Brownie's Marine Group, Inc 10-Q for FY2024 Q1
Brownie's Marine Group, Inc (BWMG)
About this 10-Q
Brownie's Marine Group, Inc filed this 10-Q on July 17, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.61M
- down 1.9% from $1.64M a year earlier
- Net loss
- $335.72K
- compared with a net loss of $327.92K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 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 |
Commission
file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
(
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 | ||
| None | Not applicable | Not applicable |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of July 17, 2024, there were shares of common stock outstanding.
| TABLE OF CONTENTS | |||
| Page No. | |||
| PART I – FINANCIAL INFORMATION | |||
| ITEM 1. | FINANCIAL STATEMENTS. | 4 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 21 | |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 27 | |
| ITEM 4. | CONTROLS AND PROCEDURES. | 27 | |
| PART II – OTHER INFORMATION | |||
| ITEM 1. | LEGAL PROCEEDINGS. | 29 | |
| ITEM 1A. | RISK FACTORS. | 29 | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 29 | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 29 | |
| ITEM 4. | MINE SAFETY DISCLOSURES. | 29 | |
| ITEM 5. | OTHER INFORMATION. | 29 | |
| ITEM 6. | EXHIBITS. | 30 | |
| 2 |
NOTE REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward- looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.
You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 9, 2024, which risk factors could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
| 3 |
PART I
ITEM 1. FINANCIAL STATEMENTS
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable – net of allowances of $ | ||||||||
| Accounts receivable - related parties | ||||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, equipment and leasehold improvements, net | ||||||||
| Operating lease assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| 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 | ||||||||
| Related party convertible demand note, net | ||||||||
| Convertible notes | ||||||||
| Current maturities long term debt | ||||||||
| Related party notes payable | ||||||||
| Total current liabilities | ||||||||
| Loans payable, net of current portion | ||||||||
| Operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities (see note 8) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock; $ par value: shares authorized; issued and outstanding as of March 31, 2024 and December 31, 2023. | ||||||||
| Common stock; $ par value; shares authorized; shares issued and outstanding at March 31, 2024 and shares issued and outstanding at December 31, 2023, respectively. | ||||||||
| Common stock payable shares and shares, respectively as of March 31, 2024 and December 31, 2023. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | $ | $ | ||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
| 4 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(unaudited)
| 2024 | 2023 | |||||||
| Net revenues | ||||||||
| Net revenues | $ | $ | ||||||
| Net revenues - related parties | ||||||||
| Net revenues | ||||||||
| Total net revenues | ||||||||
| Cost of net revenues | ||||||||
| Cost of net revenues | ||||||||
| Cost of net revenues - related parties | ||||||||
| Cost of net revenues | ||||||||
| 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 | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other (income) expense - net | ( | ) | ( | ) | ||||
| Loss income before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic loss per common share | $ | ( | ) | $ | ( | ) | ||
| Diluted loss per common share | $ | ( | ) | $ | ( | ) | ||
| Basic weighted average common shares outstanding | ||||||||
| Diluted weighted average common shares outstanding | ||||||||
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
| 5 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(unaudited)
| Outstanding | Par | Outstanding | Par | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
| Shares | Shares | Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||||||||||
| Outstanding | Par | Outstanding | Par | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Shares issued for accrued interest in convertible notes | - | |||||||||||||||||||||||||||||||||||
| Stock Option Expense | - | - | - | |||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Payable | Additional | Total | ||||||||||||||||||||||||||||||||
| Shares | Shares | Paid-in | Accumulated | Stockholders | ||||||||||||||||||||||||||||||||
| Outstanding | Par | Outstanding | Par | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Shares issued for the purchase of units | - | - | ||||||||||||||||||||||||||||||||||
| Shares issued for accrued interest in convertible notes | - | - | ||||||||||||||||||||||||||||||||||
| Stock Option Expense | - | - | - | |||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited 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)
| 2024 | 2023 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right-of-use asset | ||||||||
| Reserve for Nomad recall | ( | ) | ||||||
| Stock Based Compensation - Options | ||||||||
| Stock based compensation - stock grant | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Recovery of bad debt | ( | ) | ||||||
| Change in reserve of slow moving inventory | ||||||||
| Change in other assets | ||||||||
| Change in accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Change in customer deposits and unearned revenue | ( | ) | ||||||
| Change in long term lease liability | ( | ) | ( | ) | ||||
| Change in other liabilities | ||||||||
| Change in accounts payable - related parties | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows used in investing activities: | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of units | ||||||||
| Proceeds of related party demand note | ||||||||
| Proceeds from long term debt | ||||||||
| Repayment of debt | ( | ) | ( | ) | ||||
| Net cash provided from in financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning balance | ||||||||
| 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: | ||||||||
Common Stock issued for payment of convertible note interest | ||||||||
| Equipment obtained through financing | $ | $ | ||||||
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements
| 7 |
BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2024
(UNAUDITED)
Note 1. Company Overview
Brownie’s Marine Group, Inc. (the “Company”) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary, Trebor Industries, Inc., a Florida corporation, incorporated in 1981 (“Trebor” or “BTL”), manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BLU3”). On September 3, 2021, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation and wholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or “SSI”), and Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company.
Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The 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, 2023 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for a broader discussion of the Company’s business and the risks inherent in such business. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending December 31, 2024.
| 8 |
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and LBI. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Accounts receivable
The Company manufactures and sells its products to a broad range of customers, primarily retail stores. Few customers are provided with payment terms of 30 days. The Company has tracked historical loss information for its trade receivables and compiled historical credit loss percentages for different aging categories (current, 1–30 days past due, 31–60 days past due, 61–90 days past due, and more than 90 days past due).
In
accordance with ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), management believes that the historical loss
information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at March
31, 2024, because the composition of the trade receivables at that date is consistent with that used in developing the historical
credit-loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed
significantly over time). As a result, management applied the applicable credit loss rates to determine the expected credit loss
estimate for each aging category. Accordingly, the allowance for expected credit losses at March 31, 2024 and December 31, 2023
totaled $
Inventory
Inventory consists of the following:
Schedule of Inventory
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Rental Equipment | ||||||||
| Allowance reserve | ( | ) | ( | ) | ||||
| Inventory, net | $ | $ | ||||||
| 9 |
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers. The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due upon receipt of the invoice and the contracts do not have significant financing components. Product sales occur once control or title is transferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and promotional allowances. Such provisions are calculated based on the actual allowances given. Management believes that adequate provision has been made for cash discounts, returns, spoilage and promotional allowances based on the Company’s historical experience.
A breakdown of the total revenue between related party and non-related party revenue is as follows:
Schedule of Related Party and Non-Related Party Revenue
| 2024 | 2023 | |||||||
| Three months ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenues | $ | $ | ||||||
| Revenues - related parties | ||||||||
| Total Revenues | $ | $ | ||||||
Cost of Sales
Cost of sales consists of the cost of the components of finished goods, the costs of raw materials utilized in the manufacture of products, in-bound and out- bound freight charges, direct manufacturing labor as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products, inventory allowance for excess and obsolete products, and royalties paid on licensing agreements. Components account for the largest portion of the cost of sales. Components include plastic molded parts, gas powered engines, aluminum pressure bottles, electronic parts, batteries and packaging materials.
The breakdown of cost of sales to include cost of sales for related party and non-related party as well as the related party and non-related party royalty expense is as follows:
Schedule of Related Party and Non-Related Party Cost of Revenue
| 2024 | 2023 | |||||||
| Three months ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cost of revenues | $ | $ | ||||||
| Cost of revenues - related parties | ||||||||
| Cost of revenues | ||||||||
| Royalties expense - related parties | ||||||||
| Royalties expense | ||||||||
| Total cost of revenues | $ | $ | ||||||
| 10 |
Lease Accounting
The Company accounts 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. The Company elected the practical expedients permitted under the transition guidance of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. The Company did not reassess whether any contracts entered into prior to adoption are leases or contain leases.
The
Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally
those leases that would allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired
under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. The Company did
not have any finance leases as of March 31, 2024.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to the Company. 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 the Company has the option to extend the lease term, terminate the lease for the contractual expiration date, or purchase the leased asset, and it is reasonably certain that the Company will exercise the option, it considers these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.
For the three months ended March 31, 2024, and March
31,2023, cash paid for operating lease liabilities was $
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| Operating Leases | March 31, 2024 | |||
| (unaudited) | ||||
| Right-of-use assets | $ | |||
| Current lease liabilities | $ | |||
| Non-current lease liabilities | ||||
| Total lease liabilities | $ | |||
Stock-Based Compensation
The Company accounts 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.
The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price.
| 11 |
Derivatives
The accounting treatment of derivative financial instruments requires that the Company record certain warrants and embedded conversion options at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into certain note agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy, by earliest issuance date, in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors, as long as the certain variable issuance terms in certain convertible instruments exist. As of March 31, 2024 and December 31, 2023, the Company did not have any derivative liabilities.
Basic loss per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted- average number of outstanding common shares during the applicable period. Diluted loss per share is computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive. At March 31, 2024, and March 31, 2023, and shares, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.
Recent accounting pronouncements
ASU 2016-13 Current Expected Credit Loss (ASC326)
In December 2021, the FASB issued an update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance was adopted on January 1, 2023, with no effect to the financial statements.
ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption or are not applicable.
| 12 |
Note 3. Going Concern
The
accompanying 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, 2024, the Company incurred a net loss of $
Note 4. Related Party Transactions
The
Company sells products to Brownie’s Southport Divers, Brownie’s Yacht Toys and Brownie’s Palm Beach Divers, companies
owned by the brother of Robert Carmichael, the Company’s Chief Executive Officer and Chief Financial Officer. Terms of sale are
no more favorable than those extended to any of the Company’s other customers with similar sales volumes. These entities accounted
for
The
Company sells products to BGL and 940 A, entities wholly-owned by Robert Carmichael. Terms of sale are more favorable than those extended
to the Company’s regular customers, but no more favorable than those extended to the Company’s strategic partners. Accounts
receivable from these entities totaled $
The
Company had accounts payable to related parties of $
The
Company has exclusive license agreements with 940 A to license the trademark “Brownie’s Third Lung”, “Tankfill”,
“Brownie’s Public Safety” and various other related trademarks as listed in the agreements. The agreements provide
that the Company pay
On
September 30, 2022, the Company issued a convertible demand
On
January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, a Company director, an aggregate of units,
with each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise
price of $
On
September 14, 2023, the Company issued a convertible demand
On November 14, 2023, the Company
borrowed funds through the issuance of a promissory note (the Note) in the principal amount of $
On February 5, 2024, the Company borrowed funds through the issuance of a promissory note (the Note) in the principal
amount of $
| 13 |
On
March 31, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending March 31, 2023. The fair value of these shares was $
On
June 30, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending June 30, 2023. The fair value of these shares was $
On
September 30, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible
demand note for the three months ending September 30, 2023. The fair value of these shares was $
On
December 31, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending December 31, 2023. The fair value of these shares was $
On
March 31, 2024, the Company issued shares of common stock to Robert Carmichael for
payment of interest on the convertible demand note for the three months ending March 31, 2024. The fair value of these shares was $
Note 5. Convertible Promissory Notes and Loans Payable
Convertible Promissory Notes
Convertible promissory notes consisted of the following at March 31, 2024:
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 | ) | ||||||||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||
A breakdown of current and long-term amounts due are as follows for the convertible promissory notes as of March 31, 2024:
Schedule Convertible Promissory Notes
| Summit Holdings V, LLC Note | Tierra Vista Partners, LLC Note | Robert Carmichael Note | Total | |||||||||||||
| 2024 | ||||||||||||||||
| Discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Loan Payments | $ | $ | $ | $ | ||||||||||||
| Current Portion of Loan Payable | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Non-Current Portion of Loan Payable | $ | $ | $ | $ | ||||||||||||
| (1) | On
September 3, 2021, the Company issued a three-year |
Schedule of Future Amortization of Notes Payable
| Payment Amortization | ||||
| 2024 | ||||
| Total Note Payments | $ | |||
| Current portion of note payable | ( | ) | ||
| Non-Current Portion of Notes Payable | $ | |||
| (2) | On
September 3, 2021, the Company issued a three-year |
Schedule of Future Amortization of Notes Payable
| Payment Amortization | ||||
| 2024 | ||||
| Total Note Payments | $ | |||
| Current portion of note payable | ( | ) | ||
| Non-Current Portion of Notes Payable | $ | |||
| (3) | On
September 30, 2022, the Company issued a convertible demand |
Loans Payable
Schedule of Future Amortization of Loans Payable
| Mercedes BMG (1) | Navitas BLU3 (2) | NFS SSI (3) | Navitas
2022 BLU3 (4) | Navitas
2024 BLU3 (5) | Total | |||||||||||||||||||
| 2024 (9 months) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2025 | ||||||||||||||||||||||||
| 2026 | ||||||||||||||||||||||||
| 2027 | ||||||||||||||||||||||||
Thereafter | ||||||||||||||||||||||||
| Total Loan Payments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current Portion of Loan Payable | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Non-Current Portion of Loan Payable | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
| 14 |
Note 6. Goodwill and Intangible Assets, Net
The following table sets for the changes in the carrying amount of the Company’s Goodwill for the three months ended March 31, 2024.
Summary of Changes in Goodwill
| 2024 | ||||
| Balance, January 1 | $ | |||
| Addition: | ||||
| Balance, March 31 | $ | |||
The Company performed an evaluation of the value of goodwill at December 31, 2023. Based upon this evaluation it was determined that there should be no adjustment to goodwill. There has been nothing noted during the three months ended March 31, 2024 that would indicate that the value of goodwill should change through that date.
The following table sets for the components of the Company’s intangible assets at March 31, 2024:
Summary of Intangible Assets
| Amortization Period (Years) | Cost | Accumulated Amortization | Net Book Value | |||||||||||||
| Intangible Assets Subject to amortization | ||||||||||||||||
| Trademarks | $ | $ | ( | ) | $ | |||||||||||
| Customer Relationships | ( | ) | ||||||||||||||
| Non-Compete Agreements | ( | ) | ||||||||||||||
| Total | $ | $ ( | $ | |||||||||||||
The aggregate amortization remaining on the intangible assets as of March 31, 2024 is a follows:
Schedule of Estimated Intangible Assets Amortization Expense
| Intangible Amortization | ||||
| 2024 (9 months remaining) | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Amortization
expense for amortizable intangible assets for each of the three months ended March 31, 2024 and 2023 was
Note 7. Stockholders’ Equity
Common Stock
On
January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, an aggregate of units, with each unit consisting
of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $
On
March 31, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending March 31, 2023. The fair value of these shares was $
On
March 31, 2023, the Company issued an aggregate of shares of common stock to the holders of convertible notes for payment of
interest for the three months ending December 31, 2022. The fair value of these shares was $
On
June 30, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending June 30, 2023. The fair value of these shares was $
On
June 30, 2023, the Company issued an aggregate of shares of common stock to the holders of convertible notes for payment of interest
for the three months ending June 30, 2023. The fair value of these shares was $
On
September 30, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible
demand note for the three months ending September 30, 2023. The fair value of these shares was $
On
September 30, 2023, the Company issued an aggregate of shares of common stock to the holders of convertible notes for payment
of interest for the three months ending September 30, 2023. The fair value of these shares was $
On
December 31, 2023, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending December 31, 2023. The fair value of these shares was $
On
December 31, 2023, the Company issued an aggregate of shares of common stock to the holders of convertible notes for payment
of interest for the three months ending December 31, 2023. The fair value of these shares was $
On
March 31, 2024, the Company issued shares of common stock to Robert Carmichael for payment of interest on the convertible demand
note for the three months ending December 31, 2023. The fair value of these shares was $
On
March 31, 2024, the Company issued an aggregate of shares of common stock to the holders of convertible notes for payment of
interest for the three months ending December 31, 2023. The fair value of these shares was $
Preferred Stock
During
the second quarter of 2010, the holders of the majority of the Company’s outstanding shares of common stock approved an amendment
to the Company’s Articles of Incorporation authorizing the issuance of 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 the 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 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 $
| 15 |
Equity Incentive Plan
On May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. shares are reserved for issuance under the Plan. The term of the Plan is ten years.
The Company also issued options outside of the Plan that were not approved by the security holders. These options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options.
Schedule of Equity Compensation Plan Information
| Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted – average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future
issuances under equity compensation plans (excluding securities reflected in column (a) (c) | ||||||||||
| Equity Compensation Plans Approved by Security Holders | $ | |||||||||||
| Equity Compensation Plans Not Approved by Security Holders | ||||||||||||
| Total | $ | |||||||||||
Options
The Company has issued options to purchase approximately shares of its common stock at an average exercise price of $ with a fair value of approximately $. For the three months ended March 31, 2024, and the year ended December 31, 2023, the Company issued options to purchase shares.
For the three months ended March 31, 2024 and 2023, the Company recognized an expense of approximately $ and $, respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black-Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of March 31, 2024, the Company had approximately $ of unrecognized pre-tax non-cash compensation expense related to performance based options to purchase shares, which the Company expects to recognize, based on a weighted-average period of years. The Company uses straight-line amortization of compensation expense over the requisite service period for time-based options. For performance-based options the Company evaluates the likelihood of a vesting qualification being met, and will establish the expense based on that evaluation. The maximum contractual term of the Company’s stock options is years. The Company recognizes forfeitures and expirations as they occur. Options to purchase approximately shares of common stock have vested as of March 31, 2024.
| 16 |
Schedule of Valuation Assumptions of Options
| Three Months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Expected volatility | % - | % | – | % | ||||
| Expected term | – Years | – Years | ||||||
| Risk-free interest rate | % - | % | % - | % | ||||
| Forfeiture rate | % | % | ||||||
The expected volatility was determined with reference to the historical volatility of the Company’s common stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.
Schedule of Outstanding Stock Option Activity
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Options | Price | Life in Years | Value | |||||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled | ||||||||||||||||
| Outstanding – December 31, 2023 | $ | |||||||||||||||
| Exercisable – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Exercised | ||||||||||||||||
| Cancelled | ||||||||||||||||
| Outstanding – March 31, 2024 | $ | |||||||||||||||
| Exercisable – March 31, 2024 | $ | $ | ||||||||||||||
Summary of Exercise Price of Employee Stock Options Outstanding
| Range of Exercise Price | Number outstanding at March 31, 2024 | Weighted average remaining Life | Weighted average exercise price | Number exercisable at March 31,2024 | Weighted average exercise price | Weighted average remaining life | ||||||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||||||
| Outstanding options | ||||||||||||||||||||||||
At March 31, 2024, there was approximately $ of unrecognized stock option expense which may be recognized only if the full vesting requirements for these options are met.
At March 31, 2024, there was approximately $of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of years.
| 17 |
Warrants
On
January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, an aggregate of units, with each unit consisting
of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price
of $
A summary of the Company’s warrants as of December 31, 2023 and changes during the three months ended March 31, 2024 is presented below:
Schedule of Warrants Activity
| Number of | Weighted Average Exercise | Weighted Average Remaining Contractual | Aggregate Intrinsic | |||||||||||||
| Warrants | Price | Life in Years | Value | |||||||||||||
| Outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited or Expired | ||||||||||||||||
| Outstanding – March 31, 2024 | $ | |||||||||||||||
| Exercisable – March 31, 2024 | $ | $ | ||||||||||||||
Note 8. Commitments and contingencies
Royalty Agreement
On
June 30, 2020, the Company entered into Amendment No. 2 to its Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”).
The Amendment, among other things, provides that STS provide 30 hours per week of commercialization support for its NextGen licensed
products without charge. In consideration therefor, the Company agreed to an increased minimum yearly royalty payment of $
| 18 |
Consulting and Employment Agreements
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 served as Chief Executive Officer of BLU3. In consideration for his
services, Blake Carmichael received (i) an annual base salary of $
On
September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”)
pursuant to which Ms. Buban shall serve as the President of SSI. In consideration for her services, Mrs. Buban shall receive (i) an annual
base salary of $
In addition, Mrs. Buban is entitled to receive a stock option to purchase up to shares of common stock of the Company at an exercise price of $ per share, which vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment Agreement. A measurement was made for the three months ended March 31, 2024 and no expense was recorded based upon the vesting criteria not being met.
| 19 |
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 therefore, the Company will pay CLG a monthly flat fee of $
On
May 2, 2022, the Company entered into a two-year employment agreement with Steven Gagas (the “Gagas Employment Agreement”)
pursuant to which Mr. Gagas shall serve as the General Manager of the dive shop currently operating within LBI. In consideration for
his services Mr. Gagas shall receive an annual salary of $
On
May 2, 2022, LBI, entered into a lease assignment agreement with Gold Coast Scuba, LLC and Vicnsons Realty Group, LLC whereby LBI is
the assignee of a three year lease for the property located at 259 Commercial Blvd., Suites 2 and 3 in Lauderdale-By-The Sea, Florida
for $
On
September 14, 2022, SSI entered into a sixty-month lease renewal for its facility in Huntington Beach, California commencing on February
1, 2022 with base rent of approximately $
On
September 30, 2022, SSI entered into a sublease of its facility in Huntington Beach, California with Camburg Engineering, Inc. (“Tenant”)
commencing October 1, 2022, The term of the sublease is through December 31, 2023, with a base monthly rent of $
On
December 22, 2022, the U.S. Consumer Products Safety Commission (the “CPSC”) issued a voluntary recall notice for the Nomad
tankless dive system, which is distributed by BLU3, Inc. As part of the recall procedure, the CPSC has approved the Company’s proposed
remedy for the recall and BLU3 received units back from consumers to repair affected Nomad units. The Company has evaluated
the costs of this recall and has deemed it necessary to set an allowance of $
Note 9. Subsequent Events
Effective May 21, 2024, Christopher Constable resigned as a member of the Company’s board of directors. As described in the resignation letter submitted by Mr. Constable, his termination was, among other reasons, the result of the Company having filed its Annual Report on Form 10-K for the year ended December 31, 2023 with the Securities and Exchange Commission without obtaining authorization from Mr. Constable.
| 20 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Overview
The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products in the United States and internationally.
The Company has five subsidiaries focused on various sub-sectors:
| ● | Brownie’s Third Lung - Surface Supplied Air (“SSA”) | |
| ● | BLU3, Inc. - Ultra-Portable Tankless Dive Systems | |
| ● | LW Americas - High Pressure Gas Systems | |
| ● | Submersible Systems, Inc. - Redundant Air Tank Systems | |
| ● | Live Blue, Inc. – Guided Tours and Retail |
Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, a manufacturing facility in Huntington Beach, California, and a retail facility in Lauderdale-By-The-Sea, Florida.
The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based self- contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems. In addition, the Company is the exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas markets. The Company is also building a guided tour operation that includes dive retail. Lastly, The Company is the exclusive United States and Caribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa.
Recent Development
Effective May 21, 2024, Christopher Constable resigned as a member of the Company’s board of directors. As described in the resignation letter submitted by Mr. Constable, his termination was, among other reasons, the result of the Company having filed its Annual Report on Form 10-K for the year ended December 31, 2023 with the Securities and Exchange Commission without first obtaining authorization from Mr. Constable.
| 21 |
Results of Operations
Net Revenues, Costs of Net Revenues and Gross Profit
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net revenues decreased 1.9% for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 as a result of a decrease in revenues in BTL and LWA. Net revenue for BTL and LWA decreased 39.0% and 48.0%, respectively, as a result of a loss of sales momentum as well as a soft demand in many areas of BTL’s and LWA’s market. The decrease in BTL and LWA’s revenues was mostly offset by increased revenues in BLU3 and SSI. The increase in BLU3’s revenue is due to the recovery from the recall that directly affected the previous period’s revenues. SSI’s increase can be attributed to the continued momentum of the Company’s newest product, HEED3 as well as increased demand from international users of SSI’s Spare Air product line.
For the three months ended March 31, 2024, cost of net revenues was 74.7% as compared with the cost of net revenues of 63.5% for the three months ended March 31, 2023. The cost increase as a percentage of revenue, can be directly attributed to the cost of direct labor, which accounted for a larger portion of costs and significantly impacted the profit margin. Included in cost of net revenues are royalty expenses paid to Robert Carmichael which decreased 11.3% for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
Gross profit margin was 36.5% for the three months ended March 31, 2024 as compared to gross profit margin of 25.3% for the three months ended March 31, 2023. The increase in gross margin, is directly attributable to an increase in SSI’s margin to 66.7%, offset by a decrease in BTL’s margin to (9.7)%.
| 22 |
The following tables provides net revenues, total costs of net revenues and gross profit margins for our segments for the periods presented.
Revenues
| Three Months Ended March 31, | % of | |||||||||||
| 2024 | 2023 | Change | ||||||||||
| (unaudited) | ||||||||||||
| Legacy SSA Products | $ | 277,954 | $ | 455,380 | (39.0 | )% | ||||||
| High Pressure Gas Systems | 122,082 | 234,880 | (48.0 | )% | ||||||||
| Ultra-Portable Tankless Dive Systems | 657,169 | 476,915 | 37.8 | % | ||||||||
| Redundant Air Tank Systems | 502,301 | 392,976 | 27.8 | % | ||||||||
| Guided Tour Retail | 48,016 | 78,902 | (39.1 | )% | ||||||||
| Total net revenues | $ | 1,607,522 | $ | 1,639,053 | (1.9 | )% | ||||||
Cost of revenues as a percentage of net revenues
| Three Months Ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| Legacy SSA Products | 109.7 | % | 91.8 | % | ||||
| High Pressure Gas Systems | 66.4 | % | 52.9 | % | ||||
| Ultra-Portable Tankless Dive Systems | 66.1 | % | 72.2 | % | ||||
| Redundant Air Tank Systems | 33.3 | % | 73.2 | % | ||||
| Guided Tour Rental | 53.8 | % | 64.3 | % | ||||
Gross profit (loss) margins
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| Legacy SSA Products | (9.7 | )% | 8.2 | % | ||||
| High Pressure Gas Systems | 33.6 | % | 47.1 | % | ||||
| Ultra-Portable Tankless Dive Systems | 33.9 | % | 27.8 | % | ||||
| Redundant Air Tank Systems | 66.7 | % | 26.8 | % | ||||
| Guided Tour Rental | 46.2 | % | 35.7 | % | ||||
| 23 |
Operating Expenses
Operating expenses consist of selling, general and administrative (“SG&A”) expenses and research and development costs and are reported on a consolidated basis for our operating segments. Operating expenses increased 24.3%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increased by 23.9% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. SG&A expenses were comprised of the following:
| Three Months Ended | Three Months Ended | |||||||||||
| Expense Item | March 31,2024 | March 31,2023 | % Change | |||||||||
| Payroll, Selling & Administrative | $ | 473,453 | $ | 450,806 | 5.0 | % | ||||||
| Stock Compensation Expense | 12,423 | 11,034 | 12.6 | % | ||||||||
| Professional Fees | 51,490 | 66,302 | (22.3 | )% | ||||||||
| Advertising | 107,969 | 104,005 | 3.8 | % | ||||||||
| All Other | 254,486 | 94,073 | 170.5 | % | ||||||||
| Total SG&A | $ | 899,821 | $ | 726,220 | 23.9 | % | ||||||
| 24 |
Payroll for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, increased 5.0%, respectively. The increase reflects an increase in personnel in BLU3, as well as a reallocation of SSI direct labor from payroll expense to cost of sales for the three months ended March 31, 2024.
Non-Cash Stock Compensation expenses increased by 12.6%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, as a result of vesting milestones not being met due to the reduction in revenue for the three months ended March 31, 2024.
Professional fees, including legal, accounting and other professional fees decreased 22.3%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decrease for the three months ended March 31, 2024 can be attributed to a decrease in other professional fees of 53.6% and a decrease in accounting fees of 42.7%. The decrease in the Company’s acquisition activities in 2024 resulted in a decrease in legal fees. Additionally, the decrease in professional fees is attributable to the conversion of consultants to employees early in 2023 and the decrease in accounting fees can be attributed to new auditors who offer fixed priced services.
Advertising expenses increased by 3.8% for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, respectively. This increase is attributable to BLU3’s increase in advertising of 26.8% during the three months ended March, 31 2024. BLU3’s increase in advertising expense was offset slightly by a decrease in advertising expense for SSI of 17.2%.
Other expenses increased by 170.5% for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due primarily to a reversal of the reserve for recall expenses which decreased other expenses recorded in 2023.
Research & Development Expenses (R&D Expenses)
R&D expenses for the three months ended March 31, 2024, increased 538.6% as compared to the three months ended March 31, 2023. The increase was attributable to an increase in new product development activity.
Other Income/Expense
For the three months ended March 31, 2024 and March 31, 2023, other income/expense consisted solely of interest expense. For the three months ended March 31, 2024, interest expense increased 31.3% from the three months ended March 31, 2023 to $19,952 as compared to $15,198 in the three months ended March 31, 2023. The increase in interest expense can be attributed to the related party demand notes from Charles Hyatt that were funded in the fourth quarter 2023 and first quarter of 2024.
Liquidity and Capital Resources
We had cash of $238,754 as of March 31, 2024. The following table summarizes total current assets, total current liabilities, and working capital at March 31, 2024, as compared to December 31, 2023.
| March 31, | December 31, | |||||||||||
| 2024 | 2023 | % change | ||||||||||
| (unaudited) | ||||||||||||
| Total current assets | $ | 2,658,389 | $ | 2,736,601 | (2.9 | )% | ||||||
| Total current liabilities | $ | 2,657,361 | $ | 2,502,787 | 6.2 | % | ||||||
| Working capital | $ | 1,028 | $ | 233,814 | (99.26 | )% | ||||||
The decrease in our current assets at March 31, 2024 from December 31, 2023 primarily reflected by a decrease in inventory as the Company decreased its inventory purchases to match the reduction in current demand. The increase in current liabilities reflects an increase in related party notes payable.
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Summary Cash Flows
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | ||||||||
| Net cash used in operating activities | $ | (484,351 | ) | $ | (313,881 | ) | ||
| Net cash used in investing activities | $ | (7,561 | ) | $ | (5,069 | ) | ||
| Net cash provided by financing activities | $ | 299,554 | $ | 182,158 | ||||
Net cash used in operating activities for the three months ended March 31, 2024 was due to the net loss of approximately $336,000. Net cash used in operating activities is also the result of a decrease in current assets, offset by an increase in accounts receivable and prepaid expenses which generated approximately $155,000. A net increase in liabilities which generated approximately $94,000 primarily from an increase in related party notes payable partially offset by a decrease in accounts payable and customer deposits.
Net cash used in investing activities for the three months ended March 31, 2024, of $7,561 consists of fixed asset purchases.
Net cash provided by financing activities for the three months ended March 31, 2024, of $299,554 reflects the issuance of debt to a related party and proceeds from long term debt partially offset by the repayment of debt.
Going Concern
Our unaudited consolidated financial statements included in this Quarterly Report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2023 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. If the Company is unable to raise additional funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back, delay or cease operations, liquidate assets and possibly seek bankruptcy protection.
We have a history of losses, and an accumulated deficit of $18,021,326 as of March 31, 2024. Despite a working capital surplus of $1,028 at March 31, 2024, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
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Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company’s operations, financial position or cash flows.
These recent accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company and is not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of March 31, 2024, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
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Our management, including our Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of the design and operations of our disclosure controls and procedures (defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) as of March 31, 2024 and based upon the such evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to the material weaknesses set forth below.
| ● | Insufficient number and lack of qualified accounting department and administrative personnel and support; | |
| ● | Insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to GAAP and SEC disclosure requirements; | |
| ● | Insufficient segregation of duties, oversight of work performed and lack of controls in our finance and accounting functions due to limited personnel; | |
| ● | Company’s systems that impact financial information and disclosures have ineffective information technology controls; | |
| ● | Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded; and | |
| ● | Evaluation of disclosure controls and procedures was not sufficiently comprehensive due to limited personnel. |
Subject to sufficient resources, management expects to remediate the material weaknesses identified above as follows:
| ● | Management has leveraged and will continue to leverage experienced consultants to assist with ongoing GAAP and SEC compliance requirements. We intend to expand our finance department through the hiring of a certified public accountant to strengthen the segregation of duties, internal controls and enhance our current staff. | |
| ● | Segregation of duties is being analyzed and adjusted Company-wide, where possible. The Company intends to hire additional personnel in the accounting department, as well as the documentation of controls and procedures. | |
| ● | The Company plans on evaluating various accounting systems to enhance its system controls. |
We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEEDINGS
There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company and is not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Except as set forth below, there were no sales of equity securities sold during the period covered by this 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 March 31, 2024, the Company issued 61,677 shares of common stock to Robert Carmichael for payment of interest on a convertible demand note.
The above issuance did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe isare exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
None.
ITEM 5. OTHER INFORMATION
During
the quarter ended March 31, 2024, no director, officer or Section 16 officer
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ITEM 6. EXHIBITS
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SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: July 17, 2024 | BROWNIE’S MARINE GROUP, INC. | |
| By: | /s/ Robert M. Carmichael | |
| Robert M. Carmichael | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Robert M. Carmichael | |
| Robert M. Carmichael | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 31 |
EXHIBIT 31.1
CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)
I, Robert M. Carmichael, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, of Brownie’s Marine Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal controls over financial reporting (as defined in Exchange Act Rules 3a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: July 17, 2024 | /s/ Robert M. Carmichael | |
| Name: | Robert M. Carmichael | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
EXHIBIT 31.2
CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A)
I, Robert M. Carmichael, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, of Brownie’s Marine Group, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal controls over financial reporting (as defined in Exchange Act Rules 3a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: July 17, 2024 | /s/ Robert M. Carmichael | |
| Name: | Robert M. Carmichael | |
| Title: | Chairman of the Board, President and Chief Financial Officer (Principal Financial and Accounting Officer) | |
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Brownie’s Marine Group, Inc. (the “Company”) for the quarter ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
| Date: July 17, 2024 | /s/ Robert M. Carmichael | |
| Name: | Robert M. Carmichael | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| /s/ Robert M. Carmichael | ||
| Name: | Robert M. Carmichael | |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |