UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended March 31, |
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.BROWNIE’S MARINE GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida | 90-0226181 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
3001 NW | ||
Pompano Beach, Florida | 33069 | |
(Address of principal executive | (Zip |
(954)462-5570
Registrant’s telephone number, including area code
Not applicable
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] ☐ No [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 337,223,694 shares of common stock outstanding atas of May 17, 2021.27, 2022.
TABLE OF CONTENTS
Page No. | ||
PART I - FINANCIAL INFORMATION | ||
ITEM 1. | FINANCIAL STATEMENTS. | 4 |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | |
ITEM 4. | CONTROLS AND PROCEDURES. | |
PART II - OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS. | |
ITEM 1A. | RISK FACTORS. | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | |
ITEM 4. | MINE SAFETY DISCLOSURES. | |
ITEM 5. | OTHER INFORMATION. | |
ITEM 6. | EXHIBITS. |
2 |
CAUTIONARY STATEMENTSNOTE REGARDING FORWARD-LOOKING INFORMATION
Various statements in this report contain or may containThis Quarterly Report includes forward-looking statements that are subjectrelate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors whichthat may cause our actual results, levels of activity, performance or achievements to bediffer materially different from any future results, levels of activity, performance or achievements expressed or implied by suchthese 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. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:
You should read thoroughly this report and the documents that we refer to hereinQuarterly Report with the understanding that our actual 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 statementsrisk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SecuritiesSEC on April 22, 2022, which risk factors could adversely impact our business and Exchange Commission on March 31, 2021 (the “2020 10-K”) and our other filings with the Securities and Exchange Commission in their entirety.financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 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. TheseAll forward-looking statements speak only as of the date of this report, and you should not rely on thesewhich they are made. We undertake no obligation to update such statements without also consideringto reflect events that occur or circumstances that exist after the risks and uncertainties associated with these statements and our business.date on which they are made, except as required by applicable law.
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, “First Quarter 2021” refers to the period ended March 31, 2021, “First Quarter 2020” refers to the period ended March 31, 2020, “2020” refers to the year ended December 31, 2020 and “2021” refers to the year ending December 31, 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 |
ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
March 31, 2021 | December 31, 2020 | March 31, 2022 (Unaudited) | December 31, 2021 | |||||||||||||
ASSETS | (Unaudited) | |||||||||||||||
Current Assets | ||||||||||||||||
Cash | $ | 343,900 | $ | 345,187 | $ | 604,274 | $ | 643,143 | ||||||||
Accounts receivable – net | 100,024 | 81,251 | ||||||||||||||
Accounts receivable - net | 191,438 | 123,270 | ||||||||||||||
Accounts receivable - related parties | 61,729 | 67,644 | 77,140 | 77,301 | ||||||||||||
Inventory | 958,016 | 863,791 | ||||||||||||||
Inventory, net | 2,029,192 | 1,895,260 | ||||||||||||||
Prepaid expenses and other current assets | 244,873 | 111,164 | 395,387 | 227,458 | ||||||||||||
Total current assets | 1,708,542 | 1,469,037 | 3,297,431 | 2,966,432 | ||||||||||||
Property, equipment and leasehold improvements, net | 137,183 | 143,413 | 257,215 | 270,065 | ||||||||||||
Operating Lease Assets | 423,114 | 446,981 | 397,208 | 454,475 | ||||||||||||
Intangible Assets, Net | 700,780 | 718,905 | ||||||||||||||
Goodwill | 249,986 | 249,986 | ||||||||||||||
Other assets | 12,148 | 13,649 | 17,831 | 14,098 | ||||||||||||
Total assets | $ | 2,280,987 | $ | 2,073,080 | $ | 4,920,451 | $ | 4,673,961 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 427,148 | $ | 386,977 | $ | 871,079 | $ | 744,383 | ||||||||
Accounts payable - related parties | 91,014 | $ | 102,360 | 18,032 | 37,267 | |||||||||||
Customer deposits and unearned revenue | 39,633 | 20,353 | 248,433 | 143,938 | ||||||||||||
Other liabilities | 137,017 | 100,817 | 201,580 | 187,924 | ||||||||||||
Operating lease liabilities | 110,042 | 107,691 | 208,623 | 232,283 | ||||||||||||
Current maturities long term debt | 45,016 | 151,006 | 46,867 | 50,402 | ||||||||||||
Notes payable | 25,000 | 50,000 | ||||||||||||||
Convertible debentures, net | 100,000 | 110,000 | ||||||||||||||
Total current liabilities | 974,870 | 1,029,204 | 1,594,614 | 1,396,197 | ||||||||||||
Long term debt | 216,940 | 120,782 | ||||||||||||||
Operating lease liabilities | 313,072 | 339,290 | ||||||||||||||
Long term debt, net of current | 80,843 | 87,956 | ||||||||||||||
Long term convertible debentures, net | 340,176 | 339,254 | ||||||||||||||
Operating lease liabilities, net of current | 189,134 | 222,899 | ||||||||||||||
Total liabilities | 1,504,882 | 1,489,276 | 2,204,767 | 2,046,306 | ||||||||||||
Commitments and contingent liabilities (see note 7) | ||||||||||||||||
Commitments and contingent liabilities (see note 9) | - | - | ||||||||||||||
Stockholders’ equity | ||||||||||||||||
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of March 31, 2021 and December 31, 2020. | 425 | 425 | ||||||||||||||
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 337,223,694 shares issued and outstanding at March 31, 2021 and 306,185,206 shares issued and outstanding at December 31, 2020, respectively. | 33,724 | 30,620 | ||||||||||||||
Common stock payable 138,941 shares and 138,941 shares, respectively as of March 31, 2021 and December 31, 2020. | 14 | 14 | ||||||||||||||
Preferred stock; $ | par value: shares authorized; issued and outstanding as of March 31, 2022 and December 31, 2021425 | 425 | ||||||||||||||
Common stock; $ | par value; shares authorized; and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.40,566 | 39,386 | ||||||||||||||
Common stock payable; | shares and shares, as of March 31, 2022 and December 31, 2021, respectively14 | 14 | ||||||||||||||
Additional paid-in capital | 14,139,060 | 13,508,882 | 17,661,788 | 17,132,434 | ||||||||||||
Accumulated deficit | (13,397,118 | ) | (12,956,137 | ) | (14,988,696 | ) | (14,544,604 | ) | ||||||||
Accumulated other comprehensive income | 1,587 | - | ||||||||||||||
Total stockholders’ equity | $ | 776,105 | $ | 583,804 | $ | 2,715,684 | $ | 2,627,655 | ||||||||
Total liabilities and stockholders’ equity | $ | 2,280,987 | $ | 2,073,080 | $ | 4,920,451 | $ | 4,673,961 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)(unaudited)
2021 | 2020 | 2022 | 2021 | |||||||||||||
Net revenues | ||||||||||||||||
Net revenues | $ | 746,353 | $ | 478,235 | $ | 1,701,564 | $ | 746,353 | ||||||||
Net revenues - related parties | 204,416 | 156,555 | 273,405 | 204,416 | ||||||||||||
Total net revenues | 950,769 | 634,790 | 1,974,969 | 950,769 | ||||||||||||
Cost of net revenues | ||||||||||||||||
Cost of net revenues | 509,069 | 431,955 | 1,121,638 | 509,069 | ||||||||||||
Cost of net revenues - related parties | 105,431 | 80,998 | 121,174 | 105,431 | ||||||||||||
Royalties expense - related parties | 11,593 | 4,850 | 12,789 | 11,593 | ||||||||||||
Royalties expense | 13,704 | 14,093 | 43,608 | 13,704 | ||||||||||||
Total cost of revenues | 639,797 | 531,896 | 1,299,209 | 639,797 | ||||||||||||
Gross profit | 310,972 | 102,894 | 675,760 | 310,972 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 737,035 | 377,578 | 1,105,739 | 737,035 | ||||||||||||
Research and development costs | 21,107 | 16,093 | 3,920 | 21,107 | ||||||||||||
Total operating expenses | 758,142 | 393,671 | 1,109,659 | 758,142 | ||||||||||||
Loss from operations | (447,170 | ) | (290,777 | ) | (433,899 | ) | (447,170 | ) | ||||||||
Other income (expense), net | ||||||||||||||||
Gain on settlement of debt | 10,000 | - | - | 10,000 | ||||||||||||
Interest expense | (3,811 | ) | (5,916 | ) | (10,193 | ) | (3,811 | ) | ||||||||
Total other income (expense) – net | 6,189 | (5,916 | ) | |||||||||||||
Loss income before provision for income taxes | (440,981 | ) | (296,693 | ) | ||||||||||||
Total other income (expense), net | (10,193 | ) | 6,189 | |||||||||||||
Loss before provision for income taxes | (444,092 | ) | (440,981 | ) | ||||||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net loss | $ | (440,981 | ) | $ | (296,693 | ) | $ | (444,092 | ) | $ | (440,981 | ) | ||||
Other Comprehensive Income | ||||||||||||||||
Unrealized gain on foreign currency contract | 1,587 | - | ||||||||||||||
Total Other Comprehensive income | $ | 1,587 | $ | - | ||||||||||||
Comprehensive loss | $ | (442,505 | ) | $ | (440,981 | ) | ||||||||||
Basic loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Basic weighted average common shares outstanding | 309,236,042 | 252,655,891 | 401,483,605 | 309,236,042 | ||||||||||||
Diluted weighted average common shares outstanding | 309,236,042 | 252,655,891 | 401,483,605 | 309,236,042 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENS OF CHANGES IN SHAREHOLDERS’STOCKHOLDERS EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 20212022 AND 2020
2021
(Unaudited)
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Loss | Accumulated Deficit | Stockholders Equity | |||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Common Stock Payable | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 425,000 | $ | 425 | 393,850,475 | $ | 39,386 | 138,941 | $ | 14 | $ | 17,132,434 | $ | - | $ | (14,544,604 | ) | 2,627,655 | |||||||||||||||||||||||
Shares issued for exercise of warrants | - | - | 10,600,000 | 1,060 | - | - | 263,940 | - | - | 265,000 | ||||||||||||||||||||||||||||||
Shares issued for services | - | - | 1,206,318 | 120 | - | - | 35,380 | - | - | 35,500 | ||||||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 230,034 | - | - | 230,034 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (444,092 | ) | (444,092 | ) | |||||||||||||||||||||||||||||
Other Comprehensive Income | - | - | - | - | - | - | - | 1,587 | - | 1,587 | ||||||||||||||||||||||||||||||
Balance, March 31, 2022 (unaudited) | 425,000 | $ | 425 | 405,656,793 | $ | 40,566 | 138,941 | $ | 14 | $ | 17,661,788 | $ | 1,587 | $ | (14,988,696 | ) | 2,715,684 |
Preferred Stock | Common Stock | Common Stock Payable | Additional | Accumulated Other | Total | |||||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Comprehensive Loss | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | - | $ | (12,956,137 | ) | $ | 583,804 | ||||||||||||||||||||||
Balance | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | - | $ | (12,956,137 | ) | $ | 583,804 | ||||||||||||||||||||||
Shares issued for cash | - | - | 27,500,000 | 2,750 | - | - | 272,250 | - | - | 275,000 | ||||||||||||||||||||||||||||||
Shares issued for services | - | - | 3,116,279 | 312 | - | - | 124,688 | - | - | 125,000 | ||||||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 218,505 | - | - | 218,505 | ||||||||||||||||||||||||||||||
Shares issued for conversion of convertible debentures and accrued interest | - | - | 422,209 | 42 | - | - | 14,735 | - | - | 14,777 | ||||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | - | $ | (440,981 | ) | (440,981 | ) | |||||||||||||||||||||||||||
Balance, March 31, 2021 (unaudited) | 425,000 | $ | 425 | 337,223,694 | $ | 33,724 | 138,941 | $ | 14 | $ | 14,139,060 | $ | - | $ | (13,397,118 | ) | $ | 776,105 | ||||||||||||||||||||||
Balance | 425,000 | $ | 425 | 337,223,694 | $ | 33,724 | 138,941 | $ | 14 | $ | 14,139,060 | $ | - | $ | (13,397,118 | ) | $ | 776,105 |
Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance, December 31, 2020 | 425,000 | $ | 425 | 306,185,206 | $ | 30,620 | 138,941 | $ | 14 | $ | 13,508,882 | $ | (12,956,137 | ) | 583,804 | |||||||||||||||||||||
Shares issued for cash | - | - | 27,500,000 | 2,750 | - | - | 272,250 | - | 275,000 | |||||||||||||||||||||||||||
Shares issued for services | - | - | 3,116,279 | 312 | - | - | 124,688 | - | 125,000 | |||||||||||||||||||||||||||
Stock Option Expense | - | - | - | - | - | - | 218,505 | - | 218,505 | |||||||||||||||||||||||||||
Shares issued for conversion of convertible debentures and accrued interest | - | - | 422,209 | 42 | - | - | 14,735 | - | 14,777 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (440,981 | ) | (440,981 | ) | |||||||||||||||||||||||||
Balance, March 31, 2021 (unaudited) | 425,000 | $ | 425 | 337,223,694 | $ | 33,724 | 138,941 | $ | 14 | $ | 14,139,060 | $ | (13,397,118 | ) | 776,105 |
Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
Shares Outstanding | Par | Shares Outstanding | Par | Shares | Amount | Paid-in Capital | Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||||||||
Balance, December 31, 2019 | 425,000 | $ | 425 | 225,540,501 | $ | 22,554 | 138,941 | $ | 14 | $ | 11,338,104 | $ | (11,604,518 | ) | $ | (243,421 | ) | |||||||||||||||||||
Shares issued for cash | - | - | 2,647,065 | 265 | - | - | 44,735 | - | 45,000 | |||||||||||||||||||||||||||
Shares 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 CEO | - | - | 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 | ) |
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 THREE MONTHS ENDED MARCH 31,
(unaudited)
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (440,981 | ) | $ | (296,693 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 6,230 | 3,533 | ||||||
Shares issued for services | 125,000 | - | ||||||
Stock Based Compensation – incentive bonus shares issued to CEO | - | 1,280 | ||||||
Reserve (recovery) for bad debt | 1,101 | (5,695 | ) | |||||
Stock Based Compensation - Options | 218,505 | 96,290 | ||||||
Gain on settlement of debt | (10,000) | - | ||||||
Amortization of right-of-use asset | 23,867 | 23,861 | ||||||
Changes in operating assets and liabilities | ||||||||
Change in accounts receivable, net | (19,874 | ) | 103,343 | |||||
Change in accounts receivable - related parties | 5,915 | (131 | ) | |||||
Change in inventory | (94,225 | ) | (80,202 | ) | ||||
Change in prepaid expenses and other current assets | (133,709 | ) | 24,998 | |||||
Change in other assets | 1,501 | 1,500 | ||||||
Change in accounts payable and accrued liabilities | 44,948 | 61,847 | ||||||
Change in customer deposits and unearned revenue | 19,280 | (72,911 | ) | |||||
Change in long term lease liability | (23,867 | ) | (23,861 | ) | ||||
Change in other liabilities | 36,200 | (11,436 | ) | |||||
Change in accounts payable - related parties | (11,346 | ) | (23,306 | ) | ||||
Net cash used in operating activities | (251,455 | ) | (197,583 | ) | ||||
Cash flows from investing activities: | ||||||||
Net cash used in investing activities | - | - | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of stock | 275,000 | - | ||||||
Proceeds from unit offering | - | 45,000 | ||||||
Proceeds from exercise of Warrants | - | 125,000 | ||||||
Repayment on notes payable | (15,000 | ) | (7,137 | ) | ||||
Repayment of debt | (9,832 | ) | - | |||||
Net cash used in financing activities | 250,168 | 162,863 | ||||||
Net change in cash | (1,287 | ) | (34,720 | ) | ||||
Cash, beginning of period | 345,187 | 70,620 | ||||||
Cash, end of period | $ | 343,900 | $ | 35,900 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash Paid for Interest | $ | 7,088 | $ | 2,294 | ||||
Cash Paid for Income Taxes | $ | - | $ | - | ||||
Supplemental disclosures of non-cash financing activities: | ||||||||
Shares issued for the conversion of convertible debenture and accrued interest | $ | 14,777 | $ | - |
2022 | 2021 | |||||||
Cash flows used in operating activities: | ||||||||
Net loss | $ | (444,092 | ) | (440,981 | ) | |||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 33,859 | 6,230 | ||||||
Amortization of debt discount | 922 | - | ||||||
Amortization of right-of-use asset | 57,267 | 23,867 | ||||||
Shares issued for services | 35,500 | 125,000 | ||||||
Reserve (recovery) for bad debt | - | 1,101 | ||||||
Stock Based Compensation - Options | 230,034 | 218,505 | ||||||
Gain on Settlement of Debt | - | (10,000 | ) | |||||
Reserve for slow moving inventory | 4,528 | - | ||||||
Changes in operating assets and liabilities | ||||||||
Change in accounts receivable, net | (68,168 | ) | (19,874 | ) | ||||
Change in accounts receivable – related parties | 161 | 5,915 | ||||||
Change in inventory | (138,460 | ) | (94,225 | ) | ||||
Change in prepaid expenses and other current assets | (166,342 | ) | (133,709 | ) | ||||
Change in other assets | (3,733 | ) | 1,501 | |||||
Change in accounts payable and accrued liabilities | 126,696 | 44,948 | ||||||
Change in customer deposits and unearned revenue | 104,495 | 19,280 | ||||||
Change in long term lease liability | (57,425 | ) | (23,867 | ) | ||||
Change in other liabilities | 13,656 | ) | 36,200 | |||||
Change in accounts payable - related parties | (19,235 | ) | (11,346 | ) | ||||
Net cash used in operating activities | (290,337 | ) | (251,455 | ) | ||||
Cash flows used in investing activities: | ||||||||
Purchase of fixed assets | (2,884 | ) | - | |||||
Net cash used in investing activities | (2,884 | ) | - | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | - | 275,000 | ||||||
Proceeds from exercise of Warrants | 265,000 | - | ||||||
Repayment on notes payable | - | (15,000 | ) | |||||
Repayment of debt | (10,648 | ) | (9,832 | ) | ||||
Net cash provided by financing activities | 254,352 | 250,168 | ||||||
Net change in cash | (38,869 | ) | (1,287 | ) | ||||
Cash, beginning balance | 643,143 | 345,187 | ||||||
Cash, end of period | $ | 604,274 | 343,900 | |||||
Supplemental disclosures of cash flow information: | ||||||||
Cash Paid for Interest | $ | 3,454 | 7,088 | |||||
Cash Paid for Income Taxes | $ | - | - |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
7 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Company Overview
Brownie’s Marine Group, Inc., a Florida corporation (hereinafter referred to as “Brownies,” the “Company,” “our” or “BWMG” (the “Company”),(1) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary, Trebor Industries, Inc., a Florida corporation, organizedincorporated in 1981 (“Trebor” or “BTL”), and(2) manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organizedincorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”). In addition, in December 2017, the Company formed and (3) develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BLU3”), to develop. On September 3, 2021, the Company, entered into an Agreement and market portable battery powered surface supplied air dive systems. When used herein, the “Company” or “BWMG” includes Brownie’s Marine Group,Plan of Merger and Reorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation incorporated in 2017, and our wholly-owned subsidiaries Trebor, LWAwholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or “SSI”), and BLU3.Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company.
Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world.
On February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI was established to enter into a guided tour business model that will utilize the technology developed by BLU3 to provide new users and interested divers a guided tour experience. There was no activity in this subsidiary for the three months ended March 31, 2022.
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, 20202021 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 2020Annual Report on Form 10-K for the year ended December 31, 2021 for a broader discussion of our business and the risks inherent in such business.
Principles of Consolidation
The consolidated financial statements include the accounts of BWMGthe Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and BLU3.LBI. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per EIN. At March 31, 2022 and December 31, 2021, the Company had approximately $118,292and $205,500, respectively in excess of the FDIC insured limit.
Foreign Currency Forward Contracts
We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The foreign currency forward hedging contracts outstanding as of March 31, 2022 have settlement dates within 6 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and any unrealized gains or losses are reported in other comprehensive income and reclassified to the Consolidated Statement of Income in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings.
Foreign currency forward contracts entered into to hedge cost of goods purchases were as follows as of March 31, 2022 and December 31, 2021:
Notional Amount | ||||||||
Foreign Currency | March 31, 2022 (unaudited) | December 31, 2021 | ||||||
Euro | $ | 223,970 | - | |||||
Total | $ | 223,970 | $ | - |
Accounts receivable
Accounts receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful accounts is estimated based on historical customer experience and industry knowledge. The allowances for doubtful accounts totaled $17,974 $46,555and $16,872 $46,555at March 31, 20212022 and December 31, 2020,2021, 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 inventoryfollowing:
Schedule of approximately $227,657. No additional reserve for obsolete or slow-moving inventory during the three months ended March 31, 2021.Inventory
March 31, 2022 (unaudited) | December 31, 2021 | |||||||
In-Transit inventory | $ | 8,300 | $ | 130,000 | ||||
Raw materials | 1,029,901 | 1,144,190 | ||||||
Work in process | 95,334 | 99,958 | ||||||
Finished goods | 895,657 | 521,212 | ||||||
Inventory, net | $ | 2,029,192 | $ | 1,895,260 |
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March 31, 2021 (unaudited) | December 31, 2020 | |||||||
Raw materials | $ | 297,886 | $ | 408,841 | ||||
Finished goods | 660,130 | 454,950 | ||||||
Inventory, net | $ | 958,016 | $ | 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 principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive.
We recognize the sale of products under single performance obligations upon shipment of the units as that is when ownership is transferred and our performance is completed. Revenues from repair and maintenance activities is recognized when the repairs are completed and the units have been shipped.
Lease Accounting
We account for leases in accordance with ASC 842, “Leases”. The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations.
We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow us to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. We did not have any finance leases as of March 31, 2021.2022. Our leases generally have terms that range from three years for equipment and five to twenty years for property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.
When we have the option to extend the lease term, terminate the lease 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 months ended March 31, 2021 and 20202022 the lease expense wasexpenses were approximately $32,800 $64,200, and $35,000. Forapproximately $32,800 for the three months ended March 31, 2022 and 2021, and 2020 cashrespectively. Cash paid for operating liabilities for the three months ended March 31, 2022 was $32,694 approximately $64,400 and $31,803, respectively.$32,700 for the three months ended March 31, 2021.
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
Operating Leases | March 31, 2022 (unaudited) | |||
Right-of-use assets | $ | 397,208 | ||
Current lease liabilities | $ | 208,623 | ||
Non-current lease liabilities | 189,134 | |||
Total lease liabilities | $ | 397,757 |
Operating Leases | March 31, 2021 | |||
Right-of-use assets | $ | 423,114 | ||
Current lease liabilities | $ | 110,042 | ||
Non-current lease liabilities | 313,072 | |||
Total lease liabilities | $ | 423,114 |
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee and non-employee are required to provide service in exchange for the award, usually the vesting period.
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Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. At March 31, 20212022 and March 31, 2020, 209,753,340 2021, and 87,389,986,, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.
Recent accounting pronouncements
ASU 2019-12 Income Taxes (Topic 740)
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The recent accounting standardsCompany determined 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 materialstandard has no impact on theits consolidated financial statements upon adoption.and related disclosures.
Note 3. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these consolidated financial statements. For the three months ended March 31, 2021,2022, the Company incurred a net loss of $440,981, $444,092 of which $343,505 $265,534 is non-cash stock related compensation.compensation and shares issued for service. At March 31, 2021,2022, the Company hashad an accumulated deficit of $13,397,118. $14,988,696. Despite a working capital surplus of approximately $733,700 $1,702,817 at March 31, 2021,2022, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4. Related Party Transactions
The Company sells products to three entities, Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, companies owned by the brother of the Mr. Robert M. Carmichael, the Company’s President and Chief Financial Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers with similar sales volumes. These entities accounted for 21.2%13.8% and 24.6% 21.2% of the net revenues for the three months ended March 31, 20212022 and 2020,March 31, 2021, respectively. Accounts receivable from these entities totaled $38,408 $75,066 and $44,323, respectively,$75,792, at March 31, 20212022 and December 31, 2020.2021, respectively.
The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”)BGL and 940 Associates, Inc. (“940 A”),A, entities wholly-owned by Mr.Robert Carmichael. Terms of sale are more favorable than those extended to BWMG’sthe Company’s regular customers, but no more favorable than those extended to Brownie’sthe Company’s strategic partners. Accounts receivable from the combinedthese entities totaled $2,074and Mr. Carmichael totaled $23,321 and $23,321$1,509 at March 31, 20212022 and December 31, 2020,2021, respectively.
The Company had accounts payable to related parties of $91,014 $18,032 and $102,360 $37,267 at March 31, 20212022 and December 31, 2020,2021, respectively. The balance payable at March 31, 20212022 is comprised of $5,000 $5,000 due to Robert Carmichael, and $86,014 due $13,032 to BGL and atBGL. At December 31, 20202021 this account was comprised of $5,000 $5,000 due to Robert Carmichael, and $97,360 $32,267 due to BGL.
The Company has Exclusive License Agreementsexclusive 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 providesagreements. The agreements provide 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 March 31, 2022 and 2021 were $12,789 and March 31, 2020 were $11,593 and $4,850,$11,593, respectively. The accrued royalty for March 31, 2021 is $4,1362022 was approximately $7,700 and it is included in other liabilities.
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On March 25, 2021,February 2, 2022, the Company issued 27,500,000 shares of common stock in exchange for $275,000 to Mr. Charles F. Hyatt, a memberdirector, shares from the exercise of our Boarda warrant at $0.025 per share in consideration of Directors.$250,000.
AsOn February 2, 2022, the Company issued Grace Hyatt, the adult child of March 31, 2021, Mr. Carmichael vested 25,000,000 common Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in accordance with Carmichael Option agreement as further discussed in Note 6consideration of these financial statements.$15,000.
Note 5. Convertible DebenturesPromissory Notes and Notes Payable
Convertible DebenturesPromissory Notes
Convertible debenturespromissory notes consisted of the following at March 31, 2021:2022:
Schedule of Convertible Debentures
Origination Date | Maturity Date | Interest Rate | Origination Principal Balance | Original Discount Balance | Period End Principal Balance | Period End Discount Balance | Period End Balance, Net | Accrued Interest Balance | Reg. | Maturity Date | Interest Rate | Origination Principal Balance | Original Discount Balance | Period End Principal Balance | Period End Discount Balance | Period End Balance, Net | Accrued Interest Balance | Reg. | ||||||||||||||||||||||||||||||||||||||||||||||||||
8/31/11 | 8/31/13 | 5 | % | 10,000 | (4,286 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/01/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | 50,000 | — | 50,000 | 10,000 | (2 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
12/05/17 | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | 50,000 | — | 50,000 | 9,967 | (3 | ) | 12/31/21 | 6 | % | 50,000 | (12,500 | ) | - | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 346,500 | (12,355 | ) | 346,500 | (9,727 | ) | 336,773 | 16,170 | (3 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
9/03/21 | 9/03/24 | 8 | % | 3,500 | (125 | ) | 3,500 | (97 | ) | 3,403 | 140 | (4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 100,000 | $ | — | $ | 100,000 | $ | 19,666 | $ | 350,000 | $ | (9,824 | ) | $ | 340,176 | $ | 16,310 |
(1) | On December 1, 2017, the Company issued a 6% secured convertible promissory note in the principal amount of $50,000, initially due December 1, 2018, subject to extension. The note is secured by the assets of the Company |
The conversion price of the note initially ranged from $0.02 per share if converted in |
(2) | On December |
The conversion price under the note initially ranged from |
(3) | On September 3, 2021, the Company issued a three-year 8% convertible promissory note in the principal amount of $346,550 to Summit Holding V, LLC as part of the acquisition of SSI. Payments on the note are to be equivalent to 50% of the adjusted net profit of SSI payable calendar quarterly. Interest is payable in shares of common stock of the Company at a conversion price of $0.051272 per share, to be paid quarterly. The note holder may convert outstanding principal and interest at a conversion price of $0.051272 per share at any time during the term of the note. The Company recorded $12,355 for the beneficial conversion feature. |
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(4) | On September 3, 2021, the Company issued a three-year 8% promissory note in the principal amount of $3,500 to Tierra Vista Partners, LLC as part of the acquisition of SSI. Payments on the note are to be equivalent to 50% of the adjusted net profit of SSI payable calendar quarterly. Interest is payable in common stock of the Company at a conversion price of $0.051272 per share, to be paid quarterly. The note holder may convert outstanding principal and unpaid interest at a conversion price of $0.051272 at any time up to the maturity date |
Notes Payable
Gonzales Note
The Company issued an unsecured, non-interest-bearing note of $200,000 with Mr. Tom Gonzales on July 1, 2013. The note is payable upon demand. The Company made repayments totaling $15,000 during the three months ending March 31, 2021. The note balance was $25,000 at March 31, 2021 and $40,000 December 31, 2020.
Hoboken Note
The Company issued an unsecured, non-interest-bearing note of $10,000 with Hoboken Street Association on October 15, 2016. The note was forgiven as part of the conversion of the Hoboken Convertible Note on February 22, 2021 as described above. The note balance as of March 31, 2021 and December 31, 2020 was $0 and $10,000, respectively.
Loan Payable
Marlin Note
On September 30, 2019 the Company, viathrough its wholly owned subsidiary BLU3, executed an equipment finance agreement financed for the purchase of certain plastic molding equipment through Marlin Capital Solutions (“Marlin Capital”).Solutions. The initial principal balance was $96,725$96,725 payable over in 36 equal monthly installments of $3,143.80.$3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was $52,147$21,256 as of March 31, 20212022.
Schedule of Future Amortization of Loans Payable
Payment Amortization | Payment Amortization | |||||||
2021 (8 months remaining) | 25,051 | |||||||
2022 | 27,095 | |||||||
2022 (9 months remaining) | 21,256 | |||||||
2023 | - | |||||||
2024 | - | |||||||
2025 | - | |||||||
2025 and thereafter | - | |||||||
2026 | - | |||||||
Total Loan Payments | $ | 52,146 | $ | 21,256 | ||||
Current portion of Loan payable | (33,848 | ) | (21,256 | ) | ||||
Non-Current Portion of Loan Payable | $ | 18,298 | $ | - |
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$55,841 with a zero interest rate payable over 60 months with a monthly payment of $931$931 and is personally guaranteed by Mr.Robert Carmichael. The first payment was due on October 5, 2020. The loan balance as of March 31, 20212022 is $50,210.$39,399.
Schedule of Future Amortization of Loans Payable
Payment Amortization | Payment Amortization | |||||||
2021 (9 months remaining) | $ | 8,330 | ||||||
2022 | $ | 11,168 | ||||||
2022 (9 months remaining) | $ | 8,379 | ||||||
2023 | $ | 11,168 | $ | 11,168 | ||||
2024 | $ | 11,168 | $ | 11,168 | ||||
2025 and thereafter | $ | 8,376 | $ | 8,684 | ||||
Total note payments | $ | 50,210 | $ | 39,399 | ||||
Current portion of note payable | $ | (11,168 | ) | $ | (11,168 | ) | ||
Non-Current Portion of notes payable | $ | 39,042 | $ | 28,231 |
PPP LoanNavitas Note
On May 12, 2020, we received19, 2021 the Company, through its wholly owned subsidiary BLU3, executed an unsecured loan from South Atlantic Bankequipment finance agreement for the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ payable in the principal amount equal monthly installments of $159,600$ (the “SBA Loan”“Navitas Note”), under the Paycheck Protection Program (“PPP”), which. The equipment finance agreement contains customary events of default. The agreement 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 purposefully funded as 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 used the proceeds from this loan to primarily help maintain our payroll and cover our rent and utilities as we navigated our business through the lockdowns associated with the COVID-19 pandemic until our return to normal operations earlier in 2020.September 30, 2021.
Payment Amortization | ||||
2022 (9 months remaining) | 10,873 | |||
2023 | 15,342 | |||
2024 | 16,629 | |||
2025 | 18,204 | |||
2026 | 6,007 | |||
Total Note Payments | $ | 67,055 | ||
Current portion of Note payable | (14,443 | ) | ||
Non-Current Portion of Note Payable | $ | 52,612 |
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Alliance Lease
On January 19, 2022, SSI entered into a capital lease with Alliance Funding Group (“lessor”) to secure a new piece of essential equipment for its operations. The lease has a 36month term of the note is two years, though it may be payable sooner in connection with an event of default under the note. The SBA Loan carries a fixed interest rate of one percent per year, and a monthly payment of $8,983, with$3,522. At the first payment due seven months fromend of the datelease SSI has the option to purchase the equipment for $3,522 plus applicable taxes. The total purchase price of initial cash receipt. Under the CARES Actequipment was $108,675.The vendor has determined that they are unable to supply the equipment, and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceedspurchase order 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 used the SBA Loan for qualifying expenses and have applied for forgivenessthis equipment was cancelled in May, 2022. The lessor initially funded fifty percent of the SBA Loan in accordancepurchase price or approximately $54,000directly to the vendor which the vendor has committed to return once properly instructed by the lessor. For the three months ending March 31, 2022, the Company made payments against this lease totaling approximately $8,600 which are recorded as deposits.
Note 6. Business Combination
Merger with Submersible Systems, Inc.
On September 3, 2020, the Company completed its merger with SSI. Under the terms of the CARES Act. The loan balance as of March 31, 2021 was $159,600.
As of April 28, 2021,Merger Agreement, the Company was notified by South Atlantic Bank, that the SBA Loan was forgiven in full under the termspaid $1.79 million, consisting of the CARES Act.issuance of shares of its common stock (valued at $1.4 million) and the issuance of 8% unsecured convertible promissory notes in the aggregate principal amount of $350,000 in exchange for all of the equity of SSI. The shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following:
Payment Amortization | ||||
2021 | 124,579 | |||
2022 | 35,021 | |||
Total loan payments | $ | 159,600 | ||
Current portion of SBA Loan payable | - | |||
Non-Current Portion of SBA Loan payable | $ | 159,600 |
Holding Period from Closing Date | Percentage of shares eligible to be sold or transferred | |
6 months | Up to % | |
9 months | Up to % | |
24 months | Up to % | |
36 months | Up to % |
The leak-out restriction may be waived by the Company, upon written request by a Seller, if the Company’s common stock is trading on the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of shares per day; provided, however, that (i) only up to 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer.”
The transaction costs associated with the Merger were $65,000 in legal fees paid in $40,000 in cash, and shares of the Company’s common stock with a fair value of $55,952.
Fair Value of Consideration Transferred and Recording of Assets Acquired
The following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed, including an amount for goodwill:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Common stock, | shares at fair market value$ | 1,449,919 | ||
8% unsecured, convertible promissory note payable to seller | 350,000 | |||
Total purchase price | $ | 1,799,919 | ||
Tangible assets acquired | $ | 1,101,604 | ||
Liabilities assumed | (294,671 | ) | ||
Net tangible assets acquired | 806,933 | |||
Identified Intangible Assets | ||||
Customer relationships | $ | 600,000 | ||
Trademarks | 121,000 | |||
Non-compete agreements | 22,000 | |||
Total intangible assets | 743,000 | |||
Goodwill | $ | 249,986 | ||
Total purchase price | $ | 1,799,919 |
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The value of the stock was calculated based on the volume weighted average price (“VWAP”) of a share of the Company’s common stock on the OTC Markets for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term sheet for the Merger or (ii) 180 days prior to the closing date of the Merger, whichever results in a lower VWAP which resulted in a conversion price of $0.051271831 and the issuance of shares of common stock with a fair value of $1,449,919 on the closing date.
Inventory was assessed at the time of closing as to its fair value, and it was determined that a step-up analysis was necessary in order to evaluate the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory is sold. The key assumptions used in this analysis is a gross margin of 38.3% and selling costs of 5.0%, The analysis resulted in a necessary step up of $31,000 at the time of closing.
Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes.
As of March 31, 2022, the Company recorded an estimated fair value of the intangible assets and goodwill of $ based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
Pro Forma Information
The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2021. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs.
Schedule of Business Acquisition, Pro Forma Information
Three months ended March 31, 2021 | ||||
Revenue | $ | 1,282,571 | ||
Net Loss | $ | (494,619 | ) | |
Basic and Diluted Loss per Share | $ | (0.00 | ) | |
Basic and Diluted Weighted Average Common Shares Outstanding | 337,731,960 |
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of SSI.
Note 7. Goodwill and Intangible Assets, Net
The following table sets for the changes in the carrying amount of the Company’ Goodwill for the quarter ended March 31, 2022
Summary of Changes in Goodwill
2022 | ||||
Balance, January 1 | $ | 249,986 | ||
- | ||||
Balance, March 31 | $ | 249,986 |
14 |
The following table sets for the components of the Company’s intangible assets at March 31, 2022:
Summary of Intangible Assets
Amortization Period (Years) | Cost | Accumulated Amortization | Net Book Value | |||||||||||||
Intangible Assets Subject to amortization | ||||||||||||||||
Trademarks | 15 | $ | 121,000 | $ | (4,653 | ) | $ | 116,347 | ||||||||
Customer Relationships | 10 | 600,000 | (35,000 | ) | 565,000 | |||||||||||
Non-Compete Agreements | 5 | 22,000 | (2,567 | ) | 19,433 | |||||||||||
Total | $ | 743,000 | $ | (42,220 | ) | $ | 700,780 |
The aggregate amortization remaining on the intangible assets as of March 31, 2022 is a follows:
Schedule of Estimated Intangible Assets Amortization Expenses
Intangible Amortization | ||||
2022 (9 months remaining) | $ | 54,350 | ||
2023 | 72,467 | |||
2024 | 72,467 | |||
2025 | 72,467 | |||
2026 | 71,367 | |||
Thereafter | 357,662 | |||
Total | $ | 700,780 |
Note 6. 8. Shareholders’ Equity
Common Stock
On February 22, 2021,January 17, 2022, the Company issued 422,209a law firm shares of common stock related towith a fair market value of $ as part of the conversion ofagreed upon compensation for a convertible debenture and accrued interest of $14,777.representation agreement.
On March 1, 2021,January 31, 2022, the Company issued a consultant 3,000,000 shares of its common stock related to investor relation services at a fair value of $120,000.
On March 25, 2021, the Company issued 27,500,000 shares of common stock in exchangewith a fair market value of $4,000 for $275,000consulting services related to Mr. Charles F. Hyatt, a member of our Board of Directors.the dive industry.
On February 25, 2021,2, 2022, the Company issued 116,279Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $250,000.
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $15,000.
On February 28, 2022, the Company issued a consultant, to a consultant with a fair market value of $5,000$4,000 for professional business services.consulting services related to the dive industry. shares of common stock
Preferred Stock
During the second quarter of 2010, the holderholders of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation authorizing the issuance of shares of blank check preferred stock. The blank check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. In April 2011, the Board of Directors designated shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23$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 March 31, 2021,2022, and December 31, 2020,2021, the shares of Series A Convertible Preferred Stock are owned by Mr.Robert Carmichael.
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. The options were issued pursuant to a stock option grant agreement and are exercisable at $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 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.10%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 172%. These stock options were fully expensed as of December 31, 2020.
Effective July 29, 2019, the Company issued Mr. 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 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 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.01%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 172%. These stock options were fully expenses during the 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 member 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 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 $40,097 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%. These stock options were fully expenses during the year ending December 31, 2020.
Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. shares are reserved for issuance under the Plan. The term of the Plan is .
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 | 2,200,000 | $ | .0431 | 22,800,000 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 2,200,000 | $ | .0434 | 22,800,000 |
Options
On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Mr.Richard Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation, the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $.045$ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● | the right to purchase |
● | the right to purchase an additional |
● | the right to purchase an additional |
16 |
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 $4,370,109$ using the Black-Scholes option pricing model with the following assumptions: i)(i) risk free interest rate of ..26% %, ii)(ii) expected life of years, iii)(iii) dividend yield of 0% %, iv)and (iv) expected volatility of 320% %. The Company analyzed the likelihood that the vesting qualifications would be met. As of MarchDecember 31, 2021, of options were vested as the targeted net revenues were reached. Therefore, stockreached and 3 quarters of Tranche 2 was also met and fully expensed through December 31, 2021. For the three months ended March 31, 2022 the Company revenues reached the target revenues for Tranche 2, and an additional shares of the option vested. Stock option expense recognized during the three months ended March 31,202031, 2022 for this option was $218,505.$ .
On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable the(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 shares of the Company’s common stock at an exercise price of $.0184$ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
As part of the Constable Option Agreement, the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of shares of the Company’s common stock at an exercise price of $ per share, of which the right to purchase shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
● | the right to purchase |
● | the right to purchase an additional |
● | the right to purchase an additional |
The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The CarmichaelConstable Option is not transferrable by Mr. Carmichael,Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the CarmichaelConstable Option vests, it is exercisable by Mr. Constable 4for 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)(i) risk free interest rate of .14% %, ii)(ii) expected life of years, iii)(iii) dividend yield of 0% %, iv)and (iv) expected volatility of 312.2% %. The Company analyzed the likelihood that the vesting qualifications would be met, and as of March 31, 2022, through December 31, 2021 it was deemed that the Company met the qualifications for 4 quarters for the first tranche of options, and 3 quarters for Tranche 2 and expensed a total of $ . For the first quarter, 2022 the Company did not meet the qualifications to vest for an additional quarter, therefore, there was a 0% chance that the options would vest. Therefore,no stock option expense recognized duringfor the three months ended March 31, 2022.
17 |
On June 14, 2021, the Company issued options to purchase up to an aggregate of shares of common stock to various employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three months ended March 31, 2022 was $.
On August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company granted Blake Carmichael a year option to purchase shares of the Company’s common stock at an exercise price of $ , (the “BC Compensation Options”). The BC Compensation Options vest The fair value of the options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The Company expensed $ as of December 31, 2021, and did not recognize any additional expense for the three months ended March 31, 2022.
As part of the Blake Carmichael Agreement, the Company granted Blake Carmichael a -year option to purchase up to shares of common stock to vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the BC Bonus Options was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %, and (v) exercise price of per share. The Company analyzed the likelihood that the vesting qualifications would be met, and as of March 31, 2022, through December 31, 2021 it was deemed that it was likely that shares would be issued at the end of contract year 1, and this was fully expensed as of December 31, 2021. For the three months ended March 31, 2022 there were no material changes to vesting qualifications and no stock option expense was recognized.
During the third quarter of 2021 the Company issued options to purchase up to an aggregate of shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $to $per share for a periods ranging from to from the date of issuance, with quarterly vesting periods over to . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate from to , (ii) expected life of to years, (iii) dividend yield of %, and (iv) expected volatility of % to %. The stock options expense recognized for the three months ended March 31, 2022 was $.
On September 3, 2021, the Company issued options to purchase up to an aggregate of shares of common stock to Christeen Buban, President of SSI, under the Plan. The options were issued pursuant to the Buban Employment Agreement and a stock option grant agreement and are exercisable at $ per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three months ended March 31, 2022 was $ .
As part of the Buban Agreement, the Company is also obligated to enter into a Non-Qualified Stock option agreement (the “Buban Bonus Options”) that will grant Ms. Buban a -year option to purchase up to shares which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the Buban Bonus Options was $ using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %, and (v) exercise price of $ per share. The measurement period for these options began on September 3, 2021. The company analyzed the likelihood that vesting qualifications would be met during the contract year and deemed that there was no option expense to be recognized for the three months ended March 31, 2022.
18 |
On September 3, 2021 the Company issued options to purchase up to an aggregate of shares of common stock to various employees of SSI under the Plan. The options were issued pursuant to a stock option grant agreement and is exercisable at $per share for a period of from the date of issuance, with % of the options vesting each fiscal quarter over a period of . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of %. The stock options expense recognized for the three months ended March 31, 2022 was $.
During the fourth quarter of 2021 the Company issued options to purchase up to an aggregate of shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $to $per share for a period of of from the date of issuance, with quarterly vesting periods over . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, (iv) expected volatility of % to %. The stock options expense recognized for the three months ended March 31, 2022 was $.
On November 5, 2021 the Company entered into a non-qualified stock option agreement with Christopher Constable (the “Constable Option Agreement”) as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a year option to purchase shares of the Company’s common stock at an exercise price of $(the “Compensation Options”). The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of %, (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. This stock option was $0.fully expensed as of December 31, 2021.
On January 21, 2022 the Company issued options to purchase up to an aggregate of shares of common stock to an employee under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $per share for a period of from the date of issuance, with quarterly vesting periods over . The fair value of the options totaled $using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of % (ii) expected life of years, (iii) dividend yield of %, and (iv) expected volatility of %. The stock options expense recognized for the three months ended March 31, 2022 was $.
Schedule of Option Activity
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding – December 31, 2021 | 233,128,266 | $ | 0.0362 | $ | 795,201 | |||||||||||
Granted | 75,000 | 0.0320 | ||||||||||||||
Forfeited | ||||||||||||||||
Exercised | - | - | ||||||||||||||
Outstanding – March 31, 2022 (unaudited) | 233,203,266 | $ | 0.0362 | |||||||||||||
Exercisable – March 31, 2022 (unaudited) | 101,333,874 | $ | 0.0326 | $ | 1,063,526 |
Warrants
On September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors, 0.025 per share in consideration of $250,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $
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 | - | - | ||||||||||||||
Forfeited | - | - | ||||||||||||||
Exercised | - | - | ||||||||||||||
Outstanding - March 31, 2021 (unaudited) | 199,730,020 | $ | 0.0323 | 2.58 | ||||||||||||
Exercisable - March 31, 2021 (unaudited) | 69,730,020 | $ | 0.029 | 2.87 | $ | 3,135,167 |
On September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of a member of our Board of Directors, 0.025 per share in consideration of $15,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
units of the securities of the Company, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $In September, 2021, the Company issued 0.025 per share in consideration of $100,000. The Company did not pay any fees or commissions in connection with the sale of the unit.
units of the securities of the Company to three accredited investors, with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $19 |
On February 2, 2022, the Company issued Charles Hyatt, a director, 0.025 per share in consideration of $250,000. shares from the exercise of a warrant at $
On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, shares from the exercise of a warrant at $0.025 per share in consideration of $15,000.
A summary of the Company’s warrants as of December 31, 2021 and changes during the three months ended March 31, 2022 is presented below:
Schedule of Warrants Activity
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
Outstanding – December 31, 2021 | 14,600,000 | $ | 0.025 | $ | 153,300 | |||||||||||
Granted | ||||||||||||||||
Exercised | (10,600,000 | ) | $ | 0.025 | ||||||||||||
Forfeited or Expired | - | |||||||||||||||
Outstanding – March 31, 2022 | 4,000,000 | $ | 0.025 | |||||||||||||
Exercisable – March 31, 2022 | 4,000,000 | $ | 0.025 | 1.44 | $ | 64,400 |
Note 7. 9. 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 $5,367a $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(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 of the lease 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 January 4, 2018, the Company entered into a sixty-one month lease renewal for its facility in Huntington Beach, California commencing on February 1, 2018. Terms included base rent of approximately $9,300 per month for the first 12 months with an annual escalation clause of 2.5%. The Company paid a security deposit of $8,450 upon entering into the lease.
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 took possession of the premises, if earlier;2019; 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(common area maintenance) which is approximately $1,679$1,679 per month, subject to adjustment as provided in the lease.
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 terminateterminates the agreementsAgreement 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$200,174 for the years 2019 through 2024. In accordance with the amendment the Company will pay additional minimum royalties of $60,000 per year or $15,000 per quarter for the years 2022 through 2024. Royalty recorded in relation to this agreement totaled $13,704$43,608 and $14,093$13,704 for the three months ended March 31, 2022 and 2021, and 2020. respectively.
20 |
On June 9, 2020, the Company entered into ana one-year advertising and marketing agreement with Figment Design. The term of the agreement isDesign 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 $8,840 $8,840 per month through the expiration date ofwhich agreement terminated on 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 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 November 5, 2020, the Company and Christopher H. Constable entered into a three year employment agreement (the “Constable Employment Agreement”) pursuant to which the Mr. Constable shall serveserves 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,$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 $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the Common StockCompany’s common stock on the date of issuance. Therefore, the Executive shall receiveAccordingly, on November 5, 2020, Mr. Constable was issued an initial stock option grant to purchase shares of the Corporation’sCompany’s common stock at an exercise price of $0.0184 $per share and on November 5, 2021, he was issued an option to purchase shares of the Company’s common stock at an exercise price of $per share, pursuant to an option award agreement (the “Option Award Agreement”).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) 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,$5,000,000, in the aggregate, for four consecutive fiscal quarters; (ii) shares -– if the Company’s Net Revenues are in excess of $7,500,000,$7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) shares -– if the Company’s Net Revenues are in excess of $10,000,000,$10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) shares -– if the Company’s common stock is listed on the on NASDAQ or New York Stock Exchange.
Mr. Constable is also entitled to participate in all benefit programs the Company offers to its executives, reimbursement for business expenses and three weeks of annual paid vacation.
The agreement may be terminated for cause, upon his death or disability, or by the Company without cause. Furthermore, Mr. Constable may terminate the agreement for “good reason” as defined in the agreement. If the Company terminates the Constable Employment Agreement for cause, or if it terminates upon Mr. Constable’s death or disability, or if he voluntarily terminates the agreement, neither Mr. Constable nor his estate (as the case may be) is entitled to any severance or other benefits following the date of termination. If the Company should terminate the Constable Employment Agreement without cause or if Mr. Constable terminates for good reason, the Company is obligated to continue to pay him his base salary for a period of six months. The Constable Employment Agreement also contains customary confidentiality, non-disclosure and indemnification provisions.
Pursuant to the Constable Employment Agreement, Mr. Constable also agreed to serve on the Company’s Board of Directors and the Company agreed to nominate him to serve on the Board during the term of the Constable Employment Agreement.
On March 1, 2021, the Company entered into an investor relations consulting agreement with BMGBGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued shares of its common stock valued at $120,000.$ to BGM Equity Partners. This agreement was not renewed at March 1, 2022.
On August 1, 2021, the Company and Blake Carmichael entered into a three year employment agreement (the “Blake Carmichael Employment Agreement”) pursuant to which Mr. Carmichael shall serve as Chief Executive Officer of BLU3. In consideration for his services, Blake Carmichael shall receive (i) an annual base salary of $120,000, payable in accordance with the customary payroll practices of the Company, and (ii) a cash bonus equal to 5% of the net income of BLU3 payable quarterly, beginning with the first full calendar quarter after the execution of the agreement. (iii) issuable upon execution of the Employment Agreement, a non-qualified -year stock option to purchase shares at $ , .
In addition, Blake Carmichael shall be entitled to receive a -year stock option to purchase up to shares of common stock at an exercise price equal to $ per share that will vest upon defined financial metrics that are measured on a contract year basis. The metrics defined in the agreement escalate the shares available to vest based upon a revenue measurement, expediency measurement and an EBITDA measurement.
On August 6, 2021 the Company entered into a six-month, non-exclusive mergers and acquisitions services agreement with Newbridge Securities Corporation. . The fee shall be paid in the common stock of the Company. The equity received is subject to a holding period of six months from the closing date of the transaction. This agreement was not renewed.
On September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”) pursuant to which Mrs. Buban shall serve as the President of SSI. In consideration for her services, Mrs. Buban shall receive (i) an annual base salary of $110,000, payable in accordance with the customary payroll practices of the Company, (ii) a car allowance and cell phone allowance totaling $per year, (iii) a -year stock option issued under the Plan to purchase shares of common stock of the Company at $. The option vests quarterly over the next eight calendar quarters.
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In addition, Mrs. Buban shall be entitled to receive a -year stock option to purchase up to shares of common stock of the Company at an exercise price of $per share that will vest upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment Agreement,
On January 17, 2022 the Company entered into an agreement with The Crone Law Group, PC (“CLG”) for the provision of legal services. In consideration therefor, the Company will pay CLG a monthly flat fee of $3,000 per month for the SEC reporting work, and its normal hourly rate for any other legal work and issued shares of common stock with a fair market value of $.
Legal
The Company iswas 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 $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 are in the process of schedulingentered mediation pursuant to the Court’s order. WhileThis action was settled for $10,000on July 12, 2021. The Company pays monthly installments of $1,000 and is current in its payments. As of March 31, 2022 the Companybalance remaining is vigorously defending this matter, the Company is unable at this time to predict the ultimate outcome of this litigation.$1,000.
Note 8. 10. Segment Reporting
The Company has three4 operating segments as described below:
1. | ||
2. | High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages. | |
3. | Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user. | |
4. | Redundant Air Tank Systems, which manufactures and distributes a line of high pressure tanks and redundant air systems for the military and recreational diving industries. |
Schedule of Segment Reporting Information
Three months ended March 31, | ||||||||||||||||||||||||||||||||
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Total Company | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Net Revenues | $ | 466,043 | $ | 294,118 | $ | 150,128 | $ | 198,216 | $ | 334,598 | $ | 142,456 | $ | 950,769 | $ | 634,790 | ||||||||||||||||
Cost of Revenue | (369,826 | ) | (228,187 | ) | (81,178 | ) | (149,800 | ) | (188,793 | ) | (153,909 | ) | (639,797 | ) | (531,896 | ) | ||||||||||||||||
Gross Profit | 96,217 | 65,931 | 68,950 | 48,416 | 145,805 | (11,453 | ) | 310,972 | 102,894 | |||||||||||||||||||||||
Depreciation | 3,812 | 1,116 | - | - | 2,418 | 2,417 | 6,230 | 3,533 | ||||||||||||||||||||||||
Loss from operations | $ | (444,151 | ) | $ | (206,656 | ) | $ | 9,366 | $ | (2,771 | ) | $ | (12,385 | ) | $ | (81,350 | ) | $ | (447,170 | ) | $ | (290,777 | ) | |||||||||
Total Assets | $ | 1,503,762 | $ | 1,152,136 | $ | 265,604 | $ | 138,743 | $ | 511,621 | $ | 269,759 | $ | 2,280,987 | $ | 1,560,638 |
Three Months Ended
March 31
(unaudited)
Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Redundant Air Tank Systems | Total Company | ||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
Net Revenues | $ | 581,109 | $ | 466,043 | $ | 276,817 | $ | 150,128 | $ | 794,587 | $ | 334,598 | $ | 322,456 | $ | - | $ | 1,974,969 | $ | 950,769 | ||||||||||||||||||||
Cost of Revenue | (461,958 | ) | (369,826 | ) | (160,791 | ) | (81,178 | ) | (416,958 | ) | (188,793 | ) | (259,502 | ) | - | (1,299,209 | ) | (639,797 | ) | |||||||||||||||||||||
Gross Profit | 119,151 | 96,217 | 116,026 | 68,950 | 377,629 | 145,805 | 62,952 | - | 675,760 | 310,972 | ||||||||||||||||||||||||||||||
Depreciation | 4,370 | 3,812 | - | - | 4,478 | 2,418 | 25,011 | - | 33,859 | 6,230 | ||||||||||||||||||||||||||||||
Income (loss) from operations | $ | (369,590 | ) | $ | (444,151 | ) | $ | 40,459 | $ | 9,366 | $ | 16,762 | $ | (12,385 | ) | $ | (121,530 | ) | $ | - | (433,899 | ) | $ | (447,170 | ) | |||||||||||||||
- | ||||||||||||||||||||||||||||||||||||||||
Total Assets | $ | 1,427,324 | $ | 1,503,762 | $ | 460,496 | $ | 265,604 | $ | 1,037,192 | $ | 511,621 | $ | 1,995,439 | $ | - | $ | 4,920,451 | $ | 2,280,987 |
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Note 10. 11. Subsequent Events
On April 28, 2021, South Atlantic Bank,May 2, 2022, the lenderCompany entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and Live Blue, Inc., a Florida corporation and wholly-owned subsidiary of the SBA Loan of $159,600 informed the Company that our loan forgiveness application had been accepted, and the SBA Loan was fully forgiven in accordance with(“Live Blue”). Pursuant to the terms of the CARES Act.Asset Purchase Agreement, Live Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets, for $150,000 which was paid by (i) the issuance to of an aggregate of shares of the Company’s common stock to the LLC Members, at a price of $ per share (the “Consideration Shares”); and (ii) cash of $30,000 (the “Gold Coast Scuba Acquisition”).
The Consideration Shares are subject to a leak-out restriction which provides that (i) up to 25% of such Consideration Shares may be sold after November 2, 2022; (ii) an additional 25% may be sold after February 2, 2023; and (iii) the balance may be sold after May 2, 2023. The Company may waive these restrictions if the Company’s common stock is trading on either the NYSE American or Nasdaq and has a rolling thirty-day average trading volume of $50,000 in trading volume per day. If the Company waives the leak-out restriction, only Consideration Shares of up to 5% of the previous days total volume may be sold in one day, and the may only be sold through executing trades “on the offer.”
In connection with the acquisition, the LLC Members entered into five-year confidentiality, non-competition and non-solicitation agreements with the Company and Live Blue which contain standard provisions, including that the LLC Members not engage in any business that supplies the same product or services as Gold Coast Scuba within certain areas of the United States or that competes with Gold Coast Scuba’s business in any market in which it operates as of the closing.
Gold Coast Scuba is in the business of providing recreational scuba diving equipment rental, training and education programs, as well as dive travel, guided snorkeling tours, and dive club activities.
ItemITEM 2. Management’s DiscussionMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and Analysisanalysis of Financial Conditionour financial condition and Resultsresults of Operations.operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
OverviewThe management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
BWMG,Overview
The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products in the United States and internationally.
The Company has four subsidiaries focused on various sub-sectors:
● | Brownie’s Third Lung - Surface Supplied Air (“SSA”) | |
● | BLU3, Inc. - Ultra-Portable Tankless Dive Systems | |
● | LW Americas - High Pressure Gas Systems | |
● | Submersible Systems, Inc. - Redundant Air Tank Systems |
Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, and a manufacturing facility in Huntington Beach, California.
The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based SCUBAself-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems and acts as the exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas markets. Our wholly owned subsidiariesThe Company is also the exclusive United States and relatedCaribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa.
Recent Developments
On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and Live Blue, Inc., a Florida corporation and wholly-owned subsidiary of the Company (“Live Blue”). Pursuant to the terms of the Asset Purchase Agreement, Live Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets, for $150,000 which was paid by (i) the issuance to of an aggregate of 3,084,831 shares of the Company’s common stock to the LLC Members, at a price of $0.0389 per share (the “Consideration Shares”); and (ii) cash of $30,000 (the “Gold Coast Scuba Acquisition”).
The Consideration Shares are subject to a leak-out restriction which provides that (i) up to 25% of such Consideration Shares may be sold after November 2, 2022; (ii) an additional 25% may be sold after February 2, 2023; and (iii) the balance may be sold after May 2, 2023. The Company may waive these restrictions if the Company’s common stock is trading on either the NYSE American or Nasdaq and has a rolling thirty-day average trading volume of $50,000 in trading volume per day. If the Company waives the leak-out restriction, only Consideration Shares of up to 5% of the previous days total volume may be sold in one day, and the may only be sold through executing trades “on the offer.”
In connection with the acquisition, the LLC Members entered into five-year confidentiality, non-competition and non-solicitation agreements with the Company and Live Blue which contain standard provisions, including that the LLC Members not engage in any business that supplies the same product linesor services as Gold Coast Scuba within certain areas of the United States or that competes with Gold Coast Scuba’s business in any market in which it operates as of the closing.
Gold Coast Scuba is in the business of providing recreational scuba diving equipment rental, training and education programs, as well as dive travel, guided snorkeling tours, and dive club activities.
Impact of COVID-19 Pandemic
The Company has previously been affected by temporary manufacturing closures, and employment and compensation adjustments. The market continues to suffer from the impacts of the pandemic via supply chain shortages and freight delays. The continued freight delays have and will likely continue to result in additional expenses to expedite delivery of critical parts. Additionally, increased demand for personal electronics has created a shortfall of microchip supply which are used in our battery powered products, and it is yet unknown how we may be impacted.
We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as follows:appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.
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First Quarter 2021 Highlights
As can be seen by continued growth of revenue in the First Quarter 2021 from the comparable period in 2020, the Company’s mission of providing a platform that encourages innovation and growth in both the people we employ and the companies that we own with a goal of creating sustainable shareholder value is being brought to fruition. We believe that we are changing the way 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.
First Quarter 2021 Highlights:
Results of Operations
Net Revenues, Costs of Net Revenues and Gross Profit
Overall, our netThree Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Net revenues increased 49.8%107.7% for the First Quarterthree months ended March 31, 2022 as compared to the three months ended March 31, 2021 as a result of a 137.5% increase in revenue for BLU3, Inc. from the comparable period in 2020. These increases includedcontinued expansion of its customer base as well as the addition of NOMAD to its product line, an increase in LWA of 56.1%84.4% as its business from the expansion of its customer base and the addition of SSI revenue which did not exist in net revenues from sales to third parties, and an increase of 30.6% in net revenues from sales to related parties.
Our total2021. For the three months ended March 31, 2022, cost of net revenues in the First Quarter 2021 was 67.3% of our total net revenues65.8% as compared to 83.8% in First Quarter 2020.with the cost of revenues of 67.3% for the three months ended March 31, 2021. Included in our total cost of net revenues are royalty expenses we pay to Mr.Robert Carmichael which increased 139.0% in the First Quarter 2021 from the First Quarter 2020. Also included in the total cost of net revenue are royalties paid pursuant to our agreement with STS. These royalties accounted for approximately 1.4% of total net revenue10.3% for the three months ended March 31, 2021,2022 as compared to 2.2%the three months ended March 31, 2021. Gross profit margin was 34.2% for the same period in 2020.
We reported an overallthree months ended March 31, 2022 as compared to gross profit margin of 32.7% for the First Quarter 2021 as compared to 16.2% for the First Quarter 2020. The Legacy SSA product lines showed growth in direct to consumer sales combined with a restructure of the dealer sales model structure increasing margin in this segment. The High Pressure Gas Systems margins show an increase for the three months ended March 31, 20212021. The slight improvement in gross margin, of 4.6% as it relates to revenue is a result of the production of more finished products, reducing direct labor per unit primarily due to a shift to selling direct to customer rather than through distribution that has continued since the third quarter of 2020. Margins related to the Ultra-Portable Tankless dive segment helped contribute toin LWA and BLU3. This improvement is offset by increases in royalties expense resulting from the increased margin forrevenue of the three months ending March 31, 2021, as it had contributed a negative margin for the three months ended March 31, 2020 due to production inefficiencies consistent with the start of a newBLU3 product and production process.line.
The following tables provides net revenues, total costs of net revenues, and gross profit margins for our segments for the periods presented.
Net Revenues
Three Months Ended March 31 | Three Months Ended March 31, | % of | ||||||||||||||||||
2021 | 2020 | 2022 | 2021 | Change | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Legacy SSA Products | $ | 466,043 | $ | 294,118 | ||||||||||||||||
SSA Products | $ | 581,109 | 466,043 | 24.7 | % | |||||||||||||||
High Pressure Gas Systems | 150,128 | 198,216 | 276,817 | 150,128 | 84.4 | % | ||||||||||||||
Ultra-Portable Tankless Dive Systems | 334,598 | 142,456 | 794,587 | 334,598 | 137.5 | % | ||||||||||||||
Redundant Air Tank Systems | 322,456 | - | 100.0 | % | ||||||||||||||||
Total net revenues | $ | 950,769 | $ | 634,790 | $ | 1,974,969 | 950,769 | 107.7 | % |
Cost of revenues as a percentage of net revenues
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Legacy SSA Products | 79.4 | % | 77.6 | % | 79.5 | % | 79.4 | % | ||||||||
High Pressure Gas Systems | 54.1 | % | 75.6 | % | 58.1 | % | 54.1 | % | ||||||||
Ultra-Portable Tankless Dive Systems | 56.4 | % | 108.0 | % | 52.5 | % | 56.4 | % | ||||||||
Redundant Air Tank Systems | 80.3 | % | - |
Gross profit(loss)profit margins
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
SSA Products | 20.5 | % | 20.6 | % | ||||
High Pressure Gas Systems | 41.9 | % | 45.9 | % | ||||
Ultra-Portable Tankless Dive Systems | 47.5 | % | 43.6 | % | ||||
Redundant Air Tank Systems | 19.5 | % | - |
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Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Legacy SSA Products | 20.6 | % | 22.4 | % | ||||
High Pressure Gas Systems | 45.9 | % | 24.4 | % | ||||
Ultra-Portable Tankless Dive Systems | 43.6 | % | (8.0 | %) |
Legacy SSA Products segment
The increaseNet revenues in net revenues from this segment for the three months ended March 31, 20212022 increased 24.7% as compared to the same period in 2020three months ended March 31, 2021. The increase can be attributed to increased demand atan increase in dealer revenue as the consumer level with a 162.3% increaseCompany offered discounts to both dealers and their consumers in the dealer level with a 25.6% increase. Affiliate salesthree months ended March 31, 2022 to pre-stock for the same period decreased by 85.8%. This is a direct result of our shiftseason. Direct to online marketing targeted consumers directly. Additionally, our marketing partnerships targeted consumersconsumer sales declined slightly as increased fuel prices we believe prohibited many families from utilizing their boats, and sent them directly to our dealers. The Company improved dealer incentives via extended payment terms up to 120 days to expandfocusing on other family activities. Sales through affiliates increased for the product offering within their stores also attributedthree months ended March 31, 2022 as compared to the overall increase for this segment.three months ended March 31, 2021 as we have added additional affiliates through our social media market campaigns.
Our costs of revenues as a percentage of net revenues in this segment increasedremained relatively flat increasing slightly from 77.6%79.4% to 79.4%79.5% for the three months ended March 31, 2020 and 2021, respectively.2022 from the three months ended March 31, 2021. The increased cost of sales,revenue, and in turn reduction in product margin, can be attributed to purchase incentivesincrease proportion of dealer sales as compared to the three months ended March 31, 2021, as well as the discounts offered to all revenue channels in January and February 2021 that did not exist in 2020.dealers to pre-stock for the season.
A breakdown of the revenue channels for this segment are below. Direct to Consumer representrepresents items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers thatwith which we have dealer agreements that typically operate with the lowers margin. Affiliates are resellers of our products that are not in a formal dealer arrangement.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three Months ended March 31, 2022 | Three Months ended March 31, 2021 | % change | Three Months ended March 31, 2022 | Three Months ended March 31, 2021 | Three Months ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||||||||||||
Dealers | $ | 357,853 | $ | 253,539 | 41.1 | % | 85.2 | % | 81.5 | % | 14.8 | % | 18.5 | % | ||||||||||||||
Direct to Consumer (website included) | 202,635 | 210,672 | -3.8 | % | 70.5 | % | 76.7 | % | 29.5 | % | 23.3 | % | ||||||||||||||||
Affiliates | 20,621 | 1,832 | 1025.6 | % | 73.3 | % | 78.9 | % | 26.7 | % | 21.9 | % | ||||||||||||||||
Total | $ | 581,109 | $ | 466,043 | 24.7 | % | 79.5 | % | 79.4 | % | 20.5 | % | 20.6 | % |
Net Revenues | Cost of Sales as a % of Net Revenues | Margin | ||||||||||||||||||||||||||
First Quarter 2021 | First Quarter 2020 | % Change | First Quarter 2021 | First Quarter 2020 | First Quarter 2021 | First Quarter 2020 | ||||||||||||||||||||||
Direct to Consumer (website included) | $ | 210,672 | $ | 80,304 | 162.3 | % | 76.7 | % | 79.3 | % | 23.3 | % | 20.7 | % | ||||||||||||||
Dealers | 253,539 | 201,785 | 25.6 | % | 81.5 | % | 85.3 | % | 18.5 | % | 14.7 | % | ||||||||||||||||
Affiliates | 1,832 | 12,029 | (85.8 | %) | 78.9 | % | 72.0 | % | 21.1 | % | 28.0 | % | ||||||||||||||||
Total | $ | 466,043 | $ | 294,118 | 58.5 | % | 79.4 | % | 77.6 | % | 20.6 | % | 22.4 | % |
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors showed a 24.2% decrease from First Quarter 2020increased 84.4% in the three months ended March 31, 2022 compared with the three months ended March 31, 2021 as thisLWA was able to continue to supply its customers with their needs despite industry supply chain issues. The reseller segment continuesincreased by 33.6% for the three months ended March 31, 2022 compared to recover from the COVID-19 pandemic. Tourism has begun to open up,three months ended March 31, 2021 with increased orders through distribution customers in the US, South America, and demand has begunthe Caribbean. The Original Equipment Manufacturer segment continued to show signsgrowth with an increase of life, however, travel remains restricted through most of2,914% for the Caribbean, Central and South America. The majority of our dive resort and dive operator customers’ businesses have begun to conduct a more normalized business, but are not yet in the position to commit to equipment purchases during their recovery. The largest percentage reduction took place in salesthree months ended March 31, 2022 as compared to the OEM segment decreasing by 92.9% as First Quarter 2020 this segmentthree months ended March 31, 2021. This was beginningdue to accelerate priorseveral orders shipped internationally to COVID-19. The resellers category, which represent distributors who would sell through to dive stores or tourist resorts increased by 68.2% for the period as they anticipate forward movement within their customer base.boat manufactures. The direct to consumer segment, which includes yacht owners and direct to dive stores, decreased by 50.6%. However, we believe that the acceptance of the L&W brand is growing steadily and we expect sales to increase as the customers within this market segment recover from the pandemic. Additionally, with the addition of new marine based products developed by LWA, we expect to have increasesincreased 28.2% in the directthree months ended March 31, 2022 compared to consumer and OEM segments.the three months ended March 31, 2021.
Our costs of revenues as a percentage of net revenues in this segment decreasedshowed a slight increase to 54.1% as compared to 75.6%58.1% for the three months ended March 31, 20212022 as compared to 54.1% for the same period in 2020.three months ended March 31, 2021. This can be attributed to significant improvementsincrease cost of in margintransportation from suppliers and to customers during the consumer across all customer segments. This is attributed to improved product mix and improvements in the bidding process.three months ended March 31, 2022.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
Resellers | $ | 129,773 | $ | 97,146 | 33.6 | % | 54.4 | % | 57.3 | % | 45.6 | % | 42.7 | % | ||||||||||||||
Direct to Consumers | 64,429 | 50,241 | 28.2 | % | 55.9 | % | 34.0 | % | 44.1 | % | 66.0 | % | ||||||||||||||||
Original Equipment Manufacturers | 82,615 | 2,741 | 2914.0 | % | 65.5 | % | 49.0 | % | 34.5 | % | 51.0 | % | ||||||||||||||||
Total | $ | 276,817 | $ | 150,128 | 84.4 | % | 58.1 | % | 54.1 | % | 41.9 | % | 45.9 | % |
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Net Revenues | Cost of Sales as a % of Net Revenues | Margin | ||||||||||||||||||||||||||
First Quarter 2021 | First Quarter 2020 | % Change | First Quarter 2021 | First Quarter 2020 | First Quarter 2021 | First Quarter 2020 | ||||||||||||||||||||||
Resellers | $ | 97,146 | $ | 57,773 | 68.2 | % | 57.3 | % | 77.9 | % | 42.7 | % | 22.1 | % | ||||||||||||||
Direct to Consumers | 50,241 | 101,773 | (50.6 | )% | 34.0 | % | 74.9 | % | 66.0 | % | 25.1 | % | ||||||||||||||||
Original Equipment Manufacturers | 2,741 | 38,670 | (92.9 | )% | 49.0 | % | 74.0 | % | 51.0 | % | 26.0 | % | ||||||||||||||||
Total | $ | 150,128 | $ | 198,216 | (24.2 | )% | 54.1 | % | 75.6 | % | 45.9 | % | 24.4 | % |
Ultra Portable Tankless Dive Systems
Revenue
Net revenue for the three months ended March 31, 2022 in the Ultra Portable Tankless Dive System segment continues to showshowed significant improvement with growth of 134.9% increase from First Quarter 2020 to First Quarter 2021. As the sales channels continue to develop, with the addition of Amazon as a revenue channel in the third quarter 2020, we are continuing to grow in each of the segments. The Company continues to further grow its dealer base which can be seen by the 127.7% revenue growth for First Quarter of 2021137.5% as compared to the same periodthree months ended March 31, 2021, The consumer and dealer segments growth can be attributed to the addition of the Nomad product line into those sales channels during the three months ended March 31, 2022. The growth of 146.7% in 2020. The Company’s continued focus on directthe Amazon channel is growth of the Nemo dive system, as the Nomad was not made available to consumer via our website accounted for a 62.8% increase.that channel in the first quarter of 2022.
Our aggregate cost of revenue from this segment as a percentage of net revenues for the quarterthree months ended March 31, 2021 have shown vast2022 showed significant improvement over the three months ended March 31, 2020.2021 primarily due to the impact of the cost and production efficiencies of the Nomad dive system and the resulting increase in margin as a percentage of revenue for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
Direct to Consumer | $ | 319,005 | $ | 152,199 | 109.6 | % | 46.3 | % | 43.0 | % | 53.7 | % | 57.0 | % | ||||||||||||||
Amazon | 174,676 | 70,798 | 146.7 | % | 56.9 | % | 45.7 | % | 43.1 | % | 54.3 | % | ||||||||||||||||
Dealers | 300,906 | 111,601 | 169.6 | % | 56.4 | % | 50.8 | % | 43.6 | % | 49.2 | % | ||||||||||||||||
Total | $ | 794,587 | $ | 334,598 | 137.5 | % | 52.5 | % | 45.9 | % | 47.8 | % | 54.1 | % |
Redundant Air Tank Systems
Net revenue for the three months ended March 31, 2022 in the Redundant Air Tank Systems System segment was $322,456. The margins for repairs were the lowest margin for the three months ended March 31, 2022 at (156.4)%. SSI must price the goods in order for the dealer to also generate profit on the product. SSI has a worldwide customer base that includes (1) commercial accounts with aircraft requiring redundant air systems for their pilots and passengers, such as helicopters flying to oil rigs located in bodies of water (2) government accounts that are typically domestic and international military customers with egress systems (3) dealers accounts that are resellers including, international distributors to the military, commercial account or dive shops, and domestic and international dive shops that carry their spare air product. (4) direct to consumer sales represent online sales and sales via trade shows direct to consumer and (5) repairs represent Company continuesprovided repairs and warranty repairs to work to find efficiencies within the production line and expects margins to remain consistent with the possibility of improvement.all segments.
Net Revenue | Cost of Sales as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
Three months ended March 31, 2022 | Three months ended March 31, 2021 | % change | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Three months ended March 31, 2022 | Three months ended March 31, 2021 | ||||||||||||||||||||||
Commercial | $ | 56,606 | $ | - | 100 | % | 43.5 | % | - | 56.5 | % | - | ||||||||||||||||
Dealers | 212,119 | - | 100 | % | 88.8 | % | - | 11.2 | % | - | ||||||||||||||||||
Government | 14,001 | - | 100 | % | 35.0 | % | - | 64.1 | % | - | ||||||||||||||||||
Repairs | 7,811 | - | 100 | % | 256.6 | % | -156.4 | % | ||||||||||||||||||||
Direct to Consumers | 31,919 | - | 100 | % | 67.3 | % | - | 31.3 | % | - | ||||||||||||||||||
Total | $ | 322,456 | $ | - | 100 | % | 80.5 | % | - | 19.5 | % | - |
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Net Revenues | Cost of Sales as a % of Net Revenues | Margin | ||||||||||||||||||||||||||
First Quarter 2021 | First Quarter 2020 | % Change | First Quarter 2021 | First Quarter 2020 | First Quarter 2021 | First Quarter 2020 | ||||||||||||||||||||||
Direct to Consumer | $ | 152,199 | $ | 93,454 | 62.8 | % | 43.0 | % | 104.8 | % | 56.9 | % | (4.8 | )% | ||||||||||||||
Amazon | 70,798 | - | 100.0 | % | 45.7 | % | - | 54.3 | % | - | ||||||||||||||||||
Dealers | 111,601 | 49,002 | 127.7 | % | 50.8 | % | 114.2 | % | 49.1 | % | (14.2 | )% | ||||||||||||||||
Total | $ | 334,598 | $ | 142,456 | 134.9 | % | 45.9 | % | 108.0 | % | 54.1 | % | (8.0 | )% |
Operating Expenses
Operating expenses, consistingconsist of selling, general and administrative (“SG&A”) expenses and research and development costs, and are reported on a consolidated basis for our operating segments. Overall, our operatingOperating expenses increased by 92.6% for the First Quarter of 2021 from the First Quarter of 2020.
SG&A increased by 95.2% for First Quarter 2021 from the First Quarter 2020. These increases are primarily attributable to non-cash compensation expenses totaling approximately $218,505 that were paid in options and non-cash professional fees of approximately $125,000 that were paid in stock during the First Quarter 2021, as compared to approximately $97,600 in stock-based compensation expense in the First Quarter of 2020. The other SG&A expenses increased by approximately $113,50048.8% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increased by 52.6% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. ThisSG&A Expenses were comprised of the following:
Expense Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | % change | |||||||||
Payroll, Selling & Administrative | $ | 395,776 | $ | 255,411 | 55.0 | % | ||||||
Stock Compensation Expense | 230,034 | 218,505 | 5.3 | % | ||||||||
Professional Fees | 126,412 | 72,646 | 74.0 | % | ||||||||
Advertising | 156,444 | 68,583 | 128.1 | % | ||||||||
All Others | 197,073 | 121,890 | 61.7 | % | ||||||||
Total SG&A | $ | 1,105,739 | $ | 737,0325 | 50.0 | % |
Payroll increases for the three months ended March 31, 2022 can be attributed primarily to the addition of the payroll for SSI which accounts for 44.0% of the increase the remaining 11.0% can be attributed to increases in personnel at BLU3 to manage the increasing revenue and production.
Non-Cash Stock compensation expenses increased 8.4% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 The increase can be attributed to options granted to employees under the marketing expense associatedCompany’s Equity Incentive Plan, adopted in May 2021.
Professional fees, including legal and other professional fees which are typically paid with a combination of cash and common stock increased 74.0% in the Figment Design agreement, andthree months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase can be attributed to an increase in employee cash compensation expenses.legal fees that increased 143.8%, of which, 98.8% of the increase was paid in common stock, Professional fees increased 228.7%, with the hiring of a dive retail consultant, and sales consultants. These increases were offset by a decrease of accounting fees of 73.1% as compared to the prior year.
Research and development costs increased 31.2%, or approximately $5,000,The increase in advertising expense for the First Quarter 2021 fromthree months ended March 31, 2022 as compared to the comparable period in 2020. This increase for the First Quarter ofthree months ended March 31, 2021 is primarily relatedattributable to researchBLU3’s, focus on social media, Amazon, and developmenttrade show advertising.
Research & Development Expenses (R&D Expenses)
R&D expenses for the new iterationthree months ended March 31, 2022 decreased 81.4% as compared to the three months ended March 31, 2021. The decrease can be primarily attributed to the completion of its current product line.the R&D for BLU3’s NOMAD, as it moved into production in the third quarter of 2021.
Other Income/Expense
Total Other Income
TotalFor the three months ended March 31, 2022 other income wasexpenses totaled approximately $6,200 for First Quarter 2021$10,200 of interest expense as compared to other expenseincome of approximately $5,900$6,200 during the same period in 2020. The otherthree months ended March 31, 2021. Other income for First Quarterthe three months ended March 31, 2021 consists of a gain fromdue to the settlement of debt forof $10,000 offset byless interest expense of approximately $3,800. The other expenses for First Quarter 2020 consist only of interest expense. The decreaseincrease in interest expense can be attributed to the decrease inNavitas loan that was funded after March 31, 2021 and the interest expense on the Marlin Note, asdebt related to the reduction in the note balance due to repayments made.acquisition of SSI.
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Liquidity and Capital Resources
Liquidity is the abilityWe had cash of a company to generate sufficient cash to satisfy its needs for cash.$609,869 as of March 31, 2022. The following table summarizedsummarizes total current assets, total current liabilities and working capital at March 31, 2021(unaudited)2022 as compared to December 31, 2020.2021.
March 31, | December 31, | % of | ||||||||||
2021 | 2020 | change | ||||||||||
(unaudited) | ||||||||||||
Total current assets | $ | 1,708,542 | $ | 1,469,037 | 16.3 | % | ||||||
Total current liabilities | $ | 974,870 | $ | 1,029,204 | (5.3 | )% | ||||||
Working capital | $ | 733,672 | $ | 439,833 | 66.8 | % |
March 31, | December 31, | % | ||||||||||
2022 | 2021 | change | ||||||||||
(unaudited) | ||||||||||||
Total current assets | $ | 3,297,431 | $ | 2,966,432 | 11.2 | % | ||||||
Total current liabilities | $ | 1,594,614 | $ | 1,396,197 | 14.2 | % | ||||||
Working capital | $ | 1,702,8197 | $ | 1,570,235 | 8.4 | % |
The increase in our current assets at March 31, 20212022 from December 31, 20202021 principally reflects increase from the assets of SSI as well as the increases in accounts receivableinventory purchases that are reflected by an increase in inventory and inventory, net.prepaid assets which includes prepayments of inventory. as the Company has experienced revenue growth, and has ramped up purchasing and production for the upcoming summer season. The decreaseincrease in our total current liabilities principally reflect increasesthe additional of the SSI liabilities for the current year as well as a significant increase in total accounts payable, customer deposits, and other liabilities, offset by decreases in the notes payable and the convertible debentures and the decrease in current maturities of long term debt reflective of the change of terms of the SBA Loan, which extended payment dates to beyond the current year.Subsequent to the period covered by this report, the SBA Loan was forgiven.particularly customer deposits with LWA.
Summary Cash Flows
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Net cash used by operating activities | $ | (251,455 | ) | $ | (197,583 | ) | $ | (290,337 | ) | $ | (251,455 | ) | ||||
Net cash used by investing activities | $ | - | $ | - | ||||||||||||
Net cash used in investing activities | $ | (2,884 | ) | $ | - | |||||||||||
Net cash provided by financing activities | $ | 250,168 | $ | 162,863 | $ | 254,352 | $ | 250,168 |
Net cash used in operating activities for the three months ended March 31, 20212022 was due to the net loss of approximately $440,981$444,092 which is primarily attributable to the increase in non-cash stock compensation expenses of approximately $245,000.$265,534. The non-cash stock compensation expense for the three months ended March 31, 2021 is attributable to stock options issued to Mr. Carmichaelour executive officers and various employees as well as shares of common stock issued to consultants and professionals for services to consultants. Theservices. Net cash used in operating activities is also the result of increases in current assets, including, accounts receivable, inventory, net, and prepaid expenses that utilized approximately $241,900 and the$376,500, offset by increases ofin current liabilities including accounts payable, accounts payable – related party, other liabilities, and customer deposits, which totaled approximately $168,200.
Net cash used in investing activities for the three months ended March 31, 2022 relates solely to approximately $89,100.a small fixed asset purchased during the quarter.
Net cash provided by financing activities in the three months ended March 31, 20212022 reflects proceeds from an exercise of warrants less the salerepayment of common stock, offset bydebt during the repayments of notes payable and Marlin Note.quarter.
Going Concern and Management’s Liquidity Plans
As set forth in Note 3 of theOur unaudited condensed consolidated financial statements appearingincluded in this reportQuarterly 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-monthtwelve-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, 2020 contained2021 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern qualification.concern.
We have a history of losses, and an accumulated deficit of $13,397,118$14,988,696 as of March 31, 2021.2022. Despite a working capital surplus of $733,672$1,702,817 at March 31, 2021,2022, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and 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 5 appearing earlier in this report, we owe third parties approximately $100,000 under the terms of convertible debentures that become due in December 2021. In addition, we have an additional $25,000 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.
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Critical Accounting Policies
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing earliercontained in this report.Quarterly Report.
Recent Accounting Pronouncements
The recentThere were various accounting standards that have beenand interpretations issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future daterecently, none of which are not expected to have a material impacteffect on the Company’s operations, financial statements upon adoption. position or cash flows.
These recent accounting pronouncements are described in Note 2 to our notes to unaudited condensed consolidated financial statements appearing earliercontained in this report.Quarterly Report.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
ItemITEM 3. QuantitativeQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company and Qualitative Disclosures About Market Risk.is not required to provide this information.
Not applicable.
ItemITEM 4. Controls and ProceduresCONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, (as definedour management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in Rules 13a-15(e)part upon certain assumptions about the likelihood of future events, and 15d-15(e)there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of the Securities Exchange Actend of 1934, as amended (the “Exchange Act”)the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded that are designedour disclosure controls and procedures were not effective such that the information relating to be effective in providing reasonable assurance that informationour company, required to be disclosed in our Securities and Exchange Commission reports under the Exchange Act(i) is recorded, processed, summarized and reported within the time periods specified in theSEC rules and forms of the SEC, and that such information(ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. The Company’sdisclosure as a result of continuing material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
Our management, under the supervision and with the participationincluding our ChiefPrincipal Executive Officer and our ChiefPrincipal Financial Officer, carried out an evaluation ofhave evaluated the effectiveness of the design and operationoperations of the Company’sour disclosure controls and procedures (as defined(defined in Rule 13a-15(e)Exchange Act Rules 13a-15(c) and 15d-15(e) of the Exchange Act)) as of March 31, 2021. Based2022 and based upon thatthe such evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that the Company’s disclosure controls and procedures were ineffectivenot effective as of such date due to the endmaterial weaknesses set forth below.
● | Insufficient number and lack of qualified accounting department and administrative personnel and support; | |
● | Insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to GAAP and SEC disclosure requirements; |
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● | Insufficient segregation of duties, oversight of work performed and lack of controls in our finance and accounting functions due to limited personnel; | |
● | Company’s systems that impact financial information and disclosures have ineffective information technology controls; | |
● | Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded; and | |
● | Evaluation of disclosure controls and procedures was not sufficiently comprehensive due to limited personnel. |
Subject to sufficient resources, management expects to remediate the material weaknesses identified above as follows:
● | Management has leveraged and will continue to leverage experienced consultants to assist with ongoing GAAP and SEC compliance requirements. We intend to expand our finance department through the hiring of a certified public accountant to strengthen the segregation of duties, internal controls and enhance our current staff. | |
● | Segregation of duties is being analyzed and adjusted Company-wide, where possible. The Company is in the process of hiring additional personnel in the accounting department, as well as the documentation of controls and procedures. | |
● | The Company plans on evaluating various accounting systems to enhance its system controls. |
We will continue to monitor and evaluate the effectiveness of the period covered by this report as a result of the continuing material weakness in the Company’sour internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as described in Item 9A. of our 2020 10-K.necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we remediate the material weaknesses inhave added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal ControlsControl over Financial Reporting
There werehave been 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 reportour last fiscal quarter that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
ItemITEM 1. Legal ProceedingsLEGAL PROCEEEDINGS
WeThere are no pending legal proceedings to which we are a defendantparty or in that certain lawsuit styled Basil Vann, as Personal Representativewhich any director, officer or affiliate of the Estateours, any owner of Jeffrey William Morris v. Brownie’s Marine Group, Inc., Case number CACE19009879 filed on May 6, 2019 in the Circuit Courtrecord or beneficially of the 17th Judicial Circuit in and for Broward County, Florida. more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruitis a smaller reporting company and is seeking $15,870.97 in unpaid consulting fees together with interest. In April 2020 the Company filed a Motionnot required 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 are in the process of scheduling mediation pursuant to the Court’s order. While we are vigorously defending the Company inprovide this matter, we are unable at this time to predict the ultimate outcome of this litigation.information.
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2020 10-K.
ItemITEM 2. UnregisteredUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as set forth below, there were no 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 belowQuarterly Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.
On January 17, 2022, the Company issued a law firm 1,000,000 shares of 1933,common stock as amended.compensation for legal services.
On January 31, 2022, the Company issued a consultant 121,212 shares of common stock for consulting services related to the dive industry.
On February 2, 2022, the Company issued 10,000,000 shares of common stock to Charles Hyatt upon the exercise of a warrant at $0.025 per share for proceeds of $250,000.
On February 2, 2022, the Company issued 600,000 shares of common stock to Grace Hyatt upon the exercise of a warrant at $0.025 per share for proceeds of $15,000.
On February 28, 2022, the Company issued a consultant, 85,106 shares of common stock for consulting services related to the dive industry.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Item 3. Defaults Upon Senior Securities
None.
None.
Item ITEM4.MINE SAFETY DISCLOSURE
None.
ItemITEM 5. Other InformationOTHER INFORMATION
None.
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 | ||||||
10.1 | Hyatt subscription agreement dated March 25, 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 |
Exhibit Number | Exhibit | |
31.1 | Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |
101.INS | Inline XBRL INSTANCE DOCUMENT | |
101.SCH | Inline XBRL TAXONOMY EXTENSION SCHEMA | |
101.CAL | Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
101.DEF | Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
101.LAB | Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
101.PRE | Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May | ||
By: | /s/ Christopher H. Constable | |
Christopher H. Constable | ||
Chief Executive Officer, | ||
By: | /s/ Robert M. Carmichael | |
Robert M. Carmichael | ||
Chief Financial Officer, | ||
principal financial and accounting officer |