UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021

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)

Florida90-0226181

State or other jurisdiction of

incorporation or organization

I.R.S. Employer

Identification No.

3001 NW 25thAvenue, Suite 1
Pompano Beach, Florida33069
Address of principal executive officesZip code

(954)462-5570

Registrant’s telephone number, including area code

Not applicable

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
nonen/an/a

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 [X] ☒ 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 [X] ☒ 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 [X] ☒Smaller reporting company [X]☒
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 [X] ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 301,239,412 343,279,052shares of common stock outstanding at September 11, 2020.August 16, 2021.

 

 

 

TABLE OF CONTENTS

Page No.
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS.4
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.1920
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.2327
ITEM 4.CONTROLS AND PROCEDURES.2427
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.2428
ITEM 1A.RISK FACTORS.2428
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.2428
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.2428
ITEM 4.MINE SAFETY DISCLOSURES.2428
ITEM 5.OTHER INFORMATION.2428
ITEM 6.EXHIBITS.2529

2

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with anyWords 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 that may be made herein. Readers are cautioned not to place undue reliance onstatements. We have based these forward-looking statements largely on our current expectations and readersfuture events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

●Financial risks, including:
●our history of losses;
●our ability to continue as a going concern;
●our dependence on revenues from related parties; and
●material risks in our disclosure controls and internal control over financial reporting.
●Business and operational risks, including:
●our dependence on key members of our management;
●our need to hire additional employees;
●our ability to protect our intellectual property rights;
●reliance on third party vendors and manufacturers;
●dependence on consumer discretionary spending;
●the impact of government regulations;
●any failure to protect personal information;
●the impact of bad weather;
●the exposure to potential product liability claims; and
●The continuing impact of COVID-19 on our company.
●Shareholder risks, including:
●dilution to our common shareholders upon the possible conversion of outstanding convertible debt and/or the exercise of outstanding options;
●the limited market for our common stock and the impact of penny stock rules; and
●we are a voluntary filer with the Securities and Exchange Commission.

You should carefully reviewread thoroughly this report and the documents that we refer to herein with the understanding that our 2019actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission on March 31, 2021 (the “2020 10-K”) and our other filings with the Securities and Exchange Commission in their entirety. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “BWMG,” the “Company,” “we,” “our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and our wholly owned subsidiaries, Trebor Industries, Inc., a Florida corporation (“Trebor”), Brownie’s High Pressure Compressor Services, Inc. (“BHP”), a Florida corporation, and BLU3, Inc., a Florida corporation (“BLU3”). In addition, “Second“ Second Quarter 2019”2021” refers to the three month period ended June 30, 2019,2021, “Second Quarter 2020” refers to the three month period ended June 30, 2020, “2019”2020. “First Quarter 2021” refers to the three month period ended March 31, 2021 and “First Quarter 2020” refers to the three months ended March 31, 2020. “2020” refers to the year ended December 31, 20192020 and “2020”“2021” refers to the year ending December 31, 2020.2021.

We maintain a corporate website at www.browniesmarinegroup.com. Unless specifically set forth to the contrary, the information which appears on our websites or our social media platforms is not part of this report.

3

 

PART I

Item 1. Financial Statements

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 June 30, 2020 December 31, 2019  June 30, 2021  December 31, 2020 
 (Unaudited)    (Unaudited)    
ASSETS               
Current Assets                
Cash $492,250  $70,620  $161,662  $345,187 
Accounts receivable - net  105,095   111,291 
Accounts receivable, net  232,179   81,251 
Accounts receivable - related parties  93,415   48,762   176,645   67,644 
Inventory - net  876,101   719,108 
Inventory, net  984,731   863,791 
Prepaid expenses and other current assets  80,060   48,523   399,171   111,164 
Total current assets  1,646,921   998,304   1,954,388   1,469,037 
Property, equipment and leasehold improvements, net  92,669   103,077   144,608   143,413 
Right to use Lease Assets  496,953   545,035 
Operating Lease Assets  395,400   446,981 
Other assets  16,649   20,149   10,649   13,649 
Total assets $2,253,192  $1,666,565  $2,505,045  $2,073,080 
Liabilities and stockholders’ equity                
Current liabilities                
Accounts payable and accrued liabilities $

397,623

  $518,678  $589,330  $386,977 
Accounts payable - related parties  164,765  $263,544   94,573  102,360 
Customer deposits and unearned revenue  43,665   121,208   44,291   20,353 
Other liabilities  136,357   151,749   185,037   100,817 
Operating lease liabilities  102,798   98,060   112,771   107,691 
Current maturities long term debt  102,306   29,702   65,248   151,006 
Notes payable  80,000   110,000   15,000   50,000 
Convertible debentures, net  110,000   110,000   50,000   110,000 
Total current liabilities  1,137,516   1,402,941   1,156,250   1,029,204 
Long term debt  132,603   60,070   61,942   120,782 
Long-term operating lease liabilities  394,154   446,975 
Operating lease liabilities  282,629   339,290 
Total liabilities  1,664,273   1,909,986   1,500,821   1,489,276 
Commitments and contingent liabilities (see note 8)        
Stockholders’ equity (deficit)        
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 shares issued and outstanding as of June 30, 2020 and December 31, 2019.  425   425 
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 301,010,168 shares issued and outstanding at June 30, 2020 and 245,540,501 shares issued and 225,540,501 shares outstanding at December 31, 2019.  30,101   22,554 
Common stock payable 138,941 shares and 138,941 shares, respectively as of June 30, 2020 and December 31, 2019.  14   14 
Commitments and contingencies (see note 7)        
Stockholders’ equity        
        
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.  425   425 
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 343,279,052 shares issued and outstanding at June 30, 2021 and 306,185,206 shares issued and outstanding at December 31, 2020, respectively.  34,330   30,620 
Common stock payable 138,941 shares and 138,941 shares, respectively as of June 30, 2021 and December 31, 2020, respectively.  14   14 
Additional paid-in capital  12,873,632   11,338,104   14,456,378   13,508,882 
Accumulated deficit  (12,315,253)  (11,604,518)  (13,486,923)  (12,956,137)
Total stockholders’ equity (deficit) $588,919  $(243,421)
Total liabilities and stockholders’ equity (deficit) $2,253,192  $1,666,565 
Total stockholders’ equity $1,004,224  $583,804 
Total liabilities and stockholders’ equity $2,505,045  $2,073,080 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

 

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30

(UNAUDITED)

  Three months ended
June 30		  Six months ended
June 30		 
  2020  2019  2020  2019 
Net revenues                
Net revenues $1,123,351  $657,938  $1,601,585  $1,040,727 
Net revenues - related parties  197,177   212,782   353,732   351,446 
Total net revenues  1,320,528   870,720   1,955,317   1,392,173 
Cost of net revenues                
Cost of net revenues  685,807   548,058   1,117,762   902,721 
Cost of net revenues – related parties  106,181   103,690   187,179   172,487 
Royalties expense – related parties  17,916   13,894   22,766   24,117 
Royalties expense  13,833   -   27,926   - 
Total cost of revenues  823,737   665,642   1,355,633   1,099,325 
Gross profit  496,791   205,078   599,684   292,848 
Operating expenses                
Selling, general and administrative  864,463   408,950   1,242,041   729,145 
Research and development costs  39,995   34,676   56,088   64,244 
Total operating expenses  904,458   443,626   1,298,129   793,389 
Loss from operations  (407,667)  (238,548)  (698,445)  (500,541)
Other expense, net                
Interest expense  (6,375)  (1,758)  (12,290)  (3,810)
Loss income before provision for income taxes  (414,042)  (240,306)  (710,735)  (504,351)
Provision for income taxes  -   -   -   - 
Net Loss  (414,042)  (240,306)  (710,735)  (504,351)
Loss on foreign currency translation  -   (3,490)  -   (9,946)
Comprehensive loss $(414,042) $(243,796) $(710,735) $(514,297)
Basic and Diluted loss per common share $(0.00) $(0.00) $(0.00) $(0.00)
Basic and Diluted weighted average common shares outstanding  296,262,167   218,119,561   274,459,029   198,986,228 

  2021  2020  2021  2020 
  Three months ended June 30  Six months ended June 30 
  2021  2020  2021  2020 
Net revenues                
Net revenues $1,359,745  $1,123,351  $2,106,098  $1,601,585 
Net revenues - related parties  353,173   197,177   557,589   353,732 
Total net revenues  1,712,918   1,320,528   2,663,687   1,955,317 
Cost of net revenues                
Cost of net revenues  876,646   685,807   1,385,715   1,117,762 
Cost of net revenues - related parties  169,699   106,181   275,130   187,179 
Royalties expense - related parties  28,013   17,916   39,606   22,766 
Royalties expense  41,251   13,833   54,955   27,926 
Total cost of revenues  1,115,609   823,737   1,755,406   1,355,633 
Gross profit  597,309   496,791   908,281   599,684 
Operating expenses                
Selling, general and administrative  823,607   864,463   1,560,642   1,242,041 
Research and development costs  21,312   39,995   42,419   56,088 
Total operating expenses  844,919   904,458   1,603,061   1,298,129 
Loss from operations  (247,610)  (407,667)  (694,780)  (698,445)
Other income (expense), net                
Gain on settlement of debt  -   -   10,000   - 
Gain on the forgiveness of PPP loan  159,600   -   159,600   - 
Interest expense  (1,795)  (6,375)  (5,606)  (12,290)
Other income (expense), net  157,805   (6,375)  163,994   (12,290)
Loss before provision for income taxes  (89,805)  (414,042)  (530,786)  (710,735)
Provision for income taxes  -   -   -   - 
Net Loss $(89,805) $(414,042) $(530,786) $(710,735)
                 
Basic and diluted loss per common share $(0.00) $(0.00) $(0.00) $(0.00)
Basic and diluted weighted average common shares outstanding  337,489,134   296,262,167   314,941,270   274,459,029 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

 

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)


FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20202021 AND 2019

(UNAUDITED)

  Preferred Stock  Common Stock  Common Stock
Payable		  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Accumulated  Total
Stockholder’s
Equity		 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  (DEFICIT) 
December 31, 2019  425,000  $425   225,540,501  $22,554   138,941  $14  $11,338,104  $            -  $(11,604,518) $(243,421)
Common stock issued for Cash  -   -   2,647,065   265   -   -   44,735   -   -   45,000 
Share issued for exercise of warrants  -   -   12,500,000   1,250   -   -   123,750   -   -   125,000 
Stock option expense  -   -   -   -   -   -   96,290   -   -   96,290 
Incentive bonus shares issued to CEO  -   -   20,000,000   2,000   -   -   (720)  -   -   1,280 
Net Loss  -   -   -   -   -   -   -   -   (296,693)  (296,693)
March 31, 2020 (unaudited)  425,000  $425   260,687,566  $26,069   138,941  $14  $11,602,159   -  $(11,901,211) $(272,544)
Common stock issued for Cash  -   -   20,000,000   2,000   -   -   498,000   -   -   500,000 
Common stock issued for warrants  -   -   10,000,000   1,000   -   -   99,000   -   -   100,000 
Common stock issued for service  -   -   5,000,000   500   -   -   222,000   -   -   222,500 
Incentive shares issued to
CEO and employees		  -   -   5,322,602   532   -   -   233,968   -   -   234,500 
Stock option expense  -   -   -   -   -   -   218,505   -   -   218,505 
Net Loss  -   -   -   -   -   -   -   -   (414,042)  (414,042)
June 30, 2020 (unaudited)  425,000  $425   301,010,168  $30,101   138,941  $14  $12,873,632  $-  $(12,315,253) $588,919 

2020
(Unaudited)

  Preferred Stock  Common Stock  Common Stock
Payable		  Additional
Paid-in		  Accumulated
Other
Comprehensive		  Accumulated   Total 
Stockholder’s
Equity		 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Loss  Deficit  (DEFICIT) 
December 31, 2018  425,000  $425   161,086,228  $16,109   138,941  $14  $10,213,595  $-  $(10,182,778) $47,365 
Common stock issued for Service  -   -   7,033,333   703   -   -   91,348   -   -   92,051 
Unit offering  -   -   50,000,000   5,000   -   -   495,000   -   -   500,000 
Foreign currency translation  -   -   -   -   -   -   -   (6,456)  -   (6,456)
Net Loss  -   -   -   -   -   -   -   -   (264,045)  (264,045)
March 31, 2019 (unaudited)  425,000  $425   218,119,561  $21,812   138,941  $14  $10,799,943  $(6,456) $(10,446,823) $368,915 
Common stock issued for Service  -   -   -   -   -   -   56,832   -   -   56,832 
Foreign currency translation  -   -   -   -   -   -   -   (3,490)  -   (3,490)
Net Loss  -   -   -   -   -   -   -   -   (240,306)  (240,306)
June 30, 2019 (unaudited)  425,000  $425   218,119,561  $21,812   138,941  $14  $10,856,775  $(9,946) $(10,687,129) $181,951 

