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”), (1)
designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned
subsidiary Trebor Industries, Inc., a Florida corporation organized in 1981 (“Trebor”), (2) manufactures and sells
high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly
owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organized in 2017 (“BHP”),
doing business as LW Americas (“LWA”). And (3) 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 organized in 2017, 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. SSI manufactures tanks and it redundant/rescue air systems in its facility 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
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.
Principles
of Consolidation
The
consolidated financial statements include the accounts of BWMG and its wholly owned subsidiaries, Trebor, BHP, BLU3 and SSI. 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 $46,554
and $16,872 at September 30, 2021 and December 31, 2020, respectively.
Inventory
Inventory
consists of the raw material, parts that make up the items that we manufacture, and finished goods. For the year ended December 31, 2020,
the Company recorded reserves for obsolete or slow-moving inventory of approximately $227,657. No additional reserve for obsolete or
slow-moving inventory during the nine months ended September 30, 2021.
Schedule
of Inventory
|
|
|
September
30, 2021
(unaudited)
|
|
|
December
31,
2020
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
976,507
|
|
|
$
|
408,841
|
|
|
Work In Process
|
|
|
100,285
|
|
|
|
-
|
|
|
Finished goods
|
|
|
640,648
|
|
|
|
454,950
|
|
|
Inventory, net
|
|
$
|
1,717,140
|
|
|
$
|
863,791
|
|
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 September 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.
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 nine months ended September 30, 2021 the lease expenses were approximately $39,000
and $108,000,
respectively, and approximately $33,000
and $98,000
for the three and nine months ended September
30, 2020, respectively. Cash paid for operating liabilities for the nine months ended September 30, 2021 was approximately $98,000
and $95,000
for the nine months ended September 30, 2020.
During the three months ended September 30, 2021,
the Company recorded the operating lease asset and liability directly related to its acquisition of SSI. The increase to the operating asset
and the operating liability from the acquisition of SSI was $160,182.
Supplemental
balance sheet information related to leases was as follows:
Schedule
of Supplemental Balance Sheet Information
|
Operating
Leases
|
|
September
30, 2021
|
|
|
Right-of-use assets
|
|
$
|
518,076
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
$
|
227,868
|
|
|
Non-current lease liabilities
|
|
|
290,385
|
|
|
Total lease liabilities
|
|
$
|
518,253
|
|
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.
Loss
per common share
Basic
earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed
using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using
the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Common stock equivalent
shares are excluded from the computation if their effect is antidilutive. At September 30, 2021 and September 30, 2020, 245,297,740
and 175,134,884,
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 nine months ended September 30, 2021, the Company incurred a net loss of
$1,071,465 of
which $960,776 is
non-cash stock related compensation. At September 30, 2021, the Company has an accumulated deficit of $14,027,602.
Despite a working capital surplus of approximately $1,743,829
at September 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 increase revenues, control expenses, raise capital,
and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability
and cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
Note
4. Related Party Transactions
The
Company sells products to three entities, Brownies Southport Divers, Brownies Yacht Toys and Brownies Palm Beach Divers, 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 17.3%
and 16.9%
of the net revenues for the three months ended September 30 2021 and 2020, respectively, and 19.6%
and 17.5%
for the nine months ended September 30, 2021 and 2020 respectively.
Accounts receivable from these entities totaled $67,596
and $44,323,
respectively, at September 30, 2021 and December 31, 2020.
The
Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940 A”),
entities wholly-owned by Mr. Carmichael. Terms of sale are more favorable than those extended to BWMG’s regular customers, but
no more favorable than those extended to Brownie’s strategic partners. Accounts receivable from the combined entities and Mr. Carmichael
totaled $23,565
and $23,321
at September 30, 2021 and December 31, 2020,
respectively.
The
Company had accounts payable to related parties of $84,935
and $102,360
at September 30, 2021 and December 31, 2020,
respectively. The balance payable at September 30, 2021 is comprised of $5,000
due to Robert Carmichael, and $79,935
to BGL. At December 31, 2020 this account
was comprised of $5,000
due to Robert Carmichael, and $97,360
due to BGL.
The
Company has Exclusive License Agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”,
“Brownies Public Safety” and various other related trademarks as listed in the agreement. This Exclusive License Agreement
provides that the Company will pay 940 A 2.5%
of gross revenues per quarter as a royalty. Total royalty expense for the three months ended September 30, 2021 and 2020 were $19,484
and $31,804,
respectively and $59,090
and $54,569
for the nine months ended September 30, 2021 and 2020, respectively.
The accrued royalty for September 30, 2021 is $4,722
and it is included in other liabilities.
On
March 25, 2021, the Company issued 27,500,000 shares of common stock to Mr. Charles F. Hyatt, a member of our Board of Directors in consideration
of $275,000.
As
of September 30, 2021, options to purchase 25,000,000
shares of common stock held by Mr. Carmichael
vested in accordance with Carmichael Option agreement as further discussed in Note 7 of these financial statements.
On
August 1, 2021 as part of the Blake Carmichael Agreement the company is obligated to enter into a Non-Qualified Stock Option agreement
with Blake Carmichael as part of his employment agreement. Under the terms of the Blake Carmichael agreement, the Company will enter
into an option contract that will grant Blake Carmichael a 5 year option to purchase 3,759,400 shares of the Company’s common stock
at an exercise price of $.0399, (the “BC Compensation Options”). The BC Compensation Options vest 33.3% upon the execution
of the agreement, 33% at the first anniversary date and 33% upon the second anniversary date. As part of the Blake Carmichael Agreement
the company is also obligated to enter into a Non-Qualified Stock option agreement (the “BC Bonus Options”) that will grant
Blake Carmichael a 5-year option to purchase up to 18,000,000 shares to be vested annually on a contract year basis, based upon the achievement
of certain financial metrics tied to Revenue and EBITDA.
On
September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors, 10,000,000
units of the securities of the Company,
with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025
per share
in consideration of $250,000.
On
September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of a member of our Board of Directors, 600,000
units of the securities of the Company,
with the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025
per share
in consideration of $15,000.
Note
5. Convertible Debentures and Notes Payable
Convertible
Debentures
Convertible
debentures consisted of the following at September 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.
|
|
|
8/31/11
|
|
8/31/13
|
|
|
5
|
%
|
|
|
10,000
|
|
|
|
(4,286
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
12/01/17
|
|
12/31/21
|
|
|
6
|
%
|
|
|
50,000
|
|
|
|
(12,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
12/05/17
|
|
12/31/21
|
|
|
6
|
%
|
|
|
50,000
|
|
|
|
(12,500
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
9/03/21
|
|
9/03/24
|
|
|
8
|
%
|
|
|
346,500
|
|
|
|
(12,355
|
)
|
|
|
346,500
|
|
|
|
(12,051
|
)
|
|
|
334,449
|
|
|
|
2,310
|
|
|
|
(4
|
)
|
|
9/03/21
|
|
9/03/24
|
|
|
8
|
%
|
|
|
3,500
|
|
|
|
(125
|
)
|
|
|
3,500
|
|
|
|
(122
|
)
|
|
|
3,378
|
|
|
|
23
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,000
|
|
|
$
|
(12,173
|
)
|
|
$
|
337,827
|
|
|
$
|
2,333
|
|
|
|
|
|
|
(1)
|
The
Company borrowed $10,000 in exchange for a convertible debenture (the “Hoboken Convertible Note”). The holder at its
option may convert all or part of the note plus accrued interest into common stock at a price of 30% discount as determined from
the average four highest closing bid prices over the preceding five trading days. The Company valued the beneficial conversion feature
of the convertible debenture at $4,286, which was accreted to interest expense over the period of the note. On February 22, 2021,
this note and accrued interest of $4,777 were converted by the holder for 422,209 shares of common stock in accordance with the terms
of the note.
|
|
|
|
|
(2)
|
On
December 1, 2017, the Company entered into a $50,000 principal amount 6% secured convertible promissory note, initially due December
1, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, is
guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.
|
|
|
The
conversion price under the note initially ranged from $0.02 per share if converted in the first year to $0.125 per share if converted
in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties
apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99% of
the outstanding common stock of the Company at any one time. In 2019, the maturity date of the note was extended for one additional
year to December 31, 2019 with a reduction in the conversion price to $0.01 per share. The Company recorded a loss on extinguishment
of debt of $32,000 upon the modification of conversion price. On June 10, 2021, this note and accrued interest of $10,554 were converted
by the holder for 6,055,358 shares of common stock in accordance with the terms of the note.
|
|
(3)
|
On
December 5, 2017, the Company entered into a $50,000
principal amount 6%
secured convertible promissory note, initially due December
4, 2018, subject to extension.
The note is secured with such assets of the Company equal to the principal and accrued interest, is guaranteed by the Company’s
wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.
|
|
|
|
|
|
The
conversion price under the note initially ranged from $0.02
per share if converted in the first year to $0.125
per share if converted in year five. The lender
may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions
are not done timely by the Company. The lender will be limited to maximum conversion of 9.99%
of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one additional year to December 31,
2019 with a reduction in the conversion price to $0.01
per share. The Company recorded a loss on extinguishment
of debt of $99,000
upon the modification of conversion price. The
maturity date was further extended to December 31, 2021. On August 18, 2021, this note and accrued interest of $11,145
were converted by the holder for 6,114,516
shares
of common stock in accordance with the terms of the note.
|
|
|
|
|
(4)
|
On
September 3, 2021, the Company entered into a $346,500 note
payable to Summit Holding V, LLC as part of the acquisition of SSI. The note carries 8%
unsecured convertible promissory note, due September
3, 2024. Payments on the note are to be equivalent to 50%
of the adjusted net profit of Submersible Systems, Inc. payable calendar quarterly. Interest is payable in company stock at the
conversion price of $.051272 and
shall be paid quarterly. The note holder may convert any outstanding principal and unpaid interest at a conversion rate of
$.051272 at
any time up to the maturity date of the note. The Company recorded $12,355
for the beneficial conversion feature.
|
|
(5)
|
On
September 3, 2021, the Company entered into a $3,500
note payable to Tierra
Vista Partners, LLC as part of of the acquisition of SSI. The note carries 8%
unsecured convertible promissory note, due September 3, 2024. Payments on the note are to be equivalent to 50%
of the adjusted net profit of Submersible Systems, Inc. payable calendar quarterly. Interest is payable in company stock at the conversion
price of $.051272
and shall be paid quarterly.
The note holder may convert any outstanding principal and unpaid interest at a conversion rate of $.051272
at any time up to the
maturity date of the note. The Company recorded $125 for the beneficial conversion feature.
|
Notes
Payable
Gonzales
Note
The
Company issued an unsecured, non-interest-bearing note of $200,000
with Mr. Tom Gonzales on July 1, 2013. The note
is payable upon demand. The Company made repayments totaling $40,000
during the nine months ended September 30, 2021,
fully repaying the note. The note was paid in full as of September 30, 2021 and had a balance of $40,000
December 31, 2020.
Hoboken
Note
The
Company issued an unsecured, non-interest-bearing note of $10,000
with Hoboken Street Association on October 15,
2016. The note was forgiven as part of the conversion of the Hoboken Convertible Note on February 22, 2021 as described above. The
company recorded a gain on settlement of debt of $10,000.
The note balance as of September, 2021 and December 31, 2020
was $0
and $10,000,
respectively.
Loan
Payable
Marlin
Note
On
September 30, 2019 the Company, via its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain
plastic molding equipment through Marlin Capital Solutions. The initial principal balance was $96,725 payable over 36 equal monthly installments
of $3,144 (the “Marlin Note”). The equipment finance agreement contains customary events of default. The loan balance was
$35,665 as of September 30, 2021
Schedule
of Future Amortization of Loans Payable
|
|
|
Payment
Amortization
|
|
|
2021 (3 months remaining)
|
|
$
|
8,570
|
|
|
2022
|
|
|
27,095
|
|
|
2023
|
|
|
|
|
|
2024
|
|
|
|
|
|
2025 and thereafter
|
|
|
|
|
|
Total Loan Payments
|
|
$
|
35,665
|
|
|
Current portion of Loan
payable
|
|
|
(35,665
|
)
|
|
Non-Current Portion
of Loan Payable
|
|
$
|
-
|
|
Mercedes
Benz Note
On
August 21, 2020, the Company executed an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a 2019 Mercedes
Benz Sprinter delivery van. The installment agreement was for $55,841 with a zero interest rate payable over 60 months with a monthly
payment of $931 and is personally guaranteed by Mr. Carmichael. The first payment was due on October 5, 2020. The loan balance as of
September 30, 2021 is $44,673.
Schedule
of Future Amortization of Loans Payable
|
|
|
Payment
Amortization
|
|
|
2021 (3 months remaining)
|
|
$
|
2,793
|
|
|
2022
|
|
$
|
11,168
|
|
|
2023
|
|
$
|
11,168
|
|
|
2024
|
|
$
|
11,168
|
|
|
2025 and thereafter
|
|
$
|
8,376
|
|
|
Total note payments
|
|
$
|
44,673
|
|
|
Current portion of note
payable
|
|
$
|
(11,168
|
)
|
|
Non-Current Portion
of notes payable
|
|
$
|
33,505
|
|
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 $79,309 payable over 60
equal monthly installments of $1,611 (the “Navitas Note”). The equipment finance agreement contains customary events of default.
The agreement was fully funded as of September 30, 2021.
Schedule
of Future Amortization of Loans Payable
|
|
|
Payment
Amortization
|
|
|
2021 (3 months remaining)
|
|
$
|
2,837
|
|
|
2022
|
|
|
12,974
|
|
|
2023
|
|
|
14,403
|
|
|
2024
|
|
|
15,991
|
|
|
2025
|
|
|
17,753
|
|
|
Balance
|
|
|
11,310
|
|
|
Total Note Payments
|
|
$
|
75,268
|
|
|
Current portion of Note
payable
|
|
|
(12,676
|
)
|
|
Non-Current Portion
of Note Payable
|
|
$
|
62,592
|
|
PPP
Loan
On
May 12, 2020, we received an unsecured loan from South Atlantic Bank in the principal amount of $159,600 (the “SBA Loan”),
under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose
of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a
focus on payroll. As a qualifying business as defined by the SBA, we used the proceeds from this loan to primarily help maintain our
payroll and cover our rent and utilities as we navigated our business through the lockdowns associated with the COVID-19 pandemic until
our return to normal operations earlier in 2020.
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 $8,983, with the first payment due seven months from the date
of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients
use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding,
among other things, the maintenance of employment and compensation levels. We used the SBA Loan for qualifying expenses and have applied
for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. On April 28, 2021, the Company was notified by South Atlantic
Bank that the SBA Loan was forgiven in full under the terms of the CARES Act. The company recorded the forgiveness as a gain on the forgiveness
of the PPP loan of $159,600 on our condensed consolidated income statement.
The
note balance as of September 30, 2021 and December 31, 2020 was $0 and $159,600, respectively.
PPP
Loan – Submersible Systems, Inc.
On
May 12, 2020, SSI received an unsecured loan from City National Bank in the principal amount of $116,160
(the “Submersible SBA Loan”), under
the CARES act.
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 Submersible SBA Loan carries a fixed interest rate of one
percent per year, and a monthly payment of $6,925,
with the first payment due seven months from the date of initial cash receipt. As part of the forgiveness application and directly
related to the acquisition of SSI by the Company, SSI was required to place $121,953
in an escrow account until forgiveness is determined
and City National Bank has been paid in full by the SBA. On October 15, 2021, the Company was notified by City National Bank that the
Submersible SBA Loan was forgiven in full under the terms of the CARES Act. The restricted cash in escrow was released in full
by the bank as a result of this forgiveness on November 8, 2021.
The
note balance as of September 30, 2021 and December 31, 2020 was $116,160 and $0 respectively.
Note
6. Business Combination
Merger
with Submersible Systems, Inc.
On
September 3, 2020, the Company completed its merger with Submersible Systems, Inc. Under the terms of the Merger Agreement, the
Company paid $1.79
million in consideration consisting of
the issuance of 27,305,442
shares of its common
stock (valued at $1.4
million),
the issuance of $350,000
in 8%
unsecured convertible promissory notes in exchange for all of the equity of Submersible. The 27,305,442
shares of the Company’s common stock issued
for the $1.44
million in consideration
are subject to leak out agreements whereby the shareholders are unable to sell or transfer based upon the following:
Summary of Holding Period and Shares Eligible To Sold
Holding
Period
from Closing Date
|
|
Percentage
of shares
eligible to be sold or transferred
|
|
6 months
|
|
Up to 12.5%
|
|
9 months
|
|
Up to 25.0%
|
|
24 months
|
|
Up to 75.0%
|
|
36 months
|
|
Up to 100.0%
|
The
Leak-Out Provision may be waived by the Company, upon written request by a Seller, if the Company is trading on either
the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of 50,000
shares per day; provided, however, that
(i) only up to five percent (5%) of the previous days total volume can be sold in one day by a Seller; and (ii) the Seller can only sell
through executing trades “On the Offer.”
The
transaction costs associated with the Merger were $65,000
in legal fees paid in $40,000
in cash, and 1,190,476
shares of the Company’s common stock
with a fair value of $55,952.
The common stock for these transaction costs will be issued subsequent
to September 30, 2021.
