 6 – LOAN PAYABLE
On July 27, 2020, the Company received a short term loan from an unrelated third party in the amount of €40,000. The loan is unsecured, has no maturity date and is non interest bearing. As of November 30, 2020, the USD equivalent of $0 remains outstanding. The loan was repaid on September 30, 2020.
NOTE 7 – CONVERTIBLE NOTES
On July 21, 2020, the Company issued convertible notes in the amount of $500,000 and $560,000 to two unrelated parties in exchange for their assumption of the December 08, 2018 note and related party loans owed to Cayo for the same amounts. (See Note 4). The notes do not bear interest and mature on January 22, 2021. The note in the amount of $500,000 is convertible into common shares at the rate equivalent to 70% of the Company’s 30 day average stock price prior to conversion. The second note in the amount of $560,000 is convertible into common stock at the rate equivalent to 80% of the Company’s 30 day average stock price prior to conversion. During the three months ended November 30, 2020, the Company recorded amortization of debt discount in the amount of $375,876 on these notes.
On September 22, 2020 the Board approved the issuance of up to $5,000,000 in new convertible notes, in multiple tranches, convertible at maturity into common shares. At the date of this document the Company has received a total of $62,500 from an unrelated party under this facility. This note matures on March 31, 2021, and is convertible into common stock at the rate equivalent to 80% of the Company’s 30 day average stock price prior to conversion. During the three months ended November 30, 2020, the Company recorded a debt discount of $26,179 and amortization of debt discount in the amount of $9,507 on this note.
Due to these provisions, the embedded conversion option qualified for derivative accounting under ASC 815-15, Derivatives and Hedging.
A summary of value changes to the notes for the three months ended November 30, 2020 is as follows:
|
Carrying value of Convertible Notes as of August 31, 2020
|
|
$
|
464,650
|
|
|
New principal
|
|
|
62,500
|
|
|
Total principal
|
|
|
527,150
|
|
|
Less: discount related to fair value of the embedded conversion feature
|
|
|
(26,179
|
)
|
|
Add: amortization of discount
|
|
|
385,383
|
|
|
Carrying value of Convertible Notes as of November 30, 2020
|
|
$
|
886,354
|
|
NOTE 8 – DERIVATIVE LIABILITY
The Company has determined that the variable conversion prices under its convertible notes caused the embedded conversion feature to be accounted for as a derivative instrument. The derivative instruments were valued at loan origination date and at November 30, 2020 and August 31, 2020 using the Black Scholes option pricing model, under the following assumptions:
|
|
|
August 31,
|
|
|
November 30,
|
|
|
|
|
2020
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock issuable upon exercise of debt
|
|
|
1,240,601
|
|
|
|
1,477,395
|
|
|
Estimated market value of common stock on measurement date
|
|
$
|
0.70
|
|
|
|
1.16
|
|
|
Exercise price
|
|
$
|
0.80-0.91
|
|
|
|
0.71-0.81
|
|
|
Risk free interest rate (1)
|
|
|
0.13
|
%
|
|
|
0.08
|
%
|
|
Expected dividend yield (2)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Expected volatility (3)
|
|
|
171
|
%
|
|
|
161
|
%
|
|
Expected exercise term in years (4)
|
|
|
0.40
|
|
|
|
0.15-0.33
|
|
__________
|
|
(1)
|
The risk –free interest rate was determined by management using the one month Treasury bill yield as of the valuation dates.
|
|
|
(2)
|
The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
|
|
|
(3)
|
The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have sufficient trade history to determine our historical volatility.
|
|
|
(4)
|
The exercise term is the remaining contractual term of the convertible notes at the valuation dates.
|
The change in fair values of the derivative liabilities related to the Convertible Notes for the three months ended November 30, 2020 is summarized as:
|
|
|
|
|
|
Quoted market prices
|
|
|
|
|
|
|
|
|
|
|
Fair value at
|
|
|
for identical
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
November 30,
|
|
|
assets/liabilities
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative Liability
|
|
$
|
614,530
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
614,530
|
|
|
|
|
Derivative
Liability
|
|
|
Derivative liability as of August 31, 2020
|
|
$
|
307,446
|
|
|
Fair value at the commitment date for convertible instruments
|
|
|
26,179
|
|
|
Change in fair value of derivative liability
|
|
|
280,905
|
|
|
Derivative liability as of November 30, 2020
|
|
$
|
614,530
|
|
NOTE 9 – COMMON STOCK
As of November 30, 2020 and August 31, 2020, a total of 50,500,011 shares of common stock were issued and outstanding. The Company has not issued the stock-based compensation of 50,000 shares of common stock to Patrick Burkert.
NOTE 10 – SUBSEQUENT EVENTS
From December 1, 2020 through January 13, 2021 the Company borrowed from Cayo the total amount of $179,775. The advances are unsecured, due on demand and non-interest bearing.
On December 15, 2020, Mr. Benjamin L. Salter was appointed as a member of the Board of Directors effective immediately and Chief Financial Officer of the Company, commencing on January 1, 2021. The appointment was approved by the shareholders of the corporation representing approximately 64% of the issued and outstanding voting stock of the Company.
On December 15, 2020, the Board accepted the resignations of Mr. Veng Kun Lun as Director and Chief Operating Officer as well as the resignation of Mr. Teck Siong Lim as Chief Financial Officer. The resignations of each of Mr. Lun and Mr. Lim were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
On January 12, 2020, the Company received notices from two parties of their intention to exercise the right to convert the full amounts of the convertible notes issued July 21, 2020 with a maturity date of January 22, 2021, in the amounts of $500,000 and $560,000, into common stock.