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.
(Exact name of registrant as specified in its charter)
| Florida | 90-0226181 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 3001 NW 25th Avenue, Suite 1 | ||
| Pompano Beach, Florida | 33069 | |
| (Address of principal executive offices) | (Zip code) |
(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 | ||
| None | Not applicable | Not applicable |
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 ☒
ThereAs of August 19, 2022, there were 409,774,099 shares of common stock outstanding as of May 27, 2022.outstanding.
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. | 38 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 38 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 38 |
| ITEM 4. | MINE SAFETY DISCLOSURES. | 38 |
| ITEM 5. | OTHER INFORMATION. | 38 |
| ITEM 6. | EXHIBITS. |
| 2 |
NOTE REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. 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.
You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the SEC on April 22, 2022, which risk factors could adversely impact our business and 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. All forward-looking statements speak only as of the date on which they are made. 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.
| 3 |
PART I
ITEM 1. FINANCIAL STATEMENTS
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022 (unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 574,567 | $ | 643,143 | ||||
| Accounts receivable - net | 276,812 | 123,270 | ||||||
| Accounts receivable - related parties | 75,122 | 77,301 | ||||||
| Inventory, net | 2,323,468 | 1,895,260 | ||||||
| Prepaid expenses and other current assets | 533,540 | 227,458 | ||||||
| Total current assets | 3,783,509 | 2,966,432 | ||||||
| Property, equipment and leasehold improvements, net | 292,038 | 270,065 | ||||||
| Operating Lease Assets | 372,992 | 454,475 | ||||||
| Intangible Assets, Net | 682,655 | 718,905 | ||||||
| Goodwill | 249,986 | 249,986 | ||||||
| Other assets | 17,831 | 14,098 | ||||||
| Total assets | $ | 5,399,011 | $ | 4,673,961 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 1,204,610 | $ | 744,383 | ||||
| Accounts payable - related parties | 31,437 | 37,267 | ||||||
| Customer deposits and unearned revenue | 280,510 | 143,938 | ||||||
| Other liabilities | 222,373 | 187,924 | ||||||
| Operating lease liabilities | 214,061 | 232,283 | ||||||
| Current maturities long term debt | 38,209 | 50,402 | ||||||
| Notes payable | - | - | ||||||
| Convertible debentures, net | - | - | ||||||
| Total current liabilities | 1,991,200 | 1,396,197 | ||||||
| Long term debt | 73,775 | 87,956 | ||||||
| Long term convertible debentures, net | 341,098 | 339,254 | ||||||
| Operating lease liabilities | 159,322 | 222,899 | ||||||
| Total liabilities | 2,565,395 | 2,046,306 | ||||||
| Commitments and contingent liabilities (see note | - | |||||||
| Stockholders’ equity | ||||||||
| 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 | 18,118,191 | 17,132,434 | ||||||
| Accumulated deficit | (15,317,359 | ) | (14,544,604 | ) | ||||
| Accumulated other comprehensive loss | (8,633 | ) | - | |||||
| Total stockholders’ equity | 2,833,616 | 2,627,655 | ||||||
| Total liabilities and stockholders’ equity | $ | 5,399,011 | $ | 4,673,961 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
March 31, 2022 (Unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 604,274 | $ | 643,143 | ||||
| Accounts receivable - net | 191,438 | 123,270 | ||||||
| Accounts receivable - related parties | 77,140 | 77,301 | ||||||
| Inventory, net | 2,029,192 | 1,895,260 | ||||||
| Prepaid expenses and other current assets | 395,387 | 227,458 | ||||||
| Total current assets | 3,297,431 | 2,966,432 | ||||||
| Property, equipment and leasehold improvements, net | 257,215 | 270,065 | ||||||
| Operating Lease Assets | 397,208 | 454,475 | ||||||
| Intangible Assets, Net | 700,780 | 718,905 | ||||||
| Goodwill | 249,986 | 249,986 | ||||||
| Other assets | 17,831 | 14,098 | ||||||
| Total assets | $ | 4,920,451 | $ | 4,673,961 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 871,079 | $ | 744,383 | ||||
| Accounts payable - related parties | 18,032 | 37,267 | ||||||
| Customer deposits and unearned revenue | 248,433 | 143,938 | ||||||
| Other liabilities | 201,580 | 187,924 | ||||||
| Operating lease liabilities | 208,623 | 232,283 | ||||||
| Current maturities long term debt | 46,867 | 50,402 | ||||||
| Total current liabilities | 1,594,614 | 1,396,197 | ||||||
| Long term debt, net of current | 80,843 | 87,956 | ||||||
| Long term convertible debentures, net | 340,176 | 339,254 | ||||||
| Operating lease liabilities, net of current | 189,134 | 222,899 | ||||||
| Total liabilities | 2,204,767 | 2,046,306 | ||||||
| Commitments and contingent liabilities (see note 9) | - | - | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock; $ par value: shares authorized; issued and outstanding as of March 31, 2022 and December 31, 2021 | 425 | 425 | ||||||
| Common stock; $par value; shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. | 40,566 | 39,386 | ||||||
| Common stock payable; shares and shares, as of March 31, 2022 and December 31, 2021, respectively | 14 | 14 | ||||||
| Additional paid-in capital | 17,661,788 | 17,132,434 | ||||||
| Accumulated deficit | (14,988,696 | ) | (14,544,604 | ) | ||||
| Accumulated other comprehensive income | 1,587 | - | ||||||
| Total stockholders’ equity | $ | 2,715,684 | $ | 2,627,655 | ||||
| Total liabilities and stockholders’ equity | $ | 4,920,451 | $ | 4,673,961 |
| 4 |
BROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE AND SIX MONTHS ENDED JUNE 30
(UNAUDITED)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenues | ||||||||||||||||
| Net revenues | $ | 2,110,575 | $ | 1,359,745 | $ | 3,812,139 | $ | 2,106,098 | ||||||||
| Net revenues - related parties | 290,663 | 353,173 | 564,068 | 557,589 | ||||||||||||
| Total net revenues | 2,401,238 | 1,712,918 | 4,376,207 | 2,663,687 | ||||||||||||
| Cost of net revenues | ||||||||||||||||
| Cost of net revenues | 1,331,847 | 876,646 | 2,453,485 | 1,385,715 | ||||||||||||
| Cost of net revenues - related parties | 138,025 | 169,699 | 259,199 | 275,130 | ||||||||||||
| Royalties expense - related parties | 17,824 | 28,013 | 30,613 | 39,606 | ||||||||||||
| Royalties expense | 50,708 | 41,251 | 94,316 | 54,955 | ||||||||||||
| Total cost of revenues | 1,538,404 | 1,115,609 | 2,837,613 | 1,755,406 | ||||||||||||
| Gross profit | 862,834 | 597,309 | 1,538,594 | 908,281 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | 1,177,601 | 823,607 | 2,283,340 | 1,560,642 | ||||||||||||
| Research and development costs | 4,373 | 21,312 | 8,292 | 42,419 | ||||||||||||
| Total operating expenses | 1,181,974 | 844,919 | 2,291,632 | 1,603,061 | ||||||||||||
| Income (Loss) from operations | (319,140 | ) | (247,610 | ) | (753,038 | ) | (694,780 | ) | ||||||||
| Other (income) expense, net | ||||||||||||||||
| Gain on settlement of debt | - | - | - | 10,000.00 | ||||||||||||
| Gain on the forgiveness of PPP loan | - | 159,600 | - | 159,600.00 | ||||||||||||
| Interest expense | (9,523 | ) | (1,795 | ) | (19,716 | ) | (5,606 | ) | ||||||||
| Income (Loss) income before provision for income taxes | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net Income (Loss) | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | ||||||||
| 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 | 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 | ) | ||||
| Diluted weighted average common shares outstanding | 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
BROWNIE’SBROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED MARCH 31JUNE 30, 2022 AND 2021
(unaudited)
(UNAUDITED)
| 2022 | 2021 | |||||||
| Net revenues | ||||||||
| Net revenues | $ | 1,701,564 | $ | 746,353 | ||||
| Net revenues - related parties | 273,405 | 204,416 | ||||||
| Total net revenues | 1,974,969 | 950,769 | ||||||
| Cost of net revenues | ||||||||
| Cost of net revenues | 1,121,638 | 509,069 | ||||||
| Cost of net revenues - related parties | 121,174 | 105,431 | ||||||
| Royalties expense - related parties | 12,789 | 11,593 | ||||||
| Royalties expense | 43,608 | 13,704 | ||||||
| Total cost of revenues | 1,299,209 | 639,797 | ||||||
| Gross profit | 675,760 | 310,972 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative | 1,105,739 | 737,035 | ||||||
| Research and development costs | 3,920 | 21,107 | ||||||
| Total operating expenses | 1,109,659 | 758,142 | ||||||
| Loss from operations | (433,899 | ) | (447,170 | ) | ||||
| Other income (expense), net | ||||||||
| Gain on settlement of debt | - | 10,000 | ||||||
| Interest expense | (10,193 | ) | (3,811 | ) | ||||
| Total other income (expense), net | (10,193 | ) | 6,189 | |||||
| Loss before provision for income taxes | (444,092 | ) | (440,981 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (444,092 | ) | $ | (440,981 | ) | ||
| Other Comprehensive Income | ||||||||
| Unrealized gain on foreign currency contract | 1,587 | - | ||||||
| Total Other Comprehensive income | $ | 1,587 | $ | - | ||||
| Comprehensive loss | $ | (442,505 | ) | $ | (440,981 | ) | ||
| Basic loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Basic weighted average common shares outstanding | 401,483,605 | 309,236,042 | ||||||
| Diluted weighted average common shares outstanding | 401,483,605 | 309,236,042 |
| 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
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
| Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Loss | Accumulated Deficit | Stockholders Equity | |||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 425,000 | $ | 425 | 393,850,475 | $ | 39,386 | 138,941 | $ | 14 | $ | 17,132,434 | $ | - | $ | (14,544,604 | ) | 2,627,655 | |||||||||||||||||||||||
| Shares issued for 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 | ||||||||||||||||||||||||||||||
| Balance, 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 | |||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||
| Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Loss | 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 | ||||||||||||||||||||||
| Balance | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | - | $ | (12,956,137 | ) | $ | 583,804 | ||||||||||||||||||||||
| Shares issued for cash | - | - | 27,500,000 | 2,750 | - | - | 272,250 | - | - | 275,000 | ||||||||||||||||||||||||||||||
| Shares issued for services | - | - | 3,116,279 | 312 | - | - | 124,688 | - | - | 125,000 | ||||||||||||||||||||||||||||||
| Stock Option Expense | - | - | - | - | - | - | 218,505 | - | - | 218,505 | ||||||||||||||||||||||||||||||
| Shares issued 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 | ||||||||||||||||||||||
| Balance | 425,000 | $ | 425 | 337,223,694 | $ | 33,724 | 138,941 | $ | 14 | $ | 14,139,060 | $ | - | $ | (13,397,118 | ) | $ | 776,105 | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 6 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30,
(unaudited)(UNAUDITED)
| 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 | ||||
| 2022 | 2021 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net loss | $ | (444,092 | ) | (440,981 | ) | |||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | 33,859 | 6,230 | ||||||
| Amortization of debt discount | 922 | - | ||||||
| Amortization of right-of-use asset | 57,267 | 23,867 | ||||||
| Shares issued for services | 35,500 | 125,000 | ||||||
| Reserve (recovery) for bad debt | - | 1,101 | ||||||
| Stock Based Compensation - Options | 230,034 | 218,505 | ||||||
| Gain on Settlement of Debt | - | (10,000 | ) | |||||
| Reserve for slow moving inventory | 4,528 | - | ||||||
| Changes in operating assets and liabilities | ||||||||
| Change in accounts receivable, net | (68,168 | ) | (19,874 | ) | ||||
| Change in accounts receivable – related parties | 161 | 5,915 | ||||||
| Change in inventory | (138,460 | ) | (94,225 | ) | ||||
| Change in prepaid expenses and other current assets | (166,342 | ) | (133,709 | ) | ||||
| Change in other assets | (3,733 | ) | 1,501 | |||||
| Change in accounts payable and accrued liabilities | 126,696 | 44,948 | ||||||
| Change in customer deposits and unearned revenue | 104,495 | 19,280 | ||||||
| Change in long term lease liability | (57,425 | ) | (23,867 | ) | ||||
| Change in other liabilities | 13,656 | ) | 36,200 | |||||
| Change in accounts payable - related parties | (19,235 | ) | (11,346 | ) | ||||
| Net cash used in operating activities | (290,337 | ) | (251,455 | ) | ||||
| Cash flows used in investing activities: | ||||||||
| Purchase of fixed assets | (2,884 | ) | - | |||||
| Net cash used in investing activities | (2,884 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | - | 275,000 | ||||||
| Proceeds from exercise of Warrants | 265,000 | - | ||||||
| Repayment on notes payable | - | (15,000 | ) | |||||
| Repayment of debt | (10,648 | ) | (9,832 | ) | ||||
| Net cash provided by financing activities | 254,352 | 250,168 | ||||||
| Net change in cash | (38,869 | ) | (1,287 | ) | ||||
| Cash, beginning balance | 643,143 | 345,187 | ||||||
| Cash, end of period | $ | 604,274 | 343,900 | |||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash Paid for Interest | $ | 3,454 | 7,088 | |||||
| Cash Paid for Income Taxes | $ | - | - |
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. (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, incorporated 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 incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and (3) 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”), 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, 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 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 was established to enter into a guided tour business model that will utilize theutilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. There was no activity in this subsidiaryOn 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 three months ended March 31, 2022.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, 2021 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 Annual 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 the Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and 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 $250,000per EIN. At March 31,June 30, 2022 and December 31, 2021, the Company had approximately $118,29222,700 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 March 31,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 March 31,June 30, 2022 and December 31, 2021:
Schedule of Foreign Currency Forward Contracts
| Notional Amount | Notional Amount | |||||||||||||||
| Foreign Currency | March 31, 2022 (unaudited) | December 31, 2021 | June 30, 2022 (unaudited) | December 31, 2021 | ||||||||||||
| Euro | $ | 223,970 | - | $ | 181,615 | - | ||||||||||
| Total | $ | 223,970 | $ | - | $ | 181,615 | $ | - | ||||||||
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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 $46,555and $46,555at March 31,June 30, 2022 and December 31, 2021, respectively.
Inventory
Inventory consists of the following:
Schedule of Inventory
| March 31, 2022 (unaudited) | December 31, 2021 | |||||||
| In-Transit inventory | $ | 8,300 | $ | 130,000 | ||||
| Raw materials | 1,029,901 | 1,144,190 | ||||||
| Work in process | 95,334 | 99,958 | ||||||
| Finished goods | 895,657 | 521,212 | ||||||
| Inventory, net | $ | 2,029,192 | $ | 1,895,260 | ||||
| June 30, 2022 (unaudited) | December 31, 2021 | |||||||
| In-Transit inventory | $ | 204,562 | $ | 130,000 | ||||
| Raw materials | 1,000,674 | 1,144,190 | ||||||
| Work in process | 84,243 | 99,858 | ||||||
| Finished goods | 985,387 | 521,212 | ||||||
| Rental Equipment | 48,602 | - | ||||||
| Inventory, net | $ | 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 March 31,June 30, 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 six months ended March 31,June 30, 2022 the lease expenses were approximately $64,20064,500 and $128,700, respectively, and approximately $32,800 43,000 and $78,000for the three and six months ended March 31, 2022 andJune 30, 2021, respectively. Cash paid for operating liabilities for the threesix months ended March 31,June 30, 2022 was approximately $64,400 128,400and approximately $32,700 32,900for the threesix months ended March 31,June 30, 2021.
| 10 |
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| Operating Leases | March 31, 2022 (unaudited) | June 30, 2022 (unaudited) | ||||||
| Right-of-use assets | $ | 397,208 | $ | 372,992 | ||||
| Current lease liabilities | $ | 208,623 | $ | 214,061 | ||||
| Non-current lease liabilities | 189,134 | 159,322 | ||||||
| Total lease liabilities | $ | 397,757 | $ | 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 March 31,June 30, 2022 and March 31,June 30, 2021, 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 Company determined that the standard has no impact on its consolidated financial statements 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 threesix months ended March 31,June 30, 2022, the Company incurred a net loss of $444,092 772,754of which $265,534 520,739is non-cash stock related compensation and shares issued for service. At March 31,June 30, 2022, the Company had an accumulated deficit of $14,988,69615,317,359. Despite a working capital surplus of approximately $1,702,817 1,792,309at March 31,June 30, 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.
| 11 |
Note 4. Related Party Transactions
The Company sells products to Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, companies owned by the brother of Robert 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 13.812.1% and 21.220.6% of the net revenues for the three months ended March 31,June 30, 2022 and March 31,June 30, 2021, respectively, and 12.9% and 20.9% for the six months ending June 30 2022 and 2021, respectively. Accounts receivable from these entities totaled $75,066 72,344and $75,792, at March 31,June 30, 2022 and December 31, 2021, respectively.
