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, |
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from __________ to __________ |
Commission file number 333-99393
BROWNIE’S MARINE GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida | 90-0226181 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3001 NW 25thAvenue, Suite 1 | ||
Pompano Beach, Florida | 33069 | |
(Address of principal executive offices) | (Zip code) |
(954) 462-5570
Registrant’s telephone number, including area code
Not applicable
Former name, former address and former fiscal year, if changed since last report
Not applicable |
Former name, former address and former fiscal year, if changed since last report |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | Not applicable | Not applicable |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of August 19, 2022,14, 2023, there were shares of common stock outstanding.
TABLE OF CONTENTS
Page No. | ||
PART I - FINANCIAL INFORMATION | ||
ITEM 1. | FINANCIAL STATEMENTS. | 4 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | |
ITEM 4. | CONTROLS AND PROCEDURES. | |
PART II - OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS. | |
ITEM 1A. | RISK FACTORS. | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | |
ITEM 4. | MINE SAFETY DISCLOSURES. | |
ITEM 5. | OTHER INFORMATION. | |
ITEM 6. | EXHIBITS. | 38 |
2 |
NOTE REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.
You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the SECSecurities and Exchange Commission (“SEC”) on April 22, 2022,March 30, 2023, which risk factors could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
3 |
PART I
ITEM 1. FINANCIAL STATEMENTS
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 418,742 | $ | 484,427 | ||||
Accounts receivable - net | 251,138 | 111,844 | ||||||
Accounts receivable - related parties | 67,356 | 55,428 | ||||||
Accounts receivable | 67,356 | 55,428 | ||||||
Inventory, net | 2,138,930 | 2,421,885 | ||||||
Prepaid expenses and other current assets | 177,504 | 192,130 | ||||||
Total current assets | 3,053,670 | 3,265,714 | ||||||
Property, equipment and leasehold improvements, net | 365,970 | 339,546 | ||||||
Right of use assets, net | 999,742 | 1,133,092 | ||||||
Intangible assets, net | 610,189 | 646,422 | ||||||
Goodwill | 249,986 | 249,986 | ||||||
Other assets | 30,725 | 30,724 | ||||||
Total assets | $ | 5,310,282 | $ | 5,665,484 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 740,389 | $ | 829,456 | ||||
Accounts payable - related parties | 22,841 | 37,539 | ||||||
Customer deposits and unearned revenue | 384,132 | 167,534 | ||||||
Other liabilities | 347,866 | 372,943 | ||||||
Operating lease liabilities, current | 275,293 | 269,046 | ||||||
Related party convertible demand note, net | 49,276 | 49,147 | ||||||
Current maturities long term debt | 71,421 | 66,486 | ||||||
Total current liabilities | 1,891,218 | 1,792,151 | ||||||
Loans payable, net of current portion | 106,190 | 143,960 | ||||||
Convertible notes, net of current portion | 345,026 | 342,943 | ||||||
Operating lease liabilities, net of current portion | 728,357 | 864,057 | ||||||
Total liabilities | 3,070,791 | 3,143,111 | ||||||
Commitments and contingent liabilities (see note 9) | - | |||||||
Stockholders’ equity | ||||||||
Preferred stock; $ | par value: shares authorized; issued and outstanding as of June 30, 2023 and December 31, 2022.425 | 425 | ||||||
Common stock; $ | par value; shares authorized; shares issued and outstanding at June 30, 2023 and shares issued and outstanding at December 31, 2022.43,736 | 42,553 | ||||||
Common stock payable | shares and shares, as of June 30, 2023 and December 31, 2022, respectively.14 | 14 | ||||||
Additional paid-in capital | 19,150,577 | 18,916,876 | ||||||
Accumulated deficit | (16,955,261 | ) | (16,437,495 | ) | ||||
Total stockholders’ equity | 2,239,491 | 2,522,373 | ||||||
Total liabilities and stockholders’ equity | $ | 5,310,282 | $ | 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 AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(unaudited)
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | 2,071,712 | $ | 2,401,238 | $ | 3,710,765 | $ | 4,376,207 | ||||||||
Cost of revenues | 1,446,294 | 1,538,404 | 2,671,322 | 2,837,613 | ||||||||||||
Gross profit | 625,418 | 862,834 | 1,039,443 | 1,538,594 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 792,381 | 1,177,601 | 1,518,601 | 2,283,340 | ||||||||||||
Research and development costs | 2,898 | 4,373 | 3,425 | 8,292 | ||||||||||||
Total operating expenses | 795,279 | 1,181,974 | 1,522,026 | 2,291,632 | ||||||||||||
Loss from operations | (169,861 | ) | (319,140 | ) | (482,583 | ) | (753,038 | ) | ||||||||
Other expense, net | ||||||||||||||||
Interest expense | (19,983 | ) | (9,523 | ) | (35,183 | ) | (19,716 | ) | ||||||||
Loss before provision for income taxes | (189,844 | ) | (328,663 | ) | (517,766 | ) | (772,754 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net Loss | (189,844 | ) | (328,663 | ) | (517,766 | ) | (772,754 | ) | ||||||||
Loss on foreign currency contract | - | (10,220 | ) | - | (8,633 | ) | ||||||||||
Comprehensive loss | (189,844 | ) | (338,883 | ) | (517,766 | ) | (781,387 | ) | ||||||||
Basic income (loss)per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Basic weighted average common shares outstanding | 437,196,851 | 406,439,244 | 430,188,472 | 399,061,998 | ||||||||||||
Diluted income (loss) per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Diluted weighted average common shares outstanding | 437,196,851 | 406,439,244 | 430,188,472 | 399,061,998 |
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 AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | Capital | - | Deficit | (DEFICIT) | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Payable | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
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 on convertible notes | - | - | 198,204 | 20 | - | - | 8,316 | - | 8,336 | |||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 11,034 | - | 11,034 | |||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (327,922 | ) | (327,922 | ) | ||||||||||||||||||||||||
March 31, 2023 (unaudited) | 425,000 | $ | 425 | 437,147,436 | $ | 43,716 | 138,941 | $ | 14 | $ | 19,135,083 | - | $ | (16,765,417 | ) | $ | 2,413,821 | |||||||||||||||||||
Shares issued for accrued interest on convertible notes | - | - | 198,205 | 20 | - | - | 8,306 | - | 8,326 | |||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 7,188 | - | 7,188 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (189,844 | ) | (189,844 | ) | ||||||||||||||||||||||||
June 30, 2023 (unaudited) | 425,000 | $ | 425 | 437,345,641 | $ | 43,736 | 138,941 | $ | 14 | $ | 19,150,577 | - | $ | (16,955,261 | ) | $ | 2,239,491 |
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (DEFICIT) | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Payable | Additional Paid-in | Accumulated Other Comprehensive Income | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | Equity | |||||||||||||||||||||||||||||||
December 31, 2021 | 425,000 | $ | 425 | 393,850,475 | $ | 39,386 | 138,941 | $ | 14 | $ | 17,132,434 | $ | - | $ | (14,544,604 | ) | $ | 2,627,655 | ||||||||||||||||||||||
Shares issued for the exercise of warrants | - | - | 10,600,000 | 1,060 | - | - | 263,940 | - | - | 265,000 | ||||||||||||||||||||||||||||||
Shares issued for service | - | - | 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 | ||||||||||||||||||||||
Shares issued for service | - | - | 302,953 | 30 | - | - | 11,970 | - | - | 12,000 | ||||||||||||||||||||||||||||||
Shares issued for asset purchase | - | - | 3,084,831 | 308 | - | - | 119,692 | - | - | 120,000 | ||||||||||||||||||||||||||||||
Shares issued for accrued interest on convertible notes | - | - | 449,522 | 45 | - | - | 23,003 | - | - | 23,048 | ||||||||||||||||||||||||||||||
Shares issued for employee bonus | - | - | 280,000 | 28 | - | - | 11,032 | - | - | 11,060 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 290,707 | - | �� | - | 290,707 | |||||||||||||||||||||||||||||
Net loss | (328,663 | ) | (328,663 | ) | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | (10,220 | ) | - | (10,220 | ) | ||||||||||||||||||||||||||||
June 30, 2022 (unaudited) | 425,000 | $ | 425 | 409,774,099 | $ | 40,977 | 138,941 | $ | 14 | $ | 18,118,192 | $ | (8,633 | ) | $ | (15,317,359 | ) | $ | 2,833,616 |
The accompanying notes are an integral part of these unaudited consolidated financial statements
6 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022 (unaudited) | December 31, 2021 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 574,567 | $ | 643,143 | ||||
Accounts receivable - net | 276,812 | 123,270 | ||||||
Accounts receivable - related parties | 75,122 | 77,301 | ||||||
Inventory, net | 2,323,468 | 1,895,260 | ||||||
Prepaid expenses and other current assets | 533,540 | 227,458 | ||||||
Total current assets | 3,783,509 | 2,966,432 | ||||||
Property, equipment and leasehold improvements, net | 292,038 | 270,065 | ||||||
Operating Lease Assets | 372,992 | 454,475 | ||||||
Intangible Assets, Net | 682,655 | 718,905 | ||||||
Goodwill | 249,986 | 249,986 | ||||||
Other assets | 17,831 | 14,098 | ||||||
Total assets | $ | 5,399,011 | $ | 4,673,961 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,204,610 | $ | 744,383 | ||||
Accounts payable - related parties | 31,437 | 37,267 | ||||||
Customer deposits and unearned revenue | 280,510 | 143,938 | ||||||
Other liabilities | 222,373 | 187,924 | ||||||
Operating lease liabilities | 214,061 | 232,283 | ||||||
Current maturities long term debt | 38,209 | 50,402 | ||||||
Notes payable | - | - | ||||||
Convertible debentures, net | - | - | ||||||
Total current liabilities | 1,991,200 | 1,396,197 | ||||||
Long term debt | 73,775 | 87,956 | ||||||
Long term convertible debentures, net | 341,098 | 339,254 | ||||||
Operating lease liabilities | 159,322 | 222,899 | ||||||
Total liabilities | 2,565,395 | 2,046,306 | ||||||
Commitments and contingent liabilities (see note | - | |||||||
Stockholders’ equity | ||||||||
Preferred stock; $ | par value: shares authorized; issued and outstanding as of June 30, 2022 and December 31, 2021.425 | 425 | ||||||
Common stock; $ | par value; shares authorized; shares issued and outstanding at June 30, 2022 and shares issued and outstanding at December 31, 2021, respectively.40,978 | 39,386 | ||||||
Common stock payable | shares and shares, respectively as of June 30, 2022 and December 31, 2021.14 | 14 | ||||||
Additional paid-in capital | 18,118,191 | 17,132,434 | ||||||
Accumulated deficit | (15,317,359 | ) | (14,544,604 | ) | ||||
Accumulated other comprehensive loss | (8,633 | ) | - | |||||
Total stockholders’ equity | 2,833,616 | 2,627,655 | ||||||
Total liabilities and stockholders’ equity | $ | 5,399,011 | $ | 4,673,961 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
BROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE AND SIX MONTHS ENDED JUNE 30
(UNAUDITED)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net revenues | ||||||||||||||||
Net revenues | $ | 2,110,575 | $ | 1,359,745 | $ | 3,812,139 | $ | 2,106,098 | ||||||||
Net revenues - related parties | 290,663 | 353,173 | 564,068 | 557,589 | ||||||||||||
Total net revenues | 2,401,238 | 1,712,918 | 4,376,207 | 2,663,687 | ||||||||||||
Cost of net revenues | ||||||||||||||||
Cost of net revenues | 1,331,847 | 876,646 | 2,453,485 | 1,385,715 | ||||||||||||
Cost of net revenues - related parties | 138,025 | 169,699 | 259,199 | 275,130 | ||||||||||||
Royalties expense - related parties | 17,824 | 28,013 | 30,613 | 39,606 | ||||||||||||
Royalties expense | 50,708 | 41,251 | 94,316 | 54,955 | ||||||||||||
Total cost of revenues | 1,538,404 | 1,115,609 | 2,837,613 | 1,755,406 | ||||||||||||
Gross profit | 862,834 | 597,309 | 1,538,594 | 908,281 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 1,177,601 | 823,607 | 2,283,340 | 1,560,642 | ||||||||||||
Research and development costs | 4,373 | 21,312 | 8,292 | 42,419 | ||||||||||||
Total operating expenses | 1,181,974 | 844,919 | 2,291,632 | 1,603,061 | ||||||||||||
Income (Loss) from operations | (319,140 | ) | (247,610 | ) | (753,038 | ) | (694,780 | ) | ||||||||
Other (income) expense, net | ||||||||||||||||
Gain on settlement of debt | - | - | - | 10,000.00 | ||||||||||||
Gain on the forgiveness of PPP loan | - | 159,600 | - | 159,600.00 | ||||||||||||
Interest expense | (9,523 | ) | (1,795 | ) | (19,716 | ) | (5,606 | ) | ||||||||
Income (Loss) income before provision for income taxes | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net Income (Loss) | (328,663 | ) | (89,805 | ) | (772,754 | ) | (530,786 | ) | ||||||||
Loss on foreign currency contract | (10,220 | ) | - | (8,633 | ) | - | ||||||||||
Comprehensive loss | (338,883 | ) | (89,805 | ) | (781,387 | ) | (530,786 | ) | ||||||||
Basic income (loss)per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Basic weighted average common shares outstanding | 406,439,244 | 337,489,134 | 399,061,998 | 314,941,270 | ||||||||||||
Diluted income (loss) per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Diluted weighted average common shares outstanding | 406,439,244 | 337,489,134 | 399,061,998 | 314,941,270 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
BROWNIES MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(UNAUDITED)
Common Stock | Additional | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Payable | Paid-in | Income | Accumulated | Stockholder’s | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | Equity | |||||||||||||||||||||||||||||||
December 31, 2021 | 425,000 | $ | 425.00 | 393,850,475 | $ | 39,386 | 138,941 | $ | 14 | $ | 17,132,434 | $ | - | $ | (14,544,604 | ) | $ | 2,627,655 | ||||||||||||||||||||||
Shares issued for the exercise of warrants | - | - | 10,600,000 | 1,060 | - | - | 263,940 | - | - | 265,000 | ||||||||||||||||||||||||||||||
Shares issued for services | - | - | 1,206,318 | 120 | - | - | 35,380 | - | - | 35,500 | ||||||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 230,034 | - | - | 230,034 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (444,092 | ) | (444,092 | ) | ||||||||||||||||||||||||||||
Other Comprehensive Income | - | - | - | - | - | - | - | 1,587 | - | 1,587 | ||||||||||||||||||||||||||||||
March 31, 2022 (unaudited) | 425,000 | 425 | 405,656,793 | 40,566 | 138,941 | 14 | 17,661,788 | $ | 1,587 | (14,988,696 | ) | 2,715,684 | ||||||||||||||||||||||||||||
Stock Issued for Service | - | - | 302,953 | 30 | - | - | 11,970 | - | - | 12,000 | ||||||||||||||||||||||||||||||
Stock Issued for Asset Purchase | - | - | 3,084,831 | 308 | - | - | 119,692 | - | - | 120,000 | ||||||||||||||||||||||||||||||
Stock Issued for Accrued Interest on Convertible Notes | - | - | 449,522 | 45 | - | - | 23,003 | - | - | 23,048 | ||||||||||||||||||||||||||||||
Stock Issued for Employee Bonus | - | - | 280,000 | 28 | - | - | 11,032 | - | - | 11,060 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 290,707 | - | - | 290,707 | ||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | - | (328,663 | ) | (328,663 | ) | ||||||||||||||||||||||||||||
Other Comprehensive Loss | - | - | - | - | - | - | - | (10,220 | ) | - | (10,220 | ) | ||||||||||||||||||||||||||||
June 30, 2022 (unaudited) | 425,000 | $ | 425 | 409,774,099 | $ | 40,978 | 138,941 | $ | 14 | $ | 18,118,191 | $ | (8,633 | ) | $ | (15,317,359 | ) | $ | 2,833,616 |
Common Stock | Additional | Total | ||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Payable | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||
December 31, 2020 | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | - | $ | (12,956,137 | ) | $ | 583,804 | ||||||||||||||||||||||
Common stock issued for Cash | - | - | 27,500,000 | 2,750 | - | - | 272,250 | - | - | 275,000 | ||||||||||||||||||||||||||||||
Common stock issued for service | - | - | 3,116,279 | 312 | - | - | 124,688 | - | - | 125,000 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 218,505 | - | - | 218,505 | ||||||||||||||||||||||||||||||
Common stock issued for conversion of convertible debentures and accrued interest | - | - | 422,209 | 42 | - | - | 14,735 | - | - | 14,777 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (440,981 | ) | (440,981 | ) | ||||||||||||||||||||||||||||
March 31, 2021 (unaudited) | 425,000 | 425 | 337,223,694 | 33,724 | 138,941 | 14 | 14,139,060 | - | (13,397,118 | ) | 776,105 | |||||||||||||||||||||||||||||
Beginning balance | 425,000 | 425 | 337,223,694 | 33,724 | 138,941 | 14 | 14,139,060 | - | (13,397,118 | ) | 776,105 | |||||||||||||||||||||||||||||
Common stock issued for conversion of convertible debentures and accrued interest | - | - | 6,055,358 | 606 | - | - | 59,948 | - | - | 60,554 | ||||||||||||||||||||||||||||||
Stock option expense | - | - | - | - | - | - | 257,370 | - | - | 257,370 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | (89,805 | ) | (89,805 | ) | ||||||||||||||||||||||||||||
Net Income (Loss) | - | - | - | - | - | - | - | - | (89,805 | ) | (89,805 | ) | ||||||||||||||||||||||||||||
June 30, 2021 (unaudited) | 425,000 | $ | 425 | 343,279,052 | $ | 34,330 | 138,941 | $ | 14 | $ | 14,456,378 | $ | - | $ | (13,486,923 | ) | $ | 1,004,224 | ||||||||||||||||||||||
Ending balance | 425,000 | $ | 425 | 343,279,052 | $ | 34,330 | 138,941 | $ | 14 | $ | 14,456,378 | $ | - | $ | (13,486,923 | ) | $ | 1,004,224 |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)(unaudited)
2023 | 2022 | |||||||||||||||
2022 | 2021 | |||||||||||||||
Cash flows provided by operating activities: | ||||||||||||||||
Cash flows used in operating activities: | ||||||||||||||||
Net loss | $ | (772,754 | ) | (530,786 | ) | $ | (517,766 | ) | $ | (772,754 | ) | |||||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 66,802 | 13,396 | 79,237 | 66,802 | ||||||||||||
Amortization of debt discount | 1,844 | - | 5,259 | 1,844 | ||||||||||||
Amortization of right-of-use asset | 104,777 | 51,581 | 133,350 | 104,777 | ||||||||||||
Shares issued for services | 47,501 | 125,000 | ||||||||||||||
Reserve (recovery) for bad debt | - | 28,554 | ||||||||||||||
Common stock issued for services | - | 47,501 | ||||||||||||||
Reserve for slow moving inventory | 26,217 | - | - | 26,217 | ||||||||||||
Reserve for Nomad recall | (74,200 | ) | - | |||||||||||||
Stock Based Compensation - Options | 520,739 | 475,875 | 18,219 | 520,739 | ||||||||||||
Stock based compensation - stock grant | 11,060 | - | - | 11,060 | ||||||||||||
Shares issued for accrued interest in convertible notes | 23,048 | - | 16,662 | 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 | ) | (139,294 | ) | (153,542 | ) | ||||||||
Change in accounts receivable - related parties | 2,179 | (109,001 | ) | (11,928 | ) | 2,179 | ||||||||||
Change in inventory | (345,004 | ) | (120,940 | ) | 282,955 | (345,004 | ) | |||||||||
Change in prepaid expenses and other current assets | (306,081 | ) | (250,909 | ) | (49,063 | ) | (306,081 | ) | ||||||||
Change in other assets | (3,733 | ) | 3,000 | - | (3,733 | ) | ||||||||||
Change in accounts payable and accrued liabilities | 460,227 | 217,684 | (89,068 | ) | 460,227 | |||||||||||
Change in customer deposits and unearned revenue | 136,572 | (7,787 | ) | 216,598 | 136,572 | |||||||||||
Change in long term lease liability | (105,093 | ) | 23,938 | (129,453 | ) | (105,093 | ) | |||||||||
Change in other liabilities | 15,815 | (51,581 | ) | 49,123 | 15,815 | |||||||||||
Change in accounts payable - related parties | (5,831 | ) | 84,220 | (14,698 | ) | (5,831 | ) | |||||||||
Net cash used in operating activities | (275,257 | ) | (396,838 | ) | (224,067 | ) | (275,257 | ) | ||||||||
Cash flows used in investing activities: | ||||||||||||||||
Cash used in asset acquisition | (30,000 | ) | - | - | (30,000 | ) | ||||||||||
Purchase of fixed assets | (1,946 | ) | (14,591 | ) | (5,737 | ) | (1,946 | ) | ||||||||
Net cash used in investing activities | (31,946 | ) | (14,591 | ) | (5,737 | ) | (31,946 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of units | - | 275,000 | 200,000 | - | ||||||||||||
Proceeds from exercise of Warrants | 265,000 | - | - | 265,000 | ||||||||||||
Repayment on notes payable | - | (25,000 | ) | |||||||||||||
Repayment of debt | (26,373 | ) | (22,096 | ) | (35,881 | ) | (26,373 | ) | ||||||||
Net cash provided by financing activities | 238,627 | 227,904 | 164,119 | 238,627 | ||||||||||||
Net change in cash | (68,576 | ) | (183,525 | ) | (65,685 | ) | (68,576 | ) | ||||||||
Cash, beginning balance | 643,143 | 345,187 | 484,427 | 643,143 | ||||||||||||
Cash, end of period | $ | 583,765 | 161,662 | $ | 418,742 | $ | 574,567 | |||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash Paid for Interest | $ | 19,716 | 4,344 | $ | 18,520 | $ | 19,716 | |||||||||
Cash Paid for Income Taxes | $ | - | - | $ | - | $ | - | |||||||||
Supplemental disclosure of non-cash financing activities: | ||||||||||||||||
Operating lease obtained for operating lease liability | $ | 23,294 | $ | - | $ | - | $ | 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 | ||||||||||||
Common Stock issued for asset acquisition | $ | - | $ | 120,000 | ||||||||||||
Equipment obtained through financing | $ | 63,689 | $ | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
7 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)June 30, 2023
(UNAUDITED)
Note 1. Company Overview
Brownie’s Marine Group, Inc. (the “Company”) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary, Trebor Industries, Inc., a Florida corporation, incorporated in 1981 (“Trebor” or “BTL”), manufactures and sells high pressure air and industrialindustrial. compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BLU3”). On September 3, 2021, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation incorporated in 2017, and wholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or “SSI”), and Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company.
Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world.
On February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 20212022 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 for a broader discussion of ourthe Company’s business and the risks inherent in such business. The results of operations for the six months ended June 30, 2023, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending December 31, 2023.
8 |
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and LBI. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per EIN. At June 30, 20222023 and December 31, 2021,2022, the Company had approximately $22,700no and $205,500, respectivelyamount in excess of the FDIC insured limit.
Foreign Currency Forward Contracts
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The foreign currency forward hedging contracts outstanding as of June 30, 2022 have settlement dates within 6 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in other comprehensive income and reclassified to the Consolidated Statement of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings.
Foreign currency forward contracts entered into to hedge cost of goods purchases were as follows as of June 30, 2022 and December 31, 2021:
Schedule of Foreign Currency Forward Contracts
Notional Amount | ||||||||
Foreign Currency | June 30, 2022 (unaudited) | December 31, 2021 | ||||||
Euro | $ | 181,615 | - | |||||
Total | $ | 181,615 | $ | - |
Accounts receivable
Accounts receivable consist of amounts due from the sale of all of ourThe Company manufactures and sells its products to wholesalea broad range of customers, primarily retail stores. Few customers are provided with payment terms of 30 days. The Company has tracked historical loss information for its trade receivables and retail customers. The allowancecompiled historical credit loss percentages for doubtful accountsdifferent 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 estimated baseda reasonable base on historical customer experience and industry knowledge. The allowanceswhich to determine expected credit losses for doubtful accounts totaled $46,555 and $46,555trade receivables held at June 30, 20222023 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 December 31, 2021, respectively.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 expected credit losses at June 30, 2023 totaled $28,558.
Inventory
Inventory consists of the following:
Schedule of Inventory
June 30, 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 | $ | 1,151,412 | $ | 1,207,957 | ||||||||||
Work in process | 84,243 | 99,858 | 65,882 | 80,727 | ||||||||||||
Finished goods | 985,387 | 521,212 | 865,743 | 1,077,308 | ||||||||||||
Rental Equipment | 48,602 | - | 55,893 | 55,893 | ||||||||||||
Inventory, net | $ | 2,323,468 | $ | 1,895,260 | $ | 2,138,930 | $ | 2,421,885 |
As of June 30, 2023 and December 31, 2022, the Company recorded allowances for obsolete or slow moving inventory of approximately $166,698.
9 |
Revenue Recognition
We account for revenues in accordance with Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive.Revenue Recognition
We recognizeThe Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers. The Company recognizes revenue when performance obligations under the saleterms of products under singlea contract with the customer are satisfied. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the units as thatgoods. Generally, payment is when ownershipdue upon receipt of the invoice and the contracts do not have significant financing components. Product sales occur once control or title is transferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and our performance is completed. Revenues from repairpromotional 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 maintenance activities is recognized whenpromotional allowances based on the repairs are completed and the units have been shipped.Company’s historical experience.
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
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Revenues | $ | 1,866,022 | $ | 2,110,575 | $ | 3,293,985 | $ | 3,812,139 | ||||||||
Revenues - related parties | 205,690 | 290,663 | 416,780 | 564,068 | ||||||||||||
Total Revenues | $ | 2,071,712 | $ | 2,401,238 | $ | 3,710,765 | $ | 4,376,207 |
See further disaggregate revenue disclosures by segment and product type in Note 10.
