UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from __________ to __________ |
Commission file number 333-99393
Brownie’s Marine Group, Inc.BROWNIE’S MARINE GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida | 90-0226181 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
3001 NW 25th Avenue, Suite 1 | ||
Pompano Beach, Florida | 33069 | |
(Address of principal executive | (Zip |
(954) 462-5570
Registrant’s telephone number, including area code
Not applicable
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERSAs of August 19, 2022, there were shares of common stock outstanding.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were shares of common stock outstanding at November 21, 2021.
TABLE OF CONTENTS
Page No. | ||
PART I - FINANCIAL INFORMATION | ||
ITEM 1. | FINANCIAL STATEMENTS. | 4 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | |
ITEM 4. | CONTROLS AND PROCEDURES. | |
PART II - OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS. | |
ITEM 1A. | RISK FACTORS. | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | |
ITEM 4. | MINE SAFETY DISCLOSURES. | |
ITEM 5. | OTHER INFORMATION. | |
ITEM 6. | EXHIBITS. |
2 |
CAUTIONARY STATEMENTSNOTE REGARDING FORWARD-LOOKING INFORMATION
Various statements in this report contain or may containThis Quarterly Report includes forward-looking statements that are subjectrelate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors whichthat may cause our actual results, levels of activity, performance or achievements to bediffer materially different from any future results, levels of activity, performance or achievements expressed or implied by suchthese forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:
You should read thoroughly this report and the documents that we refer to hereinQuarterly Report with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statementsrisk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SecuritiesSEC on April 22, 2022, which risk factors could adversely impact our business and Exchange Commission on March 31, 2021 (the “2020 10-K”) and our other filings with the Securities and Exchange Commission in their entirety.financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. TheseAll forward-looking statements speak only as of the date of this report, and you should not rely on thesewhich they are made. We undertake no obligation to update such statements without also consideringto reflect events that occur or circumstances that exist after the risks and uncertainties associated with these statements and our business.date on which they are made, except as required by applicable law.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “BWMG,” the “Company,” “we,” “our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and our wholly owned subsidiaries, Trebor Industries, Inc., a Florida corporation (“Trebor”), Brownie’s High Pressure Compressor Services, Inc. (“BHP”), a Florida corporation, BLU3, Inc., a Florida corporation (“BLU3”) and Submersible Systems, Inc., a Florida corporation (“SSI”). In addition, “ Third Quarter 2021” refers to the three month period ended September 30, 2021 and Third Quarter 2020 refers to September 30, 2020, “Second Quarter 2021” refers to the three month period ended June 30, 2021 and Second Quarter 2020 refers to June 30, 2020. “First Quarter 2021” refers to the three month period ended March 31, 2021 and “First Quarter 2020” refers to the three months ended March 31, 2020. “2020” refers to the year ended December 31, 2020 and “2021” refers to the year ending December 31, 2021.
We maintain a corporate website at www.browniesmarinegroup.com. Unless specifically set forth to the contrary, the information which appears on our websites or our social media platforms is not part of this report.
3 |
PART I
ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
September 30, 2021 | December 31, 2020 | June 30, 2022 (unaudited) | December 31, 2021 | |||||||||||||
ASSETS | (Unaudited) | |||||||||||||||
Current Assets | ||||||||||||||||
Cash | $ | 738,763 | $ | 345,187 | $ | 574,567 | $ | 643,143 | ||||||||
Restricted Cash | 121,953 | - | ||||||||||||||
Accounts receivable - net | 249,770 | 81,251 | 276,812 | 123,270 | ||||||||||||
Accounts receivable - related parties | 91,161 | 67,644 | 75,122 | 77,301 | ||||||||||||
Inventory, net | 1,717,140 | 863,791 | 2,323,468 | 1,895,260 | ||||||||||||
Prepaid expenses and other current assets | 380,513 | 111,164 | 533,540 | 227,458 | ||||||||||||
Total current assets | 3,299,300 | 1,469,037 | 3,783,509 | 2,966,432 | ||||||||||||
Property, equipment and leasehold improvements, net | 279,364 | 143,413 | 292,038 | 270,065 | ||||||||||||
Operating Lease Assets | 518,076 | 446,981 | 372,992 | 454,475 | ||||||||||||
Intangible Assets, Net | 808,361 | - | 682,655 | 718,905 | ||||||||||||
Goodwill | 185,264 | - | 249,986 | 249,986 | ||||||||||||
Other assets | 17,565 | 13,649 | 17,831 | 14,098 | ||||||||||||
Total assets | $ | 5,107,930 | $ | 2,073,080 | $ | 5,399,011 | $ | 4,673,961 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 616,849 | $ | 386,977 | $ | 1,204,610 | $ | 744,383 | ||||||||
Accounts payable - related parties | 84,935 | 102,360 | 31,437 | 37,267 | ||||||||||||
Customer deposits and unearned revenue | 388,966 | 20,353 | 280,510 | 143,938 | ||||||||||||
Other liabilities | 177,344 | 100,817 | 222,373 | 187,924 | ||||||||||||
Operating lease liabilities | 227,868 | 107,691 | 214,061 | 232,283 | ||||||||||||
Current maturities long term debt | 59,509 | 151,006 | 38,209 | 50,402 | ||||||||||||
Notes payable | - | 50,000 | - | - | ||||||||||||
Convertible debentures, net | - | 110,000 | - | - | ||||||||||||
Total current liabilities | 1,555,471 | 1,029,204 | 1,991,200 | 1,396,197 | ||||||||||||
Long term debt | 212,257 | 120,782 | 73,775 | 87,956 | ||||||||||||
Long term convertible debentures, net | 337,827 | - | 341,098 | 339,254 | ||||||||||||
Operating lease liabilities | 290,385 | 339,290 | 159,322 | 222,899 | ||||||||||||
Total liabilities | 2,395,940 | 1,489,276 | 2,565,395 | 2,046,306 | ||||||||||||
Commitments and contingent liabilities (see note 8) | ||||||||||||||||
Commitments and contingent liabilities (see note | - | |||||||||||||||
Stockholders’ equity | ||||||||||||||||
Preferred stock; $ par value: shares authorized; issued and outstanding as of September 30, 2021 and December 31, 2020. | 425 | 425 | ||||||||||||||
Common stock; $par value; shares authorized; shares issued and shares outstanding at September 30, 2021 and shares issued and outstanding at December 31, 2020, respectively. | 39,251 | 30,620 | ||||||||||||||
Common stock payable shares and shares, respectively as of September 30, 2021 and December 31, 2020. | 14 | 14 | ||||||||||||||
Preferred stock; $ | par value: shares authorized; issued and outstanding as of June 30, 2022 and December 31, 2021.425 | 425 | ||||||||||||||
Common stock; $ | par value; shares authorized; shares issued and outstanding at June 30, 2022 and shares issued and outstanding at December 31, 2021, respectively.40,978 | 39,386 | ||||||||||||||
Common stock payable | shares and shares, respectively as of June 30, 2022 and December 31, 2021.14 | 14 | ||||||||||||||
Additional paid-in capital | 16,699,902 | 13,508,882 | 18,118,191 | 17,132,434 | ||||||||||||
Accumulated deficit | (14,027,602 | ) | (12,956,137 | ) | (15,317,359 | ) | (14,544,604 | ) | ||||||||
Accumulated other comprehensive loss | (8,633 | ) | - | |||||||||||||
Total stockholders’ equity | $ | 2,711,990 | $ | 583,804 | 2,833,616 | 2,627,655 | ||||||||||
Total liabilities and stockholders’ equity | $ | 5,107,930 | $ | 2,073,080 | $ | 5,399,011 | $ | 4,673,961 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4 |
BROWNIE’SBROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30
(UNAUDITED)
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Three months ended September 30 | Nine months ended September 30 | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Net revenues | ||||||||||||||||||||||||||||||||
Net revenues | $ | 1,288,792 | $ | 1,388,630 | $ | 3,394,890 | $ | 2,990,215 | $ | 2,110,575 | $ | 1,359,745 | $ | 3,812,139 | $ | 2,106,098 | ||||||||||||||||
Net revenues - related parties | 269,922 | 282,029 | 827,511 | 635,761 | 290,663 | 353,173 | 564,068 | 557,589 | ||||||||||||||||||||||||
Total net revenues | 1,558,714 | 1,670,659 | 4,222,401 | 3,625,976 | 2,401,238 | 1,712,918 | 4,376,207 | 2,663,687 | ||||||||||||||||||||||||
Cost of net revenues | ||||||||||||||||||||||||||||||||
Cost of net revenues | 1,008,527 | 816,570 | 2,394,242 | 1,934,332 | 1,331,847 | 876,646 | 2,453,485 | 1,385,715 | ||||||||||||||||||||||||
Cost of net revenues - related parties | 130,821 | 129,115 | 405,951 | 316,294 | 138,025 | 169,699 | 259,199 | 275,130 | ||||||||||||||||||||||||
Royalties expense - related parties | 19,484 | 31,804 | 59,090 | 54,569 | 17,824 | 28,013 | 30,613 | 39,606 | ||||||||||||||||||||||||
Royalties expense | 24,854 | 13,379 | 79,809 | 41,306 | 50,708 | 41,251 | 94,316 | 54,955 | ||||||||||||||||||||||||
Total cost of revenues | 1,183,686 | 990,868 | 2,939,092 | 2,346,501 | 1,538,404 | 1,115,609 | 2,837,613 | 1,755,406 | ||||||||||||||||||||||||
Gross profit | 375,028 | 679,791 | 1,283,309 | 1,279,475 | 862,834 | 597,309 | 1,538,594 | 908,281 | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Selling, general and administrative | 882,937 | 591,998 | 2,443,579 | 1,834,039 | 1,177,601 | 823,607 | 2,283,340 | 1,560,642 | ||||||||||||||||||||||||
Research and development costs | 26,655 | 28,802 | 69,074 | 84,890 | 4,373 | 21,312 | 8,292 | 42,419 | ||||||||||||||||||||||||
Total operating expenses | 909,592 | 620,800 | 2,152,653 | 1,918,929 | 1,181,974 | 844,919 | 2,291,632 | 1,603,061 | ||||||||||||||||||||||||
Income (Loss) from operations | (534,564 | ) | 58,991 | (1,229,344 | ) | (639,454 | ) | (319,140 | ) | (247,610 | ) | (753,038 | ) | (694,780 | ) | |||||||||||||||||
Other income (expense), net | ||||||||||||||||||||||||||||||||
Other (income) expense, net | ||||||||||||||||||||||||||||||||
Gain on settlement of debt | - | - | 10,000 | - | - | - | - | 10,000.00 | ||||||||||||||||||||||||
Gain on the forgiveness of PPP loan | - | - | 159,600 | - | - | 159,600 | - | 159,600.00 | ||||||||||||||||||||||||
Interest expense | (6,115 | ) | (2,456 | ) | (11,721 | ) | (14,746 | ) | (9,523 | ) | (1,795 | ) | (19,716 | ) | (5,606 | ) | ||||||||||||||||
Income (Loss) income before provision for income taxes | (540,679 | ) | 56,535 | (1,071,465 | ) | (654,200 | ) | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | |||||||||||||||||
Provision for income taxes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Net Income (Loss) | (540,679 | ) | 56,535 | (1,071,465 | ) | (654,200 | ) | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | |||||||||||||||||
Basic income (loss) per common share | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | |||||||||||||||||||||
Loss on foreign currency contract | (10,220 | ) | - | (8,633 | ) | - | ||||||||||||||||||||||||||
Comprehensive loss | (338,883 | ) | (89,805 | ) | (781,387 | ) | (530,786 | ) | ||||||||||||||||||||||||
Basic income (loss)per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||||||||
Basic weighted average common shares outstanding | 342,827,940 | 301,107,923 | 328,103,475 | 283,471,765 | 406,439,244 | 337,489,134 | 399,061,998 | 314,941,270 | ||||||||||||||||||||||||
Diluted income (loss) per common share | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||||||
Diluted weighted average common shares outstanding | 342,827,940 | 320,969,382 | 328,103,475 | 283,471,765 | 406,439,244 | 337,489,134 | 399,061,998 | 314,941,270 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5 |
BROWNIE’SBROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders Equity | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders Equity | ||||||||||||||||||||||||||||
Balance, December 31, 2020 | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | (12,956,137 | ) | 583,804 | |||||||||||||||||||||
Common stock issued for cash | - | - | 27,500,000 | 2,750 | 272,250 | - | 275,000 | |||||||||||||||||||||||||||||
Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||
Shares issued for acquisition, shares | ||||||||||||||||||||||||||||||||||||
Beneficial Conversion feature | ||||||||||||||||||||||||||||||||||||
Discount on Equity issued in Acquisition | ||||||||||||||||||||||||||||||||||||
Common stock issued for cash | ||||||||||||||||||||||||||||||||||||
Common stock issued for cash, shares | ||||||||||||||||||||||||||||||||||||
Common stock issued for warrants | ||||||||||||||||||||||||||||||||||||
Common stock issued for warrants, shares | ||||||||||||||||||||||||||||||||||||
Common stock issued for services | ||||||||||||||||||||||||||||||||||||
Common stock issued for services, shares | ||||||||||||||||||||||||||||||||||||
Share issued for exercise of warrants | ||||||||||||||||||||||||||||||||||||
Share issued for exercise of warrants, shares | ||||||||||||||||||||||||||||||||||||
Common stock issued for services | - | - | 3,116,279 | 312 | 124,688 | - | 125,000 | |||||||||||||||||||||||||||||
Incentive Shares issued to Employees | - | - | - | - | ||||||||||||||||||||||||||||||||
Incentive Shares issued to Employees, shares | ||||||||||||||||||||||||||||||||||||
Stock Option Expense | - | - | 218,505 | - | 218,505 | |||||||||||||||||||||||||||||||
Common stock issued to for conversion of convertible debentures and accrued interest | - | - | 422,209 | 42 | �� | 14,735 | 14,777 | |||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (440,981 | ) | (440,981 | ) | |||||||||||||||||||||||||
Balance, March 31, 2021(unaudited) | 425,000 | $ | 425 | 337,223,694 | $ | 33,724 | 138,941 | $ | 14 | $ | 14,139,060 | $ | (13,397,118 | ) | $ | 776,105 | ||||||||||||||||||||
Stock Option Expense | - | - | 257,370 | - | 257,370 | |||||||||||||||||||||||||||||||
Common stock issued to for conversion of convertible debentures and accrued interest | - | - | 6,055,358 | 606 | 59,948 | 60,554 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (89,805 | ) | (89,805 | ) | |||||||||||||||||||||||||
Balance, June 30, 2021 (unaudited) | 425,000 | $ | 425 | 343,279,052 | $ | 34,330 | 138,941 | $ | 14 | $ | 14,456,378 | $ | (13,486,923 | ) | $ | 1,004,224 | ||||||||||||||||||||
Common stock issued for cash | - | - | 14,600,000 | 1,460 | 363,540 | - | 365,000 | |||||||||||||||||||||||||||||
Common stock issued for acquisition | 27,305,442 | 2,731 | 1,447,188 | - | 1,449,919 | |||||||||||||||||||||||||||||||
Beneficial conversion features | - | - | 12,480 | - | 12,480 | |||||||||||||||||||||||||||||||
Common stock issued for services | - | - | 1,190,476 | 119 | 55,833 | - | 55,952 | |||||||||||||||||||||||||||||
Stock Option Expense | - | - | 303,949 | - | 303,949 | |||||||||||||||||||||||||||||||
Common stock issued to for conversion of convertible debentures and accrued interest | - | - | 6,114,516 | 611 | 60,534 | - | 61,145 | |||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (540,679 | ) | (540,679 | ) | |||||||||||||||||||||||||
Balance, September 30, 2021(unaudited) | 425,000 | $ | 425 | 392,489,486 | $ | 39,251 | 138,941 | $ | 14 | $ | 16,699,902 | $ | (14,027,602 | ) | $ | 2,711,990 | ||||||||||||||||||||
Balance | 425,000 | 425 | 392,489,486 | $ | 39,251 | 138,941 | $ | 14 | $ | 16,699,902 | $ | (14,027,602 | ) | 2,711,990 |
(UNAUDITED)
Preferred Stock | Common Stock | Common Stock Payable | Additional | Total Stockholder’s | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Paid-in Capital | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||||||||||||||
Balance, December 31, 2019 | 425,000 | $ | 425 | 225,540,501 | $ | 22,554 | 138,941 | $ | 14 | $ | 11,338,104 | $ | (11,604,518 | ) | $ | (243,421 | ) | |||||||||||||||||||
Common stock issued for cash | - | - | 2,647,065 | 265 | - | - | 44,735 | - | 45,000 | |||||||||||||||||||||||||||
Common stock issued for exercise of warrants | - | - | 12,500,000 | 1,250 | - | - | 123,750 | - | 125,000 | |||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 96,290 | - | 96,290 | |||||||||||||||||||||||||||
Incentive bonus shares to CEO | - | - | 20,000,000 | 2,000 | - | - | (720 | ) | - | 1,280 | ||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | (296,693 | ) | (296,693 | ) | |||||||||||||||||||||||||
Balance, March 31, 2020 (unaudited) | 425,000 | $ | 425 | 260,687,566 | $ | 26,069 | 138,941 | $ | 14 | $ | 11,602,159 | $ | (11,901,211 | ) | $ | (272,544 | ) | |||||||||||||||||||
Common stock issued for cash | - | - | 20,000,000 | 2,000 | - | - | 498,000 | - | 500,000 | |||||||||||||||||||||||||||
Common stock issued for warrants | - | - | 10,000,000 | 1,000 | - | - | 99,000 | - | 100,000 | |||||||||||||||||||||||||||
Common stock issued for services | - | - | 5,000,000 | 500 | - | - | 222,000 | - | 222,500 | |||||||||||||||||||||||||||
Incentive shares issued to employees | - | - | 5,322,602 | 532 | - | - | 233,968 | - | 234,500 | |||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 218,505 | - | 218,505 | |||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | (414,042 | ) | (414,042 | ) | |||||||||||||||||||||||||
Balance, June 30, 2020 (unaudited) | 425,000 | $ | 425 | 301,010,168 | $ | 30,101 | 138,941 | $ | 14 | $ | 12,873,632 | $ | (12,315,253 | ) | $ | 588,919 | ||||||||||||||||||||
Balance | 425,000 | $ | 425 | 301,010,168 | $ | 30,101 | 138,941 | $ | 14 | $ | 12,873,632 | $ | (12,315,253 | ) | $ | 588,919 | ||||||||||||||||||||
Common stock issued for services | - | - | 1,745,000 | 175 | - | - | 28,046 | - | 28,221 | |||||||||||||||||||||||||||
Incentive shares issued to employees | - | - | 280,038 | 28 | - | - | 5,862 | - | 5,890 | |||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 218,505 | - | 218,505 | |||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | 56,535 | 56,535 | |||||||||||||||||||||||||||
Balance, September 30, 2020 (unaudited) | 425,000 | $ | 425 | 303,035,206 | $ | 30,304 | 138,941 | $ | 14 | $ | 13,126,045 | $ | (12,258,718 | ) | $ | 898,070 | ||||||||||||||||||||
Balance | 425,000 | $ | 425 | 303,035,206 | $ | 30,304 | 138,941 | $ | 14 | $ | 13,126,045 | $ | (12,258,718 | ) | $ | 898,070 |
Common Stock | Additional | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Payable | Paid-in | Income | Accumulated | Stockholder’s | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | Equity | |||||||||||||||||||||||||||||||
December 31, 2021 | 425,000 | $ | 425.00 | 393,850,475 | $ | 39,386 | 138,941 | $ | 14 | $ | 17,132,434 | $ | - | $ | (14,544,604 | ) | $ | 2,627,655 | ||||||||||||||||||||||
Shares issued for the exercise of warrants | - | - | 10,600,000 | 1,060 | - | - | 263,940 | - | - | 265,000 | ||||||||||||||||||||||||||||||
Shares issued for services | - | - | 1,206,318 | 120 | - | - | 35,380 | - | - | 35,500 | ||||||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 230,034 | - | - | 230,034 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (444,092 | ) | (444,092 | ) | ||||||||||||||||||||||||||||
Other Comprehensive Income | - | - | - | - | - | - | - | 1,587 | - | 1,587 | ||||||||||||||||||||||||||||||
March 31, 2022 (unaudited) | 425,000 | 425 | 405,656,793 | 40,566 | 138,941 | 14 | 17,661,788 | $ | 1,587 | (14,988,696 | ) | 2,715,684 | ||||||||||||||||||||||||||||
Stock Issued for Service | - | - | 302,953 | 30 | - | - | 11,970 | - | - | 12,000 | ||||||||||||||||||||||||||||||
Stock Issued for Asset Purchase | - | - | 3,084,831 | 308 | - | - | 119,692 | - | - | 120,000 | ||||||||||||||||||||||||||||||
Stock Issued for Accrued Interest on Convertible Notes | - | - | 449,522 | 45 | - | - | 23,003 | - | - | 23,048 | ||||||||||||||||||||||||||||||
Stock Issued for Employee Bonus | - | - | 280,000 | 28 | - | - | 11,032 | - | - | 11,060 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 290,707 | - | - | 290,707 | ||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | - | (328,663 | ) | (328,663 | ) | ||||||||||||||||||||||||||||
Other Comprehensive Loss | - | - | - | - | - | - | - | (10,220 | ) | - | (10,220 | ) | ||||||||||||||||||||||||||||
June 30, 2022 (unaudited) | 425,000 | $ | 425 | 409,774,099 | $ | 40,978 | 138,941 | $ | 14 | $ | 18,118,191 | $ | (8,633 | ) | $ | (15,317,359 | ) | $ | 2,833,616 |
Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Payable | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||
December 31, 2020 | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | - | $ | (12,956,137 | ) | $ | 583,804 | ||||||||||||||||||||||
Common stock issued for Cash | - | - | 27,500,000 | 2,750 | - | - | 272,250 | - | - | 275,000 | ||||||||||||||||||||||||||||||
Common stock issued for service | - | - | 3,116,279 | 312 | - | - | 124,688 | - | - | 125,000 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 218,505 | - | - | 218,505 | ||||||||||||||||||||||||||||||
Common stock issued for conversion of convertible debentures and accrued interest | - | - | 422,209 | 42 | - | - | 14,735 | - | - | 14,777 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (440,981 | ) | (440,981 | ) | ||||||||||||||||||||||||||||
March 31, 2021 (unaudited) | 425,000 | 425 | 337,223,694 | 33,724 | 138,941 | 14 | 14,139,060 | - | (13,397,118 | ) | 776,105 | |||||||||||||||||||||||||||||
Beginning balance | 425,000 | 425 | 337,223,694 | 33,724 | 138,941 | 14 | 14,139,060 | - | (13,397,118 | ) | 776,105 | |||||||||||||||||||||||||||||
Common stock issued for conversion of convertible debentures and accrued interest | - | - | 6,055,358 | 606 | - | - | 59,948 | - | - | 60,554 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 257,370 | - | - | 257,370 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (89,805 | ) | (89,805 | ) | ||||||||||||||||||||||||||||
Net Income (Loss) | - | - | - | - | - | - | - | - | (89,805 | ) | (89,805 | ) | ||||||||||||||||||||||||||||
June 30, 2021 (unaudited) | 425,000 | $ | 425 | 343,279,052 | $ | 34,330 | 138,941 | $ | 14 | $ | 14,456,378 | $ | - | $ | (13,486,923 | ) | $ | 1,004,224 | ||||||||||||||||||||||
Ending balance | 425,000 | $ | 425 | 343,279,052 | $ | 34,330 | 138,941 | $ | 14 | $ | 14,456,378 | $ | - | $ | (13,486,923 | ) | $ | 1,004,224 |
The accompanying notes are an integral part of these unaudited condensed consolidated unaudited financial statements
6 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30,
(unaudited)(UNAUDITED)
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,071,465 | ) | $ | (654,200 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 29,717 | 14,777 | ||||||
Amortization of debt discount | 307 | - | ||||||
Amortization of right-of-use asset | 89,087 | 72,663 | ||||||
Loss on debt extinguishment | - | (2,098 | ) | |||||
Common Stock issued for services | 180,952 | 250,721 | ||||||
Incentive bonus shares issued to CEO and employees | - | 241,670 | ||||||
Reserve (recovery) for bad debt | 32,079 | - | ||||||
Stock Based Compensation - Options | 779,824 | 533,300 | ||||||
Gain on settlement of debt | (10,000 | ) | - | |||||
Gain on Forgiveness of PPP loan | (159,600 | ) | - | |||||
Changes in operating assets and liabilities | ||||||||
Change in accounts receivable, net | (172,246 | ) | 24,234 | |||||
Change in accounts receivable - related parties | (23,517 | ) | (6,062 | ) | ||||
Change in inventory | (416,993 | ) | (114,482 | ) | ||||
Change in prepaid expenses and other current assets | (262,666 | ) | (60,791 | ) | ||||
Change in other assets | 18,089 | 5,000 | ||||||
Change in accounts payable and accrued liabilities | 89,818 | (138,784 | ) | |||||
Change in customer deposits and unearned revenue | 368,613 | (81,845 | ) | |||||
Change in long term lease liability | (88,911 | ) | (72,663 | ) | ||||
Change in other liabilities | 65,195 | (42,442 | ) | |||||
Change in accounts payable - related parties | (17,425 | ) | (127,145 | ) | ||||
Net cash used in operating activities | (569,142 | ) | (158,147 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash acquired from acquisition | 541,378 | - | ||||||
Purchase of fixed assets | (23,677 | ) | (5,500 | ) | ||||
Net cash provided by (used in) investing activities | 517,701 | (5,500 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 275,000 | - | ||||||
Proceeds from issuance of units | 365,000 | 545,000 | ||||||
Proceeds from exercise of Warrants | - | 225,000 | ||||||
Proceeds of debt | - | 159,600 | ||||||
Repayment on notes payable | (40,000 | ) | (45,000 | ) | ||||
Repayment of debt | (33,030 | ) | (21,982 | ) | ||||
Net cash provided by (used in) financing activities | 566,970 | 862,618 | ||||||
Net change in cash | 515,529 | 698,971 | ||||||
Cash, beginning of period | 345,187 | 70,620 | ||||||
Cash and restricted cash, end of period | $ | 860,716 | $ | 769,591 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash Paid for Interest | $ | 12,678 | $ | 8,157 | ||||
Cash Paid for Income Taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Loan payable for purchase of vehicle | $ | - | $ | 55,841 | ||||
Common Stock issued for acquisition | $ | 1,449,919 | $ | - | ||||
Convertible note issued for acquisition | $ | 350,000 | $ | - | ||||
Beneficial conversion feature on the convertible notes issued for acquisition | $ | 12,480 | $ | - | ||||
Operating lease asset obtained for operating lease liability | $ | 160,182 | $ | - | ||||
Equipment obtained through financing | $ | 76,448 | $ | - | ||||
Common stock issued for the conversion of convertible debentures and accrued interest | $ | 136,476 | $ | - |
2022 | 2021 | |||||||
Cash flows provided by operating activities: | ||||||||
Net loss | $ | (772,754 | ) | (530,786 | ) | |||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 66,802 | 13,396 | ||||||
Amortization of debt discount | 1,844 | - | ||||||
Amortization of right-of-use asset | 104,777 | 51,581 | ||||||
Shares issued for services | 47,501 | 125,000 | ||||||
Reserve (recovery) for bad debt | - | 28,554 | ||||||
Reserve for slow moving inventory | 26,217 | - | ||||||
Stock Based Compensation - Options | 520,739 | 475,875 | ||||||
Stock based compensation - stock grant | 11,060 | - | ||||||
Shares issued for accrued interest in convertible notes | 23,048 | - | ||||||
Gain on Settlement of Debt | - | (10,000 | ) | |||||
Gain on forgiveness of PPP loan | - | (159,600 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Change in accounts receivable, net | (153,542 | ) | (179,482 | ) | ||||
Change in accounts receivable - related parties | 2,179 | (109,001 | ) | |||||
Change in inventory | (345,004 | ) | (120,940 | ) | ||||
Change in prepaid expenses and other current assets | (306,081 | ) | (250,909 | ) | ||||
Change in other assets | (3,733 | ) | 3,000 | |||||
Change in accounts payable and accrued liabilities | 460,227 | 217,684 | ||||||
Change in customer deposits and unearned revenue | 136,572 | (7,787 | ) | |||||
Change in long term lease liability | (105,093 | ) | 23,938 | |||||
Change in other liabilities | 15,815 | (51,581 | ) | |||||
Change in accounts payable - related parties | (5,831 | ) | 84,220 | |||||
Net cash used in operating activities | (275,257 | ) | (396,838 | ) | ||||
Cash flows used in investing activities: | ||||||||
Cash used in asset acquisition | (30,000 | ) | - | |||||
Purchase of fixed assets | (1,946 | ) | (14,591 | ) | ||||
Net cash used in investing activities | (31,946 | ) | (14,591 | ) | ||||
Proceeds from issuance of units | - | 275,000 | ||||||
Proceeds from exercise of Warrants | 265,000 | - | ||||||
Repayment on notes payable | - | (25,000 | ) | |||||
Repayment of debt | (26,373 | ) | (22,096 | ) | ||||
Net cash provided by financing activities | 238,627 | 227,904 | ||||||
Net change in cash | (68,576 | ) | (183,525 | ) | ||||
Cash, beginning balance | 643,143 | 345,187 | ||||||
Cash, end of period | $ | 583,765 | 161,662 | |||||
Supplemental disclosures of cash flow information: | ||||||||
Cash Paid for Interest | $ | 19,716 | 4,344 | |||||
Cash Paid for Income Taxes | $ | - | - | |||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Operating lease obtained for operating lease liability | $ | 23,294 | $ | - | ||||
Shares issued for asset acquisition | $ | 120,000 | - | |||||
Shares issued for payment of convertible note interest | $ | 23,048 | - | |||||
Fixed asset purchase down payment through the issuance of debt | $ | - | $ | 37,098 | ||||
Shares issued for the conversion of convertible debentures and accrued interest | $ | - | $ | 75,331 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
7 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Company Overview
Brownie’s Marine Group, Inc., a Florida corporation (hereinafter referred to as” the “Company,” or “BWMG” (the “Company”), (1) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary, Trebor Industries, Inc., a Florida corporation, organizedincorporated in 1981 (“Trebor” or “BTL”), (2) manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organizedincorporated in 2017 (“BHP”), and doing business as LW Americas (“LWA”). And (3) and develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BLU3”). On September 3, 2021, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation incorporated in 2017, and wholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or SSI)“SSI”), and Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, organized in 2017, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company.
Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California. SSI manufactures tanks and it redundant/rescue air systems in its facility in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world.
On February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 20202021 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in our 2020Annual Report on Form 10-K for the year ended December 31, 2021 for a broader discussion of our business and the risks inherent in such business.
8 |
Principles of Consolidation
The consolidated financial statements include the accounts of BWMGthe Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and SSI.LBI. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per EIN. At June 30, 2022 and December 31, 2021, the Company had approximately $22,700 and $205,500, respectively in excess of the FDIC insured limit.
Foreign Currency Forward Contracts
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The foreign currency forward hedging contracts outstanding as of June 30, 2022 have settlement dates within 6 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in other comprehensive income and reclassified to the Consolidated Statement of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings.
Foreign currency forward contracts entered into to hedge cost of goods purchases were as follows as of June 30, 2022 and December 31, 2021:
Schedule of Foreign Currency Forward Contracts
Notional Amount | ||||||||
Foreign Currency | June 30, 2022 (unaudited) | December 31, 2021 | ||||||
Euro | $ | 181,615 | - | |||||
Total | $ | 181,615 | $ | - |
9 |
Accounts receivable
Accounts receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful accounts is estimated based on historical customer experience and industry knowledge. The allowances for doubtful accounts totaled $46,55446,555 and $16,87246,555 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
Inventory
Inventory consists of the raw material, parts that make up the items that we manufacture, and finished goods. For the year ended December 31, 2020, the Company recorded reserves for obsolete or slow-moving inventory of approximately $227,657. NaN additional reserve for obsolete or slow-moving inventory during the nine months ended September 30, 2021.following:
Schedule of Inventory
September 30, 2021 (unaudited) | December 31, 2020 | |||||||||||||||
June 30, 2022 (unaudited) | December 31, 2021 | |||||||||||||||
In-Transit inventory | $ | 204,562 | $ | 130,000 | ||||||||||||
Raw materials | $ | 976,507 | $ | 408,841 | 1,000,674 | 1,144,190 | ||||||||||
Work In Process | 100,285 | - | ||||||||||||||
Work in process | 84,243 | 99,858 | ||||||||||||||
Finished goods | 640,648 | 454,950 | 985,387 | 521,212 | ||||||||||||
Rental Equipment | 48,602 | - | ||||||||||||||
Inventory, net | $ | 1,717,140 | $ | 863,791 | $ | 2,323,468 | $ | 1,895,260 |
Revenue Recognition
We account for revenues in accordance with Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive.
We recognize the sale of products under single performance obligations upon shipment of the units as that is when ownership is transferred and our performance is completed. Revenues from repair and maintenance activities is recognized when the repairs are completed and the units have been shipped.
Lease Accounting
We account for leases in accordance with ASC 842, “Leases”. The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations.
We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow us to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. We did not have any finance leases as of SeptemberJune 30, 2021.2022. Our leases generally have terms that range from three years for equipment and five to twenty years for property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.
When we have the option to extend the lease term, terminate the lease beforefor the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
For the three and ninesix months ended SeptemberJune 30, 20212022 the lease expenses were approximately $39,000 64,500and $108,000128,700, respectively, and approximately $33,000 43,000and $98,000 78,000for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively. Cash paid for operating liabilities for the ninesix months ended SeptemberJune 30, 20212022 was approximately $98,000 128,400and approximately $95,000 32,900for the ninesix months ended SeptemberJune 30, 2020.2021.
During the three months ended September 30, 2021, the Company recorded the operating lease asset and liability directly related to its acquisition of SSI. The increase to the operating asset and the operating liability from the acquisition of SSI was $160,182.
10 |
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
Operating Leases | September 30, 2021 | June 30, 2022 (unaudited) | ||||||
Right-of-use assets | $ | 518,076 | $ | 372,992 | ||||
Current lease liabilities | $ | 227,868 | $ | 214,061 | ||||
Non-current lease liabilities | 290,385 | 159,322 | ||||||
Total lease liabilities | $ | 518,253 | $ | 373,383 |
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee and non-employee are required to provide service in exchange for the award, usually the vesting period.
Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. At SeptemberJune 30, 2022 and June 30, 2021, and September 30, 2020, and , respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.
Recent accounting pronouncements
ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued and update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance is effective January 1, 2023. The Company is evaluating the changes from this standard to determine the impact on its consolidated financial statements and related disclosures
ASU 2019-12 Income Taxes (Topic 740)
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The recent accounting standardsCompany determined that have been issued or proposed by the Financial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date are not expected to have a materialstandard has no impact on theits consolidated financial statements upon adoption.and related disclosures.
Note 3. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. For the ninesix months ended SeptemberJune 30, 2021,2022, the Company incurred a net loss of $1,071,465772,754 of which $960,776520,739 is non-cash stock related compensation.compensation and shares issued for service. At SeptemberJune 30, 2021,2022, the Company hashad an accumulated deficit of $14,027,60215,317,359. Despite a working capital surplus of approximately $1,743,829 1,792,309at SeptemberJune 30, 2021,2022, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4. Related Party Transactions
The Company sells products to three entities, Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, companies owned by the brother of Mr. Robert M. Carmichael, the Company’s President and Chief Financial Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers with similar sales volumes. These entities accounted for 17.312.1% and 16.920.6% of the net revenues for the three months ended SeptemberJune 30, 2022 and June 30, 2021, and 2020, respectively, and 19.612.9% and 17.520.9% for the ninesix months ended Septemberending June 30 2022 and 2021, and 2020 respectively.respectively. Accounts receivable from these entities totaled $67,596 72,344and $44,32375,792, respectively, at SeptemberJune 30, 20212022 and December 31, 2020.2021, respectively.
The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”)BGL and 940 Associates, Inc. (“940 A”),A, entities wholly-owned by Mr.Robert Carmichael. Terms of sale are more favorable than those extended to BWMG’sthe Company’s regular customers, but no more favorable than those extended to Brownie’sthe Company’s strategic partners. Accounts receivable from the combinedthese entities and Mr. Carmichael totaled $23,565 446and $23,321 1,509at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
The Company has an outstanding accounts receivable to Charles Hyatt for $2,332 as of June 30, 2022 and $0 at December 31, 2021. This amount was paid in full on August 19, 2022.
The Company had accounts payable to related parties of $84,935 31,437and $102,360 37,267at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. The balance payable at SeptemberJune 30, 20212022 is comprised of $5,000 18,405due to Robert Carmichael, and $79,935 10,051.92, to 940, LLC and $2,980to BGL. At December 31, 20202021 this account was comprised of $5,000due to Robert Carmichael, and $97,360 32,267due to BGL.
The Company has Exclusive License Agreementsexclusive license agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. This Exclusive License Agreement providesagreements. The agreements provide that the Company will pay 940 A 2.5% of gross revenues per quarter as a royalty. Total royalty expense for the three months ended SeptemberJune 30, 20212022 and 20202021 were $19,484 17,824and $31,80428,031, respectively respectively. For the six months ending June 30, 2022 and 2021 royalty expense for this entity totaled $30,613and $59,090 39,606and $54,569 for the nine months ended September 30, 2021 and 2020, respectively., respectively. The accrued royalty for SeptemberJune 30, 2021 is2022 was approximately $4,722 11,800and it is included in other liabilities.
On March 25, 2021,February 2, 2022, the Company issued Charles Hyatt, a director, shares from the exercise of common stock to Mr. Charles F. Hyatt, a member of our Board of Directors in consideration of $275,000.
As of September 30, 2021, options to purchase shares of common stock held by Mr. Carmichael vested in accordance with Carmichael Option agreement as further discussed in Note 7 of these financial statements.
On August 1, 2021 as part of the Blake Carmichael Agreement the company is obligated to enter into a Non-Qualified Stock Option agreement with Blake Carmichael as part of his employment agreement. Under the terms of the Blake Carmichael agreement, the Company will enter into an option contract that will grant Blake Carmichael a option to purchase shares of the Company’s common stock at an exercise price of $, (the “BC Compensation Options”). The BC Compensation Options vest 33.3% upon the execution of the agreement, 33% at the first anniversary date and 33% upon the second anniversary date. As part of the Blake Carmichael Agreement the company is also obligated to enter into a Non-Qualified Stock option agreement (the “BC Bonus Options”) that will grant Blake Carmichael a option to purchase up to shares to be vested annually on a contract year basis, based upon the achievement of certain financial metrics tied to Revenue and EBITDA.
On September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors, units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisablewarrant at $0.025per share in consideration of $250,000.
On September 1, 2021,February 2, 2022, the Company issued Ms. Grace Hyatt, the adult child of Charles Hyatt, a memberdirector, shares from the exercise of our Board of Directors, units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisablea warrant at $0.025per share in consideration of $15,000.
Note 5. Convertible DebenturesPromissory Notes and Notes Payable
Convertible DebenturesPromissory Notes
Convertible debenturespromissory notes consisted of the following at SeptemberJune 30, 2021:2022:
Schedule of Convertible Debentures
Origination Date | Maturity Date | Interest Rate | Origination Principal Balance | Original Discount Balance | Period End Principal Balance | Period End Discount Balance | Period End Balance, Net | Accrued Interest Balance | Reg. | Maturity Date | Interest Rate | Origination Principal Balance | Original Discount Balance | Period End Principal Balance | Period End Discount Balance | Period End Balance, Net | Accrued Interest Balance | Reg. | ||||||||||||||||||||||||||||||||||||||||||||||||||
8/31/11 | 8/31/13 | 5 | % | 10,000 | (4,286 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/01/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | - | (2 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
12/05/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | (3 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | 346,500 | (12,051 | ) | 334,449 | 2,310 | (4 | ) | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | 346,500 | (8,815 | ) | 337,685 | - | (3 | ) | ||||||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (122 | ) | 3,378 | 23 | (5 | ) | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (87 | ) | 3,413 | - | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
$ | 350,000 | $ | (12,173 | ) | $ | 337,827 | $ | 2,333 | $ | 350,000 | $ | (8,902 | ) | $ | 341,098 | $ | - |
(1) | On December 1, 2017, the Company issued a 6% secured convertible promissory note in the principal amount of $50,000, initially due December 1, 2018, subject to extension. The note is secured by the assets of the Company |
12 |
The conversion price of the note initially ranged from $ | |
(2) | On December |
The conversion price under the note initially ranged from $0.02 per share if converted in the first year to $0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99% of the outstanding common stock of the Company at any one time. In 2019, the |
On September 3, 2021, the Company |
On September 3, 2021, the Company |
Notes Payable
Gonzales Note
The Company issued an unsecured, non-interest-bearing note of $200,000 with Mr. Tom Gonzales on July 1, 2013. The note is payable upon demand. The Company made repayments totaling $40,000 during the nine months ended September 30, 2021, fully repaying the note. The note was paid in full as of September 30, 2021 and had a balance of $40,000 December 31, 2020.
Hoboken Note
The Company issued an unsecured, non-interest-bearing note of $10,000 with Hoboken Street Association on October 15, 2016. The note was forgiven as part of the conversion of the Hoboken Convertible Note on February 22, 2021 as described above. The company recorded a gain on settlement of debt of $10,000. The note balance as of September, 2021 and December 31, 2020 was $0 and $10,000, respectively.
Loan Payable
Marlin Note
On September 30, 2019 the Company, viathrough its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain plastic molding equipment through Marlin Capital Solutions. The initial principal balance was $96,725 payable overin 36 equal monthly installments of $3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was $35,66512,305 as of SeptemberJune 30, 20212022.
Schedule of Future Amortization of Loans Payable
Payment Amortization | ||||||||
2021 (3 months remaining) | $ | 8,570 | ||||||
2022 | 27,095 | |||||||
Payment Amortization | ||||||||
2022 (6 months remaining) | 12,305 | |||||||
2023 | - | |||||||
2024 | - | |||||||
2025 | - | |||||||
2025 and thereafter | - | |||||||
2026 | - | |||||||
Total Loan Payments | $ | 35,665 | $ | 12,305 | ||||
Current portion of Loan payable | (35,665 | ) | (12,305 | ) | ||||
Non-Current Portion of Loan Payable | $ | - | $ | - |
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Mercedes Benz Note
On August 21, 2020, the Company executed an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a 2019 Mercedes Benz Sprinter delivery van. The installment agreement was for $55,841 with a zero interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Mr.Robert Carmichael. The first payment was due on October 5, 2020. The loan balance as of SeptemberJune 30, 20212022 is $44,67337,538.
Schedule of Future Amortization of Loans Payable
Payment Amortization | ||||
2021 (3 months remaining) | $ | 2,793 | ||
2022 | $ | 11,168 | ||
2023 | $ | 11,168 | ||
2024 | $ | 11,168 | ||
2025 and thereafter | $ | 8,376 | ||
Total note payments | $ | 44,673 | ||
Current portion of note payable | $ | (11,168 | ) | |
Non-Current Portion of notes payable | $ | 33,505 |
Payment Amortization | ||||
2022 (6 months remaining) | $ | 6,825 | ||
2023 | $ | 11,168 | ||
2024 | $ | 11,168 | ||
2025 and thereafter | $ | 8,684 | ||
Total note payments | $ | 37,538 | ||
Current portion of note payable | $ | (11,168 | ) | |
Non-Current Portion of notes payable | $ | 26,370 |
Navitas Note
On May 19, 2021 the Company, viathrough its wholly owned subsidiary BLU3, executed an equipment finance agreement financed for the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable overin equal monthly installments of $ (the “Navitas Note”). The equipment finance agreement contains customary events of default. The agreement was fully funded as of September 30, 2021.
Payment Amortization | ||||||||
2021 (3 months remaining) | $ | 2,837 | ||||||
2022 | 12,974 | |||||||
Payment Amortization | ||||||||
2022 (6 months remaining) | 6,139 | |||||||
2023 | 14,403 | 15,342 | ||||||
2024 | 15,991 | 16,629 | ||||||
2025 | 17,753 | 18,204 | ||||||
Balance | 11,310 | |||||||
2026 | 6,007 | |||||||
Total Note Payments | $ | 75,268 | $ | 62,141 | ||||
Current portion of Note payable | (12,676 | ) | (14,736 | ) | ||||
Non-Current Portion of Note Payable | $ | 62,592 | $ | 47,405 |
PPP LoanAlliance Lease
On May 12, 2020, we received an unsecured loan from South Atlantic Bank in the principal amountJanuary 19, 2022, SSI entered into a capital lease with Alliance Funding Group (“lessor”) to secure a new piece of $essential equipment for its operations. The lease has a 159,60036 (the “SBA Loan”), under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses,month term with a focus on payroll. As a qualifying business as defined by the SBA, we used the proceeds from this loan to primarily help maintain our payroll and cover our rent and utilities as we navigated our business through the lockdowns associated with the COVID-19 pandemic until our return to normal operations earlier in 2020.
The term of the note is two years, though it may be payable sooner in connection with an event of default under the note. The SBA Loan carries a fixed interest rate of one percent per year, and a monthly payment of $8,983, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. We used the SBA Loan for qualifying expenses and have applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On April 28, 2021, the Company was notified by South Atlantic Bank that the SBA Loan was forgiven in full under the terms of the CARES Act. The company recorded the forgiveness as a gain on the forgiveness of the PPP loan of $159,600 on our condensed consolidated income statement.
The note balance as of September 30, 2021 and December 31, 2020 was $0 and $159,600, respectively.
PPP Loan – Submersible Systems, Inc.
On May 12, 2020, SSI received an unsecured loan from City National Bank in the principal amount of $116,160 (the “Submersible SBA Loan”), under the CARES act.
The term of the note is two years, though it may be payable sooner in connection with an event of default under the note. The Submersible SBA Loan carries a fixed interest rate of one percent per year, and a monthly payment of $6,9253,522. , withAt the first payment due seven months from the date of initial cash receipt. As partend of the forgiveness applicationlease SSI has the option to purchase the equipment for $3,522 plus applicable taxes. The total purchase price of the equipment was $108,675. The vendor has determined that they are unable to supply the equipment, and the purchase order for this equipment was cancelled in May 2022. The lessor initially funded fifty percent of the purchase price or approximately $54,000directly to the vendor which the vendor has committed to return once properly instructed by the lessor. This lease was cancelled effective June 29, 2022. For the six months ending June 30, 2022, the Company wrote off approximately $6,300 related to the acquisition of SSI by the Company, SSI was required to place $121,953 in an escrow account until forgiveness is determined and City National Bank has been paid in full by the SBA. On October 15, 2021, the Company was notified by City National Bank that the Submersible SBA Loan was forgiven in full under the terms of the CARES Act. The restricted cash in escrow was released in full by the bank as a resultfees for cancellation of this forgiveness on November 8, 2021.financing.
The note balance as of September 30, 2021 and December 31, 2020 was $116,160 and $0 respectively.
Note 6. Business Combination
Merger with Submersible Systems, Inc.
On September 3, 2020, the Company completed its merger with Submersible Systems, Inc.SSI. Under the terms of the Merger Agreement, the Company paid $1.79million, in consideration consisting of the issuance of shares of its common stock (valued at $1.4million), and the issuance of $350,000 in 8% unsecured convertible promissory notes in the aggregate principal amount of $350,000 in exchange for all of the equity of Submersible.SSI. The shares of the Company’s common stock issued for the $1.44 million in consideration are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following:
Holding Period from Closing Date | Percentage of shares eligible to be sold or transferred | |
6 months | Up to % | |
9 months | Up to % | |
24 months | Up to % | |
36 months | Up to % |
14 |
The Leak-Out Provisionleak-out restriction may be waived by the Company, upon written request by a Seller, if the CompanyCompany’s common stock is trading on either the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of shares per day; provided, however, that (i) only up to five percent (5%)5% of the previous days total volume can be sold in one day by a Seller; and (ii) the Seller can only sell through executing trades “On the Offer.”
The transaction costs associated with the Merger were $65,000in legal fees paid in $40,000in cash, and shares of the Company’s common stock with a fair value of $55,952. The common stock for these transaction costs will be issued subsequent to September 30, 2021.
Fair Value of Consideration Transferred and Recording of Assets Acquired
The following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed, including an amount for goodwill:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Common stock, 27,305,442 shares at fair market value | $ | 1,449,919 | ||
Common stock, shares at fair market value | $ | 1,449,919 | ||
8% Unsecured, Convertible promissory note payable to seller | 350,000 | |||
Total purchase price | $ | 1,799,919 | ||
Tangible assets acquired | $ | 1,094,326 | ||
Liabilities assumed | (294,671 | ) | ||
Net tangible assets acquired | 799,655 | |||
Identified Intangible Assets | ||||
Customer Relationships | $ | 672,000 | ||
Trademarks | 121,000 | |||
Non-compete agreements | 22,000 | |||
Total Intangible Assets | 815,000 | |||
Goodwill | $ | 185,264 | ||
Total purchase price | $ | 1,799,919 |
Common stock, | shares at fair market value$ | 1,449,919 | ||
8% unsecured, convertible promissory note payable to seller | 350,000 | |||
Total purchase price | $ | 1,799,919 | ||
Tangible assets acquired | $ | 1,101,604 | ||
Liabilities assumed | (294,671 | ) | ||
Net tangible assets acquired | 806,933 | |||
Identified Intangible Assets | ||||
Customer relationships | $ | 600,000 | ||
Trademarks | 121,000 | |||
Non-compete agreements | 22,000 | |||
Total intangible assets | 743,000 | |||
Goodwill | $ | 249,986 | ||
Total purchase price | $ | 1,799,919 |
In determining the number of shares of the common stock issued, the Company considered theThe value of the stock as defined the Merger Agreement to be thewas calculated based on the volume weighted average price (“VWAP”) of a share of the Company’s common stock on the OTC Markets (“VWAP”) for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term sheet for the Merger or (ii) 180 days prior to the closing date of the Merger, whichever results in a lower VWAP. Based on this calculation, the Company utilized calculation (i) resultingVWAP which resulted in a conversion price of $.0512718310.051271831. This conversion price resulted in and the issuance of shares of common stock with a fair value of $1,449,919on the closing date.
Inventory was assessed at the time of closing as to its fair value, and it was determined that a step-up analysis was necessary in order to evaluate the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory is sold. The key assumptions used in this analysis is a gross margin of 38.3% and selling costs of 5.0%, The analysis resulted in a necessary step up of $31,000 at the time of closing.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes.
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As of SeptemberJune 30, 2021,2022, the Company has recorded an estimated fair value of the intangible assets and goodwill of $$1,198,264 992,986based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determineddetermined.
Asset acquisition Gold Coast Scuba, LLC
On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and Live Blue, Inc. Pursuant to the terms of the Asset Purchase Agreement, Live Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
In consideration for the assets purchased, the Company paid $150,000 to the LLC Members. The purchase price was paid by (a) issuance to the LLC Members of an aggregate of shares of the Company’s common stock (the “Consideration Shares”) with a fair market value of $120,000; and (b) a cash payment of $30,000.
Summary of Holding Period and Shares Eligible To Sold
Holding Period from Closing Date | Percentage of shares eligible to be sold or transferred | |
6 months | Up to | |
9 months | Up to | |
12 months | Up to |
The leak-out restriction may be waived by the Company, upon written request by a Seller, if the Company’s common stock is trading on the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of 50,000 shares per day; provided, however, that (i) only up to 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer.”
The transaction costs associated with the acquisition were $10,000 in legal fees paid in cash.
Fair Value of Consideration Transferred and Recording of Assets Acquired
The following table summarizes the asset acquisition date fair value of the consideration paid, identifiable assets acquired, including an amount for overpayment and transaction fees:
Summary of Asset Acquisition
Book Value | Overpayment Allocation | Transaction Cost Allocation | Fair Value | |||||||||||||
Rental Inventory | $ | 23,408 | $ | 22,156 | $ | 3,038 | $ | 48,602 | ||||||||
Fixed Assets | 24,360 | 23,058 | 3,161 | 50,579 | ||||||||||||
Retail Inventory | 29,292 | 27,726 | 3,801 | 60,819 | ||||||||||||
Total Cost | $ | 77,060 | $ | 72,940 | $ | 10,000 | $ | 160,000 |
Pro Forma Information
The following is the unaudited pro forma information assumingassumes all business acquisitionscombinations occurred on January 1, 2021. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs.
Schedule of Business Acquisition, Pro Forma Information
Nine months ended September 30, 2021 | Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||
Revenue | $ | 5,258,139 | $ | 2,423,956 | $ | 3,730,805 | ||||||
Net Loss | $ | (1,087,932 | ) | $ | (340,186 | ) | $ | (842,500 | ) | |||
Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||
Basic and Diluted Weighted Average Common Shares Outstanding | 346,431,786 | 367,879,407 | 345,331,543 |
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of SSI.SSI and the assets of LBI.
Pro Forma Information
The following unaudited pro forma information assumes all business acquisitions occurred on January 1, 2022. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs.
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of Gold Coast Scuba.
Schedule of Business Acquisition, Pro Forma Information
Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||
Revenue | $ | 2,423,956 | $ | 4,452,986 | ||||
Net Loss | $ | (326,829 | ) | $ | (829,143 | ) | ||
Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Basic and Diluted Weighted Average Common Shares Outstanding | 409,524,075 | 402,146,829 |
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Note 7. Goodwill and Intangible Assets, Net
The following table sets for the changes in the carrying amount of the Company’ Goodwill for the quarter ended SeptemberJune 30, 20212022.
Summary of Changes toin Goodwill
2021 | ||||
Balance, January 1 | $ | - | ||
Acquisitions of Submersible Systems, Inc. | 185,264 | |||
Balance, September 30 | $ | 185,264 |
2022 | ||||
Balance, January 1 | $ | 249,986 | ||
Addition: | - | |||
Balance, June 30 | $ | 249,986 |
The following table sets for the components of the Company’s intangible assets at SeptemberJune 30, 2021:2022:
Summary of Intangible Assets
Amortization Period (Years) | Cost | Accumulated Amortization | Net Book Value | Amortization Period (Years) | Cost | Accumulated Amortization | Net Book Value | |||||||||||||||||||||||||
Intangible Assets Subject to amortization | ||||||||||||||||||||||||||||||||
Trademarks | 15 | $ | 121,000 | $ | (672 | ) | $ | 120,328 | 15 | $ | 121,000 | $ | (6,678 | ) | $ | 114,322 | ||||||||||||||||
Customer Relationships | 10 | 672,000 | (5,600 | ) | 666,400 | 10 | 600,000 | (50,000 | ) | 550,000 | ||||||||||||||||||||||
Non-Compete Agreements | 5 | 22,000 | (367 | ) | 21,633 | 5 | 22,000 | (3,667 | ) | 18,333 | ||||||||||||||||||||||
Total | $ | 815,000 | $ | (6,639 | ) | $ | 808,361 | $ | 743,000 | $ | (60,354 | ) | $ | 682,655 |
The aggregate amortization remaining on the intangible assets as of SeptemberJune 30, 20212022 is a follows:
Schedule of Estimated Intangible Assets Amortization Expenses
Intangible Amortization | ||||||||
2021 (3 Months) | $ | 19,917 | ||||||
2021 | 79,667 | |||||||
2022 | 79,667 | |||||||
Intangible Amortization | ||||||||
2022 (6 months remaining) | $ | 36,225 | ||||||
2023 | 79,667 | 72,467 | ||||||
2024 | 79,667 | 72,467 | ||||||
2025 | 72,467 | |||||||
2026 | 71,367 | |||||||
Thereafter | 469,776 | 357,662 | ||||||
Total | $ | 808,361 | $ | 682,655 |
Note 8. Shareholders’ Equity
Common Stock
On February 22, 2021,January 17, 2022, the Company issued a law firm shares of common stock with a fair value of $ as part of the agreed upon compensation for a representation agreement.
On January 31, 2022, the Company issued a consultant 4,000 for consulting services related to the conversiondive industry. shares of common stock with a fair value of $
On February 2, 2022, the Company issued Charles Hyatt, a director, convertible debenture and accrued interestwarrant at $0.025 per share in consideration of $14,777250,000. shares from the exercise of a
On March 1, 2021,February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $15,000.
On February 28, 2022, the Company issued a consultant, its common stock with a fair value of $4,000 for consulting services related to investor relation services atthe dive industry. shares of
On May 3, 2022, the Company issued 120,000. shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC with a fair value of $
On March 25, 2021, the Company issued shares of common stock to Mr. Charles F. Hyatt, a member of our Board of Directors, in consideration of $275,000.
On February 25, 2021, the Company issued shares of common stock to a consultant with a fair value of $5,000 for professional business services.
On June 10 2021, the Company issued shares of common stock related to the conversion of a convertible debenture and accrued interest of $60,554.
On September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors, units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025 per share in consideration of $250,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
17 |
On August 18, 2021, the Company issued shares of common stock related to the conversion of a convertible debenture and accrued interest of $61,145.
On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of a member of our Board of Directors, units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025 per share in consideration of $15,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
On September, 2021, the Company issued units of the securities of the Company to three accredited investors, with the unit consisting of 1 share of common stock and 1 24 month common stock purchase warrants exercisable at $0.025 per share in consideration of $100,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
On September 3, 2021, the Company issued shares of common stock to Tierra Vesta Group as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $14,499.
On September 3, 2021, the Company issued shares of common stock to Summit Holdings V, LLC. as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $1,435,420.
On September 22, 2021,May 31, 2022, the Company issued a law firmconsultant, shares of common stock with a fair value of $55,95212,000 as partial consideration for its legalconsulting services related to acquisition of SSI.
the dive industry.
As of June 30, 2022, the Company issued 23,048. shares of common stock to the holders of convertible notes for payment of interest through June 30, 2022. The fair value of these shares were $
On June 17, 2022, the Company issued 11,060. shares of common stock to an employee as a retirement gift. The fair value of this stock was $
Preferred Stock
During the second quarter of 2010, the holderholders of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation authorizing the issuance of shares of blank check preferred stock. The blank check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. In April 2011, the Board of Directors designated shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share held.The Company’s common stock and Series A Convertible Preferred Stock vote together as on any matters submitted to our shareholders for a vote. As of SeptemberJune 30, 2021,2022, and December 31, 2020,2021, the shares of Series A Convertible Preferred Stock are owned by Mr.Robert Carmichael.
Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Optionsstock options may be granted to Employees, Directors,employees, directors, and Consultantsconsultants in the form of Incentive Stock Optionsincentive stock options or Non-statutory Stock Options, Stock Purchase Rights,non-qualified stock options, stock purchase rights, time vested and/performance invested Restricted Stock,restricted stock, and Stock Appreciation Rightsstock appreciation rights and Unrestricted Sharesunrestricted shares may also be granted under the Plan. The maximum number of shares that may be issuedare reserved for issuance under the Plan shall be shares. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company.Plan. The term of the Plan shall beis ten years.
Schedule of Equity Compensation Plan Information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted – average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a) (c) | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted – average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a) (c) | |||||||||||||||||||
Equity Compensation Plans Approved by Security Holders | 2,075,000 | $ | .0434 | 22,925,000 | 3,592,647 | $ | .0401 | 21,407,353 | ||||||||||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | — | — | — | ||||||||||||||||||
Total | 2,075,000 | $ | .0434 | 22,925,000 | 3,592,647 | $ | .0401 | 21,407,353 |
18 |
Options
Effective July 29, 2019 the Company issued options to purchase up to an aggregate of shares of common stock to Mr. Blake Carmichael. The options were issued pursuant to a stock option grant agreement and are exercisable at $ per share for a period of from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of %, ii) expected life of years, iii) dividend yield of %, iv) expected volatility of%. These stock options were fully expensed as of December 31, 2020.
Effective July 29, 2019, the Company issued Mr. Carmichael options to purchase up to shares of common stock. The options were issued pursuant to a Grant Agreement and are exercisable at $ per share for a period of from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of %, ii) expected life of years, iii) dividend yield of %, iv) expected volatility of %. These stock options were fully expensed during the year ending December 31, 2020.
Effective January 6, 2020, the Company issued options to purchase up to shares of common stock to Mr. Jeffrey Guzy, then a member of the Board of Directors of the Company. The options were issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of %, ii) expected life of years, iii) dividend yield of %, iv) expected volatility of %. These stock options were fully expensed during the year ending December 31, 2020.
Effective January 11, 2020, the Company issued options to purchase up to shares of common stock to BizLaunch Advisors, LLC. The options were issued pursuant to a professional services agreement and are exercisable at $per share for a period of from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of %, ii) expected life of years, iii) dividend yield of %, iv) expected volatility of %. These stock options were fully expensed during the year ending December 31, 2020.
On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Mr.Robert Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation, the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● | the right to purchase ; shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $ in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending on April 30, 2023 (the “Net Revenue Period”) |
● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and |
● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive quarters during the Net Revenue Period. |
The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael on a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto.
The fair value of the Carmichael Option on the date of the grant was $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met. As of June 30,December 31, 2021, of options were vested as the targeted net revenues were reached and three quarters of Tranche 2 was also met and fully expensed. The second net revenueexpensed through December 31, 2021. For the three months ended June 30, 2022 the Company revenues reached the target was 50% reached. Therefore, stockrevenues for Tranche 2, and an additional shares of the option vested. Stock option expense recognized during the ninethree and six months ended SeptemberJune 30, 20212022 for this option was $ and $., respectively.
On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable the(the “Constable Option Agreement”) as part of his employment agreement. Under the termsAs part of the option agreement,Constable Option Agreement, the Company granted Mr. Constable a yearan option (the “Bonus Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $.0184, (the “Compensation Options”). The Compensation Options were immediately vested. The fair value$ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the options on the datenet revenue milestones set forth below (the “Net Revenue Portion of the grant was $Option”) and the right to purchase usingshares of common stock is subject to vesting upon official notice of the Black-Scholes option pricing model withlisting of the following assumptions: i) risk free interest rateCompany’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
.16%, ii) expected life of years, iii) dividend yield of %, iv) expected volatility of %. These stock options were fully expensed as of December 31, 2020.
19 |
As part of the Constable Option Agreement, the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● | the right to purchase 5,000,000 in the aggregate over four consecutive fiscal quarters commencing January 1, 2021 and ending on April 30, 2023 (the “Net Revenue Period”); shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $ |
● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and |
● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive quarters during the Net Revenue Period. |
The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for .years.
The fair value of the Bonus Options on the date of the grant was $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met, and as of SeptemberJune 30, 2021,2022, it was deemed that the Company met the qualifications for 2four quarters for tranche one ofTranches 1 and 2 $ . For the options. Therefore, stock option expense recognized during the ninethree and six months ended SeptemberJune 30, 2021 for this option was2022, the Company recognized $ and $., respectively.
EffectiveOn June 14, 2021, the Company issued options to purchase up to an aggregate of shares of common stock to various employees under the Plan. The options were issued pursuant to a stock option grant agreements and are exercisable at $ per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)(iv) expected volatility of %. The stock options expense recognized for the ninethree and six months ended SeptemberJune 30, 20212022 was $. and $ , respectively.
On August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company is obligated to enter into a Non-Qualified Stock Option agreement with Blake Carmichael. Under the terms of the Blake Carmichael Employment agreement, the Company will enter into an option contract that will grantgranted Blake Carmichael a 5five-yearyear option to purchase shares of the Company’s common stock at an exercise price of $, (the “BC Compensation Options”). The BC Compensation Options vest vested The fair value of the options on the date of the grant was $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)and (iv) expected volatility of %. The Company expensed $as of SeptemberDecember 31, 2021, and did not recognize any additional expense for the three and six months ended June 30, 2021.2022.
As part of the Blake Carmichael Agreement, the company is also obligated to enter into a Non-Qualified Stock option agreement (the “BC Bonus Options”) that will grantCompany granted Blake Carmichael a 5five-year-year option to purchase up to shares to be vestedof common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics tied to Revenue and EBITA.metrics. The fair value of the BC Bonus Options was $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)(iv) expected volatility of %, v)and (v) exercise price of .0399 per share. The measurement period for these options began in August, 2021 The Company analyzed the likelihood that the vesting qualifications would be met, and as of June 30, 2022, it was deemed that it was likely that shares would be issued at the end of the first year, and accordingly was fully expensed as of December 31, 2021. For the three and six months ended June 30, 2022 there waswere no material changes to vesting qualifications and no stock option expense to be recognized for the nine months ended September 30, 2021.was recognized.
20 |
During the Third Quarter,third quarter of 2021, the Company issued options to purchase up to an aggregate of shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $ to $ per share for a periods ranging from to of from the date of issuance, with quarterly vesting periods over to . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate from % to %, ii)(ii) expected life of to years, iii)(iii) dividend yield of %, iv)and (iv) expected volatility of % to %. The stock options expense recognized for the ninethree and six months ended SeptemberJune 30, 20212022 was $. and $ , respectively.
EffectiveOn September 3, 2021, the Company issued options to purchase up to an aggregate of shares of common stock under the Plan to Christeen Buban, President of SSI under the Plan.SSI. The options were issued pursuant to the Buban Employment Agreement and a stock option grant agreement and isare exercisable at $per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)and (iv) expected volatility of %. The stock options expense recognized for the ninethree and six months ended SeptemberJune 30, 20212022 was $ and $., respectively.
As part ofIn connection with the Buban Employment Agreement, the company is also obligated to enter intoCompany granted Ms. Buban that will grant Ms. Buban a Non-Qualified Stockfive-year option agreement (the “Buban Bonus Options”Option”) that will grant Mrs. Buban a -year option to purchase up to shares to be vestedof the Company’s common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics tied to Revenue and EBITA.metrics. The fair value of the Buban Bonus OptionsOption was $using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)(iv) expected volatility of %, v)and (v) exercise price of .0531$ per share. The measurement period for these optionsthe Buban Bonus Option began on September 3, 2021. The companyCompany analyzed the likelihood that vesting qualifications would be met during the contract year and deemed that there was no option expense to be recognized for the ninesix months ended SeptemberJune 30, 2021.2022.
EffectiveOn September 3, 2021 the Company issued options to purchase up to an aggregate of shares of common stock to various employees of SSI under the Plan. The options were issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of %, ii)(ii) expected life of years, iii)(iii) dividend yield of %, iv)(iv) expected volatility of %. The stock options expense recognized for the ninethree and six months ended SeptemberJune 30, 20212022 was $. and $ , respectively.
During the fourth quarter of 2021, the Company issued options to purchase up to an aggregate of shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $ to $ per share for a period of of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $ , respectively.
On November 5, 2021, the Company entered into a non-qualified stock option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable an immediately exercisable five-year option to purchase shares of the Company’s common stock at an exercise price of $ (the “Compensation Option”). The fair value of the Compensation Option on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Compensation Option was fully expensed as of December 31, 2021.
On January 21, 2022, the Company issued options to purchase up to an aggregate of shares of common stock to an employee under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $ per share for a period of from the date of issuance, with quarterly vesting periods over . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $ , respectively.
21 |
During the three months ended June 30, 2022, the Company issued options to purchase up to an aggregate of shares of common stock to three employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $ to $ per share for a period of of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate ranging from % to % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $ , respectively.
On April 8, 2022, the Company issued an option to purchase up to shares of common stock to one contractor under the Plan. The option was issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of of from the date of issuance. The options vested immediately. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $ , respectively.
On May 16, 2022, the Company issued an option to purchase up to shares of common stock to one employee under the Plan. The option was issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of four years of from the date of issuance, with quarterly vesting periods over three quarters. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $ , respectively.
Schedule of Option Activity
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding - December 31, 2020 | 199,730,020 | $ | 0.0185 | $ | 168,892 | |||||||||||||||||||||||||||
Outstanding – December 31, 2021 | 233,128,266 | $ | 0.0362 | $ | 795,201 | |||||||||||||||||||||||||||
Granted | 30,969,400 | 0.0432 | 1,592,647 | 0.0353 | ||||||||||||||||||||||||||||
Forfeited | (25,000 | ) | 0.036 | (125,000 | ) | |||||||||||||||||||||||||||
Exercised | - | - | - | - | ||||||||||||||||||||||||||||
Outstanding – September 30, 2021 (unaudited) | 230,674,420 | $ | 0.0281 | |||||||||||||||||||||||||||||
Exercisable – September 30, 2021 (unaudited) | 71,295,653 | $ | 0.0185 | $ | 1,175,136 | |||||||||||||||||||||||||||
Outstanding – June 30, 2022 (unaudited) | 234,595,913 | $ | 0.0362 | |||||||||||||||||||||||||||||
Exercisable – June 30, 2022 (unaudited) | 105,200,664 | $ | 0.0322 | $ | 1,022,422 |
Warrants
On September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors,director, units, of the securities of the Company, with theeach unit consisting of 1one share of common stock and 1 two yeara two-year warrant to purchase one share of common stock purchase warrants exercisable at an exercise price of $0.025per share in consideration of $250,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of a member of our Board of Directors,Charles Hyatt, units, of the securities of the Company, with theeach unit consisting of 1one share of common stock and 1 two yeara two-year warrant to purchase one share of common stock purchase warrants exercisable at an exercise price of $0.025per share in consideration of $15,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
In September, 2021, the Company issued units of the securities of the Company to three accredited investors, with theeach unit consisting of 1one share of common stock and 1 two yeara two-year warrant to purchase one share of common stock purchase warrants exercisable at $0.025per share in consideration of $100,000.
. The
On February 2, 2022, the Company did not pay any fees or commissionsissued Charles Hyatt, a director, shares of common stock upon the exercise of a warrant at $0.025 per share in connection withconsideration of $250,000.
On February 2, 2022, the saleCompany issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares of common stock upon the unit.exercise of a warrant at $0.025 per share in consideration of $15,000.
22 |
A summary of the Company’s warrants as of December 31, 20202021 and changes during the nine-month period thensix months ended SeptemberJune 30, 20212022 is presented below:
Schedule of Warrants Activity
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding - December 31, 2020 | - | $ | 0.01 | |||||||||||||
Granted | 14,600,000 | $ | 0.025 | |||||||||||||
Exercised | - | |||||||||||||||
Forfeited or Expired | - | |||||||||||||||
Outstanding - September 30, 2020 | 14,600,000 | $ | 0.025 | |||||||||||||
Exercisable - September 30, 2020 | 14,600,000 | $ | 0.025 | $ | 292,000 |
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding – December 31, 2021 | 14,600,000 | $ | 0.025 | $ | 153,300 | |||||||||||
Granted | ||||||||||||||||
Exercised | (10,600,000 | ) | $ | 0.025 | ||||||||||||
Forfeited or Expired | - | |||||||||||||||
Outstanding – June 30, 2022 | 4,000,000 | $ | 0.025 | |||||||||||||
Exercisable – June 30, 2022 | 4,000,000 | $ | 0.025 | 1.19 | $ | 56,000 |
Note 9. Commitments and contingencies
On August 14, 2014, the Company entered into a thirty-seven-monththirty-seven month term lease for its facilities in Pompano Beach, Florida, commencing on September 1, 2014. Terms included payment of a $5,367 security deposit; base rent of approximately $4,000per month over the term of the lease plus sales tax; and payment of 10.7610.76%% of annual operating expenses (i.e. common(common areas maintenance), which was approximately $2,000 per month subject to periodic adjustment. On December 1, 2016, wethe Company entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending the term of the lease for an additional eighty-four months, expiring September 30, 2024. The base rent was increased to $4,626per month with a 33%% annual escalation throughout the amended term.
On January 4, 2018, the Company entered into a sixty-one month lease renewal for its facility in Huntington Beach, CA,California commencing on February 1, 2018. Terms included base rent of approximately $9,300 Gross per month for the first 12 months and increasing 2.5%with an annual escalation throughout the amended term.clause of 2.5% thereafter. The Company paid a security deposit of $8,450 withupon entering into the initial lease that ended with the renewal.
lease.
On November 11, 2018, the Company entered a newsixty-nine month lease agreementcommencing on January 1, 2019 for approximately 8,025 square feet adjoining its existing facility in Pompano Beach, Florida. Terms of the new lease include a sixty-nine month term commencing on January 1, 2019, or the date the Company took possession of the premises, if earlier; a $6,527 security deposit; initial base rent of approximately $4,848 per month escalating at 33%% per year during the term of the lease plus Florida state sales tax and payment of 10.1110.11%% of the buildings annual operating expenses (i.e. common(common area maintenance) which is approximately $1,679 per month, subject to adjustment as provided in the lease.
On June 30, 2020, the Company entered into Amendment No. 2 to theits Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $60,000, or $15,000per fiscal quarter, beginning in December 2019 and increasing by 2.152.15%% per year. The minimum royalty was temporarily increased to $60,000for fiscal years 2022, 2023 and 2024, with a fourth quarter true up against earned royalties. In addition, if the Company should terminateterminates the agreementsAgreement with STS prior to December 31, 2023, then the Company is obligated to pay STS $180,000, less cumulative royalties paid in excess of $200,174for the years 2019 through 2024. In accordance with the amendment, the Company will pay additional minimum royalties of $60,000 per year or $15,000 per quarter for the years 2022 through 2024. Royalty recorded in relation tounder this agreement totaledAgreement was $24,854 50,708and $41,25113,379 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $94,31679,809 and $54,95541,306 for the ninesix months ended Septembermonths ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
On June 9, 2020, the Company entered into ana one-year advertising and marketing agreement with Figment Design. The term of the agreement isDesign for one year, and thereafter renew or cancel the agreement in writing 60 days before the final date. The Company will continue to be billed $8,840 per month through the expiration date of July 2021. The Companywhich agreement terminated the agreement with Figment Design effectiveon July 31, 2021.
On August 1, 2020, BLU3 entered into a marketing agreement with This Way Media PTY, Ltd. The term of this agreement is for 11 months and can be cancelled with 30 days’ notice during the first 90 days of the agreement. After the first 90 days, the agreement can be cancelled with 60 days’ notice after the completion of the term of the agreement. BLU3 will pay This Way Media PTY, LTD $500 per month, and 5% of each affiliate sale. This agreement expired on July 1, 2021. BLU3, Inc. is currently in negotiation to renew this agreement.
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On November 5, 2020, the Company and Christopher H. Constable entered into a three yearthree-year employment agreement with Christopher Constable (the “Constable Employment Agreement”) pursuant to which the Mr. Constable shall serveserves as Chief Executive Officer of the Company. Previously, Mr. Constable had provided advisory services to the Company through thean agreement with Brandywine LLC. In consideration for his services, Mr. Constable shall receive (i) an annual base salary of $200,000, payable in accordance with the customary payroll practices of the Company, and (ii) issuable upon execution of the Employment Agreement and on each anniversary of the date of the agreementAgreement during the term, a non-qualified immediately exercisable five-year stock option to purchase that number of shares equal to $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the Common StockCompany’s common stock on the date of issuance. Therefore, the Executive shall receiveAccordingly, on November 5, 2020, Mr. Constable was issued an initial stock option grant to purchase shares of the Corporation’s common stock at an exercise price of $ per share pursuant toand on November 5, 2021, Mr. Constable was issued an option award agreement.to purchase shares of the Company’s common stock at an exercise price of $ per share.
In addition, Mr. Constable shall be entitled to receive four-year stock options to purchase shares of common stock at an exercise price equal to $ listed below based upon the following performance milestones during the term of the Constable Employment Agreement: (i) shares -– if the Company’s total net revenues, as reported in its statement of operations in its financial statements in its filings with the SEC, including as a result of a stock or asset acquisition of a third party (“Net Revenues”) are in excess of $5,000,000, in the aggregate, for four consecutive fiscal quarters; (ii) shares -– if the Company’s Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) shares -– if the Company’s Net Revenues are in excess of $10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) shares -– if the Company’s common stock is listed on the on NASDAQ or New York Stock Exchange. per share in the following amounts
On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued shares of its common stock valued at $to BGM EQUITYEquity Partners. The agreement expired on March 1, 2022.
On August 1, 2021, the Company and Blake Carmichael entered into a three yearthree-year employment agreement (the “Blake Carmichael Employment Agreement”) pursuant to which Mr. Carmichael shall continue to serve as Chief Executive Officer of BLU3. In consideration for his services, Blake Carmichael shall receive (i) an annual base salary of $120,000, payable in accordance with the customary payroll practices of the Company, and (ii) a cash bonus equal to 5% of the net income of BLU3 payable quarterly, beginning with the first full calendar quarter after the execution of the agreement. (iii) Issuable upon execution of the Employment Agreement, a non-qualified stock option to purchase shares at $., .
In addition, Blake Carmichael shall be entitled to receive a five-year -yearstock optionsoption to purchase up to shares of common stock at an exercise price equal toof $ per share that will vest upon definedannual financial metrics that are measured on a contract year basis. The metrics defined in the agreement escalate the shares available to vest based upon a revenue measurement, expediency measurement and an EBITDA measurement.
On August 6, 2021, the Company entered into a six-month, non-exclusive mergers and acquisitions services agreement with Newbridge Securities Corporation.Corporation which provides for a The merger agreement shall pay seven percent7% commission for the first two million dollars$2,000,000 paid in aggregate purchase price consideration and six percent on thean aggregate consideration above two million dollars.purchase price in excess of $2,000,000 The fee shallfor any merger or acquisition target sourced by Newbridge, to be paid in the common stock of the Company. The equity received is subject to a holding period of six months from the closing date of the transaction.Such agreement expired by its terms.
On September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”) pursuant to which Mrs.Ms. Buban shall serve as the President of SSI. In consideration for hisher services, Mrs. Buban shall receive (i) an annual base salary of $$110,000, payable in accordance with the customary payroll practices of the Company, (ii) a car allowance and cell phone allowance totalingof $per year, (iii) a stock-year option issued under the Plan to purchase shares of common stock of the Company at $. The options vest per share, which option vests quarterly over the next eight calendar quarters.
In addition, Mrs. Buban shall be entitled to receive a optionsoption to purchase up to shares of common stock of the Company at an exercise price equal toof $ that will vestper share, which vests upon the attainment of certain defined annual financial metrics, that are measured on a contract year basis. The metrics definedas set forth in the Buban Employment Agreement, stock
On January 17, 2022, the Company entered into an agreement escalatewith The Crone Law Group, PC (“CLG”) for the provision of legal services. In consideration therefor, the Company will pay CLG a monthly flat fee of $3,000 per month for the SEC reporting work, and its normal hourly rate for any other legal work and issued shares availableof common stock with a fair market value of $ to vest based uponCLG.
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On May 2, 2022, the Company entered into a revenue measurement, expediency measurementtwo-year employment agreement with Steven Gagas (the “Gagas Employment Agreement”) pursuant to which Mr. Gagas shall serve as the General Manager of the dive shop currently operating within LBI. In consideration for his services Mr. Gagas shall receive an annual salary of $50,000.
On May 2, 2022, LBI, entered into a lease assignment agreement with Gold Coast Scuba, LLC and Vicnsons Realty Group, LLC whereby LBI is the assignee to the remainder of the lease for the property located at 259 Commercial Blvd, Suites 2 and 3 in Lauderdale-By-The Sea, Florida. The lease is in its third year of a three year term and has a $2,816 per month base rent. The lease provides an EBITDA measurement.option to renew for an additional term of two years with an increase of base rent by 3.5%
Legal
The Company was a defendant in that certain lawsuit styledan action, Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., filed on May 6, 2019 in the Circuit Court of the 17th17th Judicial Circuit, in and for Broward County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $15,870.97in unpaid consulting fees together with interest. In April 2020, the Company filed a Motion to Dismiss, and at a hearing held in May 2021, the Court struck certain allegations contained in the complaint, the parties agreed that the quantum meruit allegation is deemed to be an alternative to the breach of contract allegation, but permitted certain other allegations to stand. The parties entered mediation pursuant to the Court’s order. This action was settled for $10,000on July 12, 2021. The company paysCompany paid monthly installments of $1,000 and is current in its payments.. As of June 30, 2022 this settlement has been fully paid.
Note 10. Segment Reporting
The Company has 45 operating segments as described below:
1. | ||
2. | High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages. | |
3. | Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user. | |
4. | Redundant Air Tank Systems, which manufactures and distributes a line of high pressure tanks and redundant air systems for the military and recreational diving | |
5. | Guided Tour and Retail, which provides guided tours using the BLU3 technology, and also operates as a reteal store for the diving community. |
Schedule of Segment Reporting Information
Nine months ended
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September 30
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Total Company | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||
Net Revenues | $ | 2,419,920 | $ | 2,192,175 | $ | 477,085 | $ | 352,383 | $ | 1,204,265 | $ | 1,081,418 | $ | 121,131 | $ | - | $ | 4,222,401 | $ | 3,625,976 | ||||||||||||||||||||
Cost of Revenue | (1,682,597 | ) | (1,301,939 | ) | (279,209 | ) | (230,366 | ) | (885,223 | ) | (814,196 | ) | (92,063 | ) | - | (2,939,092 | ) | (2,346,501 | ) | |||||||||||||||||||||
Gross Profit | 737,323 | 890,236 | 197,876 | 122,017 | 319,042 | 267,222 | 29,068 | - | 1,283,309 | 1,279,475 | ||||||||||||||||||||||||||||||
Depreciation | 13,077 | 5,105 | - | - | 10,001 | 9,672 | 6,639 | - | 29,717 | 14,777 | ||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (1,071,220 | ) | $ | (479,387 | ) | $ | 46,435 | $ | (37,300 | ) | $ | (188,534 | ) | $ | (122,767 | ) | $ | (16,025 | ) | $ | - | (1,229,344 | ) | $ | (639,454 | ) | |||||||||||||
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Total Assets | $ | 1,679,021 | $ | 1,646,192 | $ | 314,514 | $ | 193,019 | $ | 904,386 | $ | 654,427 | $ | 2,210,009 | $ | - | $ | 5,107,930 | $ | 2,493,638 |
Three Months Ended
September June 30
(unaudited)
Schedule of Segment Reporting Information
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Guided Tour Retail | Total Company | |||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
Net Revenues | $ | 797,022 | $ | 976,973 | $ | 270,193 | $ | 207,565 | $ | 884,271 | $ | 528,380 | $ | 399,479 | $ | - | $ | 50,274 | $ | - | $ | 2,401,238 | $ | 1,712,918 | ||||||||||||||||||||||||
Cost of Revenue | $ | (558,426 | ) | (668,246 | ) | (140,248 | ) | (113,499 | ) | (570,027 | ) | (333,864 | ) | (255,568 | ) | - | (14,136 | ) | - | (1,538,404 | ) | (1,115,609 | ) | |||||||||||||||||||||||||
Gross Profit | 238,596 | 308,727 | 129,945 | 94,066 | 314,244 | 194,516 | 143,911 | - | 36,138 | - | 862,834 | 597,309 | ||||||||||||||||||||||||||||||||||||
Depreciation | 4,369 | 4,748 | - | - | 4,478 | 2,419 | 24,096 | - | - | - | 32,943 | 7,167 | ||||||||||||||||||||||||||||||||||||
Income from Operations | $ | (334,967 | ) | $ | (314,279 | ) | $ | 41,705 | $ | 40,224 | $ | 17,461 | $ | (41,248 | ) | $ | (46,576 | ) | $ | - | $ | 3,237 | $ | - | (319,140 | ) | (315,303 | ) |
Six Months Ended
June 30
(unaudited)
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Total Company | Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Guided Tour Retail | Total Company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Revenues | $ | 976,904 | $ | 1,271,668 | $ | 119,392 | $ | 78,997 | $ | 341,287 | $ | 319,994 | $ | 121,131 | $ | - | $ | 1,558,714 | $ | 1,670,659 | $ | 1,378,131 | $ | 1,443,016 | $ | 547,010 | $ | 357,693 | $ | 1,678,858 | $ | 862,978 | $ | 721,935 | $ | - | $ | 50,274 | $ | - | $ | 4,376,208 | $ | 2,663,687 | ||||||||||||||||||||||||||||||||||||||||||||
Cost of Revenue | $ | (644,525 | ) | (763,157 | ) | (84,532 | ) | (45,079 | ) | (362,566 | ) | (182,632 | ) | (92,063 | ) | - | (1,183,686 | ) | (990,868 | ) | (1,020,384 | ) | (1,038,072 | ) | (301,039 | ) | (194,677 | ) | (986,985 | ) | (522,657 | ) | (515,070 | ) | - | (14,136 | ) | - | (2,837,613 | ) | (1,755,406 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit | 332,379 | 508,511 | 34,860 | 33,918 | (21,279 | ) | 137,362 | 29,068 | - | 375,028 | 679,791 | 357,747 | 404,944 | 245,971 | 163,016 | 691,873 | 340,321 | 206,865 | - | 36,138 | - | 1,538,595 | 908,281 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 4,517 | 1,950 | - | - | 5,165 | 2,419 | 6,639 | - | 16,321 | 4,369 | 8,739 | 8,560 | - | - | 8,956 | 4,836 | 49,107 | - | - | - | 66,802 | 13,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from Operations | $ | (312,790 | ) | $ | 135,302 | $ | (3,155 | ) | $ | (35,063 | ) | $ | (202,594 | ) | $ | (41,248 | ) | $ | (16,025 | ) | $ | - | (534,564 | ) | 58,991 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (704,557 | ) | $ | (758,430 | ) | $ | 82,164 | $ | 49,590 | $ | 34,223 | $ | 14,060 | $ | (168,105 | ) | $ | - | $ | 3,237 | $ | - | (753,038 | ) | $ | (694,780 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 1,535,945 | $ | 1,529,702 | $ | 540,583 | $ | 302,088 | $ | 1,236,449 | $ | 673,255 | $ | 1,825,787 | $ | - | $ | 260,247 | $ | - | $ | 5,399,011 | $ | 2,505,045 |
Note 11. Subsequent Events
On October 15, 2021, City National Bank, the lender of the Submersible SBA Loan of $116,160 informed SSI Company that its loan forgiveness application had been accepted, and the Submersible SBA Loan was fully forgiven in accordance with the terms of the CARES Act.Alliance Lease
On June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement production molds. The total purchase price of the molds was $84,500 and $63,375 was financed by NFS Leasing on August 15, 2022. The lease has a 33 month term beginning in August 2022 with a monthly lease payment of $2,571. The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the assets of SSI.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s DiscussionYou should read the following discussion and Analysisanalysis of Financial Conditionour financial condition and Resultsresults of Operations.operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Overview
BWMG,The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products in the United States and internationally.
The Company has five subsidiaries focused on various sub-sectors:
● | Brownie’s Third Lung - Surface Supplied Air (“SSA”) | |
● | BLU3, Inc. - Ultra-Portable Tankless Dive Systems | |
● | LW Americas - High Pressure Gas Systems | |
● | Submersible Systems, Inc. - Redundant Air Tank Systems | |
● | Live Blue, Inc. – Guided Tours and Retail |
Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, a manufacturing facility in Huntington Beach, California, and a retail facility in Lauderdale-By-The-Sea, Florida.
The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based SCUBAself-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems and acts as the exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas markets. Our wholly owned subsidiariesThe Company is also building a guided tour operation that also include dive retail. Lastly, The Company is the exclusive United States and related product lines areCaribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as follows:Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa.
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Third Quarter and Nine Months ended September 30, 2021 HighlightsImpact of COVID-19 Pandemic
Revenue for the Third Quarter 2021 declined as compared to the same period in 2020, however, revenue for the nine months ended September 30, 2021 have maintained an increased as compared to the same periods in 2020, The Company has previously been affected by temporary manufacturing closures and employment and compensation adjustments. The market continues its mission to expand our customer basesuffer from primarily the southeast US to an international distributor and retail customer base. We believe that we are changing the way that people will approach the next atmosphere, by providing innovative, portable and easy to use surface supplied air products that will allow the users to explore what is below the surfaceimpacts of the water.
pandemic via supply chain shortages and freight delays. The continued freight delays have and will likely continue to result in additional expenses to expedite delivery of critical parts. Additionally, increased demand for personal electronics has created a shortfall of microchip supply which are used in our battery powered products, and it is yet unknown how we may be impacted.
Highlights:We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.
Results of Operations
Net Revenues, Costs of Net Revenues and Gross Profit
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Net revenues decreased 6.7%increased 37.2% for the Third Quarter, 2020, but increased 16.4% for the ninethree months ended SeptemberJune 30, 2021 from the comparable period in 2020. The Third Quarter, 2021 decreases were are result of a reduction in sales to related parties of 7.2% and sales to third parties of 4.3% due to supply chain issues discussed below. For the nine months ending September 30, 2021, sales related parties have increased 13.5% and third party sales increase 30.5%2022 as compared to the same periodthree months ended June 30, 2021 as a result of a 67.4% increase in 2020revenue for BLU3, Inc. from salesthe continued expansion of its customer base as well as the addition of NOMAD to related parties forits product line, an increase in LWA’s revenues of 30.2% as a result of the expansion of its customer base and the addition of both SSI and LBI revenue which did not exist in 2021. For the three and nine months ended SeptemberJune 30, 2021, respectively, over the comparable prior period. Net revenue for the Third Quarter 2020 and nine months ended September 30, 2020 included non-recurring revenue related to the Blu-Vent project of approximately $574,901. Adjusting this non-recurring item from the 2020 revenue the core business revenue increase for the three and nine months ended September 30, 2021 would be 38.2% and 0.1%, respectively.
Our total2022, cost of net revenues inwas 64.1% as compared with the Third Quarter 2021 andcost of revenues of 65.1% for the ninethree months ended SeptemberJune 30, 2021 were 75.9% and 69.6% of our total net revenues as compared to 59.3% and 64.7% for the same periods in 2020.2021. Included in our total cost of net revenues are royalty expenses we paypaid to Mr.Robert Carmichael which decreased 38.7% and increased 8.3%36.4%% for the three and nine months ended SeptemberJune 30, 20212022 as compared to the same periodsthree months ended June 30, 2021. Gross profit margin was 35.9% for the three months ended June 30, 2022 as compared to gross profit margin of 34.9% for the three months ended June 30, 2021. The slight improvement in the prior year. The decreased royalties are thegross margin, of 1.0% as it relates to revenue is a result of decreased Third Quarter revenuethe production of more finished products, reducing direct labor cost per unit, primarily in LWA and the legacy SSA segmentaddition of LBI with margins of 71.9% for the three months ended June 30, 2022.
27 |
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Net revenues increased 64.3% for the six months ended June 30, 2022 as compared to the same periodssix months ended June 30, 2021. This increase is a result of a 94.5% increase in 2020. Also includedrevenue for BLU3, Inc. from the continued expansion of its customer base as well as the addition of NOMAD to its product line, an increase in LWA’s revenues of 52.9% as a result of the totalexpansion of its customer base and the addition of SSI and LBI revenue which did not exist in 2021. These revenue increases were countered by a decrease of 4.5% in revenue for BTL. For the six months ended June 30, 2022, cost of net revenue are royalties paid pursuant to our agreementrevenues was 64.8% as compared with STS. These royalties accounted for approximately 1.6% and 1.9%the cost of total net revenuerevenues of 65.9% for the three and ninesix months ended SeptemberJune 30, 2021, respectively2021. Included in cost of net revenues are royalty expenses paid to a third party which increased 71.6% for the six months ended June 30, 2022 as compared to .8% and 1.1%the six months ended June 30, 2021. Gross profit margin was 35.2% for the same periods in 2020.
We reported an overallsix months ended June 30, 2022 as compared to gross profit margin of 24.1% and 30.4%34.1% for the three and ninesix months ended SeptemberJune 30, 2021 as compared to 40.7%2021. The slight improvement in gross margin, of 1.1% revenue is a result of a 1.8% margin increase in the BLU3 product line and 35.3%the addition of LBI with margins of 71.9% for the three and ninesix months ended SeptemberJune 30, 2020. The Legacy SSA product lines suffered from supply chain slowness in the Third Quarter 2021 decreasing sales for the Third Quarter 2021 as compared to the same period in 2020. This led to increased direct labor costs as compared to revenue. The High Pressure Gas Systems margins have shown a decrease in margin percentage for the Third Quarter 2021 to 29.2% from 42.9% during the same quarter in 2020. However, with the increased revenue in this segment for the Third Quarter 2021, dollar margin available to cover operating expenses remained consistent with the same period in the prior year. Revenue in this segment grew 51.1% for the Third Quarter, 2021 as compared to the Third Quarter 2020. Margins related to the Ultra-Portable Tankless dive segment decreased to (6.2%) from 42.9% for the Third Quarter 2021 as compared to the Third Quarter, 2020. The margins in this segment were impacted by direct labor costs which increased 120% for the quarter over the same quarter in 2020. This increase is solely attributable to ramping up manufacturing labor for NOMAD production, which began shipping in October, 2021.2022.
The following tables provides net revenues, total costs of net revenues and gross profit margins for our segments for the periods presented.
Net Revenues
Three Months Ended September 30 | % of | Nine Months Ended September 30, | % of | Three Months Ended June 30, | % of | Six Months Ended June 30, | % of | |||||||||||||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||
Legacy SSA Products | $ | 976,904 | $ | 1,271,668 | (23.2 | %) | $ | 2,419,920 | $ | 2,192,175 | 10.4 | % | $ | 797,022 | $ | 976,973 | (18.4 | )% | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | ||||||||||||||||||||||||
High Pressure Gas Systems | 119,392 | 78,997 | 51.1 | % | 477,085 | 352,383 | 35.4 | % | 270,193 | 207,565 | 30.2 | % | 547,010 | 357,693 | 52.9 | % | ||||||||||||||||||||||||||||||||
Ultra-Portable Tankless Dive Systems | 341,287 | 319,994 | 6.7 | % | 1,204,265 | 1,081,418 | 11.4 | % | 884,271 | 528,380 | 67.4 | % | 1,678,858 | 862,978 | 94.5 | % | ||||||||||||||||||||||||||||||||
Redundant Air Tank Systems | 121,131 | - | 100.0 | % | 121,131 | - | 100.0 | % | 399,479 | - | 100.0 | % | 721,935 | - | 100.0 | % | ||||||||||||||||||||||||||||||||
Guided Tour Retail | 50,274 | - | 100.0 | % | 50,274 | - | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||
Total net revenues | $ | 1,558,714 | $ | 1,670,659 | (6.7 | %) | $ | 4,222,401 | $ | 3,625,976 | 16.4 | % | $ | 2,401,238 | $ | 1,712,918 | 37.2 | % | $ | 4,376,207 | $ | 1,955,317 | 64.3 | % |
Cost of revenues as a percentage of net revenues
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Legacy SSA Products | 66.0 | % | 60.0 | % | 69.5 | % | 59.4 | % | 70.1 | % | 68.4 | % | 74.0 | % | 71.9 | % | ||||||||||||||||
High Pressure Gas Systems | 70.8 | % | 57.1 | % | 58.5 | % | 65.4 | % | 51.9 | % | 54.7 | % | 55.0 | % | 54.4 | % | ||||||||||||||||
Ultra-Portable Tankless Dive Systems | 106.2 | % | 57.1 | % | 73.5 | % | 75.3 | % | 64.5 | % | 63.2 | % | 58.8 | % | 60.6 | % | ||||||||||||||||
Redundant Air Tank Systems | 76.0 | % | - | 76.0 | % | - | 64.0 | % | - | 71.4 | % | - | ||||||||||||||||||||
Guided Tour Rental | 28.1 | % | - | 28.1 | % | - |
Gross profit (loss) margins
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Legacy SSA Products | 34.0 | % | 40.0 | % | 30.5 | % | 40.6 | % | 31.6 | % | 31.6 | % | 26.0 | % | 28.1 | % | ||||||||||||||||
High Pressure Gas Systems | 29.2 | % | 42.9 | % | 41.5 | % | 34.6 | % | 45.3 | % | 45.3 | % | 45.0 | % | 45.6 | % | ||||||||||||||||
Ultra-Portable Tankless Dive Systems | (6.2 | %) | 42.9 | % | 26.5 | % | 24.7 | % | 36.8 | % | 36.8 | % | 41.2 | % | 39.4 | % | ||||||||||||||||
Redundant Air Tank Systems | 24.0 | % | - | 24.0 | % | - | 36.0 | % | - | 28.7 | % | - | ||||||||||||||||||||
Guided Tour Rental | 71.9 | % | - | 71.9 | % | - |
28 |
Legacy SSA Products segment
RevenueNet revenue in this segment decreased 4.1% for the Third Quarter 2021 declined 23.2%six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The decrease can be primarily attributed to a 5.4% decrease in the dealer segment for the six months ended June 30, 2022 as compared to the same period in 2020.2021. The decline was across all customer segments for primarily the following two reasons: 1) Schoolsdecrease in our primary geographic areas of revenue started fully in person during the Third Quarter 2021, cutting back activity time for families out on the water. 2) Supply chain slowness. The Company was unable to shipdealer orders for nearly the entire month of August due to critical parts delays. Additionally, the Company was unable to further supply its popular Pioneer model of Third Lungcan be attributed to the market23.2% drop for July and August duethe three months ended June 30, 2022 as compared the same period in 2021. Many dealers increased purchases to a lack of availability in North America ofprepare for the engine that is the core selling feature of that unit. All indications are that the shortage of this specific engine is a temporary delay, and supplier estimates indicate a product availability insummer season during the first quarter of 2022. The2022, and held back with restocking orders as we believe there may be some trepidation regarding the economy. Affiliate sales, staff of the Company maintained sales momentum by encouraging customers to purchase what is available. Despite the decline during the Third Quarter 2021, revenuewhile down for the ninethree months ending SeptemberJune 30, 2022 as compared to the three months ended June 30, 2021 is upremain 32.2% over the prior year in this segment by 10.4%. The largest increase yearsix month results at June 30, 2022. Direct to date is in the dealer segment, increasing 15.6% year over yearconsumer sales have also decreased for the ninesix months ending SeptemberJune 30, 2021. The company has put a significant effort2022 as compared to the same period in increasing2021 we believe due to concerns over the Company’s dealer base during 2021 both in number and geographically.economy.
Our costs of revenues as a percentage of net revenues in this segment increased from 59.4%71.9% to 69.5%74.0% for the ninesix months ended SeptemberJune 30, 2021 from the prior year. The increased cost of revenue, and in turn reduction in product margin, can be attributed to increase proportion of dealer sales as2022 compared to the prior year, as well as the increased labor burden to cost of sales, in comparison to total costsix months ended June 30, 2021 due to the decrease in anticipated production and therefore salesnegative margin for the Third Quarter, 2021.
affiliate sales channel.
A breakdown of the revenue channels for this segment are below. Direct to Consumer represent items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we have dealer agreements that typically operate with the lowers margin. Affiliates are resellers of our products that are not in a formal dealer arrangement.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | Net Revenue | Cost of Sales as a % of Net Revenue | Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||
Third Quarter 2021 | Third Quarter 2020 | % change | Third Quarter 2021 | Third Quarter 2020 | Third Quarter 2021 | Third Quarter 2020 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % change | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
Dealers | $ | 660,180 | $ | 852,185 | -22.5 | % | 70.4 | % | 70.4 | % | 29.6 | % | 29.6 | % | $ | 510,902 | $ | 664,928 | (23.2 | )% | 73.4 | % | 77.7 | % | 26.6 | % | 22.3 | % | ||||||||||||||||||||||||||||
Direct to Consumer (website Included) | 311,479 | 406,562 | -23.4 | % | 54.8 | % | 37.7 | % | 45.2 | % | 62.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Direct to Consumer (website included) | 258,899 | 273,430 | (5.3 | )% | 57.7 | % | 45.1 | % | 42.3 | % | 54.9 | % | ||||||||||||||||||||||||||||||||||||||||||||
Affiliates | 5,245 | 12,921 | -59.4 | % | 173.4 | % | 78.1 | % | (73.4 | )% | 21.9 | % | 27,221 | 38,615 | (29.5 | )% | 156.9 | % | 74.3 | % | (56.9 | )% | 25.7 | % | ||||||||||||||||||||||||||||||||
Total | $ | 976,904 | $ | 1,271,668 | -23.2 | % | 66.0 | % | 60.0 | % | 34.0 | % | 40.0 | % | $ | 797,022 | $ | 976,973 | (18.4 | )% | 71.1 | % | 68.4 | % | 28.9 | % | 31.6 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Dealers | $ | 868,755 | $ | 918,467 | (5.4 | )% | 78.2 | % | 78.7 | % | 21.8 | % | 21.3 | % | ||||||||||||||
Direct to Consumer (website included) | 461,534 | 484,102 | (4.7 | )% | 63.3 | % | 58.9 | % | 36.7 | % | 41.1 | % | ||||||||||||||||
Affiliates | 47,842 | 40,447 | 18.3 | % | 120.8 | % | 74.5 | % | (20.8 | )% | 25.5 | % | ||||||||||||||||
Total | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | 74.0 | % | 71.9 | % | 26.0 | % | 28.1 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | % change | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | ||||||||||||||||||||||
Dealers | $ | 1,577,607 | $ | 1,364,469 | 15.6 | % | 75.3 | % | 62.8 | % | 24.7 | % | 37.2 | % | ||||||||||||||
Direct to Consumer (website Included) | 796,565 | 794,061 | 0.3 | % | 57.2 | % | 53.2 | % | 42.8 | % | 46.8 | % | ||||||||||||||||
Affiliates | 45,748 | 33,645 | 36.0 | % | 85.8 | % | 67.2 | % | 14.2 | % | 32.8 | % | ||||||||||||||||
Total | $ | 2,419,920 | $ | 2,192,175 | 10.4 | % | 69.5 | % | 59.4 | % | 30.5 | % | 40.6 | % |
29 |
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors had a 51.1% year over year increase duringincreased 52.9% in the Third Quartersix months ended June 30, 2022 compared with the six months ended June 30, 2021 as LWA was able to continue to supply its customers with their needs despite industry supply chain issues. The reseller segment while decreasing 9.4% for the marketplace continuesthree months ended June 30, 2022 as compared to seethe same period in the prior year, showed an economic recovery duringoverall increase of 25.9% for the six months ended June 30, 2022 with increased orders through the Third Quarter, 2021. All segments have opened up, and demand is continuing to increase, with travel returning, and diving operations throughoutdistribution customers in the US, and Caribbean have re-opened and receiving tourists. The majority of our dive resort and dive operator customers’ businesses were up and running in the Third Quarter, 2021,South America, and the recovery of this customer segment can be seen in the increases in revenue of 127% in the reseller segment.Caribbean. The Original Equipment Manufacturer segment continuescontinued to show growth with an increase of 35.4%205% for the ninesix months ended SeptemberJune 30, 20212022 as compared to 2020.the six months ended June 30, 2021 due to several orders shipped internationally to boat manufacturers. The direct to consumer segment, which includes yacht owners and direct to dive stores, showed additional improvement in the Third Quarter, 2021 increasing 47.9%, however this increase wasn’t enough to recover the year over year resultsincreased 199.0% for the ninethree months ended SeptemberJune 30, 2022 compared to the three months ended June 30, 2021 with a decrease in revenue inand increased 49.2% for the segment of 17.3%. We continuesix months ended June 30, 2022 as compared to see acceptance of the L&W brand and we expect sales to continue to increase as we open the product up to new markets outside of the diving and yachting segments.June 30, 2021.
Our costsCosts of revenues as a percentage of net revenues in this segment decreasedshowed a slight increase to 58.5%55.0% for the six months ended June 30, 2022 as compared to 65.4%54.4% for the ninesix months ended SeptemberJune 30, 2021 and 2020.2021. This increase can be attributed to significant improvementsincreased cost of in margintransportation from suppliers and to customers during the reseller and OEM customer segments. This is attributed to improved product mix and improvements in the job-costing process.six months ended June 30, 2022.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | Net Revenue | Cost of Sales as a % of Net Revenue | Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||
Third Quarter 2021 | Third Quarter 2020 | % change | Third Quarter 2021 | Third Quarter 2020 | Third Quarter 2021 | Third Quarter 2020 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
Resellers | $ | 103,667 | $ | 45,649 | 127.0 | % | 73.6 | % | 76.5 | % | 52.0 | % | 23.5 | % | $ | 109,767 | $ | 121,118 | (9.4 | )% | 48.6 | % | 53.0 | % | 51.4 | % | 47.0 | % | ||||||||||||||||||||||||||||
Direct to Consumers | 12,301 | 8,319 | 47.9 | % | 53.4 | % | 298.2 | % | 46.6 | % | -198.2 | % | 130,816 | 43,749 | 199.0 | % | 57.7 | % | 68.2 | % | 42.3 | % | 31.8 | % | ||||||||||||||||||||||||||||||||
Original Equipment Manufacturers | 3,424 | 25,029 | 86.3 | % | 48.1 | % | 106.2 | % | 51.9 | % | -6.2 | % | 29,610 | 42,698 | 30.7 | % | 38.8 | % | 45.6 | % | 61.2 | % | 54.4 | % | ||||||||||||||||||||||||||||||||
Total | $ | 119,392 | $ | 78,997 | 51.1 | % | 70.8 | % | 57.1 | % | 29.2 | % | 42.9 | % | $ | 270,193 | $ | 207,565 | 30.2 | % | 51.9 | % | 54.7 | % | 48.1 | % | 45.3 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Resellers | $ | 239,540 | $ | 190,191 | 25.9 | % | 51.7 | % | 57.3 | % | 48.3 | % | 42.7 | % | ||||||||||||||
Direct to Consumers | 195,245 | 130,819 | 49.2 | % | 58.4 | % | 51.7 | % | 41.6 | % | 48.3 | % | ||||||||||||||||
Original Equipment Manufacturers | 112,225 | 36,683 | 205.9 | % | 57.1 | % | 46.1 | % | 42.9 | % | 53.9 | % | ||||||||||||||||
Total | $ | 547,010 | $ | 357,693 | 52.9 | % | 55.0 | % | 54.4 | % | 45.0 | % | 45.6 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | % change | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | ||||||||||||||||||||||
Resellers | $ | 321,590 | $ | 187,368 | 71.6 | % | 60.7 | % | 73.0 | % | 39.3 | % | 27.0 | % | ||||||||||||||
Direct to Consumers | 106,564 | 128,877 | -17.3 | % | 49.5 | % | 49.1 | % | 50.5 | % | 50.9 | % | ||||||||||||||||
Original Equipment Manufacturers | 48,931 | 36,138 | 35.4 | % | 56.1 | % | 83.9 | % | 43.9 | % | 16.1 | % | ||||||||||||||||
Total | $ | 477,085 | $ | 352,383 | 35.4 | % | 58.5 | % | 65.4 | % | 41.5 | % | 34.6 | % |
30 |
Ultra Portable Tankless Dive Systems
RevenueNet revenue for the ninesix months ended SeptemberJune 30, 20212022 in the Ultra Portable Tankless Dive System segment continues to show improvement withshowed growth of 11.4% increase for the first nine months of 202194.5% as compared to the same periodsix months ended June 30, 2021. The growth in 2020. The increase in revenue is despiteall segments for the lossthree and six months ended June 30, 2022 can be attributed to the addition of the non-recurring revenue related toNomad product line into those sales channels. The growth of 162.2% in the BLU-Vent project that was recognized duringDealer channel represents the first nine months of 2020. Allcontinued expansion of the international dealer base. The growth in this segment of 156.8% for the three months ended June 30, 2022 represents sales channelsto new dealers and seasonal buy-in as dealers prepared for the summer season.
Cost of revenues from this business segment continue to develop. The largest contributors toas a percentage of net revenues for the revenue increases forthree and six months ended June 30, 2022 showed improvement over both the three and ninesix months ended SeptemberJune 30, 2021, primarily due to the impact of the cost and production efficiencies of the Nomad dive system and the resulting increase in margin as a percentage of revenue for the same periods in 2022 as compared to the prior year, are the growth in dealer sales and sales via the Amazon channel. Through September 30, 2021, BLU3 is selling to Amazon in nine countries as well as a significant presence in the US Amazon Channel. BLU3 continues to expand its dealer base which can be seen by the 261.0% revenue growth for first nine months of 2021 as compared to the same period in 2020. The Company’s continued focus on direct to consumer via our website accounted for a 20.1% increase for the nine months ended September 30, 2021 as compared to the prior year.2021.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | ||||||||||||||||||||||
Direct to Consumer | 220,950 | 188,466 | 17.2 | % | 67.9 | % | 53.9 | % | 32.1 | % | 46.1 | % | ||||||||||||||||
Amazon | 274,444 | 188,467 | 45.6 | % | 53.0 | % | 61.90 | 47.0 | % | 38.1 | % | |||||||||||||||||
Dealers | 388,877 | 151,447 | 156.8 | % | 70.6 | % | 76.4 | % | 29.4 | % | 23.6 | % | ||||||||||||||||
Total | $ | 884,271 | $ | 528,380 | 67.4 | % | 52.5 | % | 63.2 | % | 47.5 | % | 36.8 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Direct to Consumer | $ | 539,955 | $ | 340,665 | 58.5 | % | 55.2 | % | 52.2 | % | 44.8 | % | 47.8 | % | ||||||||||||||
Amazon | 449,120 | 259,265 | 73.2 | % | 54.5 | % | 61.8 | % | 45.5 | % | 38.2 | % | ||||||||||||||||
Dealers | 689,783 | 263,048 | 162.2 | % | 64.4 | % | 70.1 | % | 35.6 | % | 29.9 | % | ||||||||||||||||
Total | $ | 1,678,858 | $ | 862,978 | 94.5 | % | 58.8 | % | 60.6 | % | 41.2 | % | 39.4 | % |
31 |
Our aggregate cost of revenue from this segment as percentage of net revenues for the Third Quarter 2021 was significantly impacted by an increased cost of labor. For most of the Third Quarter 2021, BLU3 was hiring and training manufacturing staff to prepare for NOMAD production. Cost of direct labor increase in excess of 100% for the Third Quarter and nine months ending September 30, 2021 as compared to the same period in 2020. Moving into the last quarter of the year, we believe we will see the labor costs level out and margins return to a normal as NOMAD shipment begin in October, 2021. Despite the tremendous impact to margins for the Third Quarter 2021, margins for the nine months ended September 30, 2021 surpassed margins of the same period in 2020. Margin improvement will continue as direct labor rates are absorbed into NOMAD revenues.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Third Quarter 2021 | Third Quarter 2020 | % change | Third Quarter 2021 | Third Quarter 2020 | Third Quarter 2021 | Third Quarter 2020 | ||||||||||||||||||||||
Ventilator | $ | - | $ | 117,098 | -100.0 | % | - | -76.2 | % | - | 176.2 | % | ||||||||||||||||
Direct to Consumer | 146,901 | 162,952 | -9.9 | % | 82.4 | % | 155.5 | % | 17.6 | % | -55.5 | % | ||||||||||||||||
Amazon | 94,569 | - | 100.0 | % | 106.8 | % | - | -67.8 | % | - | ||||||||||||||||||
Dealers | 99,817 | 39,944 | 149.9 | % | 82.9 | % | 46.4 | % | -17.1 | % | 53.6 | % | ||||||||||||||||
Total | $ | 341,287 | $ | 319,994 | 6.7 | % | 106.2 | % | 57.1 | % | -6.2 | % | 42.9 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | % change | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | ||||||||||||||||||||||
Ventilator | $ | - | $ | 574,901 | -100.0 | % | - | 55.4 | % | - | 44.6 | % | ||||||||||||||||
Direct to Consumer | 487,566 | 405,994 | 20.1 | % | 61.3 | % | 105.4 | % | 38.7 | % | -5.4 | % | ||||||||||||||||
Amazon | 353,834 | - | 100.0 | % | 90.1 | % | - | 9.9 | % | - | % | |||||||||||||||||
Dealers | 362,865 | 100,523 | 261.0 | % | 73.6 | % | 67.5 | % | 26.4 | % | 32.5 | % | ||||||||||||||||
Total | $ | 1,204,265 | $ | 1,081,418 | 11.4 | % | 73.5 | % | 75.3 | % | 26.5 | % | 24.7 | % |
Redundant Air Tank Systems
RevenueNet revenue for the Third Quarter 2021 and ninesix months ended SeptemberJune 30, 20212022 in the Redundant Air Tank Systems System segment represent just one month of revenuewas $721,935 and costs as$399,479 for the acquisition closed in early September.three months ended June 30, 2022. The margins for the one month are burdened by direct labor costs,three months ended June 30 ,2022 showed improvement at 36.0% as supply issuescompared to 28.7% for the six months ended June 30, 2022 as the margin for dealer sales improved during September caused delaysthe three months ended June 30, 2022 to 31.2% as compared to 22% for the six months ended June 30, 2022. Outside of the margin for repairs, dealer margins continue to be the lowest margin segment as SSI must price goods in shipmentsorder for dealers to their customer base.also generate profits. SSI has a vast worldwide customer base that includes (1) Commercialcommercial accounts that havewith aircraft that requirerequiring redundant air systems for their pilots and passengers, such as the oil business with helicopters flying to oil rigs located in the middle of large bodies of water.water (2) Governmentgovernment accounts that are typically domestic and international military customers who use theirwith egress systems for various uses. (3) Dealersdealer accounts that are resellers including, but not limited to international distributors to the military, commercial account or dive shops, and domestic and international dive shops that carry their Spare Air product.a spare air product (4) Directdirect to consumer sales represent not onlywhich are online sales butand sales via trade shows that go direct to consumer.consumer and (5) Company provided repairs and warranty repairs to all segments.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | Net Revenue | Cost of Sales as a % of Net Revenue | Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||
Third Quarter 2021 | Third Quarter 2020 | % change | Third Quarter 2021 | Third Quarter 2020 | Third Quarter 2021 | Third Quarter 2020 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 7,020 | $ | - | 100 | % | 53.2 | % | - | 46.8 | % | - | $ | 46,550 | - | N/A | 43.8 | % | - | 56.2 | % | - | ||||||||||||||||||||||||||||||||||
Dealers | 95,191 | - | 100 | % | 88.5 | % | - | 11.5 | % | - | 250,223 | - | N/A | 68.8 | % | - | 31.2 | % | - | |||||||||||||||||||||||||||||||||||||
Government | 14,302 | - | 100 | % | 19.7 | % | - | 80.3 | % | - | 38,711 | - | N/A | 37.5 | % | - | 62.5 | % | - | |||||||||||||||||||||||||||||||||||||
Repairs | 11,047 | - | N/A | 221.6 | % | - | (121.6 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||
Direct to Consumers (Website) | 4,618 | - | 100 | % | 28.3 | % | - | 71.7 | % | - | 52,948 | - | N/A | 45.8 | % | - | 54.2 | % | - | |||||||||||||||||||||||||||||||||||||
Total | $ | 121,131 | $ | - | 100 | % | 76.8 | % | - | 24.0 | % | - | $ | 399,479 | - | N/A | 64.0 | % | - | 36.0 | % | - |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Commercial | $ | 103,156 | - | N/A | 43.6 | % | - | 56.4 | % | - | ||||||||||||||||||
Dealers | 462,342 | - | N/A | 78.0 | % | - | 22.0 | % | - | |||||||||||||||||||
Government | 52,712 | - | N/A | 36.8 | % | - | 63.2 | % | - | |||||||||||||||||||
Repairs | 18,858 | - | N/A | 236.1 | % | -(136.1 | )% | |||||||||||||||||||||
Direct to Consumers (Website) | 84,867 | - | N/A | 53.9 | % | - | 46.1 | % | - | |||||||||||||||||||
Total | $ | 721,935 | - | N/A | 71.3 | % | - | 28.7 | % | - |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | % change | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | ||||||||||||||||||||||
Commercial | $ | 7,020 | $ | - | 100 | % | 53.2 | % | - | 46.8 | % | - | ||||||||||||||||
Dealers | 95,191 | - | 100 | % | 88.5 | % | - | 11.5 | % | - | ||||||||||||||||||
Government | 14,302 | - | 100 | % | 19.7 | % | - | 80.3 | % | - | ||||||||||||||||||
Direct to Consumers (Website) | 4,618 | - | 100 | % | 28.3 | % | - | 17.7 | % | - | ||||||||||||||||||
Total | $ | 121,131 | $ | - | 100 | % | 76.8 | % | - | 24.0 | % | - |
32 |
Guided Tours and Retail
The guided tour and retail segment is a new segment and is derived from LBI. Revenue in this segment currently primarily includes retail sales, and tours and lessons. Retail sales represent the sales of product at the retail facility, while tours and lessons represent revenue derived from diving excursions and lessons.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | ||||||||||||||||||||||
Retail Sales | $ | 34,549 | - | N/A | 8.9 | % | - | 91.1 | % | - | ||||||||||||||||||
Tours and Lessons | 15,725 | - | N/A | 70.4 | % | - | 29.6 | % | - | |||||||||||||||||||
Total | $ | 50,274 | - | N/A | 28.1 | % | - | 71.9 | % | - |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Retail Sales | $ | 34,549 | - | N/A | 8.9 | % | - | 91.1 | % | - | ||||||||||||||||||
Tours and Lessons | 15,725 | - | N/A | 70.4 | % | - | 29.6 | % | - | |||||||||||||||||||
Total | $ | 50,274 | - | N/A | 28.1 | % | - | 71.9 | % | - |
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Operating Expenses
Operating expenses, consistingconsist of selling, general and administrative (“SG&A”) expenses and research and development costs and are reported on a consolidated basis for our operating segments. Aggregate operatingOperating expenses increased 46.5%38.3% for the Third Quarter 2021three months ended June 30, 2022 and 42.1% for the six months ended June 30, 2022 as compared to the Third Quarter 2020. Forsame periods in the nine months ended September 30, 2021 aggregate operating expenses increased by 30.9% from the same period in 2020.prior year.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increased by 46.5% and 33.2% for the Third Quarter and nine months ended September 30, 2021 as compared to the same periods in 2020. The main drivers of SG&A during those periods are as follows:
Expense Item | Third Quarter 2021 | Third Quarter 2020 | % Change | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | % Change | ||||||||||||||||||
Payroll, Selling & Admin | $ | 276,262 | $ | 173,073 | 59.6 | % | 737,791 | 420,963 | 75.3 | % | ||||||||||||||
Stock Comp Expense | 312,946 | 260,092 | 20.3 | % | 811,821 | 666,132 | 21.9 | % | ||||||||||||||||
Professional Fees | 121,470 | 15,389 | 689.3 | % | 276,998 | 287,983 | -3.8 | % | ||||||||||||||||
Advertising | 64,317 | 58,263 | 10.4 | % | 178,158 | 93,331 | 90.9 | % | ||||||||||||||||
All Others | 107,942 | 88,181 | 26.7 | % | 438,811 | 365,630 | 19.0 | % | ||||||||||||||||
Total SG&A | $ | 882,937 | $ | 591,998 | 49.1 | % | 2,443,579 | 1,834,039 | 33.2 | % |
Payroll increases41.4% for the three and nine months ended SeptemberJune 30, 2021 are related to the hiring of the CEO, social media/marketing manager,2022 and several other operating and administrative personnel to support the growth in each of our divisions. Also, payroll related to SSI contributed nearly 10% of the increase.
Non-Cash Stock compensation expenses increased 20.3% and 21.9%45.5% for the three and ninesix months ended Septemberending June 30, 20212022 as compared to the same periods in the prior year. SG&A expenses were comprised of the following:
Expense Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | % Change | ||||||||||||||||||
Payroll, Selling & Administrative | $ | 544,709 | $ | 236,062 | 130.7 | % | $ | 940,485 | $ | 461,529 | 103.8 | % | ||||||||||||
Non-Cash Stock Compensation Expense | 290,706 | 266,370 | 9.1 | % | 520,740 | 498,875 | 4.4 | % | ||||||||||||||||
Professional Fees | 98,619 | 116,576 | (15.4 | )% | 225,031 | 178,015 | 26.4 | % | ||||||||||||||||
Advertising | 101,129 | 47,615 | 112.4 | % | 257,573 | 113,841 | 126.3 | % | ||||||||||||||||
All Others | 142,438 | 156,984 | (9.3 | )% | 339,511 | 308,382 | 10.1 | % | ||||||||||||||||
Total SG&A | $ | 1,177,601 | $ | 823,607 | 43.0 | % | $ | 2,283,340 | $ | 1,560,642 | 46.3 | % |
Payroll increases for the three months ended March 31, 2022 can be attributed primarily to the addition of SSI payroll which accounted for 51% of the increase with the remaining 49% attributable to increases in personnel at BLU3 to manage increasing revenue and production, as well as slight increases in wages and staffing in the other divisions.
Non-Cash Stock compensation expenses increased 4.4% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The increase can be attributed to options givengranted to employees as partunder the Company’s Equity Incentive Plan, and the vesting of the Plan, and options issued under both the Blake Carmichael Employment Agreement and the Buban Agreement duringCompany’s Chief Executive Officer’s incentive option. The increase of 9.1% for the three months ended SeptemberJune 30, 2021. The increase for the nine months ended September 30, 20212022 as compared to the same period in 2020 also includes expensesthree months ended June 30, 2021 is related to options issued to our CFO and Chairman, that were issued during the Second Quarter 2020 and were fully expensed in the First Quarter 2021.same option vesting.
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Professional fees, including legal and other professional fees which are typicallythe Company has paid viawith a combination of cash and common stock or stock options increased 689% and decreased 3.8% for26.4% in the Third Quarter 2021 and ninesix months ended SeptemberJune 30, 2021, respectively,2022 as compared to the same periods in 2020.six months ended June 30, 2021. The increase in the Third Quarter is directly related to professional fees in relation to the acquisition of SSI. The decrease for the nine months ending can be attributed to an increase in accounting fees related to the contracts of both an IR firm andyear-end audit. For the three months ended June 30, 2022 professional fees decreased 15.4% as compared to the prior year, as a PR firmconsultant was added to payroll in the Second Quarter 2020, that were terminated or their compensation was restructured for 2021.2022.
The increase in advertising expense for the three and ninesix months ended SeptemberJune 30, 20212022 as compared to the same periods in 2020six months ended June 30, 2021 is attributable to the agreement with the Company’s provider of marketingBLU3’s focus on social media, Amazon and trade show advertising. This contract was executed in the Third Quarter 2020, and was not renewed as of July 31, 2021.
Research & Development Expenses (R&D Expenses)
R&D expenses for the Third Quarter and ninethree months ended SeptemberJune 30, 20212022 decreased 7.5%79.5% and 18.6%, respectively80.5% for the six months ended June 30, 2022 as compared to the same periods in the prior year. The decrease can be primarily attributed to the completion of the R&D for BLU3’s NOMAD, as it moved into production in the Third Quarter,third quarter of 2021.
Total Other IncomeIncome/Expense
For the Third Quarter, 2021six months ended June 30, 2022, other expenses totaled approximately $6,100 and other income totaled approximately $157,900 for the nine months ended September 30, 2021$19,700 of interest expense as compared to other expenseincome of approximately $2,500 and $14,700 during$164,000 for the same period in 2020. The othersix months ended June 30, 2021. Other income for the ninesix months ended SeptemberJune 30, 2021 consistsconsisted of a gain from the forgiveness of the PPP loan of $159,600 and gain ondue to the settlement of debt of $10,000, offset bythe forgiveness of a PPP loan less interest expense of approximately $11,700.$5,600. The other expenses for the Second Quarter 2020 consist only of interest expense. The decreaseincrease in interest expense can be attributed to the decreaseNavitas loan that was funded in the second quarter of 2021, and the interest expense on the Marlin Note,debt related to the conversion and settlementacquisition of debt and a reduction in the note balances due to repayments made.SSI.
Liquidity and Capital Resources
Liquidity is the abilityWe had cash of a company to generate sufficient cash to satisfy its needs for cash.$574,567 as of June 30, 2022. The following table summarizedsummarizes total current assets, total current liabilities and working capital at SeptemberJune 30, 2021 (unaudited)2022 as compared to December 31, 2020.2021.
September 30, | December 31, | % of | June 30, | December 31, | % | |||||||||||||||||||
2021 | 2020 | change | 2022 | 2021 | change | |||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Total current assets | $ | 3,299,300 | $ | 1,469,037 | 124.5 | % | $ | 3,783,509 | $ | 2,966,432 | 11.2 | % | ||||||||||||
Total current liabilities | $ | 1,555,471 | $ | 1,029,204 | 51.1 | % | $ | 1,991,200 | $ | 1,396,197 | 14.2 | % | ||||||||||||
Working capital | $ | 1,743,829 | $ | 439,833 | 296.5 | % | $ | 1,792,309 | $ | 1,570,235 | 8.4 | % |
The increase in our current assets at SeptemberJune 30, 20212022 from December 31, 2020 principally2021 primarily reflects an increase from the assets of SSI as well as the increases in cash, accounts receivable,inventory purchases reflected by an increase in inventory and prepaid assets which includes prepayments of inventory, related toas the SSI acquisition.Company has experienced revenue growth and ramped up purchasing and production for the summer season. The increase in our total current liabilities principally reflect increasesprimarily reflects the additional SSI liabilities as well as a significant increase in total accounts payable, customer deposits, and other liabilities, inclusive of those acquired in the SSI Acquisition.particularly customer deposits with LWA.
Summary Cash Flows
Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net cash used by operating activities | $ | (569,142 | ) | $ | (158,147 | ) | $ | (275,257 | ) | $ | (396,838 | ) | ||||
Net cash provided by (used in) investing activities | $ | 517,701 | $ | (5,500 | ) | |||||||||||
Net cash used in investing activities | $ | (31,946 | ) | $ | (14,941 | ) | ||||||||||
Net cash provided by financing activities | $ | 566,970 | $ | 862,618 | $ | 238,627 | $ | 227,904 |
Net cash used in operating activities for the ninesix months ended SeptemberJune 30, 20212022 was due to the net loss of approximately $1,071,500$772,754 which is primarily attributable to non-cash stock compensation expenses of approximately $960,800.$579,300. The non-cash stock compensation expense for the ninesix months ended SeptemberJune 30, 20212022 is attributable to stock options and grants issued to our executive officers and various employees as well as shares of common stock issued to consultants and professionals for services. TheNet cash used in operating activities is also the result of increases in current assets, including, accounts receivable, inventory, net, and prepaid expenses that utilized approximately $875,400$797,000, offset by increases in current liabilities including accounts payable, other liabilities, and customer deposits, which totaled to approximately $417,300.$501,700.
35 |
Net cash used in investing activities for the six months ended June 30, 2022 of approximately $31,946 consists of $30,000 used in an asset acquisition and a small fixed asset purchase of approximately $1,900.
Net cash provided by investingfinancing activities for the ninesix months ended SeptemberJune 30, 2021 relate to the cash acquired in the SSI acquisition of $541,400 offset by an increase in leasehold improvements of approximately $23,700, as the company expanded its office space for additional personnel, and lighting in the production areas.
Net cash provided by financing activities in the nine months ended September 30, 20212022 reflects proceeds from the saleexercise of units and common stock, proceeds from a newwarrants of approximately $265,000 less the repayment of debt agreement, offset by the repayments of notes payable and debt.
approximately $26,400.
Going Concern and Management’s Liquidity Plans
As set forth in Note 3 of theOur unaudited condensed consolidated financial statements appearingincluded in this reportQuarterly Report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the 12-monthtwelve-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2020 contained2021 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern qualification.concern.
We have a history of losses, and an accumulated deficit of $14,027,602$15,317,359 as of SeptemberJune 30, 2021.2022. Despite a working capital surplus of $1,743,829$1,792,309 at SeptemberJune 30, 2021,2022, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. We believe with the cash balance of approximately $860,700 the Company has theThe Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and continue to sustain operations for the next twelve months.adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company..Company. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations.
Critical Accounting Policies
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing earliercontained in this report.Quarterly Report.
Recent Accounting Pronouncements
The recentThere were various accounting standards that have beenand interpretations issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future daterecently, none of which are not expected to have a material impacteffect on the Company’s operations, financial statements upon adoption. position or cash flows.
These recent accounting pronouncements are described in Note 2 to our notes to unaudited condensed consolidated financial statements appearing earliercontained in this report.Quarterly Report.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
ItemITEM 3. Quantitative and Qualitative Disclosures About Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.The Company is a smaller reporting company and is not required to provide this information.
36 |
ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, (as definedour management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in Rules 13a-15(e)part upon certain assumptions about the likelihood of future events, and 15d-15(e)there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of the Securities Exchange Actend of 1934, as amended (the “Exchange Act”)the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded that are designedour disclosure controls and procedures were not effective such that the information relating to be effective in providing reasonable assurance that informationour company, required to be disclosed in our Securities and Exchange Commission reports under the Exchange Act(i) is recorded, processed, summarized and reported within the time periods specified in theSEC rules and forms of the SEC, and that such information(ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. The Company’sdisclosure as a result of continuing material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our management, under the supervision and with the participationincluding our ChiefPrincipal Executive Officer and our ChiefPrincipal Financial Officer, carried out an evaluation ofhave evaluated the effectiveness of the design and operationoperations of the Company’sour disclosure controls and procedures (as defined(defined in Rule 13a-15(e)Exchange Act Rules 13a-15(c) and 15d-15(e) of the Exchange Act)) as of SeptemberJune 30, 2021. Based2022 and based upon thatthe such evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that the Company’s disclosure controls and procedures were ineffectivenot effective as of such date due to the endmaterial weaknesses set forth below.
● | Insufficient number and lack of qualified accounting department and administrative personnel and support; | |
● | Insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to GAAP and SEC disclosure requirements; |
● | Insufficient segregation of duties, oversight of work performed and lack of controls in our finance and accounting functions due to limited personnel; | |
● | Company’s systems that impact financial information and disclosures have ineffective information technology controls; | |
● | Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded; and | |
● | Evaluation of disclosure controls and procedures was not sufficiently comprehensive due to limited personnel. |
Subject to sufficient resources, management expects to remediate the material weaknesses identified above as follows:
● | Management has leveraged and will continue to leverage experienced consultants to assist with ongoing GAAP and SEC compliance requirements. We intend to expand our finance department through the hiring of a certified public accountant to strengthen the segregation of duties, internal controls and enhance our current staff. | |
● | Segregation of duties is being analyzed and adjusted Company-wide, where possible. The Company is in the process of hiring additional personnel in the accounting department, as well as the documentation of controls and procedures. | |
● | The Company plans on evaluating various accounting systems to enhance its system controls. |
We will continue to monitor and evaluate the effectiveness of the period covered by this report as a result of the continuing material weakness in the Company’sour internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as described in Item 9A. of our 2020 10-K.necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we remediate the material weaknesses inhave added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal ControlsControl over Financial Reporting
There werehave been no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15 under the Exchange Act that occurred during the period covered by this reportour last fiscal quarter that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ItemITEM 1. Legal ProceedingsLEGAL PROCEEEDINGS
There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
Item ITEM 1A. RISK FACTORS1A. Risk Factors
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2020 10-K.The Company is a smaller reporting company and is not required to provide this information.
ItemITEM 2. Unregistered sales of equity securities and use of proceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In addition to unregisteredExcept as set forth below, there were no sales of equity securities disclosed under prior reports during the period covered by this report, we sold the securities disclosed belowQuarterly Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
On May 31, 2022, the Company issued a consultant, 302,953 shares of 1933, as amended (the “Act”). The recipientcommon stock for consulting services related to the dive industry.
As of our securities below are accredited investors.June 30, 2022, the Company issued 449,522 shares of common stock to the holders of convertible notes for payment of interest through June 30, 2022.
On September 22, 2021,June 17, 2022, the Company issued a law firm 1,190,476 shares of restricted common stock as partial consideration for its legal services related to acquisition of SSI. The shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Act.
On August 18, 2021 the Company issued 6,114,516280,000 shares of common stock to an employee as a note holder pursuant toretirement gift.
The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the conversion of a $50,000 principal amount 6% secured promissory note dated December 5, 2017, in full satisfaction of such note. The shares were issued pursuant to the exemption from registration provided by Section 3(a)(9)requirements of the Act.Securities Act of 1933 by virtue of Section 4(2) thereof.
ItemITEM 3. Defaults Upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES
None.
ItemITEM 4.MINE SAFETY DISCLOSURE
None.
ItemITEM 5. Other InformationOTHER INFORMATION
None.
ItemITEM 6. ExhibitsEXHIBITS
Incorporated by Reference | Filed | |||||||||
Exhibit | or Furnished | |||||||||
No. | Exhibit Description | Form | Date Filed | Number | Herewith | |||||
3.1 | Articles of Conversion (Nevada) | 8-K | 10/28/15 | 3.1 | ||||||
3.2 | Certificate of Conversion (Florida) | 8-K | 10/28/15 | 3.2 | ||||||
3.3 | Articles of Incorporation (Florida) | 8-K | 10/28/15 | 3.3 | ||||||
3.4 | Articles of Amendment | 8-K | 12/16/15 | 3.5 | ||||||
3.5 | Bylaws | 8-K | 10/28/15 | 3.4 | ||||||
4.1 | 8-K | 9/9/21 | ||||||||
10.1 | 8-K | 9/9/21 | ||||||||
10.2 | Confidentiality, Non-Competition and Non-Solicitation Agreement | 8-K | 9/9/21 | |||||||
10.21 | M&A Services Agreement | Filed | ||||||||
10.22 | Employment Agreement – Blake Carmichael | Filed | ||||||||
10.23 | Employment Agreement – Christeen Buban | Filed | ||||||||
31.1 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) | Filed | ||||||||
31.2 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) | Filed | ||||||||
32.1 | Certification Pursuant to Section 1350 | Filed | ||||||||
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Exhibit Number | Exhibit | |
31.1 | Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |
101.INS | Inline XBRL INSTANCE DOCUMENT | |
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | ||
By: | /s/ Christopher H. Constable | |
Christopher H. Constable | ||
Chief Executive Officer | ||
By: | /s/ Robert M. Carmichael | |
Robert M. Carmichael | ||
Chief Financial Officer | ||