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 ~~June 30,~~March 31, ~~2022~~2023

	☐	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 ~~409,774,099~~437,147,436 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.	2724

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	3631

ITEM 4.	CONTROLS AND PROCEDURES.	3731

	PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS.	3833

ITEM 1A.	RISK FACTORS.	3833

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	3833

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	3833

ITEM 4.	MINE SAFETY DISCLOSURES.	3833

ITEM 5.	OTHER INFORMATION.	3833

ITEM 6.	EXHIBITS.	3833

NOTE REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.

You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the ~~SEC~~Securities and Exchange Commission (“SEC”) on ~~April~~March 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.

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
Accounts payable - related parties 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
Related party convertible demand note, net 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; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of March 31, 2023 and December 31, 2022. 425 425
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 437,147,436 shares issued and outstanding at March 31, 2023 and 425,520,662 shares issued and outstanding at December 31, 2022. 43,716 42,553
Common stock payable 138,941 shares and 138,941 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; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of June 30, 2022 and December 31, 2021. 425 425
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 409,774,099 shares issued and outstanding at June 30, 2022 and 393,850,475 shares issued and outstanding at December 31, 2021, respectively. 40,978 39,386
Common stock payable 138,941 shares and 138,941 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~~
4
STATEMENTS OF CASH FLOWS
~~BROWNIES MARINE GROUP, INC. AND SUBSIDIARIES~~FOR 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
57
~~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~~
6
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED ~~STATEMENT OF CASH FLOWS~~FINANCIAL 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)
7
~~BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(UNAUDITED)~~
Note 1. Company Overview

Brownie’s Marine Group, Inc. (the “Company”) 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 ~~industrial~~industrial. compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and 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, ~~2021~~2022 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for a broader discussion of ~~our~~the 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.

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Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and LBI. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~GAAP 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~approximately $22,700~~no ~~and $205,500, respectively~~amount in excess of the FDIC insured limit.

~~Foreign Currency Forward Contracts~~
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The foreign currency forward hedging contracts outstanding as of June 30, 2022 have settlement dates within 6 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in other comprehensive income and reclassified to the Consolidated Statement of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings.
~~Foreign currency forward contracts entered into to hedge cost of goods purchases were as follows as of June 30, 2022 and December 31, 2021:~~
~~Schedule of Foreign Currency Forward Contracts~~

Notional Amount
Foreign Currency June 30, 2022
(unaudited) December 31, 2021
Euro $ 181,615 -
Total $ 181,615 $ -
9
Accounts receivable

~~Accounts receivable consist of amounts due from the sale of all of our~~
The Company manufactures and sells its products to ~~wholesale~~a 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. The~~compiled 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 accounts~~expected credit losses at March 31, 2023 totaled $~~46,555~~28,558 ~~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 revenues~~The Company recognizes revenue in accordance with ~~Accounting Standards Codification (ASC)~~ASC Topic 606 ~~“Revenue~~Revenue from Contracts with ~~Customers” and all the related amendments. This standards core principle is that a company should recognize~~Customers. The Company recognizes revenue when ~~it transfers promised goods~~performance 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 an~~title is transferred based on the commercial terms. Revenue is measured as the amount ~~that reflects~~of consideration the ~~consideration to which the company~~Company 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.
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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
Revenues - related parties 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 recognize~~Cost of Sales
Cost of sales consists of the ~~sale~~cost of the components of finished goods, the costs of raw materials utilized in the manufacture of products, ~~under single performance obligations upon shipment~~in-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 transferred~~Company’s finished products, inventory allowance for excess and ~~our performance is completed. Revenues from repair~~obsolete products, and ~~maintenance activities is recognized when~~royalties paid on licensing agreements. Components account for the ~~repairs are completed~~largest 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 account~~The 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 categorize~~The 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. Our~~March 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 ~~our~~its 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 have~~the 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 consider~~it 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 the~~March 31, 2023, lease expenses were approximately $~~64,500~~ ~~and $128,700~~70,400, ~~respectively,~~ and approximately $~~43,000~~ ~~and $78,000~~64,200 for the three ~~and six~~ months ended ~~June 30, 2021, respectively.~~March 31, 2022. Cash paid for operating liabilities for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 was approximately $~~128,400~~89,570 and approximately $~~32,900~~64,400 for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.
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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 account~~The 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.
Loss per common share

Basic ~~earnings~~loss per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted ~~earnings~~loss 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,~~ ~~245,847,251~~274,150,814 and ~~205,855,020~~244,052,947, 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.