Cost of Sales
Cost of sales consists of the cost of the components of finished goods, the costs of raw materials utilized in the manufacture of products, 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 Company’s finished products, inventory allowance for excess and obsolete products, and royalties paid on licensing agreements. Components account for the largest portion of the cost of sales. Components include plastic molded parts, gas powered engines, aluminum pressure bottles, electronic parts, batteries and 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
2023 | 2022 | 2023 | 2022 | |||||||||||||
Three months ended June 30 | Six months ended June 30 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Cost of revenues | $ | 1,290,525 | $ | 1,331,847 | $ | 2,361,593 | $ | 2,453,485 | ||||||||
Cost of revenues - related parties | 99,136 | 138,025 | 208,061 | 259,199 | ||||||||||||
Royalties expense - related parties | 15,483 | 17,824 | 25,695 | 30,613 | ||||||||||||
Royalties expense | 41,150 | 50,708 | 75,973 | 94,316 | ||||||||||||
Total cost of revenues | $ | 1,446,294 | $ | 1,538,404 | $ | 2,671,322 | $ | 2,837,613 |
10 |
Lease Accounting
We accountThe Company accounts for leases in accordance with ASC 842, “Leases”. Leases.
The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. The Company elected the practical expedients permitted under the transition guidance of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. The Company did not reassess whether any contracts entered into prior to adoption are leases or contain leases.
We categorizeThe Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow usthe Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. WeThe Company did not have any finance leases as of June 30, 2022. Our2023. The Company’s leases generally have terms that range from three years for equipment and five to twenty years for property. WeThe Company elected the accounting policy to include both the lease and non-lease components of ourits agreements as a single component and account for them as a lease.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.
When we havethe Company has the option to extend the lease term, terminate the lease for the contractual expiration date, or purchase the leased asset, and it is reasonably certain that the Company we will exercise the option, we considerit considers these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
For the three and six months ended June 30, 2023, lease expenses were approximately $82,000 and approximately $133,400, respectively. For the three and six months ended June 30, 2022, the lease expenses were approximately $64,500 and $128,700, respectively, and approximately $43,000104,800 and $78,000, respectively. Cash paid for operating liabilities for the three and six months ended June 30, 2021,2023 was approximately $77,800 and approximately $170,400, respectively. Cash paid for operating liabilities forFor the six months ended June 30, 2022 cash paid for operating liabilities was approximately $128,400 and approximately $32,900 for the six months ended June 30, 2021..
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
Operating Leases | June 30, 2023 | |||||||
(unaudited) | ||||||||
Operating Leases | June 30, 2022 (unaudited) | |||||||
Right-of-use assets | $ | 372,992 | $ | 999,742 | ||||
Current lease liabilities | $ | 214,061 | $ | 275,293 | ||||
Non-current lease liabilities | 159,322 | 728,357 | ||||||
Total lease liabilities | $ | 373,383 | $ | 1,003,650 |
Stock-Based Compensation
We accountThe Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”Compensation-Stock Compensation. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee and non-employee are required to provide service in exchange for the award, usually the vesting period.
The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price.
11 |
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. As of June 30, 2023 the Company did not have any derivative liabilities.
Basic earningsloss per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earningsloss per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. At June 30, 20222023 and June 30, 2021,2022, and and ,shares, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.
Recent accounting pronouncements
ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued andan update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance is effectivewas adopted on January 1, 2023. The Company is evaluating2023 with no effect to the changes from this standard to determine the impact on its consolidated financial statements and related disclosuresstatements.
ASU 2019-12 Income Taxes (Topic 740)2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity.
In December 2019,August 2020, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Income Taxes (“Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU 2019-12”), which is intended to simplify various aspects related tosimplifies accounting for income taxes.convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU 2019-12 removes certain exceptionssettlement conditions that are required for equity contracts to qualify for the general principlesderivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in Topic 740 and also clarifies and amends existing guidance to improve consistent application. Thiscertain areas. The new guidance is effective for fiscal years andbeginning after December 15, 2023, including interim periods within those fiscal years, beginning after December 15, 2020, withand early adoption is permitted. The Company determined thatis currently evaluating the impact of the adoption of the standard has noon the consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on its consolidatedour financial statements and related disclosures.upon adoption or are not applicable.
12 |
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 months ended June 30, 2022,2023, the Company incurred a net loss of $772,754517,766 of which $520,739 is non-cash stock related compensation and shares issued for service.. At June 30, 2022,2023, the Company had an accumulated deficit of $15,317,35916,955,261. Despite a working capital surplus of approximately $1,792,3091,162,452 at June 30, 2022,2023, 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 mightmay be necessary if the Company is unable to continue as a going concern.
Note 4. Related Party Transactions
The Company sells products to BrowniesBrownie’s Southport Divers, BrowniesBrownie’s Yacht Toys and BrowniesBrownie’s Palm Beach Divers, companies owned by the brother of Robert Carmichael, the Company’s PresidentChief Executive Officer 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 12.19.9% and 20.612.1% of the net revenues for the three months ended June 30, 20222023 and June 30, 2021,2022, respectively, and 12.911.2% and 20.912.9% for the six months ending June 30 20222023 and 2021,2023, respectively. Accounts receivable from these entities totaled $72,34459,092 and $75,79253,079, at June 30, 20222023 and December 31, 2021,2022, respectively.
The Company sells products to BGL and 940 A, entities wholly-owned by Robert Carmichael. Terms of sale are more favorable than those extended to the Company’s regular customers, but no more favorable than those extended to the Company’s strategic partners. Accounts receivable from these entities totaled $4468,264 and $1,5092,349 at June 30, 20222023 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.
The Company had accounts payable to related parties of $31,43722,841 and $37,26737,539 at June 30, 20222023 and December 31, 2021,2022, respectively. The balance payable at June 30, 2022 is2023 was comprised of $18,4054,352 due to 940 A, $5,441 due to Robert Carmichael and $10,051.9276, due to 940, LLC and $2,980 to BGL.Blake Carmichael. At December 31, 2021 this account2022, 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 A 2.5% of gross revenues per quarter as a royalty.royalty to 940A. Total royalty expense for the three months ended June 30, 2023 and June 30, 2022 and 2021 werewas $17,82415,483 and $28,03117,824, respectively. For the six months endingended June 30, 2023 and June 30, 2022 and 2021the royalty expense for this entity totaled $30,61325,695 and $39,60630,613, respectively. The accrued royalty for June 30, 20222023 was approximately $11,8007,513 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 $0.021 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 $3,047 made with products in kind during the six months ended June 30, 2023. The outstanding balance on this note was $63,746 as of June 30, 2023.
On January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, a Company director, an aggregate of shares from theunits, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of a warrant at $0.0250.0175 per share in consideration of $250,000200,000.
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On March 31, 2023, the Company issued 1,336. shares of common stock to Robert Carmichael for payment of interest on the convertible demand note for the three months ending March 31, 2023. The fair value of these shares was $
On February 2, 2022,June 30, 2023, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares fromof common stock to Robert Carmichael for payment of interest on the exerciseconvertible demand note for the three months ending June 30, 2023. The fair value of a warrant atthese shares was $0.025 per share in consideration of $15,0001,287.
Note 5. Convertible Promissory Notes and NotesLoans Payable
Convertible Promissory Notes
Convertible promissory notes consisted of the following at June 30, 2022:2023:
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. | |||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (87 | ) | 3,413 | - | (4 | ) | |||||||||||||||||||||
$ | 350,000 | $ | (8,902 | ) | $ | 341,098 | $ | - |
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. | |||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | $ | 346,500 | $ | (4,922 | ) | $ | 341,578 | - | (1 | ) | ||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (52 | ) | 3,448 | - | (2 | ) | |||||||||||||||||||||
9/30/22 | Demand | 8 | % | 66,793 | (19,245 | ) | 63,746 | (14,470 | ) | 49,276 | - | (3 | ) | |||||||||||||||||||||
$ | 413,746 | $ | (19,444 | ) | $ | 394,302 | $ | - |
A breakdown of current and long-term amounts due are broken down as follows for the convertible prommisory notes as of June 30, 2023:
Schedule convertible promisory notes
Summit Holdings V, LLC Note | Tierra Vista Partners, LLC Note | Robert Carmichael Note | Total | |||||||||||||
2023 | $ | - | $ | - | $ | 63,746 | $ | 63,746 | ||||||||
2024 | 346,500 | 3,500 | - | 350,000 | ||||||||||||
Discount | (4,922 | ) | (52 | ) | (14,470 | ) | (19,444 | ) | ||||||||
Total Loan Payments | $ | 341,578 | $ | 3,448 | $ | 49,276 | $ | 394,302 | ||||||||
Current Portion of Loan Payable | $ | - | $ | - | $ | (49,276 | ) | $ | (49,276 | ) | ||||||
Non-Current Portion of Loan Payable | $ | 341,578 | $ | 3,448 | $ | - | $ | 345,026 |
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. |
Schedule of Future Amortization of Notes Payable
Payment Amortization | ||||
2023 (6 months) | $ | - | ||
2024 | 346,500 | |||
Total Note Payments | $ | 346,500 | ||
Current portion of note payable | - | |||
Non-Current Portion of Notes Payable | $ | 346,500 |
On September 3, 2021, the Company issued a three-year 8% promissory note in the principal amount of $3,500 to Tierra Vista Partners, LLC as part of the acquisition of SSI. |
Schedule of Future Amortization of Notes Payable
Payment Amortization | ||||
2023 (6 months) | $ | - | ||
2024 | 3,500 | |||
Total Note Payments | $ | 3,500 | ||
Current portion of note payable | - | |||
Non-Current Portion of Notes Payable | $ | 3,500 |
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(3) | On September 30, 2022, the Company issued a convertible demand 8% promissory note in the principal amount of $66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note and interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day VWAP of the Company’s stock prior to the quarterly interest payment date. This note is classified as a current liability as the note holder may demand payment or convert the outstanding principal at a conversion rate of $0.021 per share at any time. The Company recorded $19,250 for the beneficial conversion feature. |
LoanLoans Payable
Marlin Note
On September 30, 2019 the Company, through its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain plastic molding equipment through Marlin Capital Solutions. The initial principal balance was $96,725 payable in 36 equal monthly installments of $3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was $12,305 as of June 30, 2022.
Schedule of Future Amortization of Loans Payable
Mercedes BMG (1) | Navitas BLU3 (2) | NFS SSI (3) | Navitas 2022 BLU3 (4) | Total | |||||||||||||||||||||
Payment Amortization | |||||||||||||||||||||||||
2022 (6 months remaining) | 12,305 | ||||||||||||||||||||||||
2023 | - | ||||||||||||||||||||||||
2023 (6 months) | $ | 5,583 | $ | 6,929 | $ | 11,567 | $ | 9,572 | $ | 33,651 | |||||||||||||||
2024 | - | 11,168 | 16,629 | 26,279 | 21,228 | 75,304 | |||||||||||||||||||
2025 | - | 8,687 | 18,024 | 12,328 | 23,610 | 62,649 | |||||||||||||||||||
2025 and thereafter | - | ||||||||||||||||||||||||
2026 | - | - | 6,007 | - | - | 6,007 | |||||||||||||||||||
Total Loan Payments | $ | 12,305 | $ | 25,438 | $ | 47,589 | $ | 50,174 | $ | 54,410 | $ | 177,611 | |||||||||||||
Current portion of Loan payable | (12,305 | ) | |||||||||||||||||||||||
Current Portion of Loan Payable | $ | (11,169 | ) | $ | (15,972 | ) | $ | (24,152 | ) | $ | (20,128 | ) | $ | (71,421 | ) | ||||||||||
Non-Current Portion of Loan Payable | $ | - | $ | 14,269 | $ | 31,617 | $ | 26,022 | $ | 34,282 | $ | 106,190 |
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 June 30, 2023 was $25,349 and $31,023 as of December 31, 2022. |
Mercedes Benz Note
On August 21, 2020, the Company executed an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a 2019 Mercedes Benz Sprinter delivery van. The installment agreement was for $55,841 with a zero interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Robert Carmichael. The first payment was due on October 5, 2020. The loan balance as of June 30, 2022 is $37,538.
Schedule of Future Amortization of Loans Payable
Payment Amortization | ||||
2022 (6 months remaining) | $ | 6,825 | ||
2023 | $ | 11,168 | ||
2024 | $ | 11,168 | ||
2025 and thereafter | $ | 8,684 | ||
Total note payments | $ | 37,538 | ||
Current portion of note payable | $ | (11,168 | ) | |
Non-Current Portion of notes payable | $ | 26,370 |
Navitas Note
On May 19, 2021 the Company, through its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable in equal monthly installments of $ (the “Navitas Note”). The equipment finance agreement contains customary events of default. The agreement was fully funded as of September 30, 2021.
Payment Amortization | ||||
2022 (6 months remaining) | 6,139 | |||
2023 | 15,342 | |||
2024 | 16,629 | |||
2025 | 18,204 | |||
2026 | 6,007 | |||
Total Note Payments | $ | 62,141 | ||
Current portion of Note payable | (14,736 | ) | ||
Non-Current Portion of Note Payable | $ | 47,405 |
Alliance Lease
On January 19, 2022, SSI entered into a capital lease with Alliance Funding Group (“lessor”) to secure a new piece of essential equipment for its operations. The lease has a 36 month term with a monthly payment of $3,522. At the end of the lease SSI has the option to purchase the equipment for $3,522 plus applicable taxes. The total purchase price of the equipment was $108,675. The vendor has determined that they are unable to supply the equipment, and the purchase order for this equipment was cancelled in May 2022. The lessor initially funded fifty percent of the purchase price or approximately $54,000 directly to the vendor which the vendor has committed to return once properly instructed by the lessor. This lease was cancelled effective June 29, 2022. For the six months ending June 30, 2022, the Company wrote off approximately $6,300 related to fees for cancellation of this financing.
(2) | On May 19, 2021, BLU3, executed an equipment finance agreement with Navitas Credit Corp. (“Navitas”) to finance the purchase of certain plastic molding equipment. The amount financed is $ payable over equal monthly installments of $ (the “Navitas 1”). The equipment finance agreement contains customary events of default. The loan balance as of June 30, 2023 was $ and $ as of December 31, 2022. |
(3) | On June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement production molds. The total purchase price of the molds was $84,500 of which $63,375 was financed by NFS Leasing on August 15, 2022. The financing agreement has a 33 month term beginning in August 2022 with a monthly payment of $2,571. The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the assets of SSI. The loan balance as of June 30, 2023 and December 31, 2022 was $50,174 and $60,804, respectively. |
(4) | On December 12, 2022, BLU3 executed an equipment finance agreement to finance the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable over equal monthly installments of $ (“Navitas 2”). The equipment finance agreement contains customary events of default. The loan balance as of June 30, 2023 was $ and $ as of December 31, 2022. |
Note 6. Business Combination
Merger with Submersible Systems, Inc.
On September 3, 2020, the Company completed its merger with SSI. Under the terms of the Merger Agreement, the Company paid $1.79 million, consisting of the issuance of shares of its common stock (valued at $1.4 million) and the issuance of 8% unsecured convertible promissory notes in the aggregate principal amount of $350,000 in exchange for all of the equity of SSI. The shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following:
from Closing Date | eligible to be sold or transferred | |
The leak-out restriction may be waived by the Company, upon written request by a Seller, if the Company’s common stock is trading on the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of shares per day; provided, however, that (i) only up to 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer.”
The transaction costs associated with the Merger were $65,000 in legal fees paid in $40,000 in cash, and shares of the Company’s common stock with a fair value of $55,952.
Fair Value of Consideration Transferred and Recording of Assets Acquired
The following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed, including an amount for goodwill:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Common stock, | shares at fair market value$ | 1,449,919 | ||
8% unsecured, convertible promissory note payable to seller | 350,000 | |||
Total purchase price | $ | 1,799,919 | ||
Tangible assets acquired | $ | 1,101,604 | ||
Liabilities assumed | (294,671 | ) | ||
Net tangible assets acquired | 806,933 | |||
Identified Intangible Assets | ||||
Customer relationships | $ | 600,000 | ||
Trademarks | 121,000 | |||
Non-compete agreements | 22,000 | |||
Total intangible assets | 743,000 | |||
Goodwill | $ | 249,986 | ||
Total purchase price | $ | 1,799,919 |
The value of the stock was calculated based on the volume weighted average price (“VWAP”) of a share of the Company’s common stock on the OTC Markets for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term sheet for the Merger or (ii) 180 days prior to the closing date of the Merger, whichever results in a lower VWAP which resulted in a conversion price of $0.051271831 and the issuance of shares of common stock with a fair value of $1,449,919 on the closing date.
Inventory was assessed at the time of closing as to its fair value, and it was determined that a step-up analysis was necessary in order to evaluate the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory is sold. The key assumptions used in this analysis is a gross margin of 38.3% and selling costs of 5.0%, The analysis resulted in a necessary step up of $31,000 at the time of closing.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes.
As of June 30, 2022, the Company recorded an estimated fair value of the intangible assets and goodwill of $992,986 based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
Asset acquisition Gold Coast Scuba, LLC
On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and Live Blue, Inc. Pursuant to the terms of the Asset Purchase Agreement, Live Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
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In consideration for the assets purchased, the Company paid $150,000to the LLC Members. The purchase price was paid by (a) the issuance to the LLC Members of an aggregate of shares of the Company’s common stock (the “Consideration Shares”) with a fair market value of $120,000; and (b) a cash payment of $30,000.
Summary of Holding Period and Shares Eligible Toto Sold
Holding Period from Closing Date | Percentage of shares eligible to be sold or transferred | |||
6 months | Up to | %|||
9 months | Up to | %|||
12 months | Up to | %
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.cash, and are included in the purchase price allocation in the table below.
Fair ValueWhile the agreement was structured as an asset purchase agreement, we also assumed the operations of Consideration TransferredGulf Coast Scuba resulting in the recognition of a business combination. During 2022 we recognized revenue of $212,876 and Recordingnet loss of Assets Acquired$75,579 associated with this business. The business combination was not material for purposes of disclosing pro forma financial information. In connection with this transaction, we recognized the following assets and liabilities:
The following table summarizes the asset acquisition date fair value of the consideration paid, identifiable assets acquired, including an amount for overpayment and transaction fees:
Summary of Asset Acquisition
Book Value | Overpayment Allocation | Transaction Cost Allocation | Fair Value | |||||||||||||
Rental Inventory | $ | 23,408 | $ | 22,156 | $ | 3,038 | $ | 48,602 | ||||||||
Fixed Assets | 24,360 | 23,058 | 3,161 | 50,579 | ||||||||||||
Retail Inventory | 29,292 | 27,726 | 3,801 | 60,819 | ||||||||||||
Total Cost | $ | 77,060 | $ | 72,940 | $ | 10,000 | $ | 160,000 |
Pro Forma Information
The following unaudited pro forma information assumes all business combinations occurred on January 1, 2021. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs.
Schedule of Business Acquisition, Pro Forma Information
Three months ended June 30, 2021 | Six months ended June 30, 2021 | |||||||
Revenue | $ | 2,423,956 | $ | 3,730,805 | ||||
Net Loss | $ | (340,186 | ) | $ | (842,500 | ) | ||
Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Basic and Diluted Weighted Average Common Shares Outstanding | 367,879,407 | 345,331,543 |
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of SSI and the assets of LBI.
Pro Forma Information
The following unaudited pro forma information assumes all business acquisitions occurred on January 1, 2022. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs.
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of Gold Coast Scuba.
Schedule of Business Acquisition, Pro Forma Information
Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||
Revenue | $ | 2,423,956 | $ | 4,452,986 | ||||
Net Loss | $ | (326,829 | ) | $ | (829,143 | ) | ||
Basic and Diluted Loss per Share | $ | (0.00 | ) | $ | (0.00 | ) | ||
Basic and Diluted Weighted Average Common Shares Outstanding | 409,524,075 | 402,146,829 |
Fair Value | ||||
Rental Inventory | $ | 48,602 | ||
Fixed Assets | 50,579 | |||
Retail Inventory | 60,819 | |||
Right of use asset | 29,916 | |||
Lease liability | (29,916 | ) | ||
Net Assets Acquired | $ | 160,000 |
Note 7. Goodwill and Intangible Assets, Net
The following table sets for the changes in the carrying amount of the Company’ Goodwill for the quartersix months ended June 30, 2022.2023.
Summary of Changes in Goodwill
2022 | 2023 | |||||||
Balance, January 1 | $ | 249,986 | $ | 249,986 | ||||
Addition: | - | - | ||||||
Balance, June 30 | $ | 249,986 | $ | 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 six months ended June 30, 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, 2022:2023:
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 | $ | (14,788 | ) | $ | 106,211 | ||||||||||||||||
Customer Relationships | 10 | 600,000 | (50,000 | ) | 550,000 | 10 | 600,000 | (110,000 | ) | 490,000 | ||||||||||||||||||||||
Non-Compete Agreements | 5 | 22,000 | (3,667 | ) | 18,333 | 5 | 22,000 | (8,022 | ) | 13,978 | ||||||||||||||||||||||
Total | $ | 743,000 | $ | (60,354 | ) | $ | 682,655 | $ | 743,000 | $ | (132,811 | ) | $ | 610,189 |
The aggregate amortization remaining on the intangible assets as of June 30, 20222023 is a follows:
Schedule of Estimated Intangible Assets Amortization ExpensesExpense
Intangible Amortization | ||||||||
Intangible Amortization | ||||||||
2022 (6 months remaining) | $ | 36,225 | ||||||
2023 | 72,467 | |||||||
2023 (6 months remaining) | 36,278 | |||||||
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 | $ | 610,189 |
Note 8. Shareholders’Stockholders’ Equity
Common Stock
On January 17, 2022,18, 2023 and February 18, 2023, the Company issued a law firmto Charles Hyatt, an aggregate of sharesunits, with each unit consisting of one share of common stock withand a fair value of $ as part of the agreed upon compensation for a representation agreement.
On January 31, 2022, the Company issued a consultant sharestwo-year common stock purchase warrant to purchase one share of common stock with a fair valueat an exercise price of $4,0000.0175 for consulting services related to the dive industry.
On February 2, 2022, the Company issued Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $250,000200,000.
On February 2, 2022,March 31, 2023, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares fromof common stock to Robert Carmichael for payment of interest on the exerciseconvertible demand note for the three months ending March 31, 2023. The fair value of a warrant atthese shares was $0.025 per share in consideration of $15,0001,336.
On February 28, 2022,March 31, 2023, the Company issued a consultant,an aggregate of shares of common stock with a fair value of $4,000 for consulting services related to the dive industry.
On May 3, 2022, the Company issued shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC with a fair value of $120,000.
On May 31, 2022, the Company issued a consultant, shares of common stock with a fair value of $12,000 for consulting services related to the dive industry.
As of June 30, 2022, the Company issued shares of common stock to the holders of convertible notes for payment of interest through June 30,for the three months ending December 31, 2022. The fair value of these shares werewas $23,0487,000.
On June 17, 2022,30, 2023, the Company issued shares of common stock to an employee as a retirement gift.Robert Carmichael for payment of interest on the convertible demand note for the three months ending June 30, 2023. The fair value of this stockthese shares was $11,0601,326.
On June 30, 2023, the Company issued an aggregate of 7,000. shares of common stock to the holders of convertible notes for payment of interest for the three months ending June 30, 2023. The fair value of these shares was $
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 ourthe Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. In April 2011, the Board of Directors designated shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share held. The Company’s common stock and Series A Convertible Preferred Stock vote together as on any matters submitted to our shareholders for a vote.shareholders. As of June 30, 2022,2023, and December 31, 2021,2022, the shares of Series A Convertible Preferred Stock are owned by Robert Carmichael. shares of blank check preferred stock. The blank check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by
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Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. shares are reserved for issuance under the Plan. The term of the Plan is ten years.
The Company also issued options outside of the Plan that were not approved by the security holders. These options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options.
Schedule of Equity Compensation Plan Information
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted – average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a) (c) | ||||||||||
Equity Compensation Plans Approved by Security Holders | 3,592,647 | $ | .0401 | 21,407,353 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 3,592,647 | $ | .0401 | 21,407,353 |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted – average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a) (c) | ||||||||||
Equity Compensation Plans Approved by Security Holders | 3,319,118 | $ | 0.0401 | 21,680,882 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | 105,971,520 | 0.0258 | — | |||||||||
Total | 109,290,638 | $ | 0.0262 | 21,680,882 |
Options
On April 14, 2020, theThe Company entered into a Non-Qualified Stock Option Agreement with Robert Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation, the Company granted Mr. Carmichael an option (the “Carmichael Option”)has issued options to purchase up to an aggregate ofapproximately shares of the Company’sits common stock at an average exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael onwith a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto.
The fair value of the Carmichael Option on the date of the grant wasapproximately $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met. As of December 31, 2021, of options were vested as the targeted net revenues were reached and three quarters of Tranche 2 was also met and fully expensed through December 31, 2021. For the three months ended June 30, 2022 the Company revenues reached the target revenues for Tranche 2, and an additional shares of the option vested. Stock option expense recognized during the three and six months ended June 30, 2022 for this option was $ and $, respectively.
On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. As part of the Constable Option Agreement, the Company granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
As part of the Constable Option Agreement, the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for four years.
The fair value of the Bonus Options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met, and as of June 30, 2022, it was deemed that the Company met the qualifications for four quarters for Tranches 1 and 2 $ . For the three and six months ended June 30, 2022,2023, the Company recognized $issued and $, respectively.options to purchase shares.
OnFor the three months ended June 14, 2021,30, 2023 and 2022, the Company issued options to purchase up torecognized an aggregateexpense of approximately $ sharesand $ , respectively and for the six months ended June 30, 2023 and 2022, the Company recognized an expense of common stock to various employees underapproximately $ and $ , respectively, of non-cash compensation expense (included in General and Administrative expense in the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $ per share foraccompanying Consolidated Statement of Operations) determined by application of a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk freeinputs: exercise price, dividend yields, risk-free interest rate, of %, (ii)and expected lifeannual volatility. As of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
On August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below),2023, the Company granted Blake Carmichael a had approximately $ optionof 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 sharesyears. The Company 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 of a vesting qualification being met, and will establish the expense based on that evaluation. The maximum contractual term of the Company’s common stock at an exercise price of $options is , (the “BC Compensation Options”). The BC Compensation Options vested The fair value of the options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %.years. The Company expensed $ recognizes forfeitures and expirations 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 optionthey occur. Options to purchase up toapproximately shares of common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the BC Bonus Options was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %, and (v) exercise price of per share. The Company analyzed the likelihood that the vesting qualifications would be met, andhave vested as of June 30, 2022, it was deemed that it was likely that shares would be issued at the end of the first year, and accordingly was fully expensed as of December 31, 2021. For the three and six months ended June 30, 2022 there were no material changes to vesting qualifications and no stock option expense was recognized.2023.
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During
On September 3, 2021, the Company issued options to purchase up to an aggregate of shares of common stock under the Plan to Christeen Buban, President of SSI. The options were issued pursuant to the Buban Employment Agreement and a stock option grant agreement and are exercisable at $ per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
In connection with the Buban Employment Agreement, the Company granted Ms. Buban that will grant Ms. Buban a five-year option (the “Buban Bonus Option”) to purchase up to shares ofis affected by the Company’s common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the Buban Bonus Option was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %, and (v) exercise price of $ per share. The measurement period for the Buban Bonus Option began on September 3, 2021. The Company analyzed the likelihood that vesting qualifications would be met during the contract year and deemed that there was no option expense to be recognized for the six months ended June 30, 2022.
On September 3, 2021 the Company issued options to purchase up to an aggregate of shares of common stock to various employees of SSI under the Plan. The options were issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of four years from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
During the fourth quarter of 2021, the Company issued options to purchase up to an aggregate of shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $ to $ per share for a period of of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
On November 5, 2021, the Company entered into a non-qualified stock option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable an immediately exercisable five-year option to purchase shares of the Company’s common stock at an exercise price of $ (the “Compensation Option”). The fair value of the Compensation Option on the date of grant as well as assumptions regarding the grant was $following:
98,976 using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rateSchedule of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Compensation Option was fully expensed as of December 31, 2021.
Six Months ended June 30, | ||||||||
2023 | 2022 | |||||||
Expected volatility | % - | % | – | % | ||||
Expected term | – Years | – Years | ||||||
Risk-free interest rate | % - | % | % - | % | ||||
Forfeiture rate | % | % |
On January 21, 2022,The expected volatility was determined with reference to the historical volatility of the Company’s stock. The Company issueduses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options to purchase up to an aggregate of shares of common stock to an employee undergranted represents the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $ per share for a period of fromtime that options granted are expected to be outstanding. The risk-free interest rate for periods within the date of issuance, with quarterly vesting periods over . The fair valuecontractual life of the options totaled $ usingoption is based on the Black-Scholes option pricing model withU.S. Treasury rate in effect at the following assumptions: (i) risk free interest ratetime of % (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
During the three months ended June 30, 2022, the Company issued options to purchase up to an aggregate of shares of common stock to three employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $ to $ per share for a period of of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate ranging from % to % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
On April 8, 2022, the Company issued an option to purchase up to shares of common stock to one contractor under the Plan. The option was issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of of from the date of issuance. The options vested immediately. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.
On May 16, 2022, the Company issued an option to purchase up to shares of common stock to one employee under the Plan. The option was issued pursuant to a stock option grant agreement and is exercisable at $ per share for a period of four years of from the date of issuance, with quarterly vesting periods over three quarters. The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three and six months ended June 30, 2022 was $ and $, respectively.grant.
Schedule of Outstanding Stock Option Activity
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of Options | Exercise Price | Contractual Life in Years | Intrinsic Value | |||||||||||||
Outstanding at December 31, 2021 | 233,128,266 | $ | 0.0362 | |||||||||||||
Granted | 5,710,901 | 0.0281 | ||||||||||||||
Forfeited | (400,000 | ) | 0.0354 | |||||||||||||
Exercised | - | - | ||||||||||||||
Cancelled | - | |||||||||||||||
Outstanding – December 31, 2022 | 238,439,167 | $ | 0.0360 | |||||||||||||
Exercisable – December 31, 2022 | 111,558,754 | $ | 0.0321 | $ | 68,994 | |||||||||||
Granted | - | - | ||||||||||||||
Forfeited | (129,148,529 | ) | 0.0443 | |||||||||||||
Exercised | - | - | ||||||||||||||
Cancelled | - | - | ||||||||||||||
Outstanding – June 30, 2023 | 109,290,638 | $ | 0.0262 | |||||||||||||
Exercisable – June 30, 2023 | 57,877,504 | $ | 0.0217 | $ | 36,983 |
ScheduleSummary of Option ActivityExercise Price of Employee Stock Options Outstanding
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding – December 31, 2021 | 233,128,266 | $ | 0.0362 | $ | 795,201 | |||||||||||
Granted | 1,592,647 | 0.0353 | ||||||||||||||
Forfeited | (125,000 | ) | ||||||||||||||
Exercised | - | - | ||||||||||||||
Outstanding – June 30, 2022 (unaudited) | 234,595,913 | $ | 0.0362 | |||||||||||||
Exercisable – June 30, 2022 (unaudited) | 105,200,664 | $ | 0.0322 | $ | 1,022,422 |
Range of Exercise Price | Number outstanding at June 30, 2023 | Weighted average remaining life | Weighted average exercise price | Number exercisable at June 30, 2023 | Weighted average exercise price | Weighted average remaining life | |||||||||||||||||||
$ | - $ | 70,730,020 | $ | 0.0182 | 45,730,020 | $ | 0.0181 | ||||||||||||||||||
$ | - $ | 5,018,254 | $ | 0.0267 | 4,993,254 | $ | 0.0267 | ||||||||||||||||||
$ | - $ | 25,457,364 | $ | 0.0398 | 6,179,230 | $ | 0.0395 | ||||||||||||||||||
$ | - $ | 8,085,000 | $ | 0.0529 | 975,000 | $ | 0.0520 | ||||||||||||||||||
Outstanding options | 109,290,638 | 0.0262 | 57,877,504 | 0.0217 |
At June 30, 2023, there was approximately $ of unrecognized stock option expense which may be recognized only if the full vesting requirements for these options are met.
At June 30, 2023, there was approximately $ of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of years.
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Warrants
On September 1, 2021,January 18, 2023 and February 18, 2023, the Company issued to Charles F. Hyatt, a director,an aggregate of units, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $0.0250.0175 per share in consideration of $250,000200,000.
On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of Charles Hyatt, units, each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $0.025 per share in consideration of $15,000.
In September, 2021, the Company issued units to three accredited investors, each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at $0.025 per share in consideration of $100,000.
On February 2, 2022, the Company issued Charles Hyatt, a director, shares of common stock upon the exercise of a warrant at $0.025 per share in consideration of $250,000.
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares of common stock upon the exercise of a warrant at $0.025 per share in consideration of $15,000.
A summary of the Company’s warrants as of December 31, 20212022 and changes during the six months ended June 30, 20222023 is presented below:
Schedule of WarrantsWarrant Activity
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding – December 31, 2021 | 14,600,000 | $ | 0.025 | $ | 153,300 | |||||||||||||||||||||||||||
Outstanding – December 31, 2022 | 18,255,951 | $ | 0.0245 | $ | 12,000 | |||||||||||||||||||||||||||
Granted | 11,428,570 | $ | 0.0175 | |||||||||||||||||||||||||||||
Exercised | (10,600,000 | ) | $ | 0.025 | - | |||||||||||||||||||||||||||
Forfeited or Expired | - | - | ||||||||||||||||||||||||||||||
Outstanding – June 30, 2022 | 4,000,000 | $ | 0.025 | |||||||||||||||||||||||||||||
Exercisable – June 30, 2022 | 4,000,000 | $ | 0.025 | 1.19 | $ | 56,000 | ||||||||||||||||||||||||||
Outstanding – June 30, 2023 | 29,684,521 | $ | 0.0247 | |||||||||||||||||||||||||||||
Exercisable – June 30, 2023 | 29,684,521 | $ | 0.0247 | 1.27 | $ | 24,000 |
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%10.76% of annual operating expenses (common areas maintenance), which was approximately $2,000 per month subject to periodic adjustment. On December 1, 2016, the Company entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extendingwhich extended the term of the lease for an additional eighty-four months expiringuntil September 30, 2024. The base rent was increased to $4,626 per month with a 3%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%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%3% per year during the term of the lease plus Florida state sales tax and 10.11%10.11% of the buildings annual operating expenses (common area maintenance) which is approximately $1,679 per month, subject to adjustment as provided in the lease.
Royalty Agreement
On June 30, 2020, the Company entered into Amendment No. 2 to its Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendmentAmendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $60,000, or $15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.15%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 thisthe Agreement was $50,70841,150 and $41,25150,708 for the three months ended June 30, 2023 and 2022, and 2021, respectively, and $94,316 and $54,955 forrespectively. For the six months ended months ended June 30, 2023 and 2022 royalty recorded under the Agreement was $75,973and 2021,$94,316, 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.
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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 servesserved 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 receivereceived (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 Constable Employment Agreement and on each anniversary of the date of the Agreement during the term,thereof, a non-qualified immediately exercisable five-year option to purchase that number of shares equal to $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the Company’s common stock on the date of issuance. Accordingly, on November 5, 2020, Mr. Constable was issued an option to purchase shares of the common stock at an exercise price of $ per share, and on November 5, 2021, Mr. Constable was issued an option to purchase shares of the Company’s common stock at an exercise price of $ per share and on November 5, 2022, Mr. Constable was issued an option to purchase shares of the Company’s common stock at an exercise price of $ per share.
In addition, Mr. Constable shall bewas entitled to receive stock options to purchase shares of common stock at an exercise price equal toof $ per share in the following amounts based upon the following performance milestones during the term of the Constable Employment Agreement: (i) shares, – if the Company’s total net revenues, as reported in its statement of operations in its financial statements in its filings with the SEC, including as a result of a stock or asset acquisition of a third party (“Net Revenues”) are in excess of $5,000,000, in the aggregate, for four consecutive fiscal quarters; (ii) shares, – if the Company’s Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) shares, – if the Company’s Net Revenues are in excess of $10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) shares, – if the Company’s common stock is listed on the NASDAQ or New York Stock Exchange.
On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued shares of its common stock valued at $ to BGM Equity Partners. The agreement expired on March 1, 2022.
On August 1, 2021, the Company and Blake Carmichael entered into a three-year employment agreement (the “Blake Carmichael Employment Agreement”) pursuant to which Mr. Carmichael shall serveserved as Chief Executive Officer of BLU3. In consideration for his services, Blake Carmichael shall receivereceived (i) an annual base salary of $120,000, payable in accordance with the customary payroll practices of the Company, and (ii) a cash bonus equal to 5% of the net income of BLU3, payable quarterly, beginning with the first full calendar quarter after the execution of the agreement.agreement, and (iii) upon execution of the Carmichael Employment Agreement, a non-qualified stock option to purchase shares at $ , .
In addition, Blake Carmichael shall be entitled to receive a stock option to purchase up to shares of common stock at an exercise price of $ per share that will vest upon annual financial metrics based upon a revenue measurement, expediency measurement and an EBITDA measurement.
On August 6, 2021, the Company entered into a six-month, non-exclusive mergers and acquisitions services agreement with Newbridge Securities Corporation which provides for a 7% commission A measurement was made for the first $2,000,000 paidthree and six months ended June 30, 2023 resulting in aggregate purchase price consideration and on an aggregate purchase price in excess of $2,000,000 for any merger or acquisition target sourced by Newbridge, to be paid in common stock ofno additional expense since the Company. Such agreement expired by its terms.vesting criteria was not met.
On September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”) pursuant to which Ms. Buban shall serve as the President of SSI. In consideration for her services, Mrs. Buban shall receive (i) an annual base salary of $110,000, payable in accordance with the customary payroll practices of the Company, (ii) a car allowance and cell phone allowance of $ per year, (iii) a -year option issued under the Plan to purchase shares of common stock of the Company at $ per share, which option vests quarterly over the eight calendar quarters.
In addition, Mrs. Buban shall be entitled to receive a Agreement,Agreement. A measurement was made for the three and six months ended June 30, 2023 and no expense was recorded based upon the vesting criteria not being met. stock option to purchase up to shares of common stock of the Company at an exercise price of $ per share, which vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment
21 |
On January 17, 2022, the Company entered into an agreement with The Crone Law Group, PC (“CLG”) for the provision of legal services. In consideration therefor, the Company will pay CLG a monthly flat fee of $3,000 per month for the SEC reporting work and its normal hourly rate for any other legal work and issued shares of common stock with a fair market value of $ to CLG.
On May 2, 2022, the Company entered into a two-year employment agreement with Steven Gagas (the “Gagas Employment Agreement”) pursuant to which Mr. Gagas shall serve as the General Manager of the dive shop currently operating within LBI. In consideration for his services Mr. Gagas shall receive an annual salary of $50,000.
On May 2, 2022, LBI, entered into a lease assignment agreement with Gold Coast Scuba, LLC and Vicnsons Realty Group, LLC whereby LBI is the assignee to the remainder of thea three year lease for the property located at 259 Commercial Blvd,Blvd., Suites 2 and 3 in Lauderdale-By-The Sea, Florida. The lease is in its third year of a three year term and has aFlorida for $2,816 per month base rent. The lease provides anexpired on March 31, 2023 and LBI is currently renting on a month to month basis. LBI has the option to renew the lease for an additionala two year term of two years with an increase of base rent of 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 $3.5%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 and six months ended June 30, 2023 the Company repaired and returned 133 and 653 units, respectively, to customers resulting in a reduction of the reserve of $18,975 and $93,161 for the three and six months ended June 30, 2023, respectively.
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. | ||
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 |
22 |
Three Months Ended
June 30
(unaudited)
June 30
(unaudited)
Schedule of Segment Reporting Information
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 | $ | 797,022 | $ | 976,973 | $ | 270,193 | $ | 207,565 | $ | 884,271 | $ | 528,380 | $ | 399,479 | $ | - | $ | 50,274 | $ | - | $ | 2,401,238 | $ | 1,712,918 | $ | 607,927 | $ | 797,022 | $ | 340,606 | $ | 270,193 | $ | 586,420 | $ | 884,271 | $ | 479,508 | $ | 399,479 | $ | 57,251 | $ | 50,274 | $ | 2,071,712 | $ | 2,401,239 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | (479,145 | ) | (558,426 | ) | (240,254 | ) | (140,248 | ) | (376,469 | ) | (570,027 | ) | (313,568 | ) | (255,568 | ) | (36,858 | ) | (14,136 | ) | (1,446,294 | ) | (1,538,405 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit | 238,596 | 308,727 | 129,945 | 94,066 | 314,244 | 194,516 | 143,911 | - | 36,138 | - | 862,834 | 597,309 | 128,782 | 238,596 | 100,352 | 129,945 | 209,951 | 314,244 | 165,940 | 143,911 | 20,393 | 36,138 | 625,418 | 862,834 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 4,369 | 4,748 | - | - | 4,478 | 2,419 | 24,096 | - | - | - | 32,943 | 7,167 | 4,729 | 4,369 | - | - | 7,865 | 2,419 | 28,927 | 24,096 | 3,314 | - | 44,835 | 30,884 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income from Operations | $ | (334,967 | ) | $ | (314,279 | ) | $ | 41,705 | $ | 40,224 | $ | 17,461 | $ | (41,248 | ) | $ | (46,576 | ) | $ | - | $ | 3,237 | $ | - | (319,140 | ) | (315,303 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation/Amortization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from Operations | $ | (34,970 | ) | $ | (334,967 | ) | $ | (21,006 | ) | $ | 41,705 | $ | (91,408 | ) | $ | (41,248 | ) | $ | 1,052 | $ | (46,575 | ) | $ | (23,529 | ) | $ | 3,237 | (169,860 | ) | (377,848 | ) |
Six Months Endedmonths 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 | $ | 1,063,307 | $ | 1,378,131 | $ | 575,486 | $ | 547,010 | $ | 1,063,335 | $ | 1,678,858 | $ | 872,484 | $ | 721,935 | $ | 136,153 | $ | 50,274 | $ | 3,710,765 | $ | 4,376,208 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | ) | (896,959 | ) | (1,020,384 | ) | (364,440 | ) | (301,039 | ) | (720,985 | ) | (986,985 | ) | (601,308 | ) | (515,070 | ) | (87,630 | ) | (14,136 | ) | (2,671,322 | ) | (2,837,614 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Gross Profit | 357,747 | 404,944 | 245,971 | 163,016 | 691,873 | 340,321 | 206,865 | - | 36,138 | - | 1,538,595 | 908,281 | 166,348 | 357,747 | 211,046 | 245,971 | 342,350 | 691,873 | 271,176 | 206,865 | 48,523 | 36,138 | 1,039,443 | 1,538,594 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 8,739 | 8,560 | - | - | 8,956 | 4,836 | 49,107 | - | - | - | 66,802 | 13,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation/Amortization | 8,642 | 8,739 | - | - | 12,908 | 8,956 | 58,093 | 49,107 | 4,922 | - | 84,566 | 66,802 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (704,557 | ) | $ | (758,430 | ) | $ | 82,164 | $ | 49,590 | $ | 34,223 | $ | 14,060 | $ | (168,105 | ) | $ | - | $ | 3,237 | $ | - | (753,038 | ) | $ | (694,780 | ) | $ | (149,245 | ) | $ | (704,557 | ) | $ | 8,316 | $ | 82,164 | $ | (194,618 | ) | $ | 34,223 | $ | (103,208 | ) | $ | (168,105 | ) | $ | (43,829 | ) | $ | 3,237 | (482,582 | ) | $ | (753,038 | ) | |||||||||||||||||||||||||||||||||||||
- | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 1,339,775 | $ | 1,535,945 | $ | 358,399 | $ | 540,583 | $ | 848,141 | $ | 1,236,449 | $ | 2,534,619 | $ | 1,825,787 | $ | 229,347 | $ | 260,247 | $ | 5,310,281 | $ | 5,399,011 |
Note 11. Subsequent Events
Alliance Lease
On June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement production molds. The total purchase price24, 2023, Christopher Constable submitted his resignation as Chief Executive Officer of the molds was $84,500Company effective July 7, 2023. Mr. Constable will remain a member of the Company’s Board of Directors and $63,375 was financed by NFS Leasing on August 15, 2022. The lease hasin a 33 month term beginning in August 2022consulting capacity until further notice. Mr. Constable’s resignation did not arise from any disagreement 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 ofany matter relating to the assets of SSI.Company’s operations, policies or practices.
Robert Carmichael, the Company’s Chairman, President and Chief Financial Officer, assumed the position of Chief Executive Officer on July 7, 2023. Since April 2004, Mr. Carmichael has served as Chairman and President, and from April 2004 until November 2020, as Chief Executive Officer. Mr. Carmichael has served as Chief Financial Officer since 2017 and a director since 2005.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Overview
The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products in the United States and internationally.
The Company has five subsidiaries focused on various sub-sectors:
● | Brownie’s Third Lung - Surface Supplied Air (“SSA”) | |
● | BLU3, Inc. - Ultra-Portable Tankless Dive Systems | |
● | LW Americas - High Pressure Gas Systems | |
● | Submersible Systems, Inc. - Redundant Air Tank Systems | |
● | Live Blue, Inc. – Guided Tours and Retail |
Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, a manufacturing facility in Huntington Beach, California, and a retail facility in Lauderdale-By-The-Sea, Florida.
The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based self-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems and acts assystems. In addition, the Company is the exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas markets. The Company is also building a guided tour operation that also includeincludes dive retail. Lastly, The Company is the exclusive United States and Caribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa.
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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, 20222023 Compared to Three Months Ended June 30, 20212022
Net revenues increased 37.2%decreased 13.7% for the three months ended June 30, 20222023 as compared to the three months ended June 30, 20212022 as a result of a 67.4% increasedecrease in revenues in BTL and BLU3. The revenue decrease for BLU3 Inc. fromwas 33.7% and can be directly attributed to the continued expansionrecall of its customer basethe NOMAD dive system during the fourth quarter of 2022. The sales loss can be attributed to a loss in sales momentum due to the recall, as well as a soft demand in many areas of BLU’s market. We believe that BTL’s revenue reduction of 23.7% can be attributed to consumer concerns about the additioneconomy. While the first five months of NOMAD to its product line, anthe year are traditionally a slow selling period for BTL, economic uncertainties compounded the seasonal change. The loss of revenue in BLU3 and BTL was partially offset by increased revenue in LWA and SSI. The increase in LWA’s revenues of 30.2%revenue can be attributed to sales to the Company’s new distribution partner in Mexico as a resultwell as increased business in the scuba sector. SSI’s increase can be attributed to the continued momentum of the expansionCompany’s newest product, HEED3 as well as increased demand from international users of its customer base and the addition of both SSI and LBI revenue which did not exist in 2021. their Spare Air product line.
For the three months ended June 30, 2022,2023, cost of net revenues was 64.1%69.8% as compared with the cost of net revenues of 65.1%64.1% for the three months ended June 30, 2021.2022. 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%%13.1% for the three months ended June 30, 20222023 as compared to the three months ended June 30, 2021. Gross profit margin was 35.9% for the three months ended June 30, 2022 as compared to gross profit margin of 34.9% for the three months ended June 30, 2021. The slight improvement in gross margin, of 1.0% as it relates to revenue is a result of the production of more finished products, reducing direct labor cost per unit, primarily in LWA and the addition of LBI with margins of 71.9% for the three months ended June 30, 2022.
Gross profit margin was 30.2% for the three months ended June 30, 2023 as compared to gross profit margin of 35.9% for the three months ended June 30, 2022. The reduction in gross margin, is directly attributable to BTL’s margin of 21.2% and LWA’s margin of 29.5%.
Six Months Ended June 30, 20222023 Compared to Six Months Ended June 30, 20212022
Net revenues increased 64.3%decreased 15.2% for the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021. This increase is2022 as a result of a 94.5% increasedecrease in revenues in BTL and BLU3. The revenue decrease for BLU3 Inc. fromwas 36.7% and can be directly attributed to the continued expansionrecall of its customer basethe NOMAD dive system during the fourth quarter of 2022. The sales loss can be attributed to the slow ramp in production while repairing recalled units as well as the additionloss of NOMADsales momentum due to its product line, anthe recall. Both BLU3 and BTL’s sales showed weakness due to soft demand at the distribution levels as we believe their customer base was in a conservative posture over concerns for the US and world economy. BTL’s revenue decreased 22.8% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.. The loss of revenue in BLU3 and BTL was partially offset by increased revenue in LWA and SSI. The increase in LWA’s, revenues of 52.9%can be attributed to sales to the Company’s new distribution partner in Mexico as a resultwell as increased business in the scuba sector. SSI’s increase can be attributed to the continued momentum of the expansionCompany’s newest product, HEED3 as well as increased demand from international users 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. their Spare Air product line.
25 |
For the six months ended June 30, 2022,2023, cost of net revenues was 64.8%72.0% as compared with the cost of net revenues of 65.9%64.8% for the six months ended June 30, 2021.2022. 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 a third partyRobert Carmichael which increased 71.6%decreased 16.1% for the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021. 2022.
Gross profit margin was 28.0% for the six months ended June 30, 2023 as compared to gross profit margin of 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, 2021.2022. The slight improvementreduction in gross margin is directly attributable to reduced margins across all companies primarily attributed to reduced sales volume thereby increasing the weight 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.manufacturing labor negatively impacting gross margin.
The following tables provides net revenues, total costs of net revenues and gross profit margins for our segments for the periods presented.
Net Revenues
Three Months Ended June 30, | % of | Six Months Ended June 30, | % of | Three Months Ended June 30, | % of | Six Months Ended June 30, | % of | |||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | 2023 | 2022 | Change | 2022 | 2021 | Change | |||||||||||||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||
Legacy SSA Products | $ | 797,022 | $ | 976,973 | (18.4 | )% | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | $ | 607,927 | $ | 797,022 | (23.7 | )% | $ | 1,063,307 | $ | 1,378,131 | (22.8 | )% | ||||||||||||||||||||||||
High Pressure Gas Systems | 270,193 | 207,565 | 30.2 | % | 547,010 | 357,693 | 52.9 | % | 340,606 | 270,193 | 26.1 | % | 575,486 | 547,010 | 5.2 | % | ||||||||||||||||||||||||||||||||
Ultra-Portable Tankless Dive Systems | 884,271 | 528,380 | 67.4 | % | 1,678,858 | 862,978 | 94.5 | % | 586,420 | 884,271 | (33.7 | )% | 1,063,335 | 1,678,858 | (36.7 | )% | ||||||||||||||||||||||||||||||||
Redundant Air Tank Systems | 399,479 | - | 100.0 | % | 721,935 | - | 100.0 | % | 479,508 | 399,479 | 20.0 | % | 872,484 | 721,935 | 20.9 | % | ||||||||||||||||||||||||||||||||
Guided Tour Retail | 50,274 | - | 100.0 | % | 50,274 | - | 100.0 | % | 57,251 | 50,274 | 13.9 | % | 136,153 | 50,274 | 170.8 | % | ||||||||||||||||||||||||||||||||
Total net revenues | $ | 2,401,238 | $ | 1,712,918 | 37.2 | % | $ | 4,376,207 | $ | 1,955,317 | 64.3 | % | $ | 2,071,712 | $ | 2,401,238 | (13.7 | )% | $ | 3,710,765 | $ | 4,376,207 | (15.2 | )% |
Cost of revenues as a percentage of net revenues
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Legacy SSA Products | 70.1 | % | 68.4 | % | 74.0 | % | 71.9 | % | 78.8 | % | 70.1 | % | 84.4 | % | 74.0 | % | ||||||||||||||||
High Pressure Gas Systems | 51.9 | % | 54.7 | % | 55.0 | % | 54.4 | % | 70.5 | % | 51.9 | % | 63.3 | % | 55.0 | % | ||||||||||||||||
Ultra-Portable Tankless Dive Systems | 64.5 | % | 63.2 | % | 58.8 | % | 60.6 | % | 64.2 | % | 64.5 | % | 67.8 | % | 58.8 | % | ||||||||||||||||
Redundant Air Tank Systems | 64.0 | % | - | 71.4 | % | - | 65.4 | % | 64.0 | % | 68.9 | % | 71.4 | % | ||||||||||||||||||
Guided Tour Rental | 28.1 | % | - | 28.1 | % | - | 64.4 | % | 28.1 | % | 64.4 | % | 28.1 | % |
Gross profit (loss) margins
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Legacy SSA Products | 31.6 | % | 31.6 | % | 26.0 | % | 28.1 | % | 21.2 | % | 29.9 | % | 15.6 | % | 26.0 | % | ||||||||||||||||
High Pressure Gas Systems | 45.3 | % | 45.3 | % | 45.0 | % | 45.6 | % | 29.5 | % | 48.1 | % | 36.7 | % | 45.0 | % | ||||||||||||||||
Ultra-Portable Tankless Dive Systems | 36.8 | % | 36.8 | % | 41.2 | % | 39.4 | % | 35.8 | % | 35.5 | % | 32.2 | % | 41.2 | % | ||||||||||||||||
Redundant Air Tank Systems | 36.0 | % | - | 28.7 | % | - | 34.6 | % | 36.0 | % | 31.1 | % | 28.6 | % | ||||||||||||||||||
Guided Tour Rental | 71.9 | % | - | 71.9 | % | - | 35.6 | % | 71.9 | % | 35.6 | % | 71.9 | % |
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SSA Products segment
Net revenue in this segmentRevenues decreased 4.1%22.8% for the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021.2022. The decrease in revenue can be primarily attributed to a 5.4% decrease inboth the dealer segmentand direct to consumer revenue channels decreasing 32.4% and 14.0% for the six months ended June 30, 2023 and June 30, 2022, respectively. This decrease may likely be attributable to economic concerns that were lingering from late 2022. Our dealers have indicated that they were taking a conservative approach in the offseason to conserve cash for the season. BTL was able to stimulate some demand during the six months ended June 30, 2023 with a discounting program. Affiliate sales, while the smallest segment of revenue increased 64.3% for the six months ended June 30, 2023 as compared to the same period in 2021. The decrease in dealer orders can be attributed to the 23.2% drop for the threesix 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, 2022 as compared to the three months ended June 30, 2021 remain 32.2% over the six month results at June 30, 2022. Direct to consumer sales have also decreased for the six months ending June 30, 2022 as compared to the same period in 2021 we believe due to concerns over the economy.
OurThe costs of revenues as a percentage of net revenues in this segment increased from 71.9%74.0% to 74.0%84.4% for the six months ended June 30, 20222023 compared to the six months ended June 30, 20212022 due to a decrease in margins in the negative margin forDirect to Consumer and Dealer revenue channels, as a result of the affiliate sales channel.discounting to stimulate revenue.
A breakdown of the revenue channels for this segment are below. Direct to Consumer representrepresents items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we haveunder dealer agreements thatwhich typically operate with the lowers margin.have lower margins. Affiliates are resellers of our products that arewith which we do not in ahave formal dealer arrangement.arrangements.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % change | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||
Dealers | $ | 510,902 | $ | 664,928 | (23.2 | )% | 73.4 | % | 77.7 | % | 26.6 | % | 22.3 | % | ||||||||||||||
Direct to Consumer (website included) | 258,899 | 273,430 | (5.3 | )% | 57.7 | % | 45.1 | % | 42.3 | % | 54.9 | % | ||||||||||||||||
Affiliates | 27,221 | 38,615 | (29.5 | )% | 156.9 | % | 74.3 | % | (56.9 | )% | 25.7 | % | ||||||||||||||||
Total | $ | 797,022 | $ | 976,973 | (18.4 | )% | 71.1 | % | 68.4 | % | 28.9 | % | 31.6 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | 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 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||
Dealers | $ | 868,755 | $ | 918,467 | (5.4 | )% | 78.2 | % | 78.7 | % | 21.8 | % | 21.3 | % | $ | 322,286 | $ | 510,902 | (36.9 | )% | 92.3 | % | 73.4 | % | 7.7 | % | 26.6 | % | ||||||||||||||||||||||||||||
Direct to Consumer (website included) | 461,534 | 484,102 | (4.7 | )% | 63.3 | % | 58.9 | % | 36.7 | % | 41.1 | % | 258,570 | 258,899 | (0.1 | )% | 52.4 | % | 57.7 | % | 47.6 | % | 42.3 | % | ||||||||||||||||||||||||||||||||
Affiliates | 47,842 | 40,447 | 18.3 | % | 120.8 | % | 74.5 | % | (20.8 | )% | 25.5 | % | 27,071 | 27,221 | (0.6 | )% | 169.9 | % | 156.9 | % | (69.9 | )% | (56.9 | )% | ||||||||||||||||||||||||||||||||
Total | $ | 1,378,131 | $ | 1,443,016 | (4.5 | )% | 74.0 | % | 71.9 | % | 26.0 | % | 28.1 | % | $ | 607,927 | $ | 797,022 | (23.7 | )% | 78.8 | % | 66.0 | % | 21.2 | % | 34.0 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2023 | Six months ended June 30, 2022 | % change | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | ||||||||||||||||||||||
Dealers | $ | 587,658 | $ | 868,755 | (32.4 | )% | 95.5 | % | 78.2 | % | 4.5 | % | 21.8 | % | ||||||||||||||
Direct to Consumer (website included) | 397,057 | 461,534 | (14.0 | )% | 63.9 | % | 63.3 | % | 36.1 | % | 36.7 | % | ||||||||||||||||
Affiliates | 78,592 | 47,842 | 64.3 | % | 104.1 | % | 120.8 | % | (4.1 | )% | (20.8 | )% | ||||||||||||||||
Total | $ | 1,063,307 | $ | 1,378,131 | (22.8 | )% | 84.4 | % | 74.0 | % | 15.6 | % | 26.0 | % |
27 |
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors increased 52.9% in5.2% for 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% for the three months ended June 30, 2022 as compared to the same period in the prior year, showed an overall increase of 25.9% for2023 from the six months ended June 30, 2022, with increased orders through distribution customersthe three months ended June 30, 2023 increasing 26.1% from the three months ended June 30, 2022. The increase in revenues can be directly attributed to a 52.0% increase in revenue to the US, South America, and the Caribbean. The Original Equipment Manufacturer segment continued to show growth with an increase of 205%reseller channel for the six months ended June 30, 20222023 as compared to the six months ended June 30, 2021 due to several orders shipped internationally to boat manufacturers. The2022. This increase was offset by decreases of 43.2% and 10.5% in the direct to consumer segment, which includes yacht ownerschannel and directoriginal equipment manufacturer channels, respectively, for six months ended June 30, 2023. The Direct to dive stores, increased 199.0%Consumer channel decreased 43.2% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. The Direct to Consumer channel decreased 43.2% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, with a particularly poor performance due to lingering economic concerns lingering from 2022, for the three months ended June 30, 2022 compared to2023 with a decrease of 79.3% from the three months ended June 30, 20212022. The Direct to Consumer channel is relatively inconsistent but typically sees a majority of its selling activity in the third and increased 49.2% forfourth quarters of the six months ended June 30, 2022 as compared to June 30, 2021.year.
Costs of revenues as a percentage of net revenues in this segment showed a slight increaseincreased to 63.3% for the six months ended June 30, 2023 from 55.0% for the six months ended June 30, 20222022. This increase in cost as compareda percentage of revenue can be attributed to 54.4%volume discounting for the sixlarge reseller in Mexico, which caused reseller cost of sales for the three months ended June 30, 2021. This2023 to increase can be attributed to increased cost of transportation from suppliers and72% as compared to customers during48.6% for the sixthree months ended June 30, 2022.
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 | 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 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||
Resellers | $ | 239,540 | $ | 190,191 | 25.9 | % | 51.7 | % | 57.3 | % | 48.3 | % | 42.7 | % | $ | 233,965 | $ | 109,767 | 113.1 | % | 72.0 | % | 48.6 | % | 28.0 | % | 51.4 | % | ||||||||||||||||||||||||||||
Direct to Consumers | 195,245 | 130,819 | 49.2 | % | 58.4 | % | 51.7 | % | 41.6 | % | 48.3 | % | 27,069 | 130,816 | (79.3 | )% | 64.0 | % | 57.7 | % | 36.0 | % | 42.3 | % | ||||||||||||||||||||||||||||||||
Original Equipment Manufacturers | 112,225 | 36,683 | 205.9 | % | 57.1 | % | 46.1 | % | 42.9 | % | 53.9 | % | 79,572 | 29,610 | 168.7 | % | 68.4 | % | 38.8 | % | 31.6 | % | 61.2 | % | ||||||||||||||||||||||||||||||||
Total | $ | 547,010 | $ | 357,693 | 52.9 | % | 55.0 | % | 54.4 | % | 45.0 | % | 45.6 | % | $ | 340,606 | $ | 270,193 | 26.1 | % | 70.5 | % | 51.9 | % | 29.5 | % | 48.1 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2023 | Six months ended June 30, 2022 | % change | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | ||||||||||||||||||||||
Resellers | $ | 364,181 | $ | 239,540 | 52.0 | % | 69.3 | % | 51.7 | % | 30.7 | % | 48.3 | % | ||||||||||||||
Direct to Consumers | 110,859 | 195,245 | (43.2 | )% | 40.5 | % | 58.4 | % | 59.5 | % | 41.6 | % | ||||||||||||||||
Original Equipment Manufacturers | 100,446 | 112,225 | (10.5 | )% | 66.8 | % | 57.1 | % | 33.2 | % | 42.9 | % | ||||||||||||||||
Total | $ | 575,486 | $ | 547,010 | 5.2 | % | 63.3 | % | 55.0 | % | 36.7 | % | 45.0 | % |
28 |
Ultra Portable Tankless Dive Systems
Net revenue
Revenue for the six months ended June 30, 20222023 in the Ultra Portable Tankless Dive System segment showed growth of 94.5%decreased 36.7% as compared to the six months ended June 30, 2021. The growth2022 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 segmentschannels with the largest lost to the dealer channel with a drop of 63.1% for the three and six months ended June 30, 2022 can be attributed2023 as compared to the addition of the Nomad product line into those sales channels.six months ended June 30, 2022. The growth of 162.2% in the DealerDirect to Consumer channel represents the continued expansion of the international dealer base. The growth in this segment of 156.8%revenue increased 24.9% for the three months ended June 30, 2022 represents sales2023 as compared to the three months ended June 30, 2022. This increase can be attributed to higher website traffic related to a new dealers and seasonal buy-in as dealers preparedproduct launch at the end of the first quarter of 2023 for the summer season.product to be shipped in August-September 2023.
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 both2023 increased to 67.8% from 58.8% for the three and six months ended June 30, 2021, primarily due to the impact of the cost and production efficiencies of the Nomad dive system and the resulting2023. The increase in margin as a percentagecost of revenue for the same periods in 2022 as compared to 2021.revenue was impacted by increased direct labor costs in connection with the recalled product. In addition, BLU3 discounted its selling price in order to stimulate demand in all of its diving systems during the six months ended June 30, 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 | 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 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||
Direct to Consumer | $ | 539,955 | $ | 340,665 | 58.5 | % | 55.2 | % | 52.2 | % | 44.8 | % | 47.8 | % | $ | 275,993 | $ | 220,950 | 24.9 | % | 74.2 | % | 67.9 | % | 25.8 | % | 32.1 | % | ||||||||||||||||||||||||||||
Dealers | 76,768 | 388,877 | (80.3 | )% | 53.6 | % | 70.6 | % | 46.4 | % | 29.4 | % | ||||||||||||||||||||||||||||||||||||||||||||
Amazon | 449,120 | 259,265 | 73.2 | % | 54.5 | % | 61.8 | % | 45.5 | % | 38.2 | % | 233,659 | 274,444 | (14.9 | )% | 55.9 | % | 53.0 | % | 44.1 | % | 47.0 | % | ||||||||||||||||||||||||||||||||
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 | % | $ | 586,420 | $ | 884,271 | (33.7 | )% | 64.2 | % | 64.5 | % | 35.8 | % | 35.5 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin as a % of Net Revenue | ||||||||||||||||||||||||||
Six months ended June 30, 2023 | Six months ended June 30, 2022 | % change | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | ||||||||||||||||||||||
Direct to Consumer | $ | 483,774 | $ | 539,955 | (10.4 | )% | 71.2 | % | 55.2 | % | 28.8 | % | 44.8 | % | ||||||||||||||
Dealers | 254,252 | 689,783 | (63.1 | )% | 76.0 | % | 64.4 | % | 24.0 | % | 35.6 | % | ||||||||||||||||
Amazon | 325,309 | 449,120 | (27.6 | )% | 56.4 | % | 54.5 | % | 43.6 | % | 45.5 | % | ||||||||||||||||
Total | $ | 1,063,335 | $ | 1,678,858 | (36.7 | )% | 67.8 | % | 58.8 | % | 32.2 | % | 41.2 | % |
29 |
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 $399,479increased 20.9% for the threesix months ended June 30, 2023 as compared to the six months ended June 30, 2022. This increase can be attributed to increases in the Dealer, Commercial and Government sales channels increasing 17.0%, 41.3% and 68.9%, respectively, for the six months ended June 30, 2023 as compared to the six? months ended June 30, 2022. These channels are drivers of sales volume for the new HEED3 product line and have also seen increased quantity orders from the scuba related dealer base on the Spare Air product. These increases were offset by a decrease in the direct to consumer channel of 28.6% for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.
The margins for the threesix months ended June 30, ,2022 showed improvement at 36.0%2023 increased to 31.1% as compared to 28.7% for the six months ended June 30, 2022 as the marginmargins across all channels improved. This improvement can be attributed to the increased revenue from the HEED3 product which provides higher margins than SSI’s traditional product Spare Air, as well as a price increase implemented for dealer sales improved during the three months ended June 30, 2022 to 31.2% as compared to 22% for the six months ended June 30, 2022. Outside of the margin for repairs, dealer margins continue to be the lowest margin segment as SSI must price goods in order for dealers to also generate profits. 2023.
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 including 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 | % | - |
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||
Commercial | $ | 111,059 | $ | 46,550 | 138.6 | % | 44.2 | % | 43.8 | % | 55.8 | % | 56.2 | % | ||||||||||||||
Dealers | 278,239 | 250,223 | 11.2 | % | 63.5 | % | 68.8 | % | 36.5 | % | 31.2 | % | ||||||||||||||||
Government | 37,360 | 38,711 | (3.5 | )% | 35.7 | % | 37.2 | % | 64.3 | % | 62.8 | % | ||||||||||||||||
Repairs | 23,153 | 11,047 | N/A | 239.2 | % | 221.6 | % | (139.2 | )% | (121.6 | )% | |||||||||||||||||
Direct to Consumers (Website) | 29,697 | 52,948 | (43.9 | )% | 64.0 | % | 45.8 | % | 36.0 | % | 54.2 | % | ||||||||||||||||
Total | $ | 479,508 | $ | 399,479 | 20.0 | % | 65.4 | % | 64.0 | % | 34.6 | % | 36.0 | % |
Revenue | Cost of Revenue as a % of Revenue | Margin | ||||||||||||||||||||||||||
Six months ended June 30, 2023 | Six months ended June 30, 2022 | % change | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | ||||||||||||||||||||||
Commercial | $ | 145,755 | $ | 103,156 | 41.3 | % | 46.7 | % | 43.6 | % | 53.3 | % | 56.4 | % | ||||||||||||||
Dealers | 540,871 | 462,342 | 17.0 | % | 68.2 | % | 78.0 | % | 31.8 | % | 22.0 | % | ||||||||||||||||
Government | 89,047 | 52,712 | 68.9 | % | 29.3 | % | 36.8 | % | 70.7 | % | 63.2 | % | ||||||||||||||||
Repairs | 36,184 | 18,858 | 91.9 | % | 268.7 | % | 236.1 | % | (168.7 | )% | (136.1 | )% | ||||||||||||||||
Direct to Consumers (Website) | 60,627 | 84,867 | (28.6 | )% | 67.8 | % | 53.9 | % | 32.2 | % | 46.1 | % | ||||||||||||||||
Total | $ | 872,484 | $ | 721,935 | 20.9 | % | 68.9 | % | 71.3 | % | 31.1 | % | 28.7 | % |
30 |
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 | % | - |
Revenue for this segment for the six months ended June 30, 2023 increased 170.8% as compared to the six months ended June 30, 2022. This increase is attributable to the inclusion of two months’ revenue included in the six months ending June 30, 2022, as the GCS acquisition was completed in May, 2022. For the three months ended June 30, 2023 revenue increased 13.9% as compared to the three months ended June 30, 2023, primarily from the service segment which includes lessons and charters.
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 | % | - |
The decreasing margin for the three and six months ended June 30, 2023 to 35.6%, is attributable to the normalization of the retail product costing in the GCS inventory to reflect a more accurate cost of goods.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | ||||||||||||||||||||||
Retail Sales | $ | 33,450 | 34,549 | (3.2 | )% | 66.2 | % | 8.9 | % | 33.8 | % | 91.1 | % | |||||||||||||||
Tours and Lessons | 23,801 | 15,725 | 51.4 | % | 61.9 | % | 70.4 | % | 38.1 | % | 29.6 | % | ||||||||||||||||
Total | $ | 57,251 | 50,274 | 13.9 | % | 64.4 | % | 28.1 | % | 35.6 | % | 71.9 | % |
Net Revenue | Cost of Sales as a % of Net Revenue | Margin as a % of Net Revenue | ||||||||||||||||||||||||||
Six months ended June 30, 2023 | Six months ended June 30, 2022 | % change | Six months ended June 30, 2023 | Six months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | ||||||||||||||||||||||
Retail Sales | $ | 79,883 | 34,549 | 131.2 | % | 53.5 | % | 8.9 | % | 46.5 | % | 91.1 | % | |||||||||||||||
Tours and Lessons | 56,270 | 15,725 | 257.8 | % | 79.8 | % | 70.4 | % | 20.2 | % | 29.6 | % | ||||||||||||||||
Total | $ | 136,153 | 50,274 | 170.8 | % | 64.4 | % | 28.1 | % | 35.6 | % | 71.9 | % |
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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 32.7% and 33.6%, respectively, for the three months ended June 30, 2022 and 42.1% for the six months ended June 30, 20222023 as compared to the same periods in the prior year.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increaseddecreased by 41.4%32.7% for the three months ended June 30, 20222023 and 45.5%33.6% for the six months endingended June 30, 2022 as2023 when compared to the same periods in the prior year. SG&A expenses were comprised of the following:
Expense Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | % Change | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change | ||||||||||||||||||||||||||||||||||||
Payroll, Selling & Administrative | $ | 544,709 | $ | 236,062 | 130.7 | % | $ | 940,485 | $ | 461,529 | 103.8 | % | $ | 426,293 | $ | 544,709 | (21.7 | )% | $ | 877,100 | $ | 940,485 | (6.7 | )% | ||||||||||||||||||||||||
Non-Cash Stock Compensation Expense | 290,706 | 266,370 | 9.1 | % | 520,740 | 498,875 | 4.4 | % | ||||||||||||||||||||||||||||||||||||||||
Stock Compensation Expense | 18,219 | 290,706 | (93.7 | )% | 18,219 | 520,740 | (96.5 | )% | ||||||||||||||||||||||||||||||||||||||||
Professional Fees | 98,619 | 116,576 | (15.4 | )% | 225,031 | 178,015 | 26.4 | % | 33,547 | 98,619 | (66.0 | )% | 99,849 | 225,031 | (55.6 | )% | ||||||||||||||||||||||||||||||||
Advertising | 101,129 | 47,615 | 112.4 | % | 257,573 | 113,841 | 126.3 | % | 97,014 | 101,129 | (4.1 | )% | 201,019 | 257,573 | (22.0 | )% | ||||||||||||||||||||||||||||||||
All Others | 142,438 | 156,984 | (9.3 | )% | 339,511 | 308,382 | 10.1 | % | ||||||||||||||||||||||||||||||||||||||||
All Other | 217,308 | 142,438 | 52.6 | % | 322,414 | 339,511 | (5.0 | )% | ||||||||||||||||||||||||||||||||||||||||
Total SG&A | $ | 1,177,601 | $ | 823,607 | 43.0 | % | $ | 2,283,340 | $ | 1,560,642 | 46.3 | % | $ | 792,381 | $ | 1,177,601 | (32.7 | )% | $ | 1,518,601 | $ | 2,283,340 | (33.5 | )% |
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Payroll increases for the three months ended March 31, 2022 can be attributed primarily to the addition of SSI payroll which accounted for 51% of the increase with the remaining 49% attributable to increases in personnel at BLU3 to manage increasing revenue and production, as well as slight increases in wages and staffing in the other divisions.
Non-Cash Stock compensation expenses increased 4.4%Payroll for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 decreased 21.7% and 6.7%, respectively. The decrease reflects reductions in production personnel in BLU3, as well as a reallocation of SSI direct labor from payroll expense to cost of sales for the six months ended June 30, 2023.
Non-Cash Stock Compensation expenses decreased by 93.7% and 96.5%, for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 as a result of vesting milestones not being met due to the reduction in revenue for the three months and six months ended June 30, 2023.
Professional fees, including legal, accounting and other professional fees decreased 66.0% and 55.6%, respectively, for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022. The decrease can be attributed to a decrease in legal fees of 59.9% and other professional fees of 73.3% and a decrease in accounting fees of 36.4%. The decrease in the Company’s acquisition activities in 2023 resulted in a decrease in legal fees. Additionally, the decrease in professional fees is attributable to the conversion of consultants to employees late in 2022 and the decrease in accounting fees can be attributed to new auditors who offer fixed priced services.
The decrease in advertising expense for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022 was 4.1% and 22%, respectively. This decrease is attributable to BLU3’s decrease in advertising during its recall process. BLU3’s decrease in advertising expense was offset slightly by an increase in advertising expense for SSI.
Other expenses decreased 5.0% for the six months ended June 30, 2023, as compared to the six months ended June 30, 2021. The increase can be attributed2022 due primarily to options granted to employees undera decrease in the Company’s Equity Incentive Plan, and the vesting of the Company’s Chief Executive Officer’s incentive option. The increase of 9.1%reserve for recall expenses. However, for the three months ended June 30, 20222023 other expenses increased 52.6% as compared to the three months ended June 30, 2021 is related to the same option vesting.
Professional fees, including legal and other professional fees which the Company has paid with a combination of cash and common stock increased 26.4% in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The increase can be attributed2023 primarily attributable to an increase in accounting fees related torent expense which accounted for approximately 80.0% of the year-end audit. For the three months ended June 30, 2022 professional fees decreased 15.4% as compared to the prior year, as a consultant was added to payroll in 2022.
The increase in advertising expense for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 is attributable to BLU3’s focus on social media, Amazon and trade show advertising.increase.
Research & Development Expenses (R&D Expenses)
R&D expenses for the three and six months ended June 30, 2023 decreased 33.7% and 58.7%, for the six months and three months ended June 30, 2022, decreased 79.5% and 80.5% for the six months ended June 30, 2022respectively, as compared to the same periodsa result of a decrease 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.new product development activity.
Other Income/Expense
For the three and six months ended June 30, 2023 and 2022, other expenses totaled approximately $19,700income/expense consisted solely of interest expense as compared to other income of approximately $164,000 forexpense. For the sixthree months ended June 30, 2021. Other income for2023, interest expense increased 109.8% from the sixthree months ended June 30, 2021 consisted of a gain due2022 to approximately $20,000 as compared to approximately $9,500 in the settlement of debt of $10,000, the forgiveness of a PPP loan less interest expense of approximately $5,600.three months ended June 30, 2022. The increase in interest expense can be attributed to the NFS loan, the Navitas 2022 loan, and the convertible demand note from Robert Carmichael that waswere funded in the second quarterthird and fourth quarters of 2021, and the interest on the debt related to the acquisition of SSI.2022.
Liquidity and Capital Resources
We had cash of $574,567$418,742 as of June 30, 2022.2023. The following table summarizes total current assets, total current liabilities and working capital at June 30, 20222023 as compared to December 31, 2021.2022.
June 30, | December 31, | % | June 30, | December 31, | % | |||||||||||||||||||
2022 | 2021 | change | 2023 | 2022 | change | |||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||
Total current assets | $ | 3,783,509 | $ | 2,966,432 | 11.2 | % | $ | 3,053,670 | $ | 3,265,714 | (9.2 | )% | ||||||||||||
Total current liabilities | $ | 1,991,200 | $ | 1,396,197 | 14.2 | % | $ | 1,891,218 | $ | 1,792,151 | (8.3 | )% | ||||||||||||
Working capital | $ | 1,792,309 | $ | 1,570,235 | 8.4 | % | $ | 1,162,452 | $ | 1,473,563 | (10.4 | )% |
The increasedecrease in our current assets at June 30, 20222023 from December 31, 20212022 primarily reflects an increase from the assets of SSI as well as the increases in inventory purchases reflected by an increasea decrease in inventory and prepaid assets which includes prepayments of inventory as the Company has experienced revenue growth and ramped up purchasing and production fordecreased its inventory purchases to match the summer season.reduction in current demand. The increase in total current liabilities primarily reflects the additional SSI liabilities as well as a significantreflect an increase in customer deposits, particularly customer deposits with LWA.deposits.
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Summary Cash Flows
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net cash used by operating activities | $ | (275,257 | ) | $ | (396,838 | ) | ||||||||||
Net cash used in operating activities | $ | (224,067 | ) | $ | (275,257 | ) | ||||||||||
Net cash used in investing activities | $ | (31,946 | ) | $ | (14,941 | ) | $ | (5,737 | ) | $ | (31,946 | ) | ||||
Net cash provided by financing activities | $ | 238,627 | $ | 227,904 | $ | 164,119 | $ | 238,627 |
Net cash used in operating activities for the six months ended June 30, 20222023 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.$517,800. 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 utilizedgenerated approximately $797,000,$82,700. A net increase in liabilities which generated approximately $32,500 primarily from an increase in customer deposits offset by increases in current liabilities including accounts payable, otherlong term lease liabilities and customer deposits, which totaled approximately $501,700.related party accounts payable.
Net cash used in investing activities for the six months ended June 30, 20222023 of approximately $31,946$5,800 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 months ended June 30, 20222023 reflects proceeds of $200,000 from the exercisesale of warrants of approximately $265,000 lessunits, offset by the repaymentpayment of debt of approximately $26,400.$35,900.
Going Concern
Our unaudited consolidated financial statements included in this Quarterly Report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 20212022 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. If the Company is unable to raise additional funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back, delay or cease operations, liquidate assets and possibly seek bankruptcy protection.
We have a history of losses, and an accumulated deficit of $15,317,359$16,955,261 as of June 30, 2022.2023. Despite a working capital surplus of $1,792,309$1,162,452 at June 30, 2022,2023, 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.
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Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company’s operations, financial position or cash flows.
These recent accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company and is not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of the end of the period covered by this report,June 30, 2023, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
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Our management, including our Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of the design and operations of our disclosure controls and procedures (defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) as of June 30, 20222023 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 | |
● | The Company plans on evaluating various accounting systems to enhance its system controls. |
We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that hashave materially affected or isare reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEEDINGS
There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company and is not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as set forth below, there were no sales of equity securities during the period covered by this Quarterly Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.None.
On May 31, 2022, the Company issued a consultant, 302,953 shares of common stock for consulting services related to the dive industry.
As of June 30, 2022, the Company issued 449,522 shares of common stock to the holders of convertible notes for payment of interest through June 30, 2022.
On 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.
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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) |
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August | BROWNIE’S MARINE GROUP, INC. | |
By: | /s/ | |
Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Robert M. Carmichael | |
Robert M. Carmichael | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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