  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 
Balance, December 31, 2020  425,000  $425   306,185,206  $30,620   138,941  $14  $13,508,882  $(12,956,137) $583,804 
Common stock issued for Cash  -   -   27,500,000   2,750   -   -   272,250   -   275,000 
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 
Common stock issued for exercise of warrants                                    
Common stock issued for exercise of warrants, shares                                    
Incentive bonus shares to Chairman                                    
Incentive bonus shares to Chairman, shares                                    
Common stock issued for warrants                                    
Common stock issued for warrants,shares                                    
Net Loss  -   -   -   -   -   -   -   (440,981)  (440,981)
Balance, March 31, 2021 (unaudited)  425,000   425   337,223,694   33,724   138,941   14   14,139,060   (13,397,118)  776,105 
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)
Balance, June 30, 2021 (unaudited)  425,000  $425   343,279,052  $34,330   138,941  $14  $14,456,378  $(13,486,923) $1,004,224 

  Preferred Stock  Common Stock  

Common Stock

Payable

  

Additional

Paid-in

  Accumulated  

Total

Stockholder’s

Equity

 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  (Deficit) 
Balance, December 31, 2019  425,000  $425   225,540,501  $22,554   138,941  $14  $11,338,104  $(11,604,518) $(243,421)
Common stock issued for Cash  -   -   2,647,065   265   -   -   44,735   -   45,000 
Common stock issued for exercise of warrants  -   -   12,500,000   1,250   -   -   123,750   -   125,000 
Stock option expense  -   -   -   -   -   -   96,290   -   96,290 
Incentive bonus shares to Chairman  -   -   20,000,000   2,000   -   -   (720)  -   1,280 
Net Loss  -   -   -   -   -   -   -   (296,693)  (296,693)
Balance, March 31, 2020 (unaudited)  425,000   425   260,687,566   26,069   138,941   14   11,602,159   (11,901,211)  (272,544)
Common stock issued for Cash  -   -   20,000,000   2,000   -   -   498,000   -   500,000 
Common stock issued for warrants  -   -   10,000,000   1,000   -   -   99,000   -   100,000 
Common stock issued for service  -   -   5,000,000   500   -   -   222,000   -   222,500 
Incentive shares issued to Chairman and employees  -   -   5,322,602   532   -   -   233,968   -   234,500 
Stock option expense  -   -   -   -   -   -   218,505   -   218,505 
Net Loss  -   -   -   -   -   -   -   (414,042)  (414,042)
Balance, June 30, 2020 (unaudited)  425,000  $425   301,010,168  $30,101   138,941  $14  $12,873,632  $(12,315,253) $588,919 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6

 

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30

(UNAUDITED)(unaudited)

 2020  2019  2021  2020 
Cash flows provided by operating activities:        
Cash flows from operating activities:        
Net loss $(710,735) $(504,351) $(530,786) $(710,735)
Adjustments to reconcile net loss to cash used in operating activities:                
Depreciation and amortization  10,409   1,126   13,396   10,409 
Shares issued for services  222,500   118,883   125,000   222,500 
Shares issued for license fee  -   30,000 
Incentive bonus shares issued to CEO and employees  235,780   -   -   235,780 
Reserve (recovery) for bad debt  28,554   (2,098)
Stock Based Compensation - Options  314,795   -   475,875   314,795 
Change in bad debt allowance  (2,098)  - 
Amortization of right-of-use asset  48,082   4,205   51,581   48,082 
Gain on the settlement of debt  (10,000)  - 
Gain on the forgiveness of PPP loan  (159,600)  - 
Changes in operating assets and liabilities                
Change in accounts receivable, net  8,294   (22,890)  (179,482)  8,294 
Change in accounts receivable – related parties  (44,653)  (31,187)
Change in accounts receivable - related parties  (109,001)  (44,653)
Change in inventory  (156,993)  18,436   (120,940)  (156,993)
Change in prepaid expenses and other current assets  (31,537)  (168,765)  (250,909)  (31,537)
Change in other assets  3,500   -   3,000   3,500 
Change in accounts payable and accrued liabilities  (121,057)  40,333   217,684   (121,057)
Change in accounts payable - related parties  (7,787)  (98,778)
Change in customer deposits and unearned revenue  (77,543)  (11,094)  23,938   (77,543)
Change in long term lease liability  (48,082)  (45,603)  (51,581)  (48,082)
Change in other liabilities  (15,392)  97,509   84,220   (15,392)
Change in accounts payable - related parties  (98,778)  28,215 
Net cash used in operating activities  (463,508)  (405,183)  (396,838)  (463,508)
        
Cash flows from investing activities:                
Purchase of fixed assets  (14,591)  - 
Net cash used in investing activities  -   -   (14,591)  - 
        
Cash flows from financing activities:                
Proceeds from unit offering  545,000   500,000   275,000   545,000 
Proceeds from exercise of warrants  225,000   - 
Proceeds from exercise of Warrants  -   225,000 
Proceeds from debt  159,600   -   -   159,600 
Repayment of notes payable  (30,000)  - 
Repayment on notes payable  (25,000)  (30,000)
Repayment of debt  (14,162)  -   (22,096)  (14,162)
Net cash provided by financing activities  885,138   500,000   227,904   885,138 
        
Net change in cash  421,630   94,817   (183,525)  421,630 
        
Cash, beginning of period  70,620   78,784   345,187   70,620 
Cash, end of period $492,250  $173,601  $161,662  $492,550 
        
Supplemental disclosures of cash flow information:                
Cash Paid for Interest $5,761  $560  $4,344  $5,761 
Cash Paid for Income Taxes $-  $-  $-  $- 
        
Supplemental disclosure of non-cash financing activities:                
Operating lease Assets and Liabilities $-  $635,613 
Fixed asset purchase down payment through the issuance of debt $37,098  $- 
Shares issued for the conversion of convertible debentures and accrued interest $75,331  $- 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

7

 


BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Company Overview

Brownie’s Marine Group, Inc., a Florida corporation (hereinafter referred to as “Brownies,”as” the “Company,” “our” or “BWMG”), designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc., a Florida corporation organized in 1981 (“Trebor”), and manufactures and sells high pressure air and industrial compressor packages, (“Legacy SSA Products”)yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organized in 2017 (“BHP”), doing business as LW Americas (“LWA”). In addition, in December 2017, the Company formed BLU3, Inc., a Florida corporation (“BLU3”), to develop and market innovation electric shallowportable battery powered surface supplied air dive systems (“Ultra Dive Systems”). During the first quarter of 2020 BLU3 was engaged in the development of the BLU3 Vent, a ventilator utilizing the Company’s existing BLU3 technology.systems. When used herein, the “Company” or “BWMG” includes Brownie’s Marine Group, Inc., and our wholly-owned subsidiaries Trebor, BHP and BLU3.

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, 20192020 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in our Annual Report on Form2020 10-K for the year ending December 31, 2019 filed with the SEC on June 26, 2020 for a broader discussion of our business and the risks inherent in such business.

8

 

Principles of Consolidation

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

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.

As of June 30, 2020, the Company had $492,250 in cash on hand. One of the company’s depository accounts as of June 30, 2020 had a balance of approximately $355,000, which exceeds the FDIC coverage maximum of $250,000.

Accounts receivable

Accounts receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful accounts areis estimated based on historical customer experience and industry knowledge. The allowances for doubtful accounts totaled $15,686$45,426 and $17,784$16,872 at June 30, 20202021 and December 31, 2019,2020, respectively.

Inventory

Inventory consists of the raw material, parts that make up the items that we manufacture, and finished goods. For the year ended December 31, 2020, the Company recorded reserves for obsolete or slow-moving inventory of approximately $227,657. NaNadditional reserve for obsolete or slow-moving inventory during the six months ended June 30, 2021.

Schedule of Inventory

  June 30, 2021
(unaudited)		  

December 31,

2020

 
       
Raw materials $508,094  $408,841 
Finished goods  476,637   454,950 
Inventory, net $984,731  $863,791 

Revenue Recognition

We account for revenues in accordance with Accounting Standards Codification (“ASC”)(ASC) 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principalprinciple is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive.

We recognize the sale of products under single performance obligations upon shipment of the units as that is when ownership is transferred and our performance is completed. Revenues from repair and maintenance activities is recognized when the repairs are completed and the units have been shipped.

Lease Accounting

On January 1, 2019, we adoptedWe account for leases in accordance with ASC 842, and all the related amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods.

“Leases”. The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We 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. We did not reassess whether any contracts entered into prior to adoption are leases or contain leases.

We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow us to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. We did not have any finance leases as of June 30, 2020.2021. Our leases generally have terms that range from three years for equipment and five to twenty years for property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease.

Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.

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When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

For the three and six months ended June 30, 2021 the lease expenses were approximately $32,900 and $65,700, respectively, and approximately $43,000 and $78,000 for the three and six months ended June 30, 2020, respectively. Cash paid for operating liabilities for the six months ended June 30, 2020 and 2019 the lease expense 2021 was approximately $78,000 $65,400and $89,000. Forapproximately $64,000 for the six months ended June 30, 2020 and 2019 cash paid for operating liabilities was approximately $64,000 and $62,000, respectively2020.

Supplemental balance sheet information related to leases was as follows:

Schedule of Supplemental Balance Sheet Information

Operating Leases June 30, 2020  June 30, 2021 
Right-of-use assets $496,953  $395,400 
    
Current lease liabilities $102,798  $112,771 
Non-current lease liabilities  394,155   282,629 
Total lease liabilities $496,953  $395,400 

Employee Stock-Based Compensation:Compensation

The Company accountsWe account for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee isand non-employee are required to provide service in exchange for the award, usually the vesting period. The Company has elected to adopt ASU 2016-09 and has a policy to account for forfeitures as they occur.

Non-Employee Stock-Based Compensation:

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.

The Company accounts for stock-based compensation awards to non-employees in accordance with ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments are recorded as an expense over the service period, as if the Company had paid cash for the services. At the end of each financial reporting period, prior to vesting or prior to the completion of the services, the fair value of the equity-based payments will be re-measured and the non-cash expense recognized during the period will be adjusted accordingly. Since the fair value of equity-based payments granted to non-employees is subject to change in the future, the amount of the future expense will include fair value re-measurements until the equity-based payments are fully vested or the service completed.

EarningsLoss per common share

Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. At June 30, 20202021 and June 30, 2019, 202,389,9862020, 205,855,020 and 83,782,544,202,389,986, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible note agreements,notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.

Recent accounting pronouncements

The recent accounting standards that have been issued or proposed by the Financial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

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, 20202021, the Company incurred a net loss of $710,735,$530,786, of which $773,075 $475,875is non-cash stock related compensation. At June 30, 20202021, the Company has an accumulated deficit of $12,315,253.$13,486,923. Despite a working capital surplus of approximately $510,000 $798,138 at June 30, 2020,2021, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

10

Note 4. Related Party Transactions

The Company sells products to 3three entities, Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, owned by the brother of the Mr. Robert M. Carmichael, the Company’s President and Chief ExecutiveFinancial 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 14.9% 15.1% and 24.4%14.9% of the net revenues for the three months ended June 30 20202021 and 2019,2020, respectively, and 18.1%20.9% and 25.2% of net revenues18.1%  for the six months ended June 30, 2021 and 2020 and 2019, respectively.respectively. Accounts receivable from these entities totaled $72,938 $153,214and $44,442,$44,323, respectively, at June 30, 20202021 and December 31, 2019.2020.

The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940 A”), entities wholly-owned by Mr. Carmichael. Terms of sale are more favorable than those extended to BWMG’s regular customers, but no more favorable than those extended to Brownie’s strategic partners. Accounts receivable from the combined entities and Mr. Carmichael totaled $20,477,$23,431 and $4,320$23,321 at June 30, 20202021 and December 31, 2019,2020, respectively.

The Company had accounts payable to related parties of $164,765 $94,573 and $263,544 $102,360 at June 30, 20202021 and December 31, 2019,2020, respectively. The balance payable at June 30, 20202021 is comprised of $5,000 due to Robert Carmichael, $9,639 due to 940 Associates and $79,934 due to BGL. At December 31, 20192020 this account was comprised of $5,000 due to Robert Carmichael, and $97,360 due to BGL.

The Company has Exclusive License Agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. This Exclusive License Agreement provides that the Company will pay 940 A 2.5%2.5% of gross revenues per quarter as a royalty. Total royalty expense for the three months ended June 30, 2021 and 2020 were $28,013 and June 30, 2019 was $17,916 $17,916, respectively and $13,894, respectively,$39,606 and $22,766 for the six months ended June 30, 2021 and 2020, and 2019 totalrespectively. The accrued royalty expense was $22,766for June 30, 2021 is $22,510 and $24,117, respectively. it is included in other liabilities.

Effective July 29, 2019On March 25, 2021, the Company has agreedissued 27,500,000 shares of common stock to pay the membersMr. Charles F. Hyatt, a member of the Company’sour Board of Directors including Mr. Robert M. Carmichael, a management director, an annual feein consideration of $18,000 for serving on the Company’s Board of Directors for the year ending December 31, 2019. As of December 31, 2019, the Company has accrued $49,500 in Board of Directors’ fees. On August 21, 2020 the Company’s Board of Directors approved the continuation of the 2019 Board compensation policy for the year ending December 31, 2020. $275,000.

As of June 30, 2020, the Company had accrued an additional $18,0002021, options to purchase 25,000,000 shares of common stock held by Mr. Carmichael vested in Boardaccordance with Carmichael Option agreement as further discussed in Note 6 of Directors’ fees.

Note 5. COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including retail commerce.

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, and for the protection of our employees and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, some of our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. Earlier, in mid-March 2020 we had taken steps to increase production to build up our finished goods inventory as well as purchasing additional raw material inventory items thereby allowing us to maintain production if supply chain interruptions were to happen. During the beginning of the second quarter of fiscal 2020 we experienced an impact on our sales to our brick and mortar customers as many of the retail dealer stores temporarily closed. In response, we ramped up our direct to consumer engagement. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began. We have resumed all of our historic operations, and all personnel have returned to full time work at our corporate office and manufacturing and warehouse facilities. In addition, our historic attendance at boat shows and similar marketing events has been an important part of our marketing and sales strategy. As we do not expect that those type of events will be held in 2020 as a result of the COVID-19 pandemic, we have migrated our marketing focus to online marketing in an effort to maintain product visibility.

While we are not able to estimate the ultimate impact of the COVID-19 pandemic on our financial condition and future results of operations, depending on the prolonged impact of the COVID-19 outbreak, the extent to which the coronavirus will impact our results and financial condition, however, will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge and the actions to contain and treat its impacts, among others.statements.

Note 6. 5. Convertible Debentures and Notes Payable

Convertible Debentures

Convertible debentures consisted of the following at June 30, 2020:2021:

Schedule of Convertible Debentures

Origination
Date		 Maturity
Date		 Interest
Rate		 Origination
Principal
Balance		 Original
Discount
Balance		 Period
End
Principal
Balance		 Period
End
Discount
Balance		 Period
End
Balance,
Net		 Accrued
Interest
Balance		 Reg.  Maturity
Date		 Interest
Rate		 Origination
Principal
Balance		 Original
Discount
Balance		 Period
End
Principal
Balance		 Period
End
Discount
Balance		 Period
End
Balance,
Net		 Accrued
Interest
Balance		 Reg. 
8/31/2011 8/31/2013  5%  10,000   (4,286)  10,000   —   10,000   4,569   (1)
8/31/11 8/31/13  5%  10,000   (4,286)  -   -   -   -   (1)
12/01/17 12/01/20  6%  50,000   (12,500)  50,000   —   50,000   8,500   (2) 12/31/21  6%  50,000   (12,500)  -   -   -   -   (2)
12/05/17 12/04/20  6%  50,000   (12,500)  50,000   —   50,000   8,467   (3) 12/31/21  6%  50,000   (12,500)  50,000   -   50,000   9,331   (3)
               $110,000  $—  $110,000  $21,536                    $50,000  $—  $50,000  $9,331     

(1)The Company borrowed $10,000$10,000 in exchange for a convertible debenture.debenture (the “Hoboken Convertible Note”). The lenderholder at its option may convert all or part of the note plus accrued interest into common stock at a price of 30%30% discount as determined from the average four highest closing bid prices over the preceding five5 trading days. The Company valued the beneficial conversion feature of the convertible debenture at $4,286,$4,286, which was accreted to interest expense over the period of the note. TheOn February 22, 2021, this note is currentlyand accrued interest of $4,777 were converted by the holder for 422,209 shares of common stock in default.accordance with the terms of the note.
(2)
(2)On December 1, 2017, the Company entered into a $50,000$50,000 principal amount 6%6% secured convertible promissory note, initially due December 1, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.

11

The conversion price under the note initially ranged from $0.02$0.02 per share if converted in the first year to $0.125$0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99%9.99% of the outstanding common stock of the Company at any one time. In 2019, the maturity date of the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $0.01 per share. The Company recorded a loss on extinguishment of debt of $32,000$32,000 upon the modification of conversion price. The maturity date was further extended to December 1, 2020.On June 10, 2021, this note and accrued interest of $10,554 were converted by the holder for 6,055,358 shares of common stock in accordance with the terms of the note.

(3)
(3)On December 5, 2017, the Company entered into a $50,000$50,000 principal amount 6%6% secured convertible promissory note, initially due December 4, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.
The conversion price under the note initially ranged from $0.02$0.02 per share if converted in the first year to $0.125$0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99%9.99% of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $0.01$0.01 per share. The Company recorded a loss on extinguishment of debt of $99,000$99,000 upon the modification of conversion price. The maturity date was further extended to December 31, 2020.2021.

Notes Payable

Gonzales Note

The Company issued an unsecured, non-interest-bearing note of $200,000 $200,000 with Mr. Tom Gonzales on July 1, 2013. The note is payable upon demand. The Company made repayments totaling $30,000 $25,000 during the six months endingended June 30, 2020.2021. The note balance was $70,000 $15,000 at June 30, 20202021 and $100,000 at $40,000 December 31, 2019.2020.

Hoboken Note

The Company issued an unsecured, non-interest-bearing note of $10,000$10,000 with Hoboken Street Association on October 15, 2016. The note is payable upon demand.was forgiven as part of the conversion of the Hoboken Convertible Note on February 22, 2021 as described above. The note balance was $10,000 as of June 30, 20202021 and December 31, 2019.2020 was $0 and $10,000, respectively.

Loan Payable

Marlin Note

On September 30, 2019 the Company, via 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 over 36 equal monthly installments of $3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was $44,013 as of June 30, 2021

Schedule of Future Amortization of Loans Payable

  Payment Amortization 
2021 (6 months remaining)  16,918 
2022  27,095 
2023    
2024    
2025 and thereafter    
Total Loan Payments $44,013 
Current portion of Loan payable  (34,745)
Non-Current Portion of Loan Payable $9,268 

12

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 0interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Mr. Carmichael. The first payment was due on October 5, 2020. The loan balance as of June 30, 2021 is $47,156.

Schedule of Future Amortization of Loans Payable

  Payment Amortization 
2021 (6 months remaining) $5,584 
2022 $11,168 
2023 $11,168 
2024 $11,168 
2025 and thereafter $8,068 
Total note payments $47,156 
Current portion of note payable $(11,168)
Non-Current Portion of notes payable $35,988 

Navitas Note

On May 19, 2021 the Company, via its wholly owned subsidiary BLU3, executed an equipment finance agreement financed for the purchase of certain plastic molding equipment through Marlin Capital SolutionsNavitas Credit Corp. (“Marlin Capital”Navitas”). The initial principal balance was $96,725 amount financed is $79,309 payable over 36 60 equal monthly installments of $3,143.80.$1,611 (the “Navitas Note”). The equipment finance agreement contains customary events of default. The loan balanceagreement was $75,309not fully funded as of June 30, 20202021. Navitas has funded $37,098 for the down payment of an equipment purchase and the balance of the note is $36,021 as of June 30, 2021.

Schedule of Future Amortization of Loans Payable

   Payment Amortization 
2020 (6 months remaining) $15,239 
2021  32,975 
2022  27,095 
Total Loan Payments $75,309 
Current portion of Loan payable  (31,296)
Non-Current Portion of Loan Payable $44,013 
  Payment Amortization 
2021 (6 months remaining)  8,070 
2022  17,464 
2023  10,487 
Total Note Payments $36,021 
Current portion of Note payable  (19,335)
Non-Current Portion of Note Payable $16,686 

PPP Loan

On May 12, 2020, we received an unsecured loan from South Atlantic Bank United in the principal amount of $159,600$159,600 (the “SBA Loan”), under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, we are usingused the proceeds from this loan to primarily help maintain our payroll and cover our rent and utilities as we navigatenavigated our business through the lockdowns associated with a focus on returningthe COVID-19 pandemic until our return to normal operations.operations earlier in 2020.

The term of the note is two years, though it may be payable sooner in connection with an event of default under the Note.note. The SBA Loan carries a fixed interest rate of one percent per year, and a monthly payment of $8,983,$8,983, with the first payment due seven monthsfrom the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. We intend to useused the SBA Loan for qualifying expenses and to applyhave applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On April 28, 2021, the Company was notified by South Atlantic Bank that the SBA Loan was forgiven in full under the terms of the CARES Act. The company recorded the forgiveness as a gain on the forgiveness of the PPP loan on our condensed consolidated income statement.

The note balance as of June 30, 2021 and December 31, 2020 was $159,600.$0 and $159,600, respectively.

13

 

  Payment
Amortization		 
2020 (6 months remaining) $17,708 
2021  106,871 
2022  35,021 
Total Loan Payments $159,600 
Current portion of Loan payable  (71,010)
Non Current Portion of Loan Payable $88,590 

Note 7. 6. Shareholders’ Equity

Common Stock

In December 2018,On February 22, 2021, the Company issued 20,000,000422,209 shares of common stock related to Mr. Carmichael as an incentive bonus withthe conversion of a convertible debenture and accrued interest of $14,777.

On March 1, 2021, the Company issued a consultant 3,000,000 shares of its common stock related to investor relation services at a fair value of $200,000. Effective January 2, 2020, Mr. Carmichael fully met the requirements of the incentive bonus and the Company has now accounted for the shares being issued and outstanding. Stock based compensation related to this issuance for the six months ended June 30, 2020 was $1,280.$120,000.

In January 2020On March 25, 2021, the Company issued 2,647,065 27,500,000 shares of common stock in exchange for $45,000 to an accredited investor and daughter of Mr. Charles F. Hyatt, a member of our Board of Directors.Directors, in consideration of $275,000.

InOn February 202025, 2021, the Company issued 12,500,000 116,279 shares of common stock to a consultant with a fair value of $5,000 for professional business services.

On June 10 2021, the Company issued 6,055,358 shares of common stock related to the exerciseconversion of common stock purchase warrants at an exercise pricea convertible debenture and accrued interest of $.01, for a total conversion price of $125,000. The shares were issued to Mr. Hyatt, a member of the Board of Directors.$60,554.

On June 9, 2020 the Company issued an aggregate of 330,636 shares of common stock to an employee for services performed in December 2019 and the first five months of 2020. The fair value of these shares was $9,520.

On April 2, 2020 the Company issued 10,000,000 shares of common stock related to the exercise of common stock purchase warrant at an exercise price of $.01 per share. The Company received proceeds of $100,000 upon such exercise from Mr. Hyatt, a member of our Board of Directors.

On April 10, 2020 the Company sold an aggregate of 20,000,000 shares of its common stock at a purchase price $0.025 per share to accredited investors, including Mr. Hyatt, in a private transaction, resulting in proceeds to the Company of $500,000.

On April 9, 2020, the Company issued to an investor relations consultant, 3,000,000 shares of common stock, with a fair market value of $133,500.

On April 9, 2020, the Company issued, to a corporate communication consultant 2,000,000 shares of its common stock with a fair market value of $89,000.

On April 28, 2020, the Company issued 1,333,333 shares of its common stock as incentives to two employees. The fair value of the stock was $64,000.

On May 21, 2020, the Company issued 3,658,633 shares of common stock with a fair market value of $160,980 to six individuals for compensation related to the BLU3-VENT project. Of the shares issued, Robert M. Carmichael received a total 725,087 shares with a fair value of $31,904 and Blake Carmichael received a total of 849,305 shares with a fair value of $37,369. The balance of the shares were received by employees of the Company and independent contractors.

Preferred Stock

During the second quarter of 2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation authorizing the issuance of 10,000,000 shares of blank check preferred stock. The blank check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. In April 2011 the Board of Directors designated 425,000 shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23$18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share held.held. The Company’s common stock and Series A Convertible Preferred Stock vote together as on any matters submitted to our shareholders for a vote. As of June 30, 2020,2021, and December 31, 2019,2020, the 425,000 shares of Series A Convertible Preferred Stock are owned by Mr. Carmichael.

Equity Incentive Plan

On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees, Directors, and Consultants in the form of Incentive Stock Options or Non-statutory 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. The maximum number of shares that may be issued under the Plan shall be 25,000,000 shares. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years.

Equity Compensation Plan Information as of June 30, 2021:

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  1,125,000  $.036   23,875,000 
Equity Compensation Plans Not Approved by Security Holders  —   —   — 
Total  1,125,000  $.036   23,875,000 

14

 

Options

Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 10,380,952 shares of common stock to Mr. Blake Carmichael, an employee of the Company and son of our CEO.Carmichael. The options were issued pursuant to a stock option grant agreement and are exercisable at $0.018$0.018 per share for a period of five years from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $43,575$43,575 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.10%2.10%, ii) expected life of 5 years, iii) dividend yield of 0%0%, iv) expected volatility of 172%172%. Stock option expense recognized during the six months ended June 30, 2020 was $5,362.These stock options were fully expensed as of December 31, 2020.

Effective July 29, 2019, the Company issued its chief executive officerMr. Carmichael options to purchase up to 20,761,904 shares of common stock. The options were issued pursuant to a Grant Agreement and are exercisable at $0.018$0.018 per share for a period of five years from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $87,147$87,147 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.01%2.01%, ii) expected life of 5 years, iii) dividend yield of 0%0%, iv) expected volatility of 172%172%. Stock option expense recognizedThese stock options were fully expenses during the six months ended June 30, 2020 was $10,724.year ending December 31, 2020.

Effective January 6, 2020, the Company issued options to purchase up to 2,000,000 shares of common stock to Mr. Jeffrey Guzy, then a Directormember of the Board of Directors of the Company. The options were issued pursuant to a stock option grant agreement and is exercisable at $0.0229$0.0229 per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $40,107 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.55%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 250%. These stock options were fully expenses during the year ending December 31, 2020.

Effective January 11, 2020, the Company issued options to purchase up to 2,000,000 shares of common stock to BizLaunch Advisors, LLC. The options were issued pursuant to a professional services agreement and are exercisable at $0.0229 per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $40,107$40,097 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.55%1.54%, ii) expected life of 1.5 years, iii) dividend yield of 0%0%, iv) expected volatility of 250%250%. Stock option expense recognizedThese stock options were fully expenses during the six months ended June 30, 2020 for this option was $40,107.year ending December 31, 2020.

Effective January 11, 2020 the Company issued options to purchase up to 2,000,000 shares of common stock to BizLaunch Advisors, LLC. The options were issued pursuant to a professional services agreement and are exercisable at $0.0229 per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $40,097 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.54%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 250%. Stock option expense recognized during the three months ended June 30, 2020 for this option was $40,097.

On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Mr. Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of 125,000,000 shares of the Company’s common stock at an exercise price of $.045$.045 per share, of which the right to purchase 75,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 50,000,000 shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:

●●the right to purchase 25,000,000 shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $3,500,000$3,500,000 in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending on April 30, 2023 (the “Net Revenue Period”);
●the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,000,000$7,000,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and
●●the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,500,000$10,500,000 in the aggregate over four consecutive quarters during the Net Revenue Period.

15

The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael on a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto.

The fair value of the Carmichael Option on the date of the grategrant was $4,370,109 $4,370,109 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .26%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 320%. The companyCompany analyzed the likelihood that the vesting qualifications would be met. As of June 30, 2021, 25,000,000 of options were vested as the targeted net revenues were reached and fully expensed. The second net revenue target was 25% reached. Therefore, stock option expense recognized during the six months ended June 30, 2021 for this option was $437,011.

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. Under the terms of the option agreement, the Company granted Mr. Constable a 5 year option to purchase 5,434,783 shares of the Company’s common stock at an exercise price of $.0184, (the “Compensation Options”). The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $106,199 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .16%, ii) expected life of 2.5 years, iii) dividend yield of 0%, iv) expected volatility of 341%. These stock options were fully expensed as of December 31, 2020.

As part of the Constable Option Agreement the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of 30,000,000 shares of the Company’s common stock at an exercise price of $.0184 per share, of which the right to purchase 10,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 20,000,000 shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:

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

●the right to purchase an additional 3,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,500,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and
●the right to purchase an additional 5,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,000,000 in the aggregate over four consecutive quarters during the Net Revenue Period.

The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for four years.

The fair value of the Bonus Options on the date of the grant was $578,082 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .14%, ii) expected life of 2.0 years, iii) dividend yield of 0%, iv) expected volatility of 312.2%. The Company analyzed the likelihood that the vesting qualifications would be met, and as of June 30, 20202021, deemed that there was a 5%5.8% chance that the options would vest. Therefore, stock option expense recognized during the six months ended June 30, 20202021 for this option was $218,505.$34,067.

16

 

Effective June 14, 2021 the Company issued options to purchase up to an aggregate of 1,125,000 shares of common stock to various employees under the Plan. The options were issued pursuant to a stock option grant agreements and are exercisable at $0.036 per share for a period of four yearsfrom the date of issuance, with 12.5% of the options vesting each fiscal quarter over a period of two years. The fair value of the options totaled $38,369 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .21%, ii) expected life of 2 years, iii) dividend yield of 0%, iv) expected volatility of 304.77%. The stock options expense recognized for the six months ended June 30, 2021 was $4,797.

A summary of the Company’s outstanding stock optionoptions as of December 31, 2019,2020, and changes during the six months ended June 30, 20202021 is presented below:

  Number of
Options		  Weighted
Average
Exercise Price		  Weighted
Average
Remaining
Contractual
Life in Years		  Aggregate
Intrinsic
Value		 
Outstanding - December 31, 2019  35,295,237  $0.0180   4.58     
Granted  129,000,000  $0.0440         
Forfeited  -   -         

Exercised

  -  -         
Outstanding - June 30, 2020  164,295,237  $0.0390   3.09     
Exercisable - June 30, 2020  39,295,237  $0.0185   3.92  $334,057 

Warrants

A summarySchedule of the Company’s warrants as of December 31, 2019, and changes during the six months ended June 30, 2020 is presented below:Option Activity

  Number of
Warrants		  Weighted
Average
Exercise Price		  Weighted
Average
Remaining
Contractual
Life in Years		  Aggregate
Intrinsic
Value		 
Outstanding - December 31, 2019  52,608,725  $0.01   0.66     
Granted  -  $-         
Exercised  (22,500,000) $0.01         
Forfeited or Expired  (2,608,725) $0.0115         
Outstanding - June 30, 2020  27,500,000  $0.01   0.19     
Exercisable - June 30, 2020  27,500,000  $0.01   0.19  $467,500 

On February 25, 2020, Mr. Charles F. Hyatt, a member of the Company’s Board of Directors, partially exercised a warrant for the acquisition of 12,500,000 shares at $.01 per share, for proceeds to the Company of $125,000.

On April 2, 2020 Mr. Hyatt purchased 10,000,000 shares related to the exercise of an outstanding common stock purchase warrant at an exercise price of $.01 per share. The Company received proceeds of $100,000 upon such exercise.

  Number of
Options		  Weighted
Average
Exercise Price		  Weighted
Average
Remaining
Contractual
Life in Years		  Aggregate
Intrinsic
Value		 
Outstanding - December 31, 2020  199,730,020  $0.0323   2.84  $168,892 
Granted  1,125,000   0.0360         
Forfeited  -   -         
Exercised  -   -         
Outstanding – June 30, 2021 (unaudited)  200,855,020  $0.0351   2.35     
Exercisable - June 30, 2021 (unaudited)  69,870,645  $0.0280   2.65  $909,994 

Note 8. 7. Commitments and contingencies

On August 14, 2014, the Company entered into a thirty-seven-month term lease for its initial facilities in Pompano Beach, Florida, commencing on September 1, 2014. Terms included payment of $5,367$5,367 security deposit; base rent of approximately $4,000$4,000 per month over the term of the lease plus sales tax; and payment of 10.76%10.76% of annual operating expenses (i.e. common areas maintenance), which was approximately $2,000$2,000 per month subject to periodic adjustment. On December 1, 2016, we entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending the term for an additional eighty-four months, expiring September 30, 2024.2024. The base rent was increased to $4,626$4,626 per month with a 3%3% annual escalation throughout the amended term.

On November 11, 2018, the Company entered a new lease agreement for approximately 8,025 square feet adjoining its existing facility in Pompano Beach, Florida. Terms of the new lease include a sixty-nine month term commencing on January 1, 2019, or the date the Company takestook possession of the premises, if earlier; a $6,527$6,527 security deposit; initial base rent of approximately $4,848$4,848 per month escalating at 3%3% per year during the term of the lease plus Florida state sales tax and payment of 10.11%10.11% of the buildings annual operating expenses (i.e. common area maintenance) which is approximately $1,679$1,679 per month subject to adjustment as provided in the lease.

The Company, Trebor and other third parties, are each named as a co-defendants under actions initially filed in March 2015 in the Circuit Court of Broward County under Case No. CACE-15-03238 and CACE -16-0000242 by the Estate of Ernesto Rodriguez, claiming wrongful death and products liability resulting in the decedent’s drowning death while using a Brownie’s Third Lung product. This claim falls outside the Company’s period of insurance coverage. Plaintiff has claims damages exceeding $1,000,000. This claim was settled in June 2020 for $50,000, and further modified into a lump sum payment of 88.4% of the original settlement amount which was paid in fill on August 25, 2020. The Company has recorded $50,000 of accrued legal settlement as of December 31, 2019. The Company made a payment of $3,000 during the three months ended June 30, 2020. As of June 30, 2020 the accrued legal settlement amount was $47,000. The Company paid the modified settlement amount on August 25, 2020.

On June 30, 2020, the Company entered into Amendment No. 2 to the Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products, and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $60,000,$60,000, or $15,000 $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 $60,000 for fiscal years 2022, 2023 and 2024, with a fourth quarter true up against earned royalties. In addition, if the Company should terminate the agreements with STS prior to December 31, 2023, then the Company is obligated to pay STS $180,000,$180,000, less cumulative royalties paid in excess of $334,961 $334,961 for the years 2019 through 2024. Royalty recorded in relation to this agreement totaled $13,833 $41,251 and $27,926 $13,833 for the three months ended June 30, 2021 and 2020, respectively and $54,955 and $27,926 for the six months ended June 30 , 2021 and 2020, respectively.

On April 9, 2020 the Company entered into an Investor Relations Consulting Agreement with HIR Holdings, LLC pursuant to which the Company engaged the firm to provide investor relations services. The term of the agreement is for a minimum guaranteed period of six months, and thereafter is cancellable by either party upon 30 days notice to the other party. As compensation the Company issued the consultant 3,000,000 shares of its common stock, valued at $133,500, and is responsible for reimbursement of certain pre-approved expenses.

On April 9, 2020 the Company also entered into a Corporate Communication Consulting Agreement with Impact IR Inc. pursuant to which the Company also engaged this firm to provide investor relations services. The term of the agreement is six months. As compensation the Company issued the consultant 2,000,000 shares of its common stock valued at $89,000.

On June 9, 2020, the Company entered into an advertising and marketing agreement with Figment Design. The term of the agreement is for one year, and thereafter renew or cancel the agreement in writing 60 days before the final date. The Company will continue to be billed $5,275$8,840 per month through the expiration date of July 2021. The Company terminated the agreement with Figment Design effective July 31, 2021.

On August 1, 2020, BLU3 entered into a marketing agreement with This Way Media PTY, Ltd. The term of this agreement is for June11 months and can be cancelled with 30 days’ notice during the first 90 days of the agreement. After the first 90 days, the agreement can be cancelled with 60 days’ notice after the completion of the term of the agreement. BLU3 will pay This Way Media PTY, LTD $500 per month, and 5% of each affiliate sale.This agreement expired on July 1, 2021. BLU3, Inc. is currently in negotiation to renew this agreement.