Fair
Value of Consideration Transferred and Recording of Assets Acquired
The
following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed
including an amount for goodwill:
Schedule
of Recognized Identified Assets Acquired and Liabilities Assumed
|
|
|
|
|
|
|
Common stock, 27,305,442 shares
at fair market value
|
|
$
|
1,449,919
|
|
|
Common stock, 27,305,442 shares at
fair market value
|
|
$
|
1,449,919
|
|
|
8% Unsecured, Convertible promissory note payable
to seller
|
|
|
350,000
|
|
|
Total purchase price
|
|
$
|
1,799,919
|
|
|
|
|
|
|
|
|
Tangible assets acquired
|
|
$
|
1,094,326
|
|
|
Liabilities assumed
|
|
|
(294,671
|
)
|
|
Net tangible assets acquired
|
|
|
799,655
|
|
|
|
|
|
|
|
|
Identified Intangible Assets
|
|
|
|
|
|
Customer Relationships
|
|
$
|
672,000
|
|
|
Trademarks
|
|
|
121,000
|
|
|
Non-compete agreements
|
|
|
22,000
|
|
|
Total Intangible Assets
|
|
|
815,000
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
185,264
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,799,919
|
|
In
determining the number of shares of the common stock issued, the Company considered the value of the stock as defined the Merger
Agreement to be the calculated based on the volume weighted average price of a share of the Company’s common stock on the
OTC Markets (“VWAP”) for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term
sheet for the Merger or (ii) 180 days prior to the closing date of the Merger, whichever results in a lower VWAP. Based on this
calculation, the Company utilized calculation (i) resulting in a conversion price of $.051271831.
This conversion price resulted in the issuance of 27,305,442
shares of common stock with a fair value
of $1,449,919
on the closing date.
Inventory
was assessed at the time of closing as to its fair value, and it was determined that a step-up analysis was necessary in order to evaluate
the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory
is sold. The key assumptions used in this analysis is a gross margin of 38.3% and selling costs of 5.0%, The analysis resulted in a necessary
step up of $31,000 at the time of closing.
Goodwill
represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized.
The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers.
The goodwill is not expected to be deductible for tax purposes.
As
of September 30, 2021, the Company has recorded an estimated fair value of the intangible assets and goodwill of $1,198,264
based on a preliminary purchase price allocation
prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business
combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to
the purchase price allocation period in our operating results in the period in which the adjustments were determined
Pro
Forma Information
The
following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2021. For all of the business
acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual
acquisition costs.
Schedule
of Business Acquisition, Pro Forma Information
|
|
|
Nine
months ended September 30, 2021
|
|
|
Revenue
|
|
$
|
5,258,139
|
|
|
Net Loss
|
|
$
|
(1,087,932
|
)
|
|
Basic and Diluted Loss
per Share
|
|
$
|
(0.00
|
)
|
|
Basic and Diluted Weighted
Average Common Shares Outstanding
|
|
|
346,431,786
|
|
The
information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The
pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection
with the acquisition of SSI.
Note
7. Goodwill and Intangible Assets, Net
The
following table sets for the changes in the carrying amount of the Company’ Goodwill for the quarter ended September 30,
2021
Summary
of Changes to Goodwill
|
|
|
2021
|
|
|
Balance, January 1
|
|
$
|
-
|
|
|
Acquisitions
of Submersible Systems, Inc.
|
|
|
185,264
|
|
|
Balance, September 30
|
|
$
|
185,264
|
|
The
following table sets for the components of the Company’s intangible assets at September 30, 2021:
Summary
of Intangible Assets
|
|
|
Amortization
Period (Years)
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
15
|
|
|
$
|
121,000
|
|
|
$
|
(672
|
)
|
|
$
|
120,328
|
|
|
Customer Relationships
|
|
|
10
|
|
|
|
672,000
|
|
|
|
(5,600
|
)
|
|
|
666,400
|
|
|
Non-Compete
Agreements
|
|
|
5
|
|
|
|
22,000
|
|
|
|
(367
|
)
|
|
|
21,633
|
|
|
Total
|
|
|
|
|
|
$
|
815,000
|
|
|
$
|
(6,639
|
)
|
|
$
|
808,361
|
|
The
aggregate amortization remaining on the intangible assets as of September 30, 2021 is a follows:
Schedule
of Estimated Intangible Assets Amortization Expenses
|
|
|
Intangible
Amortization
|
|
|
2021 (3 Months)
|
|
$
|
19,917
|
|
|
2021
|
|
|
79,667
|
|
|
2022
|
|
|
79,667
|
|
|
2023
|
|
|
79,667
|
|
|
2024
|
|
|
79,667
|
|
|
Thereafter
|
|
|
469,776
|
|
|
Total
|
|
$
|
808,361
|
|
Note
8. Shareholders’ Equity
Common
Stock
On
February 22, 2021, the Company issued 422,209 shares of common stock related to the conversion of a convertible debenture and accrued
interest of $14,777.
On
March 1, 2021, the Company issued a consultant 3,000,000 shares of its common stock related to investor relation services at a fair value
of $120,000.
On
March 25, 2021, the Company issued 27,500,000 shares of common stock to Mr. Charles F. Hyatt, a member of our Board of Directors, in
consideration of $275,000.
On
February 25, 2021, the Company issued 116,279 shares of common stock to a consultant with a fair value of $5,000 for professional business
services.
On
June 10 2021, the Company issued 6,055,358 shares of common stock related to the conversion of a convertible debenture and accrued interest
of $60,554.
On
September 1, 2021, the Company issued Mr. Charles F. Hyatt, a member of our Board of Directors, 10,000,000
units of the securities of the Company, with
the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025
per share in consideration of $250,000.
The Company did not pay any fees or commissions in connection with the sale of the unit.
On
August 18, 2021, the Company issued 6,114,516 shares of common stock related to the conversion of a convertible debenture and accrued
interest of $61,145.
On
September 1, 2021, the Company issued Ms. Grace Hyatt, the adult child of a member of our Board of Directors, 600,000
units of the securities of the Company, with
the unit consisting of 1 share of common stock and 1 two year common stock purchase warrants exercisable at $0.025
per share in consideration of $15,000.
The Company did not pay any fees or commissions in connection with the sale of the unit.
On
September, 2021, the Company issued 4,000,000 units of the securities of the Company to three accredited investors, with the unit consisting
of 1 share of common stock and 1 24 month common stock purchase warrants exercisable at $0.025 per share in consideration of $100,000.
The Company did not pay any fees or commissions in connection with the sale of the unit.
On
September 3, 2021, the Company issued 273,054
shares of common stock to Tierra Vesta Group
as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $14,499.
On
September 3, 2021, the Company issued 27,032,388 shares
of common stock to Summit Holdings V, LLC. as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $1,435,420.
On
September 22, 2021, the Company issued a law firm 1,190,476
shares of common stock with a fair value
of $55,952
as partial consideration for its legal services related to acquisition of SSI.
Preferred
Stock
During
the second quarter of 2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment
to the Company’s Articles of Incorporation authorizing the issuance of 10,000,000 shares of blank check preferred stock. The blank
check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights
as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business
Corporation Act. In April 2011 the Board of Directors designated 425,000 shares of the blank check preferred stock as Series A Convertible
Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at
any time at the option of the holder at a conversion price of $18.23 per share. Holders of shares of Series A Convertible Preferred Stock
are entitled to 250 votes for each share held. The Company’s common stock and Series A Convertible Preferred Stock vote together
as on any matters submitted to our shareholders for a vote. As of September 30, 2021, and December 31, 2020, the 425,000 shares of Series
A Convertible Preferred Stock are owned by Mr. Carmichael.
Equity
Incentive Plan
On
May 26, 2021 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees,
Directors, and Consultants in the form of Incentive Stock Options or Non-statutory Stock Options, Stock Purchase Rights, time vested
and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan.
The maximum number of shares that may be issued under the Plan shall be 25,000,000 shares. Common Stock to be issued under the Plan may
be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years.
Equity
Compensation Plan Information as of September 30, 2021:
Schedule of Equity Compensation Plan Information
|
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants and rights (a)
|
|
|
Weighted
– average exercise price of outstanding options, warrants and rights (b)
|
|
|
Number
of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column
(a) (c)
|
|
|
Equity Compensation Plans Approved
by Security Holders
|
|
|
2,075,000
|
|
|
$
|
.0434
|
|
|
|
22,925,000
|
|
|
Equity Compensation
Plans Not Approved by Security Holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
2,075,000
|
|
|
$
|
.0434
|
|
|
|
22,925,000
|
|
Options
Effective
July 29, 2019 the Company issued options to purchase up to an aggregate of 10,380,952 shares of common stock to Mr. Blake Carmichael.
The options were issued pursuant to a stock option grant agreement and are exercisable at $0.018 per share for a period of five years
from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $43,575 using the Black-Scholes
option pricing model with the following assumptions: i) risk free interest rate of 2.10%, ii) expected life of 5 years, iii) dividend
yield of 0%, iv) expected volatility of 172%. These stock options were fully expensed as of December 31, 2020.
Effective
July 29, 2019, the Company issued Mr. Carmichael options to purchase up to 20,761,904 shares of common stock. The options were issued
pursuant to a Grant Agreement and are exercisable at $0.018 per share for a period of five years from the date of issuance, subject to
vesting over a period of six months. The fair value of the options totaled $87,147 using the Black-Scholes option pricing model with
the following assumptions: i) risk free interest rate of 2.01%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected
volatility of 172%. These stock options were fully expensed during the year ending December 31, 2020.
Effective
January 6, 2020, the Company issued options to purchase up to 2,000,000 shares of common stock to Mr. Jeffrey Guzy, then a member of
the Board of Directors of the Company. The options were issued pursuant to a stock option grant agreement and is exercisable at $0.0229
per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on
the date of the grant was $40,107 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest
rate of 1.55%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 250%. These stock options were fully
expensed during the year ending December 31, 2020.
Effective
January 11, 2020, the Company issued options to purchase up to 2,000,000
shares of common stock to BizLaunch Advisors,
LLC. The options were issued pursuant to a professional services agreement and are exercisable at $0.0229
per share for a period of three
years from the date of issuance. The options were
immediately vested. The fair value of the options on the date of the grant was $40,097
using the Black-Scholes option pricing model
with the following assumptions: i) risk free interest rate of 1.54%,
ii) expected life of 1.5
years, iii) dividend yield of 0%,
iv) expected volatility of 250%.
These stock options were fully expensed 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 125,000,000 shares of the Company’s common stock at an exercise price of $.045
per share, of which the right to purchase 75,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue
milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 50,000,000 shares of common
stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE
American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows:
|
●
|
the
right to purchase 25,000,000 shares of the Company’s common stock shall vest at such time as the Company reports cumulative
consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent
acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net
Revenues”), in excess of $3,500,000 in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending
on April 30, 2023 (the “Net Revenue Period”);
|
|
|
|
|
●
|
the
right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues
in excess of $7,000,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and
|
|
|
|
|
●
|
the
right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues
in excess of $10,500,000 in the aggregate over four consecutive quarters during the Net Revenue Period.
|
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 $4,370,109
using the Black-Scholes option pricing model
with the following assumptions: i) risk free interest rate of .26%,
ii) expected life of 1.5
years, iii) dividend yield of 0%,
iv) expected volatility of 320%.
The Company analyzed the likelihood that the vesting qualifications would be met. As of June 30, 2021, 25,000,000
of options were vested as the targeted net revenues
were reached and fully expensed. The second net revenue target was 50% reached. Therefore, stock option expense recognized during the
nine months ended September 30, 2021 for this option was $655,517.
On
November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable the “Constable Option
Agreement” as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a 5
year option to purchase 5,434,783 shares of the Company’s common stock at an exercise price of $.0184, (the “Compensation
Options”). The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $106,199
using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .16%, ii) expected life of
2.5 years, iii) dividend yield of 0%, iv) expected volatility of 341%. These stock options were fully expensed as of December 31, 2020.
As
part of the Constable Option Agreement the Company also granted Mr. Constable an option (the “Bonus Option”) to purchase
up to an aggregate of 30,000,000 shares of the Company’s common stock at an exercise price of $.0184 per share, of which the right
to purchase 10,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below
(the “Net Revenue Portion of the Option”) and the right to purchase 20,000,000 shares of common stock is subject to vesting
upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar
stock exchange. The Net Revenue Portion of the Option shall vest as follows:
|
●
|
the
right to purchase 2,000,000 shares of the Company’s common stock shall vest at such time as the Company reports cumulative
consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent
acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net
Revenues”), in excess of $5,000,000 in the aggregate over four consecutive fiscal quarters commencing January 1, 2021 and ending
on April 30, 2023 (the “Net Revenue Period”);
|
|
|
|
|
●
|
the
right to purchase an additional 3,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues
in excess of $7,500,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and
|
|
|
|
|
●
|
the
right to purchase an additional 5,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues
in excess of $10,000,000 in the aggregate over four consecutive quarters during the Net Revenue Period.
|
The
Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis.
The Constable Option is not transferrable by Mr. Constable, and he must remain an employee of the Company as an additional term of vesting.
Once a portion of the Constable Option vests, it is exercisable by Mr. Constable for four years.
The
fair value of the Bonus Options on the date of the grant was $578,082
using the Black-Scholes option pricing model
with the following assumptions: i) risk free interest rate of .14%,
ii) expected life of 2.0
years, iii) dividend yield of 0%,
iv) expected volatility of 312.2%.
The Company analyzed the likelihood that the vesting qualifications would be met, and as of September 30, 2021, deemed that the
Company met the qualifications for 2 quarters for tranche one of the options. Therefore, stock option expense recognized during
the nine months ended September 30, 2021 for this option was $58,400.
Effective
June 14, 2021 the Company issued options to purchase up to an aggregate of 1,125,000 shares of common stock to various employees under
the Plan. The options were issued pursuant to a stock option grant agreements and are exercisable at $0.036 per share for a period of
four years from the date of issuance, with 12.5% of the options vesting each fiscal quarter over a period of two years. The fair value
of the options totaled $38,369 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate
of .21%, ii) expected life of 2 years, iii) dividend yield of 0%, iv) expected volatility of 304.77%. The stock options expense recognized
for the nine months ended September 30, 2021 was $9,594.
On
August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company is obligated
to enter into a Non-Qualified Stock Option agreement with Blake Carmichael. Under the terms of the Blake Carmichael Employment
agreement, the Company will enter into an option contract that will grant Blake Carmichael a 5
year option to purchase 3,759,400
shares of the Company’s common stock at
an exercise price of $.0399,
(the “BC Compensation Options”). The BC Compensation Options vest 33.3% upon the execution of the agreement, 33% at the first
anniversary date and 33% upon the second anniversary date. The fair value of the options on the date of the grant was $149,076
using the Black-Scholes option pricing model
with the following assumptions: i) risk free interest rate of .25%,
ii) expected life of 2.5
years, iii) dividend yield of 0%,
iv) expected volatility of 346.36%.
The Company expensed $49,692
as of September 30, 2021.
As
part of the Blake Carmichael Agreement the company is also obligated to enter into a Non-Qualified Stock option agreement (the
“BC Bonus Options”) that will grant Blake Carmichael a 5-year
option to purchase up to 18,000,000 shares
to be vested annually on a contract year basis, based upon the achievement of certain financial metrics tied to Revenue and EBITA.
The fair value of the BC Bonus Options was $713,777 using
the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .25%,
ii) expected life of 2.5 years,
iii) dividend yield of 0%,
iv) expected volatility of 346.36%,
v) exercise price of .0399 per share. The
measurement period for these options began in August, 2021 The Company deemed that there was no option expense to be
recognized for the nine months ended September 30, 2021.
During the Third
Quarter, 2021 the Company issued options to purchase up to an aggregate of 175,000
shares of common stock to two employees under the Plan. The options were issued pursuant to stock option grant agreements and are
exercisable at a range of $.044
to $.049
per share for a periods ranging from three
to four
years of from the date of issuance, with quarterly vesting periods over one
to two
years. The fair value of the options totaled $7,149
using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate from .155%
to .20%,
ii) expected life of 1.5
to 2
years, iii) dividend yield of 0%,
iv) expected volatility of 249.38%
to 287.12%.
The stock options expense recognized for the nine months ended September 30, 2021 was $1,494.
Effective
September 3, 2021 the Company issued options to purchase up to an aggregate of 300,000 shares
of common stock to Christeen Buban, President of SSI under the Plan. The options were issued pursuant to the Buban Agreement and a
stock option grant agreement and is exercisable at $0.053 per
share for a period of five
years from the date of issuance, with 12.5%
of the options vesting each fiscal quarter over a period of two
years. The fair value of the options totaled $15,814 using
the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .315%,
ii) expected life of 2.5 years,
iii) dividend yield of 0%,
iv) expected volatility of 339.21%.
The stock options expense recognized for the nine months ended September 30, 2021 was $1,977.
As
part of the Buban Agreement the company is also obligated to enter into a Non-Qualified Stock option agreement (the “Buban Bonus
Options”) that will grant Mrs. Buban a 5-year
option to purchase up to 7,110,000
shares to be vested annually on a contract year
basis, based upon the achievement of certain financial metrics tied to Revenue and EBITA. The fair value of the Buban Bonus Options was
$374,786
using the Black-Scholes option pricing model
with the following assumptions: i) risk free interest rate of .3150%,
ii) expected life of 2.5
years, iii) dividend yield of 0%,
iv) expected volatility of 339.21%,
v) exercise price of .0531 per share. The measurement period for these options began on September 3, 2021. The company deemed
that there was no option expense to be recognized for the nine months ended September 30, 2021.
Effective
September 3, 2021 the Company issued options to purchase up to an aggregate of 500,000 shares of common stock to various employees of
SSI under the Plan. The options were issued pursuant to a stock option grant agreement and is exercisable at $0.0531 per share for a
period of four years from the date of issuance, with 12.5% of the options vesting each fiscal quarter over a period of two years. The
fair value of the options totaled $25,201 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest
rate of .21%, ii) expected life of 2 years, iii) dividend yield of 0%, iv) expected volatility of 276.1%. The stock options expense recognized
for the nine months ended September 30, 2021 was $3,150.
A
summary of the Company’s outstanding stock options as of December 31, 2020, and changes during the nine months ended September
30, 2021 is presented below: