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 25thAvenue, 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
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 ☒
As of August 19, 2022,May 15, 2023, there were shares of common stock 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. | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | |
ITEM 4. | MINE SAFETY DISCLOSURES. | |
ITEM 5. | OTHER INFORMATION. | |
ITEM 6. | EXHIBITS. |
2 |
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 SECSecurities and Exchange Commission (“SEC”) on AprilMarch 30 22, 2022,2023, 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
CONSOLIDATED BALANCE SHEETS
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 347,635 | $ | 484,427 | ||||
Accounts receivable - net | 165,742 | 111,844 | ||||||
Accounts receivable - related parties | 99,833 | 55,428 | ||||||
Accounts receivable | ||||||||
Inventory, net | 2,215,861 | 2,421,885 | ||||||
Prepaid expenses and other current assets | 134,860 | 192,130 | ||||||
Total current assets | 2,963,931 | 3,265,714 | ||||||
Property, equipment and leasehold improvements, net | 389,455 | 339,546 | ||||||
Operating lease assets | 1,057,327 | 1,133,092 | ||||||
Intangible assets, net | 628,305 | 646,422 | ||||||
Goodwill | 249,986 | 249,986 | ||||||
Other assets | 30,725 | 30,724 | ||||||
Total assets | $ | 5,319,729 | $ | 5,665,484 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 696,523 | $ | 829,456 | ||||
23,778 | 37,539 | |||||||
Customer deposits and unearned revenue | 229,946 | 167,534 | ||||||
Other liabilities | 307,498 | 372,943 | ||||||
Operating lease liabilities, current | 268,202 | 269,046 | ||||||
49,213 | 49,147 | |||||||
Current maturities long term debt | 67,954 | 66,486 | ||||||
Total current liabilities | 1,643,114 | 1,792,151 | ||||||
Loans payable, net of current portion | 126,188 | 143,960 | ||||||
Convertible notes, net of current portion | 344,104 | 342,943 | ||||||
Operating lease liabilities, net of current portion | 792,502 | 864,057 | ||||||
Total liabilities | 2,905,908 | 3,143,111 | ||||||
Commitments and contingent liabilities (see note 9) | - | - | ||||||
Stockholders’ equity | ||||||||
Preferred stock; $ | par value: shares authorized; issued and outstanding as of March 31, 2023 and December 31, 2022.425 | 425 | ||||||
Common stock; $ | par value; shares authorized; shares issued and outstanding at March 31, 2023 and shares issued and outstanding at December 31, 2022.43,716 | 42,553 | ||||||
Common stock payable | shares and shares, as of March 31, 2023 and December 31, 2022, respectively.14 | 14 | ||||||
Additional paid-in capital | 19,135,083 | 18,916,876 | ||||||
Accumulated deficit | (16,765,417 | ) | (16,437,495 | ) | ||||
Total stockholders’ equity | 2,413,821 | 2,522,373 | ||||||
Total liabilities and stockholders’ equity | $ | 5,319,729 | $ | 5,665,484 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
4 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(unaudited)
2023 | 2022 | |||||||
Revenues | $ | 1,639,053 | $ | 1,974,969 | ||||
Cost of revenues | 1,225,028 | 1,299,209 | ||||||
Gross profit | 414,025 | 675,760 | ||||||
Operating expenses | ||||||||
Selling, general and administrative | 726,220 | 1,105,739 | ||||||
Research and development costs | 529 | 3,920 | ||||||
Total operating expenses | 726,749 | 1,109,659 | ||||||
Loss from operations | (312,724 | ) | (433,899 | ) | ||||
Other expense | ||||||||
Interest expense | (15,198 | ) | (10,193 | ) | ||||
Total other expense - net | (15,198 | ) | (10,193 | ) | ||||
Loss income before provision for income taxes | (327,922 | ) | (444,092 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss | $ | (327,922 | ) | $ | (444,092 | ) | ||
Other comprehensive income | ||||||||
Unrealized gain on foreign currency contract | - | 1,587 | ||||||
Total other comprehensive income | - | 1,587 | ||||||
Comprehensive loss | $ | (327,922 | ) | $ | (442,505 | ) | ||
Basic loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Basic weighted average common shares outstanding | 427,289,742 | 401,483,605 | ||||||
Diluted weighted average common shares outstanding | 427,289,742 | 401,483,605 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
5 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHARHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(Unaudited)
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders Equity | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance, December 31, 2022 | 425,000 | $ | 425 | 425,520,662 | $ | 42,553 | 138,941 | $ | 14 | $ | 18,916,876 | - | $ | (16,437,495 | ) | $ | 2,522,373 | |||||||||||||||||||
Shares issued for the purchase of units | - | - | 11,428,570 | 1,143 | - | - | 198,857 | - | 200,000 | |||||||||||||||||||||||||||
Shares issued for accrued interest in convertible notes | - | - | 198,204 | 20 | - | - | 8,316 | - | 8,336 | |||||||||||||||||||||||||||
Stock Option Expense | 11,034 | - | 11,034 | |||||||||||||||||||||||||||||||||
Net Loss | - | (327,922 | ) | (327,922 | ) | |||||||||||||||||||||||||||||||
Balance, March 31, 2023 (unaudited) | 425,000 | $ | 425 | 437,147,436 | $ | 43,716 | 138,941 | $ | 14 | $ | 19,135,083 | - | $ | (16,765,417 | ) | $ | 2,413,821 | |||||||||||||||||||
Balance | 425,000 | $ | 425 | 437,147,436 | $ | 43,716 | 138,941 | $ | 14 | $ | 19,135,083 | - | $ | (16,765,417 | ) | $ | 2,413,821 |
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Income | 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 | ||||||||||||||||||||||
Balance | 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 | ||||||||||||||||||||||
Balance | 425,000 | $ | 425 | 405,656,793 | $ | 40,566 | 138,941 | $ | 14 | $ | 17,661,788 | $ | 1,587 | $ | (14,988,696 | ) | $ | 2,715,684 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
6 |
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
STATEMENTS OF CASH FLOWS
BROWNIES MARINE GROUP, INC. AND SUBSIDIARIESFOR THE THREE MONTHS ENDED MARCH 31,
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(unaudited)
THREE AND SIX MONTHS ENDED JUNE 30
2023 | 2022 | |||||||
Cash flows provided by operating activities: | ||||||||
Net loss | $ | (327,922 | ) | $ | (444,092 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 36,966 | 33,859 | ||||||
Amortization of debt discount | 2,764 | 922 | ||||||
Amortization of right-of-use asset | 75,765 | 57,267 | ||||||
Common stock issued for services | - | 35,500 | ||||||
Reserve for slow moving inventory | - | 4,528 | ||||||
Reserve for Nomad recall | (74,200 | ) | - | |||||
Stock Based Compensation - Options | 11,034 | 230,034 | ||||||
Shares issued for accrued interest in convertible notes | 8,336 | - | ||||||
Changes in operating assets and liabilities | ||||||||
Change in accounts receivable, net | (53,898 | ) | (68,168 | ) | ||||
Change in accounts receivable - related parties | (44,405 | ) | 161 | |||||
Change in inventory | 206,024 | (138,460 | ) | |||||
Change in prepaid expenses and other current assets | (6,419 | ) | (166,342 | ) | ||||
Change in other assets | - | (3,733 | ) | |||||
Change in accounts payable and accrued liabilities | (132,934 | ) | 126,696 | |||||
Change in customer deposits and unearned revenue | 62,412 | 104,495 | ||||||
Change in long term lease liability | (72,399 | ) | (57,425 | ) | ||||
Change in other liabilities | 8,756 | 13,656 | ||||||
Change in accounts payable - related parties | (13,761 | ) | (19,235 | ) | ||||
Net cash used in operating activities | (313,881 | ) | (290,337 | ) | ||||
Cash flows used in investing activities: | ||||||||
Purchase of fixed assets | (5,069 | ) | (2,884 | ) | ||||
Net cash used in investing activities | (5,069 | ) | (2,884 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of units | 200,000 | - | ||||||
Proceeds from exercise of Warrants | - | 265,000 | ||||||
Repayment of debt | (17,842 | ) | (10,648 | ) | ||||
Net cash acquired in financing activities | 182,158 | 254,352 | ||||||
Net change in cash | (136,792 | ) | (38,869 | ) | ||||
Cash, beginning balance | 484,427 | 643,143 | ||||||
Cash, end of period | $ | 347,635 | $ | 604,274 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 6,860 | $ | 3,454 | ||||
Cash paid for income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Common Stock issued for payment of convertible note interest | $ | 8,336 | $ | - | ||||
Equipment obtained through financing | $ | 63,689 | $ | - |
(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
BROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
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 condensed consolidated unaudited financial statements
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWSFINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30,March 31, 2023
(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 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
(UNAUDITED)
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”) 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”), manufactures and sells high pressure air and industrialindustrial. 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 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 utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 20212022 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 ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 for a broader discussion of ourthe Company’s business and the risks inherent in such business. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending December 31, 2023.
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 AmericaGAAP 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 June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had approximately $22,700no and $205,500, respectivelyamount in excess of the FDIC insured limit.
Foreign Currency Forward Contracts
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The foreign currency forward hedging contracts outstanding as of June 30, 2022 have settlement dates within 6 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in other comprehensive income and reclassified to the Consolidated Statement of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings.
Foreign currency forward contracts entered into to hedge cost of goods purchases were as follows as of June 30, 2022 and December 31, 2021:
Schedule of Foreign Currency Forward Contracts
Notional Amount | ||||||||
Foreign Currency | June 30, 2022 (unaudited) | December 31, 2021 | ||||||
Euro | $ | 181,615 | - | |||||
Total | $ | 181,615 | $ | - |
Accounts receivable
Accounts receivable consist of amounts due from the sale of all of our
The Company manufactures and sells its products to wholesalea broad range of customers, primarily retail stores. Few customers are provided with payment terms of 30 days. The Company has tracked historical loss information for its trade receivables and retail customers. Thecompiled historical credit loss percentages for different aging categories (current, 1–30 days past due, 31–60 days past due, 61–90 days past due, and more than 90 days past due).
In accordance with ASU 2016-13, management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at March 31, 2023 because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed significantly over time). As a result, management applied the applicable credit loss rates to determine the expected credit loss estimate for each aging category. Accordingly, the allowance for doubtful accounts is estimated based on historical customer experience and industry knowledge. The allowances for doubtful accountsexpected credit losses at March 31, 2023 totaled $46,55528,558 and $46,555 at June 30, 2022 and December 31, 2021, respectively..
Inventory
Inventory consists of the following:
Schedule of Inventory
March 31, 2023 (unaudited) | December 31, 2022 | |||||||||||||||
June 30, 2022 (unaudited) | December 31, 2021 | |||||||||||||||
In-Transit inventory | $ | 204,562 | $ | 130,000 | ||||||||||||
Raw materials | 1,000,674 | 1,144,190 | $ | 892,859 | $ | 1,207,957 | ||||||||||
Work in process | 84,243 | 99,858 | 72,041 | 80,727 | ||||||||||||
Finished goods | 985,387 | 521,212 | 1,195,068 | 1,077,308 | ||||||||||||
Rental Equipment | 48,602 | - | 55,893 | 55,893 | ||||||||||||
Inventory, net | $ | 2,323,468 | $ | 1,895,260 | $ | 2,215,861 | $ | 2,421,885 |
Revenue Recognition
We account for revenuesThe Company recognizes revenue in accordance with Accounting Standards Codification (ASC)ASC Topic 606 “RevenueRevenue from Contracts with Customers” and all the related amendments. This standards core principle is that a company should recognizeCustomers. The Company recognizes revenue when it transfers promised goodsperformance obligations under the terms of a contract with the customer are satisfied. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due upon receipt of the invoice and the contracts do not have significant financing components. Product sales occur once control or services to customers in antitle is transferred based on the commercial terms. Revenue is measured as the amount that reflectsof consideration the consideration to which the companyCompany expects to receive.receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and promotional allowances. Such provisions are calculated based on the actual allowances given. Management believes that adequate provision has been made for cash discounts, returns, spoilage and promotional allowances based on the Company’s historical experience.
9 |
A breakdown of the total revenue between related party and non-related party revenue is as follows:
Schedule of Total Revenue between Related Party and Non-Related Party Revenue
March 31, 2023 | March 31, 2022 | |||||||
(unaudited) | (unaudited) | |||||||
Revenues | $ | 1,427,963 | $ | 1,701,564 | ||||
211,090 | 273,405 | |||||||
Total Revenues | $ | 1,639,053 | $ | 1,974,969 |
See further disaggregate revenue disclosures by segment and product type in Note 16.
We recognizeCost of Sales
Cost of sales consists of the salecost of the components of finished goods, the costs of raw materials utilized in the manufacture of products, under single performance obligations upon shipmentin-bound and out-bound freight charges, direct manufacturing labor as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the units as that is when ownership is transferredCompany’s finished products, inventory allowance for excess and our performance is completed. Revenues from repairobsolete products, and maintenance activities is recognized whenroyalties paid on licensing agreements. Components account for the repairs are completedlargest portion of the cost of sales. Components include plastic molded parts, gas powered engines, aluminum pressure bottles, electronic parts, batteries and the units have been shipped.packaging materials.
The breakdown of cost of sales to include cost of sales for related party and non-related party as well as the related party and non-related party royalty expense is as follows:
Schedule of Related Party and Non-Related Party Royalty Expense
March 31, 2023 | March 31, 2022 | |||||||
(unaudited) | (unaudited) | |||||||
Cost of revenues | $ | 1,071,068 | $ | 1,121,638 | ||||
Cost of revenues - related parties | 108,925 | 121,174 | ||||||
Royalty expense - related parties | 10,212 | 12,789 | ||||||
Royalty expense | 34,823 | 43,608 | ||||||
Total cost of revenues | $ | 1,225,028 | $ | 1,299,209 |
Lease Accounting
We accountThe Company accounts for leases in accordance with ASC 842, “Leases”. Leases.
The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. The Company elected the practical expedients permitted under the transition guidance of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. The Company did not reassess whether any contracts entered into prior to adoption are leases or contain leases.
We categorizeThe Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow usthe Company 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. WeThe Company did not have any finance leases as of June 30, 2022. OurMarch 31, 2023. The Company’s leases generally have terms that range from three years for equipment and five to twenty years for property. WeThe Company elected the accounting policy to include both the lease and non-lease components of ourits 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.
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When we havethe Company has the option to extend the lease term, terminate the lease for the contractual expiration date, or purchase the leased asset, and it is reasonably certain that the Company we will exercise the option, we considerit considers 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 June 30, 2022 theMarch 31, 2023, lease expenses were approximately $64,500 and $128,70070,400, respectively, and approximately $43,000 and $78,00064,200 for the three and six months ended June 30, 2021, respectively.March 31, 2022. Cash paid for operating liabilities for the sixthree months ended June 30, 2022March 31, 2023 was approximately $128,40089,570 and approximately $32,90064,400 for the sixthree months ended June 30, 2021.March 31, 2022.
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
Operating Leases | March 31, 2023 | |||||||
(unaudited) | ||||||||
Operating Leases | June 30, 2022 (unaudited) | |||||||
Right-of-use assets | $ | 372,992 | $ | 1,057,327 | ||||
Current lease liabilities | $ | 214,061 | $ | 268,202 | ||||
Non-current lease liabilities | 159,322 | 792,502 | ||||||
Total lease liabilities | $ | 373,383 | $ | 1,060,704 |
Stock-Based Compensation
We accountThe Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”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.
The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price.
Derivatives
The accounting treatment of derivative financial instruments requires that the Company record certain warrants and embedded conversion options at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into certain note agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy, by earliest issuance date, in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors, as long as the certain variable issuance terms in certain convertible instruments exist.
Basic earningsloss 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 earningsloss 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 June 30,March 31, 2023 and March 31, 2022, and June 30, 2021, and , shares, 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.
11 |
Recent accounting pronouncements
ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued andan 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 effectivewas adopted on January 1, 2023. The Company is evaluating2023 with no effect to the changes from this standard to determine the impact on its consolidated financial statements and related disclosuresstatements.
ASU 2019-12 Income Taxes (Topic 740)2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity.
In December 2019,August 2020, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Income Taxes (“Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU 2019-12”), which is intended to simplify various aspects related tosimplifies accounting for income taxes.convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU 2019-12 removes certain exceptionssettlement conditions that are required for equity contracts to qualify for the general principlesderivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Thiscertain areas. The new guidance is effective for fiscal years andbeginning after December 15, 2023, including interim periods within those fiscal years, beginning after December 15, 2020, withand early adoption is permitted. The Company determined thatis currently evaluating the impact of the adoption of the standard has noon the consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on its consolidatedour financial statements and related disclosures.upon adoption or are not applicable.
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 sixthree months ended June 30, 2022,March 31, 2023, the Company incurred a net loss of $772,754327,922 of which $520,739 is non-cash stock related compensation and shares issued for service.. At June 30, 2022,March 31, 2023, the Company had an accumulated deficit of $15,317,35916,765,417. Despite a working capital surplus of approximately $1,792,3091,320,817 at June 30, 2022,March 31, 2023, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4. Related Party Transactions
The Company sells products to BrowniesBrownie’s Southport Divers, BrowniesBrownie’s Yacht Toys and BrowniesBrownie’s 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 $12.1211,090 or 12.9% and $20.6273,405 or 13.8% of the net revenues for the three months ended June 30,March 31, 2023 and March 31, 2022, and June 30, 2021, respectively and % and % for the six months ending June 30 2022 and 2021, respectively. Accounts receivable from these entities totaled $ and $ , at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
12 |
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 $June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. and $ at
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.
had
June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The at June 30, 2022 isMarch 31, 2023 was comprised of $ due to 940 A, $ due to BGL, $ due to Robert Carmichael and $, due to 940, LLC and $2,980 to BGL.Blake Carmichael. At December 31, 2021 this account2022, the was comprised of $ due to 940 A, $ due to BGL and $ due to Robert Carmichael, and $32,267 due to BGL.Carmichael.
The Company has exclusive license agreements with 940 A to license the trademark “Brownies“Brownie’s Third Lung”, “Tankfill”, “Brownies“Brownie’s Public Safety” and various other related trademarks as listed in the agreements. The agreements provide that the Company pay 940 A2.5% of gross revenues per quarter as a royalty. Total royalty expense for the three months ended June 30,March 31, 2023 and March 31, 2022 and 2021 werewas $17,82410,212 and $28,031, respectively. For the six months ending June 30, 2022 and 2021 royalty expense for this entity totaled $30,613 and $39,60612,789, respectively. The accrued royalty for June 30, 2022March 31, 2023 was approximately $11,8004,785 and is included in other liabilities.
On February 2,September 30, 2022, the Company issued a convertible demand 8% promissory note in the principal amount of $66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note, and interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day value weighted average price (“VWAP”) of the Company’s stock prior to the quarterly interest payment date. The note holder may demand payment or convert the outstanding principal at a conversion rate of $.021 per share at any time. The conversion rate was calculated at a 35% discount to the 90 day VWAP of the Company’s stock as of the date of the note. The Company recorded $19,250 for the beneficial conversion feature. As this conversion rate is a fixed rate, the embedded conversion feature is not a derivative liability. There were payments totaling $1,537 made with products in kind during the three months ended March 31, 2023.
On January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, a Company director, an aggregate of shares from theunits, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of a warrant at $0.0250.0175 per share in consideration of $250,000200,000.