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Recent accounting pronouncements

ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued ~~and~~an update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance ~~is effective~~was adopted on January 1, ~~2023. The Company is evaluating~~2023 with no effect to the ~~changes from this standard to determine the impact on its consolidated~~ financial ~~statements and related disclosures~~statements.
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 the~~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 ~~Income Taxes (“~~Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU ~~2019-12”), which is intended to simplify various aspects related to~~simplifies 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 ~~exceptions~~settlement conditions that are required for equity contracts to qualify for the ~~general principles~~derivative 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. This~~certain areas. The new guidance is effective for fiscal years ~~and~~beginning after December 15, 2023, including interim periods within those fiscal years, ~~beginning after December 15, 2020, with~~and early adoption is permitted. The Company ~~determined that~~is currently evaluating the impact of the adoption of the standard ~~has no~~on 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 consolidated~~our 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 ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the Company incurred a net loss of $~~772,754~~327,922 ~~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 $~~15,317,359~~16,765,417. Despite a working capital surplus of approximately $~~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 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.
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Note 4. Related Party Transactions

The Company sells products to ~~Brownies~~Brownie’s Southport Divers, ~~Brownies~~Brownie’s Yacht Toys and ~~Brownies~~Brownie’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 $~~12.1~~211,090 or 12.9% and $~~20.6~~273,405 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~~ ~~12.9% and~~ ~~20.9% for the six months ending June 30 2022 and 2021, respectively.~~ Accounts receivable from these entities totaled $~~72,344~~97,484 and $~~75,792~~39,180, at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.
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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 $~~446~~2,349 and $~~1,509~~2,408 at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The Company ~~has an outstanding accounts receivable to Charles Hyatt for $2,332~~ ~~as of June 30, 2022 and $~~0 ~~at December 31, 2021. This amount was paid in full on August 19, 2022.~~
had
~~The Company had~~ accounts payable to related parties of $~~31,437~~18,571 and $~~37,267~~15,614 at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The balance payable at ~~June 30, 2022 is~~March 31, 2023 was comprised of $~~18,405~~10,074 due to 940 A, $2,980 due to BGL, $5,441 due to Robert Carmichael and $~~10,051.92~~76, due to ~~940, LLC and $2,980~~ ~~to BGL.~~Blake Carmichael. At December 31, ~~2021 this account~~2022, the balance payable was comprised of $7,635 due to 940 A, $2,980 due to BGL and $5,000 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 were~~was $~~17,824~~10,212 and $~~28,031, respectively. For the six months ending June 30, 2022 and 2021 royalty expense for this entity totaled $30,613~~ ~~and $39,606~~12,789, respectively. The accrued royalty for ~~June 30, 2022~~March 31, 2023 was ~~approximately~~ $~~11,800~~4,785 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 ~~10,000,000~~11,428,570 ~~shares from the~~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 ~~a warrant at~~ $~~0.025~~0.0175 per share in consideration of $~~250,000~~200,000.

On ~~February 2,~~March 31, 2022, the Company issued ~~Grace Hyatt, the adult child of Charles Hyatt, a director,~~ ~~600,000~~61,204 shares ~~from~~of common stock to Robert Carmichael for payment of interest on the ~~exercise~~convertible demand note for the three months ending March 31, 2022. The fair value of ~~a warrant at~~these shares was $~~0.025~~ ~~per share in consideration of $15,000~~1,336.

Note 5. Convertible Promissory Notes and ~~Notes~~Loans 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 December 1, 2017, the Company issued a~~ 6~~% secured convertible promissory note in the principal amount of $50,000, initially due~~ ~~December 1, 2018, subject to extension. The note is secured by the assets of the Company and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael.~~
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~~The conversion price of the note initially ranged from $0.02~~ ~~per share if converted in the first year to $0.125~~ per share if converted in year five. The noteholder may convert the note at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of ~~9.99% of the outstanding common stock of the Company at any one time. In 2019, the maturity date of the note was extended for one year to December 31, 2019 with a reduction in the conversion price to $0.01~~ ~~per share. The Company recorded a loss on extinguishment of debt of $32,000~~ ~~upon the modification of conversion price. On June 10, 2021, the note and accrued interest of $10,554~~ ~~were converted by the holder into~~ ~~6,055,358~~ ~~shares of common stock in accordance with the terms of the note.~~
~~(2)~~ ~~On December 5, 2017, the Company entered into a~~ 6~~% secured convertible promissory note in the principal amount of $50,000, initially due~~ ~~December 4, 2018~~, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael.
~~The conversion price under the note initially ranged from $0.02~~ ~~per share if converted in the first year to $0.125~~ per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of ~~9.99% of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one year to December 31, 2019 with a reduction in the conversion price to $0.01~~ ~~per share. The Company recorded a loss on extinguishment of debt of $99,000~~ ~~upon the modification of conversion price. On August 18, 2021, this note and accrued interest of $11,145~~ ~~were converted by the holder into~~ ~~6,114,516~~ ~~shares of common stock in accordance with the terms of the note~~
~~(3)~~ 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. ~~Payments on~~The Company is required to make quarterly payments under the note ~~are to be equivalent~~in an amount equal to 50% of the adjusted net profit of ~~SSI payable calendar quarterly.~~SSI. Interest is payable quarterly in shares of common stock of the Company at a conversion price of $0.051272 per ~~share, to be paid quarterly.~~share. The note holder may convert outstanding principal and interest into shares of common stock at a conversion price of $0.051272 per share at any time during the term of the note. The Company recorded $12,355 for the beneficial conversion feature. This note is classified as a long-term liability for this period.

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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
~~(4)~~(2) 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. ~~Payments on~~The Company is required to make quarterly payments under the note ~~are to be equivalent~~in an amount equal to 50% of the adjusted net profit of ~~SSI payable calendar quarterly.~~SSI. Interest is payable quarterly in common stock of the Company at a conversion price of $0.051272 per ~~share, to be paid quarterly.~~share. The note holder may convert outstanding principal and ~~unpaid~~ interest into shares of common stock at a conversion price of $0.051272 at any time up to the maturity date of the note. The Company recorded $125 for the beneficial conversion feature. This note is classified as a long-term liability for this period.
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.

~~Loan~~Loans 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.
1314

~~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 $~~79,309~~ ~~payable in~~ 60 ~~equal monthly installments of $1,611~~ ~~(the “Navitas Note”). The equipment finance agreement contains customary events of default. The agreement was fully funded as of September 30, 2021.~~
~~Schedule of Future Amortization of Loans Payable~~

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 $75,764 payable over 60 equal monthly installments of $1,611 (the “Navitas 1”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $51,210 and $54,930 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 $63,689 payable over 36 equal monthly installments of $2,083 (“Navitas 2”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $59,100 and $63,689 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~~ ~~27,305,442~~ ~~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~~ ~~27,305,442~~ ~~shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following:~~
~~Summary of Holding Period and Shares Eligible To Sold~~
Holding Period
from Closing Date Percentage of shares
eligible to be sold or transferred
6 ~~months~~ ~~Up to~~ ~~12.5~~%
9 ~~months~~ ~~Up to~~ ~~25.0~~%
24 ~~months~~ ~~Up to~~ ~~75.0~~%
36 ~~months~~ ~~Up to~~ ~~100.0~~%
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The leak-out restriction may be waived by the Company, upon written request by a Seller, if the Company’s common stock is trading on the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of ~~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 Merger were $65,000~~ ~~in legal fees paid in $40,000~~ ~~in cash, and~~ ~~1,190,476~~ ~~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, 27,305,442 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~~ ~~27,305,442~~ ~~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.
15
~~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 3,084,831shares 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.

The Consideration Shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following:

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 ~~25.0%~~25.0%
9 months Up to ~~50.0%~~50.0%
12 months Up to ~~100.0%~~100.0%
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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 Value~~While the agreement was structured as an asset purchase agreement, we also assumed the operations of ~~Consideration Transferred~~Gulf Coast Scuba resulting in the recognition of a business combination. During 2022 we recognized revenue of $212,876 and ~~Recording~~net 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
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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 ~~quarter~~three 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.
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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, 2022~~March 31, 2023 is a follows:
Schedule of Estimated Intangible Assets Amortization ~~Expenses~~Expense
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 firm~~to Charles Hyatt, an aggregate of ~~1,000,000~~11,428,570 ~~shares~~units, with each unit consisting of one share of common stock ~~with~~and a ~~fair value of $27,500~~ ~~as part of the agreed upon compensation for a representation agreement.~~
~~On January 31, 2022, the Company issued a consultant~~ ~~121,212~~ ~~shares~~two-year common stock purchase warrant to purchase one share of common stock ~~with a fair value~~at an exercise price of $~~4,000~~0.0175 ~~for consulting services related to the dive industry.~~
~~On February 2, 2022, the Company issued Charles Hyatt, a director,~~ ~~10,000,000~~ ~~shares from the exercise of a warrant at $0.025~~ per share in consideration of $~~250,000~~200,000.

On ~~February 2, 2022,~~March 31, 2023, the Company issued ~~Grace Hyatt, the adult child of Charles Hyatt, a director,~~ ~~600,000~~61,204 shares ~~from~~of common stock to Robert Carmichael for payment of interest on the ~~exercise~~convertible demand note for the three months ending March 31, 2023. The fair value of ~~a warrant at~~these shares was $~~0.025~~ ~~per share in consideration of $15,000~~1,336.

On ~~February 28, 2022,~~March 31, 2023, the Company issued ~~a consultant,~~ ~~85,106~~ ~~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~~ ~~3,084,831~~ ~~shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC with a fair value of $120,000~~.
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~~On May 31, 2022, the Company issued a consultant,~~ ~~302,953~~ ~~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~~ ~~449,522~~137,000 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 ~~were~~was $~~23,048~~7,000.

~~On June 17, 2022, the Company issued~~ ~~280,000~~ ~~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 10,000,000 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 425,000 shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share ~~held.~~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 425,000 shares of Series A Convertible Preferred Stock are owned by Robert Carmichael.

Equity Incentive Plan

On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. 25,000,000 shares are reserved for issuance under the Plan. The term of the Plan is ten years.

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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.
Equity Compensation Plan Information as of ~~June 30, 2022:~~March 31, 2023:
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
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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, the~~The 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 of~~approximately ~~125,000,000~~234,439,167 shares ~~of the Company’s common stock~~ at an ~~exercise~~average price of $~~0.045~~0.036 ~~per share,~~with a fair value of ~~which~~approximately $69,000. For the ~~right~~three months ended March 31, 2023, the Company issued no options to purchase ~~75,000,000~~shares. Upon exercise, shares of new common stock ~~is subject to vesting upon~~are issued by the ~~achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase~~ ~~50,000,000~~ shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● ~~the right to purchase~~ ~~25,000,000~~ shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $~~3,500,000~~ ~~in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending on April 30, 2023 (the “Net Revenue Period”);~~
● ~~the right to purchase an additional~~ ~~25,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,000,000~~ ~~in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and~~
● ~~the right to purchase an additional~~ ~~25,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,500,000~~ ~~in the aggregate over four consecutive quarters during the Net Revenue Period.~~
The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael on a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto.Company.

~~The fair value~~For the three months ended March 31, 2023 and 2022, the Company recognized an expense of approximately $11,000 and $230,000, respectively, of non-cash compensation expense (included in General and Administrative expense in the ~~Carmichael Option on the date~~accompanying Consolidated Statement of ~~the grant was $4,370,109~~ ~~using the~~Operations) determined by application of a Black-Scholes option pricing model with the following ~~assumptions: (i) risk free~~inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of March 31, 2023, the Company had approximately $3,763,100 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 ~~.26%, (ii) expected life of~~ ~~1.5~~1.2 ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected volatility of~~ ~~320~~%.years. The Company ~~analyzed~~uses 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 the~~of a vesting ~~qualifications would be met. As of December 31, 2021,~~ ~~25,000,000~~ ~~of options were vested as the targeted net revenues were reached and three quarters of Tranche 2 was also~~qualification being met, and ~~fully expensed through December 31, 2021. For~~will establish the ~~three months ended June 30, 2022 the Company revenues reached the target revenues for Tranche 2, and an additional~~ ~~25,000,000~~ ~~shares of the option vested. Stock option~~ expense ~~recognized during the three and six months ended June 30, 2022 for this option was $218,505~~ ~~and $437,010, 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 ~~30,000,000~~ ~~shares~~based on that evaluation. The maximum contractual term of the Company’s ~~common~~ stock ~~at an exercise price of $~~options is ~~0.0184~~5 ~~per share, of which the right~~years. The Company recognizes forfeitures and expirations as they occur. There are options to purchase approximately ~~10,000,000~~107,790,000 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~~ ~~20,000,000~~ shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
19
~~As part of the Constable Option Agreement, the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of~~ ~~30,000,000~~ ~~shares of the Company’s common stock at an exercise price of $0.0184~~ ~~per share, of which the right to purchase~~ ~~10,000,000~~ ~~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~~ ~~20,000,000~~ shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● ~~the right to purchase~~ ~~2,000,000~~ shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $~~5,000,000~~ ~~in the aggregate over four consecutive fiscal quarters commencing January 1, 2021 and ending on April 30, 2023 (the “Net Revenue Period”);~~
● ~~the right to purchase an additional~~ ~~3,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,500,000~~ ~~in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and~~
● ~~the right to purchase an additional~~ ~~5,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,000,000~~ ~~in the aggregate over four consecutive quarters during the Net Revenue Period.~~
The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for four years.March 31, 2023.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the ~~Bonus Options~~awards using the Black-Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions regarding the ~~grant was $578,082~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~.14%, (ii) expected life of~~ ~~2.0~~ ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected volatility of~~ ~~312.2~~%. The Company analyzed the likelihood that the vesting qualifications would be met, and as of June 30, 2022, it was deemed that the Company met the qualifications for four quarters for Tranches 1 and 2 $~~121,668. For the three and six months ended June 30, 2022, the Company recognized $38,934~~ ~~and $38,934, respectively.~~following:
Schedule of Valuation Assumptions of Options
~~On June 14, 2021, the Company issued options to purchase up to an aggregate of~~ ~~1,125,000~~ ~~shares of common stock to various employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $0.036~~ ~~per share for a period of~~ ~~four years~~ ~~from the date of issuance, with~~ ~~12.5% of the options vesting each fiscal quarter over a period of~~ ~~two years. The fair value of the options totaled $38,369~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~.21%, (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~304.77%. The stock options expense recognized for the three and six months ended June 30, 2022 was $4,142~~ ~~and $8,284, respectively.~~
Three Months ended March 31,
2023 2022
Expected volatility 172.0% - 346.4 % 172.0 – 346.4 %
Expected term 1.50 – 5.0 Years 1.5 – 5.0 Years
Risk-free interest rate 0.16% - 4.64 % 0.16% - 2.10 %
Forfeiture rate 0.17 % 0.03 %

~~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~~ ~~3,759,400~~ ~~shares of the Company’s common stock at an exercise price of $0.0399, (the “BC Compensation Options”). The BC Compensation Options vested~~ ~~33.3% upon the execution of the agreement, 33% at the first anniversary date and 33% upon the second anniversary date.~~ ~~The fair value of the options on the date of the grant was $149,076~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~.25%, (ii) expected life of~~ ~~2.5~~ ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected volatility of~~ ~~346.36%. The Company expensed $49,692~~ ~~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~~ ~~18,000,000~~ ~~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 $713,777~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~0.25%, (ii) expected life of~~ ~~2.5~~ ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~346.36%, and (v) exercise price of~~ ~~0.0399~~ ~~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~~ ~~500,000~~ 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.
2018

~~During the third quarter of 2021, the Company issued options to purchase up to an aggregate of~~ ~~175,000~~ ~~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 $.044~~ ~~to $.049~~ ~~per share for a periods ranging from~~ ~~three~~ to ~~four years~~ ~~from the date of issuance, with quarterly vesting periods over~~ ~~one~~ to ~~two years. The fair value of the options totaled $7,149~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate from~~ ~~.155% to~~ ~~.20%, (ii) expected life of~~ ~~1.5~~ to 2 ~~years, (iii) dividend yield of~~ 0~~%, and (iv)~~ expected volatility of ~~249.38% to~~ ~~287.12%. The stock options expense recognized for the three and six months ended June 30, 2022~~ was $~~1,494~~ ~~and $2,989, respectively.~~
~~On September 3, 2021, the Company issued options to purchase up to an aggregate of~~ ~~300,000~~ ~~shares of common stock under the Plan to Christeen Buban, President of SSI. The options were issued pursuant~~determined with reference to the ~~Buban Employment Agreement and a stock option grant agreement and are exercisable at $0.053~~ ~~per share for a period of~~ ~~five years~~ ~~from the date of issuance, with~~ ~~12.5% of the options vesting each fiscal quarter over a period of~~ ~~two years. The fair value of the options totaled $15,814~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~0.315%, (ii) expected life of~~ ~~2.5~~ ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected~~historical volatility of ~~339.21%. The stock options expense recognized for the three and six months ended June 30, 2022 was $1,977~~ ~~and $3,953, 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~~ ~~7,110,000~~ ~~shares~~ of the Company’s ~~common stock which vest annually on a contract year basis, based upon~~stock. The Company uses historical data to estimate option exercise and employee termination within the ~~achievement~~valuation 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 $374,786~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free~~risk-free interest rate of ~~.3150%, (ii) expected~~for periods within the contractual life of ~~2.5~~ ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~339.21%, and (v) exercise price of $0.0531~~ 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~~ ~~500,000~~ ~~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 $0.0531~~ ~~per share for a period of four years from the date of issuance, with~~ ~~12.5% of the options vesting each fiscal quarter over a period of~~ ~~two years. The fair value of the options totaled $25,201~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~0.21%, (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~276.1%. The stock options expense recognized for the three and six months ended June 30, 2022 was $3,150~~ ~~and $6,300, respectively.~~
~~During the fourth quarter of 2021, the Company issued options to purchase up to an aggregate of~~ ~~100,000~~ ~~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 $.040~~ ~~to $.0419~~ ~~per share for a period of~~ ~~four years~~ ~~of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $3,863~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~.204% (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~249.38% to~~ ~~287.12%. The stock options expense recognized for the three and six months ended June 30, 2022 was $483~~ ~~and $966, 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~~ ~~2,403,846~~ ~~shares of the Company’s common stock at an exercise price of $0.041~~ ~~(the “Compensation Option”). The fair value of the Compensation Option~~is based on the ~~date~~U.S. Treasury rate in effect at the time of ~~the grant was $98,976~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~.53%, (ii) expected life of~~ ~~2.5~~ ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected volatility of~~ ~~269.12%. 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~~ ~~75,000~~ ~~shares of common stock to an employee under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $0.032~~ ~~per share for a period of~~ ~~four years~~ ~~from the date of issuance, with quarterly vesting periods over~~ ~~two years. The fair value of the options totaled $2,259~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~1.016% (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, and (iv) expected volatility of~~ ~~266.8%. The stock options expense recognized for the three and six months ended June 30, 2022 was $283~~ ~~and $565, respectively.~~
21
~~During the three months ended June 30, 2022, the Company issued options to purchase up to an aggregate of~~ ~~217,647~~ ~~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 $.038~~ ~~to $.045~~ ~~per share for a period of~~ ~~four years~~ ~~of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $8,239~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate ranging from~~ ~~2.495% to~~ ~~2.602% (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~228.7% to~~ ~~232.7%. The stock options expense recognized for the three and six months ended June 30, 2022 was $1,030~~ ~~and $1,030, respectively.~~
~~On April 8, 2022, the Company issued an option to purchase up to~~ ~~300,000~~ ~~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 $.0406~~ ~~per share for a period of~~ ~~four years~~ ~~of from the date of issuance. The options vested immediately. The fair value of the options totaled $10,988~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~2.469% (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~232.41%. The stock options expense recognized for the three and six months ended June 30, 2022 was $10,988~~ ~~and $10,988, respectively.~~
~~On May 16, 2022, the Company issued an option to purchase up to~~ ~~1,000,000~~ ~~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 $.0325~~ ~~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 $29,161~~ ~~using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of~~ ~~2.590% (ii) expected life of~~ 2 ~~years, (iii) dividend yield of~~ 0~~%, (iv) expected volatility of~~ ~~228.97%. The stock options expense recognized for the three and six months ended June 30, 2022 was $9,720~~ ~~and $9,720, respectively.~~grant.

A summary of the status of the Company’s outstanding stock options as of March 31, 2023 and December 31, ~~2021,~~2022 and changes during the ~~three months ended June 30, 2022~~periods ending on such dates is ~~presented below:~~as follows:
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 2.23
Granted 5,710,901 0.0281
Forfeited (400,000 ) 0.0354
Exercised - -
Cancelled - -
Outstanding – December 31, 2022 238,439,167 $ 0.0360 1.43
Exercisable – December 31, 2022 111,558,754 $ 0.0321 1.33 $ 68,994

Granted - -
Forfeited (4,000,000 ) 0.0229
Exercised - -
Cancelled - -
Outstanding – March 31, 2023 234,439,167 $ 0.0362 1.21
Exercisable – March 31, 2023 107,790,004 $ 0.0325 1.14 $ 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 2.23 $ 795,201
Granted 1,592,647 0.0353
Forfeited (125,000 )
Exercised - -
Outstanding – June 30, 2022 (unaudited) 234,595,913 $ 0.0362 1.75
Exercisable – June 30, 2022 (unaudited) 105,200,664 $ 0.0322 1.60 $ 1,022,422
The following table summarizes information about employee stock options outstanding at March 31, 2023.
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
$ 0.018 - $0.0225 70,730,020 2.00 $ 0.0182 45,730,020 $ 0.0181 1.62
$ 0.0229 - $0.0325 5,093,254 4.27 $ 0.0268 5,024,504 $ 0.0267 4.29
$ 0.0360 - $0.0425 25,530,893 3.32 $ 0.0398 6,166,730 $ 0.0396 3.26
$ 0.0440 - $0.0531 133,085,000 0.28 $ 0.0455 50,868,750 $ 0.0450 0.12
Outstanding options 234,439,167 1.21 0.0362 107,790,004 0.0325 1.14
At March 31, 2023, there was approximately $3,689,800 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 $64.200 of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of 1.15 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 ~~10,000,000~~11,428,570 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 $~~0.025~~0.0175 per share in consideration of $~~250,000~~200,000.
~~On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of Charles Hyatt,~~ ~~600,000~~ ~~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~~ ~~4,000,000~~ ~~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,~~ ~~10,000,000~~ ~~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,~~ ~~600,000~~ ~~shares of common stock upon the exercise of a warrant at $0.025~~ ~~per share in consideration of $15,000~~.
22

A summary of the Company’s warrants as of December 31, ~~2021~~2022 and changes during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 is presented below:
Schedule of ~~Warrants~~Warrant 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 1.67 $ 153,300
Outstanding – December 31, 2022 18,255,951 $ 0.0245 1.55 $ 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 1.19
Exercisable – June 30, 2022 4,000,000 $ 0.025 1.19 $ 56,000
Outstanding – March 31, 2023 29,684,521 $ 0.0247 1.52
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, ~~extending~~which 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 ~~amendment~~Amendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $60,000, or $15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.15% 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 $~~50,708~~34,823 and $~~41,251~~43,608 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.~~
2320
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 5,434,783 shares of the common stock at an exercise price of $0.0184 per share, ~~and~~ on November 5, 2021, Mr. Constable was issued an option to purchase 2,403,846 shares of the Company’s common stock at an exercise price of $0.0401 per share and on November 5, 2022, Mr. Constable was issued an option to purchase 3,968,254 shares of the Company’s common stock at an exercise price of $0.0252 per share.

In addition, Mr. Constable shall be entitled to receive four-year stock options to purchase shares of common stock at an exercise price ~~equal to~~of $0.0184 per share in the following amounts based upon the following performance milestones during the term of the Constable Employment Agreement: (i) 2,000,000 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) 3,000,000 shares, – if the Company’s Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) 5,000,000 shares, – if the Company’s Net Revenues are in excess of $10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) 20,000,000 shares, – if the Company’s common stock is listed on the NASDAQ or New York Stock Exchange.
~~On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued~~ ~~3,000,000~~ ~~shares of its common stock valued at $120,000~~ ~~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 five-year stock option to purchase 3,759,400 shares at $0.0399, 33.3% of which shares vest immediately, 33.3% vest on the second anniversary, and 33.3% vest on the third anniversary of the ~~agreement~~agreement..
In addition, Blake Carmichael shall be entitled to receive a ~~five~~five-year~~-year~~ stock option to purchase up to 18,000,000 shares of common stock at an exercise price of $0.0399 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~~ ~~paid~~three months ended March 31, 2023 resulting in ~~aggregate purchase price consideration and~~ 6% ~~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 $10,800 per year, (iii) a ~~five~~five-year~~-year~~ option issued under the Plan to purchase 300,000 shares of common stock of the Company at $0.0531 per share, which option vests quarterly over the eight calendar quarters.

In addition, Mrs. Buban shall be entitled to receive a five-year stock option to purchase up to 7,110,000 shares of common stock of the Company at an exercise price of $0.0531 per share, which vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment ~~Agreement,~~Agreement.
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 1,000,000 shares of common stock with a fair market value of $27,500 to CLG.
24

On May 2, 2022, the Company entered into a two-year employment agreement with Steven Gagas (the “Gagas Employment Agreement”) pursuant to which Mr. Gagas shall serve as the General Manager of the dive shop currently operating within LBI. In consideration for his services Mr. Gagas shall receive an annual salary of $50,000.

On May 2, 2022, LBI, entered into a lease assignment agreement with Gold Coast Scuba, LLC and Vicnsons Realty Group, LLC whereby LBI is the assignee ~~to the remainder~~ of ~~the~~a 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 a~~Florida for $2,816 per month base rent. The lease ~~provides an~~expired 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 additional~~a 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. ~~Ultra Portable~~Ultra-Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user.
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 ~~reteal~~retail store for the diving community.
25

Three Months Ended
~~June 30~~March 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 Lease~~None

~~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.~~
2623
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 as~~systems. 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 include~~includes 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, 2022~~March 31, 2023 Compared to Three Months Ended ~~June 30, 2021~~March 31, 2022

Net revenues ~~increased 37.2%~~decreased 17.0% for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021~~March 31, 2022 as a result of a ~~67.4% increase~~decrease 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% as~~customers. The sales loss is a result of the ~~expansion~~slow ramp of ~~its customer base~~production 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 ~~addition~~momentum of ~~both SSI and LBI revenue which did not exist in 2021.~~ the Company’s newest product, HEED3.
24
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, 2022~~March 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, 2022~~March 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 improvement~~reduction in gross margin, is directly attributable to BTL’s margin of ~~1.0% as it relates~~8.2% 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% for~~move inventory during the three months ended ~~June 30, 2022.~~
27
~~Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021~~
Net revenues increased 64.3% for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. This 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 ~~provides~~provide net revenues, total costs of net revenues and gross profit margins for ~~our~~the 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 % -
28
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 segment~~Revenues decreased ~~4.1%~~21.6% for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 as compared to the ~~six~~three 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 segment~~Direct 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 ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 as compared to the same period in ~~2021. The decrease~~2022. Our dealers have indicated that they were taking a conservative approach in ~~dealer orders can be attributed~~the offseason to conserve cash for the ~~23.2% drop~~season. 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.~~

25
~~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 ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 due to a decrease in margins in the ~~negative margin for~~Direct 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 ~~represent~~represents items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers ~~that we have~~under dealer agreements ~~that~~which typically ~~operate with the lowers margin.~~have lower margins. Affiliates are resellers of our products ~~that are~~with which we do not ~~in a~~have 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 %
29
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, 2022~~March 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 with~~2022. 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, 2022~~March 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 ~~compared~~LWA 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 increase~~decreased to ~~55.0%~~52.9% for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 as compared to ~~54.4%~~58.1% for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. This increase ~~can be~~is attributed to increased ~~cost of transportation from suppliers and~~revenue in the Direct to ~~customers~~Consumer channel during the ~~six~~three 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

30
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 revenue~~Revenue for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 in the Ultra Portable Tankless Dive System segment ~~showed growth of 94.5%~~decreased increased 40.0% as compared to the ~~six~~three months ended ~~June 30, 2021. The growth~~March 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 for~~channels with the ~~three and six months ended June 30, 2022 can be attributed~~largest lost to the ~~addition~~Amazon 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 sales~~March 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 due~~March 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 revenue~~72.2% from 64.1% for the same ~~periods~~period in ~~2022~~2022. The increase in cost of revenue as ~~compared~~it 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 %
31
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, 2022~~Revenue in the Redundant Air Tank Systems System segment ~~was $721,935 and $399,479~~increased 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.
27
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 of~~increased revenue from the ~~margin for repairs, dealer~~HEED3 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 % -
32
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 % -
33
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, 2022~~March 31, 2023 as compared to the ~~same periods in the prior year.~~three months ended March 31, 2022.

28
Selling, General & Administrative Expenses (SG&A Expenses)

SG&A ~~increased~~decreased 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 expenses~~2023 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 related~~March 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.
34

Professional fees, including legal, accounting and other professional fees ~~which~~decreased 47.6% for the ~~Company has paid with a combination of cash and common stock increased 26.4% in the six~~three months ended ~~June 30, 2022~~March 31, 2023 as compared to the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The ~~increase~~decrease 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 ~~related~~of 30.6%. Legal fees reduction can be attributed to the ~~year-end audit. For~~lack of billing for acquisition activity in 2023 and the ~~three months ended June 30, 2022~~reduction in professional fees ~~decreased 15.4% as compared~~is attributable to the ~~prior year, as a consultant was added~~conversion of consultants to ~~payroll~~employees 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 ~~six~~three months ended ~~June 30, 2022~~March 31, 2023, as compared to the ~~six~~three months ended ~~June 30, 2021 is attributable~~March 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.

29
Research & Development Expenses (R&D Expenses)

R&D expenses for the three months ended ~~June 30, 2022~~March 31, 2023 decreased ~~79.5% and 80.5% for the six months ended June 30, 2022~~86.5% 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 ~~six~~three 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 ~~six~~three months ended ~~June 30, 2021~~March 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 ~~was~~were funded in the ~~second quarter~~third 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, 2022~~March 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 ~~increase~~decrease in our current assets at ~~June 30, 2022~~March 31, 2023 from December 31, ~~2021~~2022 primarily reflects ~~an increase from the assets of SSI as well as the~~ increases in inventory purchases reflected by ~~an increase~~a decrease in inventory and prepaid assets which includes prepayments of inventory, as the Company has ~~experienced~~tapered its purchasing to convert inventory when revenue ~~growth and ramped up purchasing and production for~~began to slow in the ~~summer season.~~third quarter of 2022. The ~~increase~~decrease in total current liabilities primarily reflects ~~the additional SSI liabilities as well as~~ a ~~significant increase~~decrease 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 ~~six~~three months ended ~~June 30, 2022~~March 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 totaled~~of approximately ~~$501,700.~~$71,200.
35

Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2022~~March 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 ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 reflects proceeds of $200,000 from the ~~exercise~~sale of ~~warrants of approximately $265,000 less~~units, offset by the ~~repayment~~payment of debt of approximately ~~$26,400.~~$17,800.

30
Going Concern

Our unaudited consolidated financial statements included in this Quarterly Report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, ~~2021~~2022 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.
36

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.

31
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, 2022~~March 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 ~~has~~have materially affected or isare reasonably likely to materially affect, our internal control over financial reporting.
3732
PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEEDINGS

There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.

ITEM 1A. RISK FACTORS

The Company is a smaller reporting company and is not required to provide this information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Except as set forth below, there were no sales of equity securities during the period covered by this Quarterly Report that were not registered under the Securities Act~~On 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 shares~~to Charles Hyatt, an aggregate of 11,428,570 units, with each unit consisting of one share of common stock ~~for consulting services related~~and a two-year common stock purchase warrant to ~~the dive industry.~~
~~As of June 30, 2022, the Company issued 449,522 shares~~purchase one share of common stock ~~to the holders~~at 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)
101.INS Inline XBRL INSTANCE DOCUMENT
101.SCH Inline XBRL TAXONOMY EXTENSION SCHEMA
101.CAL Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

3833
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: ~~August 22, 2022~~May 15, 2023 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)

3934

	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
Accounts payable - related parties		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
Related party convertible demand note, net		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; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of March 31, 2023 and December 31, 2022.		425			425
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 437,147,436 shares issued and outstanding at March 31, 2023 and 425,520,662 shares issued and outstanding at December 31, 2022.		43,716			42,553
Common stock payable 138,941 shares and 138,941 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

	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

	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


	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; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of June 30, 2022 and December 31, 2021.		425			425
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 409,774,099 shares issued and outstanding at June 30, 2022 and 393,850,475 shares issued and outstanding at December 31, 2021, respectively.		40,978			39,386
Common stock payable 138,941 shares and 138,941 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

	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		$	-


	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


								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


	Notional Amount
Foreign Currency	June 30, 2022 (unaudited)		December 31, 2021
Euro	$	181,615		-
Total	$	181,615	$	-

					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

	March 31, 2023		March 31, 2022
	(unaudited)		(unaudited)
Revenues	$	1,427,963	$	1,701,564
Revenues - related parties		211,090		273,405
Total Revenues	$	1,639,053	$	1,974,969

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

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	$	-

~~(2)~~	~~On December 5, 2017, the Company entered into a~~ 6~~% secured convertible promissory note in the principal amount of $50,000, initially due~~ ~~December 4, 2018~~, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael.

	~~The conversion price under the note initially ranged from $0.02~~ ~~per share if converted in the first year to $0.125~~ per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of ~~9.99% of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one year to December 31, 2019 with a reduction in the conversion price to $0.01~~ ~~per share. The Company recorded a loss on extinguishment of debt of $99,000~~ ~~upon the modification of conversion price. On August 18, 2021, this note and accrued interest of $11,145~~ ~~were converted by the holder into~~ ~~6,114,516~~ ~~shares of common stock in accordance with the terms of the note~~

~~(3)~~	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. ~~Payments on~~The Company is required to make quarterly payments under the note ~~are to be equivalent~~in an amount equal to 50% of the adjusted net profit of ~~SSI payable calendar quarterly.~~SSI. Interest is payable quarterly in shares of common stock of the Company at a conversion price of $0.051272 per ~~share, to be paid quarterly.~~share. The note holder may convert outstanding principal and interest into shares of common stock at a conversion price of $0.051272 per share at any time during the term of the note. The Company recorded $12,355 for the beneficial conversion feature. This note is classified as a long-term liability for this period.

	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

				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


	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


	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

(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 $75,764 payable over 60 equal monthly installments of $1,611 (the “Navitas 1”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $51,210 and $54,930 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 $63,689 payable over 36 equal monthly installments of $2,083 (“Navitas 2”). The equipment finance agreement contains customary events of default. The loan balance as of March 31, 2023 was $59,100 and $63,689 as of December 31, 2022.

Holding Period from Closing Date		Percentage of shares eligible to be sold or transferred
6 ~~months~~		~~Up to~~ ~~12.5~~%
9 ~~months~~		~~Up to~~ ~~25.0~~%
24 ~~months~~		~~Up to~~ ~~75.0~~%
36 ~~months~~		~~Up to~~ ~~100.0~~%


Common stock, 27,305,442 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

Holding Period from Closing Date			Percentage of shares eligible to be sold or transferred
6 months			Up to ~~25.0%~~25.0%
9 months			Up to ~~50.0%~~50.0%
12 months			Up to ~~100.0%~~100.0%

	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

	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

	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


	2022
Balance, January 1	$	249,986
Addition:		-
Balance, June 30	$	249,986

	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

			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

	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

●	~~the right to purchase~~ ~~25,000,000~~ shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $~~3,500,000~~ ~~in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending on April 30, 2023 (the “Net Revenue Period”);~~

●	~~the right to purchase an additional~~ ~~25,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,000,000~~ ~~in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and~~

●	~~the right to purchase an additional~~ ~~25,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,500,000~~ ~~in the aggregate over four consecutive quarters during the Net Revenue Period.~~

●	~~the right to purchase~~ ~~2,000,000~~ shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $~~5,000,000~~ ~~in the aggregate over four consecutive fiscal quarters commencing January 1, 2021 and ending on April 30, 2023 (the “Net Revenue Period”);~~

●	~~the right to purchase an additional~~ ~~3,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,500,000~~ ~~in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and~~

●	~~the right to purchase an additional~~ ~~5,000,000~~ ~~shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,000,000~~ ~~in the aggregate over four consecutive quarters during the Net Revenue Period.~~