The Company sells products to BGL and 940 A, entities wholly-owned by Robert Carmichael. Terms of sale are more favorable than those extended to the Company’s regular customers, but no more favorable than those extended to the Company’s strategic partners. Accounts receivable from these entities totaled $2,074446 and $1,509 at March 31,June 30, 2022 and December 31, 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 $18,032 31,437and $37,267at March 31,June 30, 2022 and December 31, 2021, respectively. The balance payable at March 31,June 30, 2022 is comprised of $5,000 18,405due to Robert Carmichael, and $13,032 10,051.92, to 940, LLC and $2,980to BGL. At December 31, 2021 this account was comprised of $5,000due to Robert Carmichael, and $32,267due to BGL.
The Company has exclusive 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 agreements. The agreements provide that the Company pay 940 A 2.5% of gross revenues per quarter as a royalty. Total royalty expense for the three months ended March 31,June 30, 2022 and 2021 were $12,789 17,824and $11,59328,031, respectively. For the six months ending June 30, 2022 and 2021 royalty expense for this entity totaled $30,613 and $39,606, respectively. The accrued royalty for March 31,June 30, 2022 was approximately $7,70011,800 and is included in other liabilities.
On February 2, 2022, the Company issued Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $250,000.
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares from the exercise of a warrant at $0.025per share in consideration of $15,000.
Note 5. Convertible Promissory Notes and Notes Payable
Convertible Promissory Notes
Convertible promissory notes consisted of the following at March 31,June 30, 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 12/01/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | - | (1 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| 12/05/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | (2 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| 9/03/21 | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | 346,500 | (9,727 | ) | 336,773 | 16,170 | (3 | ) | 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 | (97 | ) | 3,403 | 140 | (4 | ) | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (87 | ) | 3,413 | - | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||
| $ | 350,000 | $ | (9,824 | ) | $ | 340,176 | $ | 16,310 | $ | 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 and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael. |
| 12 |
| The conversion price of the note initially ranged from $0.02per share if converted in the first year to $0.125per share if converted in year five. The noteholder may convert the note 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 maturity date of the note was extended for one year to December 31, 2019 with a reduction in the conversion price to $0.01per share. The Company recorded a loss on extinguishment of debt of $32,000upon the modification of conversion price. On June 10, 2021, the note and accrued interest of $10,554were converted by the holder into shares of common stock in accordance with the terms of the note. |
| (2) | On December 5, 2017, the Company entered into a |
| The conversion price under the note initially ranged from $0.02per share if converted in the first year to $0.125per 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 note was extended for one year to December 31, 2019 with a reduction in the conversion price to $0.01per share. The Company recorded a loss on extinguishment of debt of $99,000upon the modification of conversion price. On August 18, 2021, this note and accrued interest of $11,145were converted by the holder into shares of common stock in accordance with the terms of the note | |
| (3) | On September 3, 2021, the Company issued a three-year |
| (4) | On September 3, 2021, the Company issued a three-year |
Loan Payable
Marlin Note
On September 30, 2019 the Company, through 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 in 36 equal monthly installments of $3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was $21,25612,305 as of March 31,June 30, 2022.
Schedule of Future Amortization of Loans Payable
| Payment Amortization | ||||||||
| 2022 (9 months remaining) | 21,256 | |||||||
| Payment Amortization | ||||||||
| 2022 (6 months remaining) | 12,305 | |||||||
| 2023 | - | - | ||||||
| 2024 | - | - | ||||||
| 2025 | - | - | ||||||
| 2025 and thereafter | - | - | ||||||
| 2026 | - | - | ||||||
| Total Loan Payments | $ | 21,256 | $ | 12,305 | ||||
| Current portion of Loan payable | (21,256 | ) | (12,305 | ) | ||||
| Non-Current Portion of Loan Payable | $ | - | $ | - | ||||
| 13 |
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 Robert Carmichael. The first payment was due on October 5, 2020. The loan balance as of March 31,June 30, 2022 is $39,39937,538.
Schedule of Future Amortization of Loans Payable
| Payment Amortization | ||||||||
| 2022 (9 months remaining) | $ | 8,379 | ||||||
| Payment Amortization | ||||||||
| 2022 (6 months remaining) | $ | 6,825 | ||||||
| 2023 | $ | 11,168 | $ | 11,168 | ||||
| 2024 | $ | 11,168 | $ | 11,168 | ||||
| 2025 and thereafter | $ | 8,684 | $ | 8,684 | ||||
| Total note payments | $ | 39,399 | $ | 37,538 | ||||
| Current portion of note payable | $ | (11,168 | ) | $ | (11,168 | ) | ||
| Non-Current Portion of notes payable | $ | 28,231 | $ | 26,370 | ||||
Navitas Note
On May 19, 2021 the Company, through its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable in 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 | ||||
| 2022 (9 months remaining) | 10,873 | |||
| 2023 | 15,342 | |||
| 2024 | 16,629 | |||
| 2025 | 18,204 | |||
| 2026 | 6,007 | |||
| Total Note Payments | $ | 67,055 | ||
| Current portion of Note payable | (14,443 | ) | ||
| Non-Current Portion of Note Payable | $ | 52,612 | ||
| Payment Amortization | ||||
| 2022 (6 months remaining) | 6,139 | |||
| 2023 | 15,342 | |||
| 2024 | 16,629 | |||
| 2025 | 18,204 | |||
| 2026 | 6,007 | |||
| Total Note Payments | $ | 62,141 | ||
| Current portion of Note payable | (14,736 | ) | ||
| Non-Current Portion of Note Payable | $ | 47,405 | ||
Alliance Lease
On January 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 36 month term with a monthly payment of $3,522. At the end of the lease 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 $54,000 directly 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 threesix months ending March 31,June 30, 2022, the Company made payments against this lease totalingwrote off approximately $8,6006,300 which are recorded as deposits.related to fees for cancellation of this financing.
Note 6. Business Combination
Merger with Submersible Systems, Inc.
On September 3, 2020, the Company completed its merger with SSI. Under the terms of the Merger Agreement, the Company paid $1.79million, consisting of the issuance of shares of its common stock (valued at $1.4million) and the issuance of 8% unsecured convertible promissory notes in the aggregate principal amount of $350,000in exchange for all of the equity of SSI. The shares 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 % |
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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 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 Merger were $65,000 in legal fees paid in $40,000 in cash, and shares of the Company’s common stock with a fair value of $55,952.
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, 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 |
The value of the stock was calculated based on the volume weighted average price (“VWAP”) of a share of the Company’s common stock on the OTC Markets 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 which resulted in a conversion price of $0.051271831and the issuance of shares of common stock with a fair value of $1,449,919 on 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 closingclosing..
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.
| 15 |
As of March 31,June 30, 2022, the Company recorded an estimated fair value of the intangible assets and goodwill of $992,986 based 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 determined.
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
Three months ended March 31, 2021 | Three months ended June 30, 2021 | Six months ended June 30, 2021 | ||||||||||
| Revenue | $ | 1,282,571 | $ | 2,423,956 | $ | 3,730,805 | ||||||
| Net Loss | $ | (494,619 | ) | $ | (340,186 | ) | $ | (842,500 | ) | |||
| Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||
| Basic and Diluted Weighted Average Common Shares Outstanding | 337,731,960 | 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 March 31, 2022June 30, 2022.
Summary of Changes in Goodwill
| 2022 | 2022 | |||||||
| Balance, January 1 | $ | 249,986 | $ | 249,986 | ||||
| - | ||||||||
| Balance, March 31 | $ | 249,986 | ||||||
| Addition: | - | |||||||
| Balance, June 30 | $ | 249,986 | ||||||
The following table sets for the components of the Company’s intangible assets at March 31,June 30, 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 | $ | (4,653 | ) | $ | 116,347 | 15 | $ | 121,000 | $ | (6,678 | ) | $ | 114,322 | ||||||||||||||||
| Customer Relationships | 10 | 600,000 | (35,000 | ) | 565,000 | 10 | 600,000 | (50,000 | ) | 550,000 | ||||||||||||||||||||||
| Non-Compete Agreements | 5 | 22,000 | (2,567 | ) | 19,433 | 5 | 22,000 | (3,667 | ) | 18,333 | ||||||||||||||||||||||
| Total | $ | 743,000 | $ | (42,220 | ) | $ | 700,780 | $ | 743,000 | $ | (60,354 | ) | $ | 682,655 | ||||||||||||||||||
The aggregate amortization remaining on the intangible assets as of March 31,June 30, 2022 is a follows:
Schedule of Estimated Intangible Assets Amortization Expenses
| Intangible Amortization | ||||||||
| 2022 (9 months remaining) | $ | 54,350 | ||||||
| Intangible Amortization | ||||||||
| 2022 (6 months remaining) | $ | 36,225 | ||||||
| 2023 | 72,467 | 72,467 | ||||||
| 2024 | 72,467 | 72,467 | ||||||
| 2025 | 72,467 | 72,467 | ||||||
| 2026 | 71,367 | 71,367 | ||||||
| Thereafter | 357,662 | 357,662 | ||||||
| Total | $ | 700,780 | $ | 682,655 | ||||
Note 8. Shareholders’ Equity
Common Stock
On January 17, 2022, the Company issued a law firm shares of common stock with a fair market value of $ as part of the agreed upon compensation for a representation agreement.
On January 31, 2022, the Company issued a consultant shares of common stock with a fair market value of $4,000 for consulting services related to the dive industry.
On February 2, 2022, the Company issued Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $250,000.
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares from the exercise of a warrant at $0.025per share in consideration of $15,000.
On February 28, 2022, the Company issued a consultant, shares of common stock with a fair market value of $4,000 for consulting services related to the dive industry.
On May 3, 2022, the Company issued shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC with a fair value of $120,000.
| 17 |
On May 31, 2022, the Company issued a consultant, shares of common stock with a fair value of $12,000 for consulting services related to the dive industry.
As of June 30, 2022, the Company issued 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 $23,048.
On June 17, 2022, the Company issued shares of common stock to an employee as a retirement gift. The fair value of this stock was $11,060.
Preferred Stock
During the second quarter of 2010, the holders 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 heldheld.. 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 March 31,June 30, 2022, and December 31, 2021, the shares of Series A Convertible Preferred Stock are owned by Robert Carmichael.
Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. shares are reserved for issuance under the Plan. The term of the Plan is .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 | 2,200,000 | $ | .0431 | 22,800,000 | 3,592,647 | $ | .0401 | 21,407,353 | ||||||||||||||||
| Equity Compensation Plans Not Approved by Security Holders | — | — | — | — | — | — | ||||||||||||||||||
| Total | 2,200,000 | $ | .0434 | 22,800,000 | 3,592,647 | $ | .0401 | 21,407,353 | ||||||||||||||||
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Options
On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with RichardRobert 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) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met. As of December 31, 2021, of options were vested as the targeted net revenues were reached and 3three quarters of Tranche 2 was also met and fully expensed through December 31, 2021. For the three months ended March 31,June 30, 2022 the Company revenues reached the target revenues for Tranche 2, and an additional shares of the option vested. Stock option expense recognized during the three and six months ended March 31,June 30, 2022 for this option was $. and $, respectively.
On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. As part of the Constable Option Agreement, the Company 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:
| 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 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 $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”); |
| ● | 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 four 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) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met, and as of March 31,June 30, 2022, through December 31, 2021 it was deemed that the Company met the qualifications for 4four quarters for the first tranche of options,Tranches 1 and 3 quarters for Tranche 2 and expensed a total of $. For the first quarter,three and six months ended June 30, 2022, the Company did not meet the qualifications to vest for an additional quarter, therefore, there was no stock option expense recognized for the three months ended March 31, 2022.$ and $, respectively.
On 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 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) 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 March 31,June 30, 2022 was $ and $., respectively.
On August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company granted Blake Carmichael a 5five year-year option to purchase shares of the Company’s common stock at an exercise price of $, (the “BC Compensation Options”). The BC Compensation Options vestvested 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 %, and (iv) expected volatility of %. The Company expensed $ as of December 31, 2021, and did not recognize any additional expense for the three and six months ended March 31,June 30, 2022.
As part of the Blake Carmichael Agreement, the Company granted Blake Carmichael a 5five-year-year option to purchase up to shares of common stock towhich vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the BC Bonus Options 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 %, and (v) exercise price of per share. The Company analyzed the likelihood that the vesting qualifications would be met, and as of March 31,June 30, 2022, through December 31, 2021 it was deemed that it was likely that shares would be issued at the end of contractthe first year, 1, and thisaccordingly was fully expensed as of December 31, 2021. For the three and six months ended March 31,June 30, 2022 there were no material changes to vesting qualifications and no stock option expense was recognized.
| 20 |
During the 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 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) risk free interest rate from % to %, (ii) expected life of to years, (iii) dividend yield of %, and (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended March 31,June 30, 2022 was $ and $., respectively.
On 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 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) 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 March 31,June 30, 2022 was $. and $, respectively.
As part ofIn connection with the Buban Employment Agreement, the Company is also obligated to enter into a Non-Qualified Stock option agreement (the “Buban Bonus Options”)granted Ms. Buban that will grant Ms. Buban a -yearfive-year option (the “Buban Bonus Option”) to purchase up to shares of the Company’s common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the Buban Bonus OptionsOption 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 %, and (v) exercise price of $ 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 threesix months ended March 31,June 30, 2022.
On 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) 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 March 31,June 30, 2022 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 .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 March 31,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 a yearan immediately exercisable five-year option to purchase shares of the Company’s common stock at an exercise price of $(the (the “Compensation Options”Option”). The Compensation Options were immediately vested. The fair value of the optionsCompensation 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 %. This stock optionThe 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 March 31,June 30, 2022 was $ and $, respectively.
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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, 2021 | 233,128,266 | $ | 0.0362 | $ | 795,201 | 233,128,266 | $ | 0.0362 | $ | 795,201 | ||||||||||||||||||||||
| Granted | 75,000 | 0.0320 | 1,592,647 | 0.0353 | ||||||||||||||||||||||||||||
| Forfeited | (125,000 | ) | ||||||||||||||||||||||||||||||
| Exercised | - | - | - | - | ||||||||||||||||||||||||||||
| Outstanding – March 31, 2022 (unaudited) | 233,203,266 | $ | 0.0362 | |||||||||||||||||||||||||||||
| Exercisable – March 31, 2022 (unaudited) | 101,333,874 | $ | 0.0326 | $ | 1,063,526 | |||||||||||||||||||||||||||
| 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 $0.025 per share in consideration of $250,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
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 $0.025 per share in consideration of $15,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
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 $0.025 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 February 2, 2022, the Company issued Charles Hyatt, a director, shares fromof common stock upon the exercise of a warrant at $0.025 per share in consideration of $250,000.
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares fromof common stock upon the exercise of a warrant at $0.025per share in consideration of $15,000.
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A summary of the Company’s warrants as of December 31, 2021 and changes during the threesix months ended March 31,June 30, 2022 is presented below:
Schedule of Warrants Activity
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | 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 | 14,600,000 | $ | 0.025 | $ | 153,300 | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||||||||
| Exercised | (10,600,000 | ) | $ | 0.025 | (10,600,000 | ) | $ | 0.025 | ||||||||||||||||||||||||
| Forfeited or Expired | - | - | ||||||||||||||||||||||||||||||
| Outstanding – March 31, 2022 | 4,000,000 | $ | 0.025 | |||||||||||||||||||||||||||||
| Exercisable – March 31, 2022 | 4,000,000 | $ | 0.025 | 1.44 | $ | 64,400 | ||||||||||||||||||||||||||
| 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 $4,000 per month over the term of the lease plus sales tax; and payment of 10.7610.76%% of annual operating expenses (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 $4,626 per 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, California commencing on February 1, 2018. Terms included base rent of approximately $9,300 per month for the first 12 months with an annual escalation clause of 2.52.5%%. thereafter. The Company paid a security deposit of $8,450 upon entering into the 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; 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 10.1110.11%% of the buildings annual operating expenses (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 $15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.152.15%% per year. The minimum royalty was temporarily increased to $60,000 for fiscal years 2022, 2023 and 2024, with a fourth quarter true up against earned royalties. In addition, if the Company terminates the Agreement with STS prior to December 31, 2023, the Company is obligated to pay STS $180,000, less cumulative royalties paid in excess of $200,174 for 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 $43,60850,708 and $13,70441,251 for the three months ended March 31,June 30, 2022 and 2021, respectively, and $94,316 and $54,955 for the six months ended months ended June 30, 2022 and 2021, respectively.
On June 9, 2020, the Company entered into a one-year advertising and marketing agreement with Figment Design for $8,840per month which agreement terminated on July 31, 2021.
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On November 5, 2020, the Company and Christopher Constable entered into a three yearthree-year employment agreement with Christopher Constable (the “Constable Employment Agreement”) pursuant to which the Mr. Constable serves 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 $100,000of the value of the Company’s common stock at an exercise price equal to the market price of the Company’s common stock on the date of issuance. Accordingly, on November 5, 2020, Mr. Constable was issued an option to purchase shares of the Company’s common stock at an exercise price of $per share and on November 5, 2021, heMr. Constable was issued an option to purchase shares of the Company’s common stock at an exercise price of $per share, pursuant to an option award agreement.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 $per share in the following amounts 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.
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 Equity Partners. ThisThe agreement was not renewed atexpired 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 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 -year stock option to purchase shares at $, .
In addition, Blake Carmichael shall be entitled to receive a -year stock option 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 purchase price consideration above two million dollarsin excess of $2,000,000 for any merger or acquisition target sourced by Newbridge,. The fee shall 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. ThisSuch agreement was not renewed.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 her 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 -year stock option issued under the Plan to purchase shares of common stock of the Company at $ per share,. The which option vests quarterly over the next eight calendar quarters.
In addition, Mrs. Buban shall be entitled to receive a -yearfive-year stock option to purchase up to shares of common stock of the Company at an exercise price of $per share, that will vestwhich vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment Agreement,
On January 17, 2022, the Company entered into an agreement with 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 $3,000per month for the SEC reporting work, and its normal hourly rate for any other legal work and issued shares of common stock with a fair market value of $ to CLGCLG.
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On May 2, 2022, the Company entered into a two-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 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 payspaid monthly installments of $1,000and is current in its payments.. As of March 31,June 30, 2022 the balance remaining is $1,000.this settlement has been fully paid.
Note 10. Segment Reporting
The Company has 45 operating segments as described below:
| 1. | SSA Products, which sells recreational multi-diver surface supplied air diving systems. | |
| 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 industries. | |
| 5. | Guided Tour and Retail, which provides guided tours using the BLU3 technology, and also operates as a reteal store for the diving community. |
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Three Months Ended
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 | ) | ||||||||||||||||||||
ThreeSix Months Ended
March 31June 30
(unaudited)
| Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Total Company | ||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| Net Revenues | $ | 581,109 | $ | 466,043 | $ | 276,817 | $ | 150,128 | $ | 794,587 | $ | 334,598 | $ | 322,456 | $ | - | $ | 1,974,969 | $ | 950,769 | ||||||||||||||||||||
| Cost of Revenue | (461,958 | ) | (369,826 | ) | (160,791 | ) | (81,178 | ) | (416,958 | ) | (188,793 | ) | (259,502 | ) | - | (1,299,209 | ) | (639,797 | ) | |||||||||||||||||||||
| Gross Profit | 119,151 | 96,217 | 116,026 | 68,950 | 377,629 | 145,805 | 62,952 | - | 675,760 | 310,972 | ||||||||||||||||||||||||||||||
| Depreciation | 4,370 | 3,812 | - | - | 4,478 | 2,418 | 25,011 | - | 33,859 | 6,230 | ||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | (369,590 | ) | $ | (444,151 | ) | $ | 40,459 | $ | 9,366 | $ | 16,762 | $ | (12,385 | ) | $ | (121,530 | ) | $ | - | (433,899 | ) | $ | (447,170 | ) | |||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 1,427,324 | $ | 1,503,762 | $ | 460,496 | $ | 265,604 | $ | 1,037,192 | $ | 511,621 | $ | 1,995,439 | $ | - | $ | 4,920,451 | $ | 2,280,987 | ||||||||||||||||||||
| 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 | $ | 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 | (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 | 357,747 | 404,944 | 245,971 | 163,016 | 691,873 | 340,321 | 206,865 | - | 36,138 | - | 1,538,595 | 908,281 | ||||||||||||||||||||||||||||||||||||
| Depreciation | 8,739 | 8,560 | - | - | 8,956 | 4,836 | 49,107 | - | - | - | 66,802 | 13,396 | ||||||||||||||||||||||||||||||||||||
| 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 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., a Florida corporation and wholly-owned subsidiary of the Company (“Live Blue”). 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, for $150,000 which was paid by (i) the issuance to of an aggregate of shares of the Company’s common stock to the LLC Members, at a price of $ per share (the “Consideration Shares”); and (ii) cash of $30,000 (the “Gold Coast Scuba Acquisition”).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 Consideration Shares are subject to a leak-out restriction which provides that (i) up to 25% of such Consideration Shares may be sold after November 2, 2022; (ii) an additional 25% may be sold after February 2, 2023; and (iii) the balance may be sold after May 2, 2023. The Company may waive these restrictions if the Company’s common stock is trading on either the NYSE American or Nasdaq andlease has a rolling thirty-day average trading volume33 month term beginning in August 2022 with a monthly lease payment of $50,000 in trading volume per day. If$2,571. The financing agreement contains customary events of default, is guaranteed by the Company waives the leak-out restriction, only Consideration Shares of up to 5%and NFS Leasing has a lien on all of the previous days total volume may be sold in one day, and the may only be sold through executing trades “on the offerassets of SSI..”
In connection with the acquisition, the LLC Members entered into five-year confidentiality, non-competition and non-solicitation agreements with the Company and Live Blue which contain standard provisions, including that the LLC Members not engage in any business that supplies the same product or services as Gold Coast Scuba within certain areas of the United States or that competes with Gold Coast Scuba’s business in any market in which it operates as of the closing.
Gold Coast Scuba is in the business of providing recreational scuba diving equipment rental, training and education programs, as well as dive travel, guided snorkeling tours, and dive club activities.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of 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
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 fourfive 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, and a manufacturing facility in Huntington Beach, California.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 self-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. The Company is also building a guided tour operation that also include dive retail. Lastly, The Company is the exclusive United States and Caribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa.
Recent Developments
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., a Florida corporation and wholly-owned subsidiary of the Company (“Live Blue”). 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, for $150,000 which was paid by (i) the issuance to of an aggregate of 3,084,831 shares of the Company’s common stock to the LLC Members, at a price of $0.0389 per share (the “Consideration Shares”); and (ii) cash of $30,000 (the “Gold Coast Scuba Acquisition”).
The Consideration Shares are subject to a leak-out restriction which provides that (i) up to 25% of such Consideration Shares may be sold after November 2, 2022; (ii) an additional 25% may be sold after February 2, 2023; and (iii) the balance may be sold after May 2, 2023. The Company may waive these restrictions if the Company’s common stock is trading on either the NYSE American or Nasdaq and has a rolling thirty-day average trading volume of $50,000 in trading volume per day. If the Company waives the leak-out restriction, only Consideration Shares of up to 5% of the previous days total volume may be sold in one day, and the may only be sold through executing trades “on the offer.”
In connection with the acquisition, the LLC Members entered into five-year confidentiality, non-competition and non-solicitation agreements with the Company and Live Blue which contain standard provisions, including that the LLC Members not engage in any business that supplies the same product or services as Gold Coast Scuba within certain areas of the United States or that competes with Gold Coast Scuba’s business in any market in which it operates as of the closing.
Gold Coast Scuba is in the business of providing recreational scuba diving equipment rental, training and education programs, as well as dive travel, guided snorkeling tours, and dive club activities.
Impact of COVID-19 Pandemic
The Company has previously been affected by temporary manufacturing closures and employment and compensation adjustments. The market continues to suffer from the impacts of the 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.
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 March 31,June 30, 2022 Compared to Three Months Ended March 31,June 30, 2021
Net revenues increased 107.7%37.2% for the three months ended March 31,June 30, 2022 as compared to the three months ended March 31,June 30, 2021 as a result of a 137.5%67.4% increase in revenue 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 LWALWA’s revenues of 84.4%30.2% as its business froma 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 months ended March 31,June 30, 2022, cost of net revenues was 65.8%64.1% as compared with the cost of revenues of 67.3%65.1% for the three months ended March 31,June 30, 2021. Included in our cost of net revenues are royalty expenses we paypaid to Robert Carmichael which increased 10.3%decreased 36.4%% for the three months ended March 31,June 30, 2022 as compared to the three months ended March 31,June 30, 2021. Gross profit margin was 34.2%35.9% for the three months ended March 31,June 30, 2022 as compared to gross profit margin of 32.7%34.9% for the three months ended March 31,June 30, 2021. The slight improvement in gross margin, of 4.6%1.0% as it relates to revenue is a result of the production of more finished products, reducing direct labor cost per unit, primarily in LWA and BLU3.the addition 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 six months ended June 30, 2021. This improvementincrease is offset by increasesa result of a 94.5% increase in royalties expense resultingrevenue 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 expansion 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 revenues was 64.8% as compared with the cost of revenues of 65.9% for the six months ended June 30, 2021. 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 the six months ended June 30, 2021. Gross profit margin was 35.2% for the six months ended June 30, 2022 as compared to gross profit margin of 34.1% for the six months ended June 30, 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.line and the addition of LBI with margins of 71.9% for the six months ended June 30, 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 March 31, | % of | Three Months Ended June 30, | % of | Six Months Ended June 30, | % of | |||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||
| SSA Products | $ | 581,109 | 466,043 | 24.7 | % | |||||||||||||||||||||||||||||||
| Legacy SSA Products | $ | 797,022 | $ | 976,973 | (18.4 | )% | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | ||||||||||||||||||||||||
| High Pressure Gas Systems | 276,817 | 150,128 | 84.4 | % | 270,193 | 207,565 | 30.2 | % | 547,010 | 357,693 | 52.9 | % | ||||||||||||||||||||||||
| Ultra-Portable Tankless Dive Systems | 794,587 | 334,598 | 137.5 | % | 884,271 | 528,380 | 67.4 | % | 1,678,858 | 862,978 | 94.5 | % | ||||||||||||||||||||||||
| Redundant Air Tank Systems | 322,456 | - | 100.0 | % | 399,479 | - | 100.0 | % | 721,935 | - | 100.0 | % | ||||||||||||||||||||||||
| Guided Tour Retail | 50,274 | - | 100.0 | % | 50,274 | - | 100.0 | % | ||||||||||||||||||||||||||||
| Total net revenues | $ | 1,974,969 | 950,769 | 107.7 | % | $ | 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 March 31, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||
| Legacy SSA Products | 79.5 | % | 79.4 | % | 70.1 | % | 68.4 | % | 74.0 | % | 71.9 | % | ||||||||||||
| High Pressure Gas Systems | 58.1 | % | 54.1 | % | 51.9 | % | 54.7 | % | 55.0 | % | 54.4 | % | ||||||||||||
| Ultra-Portable Tankless Dive Systems | 52.5 | % | 56.4 | % | 64.5 | % | 63.2 | % | 58.8 | % | 60.6 | % | ||||||||||||
| Redundant Air Tank Systems | 80.3 | % | - | 64.0 | % | - | 71.4 | % | - | |||||||||||||||
| Guided Tour Rental | 28.1 | % | - | 28.1 | % | - | ||||||||||||||||||
Gross profit (loss) margins
| Three Months Ended March 31, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||
| SSA Products | 20.5 | % | 20.6 | % | ||||||||||||||||||||
| Legacy SSA Products | 31.6 | % | 31.6 | % | 26.0 | % | 28.1 | % | ||||||||||||||||
| High Pressure Gas Systems | 41.9 | % | 45.9 | % | 45.3 | % | 45.3 | % | 45.0 | % | 45.6 | % | ||||||||||||
| Ultra-Portable Tankless Dive Systems | 47.5 | % | 43.6 | % | 36.8 | % | 36.8 | % | 41.2 | % | 39.4 | % | ||||||||||||
| Redundant Air Tank Systems | 19.5 | % | - | 36.0 | % | - | 28.7 | % | - | |||||||||||||||
| Guided Tour Rental | 71.9 | % | - | 71.9 | % | - | ||||||||||||||||||
SSA Products segment
Net revenuesrevenue in this segment decreased 4.1% for the 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 2021. The decrease in dealer orders can be attributed to the 23.2% drop for the three months ended March 31,June 30, 2022 increased 24.7% as compared the same period in 2021. Many dealers increased purchases to the three months ended March 31, 2021. The increase can be attributed to an increase in dealer revenue as the Company offered discounts to both dealers and their consumers in the three months ended March 31, 2022 to pre-stockprepare for the season. Direct to consumer sales declined slightlysummer season during the first quarter of 2022, and held back with restocking orders as increased fuel prices we believe prohibited many families from utilizing their boats, and focusing on other family activities. Sales through affiliates increasedthere may be some trepidation regarding the economy. Affiliate sales, while down for the three months ended March 31,ending June 30, 2022 as compared to the three months ended March 31,June 30, 2021 remain 32.2% over the six month results at June 30, 2022. Direct to consumer sales have also decreased for the six months ending June 30, 2022 as compared to the same period in 2021 we have added additional affiliates through our social media market campaigns.believe due to concerns over the economy.
Our costs of revenues as a percentage of net revenues in this segment remained relatively flat increasing slightlyincreased from 79.4%71.9% to 79.5%74.0% for the threesix months ended March 31,June 30, 2022 from the three months ended March 31, 2021. The increased cost of revenue, and in turn reduction in product margin, can be attributed to increase proportion of dealer sales as compared to the threesix months ended March 31,June 30, 2021 as well asdue to the discounts offered to dealers to pre-stocknegative margin for the season.affiliate sales channel.
A breakdown of the revenue channels for this segment are below. Direct to Consumer representsrepresent items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers with whichthat 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months ended March 31, 2022 | Three Months ended March 31, 2021 | % change | Three Months ended March 31, 2022 | Three Months ended March 31, 2021 | Three Months ended March 31, 2022 | Three Months Ended March 31, 2021 | 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 | $ | 357,853 | $ | 253,539 | 41.1 | % | 85.2 | % | 81.5 | % | 14.8 | % | 18.5 | % | $ | 510,902 | $ | 664,928 | (23.2 | )% | 73.4 | % | 77.7 | % | 26.6 | % | 22.3 | % | ||||||||||||||||||||||||||||
| Direct to Consumer (website included) | 202,635 | 210,672 | -3.8 | % | 70.5 | % | 76.7 | % | 29.5 | % | 23.3 | % | 258,899 | 273,430 | (5.3 | )% | 57.7 | % | 45.1 | % | 42.3 | % | 54.9 | % | ||||||||||||||||||||||||||||||||
| Affiliates | 20,621 | 1,832 | 1025.6 | % | 73.3 | % | 78.9 | % | 26.7 | % | 21.9 | % | 27,221 | 38,615 | (29.5 | )% | 156.9 | % | 74.3 | % | (56.9 | )% | 25.7 | % | ||||||||||||||||||||||||||||||||
| Total | $ | 581,109 | $ | 466,043 | 24.7 | % | 79.5 | % | 79.4 | % | 20.5 | % | 20.6 | % | $ | 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 | % | ||||||||||||||
| 29 |
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors increased 84.4%52.9% in the threesix months ended March 31,June 30, 2022 compared with the threesix months ended March 31,June 30, 2021 as LWA was able to continue to supply its customers with their needs despite industry supply chain issues. The reseller segment increased by 33.6%while decreasing 9.4% for the three months ended March 31,June 30, 2022 as compared to the threesame period in the prior year, showed an overall increase of 25.9% for the six months ended March 31, 2021June 30, 2022 with increased orders through distribution customers in the US, South America, and the Caribbean. The Original Equipment Manufacturer segment continued to show growth with an increase of 2,914%205% for the threesix months ended March 31,June 30, 2022 as compared to the threesix months ended March 31, 2021. This wasJune 30, 2021 due to several orders shipped internationally to boat manufactures.manufacturers. The direct to consumer segment, which includes yacht owners and direct to dive stores, increased 28.2% in199.0% for the three months ended March 31,June 30, 2022 compared to the three months ended March 31,June 30, 2021 and increased 49.2% for the six months ended June 30, 2022 as compared to June 30, 2021.