On February 2,March 31, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares fromof common stock to Robert Carmichael for payment of interest on the exerciseconvertible demand note for the three months ending March 31, 2022. The fair value of a warrant atthese shares was $0.025 per share in consideration of $15,0001,336.
Note 5. Convertible Promissory Notes and NotesLoans Payable
Convertible Promissory Notes
Convertible promissory notes consisted of the following at June 30, 2022:March 31, 2023:
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 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/05/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | 346,500 | (8,815 | ) | 337,685 | - | (3 | ) | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | $ | 346,500 | $ | (5,834 | ) | $ | 340,666 | - | (1 | ) | |||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (87 | ) | 3,413 | - | (4 | ) | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (62 | ) | 3,438 | - | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||
9/30/22 | Demand | 8 | % | 66,793 | (19,245 | ) | 65,256 | (16,043 | ) | 49,213 | - | (3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 350,000 | $ | (8,902 | ) | $ | 341,098 | $ | - | $ | 415,256 | $ | (21,939 | ) | $ | 393,317 | $ | - |
(1) |
On September 3, 2021, the Company issued a three-year 8% convertible promissory note in the principal amount of $346,550 to Summit Holding V, LLC as part of the acquisition of SSI. |
13 |
Schedule of Future Amortization of Notes Payable
Payment Amortization | ||||
2023 (9 months) | $ | - | ||
2024 | 346,500 | |||
Total Note Payments | $ | 346,500 | ||
Current portion of note payable | - | |||
Non-Current Portion of Notes Payable | $ | 346,500 |
On September 3, 2021, the Company issued a three-year 8% promissory note in the principal amount of $3,500 to Tierra Vista Partners, LLC as part of the acquisition of SSI. |
Schedule of Future Amortization of Notes Payable
Payment Amortization | ||||
2023 (9 months) | $ | - | ||
2024 | 3,500 | |||
Total Note Payments | $ | 3,500 | ||
Current portion of note payable | - | |||
Non-Current Portion of Notes Payable | $ | 3,500 |
(3) | On September 30, 2022, the Company issued a convertible demand 8% promissory note in the principal amount of $66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note and interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day VWAP of the Company’s stock prior to the quarterly interest payment date. This note is classified as a current liability as the note holder may demand payment or convert the outstanding principal at a conversion rate of $0.021 per share at any time. The Company recorded $19,250 for the beneficial conversion feature. |
LoanLoans 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 $12,305 as of June 30, 2022.
Schedule of Future Amortization of Loans Payable
Mercedes BMG (1) | Navitas BLU3 (2) | NFS SSI (3) | Navitas 2022 BLU3 (4) | Total | ||||||||||||||||||||
Payment Amortization | ||||||||||||||||||||||||
2022 (6 months remaining) | 12,305 | |||||||||||||||||||||||
2023 | - | |||||||||||||||||||||||
2023 (9 months) | $ | 8,376 | $ | 10,550 | $ | 16,994 | $ | 14,261 | $ | 50,182 | ||||||||||||||
2024 | - | 11,168 | 16,629 | 26,279 | 21,228 | 75,304 | ||||||||||||||||||
2025 | - | 8,687 | 18,024 | 12,328 | 23,611 | 62,649 | ||||||||||||||||||
2025 and thereafter | - | |||||||||||||||||||||||
2026 | - | - | 6,007 | - | - | 6,007 | ||||||||||||||||||
Total Loan Payments | $ | 12,305 | $ | 28,231 | $ | 51,210 | $ | 55,601 | $ | 59,100 | $ | 194,142 | ||||||||||||
Current portion of Loan payable | (12,305 | ) | ||||||||||||||||||||||
Current Portion of Loan Payable | $ | (11,169 | ) | $ | (14,270 | ) | $ | (23,154 | ) | $ | (19,361 | ) | $ | (67,954 | ) | |||||||||
Non-Current Portion of Loan Payable | $ | - | $ | 17,062 | $ | 36,940 | $ | 32,447 | $ | 39,739 | $ | 126,188 |
(1) | 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 is for $55,841 with a zero interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Mr. Carmichael. The loan balance as of March 31, 2023 was $28,231 and $31,023 as of December 31, 2022. |
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 June 30, 2022 is $37,538.
Schedule of Future Amortization of Loans Payable
Payment Amortization | ||||
2022 (6 months remaining) | $ | 6,825 | ||
2023 | $ | 11,168 | ||
2024 | $ | 11,168 | ||
2025 and thereafter | $ | 8,684 | ||
Total note payments | $ | 37,538 | ||
Current portion of note payable | $ | (11,168 | ) | |
Non-Current Portion of notes payable | $ | 26,370 |
Navitas Note
On May 19, 2021 the Company, 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 (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 six months ending June 30, 2022, the Company wrote off approximately $6,300 related to fees for cancellation of this financing.
(2) | On May 19, 2021, subsidiary BLU3, executed an equipment finance agreement to finance the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable over equal monthly installments of $ (the “Navitas 1”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $ and $ as of December 31, 2022. |
(3) | 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 of which $63,375 was financed by NFS Leasing on August 15, 2022. The financing agreement has a 33 month term beginning in August 2022 with a monthly payment of $2,571. The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the assets of SSI. The loan balance as of March 31, 2023 and December 31, 2022 was $55,601 and $60,804, respectively. |
(4) | On December 12, 2022, BLU3 executed an equipment finance agreement to finance the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable over equal monthly installments of $ (“Navitas 2”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $ and $ as of December 31, 2022. |
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 $1.79 million, consisting of the issuance of shares of its common stock (valued at $1.4 million) and the issuance of 8% unsecured convertible promissory notes in the aggregate principal amount of $350,000 in 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:
from Closing Date | eligible to be sold or transferred | |
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 $0.051271831 and 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 closing.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes.
As of 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 $150,000to the LLC Members. The purchase price was paid by (a) the 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 Toto 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 | %
15 |
The leak-out restriction may be waived by the Company, upon written request by a Seller,LLC Member, 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 ValueWhile the agreement was structured as an asset purchase agreement, we also assumed the operations of Consideration TransferredGulf Coast Scuba resulting in the recognition of a business combination. During 2022 we recognized revenue of $212,876 and Recordingnet loss of Assets Acquired$75,579 associated with this business. The business combination was not material for purposes of disclosing pro forma financial information. In connection with this transaction, we recognized the following assets and liabilities:
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 unaudited pro forma information assumes all business combinations 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 June 30, 2021 | Six months ended June 30, 2021 | |||||||
Revenue | $ | 2,423,956 | $ | 3,730,805 | ||||
Net Loss | $ | (340,186 | ) | $ | (842,500 | ) | ||
Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Basic and Diluted Weighted Average Common Shares Outstanding | 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 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 |
Fair Value | ||||
Rental Inventory | $ | 48,602 | ||
Fixed Assets | 50,579 | |||
Retail Inventory | 60,819 | |||
Right of use asset | 29,916 | |||
Lease liability | (29,916 | ) | ||
Net Assets Acquired | $ | 160,000 |
Note 7. Goodwill and Intangible Assets, Net
The following table sets for the changes in the carrying amount of the Company’ Goodwill for the quarterthree months ended June 30, 2022.March 31, 2023.
Summary of Changes in Goodwill
2022 | ||||
Balance, January 1 | $ | 249,986 | ||
Addition: | - | |||
Balance, June 30 | $ | 249,986 |
2023 | ||||
Balance, January 1 | $ | 249,986 | ||
Addition: | - | |||
Balance, March 31 | $ | 249,986 |
The Company performed an evaluation of the value of goodwill at December 31, 2022. Based upon this evaluation it was determined that there should be no adjustment to goodwill. There has been nothing noted during the three months ended March 31, 2023 that would indicate that the value of goodwill should change through that date.
16 |
The following table sets for the components of the Company’s intangible assets at June 30, 2022:March 31, 2023:
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 | $ | (6,678 | ) | $ | 114,322 | 15 | $ | 121,000 | $ | (12,728 | ) | $ | 108,272 | ||||||||||||||||
Customer Relationships | 10 | 600,000 | (50,000 | ) | 550,000 | 10 | 600,000 | (95,000 | ) | 505,000 | ||||||||||||||||||||||
Non-Compete Agreements | 5 | 22,000 | (3,667 | ) | 18,333 | 5 | 22,000 | (6,967 | ) | 15,033 | ||||||||||||||||||||||
Total | $ | 743,000 | $ | (60,354 | ) | $ | 682,655 | $ | 743,000 | $ | (114,695 | ) | $ | 628,305 |
The aggregate amortization remaining on the intangible assets as of June 30, 2022March 31, 2023 is a follows:
Schedule of Estimated Intangible Assets Amortization ExpensesExpense
Intangible Amortization | ||||||||
Intangible Amortization | ||||||||
2022 (6 months remaining) | $ | 36,225 | ||||||
2023 | 72,467 | |||||||
2023 (9 months remaining) | 54,394 | |||||||
2024 | 72,467 | 72,467 | ||||||
2025 | 72,467 | 72,467 | ||||||
2026 | 71,367 | 71,367 | ||||||
2027 | 68,066 | |||||||
Thereafter | 357,662 | 289,544 | ||||||
Total | $ | 682,655 | $ | 628,305 |
Note 8. Shareholders’Stockholders’ Equity
Common Stock
On January 17, 2022,18, 2023 and February 18, 2023, the Company issued a law firmto Charles Hyatt, an aggregate of sharesunits, with each unit consisting of one share of common stock withand a fair value of $ as part of the agreed upon compensation for a representation agreement.
On January 31, 2022, the Company issued a consultant sharestwo-year common stock purchase warrant to purchase one share of common stock with a fair valueat an exercise price of $4,0000.0175 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 $250,000200,000.
On February 2, 2022,March 31, 2023, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares fromof common stock to Robert Carmichael for payment of interest on the exerciseconvertible demand note for the three months ending March 31, 2023. The fair value of a warrant atthese shares was $0.025 per share in consideration of $15,0001,336.
On February 28, 2022,March 31, 2023, the Company issued a consultant, shares of common stock with a fair 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.
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,for the three months ending December 31, 2022. The fair value of these shares werewas $23,0487,000.
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 18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share held.held. The Company’s common stock and Series A Convertible Preferred Stock vote together as on any matters submitted to our shareholders for a vote.shareholders. As of June 30, 2022,March 31, 2023, and December 31, 2021,2022, the shares of Series A Convertible Preferred Stock are owned by Robert Carmichael. 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 $
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 ten years.
17 |
The Company also issued options outside of the plan that were not approved by the security holders. These options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options.
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) | ||||||||||
Equity Compensation Plans Approved by Security Holders | 3,592,647 | $ | .0401 | 21,407,353 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 3,592,647 | $ | .0401 | 21,407,353 |
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 | 3,467,647 | $ | 0.0400 | 21,532,353 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | 230,971,520 | 0.0362 | — | |||||||||
Total | 234,439,167 | $ | 0.0362 | 21,532,353 |
Options
On April 14, 2020, theThe Company entered into a Non-Qualified Stock Option Agreement with Robert Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation, the Company granted Mr. Carmichael an option (the “Carmichael Option”)has issued options to purchase up to an aggregate ofapproximately shares of the Company’s common stock at an exerciseaverage price of $ per share,with a fair value of whichapproximately $ . For the rightthree months ended March 31, 2023, the Company issued options to purchase shares. Upon exercise, shares of new common stock is subject to vesting uponare issued by 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 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.Company.
The fair valueFor the three months ended March 31, 2023 and 2022, the Company recognized an expense of approximately $ and $ , respectively, of non-cash compensation expense (included in General and Administrative expense in the Carmichael Option on the dateaccompanying Consolidated Statement of the grant was $ using theOperations) determined by application of a Black-Scholes option pricing model with the following assumptions: (i) risk freeinputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of March 31, 2023, the Company had approximately $ of unrecognized pre-tax non-cash compensation expense related to options to purchase shares, which the Company expects to recognize, based on a weighted-average period of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %.years. The Company analyzeduses straight-line amortization of compensation expense over the requisite service period for time-based options. For performance-based options the Company evaluates the likelihood that theof a vesting qualifications would be met. As of December 31, 2021, of options were vested as the targeted net revenues were reached and three quarters of Tranche 2 was alsoqualification being met, and fully expensed through December 31, 2021. Forwill establish the three months ended 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 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 sharesbased on that evaluation. The maximum contractual term of the Company’s common stock at an exercise price of $options is per share, of which the rightyears. The Company recognizes forfeitures and expirations as they occur. There are options to purchase approximately shares that have vested as 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:
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 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.March 31, 2023.
Schedule of Valuation Assumptions of Options
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 June 30, 2022 was $ and $, respectively.
Three Months ended March 31, | ||||||||
2023 | 2022 | |||||||
Expected volatility | % - | % | – | % | ||||
Expected term | – Years | – Years | ||||||
Risk-free interest rate | % - | % | % - | % | ||||
Forfeiture rate | % | % |
On August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company granted Blake Carmichael a five-year option to purchase shares of the Company’s common stock at an exercise price of $, (the “BC Compensation Options”). The BC Compensation Options vested The fair value of the options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, 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 June 30, 2022.
As part of the Blake Carmichael Agreement, the Company granted Blake Carmichael a five-year option to purchase up to shares of 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 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 June 30, 2022, it was deemed that it was likely that shares would be issued at the end of the first year, and accordingly was fully expensed as of December 31, 2021. For the three and six months ended June 30, 2022 there were no material changes to vesting qualifications and no stock option expense was recognized.
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 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. The options were issued pursuantdetermined with reference 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) expectedhistorical volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
In connection with the Buban Employment Agreement, the Company granted Ms. Buban that will grant Ms. Buban a five-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 uponstock. The Company uses historical data to estimate option exercise and employee termination within the achievementvaluation model. The expected term of certain revenue and EBITA financial metrics.options granted represents the period of time that options granted are expected to be outstanding. The fair value of the Buban Bonus Option was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk freerisk-free interest rate of %, (ii) expectedfor periods within the contractual life of years, (iii) dividend yield of %, (iv) expected volatility of %, and (v) exercise price of $ per share. The measurement period for the Buban Bonus Option began on September 3, 2021. The Company 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 six months ended 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 four years 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 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 two years. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
On November 5, 2021, the Company entered into a non-qualified stock option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable an immediately exercisable five-year option to purchase shares of the Company’s common stock at an exercise price of $ (the “Compensation Option”). The fair value of the Compensation Optionis based on the dateU.S. Treasury rate in effect at the time of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Compensation Option was fully expensed as of December 31, 2021.
On January 21, 2022, the Company issued options to purchase up to an aggregate of shares of common stock to an employee under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $ per share for a period of from the date of issuance, with quarterly vesting periods over . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
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.grant.
Schedule of Outstanding Stock Option Activity
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of Options | Exercise Price | Contractual Life in Years | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2021 | 233,128,266 | $ | 0.0362 | |||||||||||||
Granted | 5,710,901 | 0.0281 | ||||||||||||||
Forfeited | (400,000 | ) | 0.0354 | |||||||||||||
Exercised | - | - | ||||||||||||||
Cancelled | - | - | ||||||||||||||
Outstanding – December 31, 2022 | 238,439,167 | $ | 0.0360 | |||||||||||||
Exercisable – December 31, 2022 | 111,558,754 | $ | 0.0321 | $ | 68,994 | |||||||||||
Granted | - | - | ||||||||||||||
Forfeited | (4,000,000 | ) | 0.0229 | |||||||||||||
Exercised | - | - | ||||||||||||||
Cancelled | - | - | ||||||||||||||
Outstanding – March 31, 2023 | 234,439,167 | $ | 0.0362 | |||||||||||||
Exercisable – March 31, 2023 | 107,790,004 | $ | 0.0325 | $ | 265,633 |
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 | |||||||||||
Granted | 1,592,647 | 0.0353 | ||||||||||||||
Forfeited | (125,000 | ) | ||||||||||||||
Exercised | - | - | ||||||||||||||
Outstanding – June 30, 2022 (unaudited) | 234,595,913 | $ | 0.0362 | |||||||||||||
Exercisable – June 30, 2022 (unaudited) | 105,200,664 | $ | 0.0322 | $ | 1,022,422 |
Summary of Exercise Price of Employee Stock Options Outstanding
Range of Exercise Price | Number outstanding at December 31, 2022 | Weighted average remaining life | Weighted average exercise price | Number exercisable at December 31, 2022 | Weighted average exercise price | Weighted average remaining life | |||||||||||||||||||
$ | - $ | 70,730,020 | $ | 0.0182 | 45,730,020 | $ | 0.0181 | ||||||||||||||||||
$ | - $ | 5,093,254 | $ | 0.0268 | 5,024,504 | $ | 0.0267 | ||||||||||||||||||
$ | - $ | 25,530,893 | $ | 0.0398 | 6,166,730 | $ | 0.0396 | ||||||||||||||||||
$ | - $ | 133,085,000 | $ | 0.0455 | 50,868,750 | $ | 0.0450 | ||||||||||||||||||
Outstanding options | 234,439,167 | 0.0362 | 107,790,004 | 0.0325 |
At March 31, 2023, there was approximately $ of unrecognized stock option expense which may be recognized only if the full vesting requirements for these options are met.
At March 31, 2023, there was approximately $ of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of years.
19 |
Warrants
On September 1, 2021,January 18, 2023 and February 18, 2023, the Company issued to Charles F. Hyatt, a director,an aggregate of units, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $0.0250.0175 per share in consideration of $250,000200,000.
On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of Charles Hyatt, units, each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $0.025 per share in consideration of $15,000.
In September, 2021, the Company issued units to three accredited investors, each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at $0.025 per share in consideration of $100,000.
On February 2, 2022, the Company issued Charles Hyatt, a director, shares of 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 of common stock upon the exercise of a warrant at $0.025 per share in consideration of $15,000.
A summary of the Company’s warrants as of December 31, 20212022 and changes during the sixthree months ended June 30, 2022March 31, 2023 is presented below:
Schedule of WarrantsWarrant 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 | |||||||||||||||||||||||||||
Outstanding – December 31, 2022 | 18,255,951 | $ | 0.0245 | $ | 12,000 | |||||||||||||||||||||||||||
Granted | 11,428,570 | $ | 0.0175 | |||||||||||||||||||||||||||||
Exercised | (10,600,000 | ) | $ | 0.025 | - | - | ||||||||||||||||||||||||||
Forfeited or Expired | - | - | ||||||||||||||||||||||||||||||
Outstanding – June 30, 2022 | 4,000,000 | $ | 0.025 | |||||||||||||||||||||||||||||
Exercisable – June 30, 2022 | 4,000,000 | $ | 0.025 | 1.19 | $ | 56,000 | ||||||||||||||||||||||||||
Outstanding – March 31, 2023 | 29,684,521 | $ | 0.0247 | |||||||||||||||||||||||||||||
Exercisable – March 31, 2023 | 29,684,521 | $ | 0.0247 | 1.52 | $ | 109,714 |
Note 9. Commitments and contingencies
Leases
On August 14, 2014, the Company entered into a thirty-seven month 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 10.76% of annual operating expenses (common areas maintenance), which was approximately $2,000 per month subject to periodic adjustment. On December 1, 2016, the Company entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extendingwhich extended the term of the lease for an additional eighty-four months expiring until September 30, 2024. The base rent was increased to $4,626 per month with a 3% annual escalation throughout the amended term.escalation.
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 2.5% thereafter. The Company paid a security deposit of $8,450 upon entering into the lease.
On November 11, 2018, the Company entered a sixty-nine month lease commencing 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 $6,527 security deposit; initial base rent of approximately $4,848 per month escalating at 3% per year during the term of the lease plus Florida state sales tax and 10.11% of the buildings annual operating expenses (common area maintenance) which is approximately $1,679 per month, subject to adjustment as provided in the lease.
Royalty Agreement
On June 30, 2020, the Company entered into Amendment No. 2 to its Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendmentAmendment 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 2.15% 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,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 under this Agreement was $50,70834,823 and $41,25143,608 for the three months ended June 30,March 31, 2023 and 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 $8,840 per month which agreement terminated on July 31, 2021.
Consulting and Employment Agreements
On November 5, 2020, the Company entered into a three-year employment agreement with Christopher Constable (the “Constable Employment Agreement”) pursuant to which Mr. Constable serves as Chief Executive Officer of the Company. Previously, Mr. Constable had provided advisory services to the Company through an 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) upon execution of the Employment Agreement and on each anniversary of the date of the Agreement during the term, a non-qualified immediately exercisable five-year option to purchase that number of shares equal to $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the 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 common stock at an exercise price of $ per share, and on November 5, 2021, 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, 2022, Mr. Constable was issued an option to purchase shares of the Company’s common stock at an exercise price of $ per share.
In addition, Mr. Constable shall be entitled to receive equal toof $ per share in the following amounts 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 NASDAQ or New York Stock Exchange. stock options to purchase shares of common stock at an exercise price
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. The agreement expired on March 1, 2022.
On August 1, 2021, the Company and Blake Carmichael entered into a three-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.agreement, and (iii) upon execution of the Carmichael Employment Agreement, a non-qualified stock option to purchase shares at $ , .
In addition, Blake Carmichael shall be entitled to receive a stock option to purchase up to shares of common stock at an exercise price of $ per share that will vest upon annual financial metrics 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 which provides for a 7% commission A measurement was made for the first $2,000,000 paidthree months ended March 31, 2023 resulting in aggregate purchase price consideration and on an aggregate purchase price in excess of $2,000,000 for any merger or acquisition target sourced by Newbridge, to be paid in common stock of the Company. Such agreement expired by its terms.no additional vesting.
On September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”) pursuant to which 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 of $ per year, (iii) a -year option issued under the Plan to purchase shares of common stock of the Company at $ per share, which option vests quarterly over the eight calendar quarters.
In addition, Mrs. Buban shall be entitled to receive a Agreement,Agreement. stock option to purchase up to shares of common stock of the Company at an exercise price of $ per share, which vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment
21 |
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 $3,000 per 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 CLG.
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 thea three year lease for the property located at 259 Commercial Blvd,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 aFlorida for $2,816 per month base rent. The lease provides anexpired on March 31, 2023 and LBI is currently renting on a month to month basis. LBI has the option to renew the lease for an additionala two year term of two years with an increase of base rent byof 3.5%.
On September 14, 2022, SSI entered into a sixty-month lease renewal for its facility in Huntington Beach, California commencing on February 1, 2022 with base rent of approximately $17,550 per month for the first 24 months with an annual escalation clause of 3.0% thereafter. Obligations under the lease are guaranteed by the Company. The Company paid an additional security deposit of $10,727 upon entering into the lease.
On September 30, 2022, SSI entered into a sublease of its facility in Huntington Beach, California with Camburg Engineering, Inc. (“Tenant”) commencing October 1, 2022, The term of the sublease is through December 31, 2023 with a base monthly rent of $2,247 for the first twelve months with an 3% annual escalation thereafter. The Tenant also pays a monthly common area maintenance of $112. The Tenant provided a security deposit of $2,426 upon entering into the sublease.
On December 22, 2022, the U.S. Consumer Products Safety Commission (the “CPSC”) issued a voluntary recall notice for the Nomad tankless dive system, which is distributed by BLU3, Inc. As part of the recall procedure, the CPSC has approved the Company’s proposed remedy for the recall and BLU3 will begin to receive units back from consumers to repair affected Nomad units. The Company has evaluated the costs of this recall and has deemed it necessary to set an allowance of $160,500 for such costs. During the three months ended March 31, 2023 the Company repaired and returned 520 units to customers resulting in a reduction of the reserve of $74,187.
Legal
The Company was a defendant in an 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 17th Judicial Circuit, 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 $15,870.97 in 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 $10,000 on July 12, 2021. The Company paid monthly installments of $1,000. AsThe settlement was fully paid during the second quarter of June 30, 2022 this settlement has been fully paid.2022.
Note 10. Segment Reporting
The Company has 5five 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. |
22 |
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 |
Three Months Ended
June 30March 31
(unaudited)
Schedule of Segment Reporting Information
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Guided Tour Retail | Total Company | |||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
Net Revenues | $ | 797,022 | $ | 976,973 | $ | 270,193 | $ | 207,565 | $ | 884,271 | $ | 528,380 | $ | 399,479 | $ | - | $ | 50,274 | $ | - | $ | 2,401,238 | $ | 1,712,918 | ||||||||||||||||||||||||
Cost of Revenue | $ | (558,426 | ) | (668,246 | ) | (140,248 | ) | (113,499 | ) | (570,027 | ) | (333,864 | ) | (255,568 | ) | - | (14,136 | ) | - | (1,538,404 | ) | (1,115,609 | ) | |||||||||||||||||||||||||
Gross Profit | 238,596 | 308,727 | 129,945 | 94,066 | 314,244 | 194,516 | 143,911 | - | 36,138 | - | 862,834 | 597,309 | ||||||||||||||||||||||||||||||||||||
Depreciation | 4,369 | 4,748 | - | - | 4,478 | 2,419 | 24,096 | - | - | - | 32,943 | 7,167 | ||||||||||||||||||||||||||||||||||||
Income from Operations | $ | (334,967 | ) | $ | (314,279 | ) | $ | 41,705 | $ | 40,224 | $ | 17,461 | $ | (41,248 | ) | $ | (46,576 | ) | $ | - | $ | 3,237 | $ | - | (319,140 | ) | (315,303 | ) |
Six Months Ended
June 30
(unaudited)
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Guided Tour Retail | Total Company | 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 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 455,380 | $ | 581,109 | $ | 234,880 | $ | 276,817 | $ | 476,915 | $ | 794,587 | $ | 392,976 | $ | 322,456 | $ | 78,902 | $ | - | $ | 1,639,053 | $ | 1,974,969 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | (417,814 | ) | (461,958 | ) | (124,186 | ) | (160,791 | ) | (344,516 | ) | (416,958 | ) | (287,740 | ) | (259,502 | ) | (50,771 | ) | - | (1,225,028 | ) | (1,299,209 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit | 357,747 | 404,944 | 245,971 | 163,016 | 691,873 | 340,321 | 206,865 | - | 36,138 | - | 1,538,595 | 908,281 | 37,566 | 119,151 | 110,694 | 116,026 | 132,398 | 377,629 | 105,236 | 62,954 | 28,131 | - | 414,025 | 675,760 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 8,739 | 8,560 | - | - | 8,956 | 4,836 | 49,107 | - | - | - | 66,802 | 13,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation/Amortization | 3,913 | 4,370 | - | - | 5,043 | 4,478 | 29,166 | 25,011 | 1,607 | - | 39,730 | 33,859 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (704,557 | ) | $ | (758,430 | ) | $ | 82,164 | $ | 49,590 | $ | 34,223 | $ | 14,060 | $ | (168,105 | ) | $ | - | $ | 3,237 | $ | - | (753,038 | ) | $ | (694,780 | ) | $ | (114,275 | ) | $ | (369,590 | ) | $ | 29,322 | $ | 40,459 | $ | (103,210 | ) | $ | 16,672 | $ | (104,260 | ) | $ | (121,530 | ) | $ | (20,302 | ) | $ | - | (312,724 | ) | $ | (433,899 | ) | |||||||||||||||||||||||||||||||||||||
- | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 1,312,440 | $ | 1,503,762 | $ | 400,082 | $ | 460,496 | $ | 878,287 | $ | 1,037,192 | $ | 2,506,422 | $ | 1,995,439 | $ | 222,497 | $ | - | $ | 5,319,729 | $ | 4,996,889 |
Note 11. Subsequent Events
Alliance LeaseNone
On June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement production molds. The total purchase price of the molds was $84,500 and $63,375 was financed by NFS Leasing on August 15, 2022. The lease has a 33 month term beginning in August 2022 with a monthly lease payment of $2,571. The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the assets of SSI.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Actual future results may be materially different from what we expect. 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 five subsidiaries focused on various sub-sectors:
● | Brownie’s Third Lung - Surface Supplied Air (“SSA”) | |
● | BLU3, Inc. - Ultra-Portable Tankless Dive Systems | |
● | LW Americas - High Pressure Gas Systems | |
● | Submersible Systems, Inc. - Redundant Air Tank Systems | |
● | Live Blue, Inc. – Guided Tours and Retail |
Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, a manufacturing facility in Huntington Beach, California, and a retail facility in Lauderdale-By-The-Sea, Florida.
The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based self-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems and acts assystems. In addition, the Company is 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 includeincludes 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.
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 June 30, 2022March 31, 2023 Compared to Three Months Ended June 30, 2021March 31, 2022
Net revenues increased 37.2%decreased 17.0% for the three months ended June 30, 2022March 31, 2023 as compared to the three months ended June 30, 2021March 31, 2022 as a result of a 67.4% increasedecrease in revenues in BTL, LWA and BLU3. The revenue decrease for BLU3 Inc.was 40% and can be directly attributed to the recall of the NOMAD dive system which took place during the fourth quarter of 2022. The recall has been resolved and BLU3 is in the process of repairing units as they are received 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 30.2% ascustomers. The sales loss is a result of the expansionslow ramp of its customer baseproduction of new units after the recall. BTL’s revenue reduction of 21.6% can be attributed to consumer concerns about the economy. While the first quarter is traditionally a slow selling period for BTL, economic uncertainties compounded the seasonal change. The loss of revenue in BLU3 and BTL was somewhat offset by increased revenue in SSI. This increase can be attributed to the additionmomentum of both SSI and LBI revenue which did not exist in 2021. the Company’s newest product, HEED3.
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For the three months ended June 30, 2022,March 31, 2023, cost of net revenues was 64.1%74.7% as compared with the cost of net revenues of 65.1%65.8% for the three months ended June 30, 2021.March 31, 2022. The cost increase as a percentage of revenue, can be directly attributed to the cost of direct labor, which accounted for a larger portion of costs and significantly impacted the profit margin. Included in cost of net revenues are royalty expenses paid to Robert Carmichael which decreased 36.4%%20.1% for the three months ended June 30, 2022March 31, 2023 as compared to the three months ended June 30, 2021. March 31, 2022.
Gross profit margin was 35.9%25.3% for the three months ended June 30, 2022March 31, 2023 as compared to gross profit margin of 34.9%34.2% for the three months ended June 30, 2021.March 31, 2022. The slight improvementreduction in gross margin, is directly attributable to BTL’s margin of 1.0% as it relates8.2% and BLU3’s margin of 27.8%. Both BTL and BLU3 offered discounted pricing in order to revenue is a result of the production of more finished products, reducing direct labor cost per unit, primarily in LWA and the addition of LBI with margins of 71.9% formove inventory during the three months ended June 30, 2022.
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 increase is a result of a 94.5% 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 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 and the addition of LBI with margins of 71.9% for the six months ended June 30, 2022.March 31, 2023.
The following tables providesprovide net revenues, total costs of net revenues and gross profit margins for ourthe Company’s segments for the periods presented.
Net Revenues
Three Months Ended June 30, | % of | Six Months Ended June 30, | % of | Three Months Ended March 31, | % of | |||||||||||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||||
Legacy SSA Products | $ | 797,022 | $ | 976,973 | (18.4 | )% | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | $ | 455,380 | $ | 581,109 | (21.6 | )% | ||||||||||||||||||
High Pressure Gas Systems | 270,193 | 207,565 | 30.2 | % | 547,010 | 357,693 | 52.9 | % | 234,880 | 276,817 | (15.1 | )% | ||||||||||||||||||||||||
Ultra-Portable Tankless Dive Systems | 884,271 | 528,380 | 67.4 | % | 1,678,858 | 862,978 | 94.5 | % | 476,915 | 794,587 | (40.0 | )% | ||||||||||||||||||||||||
Redundant Air Tank Systems | 399,479 | - | 100.0 | % | 721,935 | - | 100.0 | % | 392,976 | 322,456 | 21.9 | % | ||||||||||||||||||||||||
Guided Tour Retail | 50,274 | - | 100.0 | % | 50,274 | - | 100.0 | % | 78,902 | - | 100.0 | % | ||||||||||||||||||||||||
Total net revenues | $ | 2,401,238 | $ | 1,712,918 | 37.2 | % | $ | 4,376,207 | $ | 1,955,317 | 64.3 | % | $ | 1,639,053 | $ | 1,974,969 | (17.0 | )% |
Cost of revenues as a percentage of net revenues
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||
Legacy SSA Products | 70.1 | % | 68.4 | % | 74.0 | % | 71.9 | % | 91.8 | % | 79.5 | % | ||||||||||||
High Pressure Gas Systems | 51.9 | % | 54.7 | % | 55.0 | % | 54.4 | % | 52.8 | % | 58.1 | % | ||||||||||||
Ultra-Portable Tankless Dive Systems | 64.5 | % | 63.2 | % | 58.8 | % | 60.6 | % | 72.2 | % | 52.5 | % | ||||||||||||
Redundant Air Tank Systems | 64.0 | % | - | 71.4 | % | - | 73.2 | % | 80.5 | % | ||||||||||||||
Guided Tour Rental | 28.1 | % | - | 28.1 | % | - | 64.4 | % | - |
Gross profit (loss) margins
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Legacy SSA Products | 31.6 | % | 31.6 | % | 26.0 | % | 28.1 | % | ||||||||
High Pressure Gas Systems | 45.3 | % | 45.3 | % | 45.0 | % | 45.6 | % | ||||||||
Ultra-Portable Tankless Dive Systems | 36.8 | % | 36.8 | % | 41.2 | % | 39.4 | % | ||||||||
Redundant Air Tank Systems | 36.0 | % | - | 28.7 | % | - | ||||||||||
Guided Tour Rental | 71.9 | % | - | 71.9 | % | - |
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
Legacy SSA Products | 8.2 | % | 20.5 | % | ||||
High Pressure Gas Systems | 47.2 | % | 41.9 | % | ||||
Ultra-Portable Tankless Dive Systems | 27.8 | % | 47.5 | % | ||||
Redundant Air Tank Systems | 26.8 | % | 19.5 | % | ||||
Guided Tour Rental | 35.7 | % | - |
SSA Products segment
Net revenue in this segmentRevenues decreased 4.1%21.6% for the sixthree months ended June 30, 2022March 31, 2023 as compared to the sixthree months ended June 30, 2021.March 31, 2022. The decrease can be primarily attributed to a 5.4%largest decrease in revenue came from the dealer segmentDirect to Consumer revenue channel of 31.7%. This decrease is likely attributable to economic concerns that were lingering from late 2022. Dealer revenue dropped 25.8% for the sixthree months ended June 30, 2022March 31, 2023 as compared to the same period in 2021. The decrease2022. Our dealers have indicated that they were taking a conservative approach in dealer orders can be attributedthe offseason to conserve cash for the 23.2% dropseason. BTL was able to stimulate some demand during the three months ended March 31, 2023 with a discounting program. Affiliate sales, while the smallest segment of revenue increased 149.8% for the three months ended June 30, 2022 as compared the same period in 2021. Many dealers increased purchases to prepare for the summer season during the first quarter of 2022, and held back with restocking orders as we believe there may be some trepidation regarding the economy. Affiliate sales, while down for the three months ending June 30, 2022March 31, 2023 as compared to the three months ended June 30, 2021 remain 32.2% over the six month results at June 30,March 31, 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 believe due to concerns over the economy.
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Our
The costs of revenues as a percentage of net revenues in this segment increased from 71.9%79.5% to 74.0%91.8% for the sixthree months ended June 30, 2022March 31, 2023 compared to the sixthree months ended June 30, 2021March 31, 2022 due to a decrease in margins in the negative margin forDirect to Consumer and Dealer revenue channels, as a result of the affiliate sales channel.discounting to stimulate revenue.
A breakdown of the revenue channels for this segment are below. Direct to Consumer representrepresents items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we haveunder dealer agreements thatwhich typically operate with the lowers margin.have lower margins. Affiliates are resellers of our products that arewith which we do not in ahave formal dealer arrangement.arrangements.
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 | ||||||||||||||||||||||
Dealers | $ | 510,902 | $ | 664,928 | (23.2 | )% | 73.4 | % | 77.7 | % | 26.6 | % | 22.3 | % | ||||||||||||||
Direct to Consumer (website included) | 258,899 | 273,430 | (5.3 | )% | 57.7 | % | 45.1 | % | 42.3 | % | 54.9 | % | ||||||||||||||||
Affiliates | 27,221 | 38,615 | (29.5 | )% | 156.9 | % | 74.3 | % | (56.9 | )% | 25.7 | % | ||||||||||||||||
Total | $ | 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 | % |
Revenue | Cost of Revenue as a % of Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2023 | Three months ended March 31, 2022 | % change | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
Dealers | $ | 265,372 | $ | 357,853 | (25.8 | )% | 99.4 | % | 85.2 | % | 0.6 | % | 14.8 | % | ||||||||||||||
Direct to Consumer (website Included) | 138,487 | 202,635 | (31.7 | )% | 85.4 | % | 70.5 | % | 14.6 | % | 29.5 | % | ||||||||||||||||
Affiliates | 51,521 | 20,621 | 149.8 | % | 69.6 | % | 73.3 | % | 30.4 | % | 26.7 | % | ||||||||||||||||
Total | $ | 455,380 | $ | 581,109 | (21.6 | )% | 91.8 | % | 79.5 | % | 8.2 | % | 20.5 | % |
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors increased 52.9% in the six months ended June 30, 2022 compared with the six months ended June 30, 2021 as LWA was able to continue to supply its customers with their needs despite industry supply chain issues. The reseller segment while decreasing 9.4%decreased 15.1% for the three months ended June 30, 2022March 31, 2023 compared with the three months ended March 31, 2022. The drop in revenues can be directly attributed to a 74.7% decrease in Original Equipment Manufacturers, as this channel has proven to be inconsistent over the long term. The reseller channel remained consistent with prior periods with a .3% increase for the three months ended March 31, 2023 as compared to the same period in the prior year, showed an overall increase of 25.9% for the six months ended June 30, 2022 with2022. The Direct to Consumer channel 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 205% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due to several orders shipped internationally to boat manufacturers. The direct to consumer segment, which includes yacht owners and direct to dive stores, increased 199.0%30.1% for the three months ended June 30, 2022March 31, 2023 as compared to the three months ended June 30, 2021 and increased 49.2% for the six months ended June 30,March 31, 2022, as comparedLWA is seeing an increase in sales to June 30, 2021.dive stores that have begun to reinvest in their operations after recouping from the challenges of COVID in 2020.
Costs of revenues as a percentage of net revenues in this segment showed a slight increasedecreased to 55.0%52.9% for the sixthree months ended June 30, 2022March 31, 2023 as compared to 54.4%58.1% for the sixthree months ended June 30, 2021.March 31, 2022. This increase can beis attributed to increased cost of transportation from suppliers andrevenue in the Direct to customersConsumer channel during the sixthree months ended June 30, 2022.March 31, 2023, which generally has a higher margin.
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 | ||||||||||||||||||||||
Resellers | $ | 109,767 | $ | 121,118 | (9.4 | )% | 48.6 | % | 53.0 | % | 51.4 | % | 47.0 | % | ||||||||||||||
Direct to Consumers | 130,816 | 43,749 | 199.0 | % | 57.7 | % | 68.2 | % | 42.3 | % | 31.8 | % | ||||||||||||||||
Original Equipment Manufacturers | 29,610 | 42,698 | 30.7 | % | 38.8 | % | 45.6 | % | 61.2 | % | 54.4 | % | ||||||||||||||||
Total | $ | 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 | % |
26 |
Revenue | Cost of Revenue as a % of Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2023 | Three months ended March 31, 2022 | % change | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
Resellers | $ | 130,216 | $ | 129,773 | 0.3 | % | 64.5 | % | 54.4 | % | 35.5 | % | 45.6 | % | ||||||||||||||
Direct to Consumers | 83,790 | 64,429 | 30.1 | % | 32.9 | % | 55.9 | % | 67.1 | % | 44.1 | % | ||||||||||||||||
Original Equipment Manufacturers | 20,874 | 82,615 | (74.7 | )% | 60.5 | % | 65.5 | % | 39.5 | % | 34.5 | % | ||||||||||||||||
Total | $ | 234,880 | $ | 276,817 | (15.1 | )% | 52.9 | % | 58.1 | % | 47.1 | % | 41.9 | % |
Ultra Portable Tankless Dive Systems
Net revenueRevenue for the sixthree months ended June 30, 2022March 31, 2023 in the Ultra Portable Tankless Dive System segment showed growth of 94.5%decreased increased 40.0% as compared to the sixthree months ended June 30, 2021. The growthMarch 31, 2022 as a result of the loss of sales momentum from the recall of the NOMAD dive system in the fourth quarter of 2022. Revenue was down across all segments forchannels with the three and six months ended June 30, 2022 can be attributedlargest lost to the additionAmazon channel with a drop of the Nomad product line into those sales channels. 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%47.5% for the three months ended June 30, 2022 represents salesMarch 31, 2023 as compared to new dealers and seasonal buy-in as dealers prepared for the summer season.same period in 2022.
Cost of revenues from this segment as a percentage of net revenues for the three and six months ended June 30, 2022 showed improvement over both the three and six months ended June 30, 2021, primarily dueMarch 31, 2023 increased to the impact of the cost and production efficiencies of the Nomad dive system and the resulting increase in margin as a percentage of revenue72.2% from 64.1% for the same periodsperiod in 20222022. The increase in cost of revenue as comparedit compares to 2021.revenue was impacted by direct labor costs, necessary in connection with the recalled products. In addition, BLU3 discounted its selling price in order to stimulate demand in all of its diving systems during the three months ended March 31, 2023.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | ||||||||||||||||||||||
Direct to Consumer | 220,950 | 188,466 | 17.2 | % | 67.9 | % | 53.9 | % | 32.1 | % | 46.1 | % | ||||||||||||||||
Amazon | 274,444 | 188,467 | 45.6 | % | 53.0 | % | 61.90 | 47.0 | % | 38.1 | % | |||||||||||||||||
Dealers | 388,877 | 151,447 | 156.8 | % | 70.6 | % | 76.4 | % | 29.4 | % | 23.6 | % | ||||||||||||||||
Total | $ | 884,271 | $ | 528,380 | 67.4 | % | 52.5 | % | 63.2 | % | 47.5 | % | 36.8 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Direct to Consumer | $ | 539,955 | $ | 340,665 | 58.5 | % | 55.2 | % | 52.2 | % | 44.8 | % | 47.8 | % | ||||||||||||||
Amazon | 449,120 | 259,265 | 73.2 | % | 54.5 | % | 61.8 | % | 45.5 | % | 38.2 | % | ||||||||||||||||
Dealers | 689,783 | 263,048 | 162.2 | % | 64.4 | % | 70.1 | % | 35.6 | % | 29.9 | % | ||||||||||||||||
Total | $ | 1,678,858 | $ | 862,978 | 94.5 | % | 58.8 | % | 60.6 | % | 41.2 | % | 39.4 | % |
Net Revenue | Cost of Revenue as a % of Net Revenue | Margin as a % of Net Revenue | ||||||||||||||||||||||||||
Three months ended March 31, 2023 | Three months ended March 31, 2022 | % change | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
Direct to Consumer | 207,781 | 319,005 | (34.9 | )% | 67.1 | % | 46.3 | % | 32.9 | % | 53.7 | % | ||||||||||||||||
Dealers | 177,484 | 300,906 | (41.0 | )% | 85.6 | % | 56.4 | % | 14.4 | % | 43.6 | % | ||||||||||||||||
Amazon | 91,650 | 174,676 | (47.5 | )% | 57.9 | % | 56.9 | % | 42.1 | % | 43.1 | % | ||||||||||||||||
Total | $ | 476,915 | $ | 794,587 | (40.0 | )% | 72.2 | % | 64.1 | % | 27.8 | % | 35.9 | % |
Redundant Air Tank Systems
Net revenue for the six months ended June 30, 2022Revenue in the Redundant Air Tank Systems System segment was $721,935 and $399,479increased 21.9% for the three months ended June 30,March 31, 2023 as compared to the same period in 2022. This increase can be attributed to increases in both the Dealer and Government sales channels increasing 23.8% and 269.2%, respectively, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. These channels are drivers of sales volume for the new HEED3 product line and have also seen increased quantity orders from their international dealer base on their Spare Air product. These increases were offset by decreases in the commercial channel of 38.7% and website sales of 3.1% for the three months ended March 31, 2023 as compared to the same period in 2022.
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The margins for the three months ended June 30 ,2022 showed improvement at 36.0%March 31, 2023 increased to 26.8% as compared to 28.7%19.5% for the six months ended June 30, 2022 as the margin for dealer sales improved during the three months ended June 30,March 31, 2022 as the margins across all channels improved. This improvement can be attributed to 31.2% as compared to 22% for the six months ended June 30, 2022. Outside ofincreased revenue from the margin for repairs, dealerHEED3 which offers higher margins continue to be the lowest margin segment as SSI must price goods in order for dealers to also generate profits. than SSI’s traditional product Spare Air.
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) dealer accounts that are resellers including, international distributors to the military, commercial account or dive shops, and domestic and international dive shops that carry a spare air product (4) direct to consumer sales which are online sales and sales via trade shows direct to consumer and (5) 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 | % | - |
Revenue | Cost of Revenue as a % of Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2023 | Three months ended March 31, 2022 | % change | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
Commercial | $ | 34,696 | $ | 56,606 | (38.7 | )% | 54.7 | % | 43.5 | % | 45.3 | % | 56.5 | % | ||||||||||||||
Dealers | 262,632 | 212,119 | 23.8 | % | 73.1 | % | 88.8 | % | 26.9 | % | 11.2 | % | ||||||||||||||||
Government | 51,687 | 14,001 | 269.2 | % | 24.7 | % | 35.0 | % | 75.3 | % | 65.0 | % | ||||||||||||||||
Repairs | 13,031 | 7,811 | 66.8 | % | 321.0 | % | 256.6 | % | (221.0 | )% | (156.6 | )% | ||||||||||||||||
Direct to Consumers (Website) | 30,930 | 31,919 | (3.1 | )% | 71.5 | % | 67.3 | % | 28.5 | % | 32.7 | % | ||||||||||||||||
Total | $ | 392,976 | $ | 322,456 | 21.9 | % | 73.2 | % | 80.5 | % | 26.8 | % | 19.5 | % |
Guided Tours and Retail
The guided tour and retail segment is a new segment and is derived from LBI. Revenue in this segment currently primarily includes retail sales, and tours and lessons. Retail sales represent the sales of product at the retail facility, while tours and lessons represent revenue derived from diving excursions and lessons.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended June 30, 2022 | Three months ended June 30, 2021 | % change | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Three months ended June 30, 2022 | Three months ended June 30, 2021 | ||||||||||||||||||||||
Retail Sales | $ | 34,549 | - | N/A | 8.9 | % | - | 91.1 | % | - | ||||||||||||||||||
Tours and Lessons | 15,725 | - | N/A | 70.4 | % | - | 29.6 | % | - | |||||||||||||||||||
Total | $ | 50,274 | - | N/A | 28.1 | % | - | 71.9 | % | - |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2022 | Six months ended June 30, 2021 | % change | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | ||||||||||||||||||||||
Retail Sales | $ | 34,549 | - | N/A | 8.9 | % | - | 91.1 | % | - | ||||||||||||||||||
Tours and Lessons | 15,725 | - | N/A | 70.4 | % | - | 29.6 | % | - | |||||||||||||||||||
Total | $ | 50,274 | - | N/A | 28.1 | % | - | 71.9 | % | - |
Revenue | Cost of Revenue as a % of Revenue | Margin as a % of Net Revenue | ||||||||||||||||||||||||||
Three months ended March 31, 2023 | Three months ended March 31, 2022 | % change | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||||||||||||||||||
Retail Sales | $ | 46,433 | - | N/A | 44.3 | % | - | 55.7 | % | - | ||||||||||||||||||
Tours and Lessons | 32,469 | - | N/A | 93.0 | % | - | 7.0 | % | - | |||||||||||||||||||
Total | $ | 78,902 | - | N/A | 64.3 | % | - | 35.7 | % | - |
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 38.3%decreased 34.5% for the three months ended June 30, 2022 and 42.1% for the six months ended June 30, 2022March 31, 2023 as compared to the same periods in the prior year.three months ended March 31, 2022.
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Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increaseddecreased by 41.4%34.3% for the three months ended June 30, 2022 and 45.5% for the six months ending June 30,March 31, 2022 as compared to the same periods in the prior year.three months ended March 31, 2022. SG&A expenses were comprised of the following:
Expense Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | % Change | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | |||||||||||||||||||||||||||
Payroll, Selling & Administrative | $ | 544,709 | $ | 236,062 | 130.7 | % | $ | 940,485 | $ | 461,529 | 103.8 | % | $ | 450,806 | $ | 395,776 | 13.9 | % | ||||||||||||||||||
Non-Cash Stock Compensation Expense | 290,706 | 266,370 | 9.1 | % | 520,740 | 498,875 | 4.4 | % | ||||||||||||||||||||||||||||
Stock Compensation Expense | 11,034 | 230,034 | (95.2 | )% | ||||||||||||||||||||||||||||||||
Professional Fees | 98,619 | 116,576 | (15.4 | )% | 225,031 | 178,015 | 26.4 | % | 66,302 | 126,412 | (47.6 | )% | ||||||||||||||||||||||||
Advertising | 101,129 | 47,615 | 112.4 | % | 257,573 | 113,841 | 126.3 | % | 104,005 | 156,444 | (33.5 | )% | ||||||||||||||||||||||||
All Others | 142,438 | 156,984 | (9.3 | )% | 339,511 | 308,382 | 10.1 | % | 94,073 | 197,073 | (52.3 | )% | ||||||||||||||||||||||||
Total SG&A | $ | 1,177,601 | $ | 823,607 | 43.0 | % | $ | 2,283,340 | $ | 1,560,642 | 46.3 | % | $ | 726,220 | $ | 1,105,739 | (34.3 | )% |
Payroll increases for the three months ended March 31, 2022 can be attributed primarily to the addition of SSI payroll which accounted for 51% of the increase with the remaining 49% attributable to increases in personnel at BLU3 to manage increasing revenue and production, as well as slight increases in wages and staffing in the other divisions.
Non-Cash Stock compensation expenses2023 increased 4.4% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The increase can be attributed to options granted to employees under the Company’s Equity Incentive Plan, 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, 202213.9% as compared to the three months ended June 30, 2021 is relatedMarch 31, 2022. BTL increased its direct marketing team and production staff to account for 46% of the same option vesting.increase. BLU3 increased its customer service presence as well as converting a sales person from contractor to salaried employee and accounted for 61.8% of the increase. The addition of the LBI payroll accounted for 31.1% of the increase. These are offset by the decrease in SSI payroll with a reduction in overtime and the attrition of production personnel which accounted for a 35.8% decrease in payroll.
Non-Cash Stock Compensation expenses decreased by 95.2%, as vesting milestones were not met due to the reduction in revenue for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
Professional fees, including legal, accounting and other professional fees whichdecreased 47.6% for the Company has paid with a combination of cash and common stock increased 26.4% in the sixthree months ended June 30, 2022March 31, 2023 as compared to the sixthree months ended June 30, 2021.March 31, 2022. The increasedecrease can be attributed to ana decrease in legal fees of 28.5% and other professional fees of 49.1% offset by a slight increase in accounting fees relatedof 30.6%. Legal fees reduction can be attributed to the year-end audit. Forlack of billing for acquisition activity in 2023 and the three months ended June 30, 2022reduction in professional fees decreased 15.4% as comparedis attributable to the prior year, as a consultant was addedconversion of consultants to payrollemployees late in 2022.
The decrease in advertising expense for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was 33.5%, attributable to BLU3’s decrease in advertising as it worked through its recall process. BLU3’s decrease in advertising expense was offset slightly by an increase in advertising expense for SSI.
Other expenses decreased 52.3% for the sixthree months ended June 30, 2022March 31, 2023, as compared to the sixthree months ended June 30, 2021 is attributableMarch 31, 2022 due primarily to BLU3’s focus on social media, Amazon and trade show advertising.a reduction in the reserve for recall expenses which accounted for 78.7% of the overall decrease.
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Research & Development Expenses (R&D Expenses)
R&D expenses for the three months ended June 30, 2022March 31, 2023 decreased 79.5% and 80.5% for the six months ended June 30, 202286.5% as compared to the same periods in the prior year. The decrease can be primarily attributed to the completion of the R&D for BLU3’s NOMAD, as it moved into production in the third quarter of 2021.three months ended March 31, 2022.
Other Income/Expense
For the sixthree months ended June 30, 2022,March 31, 2023, other expenses totaled approximately $19,700$15,198 of interest expense as compared to other income of approximately $164,000 for the six months ended June 30, 2021.expense. Other income for the sixthree months ended June 30, 2021March 31, 2022 consisted of a gain due to the settlement of debt of $10,000, the forgiveness of a PPP loan less interest expense of approximately $5,600.$10,193. The increase in interest expense can be attributed to the NFS loan, the Navitas 2022 loan, and the convertible demand note from Robert Carmichael that waswere funded in the second quarterthird and fourth quarters of 2021, and the interest on the debt related to the acquisition of SSI.2022.
Liquidity and Capital Resources
We had cash of $574,567$347,635 as of June 30, 2022.March 31, 2023. The following table summarizes total current assets, total current liabilities and working capital at June 30, 2022March 31, 2023 as compared to December 31, 2021.2022.
June 30, | December 31, | % | March 31, | December 31, | % | |||||||||||||||||||
2022 | 2021 | change | 2023 | 2022 | change | |||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Total current assets | $ | 3,783,509 | $ | 2,966,432 | 11.2 | % | $ | 2,963,931 | $ | 3,265,714 | (9.2 | )% | ||||||||||||
Total current liabilities | $ | 1,991,200 | $ | 1,396,197 | 14.2 | % | $ | 1,643,114 | $ | 1,792,151 | (8.3 | )% | ||||||||||||
Working capital | $ | 1,792,309 | $ | 1,570,235 | 8.4 | % | $ | 1,320,817 | $ | 1,473,563 | (10.4 | )% |
The increasedecrease in our current assets at June 30, 2022March 31, 2023 from December 31, 20212022 primarily reflects an increase from the assets of SSI as well as the increases in inventory purchases reflected by an increasea decrease in inventory and prepaid assets which includes prepayments of inventory, as the Company has experiencedtapered its purchasing to convert inventory when revenue growth and ramped up purchasing and production forbegan to slow in the summer season.third quarter of 2022. The increasedecrease in total current liabilities primarily reflects the additional SSI liabilities as well as a significant increasedecrease in customer deposits, particularly customer deposits with LWA.accounts payable of 16.9%.
Summary Cash Flows
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net cash used by operating activities | $ | (275,257 | ) | $ | (396,838 | ) | ||||||||||
Net cash used in operating activities | $ | (313,881 | ) | $ | (290,337 | ) | ||||||||||
Net cash used in investing activities | $ | (31,946 | ) | $ | (14,941 | ) | $ | (5,069 | ) | $ | (2,884 | ) | ||||
Net cash provided by financing activities | $ | 238,627 | $ | 227,904 | $ | 182,158 | $ | 254,352 |
Net cash used in operating activities for the sixthree months ended June 30, 2022March 31, 2023 was due to the net loss of approximately $772,754 which is primarily attributable to non-cash stock compensation expenses of approximately $579,300. The non-cash stock compensation expense for the six months ended June 30, 2022 is attributable to stock options and grants issued to our executive officers and various employees as well as common stock issued to consultants and professionals for services.$327,900. Net cash used in operating activities is also the result of increases in current assets, including, accounts receivable, inventory, net,accounts receivable, related party, and prepaid expenses offset by a decrease in inventory that generated approximately $101,300, a net decrease in liabilities which also utilized cash with decreases in accounts payable and accrued liabilities, long term lease liability and accounts payable-related party utilizing approximately $797,000,$219,094, offset by increases in current liabilities including accounts payable,customer deposits, and other liabilities and customer deposits, which totaledof approximately $501,700.$71,200.
Net cash used in investing activities for the sixthree months ended June 30, 2022March 31, 2023 of approximately $31,946$5,100 consists of $30,000 used in an asset acquisition and a small fixed asset purchase of approximately $1,900.purchases.
Net cash provided by financing activities for the sixthree months ended June 30, 2022March 31, 2023 reflects proceeds of $200,000 from the exercisesale of warrants of approximately $265,000 lessunits, offset by the repaymentpayment of debt of approximately $26,400.$17,800.
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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, 20212022 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. If the Company is unable to raise additional funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back, delay or cease operations, liquidate assets and possibly seek bankruptcy protection.
We have a history of losses, and an accumulated deficit of $15,317,359$16,765,417 as of June 30, 2022.March 31, 2023. Despite a working capital surplus of $1,792,309$1,320,817 at June 30, 2022,March 31, 2023, 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.
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,March 31, 2023, 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.
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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 June 30, 2022March 31, 2023 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 hashave materially affected or isare reasonably likely to materially affect, our internal control over financial reporting.
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 ActOn January 18, 2023 and were not previously reported in a Current Report on Form 8-K filed by the Company.
On May 31, 2022,February 18, 2023, the Company issued a consultant, 302,953 sharesto Charles Hyatt, an aggregate of 11,428,570 units, with each unit consisting of one share of common stock for consulting services relatedand a two-year common stock purchase warrant to the dive industry.
As of June 30, 2022, the Company issued 449,522 sharespurchase one share of common stock to the holdersat an exercise price of convertible notes for payment$0.0175 per share in consideration of interest through June 30, 2022.$200,000.
On June 17, 2022, the Company issued 280,000 shares of common stock to an employee as a retirement gift.
The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe are exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 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) | |
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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 | ||
(Principal Financial and Accounting Officer) |