Brownie's Marine Group, Inc 10-Q for FY2021 Q2
Brownie's Marine Group, Inc (BWMG)
About this 10-Q
Brownie's Marine Group, Inc filed this 10-Q on August 16, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.71M
- up 29.7% from $1.32M a year earlier
- Net loss
- $89.81K
- compared with a net loss of $414.04K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For
the quarterly period ended |
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from __________ to __________ |
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(Exact name of registrant as specified in its charter)
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| Address of principal executive offices | Zip code |
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Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| none | n/a | n/a |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
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).
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 ☐ |
| 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. ☐
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
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 shares of common stock outstanding at August 16, 2021.
TABLE OF CONTENTS
| Page No. | ||
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS. | 4 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 20 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 27 |
| ITEM 4. | CONTROLS AND PROCEDURES. | 27 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | LEGAL PROCEEDINGS. | 28 |
| ITEM 1A. | RISK FACTORS. | 28 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 28 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 28 |
| ITEM 4. | MINE SAFETY DISCLOSURES. | 28 |
| ITEM 5. | OTHER INFORMATION. | 28 |
| ITEM 6. | EXHIBITS. | 29 |
| 2 |
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. 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:
| ● | Financial risks, including: | |
| ● | our history of losses; | |
| ● | our ability to continue as a going concern; | |
| ● | our dependence on revenues from related parties; and | |
| ● | material risks in our disclosure controls and internal control over financial reporting. | |
| ● | Business and operational risks, including: | |
| ● | our dependence on key members of our management; | |
| ● | our need to hire additional employees; | |
| ● | our ability to protect our intellectual property rights; | |
| ● | reliance on third party vendors and manufacturers; | |
| ● | dependence on consumer discretionary spending; | |
| ● | the impact of government regulations; | |
| ● | any failure to protect personal information; | |
| ● | the impact of bad weather; | |
| ● | the exposure to potential product liability claims; and | |
| ● | The continuing impact of COVID-19 on our company. | |
| ● | Shareholder risks, including: | |
| ● | dilution to our common shareholders upon the possible conversion of outstanding convertible debt and/or the exercise of outstanding options; | |
| ● | the limited market for our common stock and the impact of penny stock rules; and | |
| ● | we are a voluntary filer with the Securities and Exchange Commission. | |
You should read thoroughly this report and the documents that we refer to herein 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 statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission on March 31, 2021 (the “2020 10-K”) and our other filings with the Securities and Exchange Commission in their entirety. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “BWMG,” the “Company,” “we,” “our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and our wholly owned subsidiaries, Trebor Industries, Inc., a Florida corporation (“Trebor”), Brownie’s High Pressure Compressor Services, Inc. (“BHP”), a Florida corporation, and BLU3, Inc., a Florida corporation (“BLU3”). In addition, “ Second Quarter 2021” refers to the three month period ended June 30, 2021, “Second Quarter 2020” refers to the three month period ended June 30, 2020. “First Quarter 2021” refers to the three month period ended March 31, 2021 and “First Quarter 2020” refers to the three months ended March 31, 2020. “2020” refers to the year ended December 31, 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 |
PART I
Item 1. Financial Statements
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable - related parties | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, equipment and leasehold improvements, net | ||||||||
| Operating Lease Assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable - related parties | ||||||||
| Customer deposits and unearned revenue | ||||||||
| Other liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Current maturities long term debt | ||||||||
| Notes payable | ||||||||
| Convertible debentures, net | ||||||||
| Total current liabilities | ||||||||
| Long term debt | ||||||||
| Operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see note 7) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock; $ par value: shares authorized; issued and outstanding as of June 30, 2021 and December 31, 2020, respectively. | ||||||||
| Common stock; $ par value; shares authorized; shares issued and outstanding at June 30, 2021 and shares issued and outstanding at December 31, 2020, respectively. | ||||||||
| Common stock payable shares and shares, respectively as of June 30, 2021 and December 31, 2020, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | $ | $ | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 4 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30
(UNAUDITED)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues | ||||||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Net revenues - related parties | ||||||||||||||||
| Total net revenues | ||||||||||||||||
| Cost of net revenues | ||||||||||||||||
| Cost of net revenues | ||||||||||||||||
| Cost of net revenues - related parties | ||||||||||||||||
| Royalties expense - related parties | ||||||||||||||||
| Royalties expense | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Gain on settlement of debt | - | - | - | |||||||||||||
| Gain on the forgiveness of PPP loan | - | - | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
BROWNIE’S
MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (DEFICIT) | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for Cash | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for service | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible debentures and accrued interest | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants, shares | ||||||||||||||||||||||||||||||||||||
| Incentive bonus shares to Chairman | ||||||||||||||||||||||||||||||||||||
| Incentive bonus shares to Chairman, shares | ||||||||||||||||||||||||||||||||||||
| Common stock issued for warrants | ||||||||||||||||||||||||||||||||||||
| Common stock issued for warrants,shares | ||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, March 31, 2021 (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of convertible debentures and accrued interest | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, June 30, 2021 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional Paid-in | Accumulated | Total Stockholder’s Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for Cash | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Incentive bonus shares to Chairman | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | (296,693 | ) | (296,693 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2020 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issued for Cash | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Common stock issued for service | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Incentive shares issued to Chairman and employees | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Stock option expense | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net Loss | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, June 30, 2020 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 6 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(unaudited)
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Shares issued for services | ||||||||
| Incentive bonus shares issued to CEO and employees | - | |||||||
| Reserve (recovery) for bad debt | ( | ) | ||||||
| Stock Based Compensation - Options | ||||||||
| Amortization of right-of-use asset | ||||||||
| Gain on the settlement of debt | ( | ) | - | |||||
| Gain on the forgiveness of PPP loan | ( | ) | - | |||||
| Changes in operating assets and liabilities | ||||||||
| Change in accounts receivable, net | ( | ) | ||||||
| Change in accounts receivable - related parties | ( | ) | ( | ) | ||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Change in other assets | ||||||||
| Change in accounts payable and accrued liabilities | ( | ) | ||||||
| Change in accounts payable - related parties | ( | ) | ( | ) | ||||
| Change in customer deposits and unearned revenue | ( | ) | ||||||
| Change in long term lease liability | ( | ) | ( | ) | ||||
| Change in other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from unit offering | ||||||||
| Proceeds from exercise of Warrants | - | |||||||
| Proceeds from debt | - | |||||||
| Repayment on notes payable | ( | ) | ( | ) | ||||
| Repayment of debt | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Income Taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Fixed asset purchase down payment through the issuance of debt | $ | $ | ||||||
| Shares issued for the conversion of convertible debentures and accrued interest | $ | $ | ||||||
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” the “Company,” or “BWMG”), designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc., a Florida corporation organized in 1981 (“Trebor”), and manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organized in 2017 (“BHP”), doing business as LW Americas (“LWA”). In addition, in December 2017, the Company formed BLU3, Inc., a Florida corporation (“BLU3”), to develop and market portable battery powered surface supplied air dive systems. When used herein, the “Company” or “BWMG” includes Brownie’s Marine Group, Inc., and our wholly-owned subsidiaries Trebor, BHP and BLU3.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The following unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2020 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 2020 10-K for a broader discussion of our business and the risks inherent in such business.
| 8 |
Principles of Consolidation
The consolidated financial statements include the accounts of BWMG and its wholly owned subsidiaries, Trebor, BHP and BLU3. All significant intercompany transactions and balances have been eliminated in consolidation.
Cash and cash equivalents
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.
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 $
Inventory
Inventory
consists of the raw material, parts that make up the items that we manufacture, and finished goods. For the year ended December 31, 2020,
the Company recorded reserves for obsolete or slow-moving inventory of approximately $
Schedule of Inventory
| June
30, 2021 (unaudited) | December 31, 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory, net | $ | $ | ||||||
Revenue Recognition
We account for revenues in accordance with Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive.
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 June 30, 2021. Our leases generally have terms that range from three years for equipment and five to twenty years for property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term.
| 9 |
When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
For
the three and six months ended June 30, 2021 the lease expenses were approximately $
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| Operating Leases | June 30, 2021 | |||
| Right-of-use assets | $ | |||
| Current lease liabilities | $ | |||
| Non-current lease liabilities | ||||
| Total lease liabilities | $ | |||
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.
Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. At June 30, 2021 and June 30, 2020, and , 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
The recent accounting standards that have been issued or proposed by the Financial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
Note 3. Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following
the date of these consolidated financial statements. For the six months ended June 30, 2021, the Company incurred a net loss of $
| 10 |
Note 4. Related Party Transactions
The
Company sells products to three entities, Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, owned by the
brother of 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
The
Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940 A”),
entities wholly-owned by Mr. Carmichael. Terms of sale are more favorable than those extended to BWMG’s regular customers, but
no more favorable than those extended to Brownie’s strategic partners. Accounts receivable from the combined entities and Mr. Carmichael
totaled $
The
Company had accounts payable to related parties of $
The
Company has Exclusive License Agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”,
“Brownies Public Safety” and various other related trademarks as listed in the agreement. This Exclusive License Agreement
provides that the Company will pay 940 A
On
March 25, 2021, the Company issued shares of common stock to Mr. Charles F. Hyatt,
a member of our Board of Directors in consideration of $
As of June 30, 2021, options to purchase shares of common stock held by Mr. Carmichael vested in accordance with Carmichael Option agreement as further discussed in Note 6 of these financial statements.
Note 5. Convertible Debentures and Notes Payable
Convertible Debentures
Convertible debentures consisted of the following at June 30, 2021:
Schedule of Convertible Debentures
| Origination
Date | Maturity
Date | Interest
Rate | Origination Principal Balance | Original
Discount Balance | Period
End Principal Balance | Period
End Discount Balance | Period
End Balance, Net | Accrued
Interest Balance | Reg. | |||||||||||||||||||||||||
| % | ( | ) | (1 | ) | ||||||||||||||||||||||||||||||
| % | ( | ) | (2 | ) | ||||||||||||||||||||||||||||||
| % | ( | ) | (3 | ) | ||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| (1) | |
| (2) |
| 11 |
| The
conversion price under the note initially ranged from $ |
| (3) | |
| The
conversion price under the note initially ranged from $ |
Notes Payable
Gonzales Note
The
Company issued an unsecured, non-interest-bearing note of $
Hoboken Note
The
Company issued an unsecured, non-interest-bearing note of $
Loan Payable
Marlin Note
On
September 30, 2019 the Company, via its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain
plastic molding equipment through Marlin Capital Solutions. The initial principal balance was $
Schedule of Future Amortization of Loans Payable
| Payment Amortization | ||||
| 2021 (6 months remaining) | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 and thereafter | ||||
| Total Loan Payments | $ | |||
| Current portion of Loan payable | ( | ) | ||
| Non-Current Portion of Loan Payable | $ | |||
| 12 |
Mercedes Benz Note
On
August 21, 2020, the Company executed an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a 2019 Mercedes
Benz Sprinter delivery van. The installment agreement was for $
Schedule of Future Amortization of Loans Payable
| Payment Amortization | ||||
| 2021 (6 months remaining) | $ | |||
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 and thereafter | $ | |||
| Total note payments | $ | |||
| Current portion of note payable | $ | ( | ) | |
| Non-Current Portion of notes payable | $ | |||
Navitas Note
On May 19, 2021 the Company, via its wholly owned subsidiary BLU3, executed an equipment finance agreement financed for the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $payable over equal monthly installments of $(the “Navitas Note”). The equipment finance agreement contains customary events of default. The agreement was not fully funded as of June 30, 2021. Navitas has funded $for the down payment of an equipment purchase and the balance of the note is $as of June 30, 2021.
| Payment Amortization | ||||
| 2021 (6 months remaining) | ||||
| 2022 | ||||
| 2023 | ||||
| Total Note Payments | $ | |||
| Current portion of Note payable | ( | ) | ||
| Non-Current Portion of Note Payable | $ | |||
PPP Loan
On
May 12, 2020, we received an unsecured loan from South Atlantic Bank in the principal amount of $
The
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 $
The
note balance as of June 30, 2021 and December 31, 2020 was $
| 13 |
Note 6. Shareholders’ Equity
Common Stock
On
February 22, 2021, the Company issued shares of common stock related to the conversion of a convertible debenture and accrued
interest of $
On
March 1, 2021, the Company issued a consultant shares of its common stock related to investor relation services at a fair value
of $
On
March 25, 2021, the Company issued shares of common stock to Mr. Charles F. Hyatt,
a member of our Board of Directors, in consideration of $
On
February 25, 2021, the Company issued shares of common stock to a consultant with a fair value of $
On June 10 2021, the Company issued shares of common stock related to the conversion of a convertible debenture and accrued interest of $
Preferred Stock
During
the second quarter of 2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment
to the Company’s Articles of Incorporation authorizing the issuance of shares of blank check preferred stock. The blank
check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights
as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business
Corporation Act. In April 2011 the Board of Directors designated shares of the blank check preferred stock as Series A Convertible
Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at
any time at the option of the holder at a conversion price of $
Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees, Directors, and Consultants in the form of Incentive Stock Options or Non-statutory Stock Options, Stock Purchase Rights, time vested and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The maximum number of shares that may be issued under the Plan shall be shares. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years.
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 | $ | |||||||||||
| Equity Compensation Plans Not Approved by Security Holders | ||||||||||||
| Total | $ | |||||||||||
| 14 |
Options
Effective July 29, 2019 the Company issued options to purchase up to an aggregate of shares of common stock to Mr. Blake Carmichael. The options were issued pursuant to a stock option grant agreement and are exercisable at $ per share for a period of from the date of issuance, subject to vesting over a period of six months. 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 , iii) dividend yield of %, iv) expected volatility of %. 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 shares of common stock. The options were issued pursuant to a Grant Agreement and are exercisable at $ per share for a period of from the date of issuance, subject to vesting over a period of six months. 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 , iii) dividend yield of %, iv) expected volatility of %. 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 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 $ per share for a period of from the date of issuance. The 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 %, iv) expected volatility of %. 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 shares of common stock to BizLaunch Advisors, LLC. The options were issued pursuant to a professional services agreement and are exercisable at $ 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 $ 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 %. These stock options were fully expenses during the year ending December 31, 2020.
On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Mr. Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of 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 an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and |
| ● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive quarters during the Net Revenue Period. |
| 15 |
The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael on a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto.
The fair value of the Carmichael Option on the date of the 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 , iv) expected volatility of . The Company analyzed the likelihood that the vesting qualifications would be met. As of June 30, 2021, of options were vested as the targeted net revenues were reached and fully expensed. The second net revenue target was 25% reached. Therefore, stock option expense recognized during the six months ended June 30, 2021 for this option was $.
On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable the “Constable Option Agreement” as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a 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 %, iv) expected volatility of %. 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 $ 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 shares of the Company’s common stock shall vest at such time as the Company reports cumulative
consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent
acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net
Revenues”), in excess of $ |
| ● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and |
| ● | the right to purchase an additional shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $ in the aggregate over four consecutive quarters during the Net Revenue Period. |
The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for .
The fair value of the Bonus Options on the date of the grant was $ using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of , ii) expected life of years, iii) dividend yield of %, iv) expected volatility of %. The Company analyzed the likelihood that the vesting qualifications would be met, and as of June 30, 2021, deemed that there was a % chance that the options would vest. Therefore, stock option expense recognized during the six months ended June 30, 2021 for this option was $.
| 16 |
Effective 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 a 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 , iii) dividend yield of %, iv) expected volatility of %. The stock options expense recognized for the six months ended June 30, 2021 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, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding – June 30, 2021 (unaudited) | $ | |||||||||||||||
| Exercisable - June 30, 2021 (unaudited) | $ | $ | ||||||||||||||
Note 7. Commitments and contingencies
On August 14, 2014, the Company entered into
a
term lease for its facilities in Pompano Beach, Florida, commencing on September 1, 2014. Terms included payment of $
On
November 11, 2018, the Company entered a new lease agreement for approximately
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 $
On
June 9, 2020, the Company entered into an advertising and marketing agreement with Figment Design. The term of the agreement is for one
year, and thereafter renew or cancel the agreement in writing 60 days before the final date. The Company will continue to be billed $
On
August 1, 2020, BLU3 entered into a marketing agreement with This Way Media PTY, Ltd.
| 17 |
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 serve as Chief Executive Officer of the Company. Previously, Mr. Constable
had provided advisory services to the Company through the agreement with Brandywine LLC. In consideration for his services, Mr. Constable
shall receive (i) an annual base salary of $
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 $ 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 $
On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued shares of its common stock valued at $.
Legal
The
Company is a defendant in that certain lawsuit styled Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris
v. Brownie’s Marine Group, Inc., filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward
County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges
breach of contract and quantum meruit and is seeking $
| 18 |
Note 8. Segment Reporting
The
Company has
| 1. | Legacy SSA Products, which sells recreational hookah diving systems. | |
| 2. | High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages. | |
| 3. | Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user. |
Schedule of Segment Reporting Information
Three Months Ended June 30 (unaudited) | ||||||||||||||||||||||||||||||||
| Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Total Company | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of Revenue | $ | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||||||||
| Income (loss) from Operations | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||
Six months ended June 30 (unaudited) | ||||||||||||||||||||||||||||||||
| Legacy SSA Products | High Pressure Gas Systems | Ultra Portable Tankless Dive Systems | Total Company | |||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Net Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of Revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||
| Depreciation | ||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ( | ) | $ | ( | ) | |||||||||||||
| Total Assets | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Note 9. Subsequent Events
On
July 30, 2021, the Company entered into a binding term sheet (the “Term Sheet”) with Submersible Systems, LLC, a Florida
limited liability corporation (“Submersible”), and Tierra Vista Group, LLC and Summit Holdings V, LLC (Tierra Vista
Group and Summit Holdings V, collectively, the “Sellers”), the owners of all of the membership interests of
Submersible (the “Membership Interests”). Pursuant to the terms of the Term Sheet, the Company will acquire all of the
Membership Interests from the Sellers for an aggregate purchase price of $
On July 12, 2021, the Company entered into a settlement agreement related to the 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. (see Note 7)
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
BWMG, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, yacht-based 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 subsidiaries and related product lines are as follows:
[
Legacy SSA Products |
This segment represents our surface supplied air (SSA) product line. Trebor began its business making surface supplied air diving systems in the late 1960s. Our Brownie’s Third Lung systems have long been a dominant figure in gasoline powered, high-performance, and now the battery powered surface supplied air diving systems. Taking full advantage of the proprietary compressor system, a complete series of traditional “fixed speed” electric compressors were developed for the built-in-boat market in 2005. After years of inventing, testing and development, in 2010 we introduced our variable-speed battery powered hookah system which provides divers with gasoline-free all day shallow diving experiences. This battery system was updated in 2019 we introduced a lithium-ion battery powered variable speed system that is capable of three dives to thirty feet for three hours on one charge. These systems provide performance and runtimes as great as 300% better than the best devices previously on the market by utilizing a variable speed technology that controls battery consumption based on diver demand.
The Legacy SSA segment has experienced a 45.8% growth in units sold in the first six months of 2021 as compared to the first six months of 2020, as we continue to expand our dealer network and the breadth of product that each of the dealers provide.
This segment is seeing results from its marketing efforts with both the consumer and our network of dealers. The company continues to add dealers across the country in order to diversify the seasonality as well as the geography risks. Additionally, we continue to pursue more aggressively the boat builder market to offer our Legacy SSA systems as an option on newly built boats, expanding our market beyond the traditional consumer markets for our products. Our Legacy SSA products include:
● Tankless Dive Systems: The Company produces a line of tankless dive products, commonly called hookah or recreational surface supplied air systems. These systems allow one to four divers to enjoy the marine environment up to a depth of up to 45 feet without the bulk and weight of conventional SCUBA gear. The removal of barriers to entry into the sport of diving and the reduction of complicated and bulky SCUBA gear invites a broader range of the general public to participate more actively and enjoyably at their own pace and schedule. The design of our product also reduces the effort required for both its transport and continued use while exploring, cruising or traveling. A line of land-based systems is available for light-duty commercial applications that demand portability and performance. In addition to the gasoline-powered units and the variable speed battery powered units, a series of AC electric powered systems is also available for light to commercial duty. Powered by battery for portability or household current for virtually unlimited dive duration, these units are used primarily by businesses that work in aquatic maintenance and marine environments.
● BIAS (Boat Integrated Air Systems): The Company developed several tankless products and complimentary accessories that it believes makes boat diving even easier. The BIAS battery powered tankless kit allows boat builders, dealers and end users to seamlessly install a pre-packaged kit directly into the boat. The E-Reel advances this idea by adding a level-winding battery powered hose reel system to provide compact storage of up to 150 feet of hose. Boaters can perform their own in-water maintenance and inspections, or just dive for enjoyment. In addition to supplying air to divers, BIAS is useful for supporting air horns, inflating boat fenders/water toys, activating pneumatically operated doors, and more. The Company strategy is to align the easy to install, complete kit packages with boat builders, dealer and end users through a vertically targeted sales and marketing program. |
High Pressure Gas Systems |
Through this segment, we design, manufacture, sell and install SCUBA tank fill systems for on-board yacht use under the brand “Yacht-Pro™”. Our systems provide complete diving packages and dive training solutions for yachts, includes Nitrox systems which allow yacht owners to fill tanks with oxygen enriched air on board. The Yacht-Pro™ compressor systems offer a completely marine-prepared, VFD (variable frequency drive)-driven, automated alternative to other compressors on the market. We also design complete dive lockers, mixed gas production and distribution systems, and the unique Nitrox Maker™. Nitrox is oxygen-enriched air, which reduces the effects of nitrogen on divers; it is the industry standard for dive professionals. The Nitrox Maker™ continuously generates the oxygen rich breathing gas directly from low-pressure air; no stored oxygen or other gases are required onboard.
Consistent with our goals for 2021, this segment of our business continues to work to expand its customer base beyond that of the diving community. We believe the product lines from L&W, will allow LW Americas to put a high quality, competitive products into the first responder and industrial market that utilize compressed air for many applications. Our goal will be to build a network of jobbers, dealers, installers and high-pressure compressor distributors throughout the territory by leveraging our know-how, brand awareness, complimentary products and creating sustainable distribution and core product OEM integration relationships. |
[]
Ultra Portable Tankless Dive Systems |
In the continued expansion of our business, in December 2017, we formed a wholly-owned subsidiary BLU3, to develop and market a next generation electric surface supplied air diving systems electric shallow dive system that is completely portable to the user. The BLU3 line currently consists of two models targeting specific performance levels and price points – NEMO and NOMAD.
The NEMO dive system continues to expand its customer base and become more accepted across the world. Currently, Nemo is sold in 9 countries through Amazon, and also through 25 dealers across the world. Nemo, the worlds smallest dive system is capable of taking one diver to 10 feet for 60 to 90 minutes on one charge of its lithium-ion battery. Nemo is portable, and approved for airline travel.
Currently, NOMAD is nearing the end of the design phase and full production will begin in the third quarter of 2021, as the Company continues to ensure that it will deliver a product that will excite the consumer but be safe as well. This product will expand the customers dive capability to up to 33 feet and continue to drive the vertical integration of the diving experience. |
| 20 |
Second Quarter and Six Months ended June 30, 2021 Highlights
Revenue for the Second Quarter 2021 and six months ended June 30, 2021 have continued to increase as compared to the same periods in 2020, The Company is succeeding in its mission to expand our customer base from primarily the southeast US to an international distributor and retail customer base. 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 of the water.
Highlights:
| ● | Our total revenue increased 29.7% for the Second Quarter and 36.2% for the six months ended June 30, 2021 as compared to the same periods in 2020. |
| ● | The Company signed an exclusive US and Caribbean distribution agreement with the manufacturer of Bright Weights. Bright Weights is a unique and fun alternative to the dive ballast systems currently available in the market today. The Company expects to use its Amazon and Dealer sales channels to grow this product line. |
| ● | BLU3, Inc. launched pre-orders for September and October shipment of its Nomad Product line. |
| ● | BLU3, Inc. has expanded its Amazon footprint to 9 countries, including the US. |
| ● | Unit sales for the BLU3 Nemo increased 152% for the six months ended June 30, 2021 as compared to the same period in 2020. |
| ● | Gross margins increased from 30.7% to 34.1% for the six months ended June 30, 2021 as compared to the same period in 2020. |
Results of Operations
Net Revenues, Costs of Net Revenues and Gross Profit
Overall, our net revenues increased 29.7% and 36.2% for the Second Quarter 2021 and the six months ended June 30, 2021 from the comparable periods in 2020. These increases included an increase of 21.0% and 31.5% in net revenues from sales to third parties, and an increase of 79.1% and 57.6% in net revenues from sales to related parties for the three and six months ended June 30, 2021, respectively, over the comparable prior period. Net revenue for the Second Quarter 2020 and six months ended June 30, 2020 included non-recurring revenue related to the Blu-Vent project of approximately $458,000. Adjusting this non-recurring item from the 2020 revenue the core business revenue increase for the three and six months ended June 30, 2021 would be 99.0% and 78.1%, respectively.
Our total cost of net revenues in the Second Quarter 2021 and the six months ended June 30, 2021 were 65.1% and 65.9% of our total net revenues as compared to 62.4% and 69.3% for the same periods in 2020. Included in our total cost of net revenues are royalty expenses we pay to Mr. Carmichael which increased 56.4% and 74.0% for the three and six months ended June 30, 2021 as compared to the same periods in the prior year. The increased royalties are the result of increased sales in the legacy SSA segment. Also included in the total cost of net revenue are royalties paid pursuant to our agreement with STS. These royalties accounted for approximately 2.4% and 2.1% of total net revenue for the three and six months ended June 30, 2021, respectively as compared to 1.1% and 1.4% for the same periods in 2020.
We reported an overall gross profit margin of 34.9% and 34.1% for the three and six months ended June 30, 2021 as compared to 37.6% and 30.7% for the three and six months ended June 30, 2020. The Legacy SSA product lines had an increase in distribution sales during the Second Quarter 2021 as compared to the direct to consumer sales of the Second Quarter 2020, since the COVID stay at home orders have been lifted in 2021, customers are returning to their local dive stores, rather than purchasing online. The High Pressure Gas Systems margins have shown a decrease in margin percentage for the Second Quarter, 2021 to 45.3% from 52.8% during the same quarter in 2020. However, with the increased revenue in this segment,margin available to cover operating expenses grew in this segment by 137% in the Second Quarter 2021 as compared to the Second Quarter 2020 as revenue grew 176.1% for the segment. Margins related to the Ultra-Portable Tankless dive segment improved from 22.8% for the Second Quarter 2020 to 36.8% for the Second Quarter, 2021. The margins in this segment in the Second Quarter, 2020 were depressed because of the lower margins yielded from the BluVent project that was billed in that period.
The following tables provides net revenues, total costs of net revenues, and gross profit margins for our segments for the periods presented.
| 21 |
Net Revenues
| Three Months Ended June 30 | % of | Six Months Ended June 30, | % of | |||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||
| Legacy SSA Products | $ | 976,973 | $ | 626,389 | 56.0 | % | $ | 1,443,016 | $ | 920,507 | 56.8 | % | ||||||||||||
| High Pressure Gas Systems | 207,565 | 75,170 | 176.1 | % | 357,693 | 273,386 | 30.8 | % | ||||||||||||||||
| Ultra-Portable Tankless Dive Systems | 528,380 | 618,969 | (14.6 | )% | 862,978 | 761,424 | 13.3 | % | ||||||||||||||||
| Total net revenues | $ | 1,712,918 | $ | 1,320,528 | 29.7 | % | $ | 2,663,687 | $ | 1,955,317 | 36.2 | % | ||||||||||||
Cost of revenues as a percentage of net revenues
| Three
Months Ended June 30, | Six
Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Legacy SSA Products | 68.4 | % | 49.6 | % | 71.9 | % | 58.5 | % | ||||||||
| High Pressure Gas Systems | 54.7 | % | 47.2 | % | 54.4 | % | 67.8 | % | ||||||||
| Ultra-Portable Tankless Dive Systems | 63.2 | % | 77.2 | % | 60.6 | % | 82.9 | % | ||||||||
Gross profit (loss) margins
| Three
Months Ended June 30, | Six
Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Legacy SSA Products | 31.6 | % | 50.4 | % | 28.1 | % | 41.5 | % | ||||||||
| High Pressure Gas Systems | 45.3 | % | 52.8 | % | 45.6 | % | 32.2 | % | ||||||||
| Ultra-Portable Tankless Dive Systems | 36.8 | % | 22.8 | % | 39.4 | % | 17.1 | % | ||||||||
Legacy SSA Products segment
Revenue in this segment continues to show improvement, increasing 56.0% year over year for the Second Quarter 2021. The increase in net revenues in this segment for the Second Quarter 2021 as compared to the same period in 2020 can be attributed to increases in dealer demand, increasing 114.1%, and demand from affiliates increasing 344.1%. These segments increased in anticipation for the 2021 summer season. Direct to consumer demand decreased for the Second Quarter, 2021 as compared to the same period in 2020, as the re-opening of the economy after COVID allowed consumers to purchase product at retail rather than from our website. For the six months ended June 30, 2021 the Legacy SSA segment continued to show significant increase over the prior year. Increases in all areas of this segment increased netting to a total increase of 56.8% for the six months ended June 30, 2021 as compared to the same period in 2020.
Our costs of revenues as a percentage of net revenues in this segment increased from 58.5% to 71.9% for the six months ended June 30, 2020 from the prior year. The increased cost of revenue, and in turn reduction in product margin, can be attributed to increase proportion of dealer sales as compared to the prior year increasing 79.3%.
A breakdown of the revenue channels for this segment are below. Direct to Consumer represent items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we have dealer agreements that typically operate with the lowers margin. Affiliates are resellers of our products that are not in a formal dealer arrangement.
| 22 |
| Three Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Second Quarter 2021 | Second Quarter 2020 | % change | Second Quarter 2021 | Second Quarter 2020 | Second Quarter 2021 | Second Quarter 2020 | ||||||||||||||||||||||
| Dealers | $ | 664,928 | $ | 310,499 | 114.1 | % | 77.7 | % | 31.0 | % | 22.3 | % | 69.0 | % | ||||||||||||||
| Direct to Consumer (website Included) | 273,430 | 307,195 | (11.0 | )% | 45.1 | % | 68.3 | % | 54.9 | % | 31.7 | % | ||||||||||||||||
| Affiliates | 38,615 | 8,695 | 344.1 | % | 74.3 | % | 51.0 | % | 25.7 | % | 49.0 | % | ||||||||||||||||
| Total | $ | 976,973 | $ | 626,389 | 56.0 | % | 68.4 | % | 49.6 | % | 31.6 | % | 50.4 | % | ||||||||||||||
| Six Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | % change | Six months ended June 30, 2021 | Six months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | ||||||||||||||||||||||
| Dealers | $ | 918,467 | $ | 512,284 | 79.3 | % | 78.7 | % | 50.1 | % | 21.3 | % | 49.9 | % | ||||||||||||||
| Direct to Consumer (website Included) | 484,102 | 387,499 | 25.0 | % | 58.9 | % | 69.5 | % | 41.1 | % | 30.5 | % | ||||||||||||||||
| Affiliates | 40,447 | 20,724 | 95.2 | % | 74.5 | % | 60.4 | % | 25.5 | % | 39.6 | % | ||||||||||||||||
| Total | $ | 1,443,016 | $ | 920,507 | 56.8 | % | 71.9 | % | 58.5 | % | 28.1 | % | 41.5 | % | ||||||||||||||
High Pressure Gas Systems segment
Sales of high-pressure breathing air compressors shown a 176.1% year over year increase during the Second Quarter 2021 as the marketplace began to see an economic recovery during this period. All segments have begun to open up, and demand has begun to show signs of life, with travel returning, and diving operations throughout the US and Caribbean have re-opened and receiving tourists. The majority of our dive resort and dive operator customers’ businesses have begun to conduct a more normalized business, and the recovery of this customer segment can be seen in the increases in revenue in the reseller segment. The Original Equipment Manufacturer segment showed significant growth with an increase of over 300% for the six month ended June 30, 2021 as compared to 2020. The direct to consumer segment, which includes yacht owners and direct to dive stores, showed some life in the Second Quarter 2021 increasing 133%, however this increase wasn’t enough to recover the year over year results for the six months ended June 30, 2021 with a decrease in revenue in the segment of 22.0%. We continue to see acceptance of the L&W brand and we expect sales to continue to increase as we open the product up to new markets outside of the diving and yachting segments.
Our costs of revenues as a percentage of net revenues in this segment decreased to 54.4% as compared to 67.8% for the six months ended June 30, 2021 and 2020. This can be attributed to significant improvements of in margin to the reseller and OEM customer segments. This is attributed to improved product mix and improvements in the job-costing process.
| Three Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Second Quarter 2021 | Second Quarter 2020 | % change | Second Quarter 2021 | Second Quarter 2020 | Second Quarter 2021 | Second Quarter 2020 | ||||||||||||||||||||||
| Resellers | $ | 121,118 | $ | 83,945 | 44.3 | % | 53.0 | % | 67.8 | % | 47.0 | % | 32.2 | % | ||||||||||||||
| Direct to Consumers | 43,749 | 18,785 | 132.9 | % | 68.2 | % | 18.5 | % | 31.8 | % | 81.5 | % | ||||||||||||||||
| Original Equipment Manufacturers | 42,698 | (27,560 | ) | 254.9 | % | 45.6 | % | 90.2 | % | 54.4 | % | 9.8 | % | |||||||||||||||
| Total | $ | 207,565 | $ | 75,170 | 176.1 | % | 54.7 | % | 47.2 | % | 45.3 | % | 52.8 | % | ||||||||||||||
| 23 |
| Six Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Six months ended June 30 2021 | Six months ended June 30, 2020 | % change | Six months ended June 30, 2021 | Six months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | ||||||||||||||||||||||
| Resellers | $ | 218,264 | $ | 141,718 | 54.0 | % | 57.3 | % | 71.9 | % | 42.7 | % | 28.1 | % | ||||||||||||||
| Direct to Consumers | 93,990 | 120,558 | (22.0 | )% | 51.7 | % | 66.1 | % | 48.3 | % | 33.9 | % | ||||||||||||||||
| Original Equipment Manufacturers | 45,439 | 11,110 | 309.0 | % | 46.1 | % | 33.7 | % | 53.9 | % | 66.3 | % | ||||||||||||||||
| Total | $ | 357,693 | $ | 273,386 | 30.8 | % | 54.4 | % | 67.8 | % | 45.6 | % | 32.2 | % | ||||||||||||||
Ultra Portable Tankless Dive Systems
Revenue for the six months ended June 30, 2021 in the Ultra Portable Tankless Dive System segment continues to show significant improvement with growth of 13.3% increase for the first six months of 2021 as compared to the same period in 2020. The increase in revenue is despite the loss of the non-recurring revenue related to the BLU-Vent project that was recognized during the Second Quarter 2020. All of the sales channels for this business segment continue to develop. The largest contributor to the revenue increases for both the three and six months ended June 30, 2021 as compared to the prior year, are the growth in consumer direct sales and sales via the Amazon channel. Through June 30, 2021, BLU3 is selling to Amazon in nine countries as well as a significant presence in the US Amazon Channel. BLU3 continues to expand its dealer base which can be seen by the 334.2% revenue growth for first six months of 2021 as compared to the same period in 2020. The Company’s continued focus on direct to consumer via our website accounted for a 40.2% increase for the six months ended June 30, 2021 as compared to the prior year.
Our aggregate cost of revenue from this segment as percentage of net revenues for the three months ended and six months ended June 30, 2021 have shown improvement over the same period in 2020. The cost of revenue and margins through the first six months of 2021 are more representative of the normalized costs and margins, excluding the non reoccurring Ventilator project. BLU3 is consistently working toward greater production efficiency and capacity.
| Three Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Second Quarter 2021 | Second Quarter 2020 | % change | Second Quarter 2021 | Second Quarter 2020 | Second Quarter 2021 | Second Quarter 2020 | ||||||||||||||||||||||
| Ventilator | $ | - | $ | 457,803 | (100.0 | )% | - | 89.0 | % | - | 11.0 | % | ||||||||||||||||
| Direct to Consumer | 188,466 | 149,589 | 26.0 | % | 53.9 | % | 51.3 | % | 46.1 | % | 48.7 | % | ||||||||||||||||
| Amazon | 188,467 | - | 100.0 | % | 61.9 | % | - | 38.1 | % | 100.0 | % | |||||||||||||||||
| Dealers | 151,447 | 11,577 | 1,208.1 | % | 76.4 | % | (57.2 | )% | 23.6 | % | 157.2 | % | ||||||||||||||||
| Total | $ | 528,380 | $ | 618,969 | (14.6 | )% | 63.2 | % | 77.2 | % | 36.8 | % | 22.8 | % | ||||||||||||||
| Six Months Ended June 30, 2021 and June 30, 2020 | ||||||||||||||||||||||||||||
| Net Revenue | Cost of Revenue as a % of Net Revenue | Margin | ||||||||||||||||||||||||||
| Six months ended June 30, 2021 | Six months ended June 30, 2020 | % change | Six months ended June 30, 2021 | Six months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | ||||||||||||||||||||||
| Ventilator | $ | - | $ | 457,803 | (100.0 | )% | - | 89.0 | % | - | 11.0 | % | ||||||||||||||||
| Direct to Consumer | 340,665 | 243,042 | 40.2 | % | 52.2 | % | 71.9 | % | 47.8 | % | 28.1 | % | ||||||||||||||||
| Amazon | 259,265 | - | 100.0 | % | 61.8 | % | - | 38.2 | % | 100.0 | % | |||||||||||||||||
| Dealers | 263,048 | 60,579 | 334.2 | % | 70.1 | % | 81.4 | % | 29.9 | % | 18.6 | % | ||||||||||||||||
| Total | $ | 862,978 | $ | 761,424 | 13.3 | % | 60.6 | % | 82.9 | % | 39.4 | % | 17.1 | % | ||||||||||||||
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Operating Expenses
Operating expenses, consisting of selling, general and administrative (“SG&A”) expenses and research and development costs, and are reported on a consolidated basis for our operating segments. Aggregate operating expenses decreased 6.6% for the Second Quarter 2021 as compared to the Second Quarter 2020. For the six months ended June 30, 2021 aggregate operating expenses increased by 23.5% from the same period in 2020.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A decreased by 4.7% and increased by 25.7% for the Second Quarter and six months ended June 30, 2021 as compared to the same periods in 2020. The main drivers of SG&A during those periods are as follows:
| Expense Item | Second Quarter 2021 | Second Quarter 2020 | % Change | Six months Ended June 30, 2021 | Six months Ended June 30, 2020 | % Change | ||||||||||||||||||
| Payroll, Selling & Admin | $ | 236,062 | $ | 103,368 | 128.4 | % | $ | 461,529 | $ | 247,890 | 86.2 | % | ||||||||||||
| Stock Compensation Expense | 266,370 | 296,470 | (10.2 | )% | 498,875 | 406,040 | 22.9 | % | ||||||||||||||||
| Other Professional Fees | 71,500 | 238,500 | (70.0 | )% | 92,000 | 241,500 | (61.9 | )% | ||||||||||||||||
| Advertising | 47,615 | 16,212 | 193.7 | % | 113,841 | 35,068 | 224.6 | % | ||||||||||||||||
| All Others | 202,060 | 209,913 | (3.7 | )% | 394,397 | 311,543 | 26.6 | % | ||||||||||||||||
| Total SG&A | $ | 823,607 | $ | 864,463 | (4.7 | )% | $ | 1,560,642 | $ | 1,242,041 | 25.7 | % | ||||||||||||
Payroll increases for the three and six months ended June 30, 2021 are related to the hiring of the CEO, and other administrative positions to support the growth in each of our divisions.
Non-Cash Stock compensation expenses have seen a slight decrease for the Second Quarter, as the 2020 totals included stock options that were fully expensed in 2020, and no further adjustments were necessary in the Second Quarter 2021. The increase for the six months ended June 30, 2021 as compared to the same period in 2020 is related to options to the our CFO and Chairman, that were issued during the Second Quarter 2020 and were fully expensed in the First Quarter 2021.
Other professional fees, typically in the form of non-cash stock or stock options decreased 70% and 61.9% for the Second Quarter 2021 and six months ended June 30, 2021, respectively, as compared to the same periods in 2020. This decrease can be attributed to the contracts of both an IR firm and a PR firm in the Second Quarter 2020, that were terminated or their compensation was restructured for 2021.
The increase in advertising expense for the three and six months ended June 30, 2021 as compared to the same periods in 2020 is attributable to the agreement with the Company’s provider of marketing and advertising. This contract was executed in the Third Quarter 2020, and was not renewed as of July 31, 2021.
Research & Development Expenses (R&D Expenses)
R&D expenses for the Second Quarter and six months ended June 30, 2021 decreased 46.7% and 24.4%, respectively as compared to the same periods in the prior year. The decrease can be primarily attributed to the near completion of the R&D for BLU3’s NOMAD, as it moves toward production in the third quarter, 2021.
Total Other Income
Total other income was approximately $157,800 and $163,900 for the Second Quarter 2021 and six months ended June 30, 2021 as compared to other expense of approximately $6,400 and $12,300 during the same period in 2020. The other income for the Second Quarter 2021 consists of a gain from the forgiveness of the PPP loan of $159,600 offset by interest expense of approximately $1,800. The other expenses for the Second Quarter 2020 consist only of interest expense. The decrease in interest expense can be attributed to the decrease in interest expense on the Marlin Note, the conversion and settlement of debt and a reduction in the note balances due to repayments made.
| 25 |
Liquidity and Capital Resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table summarized total current assets, total current liabilities and working capital at June 30, 2021 (unaudited) as compared to December 31, 2020.
| June 30, | December 31, | % of | ||||||||||
| 2021 | 2020 | change | ||||||||||
| (unaudited) | ||||||||||||
| Total current assets | $ | 1,954,388 | $ | 1,469,037 | 33.0 | % | ||||||
| Total current liabilities | $ | 1,156,250 | $ | 1,029,204 | 12.3 | % | ||||||
| Working capital | $ | 798,138 | $ | 439,833 | 81.4 | % | ||||||
The increase in our current assets at June 30, 2021 from December 31, 2020 principally reflects increases in accounts receivable from related and non-related parties, inventory, net and prepaid expenses and other current assets. The increase in our total current liabilities principally reflect increases in total accounts payable, customer deposits, and other liabilities, offset by decreases in current maturities of long term debt, notes payable and the convertible debentures.
Summary Cash Flows
Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Net cash used by operating activities | $ | (396,838 | ) | $ | (463,508 | ) | ||
| Net cash used by investing activities | $ | (14,591 | ) | $ | - | |||
| Net cash provided by financing activities | $ | 227,904 | $ | 885,138 | ||||
Net cash used in operating activities for the six months ended June 30, 2021 was due to the net loss of approximately $530,800 which is primarily attributable to non-cash stock compensation expenses of approximately $600,900. The non-cash stock compensation expense for the six months ended June 30, 2021 is attributable stock options issued to Mr. Carmichael, Mr. Constable, various employees as well as shares issued for services to consultants. The cash used is also the result of increases in current assets, including, accounts receivable, inventory, net, and prepaid expenses that utilized approximately $660,300 offset by increases in current liabilities including accounts payable, other liabilities, and customer deposits, which totaled to approximately $325,900.
Net cash used by investing activities relate primarily to an increase in leasehold improvements, as the company expanded its office space for additional personnel, and lighting in the production areas.
Net cash provided by financing activities in the six months ended June 30, 2021 reflects proceeds from the sale of common stock, proceeds from a new debt agreement, offset by the repayments of notes payable and Marlin Note.
Going Concern and Management’s Liquidity Plans
As set forth in Note 3 of the unaudited condensed consolidated financial statements appearing in this report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2020 contained a going concern qualification.
We have a history of losses, and an accumulated deficit of $13,486,923 as of June 30, 2021. Despite a working capital surplus of $798,138 at June 30, 2021, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. As set forth in Note 5 appearing earlier in this report, we owe third parties approximately $50,000 under the terms of convertible debentures that become due in December 2021. In addition, we have an additional $15,000 in loans which are due on demand. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations.
| 26 |
Critical Accounting Policies
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements appearing earlier in this report.
Recent Accounting Pronouncements
The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. These recent accounting pronouncements are described in Note 2 to our notes to unaudited condensed consolidated financial statements appearing earlier in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. The Company’s management, under the supervision and with the participation our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2021. Based upon that evaluation our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report as a result of the continuing material weakness in the Company’s internal control over financial reporting as described in Item 9A. of our 2020 10-K. We do not, however, expect that the weaknesses in our disclosure controls will be remediated until such time as we remediate the material weaknesses in our internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15 under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 27 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are a defendant in that certain lawsuit styled Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., Case number CACE19009879 filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $15,870.97 in unpaid consulting fees together with interest. In April 2020 the Company filed a Motion to Dismiss, and at a hearing held in May 2021 the Court struck certain allegations contained in the complaint, the parties agreed that the quantum meruit allegation is deemed to be an alternative to the breach of contract allegation, but permitted certain other allegations to stand. This matter was settled for $10,000 in July 2021.
Item 1A. Risk Factors
We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2020 10-K.
Item 2. Unregistered sales of equity securities and use of proceeds
Except as to unregistered sales of securities disclosed under prior reports, during the period covered by this report we sold the securities disclosed below that were not registered under the Securities Act of 1933, as amended.
On June 10, 2021, the Company issued 6,055,358 shares of common stock to the holder of an outstanding convertible debenture pursuant to the conversion of the convertible debenture and accrued interest in the amount of $60,554. The shares of restricted common stock were issued pursuant to the exemption from registration provided by Section 3(a)(9) of the Act. The holder has access to information concerning the Company and is an accredited investor.
Item 3. Defaults Upon Senior Securities
None.
Item 4. MINE SAFETY DISCLOSURE
None.
Item 5. Other Information
On July 30, 2021, the Company entered into a binding term sheet (the “Term Sheet”) with Submersible Systems, LLC, a Florida limited liability corporation (“Submersible”), and Tierra Vista Group, LLC and Summit Holdings V, LLC (Tierra Vista Group and Summit Holdings V, collectively, the “Sellers”), the owners of all of the membership interests of Submersible (the “Membership Interests”). Pursuant to the terms of the Term Sheet, the Company will acquire all of the Membership Interests from the Sellers for an aggregate purchase price of $1,750,000 (the “Purchase Price”), to be paid to the Sellers at closing: (i) by the issuance to the Sellers of three-year convertible promissory notes (each, a “Note”) in the aggregate principal amount of $350,000, at an interest rate of 8% per annum, with each Seller to receive a Note in the principal amount pro rata with the number of Membership Interests such Seller owns of Submersible, and (ii) by the issuance to the Sellers of an aggregate of $1,400,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share, such number of Shares to be calculated based on the volume weighted average price of a share of the Company’s Common Stock on the OTC Markets ("VWAP") for (a) 180 days prior to the date of the Term Sheet, or (b) 180 days prior to the closing date of the transaction, whichever results in a lower VWAP, with each Seller receiving a pro rata portion of the Shares based upon the total number of Membership Interests held by such Seller. The closing and consummation of the transactions contemplated by the Term Sheet are to occur no later than August 31, 2021, and are subject to certain closing conditions and deliveries, including an agreement containing typical representations and warranties by the parties of a transaction of this nature. There are no assurances the transactions will be completed.
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees, Directors, and Consultants in the form of Incentive Stock Options or Non-statutory Stock Options, Stock Purchase Rights, time vested and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The maximum number of shares that may be issued under the Plan shall be 25,000,000 shares. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years.
| 28 |
Item 6. Exhibits
| Incorporated by Reference | Filed | |||||||||
| Exhibit | or Furnished | |||||||||
| No. | Exhibit Description | Form | Date Filed | Number | Herewith | |||||
| 3.1 | Articles of Conversion (Nevada) | 8-K | 10/28/15 | 3.1 | ||||||
| 3.2 | Certificate of Conversion (Florida) | 8-K | 10/28/15 | 3.2 | ||||||
| 3.3 | Articles of Incorporation (Florida) | 8-K | 10/28/15 | 3.3 | ||||||
| 3.4 | Articles of Amendment | 8-K | 12/16/15 | 3.5 | ||||||
| 3.5 | Bylaws | 8-K | 10/28/15 | 3.4 | ||||||
| 4.1 | 2021 Equity Incentive Plan | Filed | ||||||||
| 10.1 | Binding Term Sheet dated July 30, 2021 | 8-K | 8/3/2021 |
|||||||
| 31.1 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) | Filed | ||||||||
| 31.2 | Certification Pursuant to Rule 13a-14(a)/15d-14(a) | Filed | ||||||||
| 32.1 | Certification Pursuant to Section 1350 | Filed | ||||||||
| 101 | XBRL Interactive Data File | Filed | ||||||||
| 29 |
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: August 16, 2021 | Brownie’s marine group, Inc. | |
| By: | /s/ Christopher H. Constable | |
| Christopher H. Constable | ||
| Chief Executive Officer, | ||
| principal executive officer | ||
| By: | /s/ Robert M. Carmichael | |
| Robert M. Carmichael | ||
| Chief Financial Officer, | ||
| principal financial and accounting officer | ||
| 30 |