ITEM 1. BUSINESS
Overview
We are incorporated in the state of Florida on May 11, 2015, to acquire our wholly owned subsidiary Global Boatworks, LLC, a Florida limited liability company formed on June 16, 2014, to commercialize upscale stationary vessels built on a barge bottom. We owned two (2) vessels, the Miss Leah, which we acquired from a related party on September 25, 2014, as a prototype and to operate as a short-term rental in Boston Harbor, Massachusetts which we sold in September 2017, and Luxuria I, which was completed in June 2017and is being held for rental and sale.
On May 11, 2015, we issued an aggregate of 6,130 shares of our common stock to the owners of Global Boatworks, LLC for one hundred (100%) of its outstanding membership interests.
As a result of our acquisition of Global Boatworks, LLC:
●
Global Boatworks, LLC became our wholly owned subsidiary,
●
The officers and directors of Global Boatworks, LLC became our officers and directors,
●
The shareholders of Global Boatworks, LLC became our shareholders, and
●
The operations of Global Boatworks, LLC became our operations.
On December 14, 2018 we effected a 1 for 1,000 reverse split of our common stock, which is reflected throughout this filing.
Our principal executive office is located at 2637 Atlantic Blvd, #134, Pompano Beach, Florida 33062. Our telephone number is 954-934-9400. Our website is www.globalboatworks.com.
Our auditors have included a “going concern” explanatory paragraph in their audit opinion and we have included a going concern discussion in our financial statement footnotes, meaning that we face uncertainties that our business will not succeed or be viable. Additionally, it is likely that we will need additional capital or additional financing in the future, and if such financing is not available to us on acceptable terms our business may suffer or fail as a result.
Operations
We plan to generate revenues from the rental and sale of our vessels. During the fiscal year 2017, the Company sold a company-owned vessel known as the Miss Leah that was located in Boston Harbor, Massachusetts. That vessel had been previously available for rental. In 2019, we sold the first Luxuria-class vessel, the Luxuria I. The Luxuria had also been available for rental.
For the years ended December 31, 2019, and December 31, 2018, we had a net loss of $34,886 and $1,305,925 respectively. For the years ended December 31, 2019, and December 31, 2018, we had revenues of $750,000 and $15,550 respectively. Revenues in 2019 were from sale of the Luxuria I, and in 2018 revenues were from short term rentals of the Luxuria I.
Our operations to date and those of Global Boatworks, LLC, our wholly owned subsidiary include:
●
development of our business plan;
●
acquisition of our company owned vessel, the Miss Leah;
●
locating designers for our Luxuria models;
●
completing the design of our Luxuria models;
●
identifying amenities to be offered with the Luxuria models;
●
construction of the Luxuria I vessel;
●
developing and implementing marketing strategies;
●
marketing the short-term rental of the Miss Leah and Luxuria I on Home Away, Vacation Rentals By Owner (VRBO) and Air BnB; and
●
the sale of the Miss Leah
●
the sale of the Luxuria I
Our Company Owned Vessels
On September 25, 2014, we purchased the Miss Leah from a related party. We used the Miss Leah as a short-term rental property to generate revenue and demonstrate the upscale vessels we plan to offer.
The Miss Leah was built in 2004 and fully renovated in 2011. The Miss Leah is a two (2) story vessel which is one thousand five hundred (1,500) square feet under air, two (2) bedrooms, two (2) bathrooms, wood floors throughout, granite countertops, contemporary stainless steel appliances and a fireplace. Until the time of its sale The Miss Leah was docked at Marina Bay in Boston, Massachusetts. Until the sale of the Miss Leah in September 2017, it was available for rent on a short-term basis for between $200 and $400 per night.
Luxuria Model
We plan to sell an upscale floating vessel known as the Luxuria model. We own the design but were assisted in our design of the Luxuria model by Carlos Vilaca & Associates and Double P Construction, Inc., who have decades of experience in South Florida design and construction.
Our Luxuria model takes between five (5) to seven (7) months to build and is approximately one thousand six hundred and fifty (1,650) square feet under air. The Luxuria model is designed to reflect South Florida’s modern style. Luxuria can be equipped with either single or twin outboard motors and is intended to be docked. The Luxuria model features wood floors, marble countertops, modern stainless steel appliances and other upscale amenities.
We have constructed the first of the Luxuria class, the Luxuria I, which was currently docked in South Florida and was available for short term rental and until its sale in April 2019.
Distribution
We plan to sell the Luxuria vessels through direct company sales to customers, boat dealerships, yacht brokers and real estate brokers.
Manufacturing
We do not have a written agreement with any manufacturer obligating them to manufacture our vessels. In the process of constructing Luxuria I we have found that there are suitable manufacturers who will be available on commercially reasonable terms as subcontractors to us.
Upon completion of manufacturing, we plan to dock our vessels in Fort Lauderdale, Florida. We believe there are numerous marinas with dockage available on commercially reasonable terms.
Revenues
We generated revenue from the rental of Miss Leah until it was sold and from the rental and sale of the Luxuria I. Upon completion of a Luxuria-class vessel, it may be used as a short-term vacation rental until sold. We plan to dock the completed
vessels at Bahia Mar Marina in Fort Lauderdale, Florida, where the vessel can be viewed and rented at a rate of approximately $1,000 per night, until sold.
Target Customers
Our target customers are owners of marinas and other businesses and individuals seeking unique rental properties for their customers, corporations seeking a unique venue for company events and functions, persons seeking a vacation or second home on the water and individuals seeking to live on a floating vessel with the amenities commonly found in a home.
Marketing
Part of our sales and marketing efforts will be to participate in boat shows and sales events at South Florida boating locations, typically held in January, February and March of each year. These shows and events are normally held at convention centers or marinas, with area boat distributors and dealers renting space and displaying product information for consumers. Boat shows and other offsite promotions will be an important venue for generating sales.
We believe that a marketing strategy focused on boat shows and related events, social media, print advertising and internet advertising will provide potential customers with the opportunity to view our information about our vessels, which is an optimal strategy to increase sales.
We market our rentals through Homeaway, Vacation Rentals By Owner (VRBO) and AirBnB. The Luxuria I had been listed with a South Florida yacht brokerage and with a South Florida real property brokerage.
Property
The Company formerly occupied dockage space for the Luxuria I pursuant to an agreement with Bahia Mar Marina Bay, LLC dated May 1, 2018. We paid annual rents of approximately $55,000. This agreement was mutually terminated in October 2018. After the sale of the Luxuria I we do not have a need to for dock space until we build another vessel.
We occupy approximately four hundred (400) square feet of office space without charge at the residence of Robert Rowe our Chief Executive Officer, President, Treasurer and Director, and Leah Rowe, our Secretary.
Research and Development
We have not spent any amounts on research and development in the prior two (2) years.
Government Regulation
Our business involves the use, handling, storage, and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials, such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline, and diesel fuels. Accordingly, we are subject to regulation by federal, state, and local authorities establishing requirements for the use, management, handling, and disposal of these materials and health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards.
We do not believe we have any material environmental liabilities or that compliance with environmental laws, ordinances, and regulations will, individually or in the aggregate, have a material adverse effect on our business, financial condition, or results of operations.
Employees
As of December 31, 2019, we have the following employees:
Robert Rowe, our President, Chief Executive Officer, Treasurer and Director who spends all his time on our business; and
Leah Rowe, Robert Rowe’s wife, our Secretary who spends between ten (10) to fifteen (15) hours per week on our business.
We use the services of independent contractors on an as needed basis.