17

On November 5, 2020, the Company and $8,840 from AugustChristopher H. Constable entered into a three year employment agreement (the “Constable Employment Agreement”) pursuant to which the Mr. Constable shall serve as Chief Executive Officer of the Company. Previously, Mr. Constable had provided advisory services to the Company through the agreement with Brandywine LLC. In consideration for his services, Mr. Constable shall receive (i) an annual base salary of $200,000, payable in accordance with the customary payroll practices of the Company, and (ii) issuable upon execution of the Employment Agreement and on each anniversary of the date of the agreement during the term, a non-qualified immediately exercisable five-year stock option to purchase that number of shares equal to $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the Common Stock on the date of issuance. Therefore, the Executive shall receive an initial stock option grant to purchase 5,434,783 shares of the Corporation’s common stock at an exercise price of $0.0184 per share pursuant to an option award agreement.

In addition, Mr. Constable shall be entitled to receive four-year stock options to purchase shares of common stock at an exercise price equal to $0.0184 per share in the amounts listed below based upon the following performance milestones during the term of the Constable Employment Agreement: (i) 2,000,000 shares - if the Company’s total net revenues, as reported in its statement of operations in its financial statements in its filings with the SEC, including as a result of a stock or asset acquisition of a third party (“Net Revenues”) are in excess of $5,000,000, in the aggregate, for four consecutive fiscal quarters; (ii) 3,000,000 shares - if the Company’s Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) 5,000,000 shares - if the Company’s Net Revenues are in excess of $10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) 20,000,000 shares - if the Company’s common stock is listed on the on NASDAQ or New York Stock Exchange.

On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued 3,000,000 shares of its common stock valued at $120,000 to BGM Partners.

Legal

The Company is a defendant in that certain lawsuit styled 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 in and for Broward County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $15,870.97 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.

18

Note 9. 8. Segment Reporting

The Company has three3 operating segments as described below:

1.Legacy SSA Products, which sells recreational hookah diving systems.
2.High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages.
3.Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user.

Schedule of Segment Reporting Information

  

Three Months Ended

June 30

(unaudited)

 
  Legacy SSA Products  High Pressure Gas Systems  Ultra Portable Tankless Dive Systems  Total Company 
  2021  2020  2021  2020  2021  2020  2021  2020 
Net Revenues $976,973  $626,389  $207,565  $75,170  $528,380  $618,969  $1,712,918  $1,320,528 
Cost of Revenue $(668,246)  (310,595)  (113,499)  (35,487)  (333,864)  (477,655)  (1,115,609)  (823,737)
Gross Profit  308,727   315,794   94,066   39,683   194,516   141,314   597,309   496,791 
Depreciation  4,748   2,039   -   -   2,418   4,837   7,166   6,876 
Income (loss) from Operations $(314,279) $(408,031) $40,224  $534  $26,445  $(170) $(247,610) $(407,667)

1. Legacy SSA Products, which sells recreational hookah diving systems.

2. High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages.

3. Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user. This segment also developed the technology behind the BLUVent and was the recipient of the third party purchase order on behalf of the US Department of Defense.

  Three Months Ended 
  June 30, 
  Legacy SSA Products  High Pressure
Gas Systems		  Ultra Portable Tankless
Dive Systems		  Total Company 
  2020  2019  2020  2019  2020  2019  2020  2019 
Net Revenues $626,389  $652,660  $75,170  $218,060  $618,969  $-  $1,320,528  $870,720 
Cost of Revenue  (310,595)  (457,873)  (35,487)  (207,769)  (477,655)  -   (823,737)  (665,642)
Gross Profit  315,794   194,787   39,683   10,291   141,314   -   496,791   205,078 
Depreciation  2,039   -   -   -   4,837   -   6,876   - 
Income (Loss) from operations $(408,031) $(47,955) $534  $(86,813) $(170) $(103,780) $(407,667) $(238,548)
  Six Months Ended 
  June 30, 
  Legacy SSA Products  High Pressure
Gas Systems		  Ultra Portable Tankless
Dive Systems		  Total Company 
  2020  2019  2020  2019  2020  2019  2020  2019 
Net Revenues $920,507  $1,079,480  $273,386  $312,693  $761,424  $          -  $1,955,317  $1,392,173 
Cost of Revenue  (538,782)  (819,217)  (185,287)  (280,108)  (631,564)  -   (1,355,633)  (1,099,325)
Gross Profit  381,725   260,263   88,099   32,585   129,860   -   599,684   292,848 
Depreciation  3,155   1,126   -   -   7,254   -   10,409   1,126 
Loss from operations $(614,687) $(211,738) $(2,237) $(119,503) $(81,520) $(169,300) $(698,444) $(500,541)
                                 
Total Assets $1,433,698  $1,742,547  $187,371  $142,924  $632,123  $-   2,253,192  $1,885,471 
 

Six months ended

June 30

(unaudited)

 
  Legacy SSA Products  High Pressure Gas Systems  Ultra Portable Tankless Dive Systems  Total Company 
  2021  2020  2021  2020  2021  2020  2021  2020 
Net Revenues $1,443,016  $920,507  $357,693  $273,386  $862,978  $761,424  $2,663,687  $1,955,317 
Cost of Revenue  (1,038,072)  (538,782)  (194,677)  (185,287)  (522,657)  (631,564)  (1,755,406)  (1,355,633)
Gross Profit  404,944   381,725   163,016   88,099   340,321   129,860   908,281   599,684 
Depreciation  8,560   3,155   -   -   4,836   7,254   13,396   10,409 
Income (loss) from operations $(758,430) $(614,687) $49,590  $(2,237) $14,060  $(81,521)  (694,780) $(698,445)
                                 
Total Assets $1,529,702  $1,433,698  $302,088  $187,371  $673,255  $632,123   2,505,045  $2,253,192 

Note 10. 9. Subsequent Events

On July 30, 2021, the Company entered into a binding term sheet (the “Term Sheet”) with Submersible Systems, LLC, a Florida limited liability corporation (“Submersible”), and Tierra Vista Group, LLC and Summit Holdings V, LLC (Tierra Vista Group and Summit Holdings V, collectively, the “Sellers”), the owners of all of the membership interests of Submersible (the “Membership Interests”). Pursuant to the terms of the Term Sheet, the Company will acquire all of the Membership Interests from the Sellers for an aggregate purchase price of $1,750,000 (the “Purchase Price”), to be paid to the Sellers at closing: (i) by the issuance to the Sellers of three-year convertible promissory notes (each, a “Note”) in the aggregate principal amount of $350,000, at an interest rate of 8% per annum, with each Seller to receive a Note in the principal amount pro rata with the number of Membership Interests such Seller owns of Submersible, and (ii) by the issuance to the Sellers of an aggregate of $1,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share, such number of Shares to be calculated based on the volume weighted average price of a share of the Company’s Common Stock on the OTC Markets (“VWAP”) for (a) 180 days prior to the date of the Term Sheet, or (b) 180 days prior to the closing date of the transaction, whichever results in a lower VWAP, with each Seller receiving a pro rata portion of the Shares based upon the total number of Membership Interests held by such Seller. The closing and consummation of the transactions contemplated by the Term Sheet are to occur no later than August 31, 2021, and are subject to certain closing conditions and deliveries, including an agreement containing typical representations and warranties by the parties of a transaction of this nature. There are no assurances the transactions will be completed.

 

During early 2020 an offer of settlement for $50,000 was made byOn July 12, 2021, the Company entered into a settlement agreement related to the lawsuit styled Basil Vann, as Personal Representative of the Estate of Ernesto Rodriguez (Case No. CACE-15-03238 and CACE -16-0000242). The settlement was accepted andJeffrey William Morris v. Brownie’s Marine Group, Inc., filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida entered an Order on May 15, 2020 which approved the settlement. The Final Order of Dismissal was entered on behalf of the Company and Trebor on May 13, 2020. The settlement amount of $50,000 was payable in installments through May 19, 2022. On August 25, 2020 the Court approved a join motion to modify the settlement to a lump sum payment of 88.4% of the original settlement amount. The Company paid the modified settlement amount on August 25, 2020. Please seeFlorida. (see Note 8.7)

19

 

On August 1, 2020, BLU3 entered into an advertising and marketing agreement with Figment Design. The term of the agreement is for one year beginning August 1, 2020, and thereafter renew or cancel the agreement in writing 60 days before the final date. Figment Design will bill BLU3 $3,500 per month as retainer and $1,500 to $2,000 for monthly ad spend.

On August 1, 2020, BLU3 entered into a marketing agreement with This Way Media PTY, Ltd. The term of this agreement is for 11 months and can be cancelled with 30 days notice during the first 90 days of the agreement. After the first 90 days, the agreement can be cancelled with 60 days notice after the completion of the term of the agreement. BLU3 will pay This Way Media PTY, LTD $500 per month, and 5% of each affiliate sale.

On August 10, 2020, the Company engaged Brandywine, LLC to provide certain advisory and consulting services to it under the terms of a letter agreement. As compensation for the services, we agreed to pay Brandywine, LLC an hourly rate of $125.00 and issue it 10,000 shares of our common stock for each hour billed, which such shares are issuable to a designee of Brandywine, LLC in its discretion, and reimburse it for pre-approved expenses. The agreement may be terminated by either party upon 15 days notice, and contains customary indemnification provisions.

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. The first payment is due on October 5, 2020.

On September 10, 2020 the Company issued an aggregate of 229,244 shares of common stock to an employee for services performed in June to August, 2020. The fair value of these shares was $4,930.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

BWMG, through its wholly owned subsidiaries, designs, tests, and manufactures and distributes recreational hookah diving, yacht based scubatankless dive systems, yacht-based SCUBA air compressor and nitrox generation fill systems scuba and water safety products. We also manufactureacts as the exclusive distributor for North and sell high pressureSouth America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas compressor packages.markets. Our wholly owned subsidiaries and related product segmentslines are Legacy SSA Products, High Pressure Gas Systems and Ultra Portable Tankless Dive Systems.as follows:

[
]

Legacy SSA Products

This segment represents our surface supplied air (SSA) product line. Trebor began its business making surface supplied air diving systems in the late 1960s. Our Brownie’s Third Lung systems have long been a dominant figure in gasoline powered, high-performance, and now the battery powered surface supplied air diving systems. Taking full advantage of the proprietary compressor system, a complete series of traditional “fixed speed” electric compressors were developed for the built-in-boat market in 2005. After years of inventing, testing and development, in 2010 we introduced our variable-speed battery powered hookah system which provides divers with gasoline-free all day shallow diving experiences. This battery system was updated in 2019 we introduced a lithium-ion battery powered variable speed system that is capable of three dives to thirty feet for three hours on one charge. These systems provide performance and runtimes as great as 300% better than the best devices previously on the market by utilizing a variable speed technology that controls battery consumption based on diver demand.

The Legacy SSA segment has experienced a 45.8% growth in units sold in the first six months of 2021 as compared to the first six months of 2020, as we continue to expand our dealer network and the breadth of product that each of the dealers provide.

This segment is seeing results from its marketing efforts with both the consumer and our network of dealers. The company continues to add dealers across the country in order to diversify the seasonality as well as the geography risks. Additionally, we continue to pursue more aggressively the boat builder market to offer our Legacy SSA systems as an option on newly built boats, expanding our market beyond the traditional consumer markets for our products. Our Legacy SSA products include:

● Tankless Dive Systems: The Company produces a line of tankless dive products, commonly called hookah or recreational surface supplied air systems. These systems allow one to four divers to enjoy the marine environment up to a depth of up to 45 feet without the bulk and weight of conventional SCUBA gear. The removal of barriers to entry into the sport of diving and the reduction of complicated and bulky SCUBA gear invites a broader range of the general public to participate more actively and enjoyably at their own pace and schedule. The design of our product also reduces the effort required for both its transport and continued use while exploring, cruising or traveling. A line of land-based systems is available for light-duty commercial applications that demand portability and performance. In addition to the gasoline-powered units and the variable speed battery powered units, a series of AC electric powered systems is also available for light to commercial duty. Powered by battery for portability or household current for virtually unlimited dive duration, these units are used primarily by businesses that work in aquatic maintenance and marine environments.

● BIAS (Boat Integrated Air Systems): The Company developed several tankless products and complimentary accessories that it believes makes boat diving even easier. The BIAS battery powered tankless kit allows boat builders, dealers and end users to seamlessly install a pre-packaged kit directly into the boat. The E-Reel advances this idea by adding a level-winding battery powered hose reel system to provide compact storage of up to 150 feet of hose. Boaters can perform their own in-water maintenance and inspections, or just dive for enjoyment. In addition to supplying air to divers, BIAS is useful for supporting air horns, inflating boat fenders/water toys, activating pneumatically operated doors, and more. The Company strategy is to align the easy to install, complete kit packages with boat builders, dealer and end users through a vertically targeted sales and marketing program.

 

High Pressure Gas Systems

Through this segment, we design, manufacture, sell and install SCUBA tank fill systems for on-board yacht use under the brand “Yacht-Pro™”. Our systems provide complete diving packages and dive training solutions for yachts, includes Nitrox systems which allow yacht owners to fill tanks with oxygen enriched air on board. The Yacht-Pro™ compressor systems offer a completely marine-prepared, VFD (variable frequency drive)-driven, automated alternative to other compressors on the market. We also design complete dive lockers, mixed gas production and distribution systems, and the unique Nitrox Maker™. Nitrox is oxygen-enriched air, which reduces the effects of nitrogen on divers; it is the industry standard for dive professionals. The Nitrox Maker™ continuously generates the oxygen rich breathing gas directly from low-pressure air; no stored oxygen or other gases are required onboard.

Consistent with our goals for 2021, this segment of our business continues to work to expand its customer base beyond that of the diving community. We believe the product lines from L&W, will allow LW Americas to put a high quality, competitive products into the first responder and industrial market that utilize compressed air for many applications. Our goal will be to build a network of jobbers, dealers, installers and high-pressure compressor distributors throughout the territory by leveraging our know-how, brand awareness, complimentary products and creating sustainable distribution and core product OEM integration relationships.

[]

Ultra Portable Tankless Dive Systems

In the continued expansion of our business, in December 2017, we formed a wholly-owned subsidiary BLU3, to develop and market a next generation electric surface supplied air diving systems electric shallow dive system that is completely portable to the user. The BLU3 line currently consists of two models targeting specific performance levels and price points – NEMO and NOMAD.

The NEMO dive system continues to expand its customer base and become more accepted across the world. Currently, Nemo is sold in 9 countries through Amazon, and also through 25 dealers across the world. Nemo, the worlds smallest dive system is capable of taking one diver to 10 feet for 60 to 90 minutes on one charge of its lithium-ion battery. Nemo is portable, and approved for airline travel.

Currently, NOMAD is nearing the end of the design phase and full production will begin in the third quarter of 2021, as the Company continues to ensure that it will deliver a product that will excite the consumer but be safe as well. This product will expand the customers dive capability to up to 33 feet and continue to drive the vertical integration of the diving experience.

20

 

The Impact of the COVID-19 Pandemic on our Company

Second Quarter and Six Months ended June 30, 2021 Highlights

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have begun to have a significant adverse impact upon many sectors of the economy, including retail commerce.

In response to these measures, the “stay at home” order issued in April 2020 by the Governor of the State of Florida where our business is located, andRevenue for the protection of our employeesSecond Quarter 2021 and customers, we temporarily reduced non-essential staffing at our corporate office and altered work schedules at our manufacturing and warehouse facilities. In addition, some of our senior management and our office personnel began working remotely and maintaining full capabilities to serve our customers. Earlier, in mid-March 2020 we had taken steps to increase production to build up our finished goods inventory as well as purchasing additional raw material inventory items thereby allowing us to maintain production if supply chain interruptions were to happen. During the beginning of the second quarter of fiscal 2020 we experienced an impact on our sales to our brick and mortar customers as many of the retail dealer stores temporarily closed. In response, we ramped up our direct to consumer engagement. On May 4, 2020 the Florida “stay at home” order was lifted and the phased reopening of the State of Florida began. We have resumed all of our historic operations, and all personnel have returned to full time work at our corporate office and manufacturing and warehouse facilities. In addition, our historic attendance at boat shows and similar marketing events has been an important part of our marketing and sales strategy. As we do not expect that those type of events will be held in 2020 as a result of the COVID-19 pandemic, we have migrated our marketing focus to online marketing in an effort to maintain product visibility.

To further bolster our working capital, onMay 12, 2020, we received a loan in the principal amount of $159,600 (the “SBA Loan”), under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, we are using the proceeds from this loan to primarily help maintain our payroll as we navigate our business with a focus on returning to normal operations. This loan is further discussed in Note 6.

While we are not able to estimate the ultimate impact of the COVID-19 pandemic on our financial condition and future results of operations, depending on the prolonged impact of the COVID-19 outbreak., this situation had a significant adverse effect on our reported results of operations for the six months ended June 30, 2021 have continued to increase as compared to the same periods in 2020, asThe Company is succeeding in its mission to expand our customer base from primarily the closures slowedsoutheast US to an international distributor and retail customer base. We believe that we are changing the quarterly growth in twoway that people will approach the next atmosphere, by providing innovative, portable and easy to use surface supplied air products that will allow the users to explore what is below the surface of the segments of our business that was building for the first two months of 2020. The extent to which the coronavirus impacts our results and financial condition, however, will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge and the actions to contain and treat its impacts, among others.water.

Highlights:

●Our total revenue increased 29.7% for the Second Quarter and 36.2% for the six months ended June 30, 2021 as compared to the same periods in 2020.
●The Company signed an exclusive US and Caribbean distribution agreement with the manufacturer of Bright Weights. Bright Weights is a unique and fun alternative to the dive ballast systems currently available in the market today. The Company expects to use its Amazon and Dealer sales channels to grow this product line.
●BLU3, Inc. launched pre-orders for September and October shipment of its Nomad Product line.
●BLU3, Inc. has expanded its Amazon footprint to 9 countries, including the US.
●Unit sales for the BLU3 Nemo increased 152% for the six months ended June 30, 2021 as compared to the same period in 2020.
●Gross margins increased from 30.7% to 34.1% for the six months ended June 30, 2021 as compared to the same period in 2020.

Results of Operations

Net Revenues, Costs of Net Revenues and Gross Profit

Overall, our net revenues increased 51.7%29.7% and 40.5% in36.2% for the Second Quarter 20202021 and the six months ended June 30, 20202021 from the comparable periods in 2019.2020. These increases included an increase of 70.7%21.0% and 53.9%, respectively,31.5% in net revenuerevenues from sales to third parties, and a decrease of 7.3% and an increase of .7%, respectively,79.1% and 57.6% in net revenues from sales to related parties infor the three and six months ended June 30, 2021, respectively, over the comparable prior period. Net revenue for the Second Quarter 2020 for theand six months ended June 30, 2020 included non-recurring revenue related to the Blu-Vent project of approximately $458,000. Adjusting this non-recurring item from the comparable periods in 2019. Approximately 34.8% and 23.5%, respectively, of our total net revenues2020 revenue the core business revenue increase for the Second Quarter 2020three and for the six months ended June 30, 2020 are attributable to revenues from a contract for our BLU3 Vent. As described later in this section, we are unable to predict if we will generate similar revenues during the balance of 2020 as this project is currently on hold.2021 would be 99.0% and 78.1%, respectively.

Our total cost of net revenues in the Second Quarter 2020 was 62.4%2021 and the six months ended June 30, 2021 were 65.1% and 65.9% of our total net revenues as compared to 76.4% in Second Quarter of 2019,62.4% and our total cost of net revenues69.3% for the six months ended June 30, 2020 was 69.3% of our total net revenues as compared to 79.0%same periods in comparable period of 2019.2020. Included in our total cost of net revenues are royalty expenses we pay to Robert M.Mr. Carmichael our Chairman and CEO, which increased 28.9% in56.4% and 74.0% for the Second Quarter 2020 from the Second Quarter of 2019,three and decreased 5.6% for the six months ended June 30, 2020 from2021 as compared to the six months ended June 30, 2019.same periods in the prior year. The increased royalties are the result of increased sales in the legacy SSA segment. Also included in the total cost of net revenue are royalties paid per itspursuant to our agreement with STS. These royalties accounted for 1.0%approximately 2.4% and 1.4%2.1% of total net revenue for the three and six months ended June 30, 2020 respectively. No royalties were not paid during2021, respectively as compared to 1.1% and 1.4% for the first six months of 2019.same periods in 2020.

We reported an overall gross profit margin of 34.9% and 34.1% for the three and six months ended June 30, 2021 as compared to 37.6% and 30.7%, respectively, for the three and six months ended June 30, 2020. The Legacy SSA product lines had an increase in distribution sales during the Second Quarter 2021 as compared to the direct to consumer sales of the Second Quarter 2020, andsince the six month ended June 30, 2020 as comparedCOVID stay at home orders have been lifted in 2021, customers are returning to 23.6% and 21.0%, respectively, in the comparable periods in 2019. The margin improvement can be attributed to the growth of revenue in Ultra-Portable Tanklesstheir local dive system that did not exist during the same period in 2019. Additionally, the Legacy SSA product lines showed an uptick in direct to consumer sales combined with a restructured of their dealer sales structure to increase margin in this segment.stores, rather than purchasing online. The High Pressure Gas Systems margins saw the increasehave shown a decrease in margin aspercentage for the concentration of revenue changedSecond Quarter, 2021 to 45.3% from distributors to more direct end users.

Beginning52.8% during the same quarter in 2020. However, with the third quarterincreased revenue in this segment,margin available to cover operating expenses grew in this segment by 137% in the Second Quarter 2021 as compared to the Second Quarter 2020 as revenue grew 176.1% for the segment. Margins related to the Ultra-Portable Tankless dive segment improved from 22.8% for the Second Quarter 2020 to 36.8% for the Second Quarter, 2021. The margins in this segment in the Second Quarter, 2020 were depressed because of 2019 we began reporting our net revenues, costs of net revenues and gross profitthe lower margins yielded from the BluVent project that was billed in three segments based upon these product lines. that period.

The following tables provides net revenues, total costs of net revenues, and gross profit margins for our segments for the periods presented.

21

 

Net Revenues

 Second Quarter % of Six Months Ended June 30, % of   Three Months Ended June 30  % of  Six Months Ended June 30,  % of  
 2020 2019  Change  2020 2019  Change  2021  2020  Change  2021  2020  Change 
              (unaudited)     (unaudited)    
Legacy SSA Products $626,389  $652,660   (4.0)% $920,507  $1,079,480   (14.7)% $976,973  $626,389   56.0% $1,443,016  $920,507   56.8%
High Pressure Gas Systems  75,170   218,060   (65.5)%  273,386   312,693   (12.6)%  207,565   75,170   176.1%  357,693   273,386   30.8%
Ultra-Portable Tankless Dive Systems  618,969   -   N/A   761,424   -   N/A   

528,380

   618,969   (14.6)%  

862,978

   761,424   13.3%
Total net revenues $1,320,528  $870,720   51.7% $1,955,317  $1,392,173   40.5% $1,712,918  $1,320,528   29.7% $2,663,687  $1,955,317   36.2%

Cost of revenues as a percentage of net revenues

 Second Quarter Six Months Ended June 30,  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
 2020 2019 2020 2019  2021  2020  2021  2020 
          (unaudited) (unaudited) 
Legacy SSA Products  49.6%  70.2%  58.5%  75.9%  68.4%  49.6%  71.9%  58.5%
High Pressure Gas Systems  47.2%  95.0%  67.8%  89.4%  54.7%  47.2%  54.4%  67.8%
Ultra-Portable Tankless Dive Systems  77.2%  N/A   83.0%  N/A%  63.2%  77.2%  60.6%  82.9%

Gross profit(loss)profit (loss) margins

 Second Quarter Six Months Ended June 30,  Three Months Ended
June 30,		  Six Months Ended
June 30,		 
 2020 2019 2020 2019  2021  2020  2021  2020 
          (unaudited) (unaudited) 
Legacy SSA Products  50.4%  29.8%  41.5%  24.1%  31.6%  50.4%  28.1%  41.5%
High Pressure Gas Systems  52.8%  5.0%  32.2%  10.6%  45.3%  52.8%  45.6%  32.2%
Ultra-Portable Tankless Dive Systems  22.8%  N/A   17.1%  N/A%  36.8%  22.8%  39.4%  17.1%

Legacy SSA Products segment

Revenue in this segment continues to show improvement, increasing 56.0% year over year for the Second Quarter 2021. The declineincrease in net revenues fromin this segment for the Second Quarter 2020 from the Second Quarter of 2019 relates to the initial impact of the COVID-19 pandemic, as the majority of the country, and therefore our retail sales outlets, were nearly shut down for the month of April 2020. However, as the country began to re-open in April, the Company recovered a majority of the lost sales for the quarter as consumers returned to recreational activities that promoted social distancing and family related activities, such as diving. For the six months ending June 30, 20202021 as compared to the same period in 2019, net revenues showed a decline of 14.7%. This2020 can be solely attributed to increases in dealer demand, increasing 114.1%, and demand from affiliates increasing 344.1%. These segments increased in anticipation for the economic shut down2021 summer season. Direct to consumer demand decreased for the Second Quarter, 2021 as compared to the same period in 2020, as the re-opening of the economy after COVID allowed consumers to purchase product at retail rather than from our website. For the six months ended June 30, 2021 the Legacy SSA segment continued to show significant increase over the prior year. Increases in all areas of this segment increased netting to a resulttotal increase of COVID-19,56.8% for the six months ended June 30, 2021 as compared to the same period in the months of March and April, 2020. This shut-down eliminated the sales momentum from the first two months of 2020.

Our costs of revenues as a percentage of net revenues in this segment continuedincreased from 58.5% to decrease71.9% for the six months ended June 30, 2020 from the prior year. The increased cost of revenue, and in the Second Quarter 2020turn reduction in product margin, can be attributed to increase proportion of dealer sales as compared to the Second Quarter of 2019. The decrease in cost of revenues as a percentage of net revenue is a result of better margins coming from an increase in direct to consumer sales during the period. This was supplemented with a change in the dealer pricing model during the Second Quarter 2020, allowing the Company to increase its margins from the dealer while selling more products through the dealer. For the six months ending June 30, 2020 the cost of net sales was reduced to 58.5% as compared to 75.9% for the same period in 2019. This continued margin improvement is a resultprior year increasing 79.3%.

A breakdown of the cost reductions putrevenue channels for this segment are below. Direct to Consumer represent items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we have dealer agreements that typically operate with the lowers margin. Affiliates are resellers of our products that are not in place by the Company during first quarter of 2020 to prepare for sales reductions due to the COVID-19 pandemic, and the Company’s strategy to increase margins from itsa formal dealer base.arrangement.

22

 

Three Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Second Quarter 2021  Second Quarter 2020  % change  Second Quarter 2021  Second Quarter 2020  Second Quarter 2021  Second Quarter 2020 
Dealers $

664,928

  $310,499   114.1%  77.7%  31.0%  22.3%  69.0%
Direct to Consumer (website Included)  273,430   307,195   (11.0)%  45.1%  68.3%  54.9%  31.7%
Affiliates  38,615   8,695   344.1%  74.3%  51.0%  25.7%  49.0%
Total $

976,973

  $626,389   56.0%  68.4%  49.6%  31.6%  50.4%

Six Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Six months ended June 30, 2021  Six months ended June 30, 2020  % change  Six months ended June 30, 2021  Six months ended June 30, 2020  Six months ended June 30, 2021  Six months ended June 30, 2020 
Dealers $918,467  $512,284   79.3%  78.7%  50.1%  21.3%  49.9%
Direct to Consumer (website Included)  484,102   387,499   25.0%  58.9%  69.5%  41.1%  30.5%
Affiliates  40,447   20,724   95.2%  74.5%  60.4%  25.5%  39.6%
Total $1,443,016  $920,507   56.8%  71.9%  58.5%  28.1%  41.5%

High Pressure Gas Systems segment

The decrease in net revenues from this segment forSales of high-pressure breathing air compressors shown a 176.1% year over year increase during the Second Quarter 2020 from2021 as the comparable periodmarketplace began to see an economic recovery during this period. All segments have begun to open up, and demand has begun to show signs of life, with travel returning, and diving operations throughout the US and Caribbean have re-opened and receiving tourists. The majority of our dive resort and dive operator customers’ businesses have begun to conduct a more normalized business, and the recovery of this customer segment can be seen in 2019, reflects specifically to the shut-downincreases in revenue in the reseller segment. The Original Equipment Manufacturer segment showed significant growth with an increase of business due to the COVID-19 pandemic. The customers who utilize this equipment have been slower to recover once the economy re-opened. For the six months ending June 30, 2020 net revenues declined by 12.6% as compared to the same period in 2019. The reductionover 300% for the six month period was significantly less than that of the three months endingended June 30, 2020 because2021 as compared to 2020. The direct to consumer segment, which includes yacht owners and direct to dive stores, showed some life in the Second Quarter 2021 increasing 133%, however this increase wasn’t enough to recover the year over year results for the six months ended June 30, 2021 with a decrease in revenue in the segment was continuing the momentum from 2019 into the first two months of 2020.22.0%. We continue to believe that thesee acceptance of the L&W brand is growing steadily and we expect sales to increases return as the customers within this market segment continue to recover.increase as we open the product up to new markets outside of the diving and yachting segments.

Our costs of revenues as a percentage of net revenues in this segment decreased significantly during the Second Quarter 2020to 54.4% as compared to 67.8% for the Second Quarter of 2019.six months ended June 30, 2021 and 2020. This can be attributed to a shiftsignificant improvements of in customer base, away from wholesalers and more direct to consumer. The Company also saw margin recovery by reducing fixed expenses within cost of sales to adjust to the reduction in net revenue due to COVID-19 pandemic. The cost of revenue as a percentage of net revenue for the six months ending June 30, 2020 was 67.8% as compared to 89.4%, for the same period in 2019.reseller and OEM customer segments. This is a result ofattributed to improved margins forproduct mix and improvements in the Company as the customer base shifted from the wholesale model to the direct to customer model along with the adjustment to the reduction in fixed costs within cost of revenue in correlation with the unexpected revenue decrease that occurred during April 2020.job-costing process.

Three Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Second Quarter 2021  Second Quarter 2020  % change  Second Quarter 2021  Second Quarter 2020  Second Quarter 2021  Second Quarter 2020 
Resellers $121,118  $83,945   44.3%  53.0%  67.8%  47.0%  32.2%
Direct to Consumers  43,749   18,785   132.9%  68.2%  18.5%  31.8%  81.5%
Original Equipment Manufacturers  42,698   (27,560)  254.9%  45.6%  90.2%  54.4%  9.8%
Total $207,565  $75,170   176.1%  54.7%  47.2%  45.3%  52.8%

23

 

Six Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Six months ended June 30 2021  Six months ended June 30, 2020  % change  Six months ended June 30, 2021  Six months ended June 30, 2020  Six months ended June 30, 2021  Six months ended June 30, 2020 
Resellers $218,264  $141,718   54.0%  57.3%  71.9%  42.7%  28.1%
Direct to Consumers  93,990   120,558   (22.0)%  51.7%  66.1%  48.3%  33.9%
Original Equipment Manufacturers  45,439   11,110   309.0%  46.1%  33.7%  53.9%  66.3%
Total $357,693  $273,386   30.8%  54.4%  67.8%  45.6%  32.2%

Ultra Portable Tankless Dive Systems

We started building and shipping ourRevenue for the six months ended June 30, 2021 in the Ultra Portable Tankless Dive Systems (Nemo)System segment continues to show significant improvement with growth of 13.3% increase for the first six months of 2021 as compared to the same period in 2020. The increase in revenue is despite the third quarterloss of 2019. Duringthe non-recurring revenue related to the BLU-Vent project that was recognized during the Second Quarter 2020,2020. All of the sales channel was still developingchannels for this business segment continue to develop. The largest contributor to the revenue increases for both the three and six months ended June 30, 2021 as compared to the prior year, are the growth in ourconsumer direct sales and sales via the Amazon channel. Through June 30, 2021, BLU3 is selling to Amazon in nine countries as well as a significant presence in the US Amazon Channel. BLU3 continues to expand its dealer base which can be seen by the 334.2% revenue growth for first six months of 2021 as compared to the same period in 2020. The Company’s continued focus on direct to consumer channels. Revenuevia our website accounted for a 40.2% increase for the Nemo for the threesix months endingended June 30, 2020 was approximately $160,0002021 as compared to approximately $143,000 during the three months ending March 31, 2020. During the Second Quarter 2020, BLU3 received a purchase order from a third-party to mature the design of the Nemo into a functional ventilator prototype, to potentially help with the ventilator shortage that the country was facing due to the COVID–19 pandemic. BLU3 Vent emerged as the first in the Hack-a-Vent challenge to pass through preliminary testing at Uniformed Services University to confirm feasibility to treat an ARDS inflicted patient. BLU3 Vent has been submitted initial documents for a review with the FDA at the direction and with the support of the Wright Brothers Institute (WBI) under an additional purchase order issued May 12, 2020. Revenue from this contract totaled $459,831 for the three months ending June 30, 2020. Currently, this project is on standby as the urgent demand for emergency use ventilators has declined. Accordingly, the Company is unable to predict if it will report revenues from the sales of the BLUE Vent project during the balance of 2020. The Company’s team is working with WBI to be prepared in case a major demand for ventilators returns.prior year.

Our aggregate cost of revenue from this segment as percentage of net revenues for the three months ended and six months ended June 30, 2021 have shown improvement over the same period in the Second Quarter 2020 may not be reflective of our margins on this segment in future periods.2020. The COVID-19 pandemic, the BluVent project, along with the inefficiencies in production of a new product line, have contributed to the current level of cost of sales.revenue and margins through the first six months of 2021 are more representative of the normalized costs and margins, excluding the non reoccurring Ventilator project. BLU3 is consistently working toward greater production efficiency and capacity.

Three Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Second Quarter 2021  Second Quarter 2020  % change  Second Quarter 2021  Second Quarter 2020  Second Quarter 2021  Second Quarter 2020 
Ventilator $-  $457,803   (100.0)%  -   89.0%  -   11.0%
Direct to Consumer  

188,466

   149,589   26.0%  53.9%  51.3%  46.1%  48.7%
Amazon  

188,467

   -   100.0%  61.9%  -   38.1%  100.0%
Dealers  

151,447

   11,577   1,208.1%  76.4%  (57.2)%  23.6%  157.2%
Total $528,380  $618,969   (14.6)%  63.2%  77.2%  36.8%  22.8%

Six Months Ended June 30, 2021 and June 30, 2020
 
  Net Revenue  Cost of Revenue as a % of Net Revenue  Margin 
  Six months ended June 30, 2021  Six months ended June 30, 2020  % change  Six months ended June 30, 2021  Six months ended June 30, 2020  Six months ended June 30, 2021  Six months ended June 30, 2020 
Ventilator $-  $457,803   (100.0)%  -   89.0%  -   11.0%
Direct to Consumer  

340,665

   243,042   40.2%  52.2%  71.9%  47.8%  28.1%
Amazon  259,265   -   100.0%  61.8%  -   38.2%  100.0%
Dealers  263,048   60,579   334.2%  70.1%  81.4%  29.9%  18.6%
Total $862,978  $761,424   13.3%  60.6%  82.9%  39.4%  17.1%

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Operating Expenses

Operating expenses, consisting of selling, general and administrative (“SG&A&A”) expenses and research and development costs, and are reported on a consolidated basis for our operating segments. Overall, ourAggregate operating expenses increased 103.9%decreased 6.6% for the Second Quarter 2020 from2021 as compared to the Second Quarter 2020. For the six months ended June 30, 2021 aggregate operating expenses increased by 23.5% from the same period in 2020.

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

SG&A decreased by 4.7% and increased by 25.7% for the Second Quarter and six months ended June 30, 2021 as compared to the same periods in 2020. The main drivers of 2019,SG&A during those periods are as follows:

Expense Item Second Quarter 2021  Second Quarter 2020  % Change  Six months Ended June 30, 2021  Six months Ended June 30, 2020  % Change 
Payroll, Selling & Admin $

236,062

  $

103,368

   128.4% $461,529  $247,890   86.2%
Stock Compensation Expense  266,370   296,470   (10.2)%  498,875   406,040   22.9%
Other Professional Fees  71,500   238,500   (70.0)%  92,000   241,500   (61.9)%
Advertising  47,615   16,212   193.7%  113,841   35,068   224.6%
All Others  202,060   209,913   (3.7)%  394,397   311,543   26.6%
Total SG&A $823,607  $864,463   (4.7)% $1,560,642  $1,242,041   25.7%

Payroll increases for the three and 63.6%six months ended June 30, 2021 are related to the hiring of the CEO, and other administrative positions to support the growth in each of our divisions.

Non-Cash Stock compensation expenses have seen a slight decrease for the Second Quarter, as the 2020 totals included stock options that were fully expensed in 2020, and no further adjustments were necessary in the Second Quarter 2021. The increase for the six months ended June 30, 2021 as compared to the same period in 2020 fromis related to options to the our CFO and Chairman, that were issued during the Second Quarter 2020 and were fully expensed in the First Quarter 2021.

Other professional fees, typically in the form of non-cash stock or stock options decreased 70% and 61.9% for the Second Quarter 2021 and six months ended June 30, 2019.

SG&A increased 111.4% for2021, respectively, as compared to the same periods in 2020. This decrease can be attributed to the contracts of both an IR firm and a PR firm in the Second Quarter 2020, fromthat were terminated or their compensation was restructured for 2021.

The increase in advertising expense for the Second Quarter of 2019,three and 70.3% for the six months ended June 30, 2021 as compared to the same periods in 2020 fromis attributable to the agreement with the Company’s provider of marketing and advertising. This contract was executed in the Third Quarter 2020, and was not renewed as of July 31, 2021.

Research & Development Expenses (R&D Expenses)

R&D expenses for the Second Quarter and six months ended June 30, 2019. These increases are2021 decreased 46.7% and 24.4%, respectively as compared to the same periods in the prior year. The decrease can be primarily attributable non-cash compensation expenses totalingattributed to the near completion of the R&D for BLU3’s NOMAD, as it moves toward production in the third quarter, 2021.

Total Other Income

Total other income was approximately $550,000$157,800 and non-cash professional fees of approximately $222,000 that were paid in stock and/or options during$163,900 for the Second Quarter 2020.

Research2021 and development costs increased 15.3% orsix months ended June 30, 2021 as compared to other expense of approximately $5,300$6,400 and $12,300 during the same period in 2020. The other income for the Second Quarter 2021 consists of a gain from the forgiveness of the PPP loan of $159,600 offset by interest expense of approximately $1,800. The other expenses for the Second Quarter 2020 from the comparable periodconsist only of interest expense. The decrease in 2019, and declined 12.7% or approximately $8,200 for the six months ended June 30, 2020 as comparedinterest expense can be attributed to the six months ended June 30, 2019. These increase for the three months ended June 30, 2020 related to expenses for the next generation of the Nemodecrease in BLU3. The overall reduction for the six months ending June 30, 202 is related to a reduction in R&D costs associated with the Ultra-Portable Tankless Dive Systems segment overall. The BLU3 segment completed the R&D phase of the Nemo project and moved it into a marketable system during the third quarter of 2019, therefore, R&D costs during first quarter of 2020 were significantly reduced.

Total Other Expense

Total other expense increased 262.6% and 222.6%, respectively, in the Second Quarter 2020 and the six months ended June 30, 2020 from the comparable periods in 2019. These increases are primarily attributable the interest expense on the convertible debentures, and interest expense on the Marlin Capital loan.Note, the conversion and settlement of debt and a reduction in the note balances due to repayments made.

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Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarized total current assets, total current liabilities and working capital (deficit) at June 30, 20202021 (unaudited) as compared to December 31, 2019.2020.

 June 30, December 31, % of 
 June 30, December 31, % of  2021  2020  change 
 2020  2019  change   (unaudited)         
Total current assets $1,646,921  $998,304   65.0% $1,954,388  $1,469,037   33.0%
Total current liabilities $1,137,516  $1,402,941   (18.9)% $1,156,250  $1,029,204   12.3%
Working capital (deficit) $509,405  $(404,637)  225.9%
Working capital $798,138  $439,833   81.4%

The increase in our current assets at June 30, 20202021 from December 31, 20192020 principally reflects increasedincreases in cash, accounts receivable from related and non-related parties, inventory, net.net and prepaid expenses and other current assets. The decreaseincrease in our total current liabilities principally reflect decreasesincreases in total accounts payable, accounts payable –related parties,customer deposits, and notes payable,other liabilities, offset by the increasedecreases in current maturities of long term debt.debt, notes payable and the convertible debentures.

Summary Cash Flows

 

Six Months Ended

June 30,

  

Six Months Ended

June 30,

 
 2020  2019  2021  2020 
      (unaudited) 
Net cash used by operating activities $(463,508) $(405,183) $(396,838) $(463,508)
Net cash used by investing activities $-  $-  $(14,591) $- 
Net cash provided by financing activities $885,138  $500,000  $227,904  $885,138 

Net cash used in operating activities for the six months ended June 30, 20202021 was due to the net loss of approximately $710,000$530,800 which is primarily attributable to the increase in non-cash stock compensation expenses of approximately $679,000.$600,900. The non-cash stock compensation expense for the six months ended June 30, 20202021 is attributable to the incentive bonus sharesstock options issued to CEO andMr. Carmichael, Mr. Constable, various employees as well as shares issued for services to consultants and stock-based compensation related to the options issued.consultants. The cash used is also the result of increases in current assets, including, accounts receivable, Inventory,inventory, net, and prepaid expenses that utilized approximately $221,000 and the reduction of most currently$660,300 offset by increases in current liabilities to includeincluding accounts payable, accounts payable – related party, other liabilities, operating lease liabilities, and customer deposits, utilizingwhich totaled to approximately $361,000.$325,900.

Net cash used by investing activities relate primarily to an increase in leasehold improvements, as the company expanded its office space for additional personnel, and lighting in the production areas.

Net cash provided by financing activities in the six months ended June 30, 20202021 reflects proceeds from the sale of common stock, via an offering as well as the warrants exercised, and the proceeds from a loan payable.new debt agreement, offset by the repayments of notes payable and Marlin Note.

Going Concern and Management’s Liquidity Plans

As set forth in Note 3 of the unaudited condensed consolidated financial statements appearing in this report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the 12-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, 20192020 contained a going concern qualification.

We have a history of losses, and an accumulated deficit of $12,315,253$13,486,923 as of June 30, 2020.2021. Despite a working capital surplus of approximately $510,000$798,138 at June 30, 2020,2021, 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 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. As set forth in Note 65 appearing earlier in this report, we are pastowe third parties approximately $50,000 under the terms of convertible debentures that become due on the repayment of a $10,000 convertible debenture andin December 2021. In addition, we have an additional $80,000$15,000 in loans which are due on demand. 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.

26

 

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 basedequity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing earlier in this report.

Recent Accounting Pronouncements

The recent accounting standards that have been issued or proposed by the Financial Accounting Standards Board (FASB)FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. These recent accounting pronouncements are described in Note 2 to our notes to unaudited condensed consolidated financial statements appearing earlier in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. The Company’s management, under the supervision and with the participation of Robert Carmichael, the Company’sour Chief Executive Officer who also serves asand our principal financial and accounting officer,Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2020.2021. Based upon that evaluation theour Chief Executive Officer who also serves as our principal financial and accounting officerChief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report as a result of the following:

●     the continuing material weakness in the Company’s internal control over financial reporting as described in Item 9A. of our 2019 10-K;

●     our management failed to timely obtain the requisite consent of our Board of Directors to certain corporate actions, including the extension of the payment of Board fees to our directors, including Mr. Carmichael; and to the approval of certain contracts which contemplate the issuance of shares of our common stock; and

●      our inability to file this report within the periods prescribed.

In August 2020 we engaged a firm to assist us in the preparation of our financial statements and our periodic reports to be filed with the SEC. We expect this this firm will provide much needed support to our accounting department which will enable us to file our periodic reports with the SEC on a timely basis.10-K. We do not, however, expect that the weaknesses in our disclosure controls will be remediated until such time as we remediate the material weaknesses in our internal control over financial reporting.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15 under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27

 


PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.We are a defendant in that certain lawsuit styled Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., Case number CACE19009879 filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $15,870.97 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. This matter was settled for $10,000 in July 2021.

Item 1A. Risk Factors

We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 20192020 10-K.

Item 2. Unregistered sales of equity securities and use of proceeds

Except as to unregistered sales of securities disclosed under prior reports, during the period covered by this report we sold the securities disclosed below that were not registered under the Securities Act of 1933, as amended.

 

In September 2020,On June 10, 2021, the Company issued an aggregate of 229,2446,055,358 shares of common stock to the holder of an employee as partial compensation for services performedoutstanding convertible debenture pursuant to the conversion of the convertible debenture and accrued interest in Junethe amount of $60,554. The shares of restricted common stock were issued pursuant to August 2020 valued at $4,930.the exemption from registration provided by Section 3(a)(9) of the Act. The recipient was a sophisticated investor whichholder has access to business and financial information onconcerning the Company and the issuances were exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) of that act.is an accredited investor.

 

Item 3. Defaults Upon Senior Securities

None.

Item 4. MINE SAFETY DISCLOSURE

None.

Item 5. Other Information

On July 30, 2021, the Company entered into a binding term sheet (the “Term Sheet”) with Submersible Systems, LLC, a Florida limited liability corporation (“Submersible”), and Tierra Vista Group, LLC and Summit Holdings V, LLC (Tierra Vista Group and Summit Holdings V, collectively, the “Sellers”), the owners of all of the membership interests of Submersible (the “Membership Interests”). Pursuant to the terms of the Term Sheet, the Company will acquire all of the Membership Interests from the Sellers for an aggregate purchase price of $1,750,000 (the “Purchase Price”), to be paid to the Sellers at closing: (i) by the issuance to the Sellers of three-year convertible promissory notes (each, a “Note”) in the aggregate principal amount of $350,000, at an interest rate of 8% per annum, with each Seller to receive a Note in the principal amount pro rata with the number of Membership Interests such Seller owns of Submersible, and (ii) by the issuance to the Sellers of an aggregate of $1,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share, such number of Shares to be calculated based on the volume weighted average price of a share of the Company’s Common Stock on the OTC Markets ("VWAP") for (a) 180 days prior to the date of the Term Sheet, or (b) 180 days prior to the closing date of the transaction, whichever results in a lower VWAP, with each Seller receiving a pro rata portion of the Shares based upon the total number of Membership Interests held by such Seller. The closing and consummation of the transactions contemplated by the Term Sheet are to occur no later than August 31, 2021, and are subject to certain closing conditions and deliveries, including an agreement containing typical representations and warranties by the parties of a transaction of this nature. There are no assurances the transactions will be completed.

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-statutory 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. The maximum number of shares that may be issued under the Plan shall be 25,000,000 shares. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years.

28

 

None.

Item 6. Exhibits

    Incorporated by Reference Filed
        Exhibit or Furnished
No. Exhibit Description Form Date Filed Number Herewith
           
3.1 Articles of Conversion (Nevada) 8-K 10/28/15 3.1  
           
3.2 Certificate of Conversion (Florida) 8-K 10/28/15 3.2  
           
3.3 Articles of Incorporation (Florida) 8-K 10/28/15 3.3  
           
3.4 Articles of Amendment 8-K 12/16/15 3.5  
           
3.5 Bylaws 8-K 10/28/15 3.4  
           
4.1 2021 Equity Incentive Plan       Filed
           
10.1 Binding Term Sheet dated July 30, 2021 8-K 

8/3/2021

   
           
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
32.1 Certification Pursuant to Section 1350       Filed
           
101 XBRL Interactive Data File       Filed

29

 

    Incorporated by Reference Filed
        Exhibit or Furnished
No. Exhibit Description Form Date Filed Number Herewith
           
3.1 Articles of Conversion (Nevada) 8-K 10/28/15 3.1  
           
3.2 Certificate of Conversion (Florida) 8-K 10/28/15 3.2  
           
3.3 Articles of Incorporation (Florida) 8-K 10/28/15 3.3  
           
3.4 Articles of Amendment 8-K 12/16/15 3.5  
           
3.5 Bylaws 8-K 10/28/15 3.4  
           
10.23 Retail Installment Sales Contract dated 08/21/2020       Filed
           
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
32.1 Certification Pursuant to Section 1350       Filed
           
101 XBRL Interactive Data File       Filed

SIGNATURES

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: September 15, 2020August 16, 2021Brownie’s Marine Group,marine group, Inc.
By:/s/ Christopher H. Constable
Christopher H. Constable
Chief Executive Officer,
principal executive officer
By:/s/ Robert M. Carmichael
Robert M. Carmichael
President, Chief ExecutiveFinancial Officer,
Principalprincipal financial and accounting officer

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