Our costsCosts of revenues as a percentage of net revenues in this segment showed a slight increase to 58.1%55.0% for the threesix months ended March 31,June 30, 2022 as compared to 54.1%54.4% for the threesix months ended March 31,June 30, 2021. This increase can be attributed to increaseincreased cost of transportation from suppliers and to customers during the threesix months ended March 31,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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | 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 | $ | 129,773 | $ | 97,146 | 33.6 | % | 54.4 | % | 57.3 | % | 45.6 | % | 42.7 | % | $ | 109,767 | $ | 121,118 | (9.4 | )% | 48.6 | % | 53.0 | % | 51.4 | % | 47.0 | % | ||||||||||||||||||||||||||||
| Direct to Consumers | 64,429 | 50,241 | 28.2 | % | 55.9 | % | 34.0 | % | 44.1 | % | 66.0 | % | 130,816 | 43,749 | 199.0 | % | 57.7 | % | 68.2 | % | 42.3 | % | 31.8 | % | ||||||||||||||||||||||||||||||||
| Original Equipment Manufacturers | 82,615 | 2,741 | 2914.0 | % | 65.5 | % | 49.0 | % | 34.5 | % | 51.0 | % | 29,610 | 42,698 | 30.7 | % | 38.8 | % | 45.6 | % | 61.2 | % | 54.4 | % | ||||||||||||||||||||||||||||||||
| Total | $ | 276,817 | $ | 150,128 | 84.4 | % | 58.1 | % | 54.1 | % | 41.9 | % | 45.9 | % | $ | 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 | % | ||||||||||||||
Ultra Portable Tankless Dive Systems
Net revenue for the threesix months ended March 31,June 30, 2022 in the Ultra Portable Tankless Dive System segment showed significant growth of 137.5%94.5% as compared to the threesix months ended March 31, 2021,June 30, 2021. The consumergrowth in all segments for the three and dealer segments growthsix months ended June 30, 2022 can be attributed to the addition of the Nomad product line into those sales channels duringchannels. The growth of 162.2% in the Dealer channel represents the continued expansion of the international dealer base. The growth in this segment of 156.8% for the three months ended March 31, 2022. The growth of 146.7% inJune 30, 2022 represents sales to new dealers and seasonal buy-in as dealers prepared for the Amazon channel is growth of the Nemo dive system, as the Nomad was not made available to that channel in the first quarter of 2022.summer season.
Our aggregate costCost of revenuerevenues from this segment as a percentage of net revenues for the three and six months ended March 31,June 30, 2022 showed significant improvement over both the three and six months ended March 31,June 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 three months ended March 31,same periods in 2022 as compared to the three months ended March 31, 2021.
| Net Revenue | Cost of Sales as a % of Net Revenue | Margin | Net Revenue | Cost of Sales as a % of Net Revenue | Margin | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | 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 | $ | 319,005 | $ | 152,199 | 109.6 | % | 46.3 | % | 43.0 | % | 53.7 | % | 57.0 | % | 220,950 | 188,466 | 17.2 | % | 67.9 | % | 53.9 | % | 32.1 | % | 46.1 | % | ||||||||||||||||||||||||||||||
| Amazon | 174,676 | 70,798 | 146.7 | % | 56.9 | % | 45.7 | % | 43.1 | % | 54.3 | % | 274,444 | 188,467 | 45.6 | % | 53.0 | % | 61.90 | 47.0 | % | 38.1 | % | |||||||||||||||||||||||||||||||||
| Dealers | 300,906 | 111,601 | 169.6 | % | 56.4 | % | 50.8 | % | 43.6 | % | 49.2 | % | 388,877 | 151,447 | 156.8 | % | 70.6 | % | 76.4 | % | 29.4 | % | 23.6 | % | ||||||||||||||||||||||||||||||||
| Total | $ | 794,587 | $ | 334,598 | 137.5 | % | 52.5 | % | 45.9 | % | 47.8 | % | 54.1 | % | $ | 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 |
Redundant Air Tank Systems
Net revenue for the threesix months ended March 31,June 30, 2022 in the Redundant Air Tank Systems System segment was $322,456. The margins for repairs were the lowest margin$721,935 and $399,479 for the three months ended March 31,June 30, 2022. The margins for the three months ended June 30 ,2022 showed improvement at 36.0% as compared to 28.7% for the six months ended June 30, 2022 at (156.4)%.as the margin for dealer sales improved during the 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 the goods in order for the dealerdealers to also generate profit on the product.profits. SSI has a worldwide customer base that includes (1) commercial accounts with aircraft requiring redundant air systems for their pilots and passengers, such as helicopters flying to oil rigs located in bodies of water (2) government accounts that are typically domestic and international military customers with egress systems (3) dealersdealer accounts that are resellers including, international distributors to the military, commercial account or dive shops, and domestic and international dive shops that carry theira spare air product.product (4) direct to consumer sales representwhich are online sales and sales via trade shows direct to consumer and (5) repairs represent Company provided repairs and warranty repairs to all segments.
| 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 | ||||||||||||||||||||||
| Commercial | $ | 46,550 | - | N/A | 43.8 | % | - | 56.2 | % | - | ||||||||||||||||||
| Dealers | 250,223 | - | N/A | 68.8 | % | - | 31.2 | % | - | |||||||||||||||||||
| Government | 38,711 | - | N/A | 37.5 | % | - | 62.5 | % | - | |||||||||||||||||||
| Repairs | 11,047 | - | N/A | 221.6 | % | - | (121.6 | )% | ||||||||||||||||||||
| Direct to Consumers (Website) | 52,948 | - | N/A | 45.8 | % | - | 54.2 | % | - | |||||||||||||||||||
| Total | $ | 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 | % | - | ||||||||||||||||||
| 32 |
Guided Tours and Retail
| Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
| Commercial | $ | 56,606 | $ | - | 100 | % | 43.5 | % | - | 56.5 | % | - | ||||||||||||||||
| Dealers | 212,119 | - | 100 | % | 88.8 | % | - | 11.2 | % | - | ||||||||||||||||||
| Government | 14,001 | - | 100 | % | 35.0 | % | - | 64.1 | % | - | ||||||||||||||||||
| Repairs | 7,811 | - | 100 | % | 256.6 | % | -156.4 | % | ||||||||||||||||||||
| Direct to Consumers | 31,919 | - | 100 | % | 67.3 | % | - | 31.3 | % | - | ||||||||||||||||||
| Total | $ | 322,456 | $ | - | 100 | % | 80.5 | % | - | 19.5 | % | - | ||||||||||||||||
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 | % | - | ||||||||||||||||||
Operating Expenses
Operating expenses, consist of selling, general and administrative (“SG&A”) expenses and research and development costs and are reported on a consolidated basis for our operating segments. Operating expenses increased 48.8%38.3% for the three months ended March 31,June 30, 2022 and 42.1% for the six months ended June 30, 2022 as compared to the three months ended March 31, 2021.same periods in the prior year.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increased by 52.6%41.4% for the three months ended March 31,June 30, 2022 and 45.5% for the six months ending June 30, 2022 as compared to the three months ended March 31, 2021.same periods in the prior year. SG&A Expensesexpenses 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 | % | ||||||||||||
| Expense Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | % change | |||||||||
| Payroll, Selling & Administrative | $ | 395,776 | $ | 255,411 | 55.0 | % | ||||||
| Stock Compensation Expense | 230,034 | 218,505 | 5.3 | % | ||||||||
| Professional Fees | 126,412 | 72,646 | 74.0 | % | ||||||||
| Advertising | 156,444 | 68,583 | 128.1 | % | ||||||||
| All Others | 197,073 | 121,890 | 61.7 | % | ||||||||
| Total SG&A | $ | 1,105,739 | $ | 737,0325 | 50.0 | % | ||||||
Payroll increases for the three months ended March 31, 2022 can be attributed primarily to the addition of theSSI payroll which accounted for SSI which accounts for 44.0%51% of the increase with the remaining 11.0% can be attributed49% attributable to increases in personnel at BLU3 to manage the increasing revenue and production.production, as well as slight increases in wages and staffing in the other divisions.
Non-Cash Stock compensation expenses increased 8.4%4.4% for the threesix months ended March 31,June 30, 2022 as compared to the threesix months ended March 31, 2021June 30, 2021. The increase can be attributed to options granted to employees under the Company’s Equity Incentive Plan, adopted in May 2021.and the vesting of the Company’s Chief Executive Officer’s incentive option. The increase of 9.1% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 is related to the same option vesting.
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Professional fees, including legal and other professional fees which are typicallythe Company has paid with a combination of cash and common stock increased 74.0%26.4% in the threesix months ended March 31,June 30, 2022 as compared to the threesix months ended March 31,June 30, 2021. The increase can be attributed to an increase in legal fees that increased 143.8%, of which, 98.8% of the increase was paid in common stock, Professional fees increased 228.7%, with the hiring of a dive retail consultant, and sales consultants. These increases were offset by a decrease of accounting fees of 73.1%related to the year-end audit. For the three months ended June 30, 2022 professional fees decreased 15.4% as compared to the prior year.year, as a consultant was added to payroll in 2022.
The increase in advertising expense for the threesix months ended March 31,June 30, 2022 as compared to the threesix months ended March 31,June 30, 2021 is attributable to BLU3’s focus on social media, Amazon and trade show advertising.
Research & Development Expenses (R&D Expenses)
R&D expenses for the three months ended March 31,June 30, 2022 decreased 81.4%79.5% and 80.5% for the six months ended June 30, 2022 as compared to the three months ended March 31, 2021.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 of 2021.
Other Income/Expense
For the threesix months ended March 31,June 30, 2022, other expenses totaled approximately $10,200$19,700 of interest expense as compared to other income of approximately $6,200 during$164,000 for the threesix months ended March 31,June 30, 2021. Other income for the threesix months ended March 31,June 30, 2021 consistsconsisted of a gain due to the settlement of debt of $10,000, the forgiveness of a PPP loan less interest expense of approximately $3,800.$5,600. The increase in interest expense can be attributed to the Navitas loan that was funded after March 31,in the second quarter of 2021, and the interest on the debt related to the acquisition of SSI.
Liquidity and Capital Resources
We had cash of $609,869$574,567 as of March 31,June 30, 2022. The following table summarizes total current assets, total current liabilities and working capital at March 31,June 30, 2022 as compared to December 31, 2021.
| June 30, | December 31, | % | ||||||||||
| 2022 | 2021 | change | ||||||||||
| (unaudited) | ||||||||||||
| Total current assets | $ | 3,783,509 | $ | 2,966,432 | 11.2 | % | ||||||
| Total current liabilities | $ | 1,991,200 | $ | 1,396,197 | 14.2 | % | ||||||
| Working capital | $ | 1,792,309 | $ | 1,570,235 | 8.4 | % | ||||||
| March 31, | December 31, | % | ||||||||||
| 2022 | 2021 | change | ||||||||||
| (unaudited) | ||||||||||||
| Total current assets | $ | 3,297,431 | $ | 2,966,432 | 11.2 | % | ||||||
| Total current liabilities | $ | 1,594,614 | $ | 1,396,197 | 14.2 | % | ||||||
| Working capital | $ | 1,702,8197 | $ | 1,570,235 | 8.4 | % | ||||||
The increase in our current assets at March 31,June 30, 2022 from December 31, 2021 principallyprimarily reflects an increase from the assets of SSI as well as the increases in inventory purchases that are reflected by an increase in inventory and prepaid assets which includes prepayments of inventory.inventory, as the Company has experienced revenue growth and has ramped up purchasing and production for the upcoming summer season. The increase in our total current liabilities principally reflectprimarily reflects the additional of the SSI liabilities for the current year as well as a significant increase in customer deposits, particularly customer deposits with LWA.
Summary Cash Flows
Three Months Ended March 31, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Net cash used by operating activities | $ | (290,337 | ) | $ | (251,455 | ) | $ | (275,257 | ) | $ | (396,838 | ) | ||||
| Net cash used in investing activities | $ | (2,884 | ) | $ | - | $ | (31,946 | ) | $ | (14,941 | ) | |||||
| Net cash provided by financing activities | $ | 254,352 | $ | 250,168 | $ | 238,627 | $ | 227,904 | ||||||||
Net cash used in operating activities for the threesix months ended March 31,June 30, 2022 was due to the net loss of approximately $444,092$772,754 which is primarily attributable to non-cash stock compensation expenses of approximately $265,534.$579,300. The non-cash stock compensation expense for the threesix months ended March 31, 2021June 30, 2022 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. Net 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 $376,500,$797,000, offset by increases in current liabilities including accounts payable, other liabilities, and customer deposits, which totaled approximately $168,200.$501,700.
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Net cash used in investing activities for the threesix months ended March 31,June 30, 2022 relates solely toof approximately $31,946 consists of $30,000 used in an asset acquisition and a small fixed asset purchased during the quarter.purchase of approximately $1,900.
Net cash provided by financing activities infor the threesix months ended March 31,June 30, 2022 reflects proceeds from anthe exercise of warrants of approximately $265,000 less the repayment of debt during the quarter.of approximately $26,400.
Going Concern
Our unaudited consolidated financial statements included in this Quarterly 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 twelve-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, 2021 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.
We have a history of losses, and an accumulated deficit of $14,988,696$15,317,359 as of March 31,June 30, 2022. Despite a working capital surplus of $1,702,817$1,792,309 at March 31,June 30, 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 continue to increase revenues, control expenses, raise capital, and 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. 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 consolidated financial statements contained in this Quarterly Report.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company’s operations, financial position or cash flows.
These recent accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company and is not required to provide this information.
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ITEM 4. CONTROLS 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, our 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 part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure 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, including our Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of the design and operations of our disclosure controls and procedures (defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) as of March 31,June 30, 2022 and based upon the such evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to the material 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 our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as 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 have added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL 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 1A. RISK FACTORS
The Company is a smaller reporting company and is not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as set forth below, there were no sales of equity securities during the period covered by this Quarterly 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 January 17, 2022, the Company issued a law firm 1,000,000 shares of common stock as compensation for legal services.
On JanuaryMay 31, 2022, the Company issued a consultant, 121,212302,953 shares of common stock for consulting services related to the dive industry.
As of 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 February 2,June 17, 2022, the Company issued 10,000,000280,000 shares of common stock to Charles Hyatt upon the exercise ofan employee as a warrant at $0.025 per share for proceeds of $250,000.retirement gift.
On February 2, 2022,The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the Company issued 600,000 sharesregistration requirements of common stock to Grace Hyatt upon the exerciseSecurities Act of a warrant at $0.025 per share for proceeds1933 by virtue of $15,000.Section 4(2) thereof.
On February 28, 2022, the Company issued a consultant, 85,106 shares of common stock for consulting services related to the dive industry.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEMITEM 4. MINE SAFETY DISCLOSURE
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| 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 | |
| 101.SCH | Inline XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL | Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| 101.DEF | Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| 101.LAB | Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
| 101.PRE | Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |
| 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: | BROWNIE’S MARINE GROUP, INC. | |
| By: | /s/ Christopher H. Constable | |
| Christopher H. Constable | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Robert M. Carmichael | |
| Robert M. Carmichael | ||
| Chief Financial Officer | ||