None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppages. We maintain good relationships with our employees.
Material Agreements
On February 2, 2016, we entered into an agreement with Carter, Terry and Company (“Carter Terry”), a FINRA registered broker-dealer for the purposes of securing financing. Pursuant thereto we were obligated to pay Carter Terry a fee upon the Company receiving financing based upon their introduction of a funding source. The fee consists a percentage of money raised, and the issuance of common stock based upon the amount funded to the Company. The Company has entered into a termination agreement with Carter Terry as of March 22, 2017.
Effective February 16, 2016, we entered into an agreement with StockVest, Inc., a Florida corporation that provides investor relations and public relations services. The agreement was amended on March 1, 2016. As amended StockVest agreed to provide us with services from March 12, 2016 until June 12, 2016, in exchange for $500 and one hundred fifty (150) shares of our restricted common stock.
On August 11, 2016 we entered into a Securities Purchase Agreement with Tonaquint Inc., which provided for up to $610,000 in debt financing to the Company (inclusive of an original issue discount of $100,000). This agreement was amended on February 4, 2017 to extend the maturity date to May 11, 2017. 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 was collateralized with the Miss Leah and Note 2 with all Company’s assets including the Luxuria I. 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 March 19, 2019 we entered into a Settlement Agreement with Tonaquint and St. George settling the outstanding notes with a $600,000 payment upon the sale of the Luxuria I and a payment of $70,000 six months thereafter. Both payments have been made and the notes have been satisfied.
On December 9, 2016, we entered into an agreement (the Agreement) with Oceanside Equities, Inc., (Oceanside), a Florida corporation that provides consulting services. Oceanside agreed to provide us with services from December 9, 2016 until December 8, 2019, in exchange for a one-time fee of $20,000 in cash; $16,000 per month accrued and payable in either cash or shares of restricted common stock at the Company’s election and three thousand one hundred (3,100) shares of our restricted common stock, to be issued 1,100 on January 1, 2017, 1,000 issued on July 1, 2017 and 1,000 issued on January 1, 2018.
On January 5, 2017 we entered into a Securities Purchase Agreement with St. George Investments, LLC, which provided for up to $830,000 in debt funding to the Company (inclusive of an original issue discount of $75,000), of which draws occurred in 2017 and 2018.
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%.
On April 19, 2017, the Company entered into an eight-month financing of the $14,500 Luxuria I annual insurance premium. On June 15, 2017, the Company entered into a six-month financing of the $3,211 Miss Leah 10-month insurance premium. Both of these notes were paid in full at December 31, 2017.
On June 8, 2017, pursuant to a securities purchase agreement and a one-year convertible promissory note for $63,000 the Company received $60,000. In addition, the Company is required to pay $2,500 of the lender’s 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.
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 and was recorded as a debt discount. The note bears interest at the rate of 12%, payable monthly. Total principal and interest is $52,217 at December 31, 2017.
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%.
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 lender’s 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.
On March 20, 2018, the Company entered into a nine-month 14% convertible promissory note in the amount of $16,500. In event of default the note carries an interest rate of 18%.
On March 25, 2019, the Company entered into a seven-month 10% promissory note in the amount of $105,000. In event of default the note carries an interest rate of 18%.
Dependence on a Few Customers
We are not dependent on one (1) or a few customers and we do not expect to be so in the future.
Liability
The short-term rental of vessels may expose us to potential liabilities for personal injury or property damage claims. We could be included as a defendant in product liability claims relating to defects in manufacture or design of our vessels. We plan to require manufacturers of our vessels to carry and provide proof of product liability insurance. We also maintain third-party product liability insurance in the amount of $300,000 per occurrence, which may not be sufficient for claims against us. Additionally, we carry $300,000 of coverage, per occurrence, for damage to our company owed vessel. There can be no assurance that we will not experience legal claims in excess of our insurance coverage or claims that are ultimately not covered by our insurance policy. If significant claims are made against us, our business, financial condition and results of operations may be adversely affected.
Competition
We operate in a highly competitive environment. In addition to facing competition generally from businesses seeking to attract discretionary spending dollars, the recreational boat industry itself is highly fragmented, resulting in intense competition. We compete with single location boat dealers and, to a lesser degree, with national specialty marine stores, catalog retailers, sporting goods stores and mass merchants. Competition is based on the quality of available products, the price and value of the products and attention to customer service. There is significant competition in the markets which we plan to enter.
Our competitors are large national or regional chains that have substantially greater financial, marketing and other resources than us. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressure will not have a material adverse effect on our business, operating results and financial condition.
Seasonality
Our business, as well as the entire recreational boating industry, is highly seasonal. Generally, boat sales increase starting in January with the onset of the public boat and recreation shows in South Florida and continue through March. Our business will be affected by weather patterns which may adversely impact our future operating results. For example, hurricanes in the South Florida area or reduced rainfall levels, as well as excessive rain, may render boating dangerous or inconvenient, thereby curtailing customer demand for our products. In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter selling season in certain locations. The overall impact on our business from adverse weather conditions in any one (1) market area will continue to represent potential, material adverse risks to our financial performance.
Intellectual Property
We have not registered or patented any intellectual property. Trademarks and trade names distinguish companies from each other. If customers are unable to distinguish our products from those of other companies, we could lose sales to our competitors. We do not have any registered trademarks and trade names, so we only have common law rights with respect to infractions or infringements on its products. Many subtleties exist in product descriptions, offering and names that can easily confuse customers. The name of our principal products may be found in numerous variations of the name and descriptions in various media and product labels. This presents a risk of losing potential customers looking for our products and buying someone else’s because they cannot differentiate between them.
Legal Proceedings
We are not a party to any legal proceedings.
ITEM 1A.
ITEM 1A. RISK FACTORS.
In addition to the information discussed elsewhere in this Annual Report, the following are important risks which could adversely affect our future results. If any of the risks we describe below materialize, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline, and our investors could lose all or part of their investment.
Risks Related to Our Financial Condition
There is substantial doubt about our ability to continue as a going concern as a result of our limited operating history and financial resources, and if we are unable to generate significant revenue or secure financing we may be required to cease or curtail our operations.
We incurred net losses of $34,886 and $1,305,925 for the fiscal years ended December 31, 2019, and December 31, 2018, respectively. As a result, our independent registered public accounting firms have included explanatory paragraphs in their audit opinions and management has included a footnote regarding our going concern risk that we may be unable to continue as a going concern. Our limited operating history and financial resources raises substantial doubt about our ability to continue as a going concern and our consolidated financial statements contain a going concern qualification. Our consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations.
We are an early stage company with little or no historical performance for you to base an investment decision upon, and we may never become profitable.
We are a recently formed company. For the fiscal years ended December 31, 2018, and December 31, 2019, we had revenues of $15,550 and $750,000, respectively. For the fiscal years ended December 31, 2018, and December 31, 2019, we have a net loss of $1,305,925 and $34,886, respectively. Accordingly, we have limited historical performance upon which you may evaluate our prospects for achieving our business objectives and becoming profitable in light of the risks, difficulties and uncertainties frequently encountered by early stage companies such as us. Accordingly, before investing in our common stock, you should consider the challenges, expenses and difficulties that we will face as an early stage company, and whether we will ever become profitable.
We are dependent on the sale of our securities to fund our operations.
We are dependent on the sale of our securities to fund our operations and will remain so until we generate sufficient revenues to pay for our operating costs. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.
If we are unable to generate sufficient revenues for our operating expenses we will need financing, which we may be unable to obtain; should we fail to obtain sufficient financing, our revenues will be negatively impacted.
Because we have limited revenues and lack historical financial data, including revenue data, our future revenues are unpredictable. Our operating expenses are approximately $10,000 per month or $120,000 annually. We will require $10,000 per month or $120,000 over the next twelve (12) months to meet our operational costs, which consist of rent, advertising, salaries and other general, administrative expenses to comply with the costs of being an SEC reporting company.
We are obligated to repay outstanding indebtedness of approximately $372,000 during the next 12 months.
There is no assurance we will have sufficient funds available to implement our plan of operations which could cause you to lose your investment.
Until we generate material operating revenues, we require additional debt or equity funding to continue our operations and implement our plan of operations. We intend to raise additional funds from an offering of our stock in the future; however, this offering may never occur, or if it occurs, we may be unable to raise the required funding. We do not have any plans or specific agreements for new sources of funding and we have no agreements for financing in place.
Expenses required to operate as a public company will reduce funds available to develop our business and could negatively affect our stock price and adversely affect our results of operations, cash flow and financial condition.
We recently became a publicly traded company.
Operating as a public company is more expensive than operating as a private company, including additional funds required to obtain outside assistance for legal, accounting, investor relations, or other professionals that could be costlier than planned. We may also be required to hire additional staff to comply with additional SEC reporting requirements. We anticipate that the cost of SEC reporting will be approximately $70,000 annually. Our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our stock price and adversely affect our results of operations, cash flow and financial condition. If we fail to meet these obligations and consequently fail to satisfy our SEC reporting obligations, investors will then own stock in a company that does not provide the disclosure available in quarterly, annual reports and
other required SEC reports that would be otherwise publicly available leading to increased difficulty in selling their stock due to our becoming a non-reporting issuer.
Risks Related to Our Business
Our business is subject to significant regulations which increase our operating costs; if we fail to comply with these regulations our operations will be negatively impacted.
Our business involves the use, handling, storage, and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials, such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline, and diesel fuels. Accordingly, we are subject to regulation by federal, state, and local authorities establishing requirements for the use, management, handling, and disposal of these materials and health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards.
Regulatory approval processes may be expensive, time-consuming and uncertain, and our failure to obtain or comply with these approvals or clearances could harm our business, financial condition and operating results.
Our industry is highly competitive, and our failure to compete effectively could adversely affect our market share, financial condition and future growth.
We operate in a highly competitive environment. In addition to facing competition generally from businesses seeking to attract discretionary spending dollars, the recreational boat industry itself is highly fragmented, resulting in intense competition. We compete with single location boat and yacht dealers and, to a lesser degree, with national specialty marine stores. Dealer competition is based on the quality of available products, the price and value of the products and attention to customer service. There is significant competition in the markets which we plan to enter.
Our competitors are large national or regional chains that have substantially greater financial, marketing and other resources than us. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressure will not have a material adverse effect on our business, operating results and financial condition.
The purchase of our products is discretionary and may be negatively impacted by adverse trends in the general economy and make it more difficult for us to generate revenues.
Our business is affected by general economic conditions since our products are discretionary and we depend, to a significant extent, upon a number of factors relating to discretionary consumer spending. These factors include economic conditions and perceptions of such conditions by consumers, employment rates, the level of consumers’ disposable income, business conditions, interest rates, consumer debt levels and availability of credit. Consumer spending on our products may be adversely affected by negative trends and changes in general economic conditions.
The success of our business depends on our ability to market our Luxuria vessels effectively.
Our ability to establish effective marketing and advertising campaigns is the key to our success. Our advertisements must effectively promote our corporate image, our Luxuria vessels and the pricing of such products. If we are unable to create awareness of our products, we may not be able to attract customers. Our marketing activities may not be successful in promoting the products we sell or pricing strategies or in retaining and increasing our customer base. We cannot assure you that our marketing programs will be adequate to create a demand for our products support our future growth, which may result in a material adverse effect on our results of operations.
We may be subject to product liability claims and we do not have insurance coverage for such claims which could negatively impact our financial condition.
By selling boats, we will face an inherent business risk of exposure to product liability claims in the event that the use of our products results in personal injury or death. Also, in the event that any of the components of our vessels is defective, we may be required to recall or replace such components. We maintain product liability insurance coverage in the amount of $300,000 to protect us from such claims, which may not be sufficient coverage for claims against us. A successful product liability claim or series of claims brought against us would negatively impact our business and cause you to lose your investment.
We are unable to predict the impact of COVID-19 on our company.
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. Our product is more expensive than a traditional home built on land. Because of COVID-19 and the uncertainty surrounding economic conditions moving forward we cannot predict the willingness of buyers to absorb the additional cost of a luxury floating home as compared to a traditional home. Additionally, due to the cancelation of large public events we don’t know if the cities of Miami and Fort Lauderdale will continue to host boat shows which are an important marketing tool for the Company.
We may be subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to sell some of our products.
We have no secured intellectual property protection of the Global Boatworks or Luxuria names. Our industry is characterized by vigorous pursuit and protection of intellectual property rights, which has resulted in protracted and expensive litigation for several companies. Third parties may assert claims of misappropriation of trade secrets or infringement of intellectual property rights against us for which we may be liable.
If our business expands, the number of products and competitors in our markets increases and product overlaps occur, infringement claims may increase in number and significance. Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we would be successful in defending ourselves against intellectual property claims. Further, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing our products.
If we fail to develop the Global Boatworks and Luxuria brand, cost-effectively, our business may be adversely affected.
The success of our products marketed under the Global Boatworks and Luxuria brands will depend upon the effectiveness of our marketing efforts. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses incurred in building the brands. If we fail to successfully promote and maintain our brands or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business and results of operations could suffer.
Risks Related To Our Management
Should we lose the services of Robert Rowe, our Chief Executive Officer, President, Treasurer and Director, our financial condition and proposed expansion may be negatively impacted.
Our future depends on the continued contributions of Robert Rowe, our Chief Executive Officer, President, Treasurer and Director, who would be difficult to replace. Mr. Rowe is our only fulltime employee. Mr. Rowe’s services are critical to the management of our business and operations. We do not maintain key man life insurance on Mr. Rowe. Should we lose the services of Mr. Rowe, we may be unable to replace his services with equally competent and experienced personnel and our operational goals and strategies may be adversely affected, which will negatively affect our potential revenues.
Certain officers and directors devote limited time to our business, which may negatively impact upon our plan of operations, implementation of our business plan and our potential profitability.
Our Chief Executive Officer, President, Treasurer and Director, Robert Rowe is our only full-time employee. Leah Rowe, our Secretary spends approximately fifteen (15) hours per week on our business. The limited number of full-time employees we employ may be inadequate to implement our plan of operations and develop a profitable business.
Our officers and directors have no experience managing a public company which is required to establish and maintain disclosure controls and procedures and internal control over financial reporting.
We have never operated as a public company and our management has no experience managing a public company which is required to establish and maintain disclosure controls and procedures and internal control over financial reporting. As a result, we may not be able to operate successfully as a public company, even if our operations are successful. We plan to comply with all of the various rules and regulations, which are required for a public company that is reporting company with the Securities and Exchange Commission. However, if we cannot operate successfully as a public company, your investment may be materially adversely affected.
We incur additional costs and management time related expenses pertaining to SEC reporting obligations and SEC compliance matter and our management has no experience in such matters.
Robert Rowe, our Chief Executive Officer, President, Treasurer and Director is responsible for managing us, including compliance with SEC reporting obligations and maintaining disclosure controls and procedures and internal control over financial reporting. These public reporting requirements and controls are new to these individuals and at times will require us to obtain outside assistance from legal, accounting or other professionals that will increase our costs of doing business. Should we fail to comply with SEC reporting and internal controls and procedures, we may be subject to securities law violations that may result in additional compliance costs or costs associated with SEC judgments or fines, each of which would increase our costs and negatively affect our potential profitability and our ability to conduct our business.
Because we do not have an audit or compensation committee, shareholders will be required to rely on the members of our Board of Directors, who are not independent, to perform these functions.
We do not have an audit or compensation committee or Board of Directors as a whole that is composed of independent directors. Because our directors are also our officers and controlling shareholders, they are not independent. There is a potential conflict between their or our interests and our shareholders’ interests, since our directors are also our officers who will participate in discussions concerning management compensation and audit issues that may affect management decisions. Until we have an audit or compensation committee or independent directors, there may be less oversight of management decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments, not previously approved. We could be an emerging growth company for up to five (5) years, although we could lose that status sooner if our revenues exceed $1,000,000,000, if we issue more than $1,000,000,000 in non-convertible debt in a three (3) year period, or if the market value of our common stock held by non-affiliates exceeds $100,000,000 as of any April 30th date before that time, in which case we would no longer be an emerging growth company as of the following April 30th We cannot predict whether investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We have elected to use the extended transition period for complying with new or revised accounting standards under
Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Risks Related to Our Common Stock
Our officers and directors have voting control over all matters submitted to a vote of our common stockholders, which will prevent our minority shareholders from having the ability to control any of our corporate actions.
As of June 12, 2020, we had 2,901,311 shares of common stock outstanding, each entitled to one vote per common share. Our Chief Executive Officer, President, Treasurer and Director, Robert Rowe, beneficially owns 9.7% of the common shares and 1,000,000 preferred shares that have voting power equal to 1,000 shares of common stock for each preferred share. This entitles Mr. Rowe to control all matters submitted to a vote of our common stockholders. As a result, our management has the ability to determine the outcome of all matters submitted to our stockholders for approval, including the election of directors. Our management’s control of our voting securities may make it impossible to complete some corporate transactions without its support and may prevent a change in our control. In addition, this ownership could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of our common stock.
We will be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We anticipate that our common stock will be a “penny stock”, and we will become subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our common shares and may affect the ability of purchasers to sell any of our common shares in the secondary market.
For any transaction (other than an exempt transaction) involving a penny stock, the rules require delivery, prior to such transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made regarding sales commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
We do not anticipate that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock is exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
Sales of our common stock under Rule 144 could reduce the price of our stock.
In general, persons holding restricted securities in a SEC reporting company, including affiliates, must hold their shares for a period of at least six months, may not sell more than one percent (1%) of the total issued and outstanding shares in any ninety (90) day period, and must resell the shares in an unsolicited brokerage transaction at the market price. If substantial amounts of our common stock become available for resale under Rule 144, prevailing market prices for our common stock will be reduced.
We may, in the future, issue additional securities, which would reduce investors’ percent of ownership and may dilute our share value.
Our Articles of Incorporation authorize us to issue 5,000,000,000 shares of common stock and 10,000,000 shares of blank check preferred stock. As of June 12, 2020, we had 2,901,311 shares of common stock and 1,000,000 shares of Series A preferred shares outstanding. Accordingly, we may issue up to an additional 4,997,098,689 shares of common stock and 9,000,000 shares of blank check preferred stock. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis including for acquisitions or other corporate actions and on a fair value basis for shares issued for services that may have the effect of diluting the value of the shares held by our stockholders and may have an adverse effect on any trading market for our common stock. Our Board of Directors may designate the rights, terms and preferences of our authorized but unissued preferred shares at its discretion including conversion and voting preferences without notice to our shareholders.
Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the sole discretion of our Board of Directors after considering whether we have generated sufficient revenues, our financial condition, operating results, cash needs, growth plans and other factors. Accordingly, investors that are seeking cash dividends should not purchase our common stock.
As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.
Although the federal securities law provides a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, if we are a penny stock we will not have the benefit of this safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
The Company previouly occupied dockage space for the Luxuria I at the Bahia Mar Marina in Fort Lauderdale, Florida. Following the sale of the Luxuria we no longer require dock space. We occupy approximately four hundred (400) square feet of office space without charge at the residence of Robert Rowe our Chief Executive Officer, President, Treasurer and Director, and Leah Rowe, our Secretary.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any pending or threatened legal proceedings in which we are involved.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
The disclosure required by this item is not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Trading Market for Securities
The Company’s securities trade on OTC Markets under symbol GBBT.
The following table sets forth the low and high closing prices for the company’s stock during each quarter of 2018, after given effect to the Company’s reverse split effective December 14, 2018:
Security Holders
As of December 31, 2019, we had fifty-four (54) record holders of our common stock.
Dividends
Since inception we have not paid any dividends on our common or preferred stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common or preferred stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Issuer Purchases of Equity Securities
None
Recent Sales of Unregistered Equity Securities
In addition to unregistered securities previously disclosed in reports filed with the SEC, we have sold the securities set foth below without registration under the Securities Act of 1933 (the “Securities Act”). None of the issuances involved underwriters, underwriting discounts or commissions, unless otherwise noted. We relied upon Sections 4(2) of the Securities Act, and Rule 506 of the Securities Act of 1933, as amended for the offer and sale of the securities.
Shares Issued for Services Rendered and Non-Cash Consideration
On January 29, 2018, the Company issued 25,378 shares of common stock upon conversion of a note principal in the amount of $9,390.
On January 30, 2018, the Company issued 41,667 shares of common stock upon conversion of a note principal in the amount of $15,000. On January 30, 2018, the Company issued 25,378 shares of common stock upon conversion of a note principal in the amount of $9,390.
On January 31, 2018, the Company issued 25,378 shares of common stock upon conversion of a note principal in the amount of $9,390.
On February 5, 2018, the Company issued 25,392 shares of common stock upon conversion of a note principal in the amount of $9,395.
On February 6, 2018, the Company issued 50,000 shares of common stock upon conversion of a note principal in the amount of $18,000. On February 6, 2018, the Company issued 25,387 shares of common stock upon conversion of a note principal in the amount of $7,870.
On February 12, 2018, the Company issued 50,750 shares of common stock upon conversion of a note principal in the amount of $15,225. On February 12, 2018, the Company issued 25,339 shares of common stock upon conversion of a note principal in the amount of $6,955.
On February 19, 2018, the Company issued 95,000 shares of common stock upon conversion of a note principal in the amount of $17,100.
On February 23, 2018, the Company issued 93,750 shares of common stock upon conversion of a note principal in the amount of $11,250.
On March 2, 2018, the Company issued 95,000 shares of common stock upon conversion of a note principal in the amount of $11,400.
On March 7, 2018, the Company issued 1,000 shares of common stock under a consulting agreement.
On March 12, 2018, the Company issued 94,500 shares of common stock upon conversion of a note principal in the amount of $11,400.
On March 16, 2018, the Company issued 12,000 shares of common stock upon conversion of a note principal in the amount of $2,880.
On March 20, 2018, the Company issued 95,000 shares of common stock upon conversion of a note principal in the amount of $11,400.
On March 28, 2018, the Company issued 94,000 shares of common stock upon conversion of a Note principal in the amount of $11,280.
On April 16, 2018, the Company issued 158,000 shares of common stock upon conversion of a note principal in the amount of $9,480.
On May 1, 2018, the Company issued 78,833 shares of common stock upon conversion of a note principal in the amount of $4,730. On May 1, 2018, the Company issued 49,833 shares of common stock upon conversion of a note principal in the amount of $2,990.
On May 3, 2018, the Company issued 53,833 shares of common stock upon conversion of a note principal in the amount of $3,230.
On May 8, 2018, the Company issued 58,667 shares of common stock upon conversion of a note principal in the amount of $3,520.
On May 11, 2018, the Company issued 53,833 shares of common stock upon conversion of a note principal in the amount of $6,460.
On May 22, 2018, the Company issued 88,500 shares of common stock upon conversion of a note principal in the amount of $10,620.
On May 25, 2018, the Company issued 71,000 shares of common stock upon conversion of a note principal in the amount of $8,520.
On June 11, 2018, the Company issued 60,000 shares of common stock upon conversion of a note principal in the amount of $3,600.
On June 12, 2018, the Company issued 41,500 shares of common stock upon conversion of a note 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 a note 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 a note 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 a note 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 133,611 excess shares or remit $7,267 in cash to the Company. The lender refused and the Company wrote this off as a bad debt.
On January 15, 2019, the Company issued 238,000 shares of common stock upon conversion of a note principal in the amount of $705.
On March 1, 2019, the Company issued 260,000 shares of common stock upon conversion of a note principal in the amount of $910.
At December 31, 2019 the Company is obligated to issue 1,000 shares, valued at $300, to a consultant under an agreement entered into May 22, 2018.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We were founded in September of 2014 to commercialize luxury living floating vessels. We plan to generate revenues from the sale of and rental of the vessels initially in South Florida. Our newly developed Luxuria model features a South Florida modern style and is approximately one thousand six hundred (1,600) square feet under air. The vessel offers amenities typically found in a luxury home.
Years Ended December 31, 2019 and 2018
We had vessel sale revenues of $750,000 and $0 for the years ended December 31, 2019 and 2018.
We had rental revenues of $0 and $15,550 for the years ended December 31, 2019 and 2018, respectively, or a 100% decrease.
Cost of revenues, excluding depreciation, was $662,457 compared to $63,855 for the years ended December 31, 2019 and 2018, respectively, or a 937.4% increase. This increase was due to the Luxuria I being sold. The Luxuria I was depreciated for 12 months in 2018 and only 4 months in 2019.
General and administrative expenses were $313,233 compared to $320,197 for the years ended December 31, 2019 and 2018, respectively, a decrease of 2.17%. General and administrative expenses are principally composed of public company expenses, insurance, maintenance, officer pay and travel.
Our depreciation expense on all depreciable assets for the years ended December 31, 2019 and 2018 was $23,932 and $71,640, respectively. The Luxuria was depreciated for four months the year in 2019 and the whole year in 2018.
Our professional fees - related party were $208,000 compared to $264,000 for the years ended December 31, 2019 and 2018, respectively. The decrease is due to the contracts expiring during the year and not being renewed.
Our professional fees were $128,721 compared to $95,205 for the years ended December 31, 2019 and 2018, respectively, an increase of 35.2%. This was primarily due to our engagement of a consultant utilized during the marketing of the Luxuria I for sale.
Our interest expense was $43,316 compared to $236,405 for the years ended December 31, 2019 and 2018, respectively, a decrease of 81.7%. This decrease is due to the payoff of certain debt with the sale of the Luxuria I and conversions of our convertible debt.
Our gain (loss) on debt extinguishment was $1,275,814 and ($258,809) for the years ended December 31, 2019 and 2018, respectively.
Our change in fair value of derivative expense was $681,163 and $4,097 for the years ended December 31, 2019 and 2018, respectively.
We recorded a net loss of ($34,886) compared to ($1,305,925) for the years ended December 31, 2019 and 2018, respectively.
Liquidity and Capital Resources Cash Flow Activities
Cash Flow Activities
Our cash decreased $841 for the year ended December 31, 2019. We used $91,746 of cash in operating activities during the year. Our operating activities consisted primarily of marketing and maintaining the Luxuria I and subsequently marketing for custom design and build floating vessels.
Our cash decreased $146 for the year ended December 31, 2018. We used $208,484 of cash in operating activities during the year. Our operating activities consisted primarily of marketing and maintaining the Luxuria I.
Investing Activities
During the year ended December 31, 2019, we had investing activities of the receipt of $625,107 for the sale of the Luxuria I.
During the year ended December 31, 2018, we had no investing activities.
Financing Activities
During the year ended December 31, 2019, we funded our working capital requirements principally through the proceeds of related party loans in the amount of $182,500. During the year ended December 31, 2019, we received $26,029 and repaid $21,534 on officer advances. We paid $721,198 on third party loans.
During the year ended December 31, 2018, we funded our working capital requirements principally through the proceeds of third-party loans in the amount of $236,500. During the year ended December 31, 2018, we received $20,581 and repaid $29,643 on officer advances. We paid $19,100 on third party loans.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of consolidated financial statements, including the following:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, prepaid expenses, payables and accrued expenses. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value, due to their short-term nature.
Revenue Recognition
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 AirBnB, where the floating vessel is advertised for rent.
Sale Revenue Revenue is recognized when earned, generally at closing of the sale of a vessel. Revenue is recognized on a gross basis in accordance with ASC 606. Cost of Revenue includes the capitalized cost of constructing a vessel and any selling costs such as sales commissions.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets.
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Derivatives
The Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a convertible note containing an embedded derivative instrument, the instrument is marked to fair value at the conversion date and the debt and derivatives are removed from the balance sheet. 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
Recent Accounting Pronouncements
(See “Recently Issued Accounting Pronouncements” in Note 3 m) of Notes to the consolidated Financial Statements.)
Plan of Operations
Historically, we generated revenue from the short-term vacation rental of the Miss Leah, a company owned vessel located in Boston Harbor, Massachusetts. As of June 30, 2017, we transferred the Luxuria I from construction in process to fixed assets held for rental and sale. The Luxuria I was sold on April 24, 2019.
Once the Luxuria I was sold, we began negotiating with several parties for custom design and build floating vessels. Some of these negotiations are for smaller versions of the Luxuria I. One party that we have been negotiating with is for a super size floating vessel that would be used as a combination sales office and model for a condominium project. Generally these projects are cost plus type projects which will require significant deposits and progress payments during the design and build, which will make each project self-sustaining. We are also seeking funding for our ongoing operations beyond these projects.
As of December 31, 2019, we had cash on hand of $120 for our operational needs. Currently, our operating expenses are approximately $10,000 per month.
We were obligated to repay an outstanding loan in one lump payment in the amount of $106,500 (including accrued interest) on July 15, 2019, which is in default.
We were obligated to repay an outstanding loan in the amount of $632,782 on November 11, 2018. We were obligated to repay an outstanding loan in one lump payment in the amount of $315,056 on November 11, 2018. Both of these notes are in
default. In March 2019, we negotiated a combined settlement for these notes which consists of a $600,000 payment upon the closing of the sale of the Luxuria I and $70,000 six months thereafter. These amounts have been paid.
We were obligated to repay an outstanding loan in one lump payment in the amount of $15,000 on October 15, 2017, which is past due as of the date of this filing. We were obligated to repay two outstanding loans in one lump payment, each in the amount of $10,000 on May 17, 2018, which are past due as of the date of this filing. We were obligated to repay an outstanding loan in one lump payment in the amount of $30,000 on October 15, 2017, which is past due as of the date of this filing. We were obligated to repay an outstanding loan in one lump payment in the amount of $16,500 on December 30, 2018, which was repaid in March 2019.
We were obligated to repay a note in one lump payment in the amount of $80,000 on October 15, 2019, which has been amended to be due on demand.
We are obligated to repay a note in one lump payment in the amount of $77,500 on demand.
If we fail to generate sufficient revenues or raise additional funds to meet our monthly operating costs, we would have available cash for our operating needs for approximately zero (0) months.
We are focusing our efforts on commercializing luxury stationary vessels designed in a South Florida modern style. We completed the design of the Luxuria model in the first quarter of 2015 and began construction in March 2016. It was completed as of June 30, 2017. Luxuria I is approximately 1,600 square feet, with two (2) bedrooms and bathrooms, and sleeps up to six (6) people. We are also marketing the concept of custom designed and built smaller versions of the Luxuria that would cost less to build and have a lower selling price.
We anticipate that each non-custom vessel will cost approximately $650,000 to construct. Construction will take between five (5) to seven (7) months, per vessel. We will require additional funds to develop and carry out our future plans including construction of our second Luxuria class vessel which has not yet commenced. We plan to begin marketing each vessel when manufacturing commences.
Our cash balance at December 31, 2019 was approximately $119 , which is approximately zero (0) months of net cash outflow.
We have an accumulated deficit of $5,988,352 from inception to December 31, 2019. A significant portion of this accumulated deficit is the result of a non-cash expenses such as the issuance of common stock for services rendered, amortization of beneficial conversion feature discounts and amortization of embedded derivative value discounts on convertible debt.
Our future plans to build a second Luxuria class vessel are contingent upon the receipt of capital of at least $700,000. This may be from a future offering of the Company’s securities.
We had been marketing the Luxuria models to yacht brokers, real estate brokers and boat dealerships and showed it in the Ft. Lauderdale boat show in November 2017. The Luxuria I was sold on April 24, 2019.
Convertible Notes
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 Company’s option in amount/s determined by the Company. This note does not carry a stated interest rate, but carries an Original Issue Discount (OID) that totals $100,000 and is proportional to the total amount borrowed. An OID of $50,000 was recorded as a discount to the note for the initial draw and were amortized over the six month life of the note. In addition, the Company is required to pay $10,000 of the lender’s legal fees (pro rata to the draws) and $22,500 of brokerage commission which was withheld from the initial $305,000 draw, both of which 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 Company’s 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:
The total note was convertible into common stock upon an event of default as follows:
Lender has the right at any time following an Event of Default, at its election, to convert (each instance of conversion is referred to herein as a “Conversion”) all or any part of the Conversion Eligible Outstanding Balance into shares (“Conversion Shares”) of fully paid and non-assessable common stock, $0.0001 par value per share (“Common Stock”), of Company as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “Conversion Amount”) divided by the Conversion Price (as defined below).
Subject to the adjustments set forth herein, the conversion price (the “Conversion Price”) for each Conversion shall be equal to 60% (the “Conversion Factor”) multiplied by the lowest Closing Bid Price in the twenty (20) Trading Days immediately preceding the applicable Conversion. Additionally, if at any time after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Effective Date (other than an Event of Default for failure to pay the Conversion Eligible Outstanding Balance on the Maturity Date), the Conversion Factor shall automatically be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time the Conversion Shares are not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 60% to 55% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section 4.1(a), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.
Due to the variable conversion terms and certain default provisions, the embedded conversion option has been bifurcated and recorded as a derivative liability at an initial fair value of $378,624 with $217,500 recorded as a debt discount and $161,124 as a derivative expense. The October 5, 2016 draw resulted in an initial fair value of $113,616 with $92,000 recorded as a debt discount and $21,616 as a derivative expense. The November 3, 2016 draw resulted in an initial fair value of $190,356 with $150,000 recorded as a debt discount and $40,356 as a derivative expense. The valuation method utilized 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 Company’s 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, 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 January 15, 2019, the Company issued 238,000 shares of common stock upon conversion of Note 2 principal in the amount of $704. On March 1, 2019, the Company issued 260,000 shares of common stock upon conversion of Note 2 principal in the amount of $910.
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%.
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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Deficiency in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Global Boatworks Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Global Boatworks Holdings, Inc. (the Company) at December 31, 2019 and the related consolidated statements of operations, changes in deficiency in stockholders’ equity and cash flows for the year ended December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company continues to sustain negative operating cash flows and has a working capital deficiency of approximately $1.7 million and an accumulated deficit of approximately $6.0 million at December 31, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.
/s/ Daszkal Bolton LLP
We have served as the Company’s auditor since 2020.
Ft. Lauderdale, Florida
June 22, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of:
Global Boatworks Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Global Boatworks Holdings, Inc. and Subsidiary (the “Company”) as of December 31, 2018, the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows, for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has a net loss and cash used in operations of $1,305,925 and $208,484, respectively, in 2018 and has a working capital deficit, stockholders’ deficit and accumulated deficit of $2,234,988, $1,779,114 and $5,953,465, respectively, at December 31, 2018. Furthermore, the Company has defaulted on some loans both before and after December 31, 2018. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan in regard to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
We have served as the Company’s auditor since 2015.
Boca Raton, Florida
April 16, 2019
2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431
Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920
www.salbergco.com • info@salbergco.com
Member National Association of Certified Valuation Analysts • Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide • Member Center for Public Company Audit Firms
Global Boatworks Holdings, Inc.
Consolidated Balance Sheets
December 31,
The accompanying notes are an integral part of the consolidated financial statements
Global Boatworks Holdings, Inc.
Consolidated Statements of Operations
Year ended December 31,
The accompanying notes are an integral part of the consolidated financial statements
Global Boatworks Holdings, Inc.
Consolidated Statements of Changes in Deficiency in Stockholders’ Equity
For the years ended December 31, 2019 and 2018
The accompanying notes are an integral part of the consolidated financial statements
Global Boatworks Holdings, Inc.
Consolidated Statements of Cash Flows
Year ended December 31,
The accompanying notes are an integral part of the consolidated financial statements
Global Boatworks Holdings, Inc.
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 Company’s business activities to date have primarily consisted of the formation and implementation of a business plan for building luxury floating vessels on a barge bottom, the rental activities relating to the vessels, the sale of the Miss Leah, the construction of a new vessel, the Luxuria I and the rental activities of and marketing 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 Company’s consolidated financial statements include the financial statements of Global Boatworks Holdings, Inc. and its wholly owned subsidiary Global Boatworks, LLC. All intercompany balances and transactions have been eliminated.
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 stockholder’s 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 management’s opinion that these matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance of this report. The Company 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.
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 Company’s current financial instruments, which include cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values because of the short-term maturities of these instruments.
FASB ASC 820 “Fair Value Measurement” clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following reflects the Company’s 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):
Changes in Level 3 assets measured at fair value for the year ended December 31, 2018 were as follows:
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, Compensation-Stock 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.
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 Company’s 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 Company’s consolidated financial statements, as no share based awards were issued in 2019.
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:
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:
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 Predecessor’s rental business.
The terms of this acquisition were for a payable to the related party Predecessor in the amount of $100,000, carrying interest at 2% per annum from the effective date of the transfer date of September 25, 2014 with all principal and interest due on the maturity date of June 20, 2022, which was memorialized in the form of a promissory note in June 2015, effective September 25, 2014. Due to the related party relationship between the Company and the Predecessor the luxury floating vessel was recorded on the Company’s books at its original cost basis of $0 based on its fully depreciated value at the transfer date. Accordingly, the Company charged additional paid-in capital 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.
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:
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 lender’s 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 Company’s 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 lender’s 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
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 Company’s 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.
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:
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 Company’s option in amount/s determined by the Company. This note does not carry a stated interest rate, but carries an Original Issue Discount (OID) that totals $100,000 and is proportional to the total amount borrowed. An OID of $50,000 was recorded as a discount to the note for the initial draw and were amortized over the six month life of the note. In addition, the Company is required to pay $10,000 of the lender’s legal fees (pro rata to the draws) and $22,500 of brokerage commission which was withheld from the initial $305,000 draw, both of which 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 Company’s 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
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 Company’s 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,
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
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 lender’s 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.
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 Company’s 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 lender’s 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 Company’s 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.
Global Boatworks Holdings, Inc.
Notes to Consolidated Financial Statements
(9) COMMITMENTS AND CONTINGENCIES
a) Deficiency in Stockholder’s 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 Company’s 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.
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
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 founder’s brother. As part of this acquisition transaction the Company issued a promissory note in June 2015 to the Predecessor in the amount of $100,000, carrying an interest rate of 2% effective September 25, 2014, with a maturity date of June 20, 2022. The Company recorded the payable in September 2014 which was formalized with this promissory note in June 2015. At 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 Company’s 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:
(12) - INCOME TAXES
There was no Federal or State Income Tax expense for the years ended December 31, 2019 and 2018 due to the Company’s net loss.
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:
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:
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.
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 Company’s 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 Company’s operations. The Company’s 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 Company’s 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 Company’s 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 Company’s primary facility where the Luxuria I was constructed is located in Broward County, Florida.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 28, 2020, Global Boatworks Holdings Inc. (the “Company”) dismissed Salberg & Company, P.A. (“Salberg”) as its independent registered public accounting firm. The dismissal was approved by the Company’s Board of Directors on May 28, 2020. During the fiscal year ended December 31, 2018 and the subsequent interim period through Sepember 30, 2019, there were no (i) disagreements between the Company and Salberg on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, any of which, if not resolved to Salberg’s satisfaction, would have caused Salberg to make reference thereto in its audit report on the financial statements of the Company for such period, or (ii) “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K. There were no disputes or disagreements between the Company and Salberg during the time it was the Company’s independent registered public accounting firm through the date of dismissal.
The Company’s Board of Directors appointed Daszkal Bolton LLP (“Daszkal”) as its new independent registered public accounting firm, effective as of May 28, 2020. During the two most recent fiscal years and through the date of the Company’s engagement of Daszkal, the Company did not consult with Daszkal regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)), during the two most recent fiscal years.
Prior to engaging Daszkal, Daszkal did not provide the Company with either written or oral advice that was an important factor considered by the Company in reaching a decision to engage Daszkal as its independent accounting firm.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a−15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this annual report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2019 that the Company’s disclosure controls and procedures were not effective such that the information required to be disclosed in the Company’s United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, currently the same person to allow timely decisions regarding required disclosure. Further, certain other deficiencies involving internal controls over financial reporting constituted a material weakness as discussed below.
Management’s Annual Report on Internal Control over Financial Reporting
Based on its evaluation under the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of December 31, 2019, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, concluded that its internal control over financial reporting were not effective as of December 31, 2018. Based on its evaluation, our management concluded that our internal control over financial reporting as of the end of our most recent fiscal year is not effective because there is a material weakness in our internal control over financial reporting as discussed below. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.
Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.
Material Weakness Identified
The Company does not have a full time Controller or Chief Financial Officer and utilizes a part time consultant to perform these critical responsibilities. This lack of full-time accounting staff results in a lack of segregation of duties and accounting technical expertise and lack of monitoring controls necessary for an effective system of internal control. Additionally, certain IT controls have not been developed nor adhered to. Because of the size of the Company and the Company’s administrative staff, as well as other reasons noted above, controls related to the segregation of certain duties, and additionally, controls and processes involving the communication, dissemination, and disclosure of information, and monitoring controls have not been developed and the Company has not been able to adhere to them. Furthermore, we have not formally adopted a written code of business conduct and ethics that governs the Company’s employees, officers, and directors. Since these entity level programs have a pervasive effect across the organization, as well as other deficiencies, management has determined that these circumstances constitute a material weakness. Additionally, the Board of Directors does not currently have a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal year ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO/CFO, does not expect that the Disclosure Controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions of deterioration in the degree of compliance with policies or procedures.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the name, age, and position of our executive officers and directors. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by our shareholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.
Robert Rowe, Chief Executive Officer, President, Treasurer, Acting Chief Financial Officer and Principal Accounting Officer and Director
Since our inception on June 16, 2014 to present, Robert Rowe has been our Chief Executive Officer, President, Treasurer and Director. From June 2014 to present Mr. Rowe was the Manager of Global Boatworks, LLC. From January 2005 to present Mr. Rowe was an independent contractor and consultant for Rowe Construction in Pompano Beach, Florida. From January 1999 to January 2005 Mr. Rowe was an independent contractor and consultant for the Miles Group in Lynn, Massachusetts.
Mr. Rowe obtained a Bachelor of Science degree in Business Education from Salem State University in June of 1972.
Mr. Rowe spends approximately forty (40) hours each week on our business. As our Chief Executive Officer, President, Treasurer and Director, Mr. Rowe provides his experience in the boat manufacturing and sales.
Leah Rowe, Secretary
Since our inception on June 16, 2014 to present, Leah Rowe has been our Secretary. Ms. Rowe has no prior related work experience.
Mrs. Rowe obtained an Associate’s degree in Business Management from North Shore Community College in June of 1991.
Leah Rowe spends approximately fifteen (15) hours per week on our business. As our secretary, Ms. Rowe provides her experience in business management.
Family Relationships
Robert Rowe our Chief Executive Officer, President, Treasurer and Director is the husband of Leah Rowe, our Secretary. Other than the foregoing, there are no family relationships among our directors and executive officers and shareholders.
Legal Proceedings
On February 21, 1997, Robert Rowe our Chief Executive Officer, President, Treasurer and Director was found guilty of bankruptcy fraud in violation of 18 US Code § 152.
There have been no events under any bankruptcy act, no criminal proceedings, no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors, executive officers, promoters or control persons during the past ten (10) years.
Other than as set forth above, no officer, director, or persons nominated for such positions, promoter or significant employee has been involved in the last ten years in any of the following:
●
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time,
●
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses),
●
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities,
●
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
●
Having any government agency, administrative agency, or administrative court impose an administrative finding, order, decree, or sanction against them as a result of their involvement in any type of business, securities, or banking activity.
●
Being the subject of a pending administrative proceeding related to their involvement in any type of business, securities, or banking activity.
●
Having any administrative proceeding been threatened against you related to their involvement in any type of business, securities, or banking activity.
Code of Business Conduct and Ethics
We do not have any standing audit, nominating, and compensation committees of the board of directors, or committees performing similar functions. We do not currently have a Code of Ethics applicable to our principal executive, financial, or accounting officer. All Board actions have been taken by Written Action rather than formal meetings.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities for the years ending December 31, 2019 and 2018.
(1) For the year ended December 31, 2018, Robert Rowe received $93,300 in cash compensation.
(2) For the year ended December 31, 2019, Robert Rowe received $54,000 in cash compensation.
Employment Agreements with Management
On May 11, 2015, we entered into an agreement with Robert Rowe, our Chief Executive Officer, President, Treasurer and Director, to provide services to us. The agreement has a term of three (3) years and requires us to pay $1,700 per week to Mr. Rowe for his services as our Chief Executive Officer, President, Treasurer and Director. On November 1, 2016, amended on August 30, 2017, this agreement was replaced with a new three (3) year employment agreement and requires us to pay $20,000 per month to Mr. Rowe for his services as our Chief Executive Officer, President, Treasurer and Director, which allows for the conversion of his accrued salary into common stock at a 40% discount to the then market price. On September 5, 2017, the Company issued 55,385 shares of common stock for $515,000 compensation.
On May 11, 2015, we entered into an agreement with Leah Rowe, spouse of Robert Rowe, our Secretary, to provide services to us. The agreement has a term of three (3) years and requires us to pay $600 per month to Ms. Rowe for her services as our Secretary. On November 1, 2016, this agreement was replaced with a new three (3) year employment agreement and requires us to pay $2,400 per month to Ms. Rowe for her services as our Secretary.
Our Board of Directors determines the compensation paid to our executive officers, based upon the years of service to us, whether services are provided on a full-time basis and the experience and level of skill required.
We may award our officers and directors shares of common stock as non-cash compensation as determined by the Board of Directors from time to time. The Board of Directors will base its decision to grant common stock as compensation on the level of skill required to perform the services rendered and time committed to providing services to us.
Outstanding Equity Awards at the End of the Fiscal Year
We do not have and have never had any equity compensation plans and therefore no equity awards are outstanding as of the date of this Form 10-K.
Director Compensation
Our directors do not receive any other compensation for serving on the board of directors.
Bonuses and Deferred Compensation
We do not have any bonus, deferred compensation or retirement plan. All decisions regarding compensation are determined by our board of directors.
Options and Stock Appreciation Rights
We do not currently have a stock option or other equity incentive plan. We may adopt one or more such programs in the future.
Payment of Post-Termination Compensation
We do not have change-in-control agreements with any of our directors or executive officers, and we are not obligated to pay severance or other enhanced benefits to executive officers upon termination of their employment.
Involvement in Certain Legal Proceedings
On February 21, 1997, Robert Rowe our Chief Executive Officer, President, Treasurer and Director was found guilty of bankruptcy fraud in violation of 18 US Code § 152. There have been no events under any bankruptcy act, no criminal proceedings, no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors, executive officers, promoters or control persons during the past ten (10) years.
Board of Directors
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the board of directors.
Our directors are reimbursed for expenses incurred by them in connection with attending board meetings, but they do not receive any other compensation for serving on the board of directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 12, 2020, we had 2,901,311 common shares outstanding. The following table sets forth certain information regarding our shares of common stock beneficially owned as of June 12, 2020, for (i) each stockholder known to be the beneficial owner of five percent (5%) or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within sixty (60) days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within sixty (60) days of the date of this Annual Report. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within sixty (60) days of the Closing Date is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
Unless otherwise specified, the address of each of the persons set forth below is in care of the Company at 2637 Atlantic Blvd., #134, Pompano Beach, Florida 33062.
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
(2) Robert Rowe, our Chief Executive Officer, President, Treasurer and Director holds 280,755 shares directly and 5,100 shares indirectly which are held by his spouse, Leah Rowe, our Secretary. Leah Rowe, our Secretary holds 5,100 directly and 280,755 shares indirectly which are held by her spouse, Robert Rowe, our Chief Executive Officer, President, Treasurer and Director.
(3) The Redeemable Series A Preferred Stock has voting rights equal to 1,000 votes of common for each preferred share. The Series A Preferred Stock have been pledged as collateral for an $80,000 loan from a related party that is due on demand.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 2016, we issued 1,000 shares of Redeemable Series A preferred stock to Robert Rowe, our Chief Executive Officer, President, Treasurer and Director valued at their redemption value of $1,000 for services.
In August 2016, the Company issued 200 shares of our restricted common stock to a related party consultant and principal stockholder in exchange for $20,000 of cash.
In August 2016, the Company issued 425 shares of our restricted common stock to a former officer and director in exchange for the construction of the barge bottom for Luxuria I, delivered in February, valued at $70,000.
On November 1, 2016, we issued 10,000 common shares to Robert Rowe, our CEO. We valued these shares at $57.70 per share or an aggregate of $577,700, for future services under a three-year employment agreement.
On May 4, 2017, the Company borrowed $20,000 from the Company’s CEO under an informal agreement. This loan carries an interest rate of 8.98% and has a 36-month term. At December 31, 2018, this note balance is $6,362.
On May 19, 2017, the Company entered into a consulting agreement with Ronald Rowe II, the nephew of the Company’s CEO. The agreement calls for compensation at the rate of $8,000 per month. Additionally, Ronald Rowe II was issued 5,000 shares of the Company’s common stock as a bonus. These shares were valued at $29 per share, or $145,000. The agreement with was amended on Augusts 30, 2017. Additionally, he was issued 48,000 shares on September 6, 2017 and 36,923 shares on December 8, 2017.
On May 19, 2017, the Company issued 5,000 shares of common stock to the nephew of the Company’s CEO in exchange for services rendered. These shares were valued at $29 per share, or $145,000.
On September 5, 2017, the Company issued 446,000 shares of common stock upon conversion of $223,000 of accrued liabilities to three related parties.
Other than stated above, none of the following persons has any direct or indirect material interest in any transaction to which we are a party during the last two fiscal years or in any proposed transaction to which we are proposed to be a party:
●
Any of our directors or officers;
●
Any proposed nominee for election as our director;
●
Any person who beneficially owns, directly or indirectly, shares carrying more than ten percent (10%) of the voting rights attached to our shares; or
●
Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our company.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s Board of Directors reviews and approves audit and permissible non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. In its review of non-audit service and its appointment of Salberg & Company, P.A. and Daszkal Bolton, LLP as our independent registered public accounting firm for the years 2018 and 2019, respectively, the Board considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by Salberg & Company, P.A. and Daskal Bolton, LLP were approved by the Board of Directors. The following table shows the fees charged for the years ended December 31, 2019 and 2018:
(1) Audit fees - these fees relate to the audit of our annual consolidated financial statements and the review of our interim quarterly financial statements.
(2) Audit-related fees - these fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees” and services that are normally provided by the accountant in connection with non-year-end statutory and regulatory filings or engagements.
(3) Tax fees - no fees of this sort were billed by Salberg & Company P.A. nor Daszkal Bolton, LLP our principal accountant during 2018 and 2019, respectively.
(a) Daszkal was initially retained in May 2020 and did not bill any fees during 2019.
The Company’s Board of Directors dismissed Salberg & Company P.A. and appointed Daszkal Bolton, LLP, (DB), as independent registered public accounting firm to audit the December 31, 2019, consolidated financial statements.
Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
The Board of Director’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimis non-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the full Board of Directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the Board’s review, the Board will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.
The Board of Directors has considered the provision of non-audit services provided by our independent registered public accounting firm to be compatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by our independent registered public accounting firm.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Report:
(a)
1. Financial Statements. See Index to Consolidated Financial Statements, which appears on page hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.
2. Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.
3. Exhibit Index as set forth below.
(b)
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: June 22, 2020
By:
/s/ Robert Rowe
Robert Rowe
Chief Executive Officer
Date: June 22, 2020
By:
/s/ Robert Rowe
Robert Rowe
Chief Financial Officer