CONDENSED NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September 30,2022
(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 incorporated in 2017, 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.
On
February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary,
Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour
experience. On May 2, 2022, the Company entered into
an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company
(“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC
Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s
assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease
for the premises for Gold Coast Scuba as part of this asset acquisition.
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, 2021 has been derived from the Company’s annual financial statements that were audited by an independent
registered public accounting firm but does not include all of the information and footnotes required for complete annual financial
statements. These financial statements should be read in conjunction with the audited consolidated financial statements
and notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2021 for a broader discussion
of our business and the risks inherent in such business. The results of operations for the nine months ended September 30, 2022, are
not necessarily indicative of results to be expected for any other interim period or the fiscal year ending December 31,
2022.
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 accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash
and cash equivalents
Only
highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated
at cost, which approximates market value.
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per EIN. At September 30, 2022
and December 31, 2021, the Company had approximately $27,405 and $205,500, respectively in excess of the FDIC insured limit.
Foreign
Currency Forward Contracts
We
use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies, manage exchange rate
volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities
denominated in foreign currencies. As of September 30, 2022 the Company closed out it’s only forward contract and has no further
obligation relating to such.
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 $46,555
and $46,555 at September 30, 2022 and December 31, 2021, respectively.
Inventory
Inventory
consists of the following:
Schedule of Inventory
| | |
| | | |
| | |
| | |
September 30, 2022
(unaudited) | | |
December 31, 2021 | |
| | |
| | |
| |
| In-Transit inventory | |
$ | 79,502 | | |
$ | 130,000 | |
| Raw materials | |
| 1,260,756 | | |
| 1,144,190 | |
| Work in process | |
| 84,243 | | |
| 99,858 | |
| Finished goods | |
| 978,247 | | |
| 521,212 | |
| Rental Equipment | |
| 55,893 | | |
| - | |
| Inventory, net | |
$ | 2,458,641 | | |
$ | 1,895,260 | |
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 products 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
products 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, 2022. Our leases generally have terms that range from three years for equipment and five to twenty years for
property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component
and account for them as a lease.
Lease
liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings
available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives,
plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used
in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease
term.
When
we have the option to extend the lease term, terminate the lease for 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, 2022, lease expenses were approximately $76,300 and $205,000, respectively, and approximately
$39,000 and $108,000 for the three and nine months ended September 30, 2021, respectively. Cash paid for operating liabilities for the
nine months ended September 30, 2022 was approximately $204,500 and approximately $98,000 for the nine months ended September 30, 2021.
During
the three months ended September 30, 2022, the Company entered into a five-year lease extension for the SSI lease in Huntington Beach,
CA. This extension increased the operating asset and liability by approximately $897,300.
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information
| | |
| | |
| Operating Leases | |
September 30, 2022 (unaudited) | |
| Right-of-use assets | |
$ | 1,197,829 | |
| | |
| | |
| Current lease liabilities | |
$ | 267,684 | |
| Non-current lease liabilities | |
| 930,378 | |
| Total lease liabilities | |
$ | 1,198,062 | |
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.
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.
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, 2022 and September 30, 2021, 249,177,870 and
245,297,740, 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 and 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 is effective
January 1, 2023. The Company is evaluating the changes from this standard to determine the impact on its consolidated
financial statements and related disclosures.
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.
ASU
2019-12 Income Taxes (Topic 740)
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with
early adoption permitted. The Company determined that the standard has no impact on its consolidated financial statements
and related disclosures.
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 nine months ended September 30, 2022, the
Company incurred a net loss of $1,056,944
of which $894,453
is non-cash stock related compensation and shares issued for service. At September 30, 2022, the Company had an accumulated deficit
of $15,601,548.
Despite a working capital surplus of approximately $1,983,868
at September 30, 2022, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to
continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s
ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its
operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The
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 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 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 $22,261 or 7.7%
and $19,484 or 17.3%
of the net revenues for the three months ended September 30, 2022 and September 30, 2021, respectively, and $53,574 or 10.9%
and $59,090 or 19.6%
for the nine months ending September 30, 2022 and September 30, 2021, respectively. Accounts receivable from these entities totaled
$54,656 and
$75,161,
at September 30, 2022 and December 31, 2021, respectively.
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 $686 and $897 at September 30, 2022 and December 31, 2021, respectively.
The
Company had accounts payable to related parties of $18,495
and $37,267
at September 30, 2022 and December 31, 2021, respectively. The balance payable at September 30, 2022 was comprised of $10,052
due to 940, LLC, $2,980
due to BGL and $5,463
due to Robert Carmichael. At December 31, 2021 the balance payable was comprised of $5,000
due to Robert Carmichael and $32,267
due to BGL.
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 940 A 2.5%
of gross revenues per quarter as a royalty. Total royalty expense for the three months ended September 30, 2022 and 2021 was $22,961
and $19,484,
respectively. For the nine months ending September 30, 2022 and 2021 royalty expense was $53,574
and $59,090,
respectively. The accrued royalty for September 30, 2022 was $3,942
and is included in other liabilities.
On
February 2, 2022, the Company issued Charles Hyatt, a director, 10,000,000 shares from the exercise of a warrant at $0.025 per share
in consideration of $250,000.
On
February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, 600,000 shares from the exercise of a
warrant at $0.025 per share in consideration of $15,000.
On
September 30, 2022, the Company issued a convertible demand 8%
promissory note in the principal amount of $66,793
to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note, and
interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day value weighted average price
(“VWAP”) of the Company’s stock prior to the quarterly interest payment date. The note holder may demand payment
or convert the outstanding principal at a conversion rate of $.021
per share at any time. The conversion rate was calculated at a 35%
discount to the 90 day VWAP of the Company’s stock as of the date of the note. The Company recorded $19,250
for the beneficial conversion feature. As this conversion rate is a fixed rate, the embedded conversion feature is not a derivative
liability.
Note
5. Convertible Promissory Notes and Notes Payable
Convertible
Promissory Notes
Convertible
promissory notes consisted of the following at September 30, 2022:
Schedule of Convertible Debentures
Origination
Date | |
Maturity
Date | |
Interest
Rate | | |
Origination
Principal
Balance | | |
Original
Discount
Balance | | |
Period
End
Principal
Balance | | |
Period
End
Discount
Balance | | |
Period
End
Balance,
Net | | |
Accrued
Interest
Balance | | |
Reg. | |
| 12/01/17 | |
12/31/21 | |
| 6 | % | |
| 50,000 | | |
| (12,500 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1 | ) |
| 12/05/17 | |
12/31/21 | |
| 6 | % | |
| 50,000 | | |
| (12,500 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2 | ) |
| 9/03/21 | |
9/03/24 | |
| 8 | % | |
| 346,500 | | |
| (12,355 | ) | |
| 346,500 | | |
| (7,903 | ) | |
| 338,597 | | |
| - | | |
| (3 | ) |
| 9/03/21 | |
9/03/24 | |
| 8 | % | |
| 3,500 | | |
| (125 | ) | |
| 3,500 | | |
| (76 | ) | |
| 3,424 | | |
| - | | |
| (4 | ) |
| 9/30/22 | |
Demand | |
| 8 | % | |
| 66,793 | | |
| (19,245 | ) | |
| 66,793 | | |
| (19,250 | ) | |
| 47,543 | | |
| - | | |
| (5 | ) |
| | |
| |
| | | |
| | | |
| | | |
$ | 416,793 | | |
$ | (27,229 | ) | |
$ | 389,564 | | |
$ | - | | |
| | |
| (1) |
On
December 1, 2017, the Company issued a 6%
secured convertible promissory note in the principal amount of $50,000,
initially due December
1, 2018, subject to extension, which was granted until the note was converted. The note is secured by the assets of the Company and is guaranteed by the Company’s
wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael. |
| |
|
| |
The
conversion price of 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 noteholder may convert the note 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 timely made by the Company. The lender was 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 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, the note and accrued interest of $10,554
were converted by the holder into 6,055,358
shares of common stock in accordance with the terms of the note. |
| (1) |
On
December 1, 2017, the Company issued a 6% secured convertible promissory note in the principal amount of $50,000, initially due December
1, 2018, subject to extension. The note is secured by the assets of the Company and is guaranteed by the Company’s wholly-owned
subsidiaries, Trebor and BHP and the personal guarantee of Robert Carmichael. The
conversion price of 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 noteholder may convert the note 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 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, the note and accrued interest of $10,554 were converted
by the holder into 6,055,358 shares of common stock in accordance with the terms of the note. |
| |
|
| (2) |
On
December 5, 2017, the Company entered into a 6% secured convertible promissory note in the principal amount of $50,000, initially
due December 4, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued
interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert
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 was 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 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. On August 18, 2021, this note and accrued interest of $11,145 were converted by the holder into
6,114,516 shares of common stock in accordance with the terms of the note. |
| (2) |
On
December 5, 2017, the Company entered into a 6%
secured convertible promissory note in the principal amount of $50,000,
initially due December
4, 2018, subject to extension. The note is
secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned
subsidiaries, Trebor and BHP and the personal guarantee of Robert 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 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.
On August 18, 2021, this note and accrued interest of $11,145
were converted by the holder into 6,114,516
shares of common stock in accordance with
the terms of the note |
| (3) |
On
September 3, 2021, the Company issued a three-year 8%
convertible promissory note in the principal amount of $346,550
to Summit Holding V, LLC as part of the acquisition of SSI. The Company is required to make quarterly payments under the note in an
amount equal to 50%
of the adjusted net profit of SSI. Interest is payable quarterly in shares of common stock of the Company at a conversion price of
$0.051272
per share. The note holder may convert outstanding principal and interest at a conversion price of $0.051272
per share at any time during the term of the note. The Company recorded $12,355
for the beneficial conversion feature. This note is classified as a long-term liability for this period. |
| |
|
| (4) |
On
September 3, 2021, the Company issued a three-year 8%
promissory note in the principal amount of $3,500
to Tierra Vista Partners, LLC as part of the acquisition of SSI. The Company is required to make quarterly payments under the note
in an amount equal to 50%
of the adjusted net profit of SSI. Interest is payable quarterly in common stock of the Company at a conversion price of $0.051272
per share. The note holder may convert outstanding principal and unpaid interest at a conversion price of
$0.051272
at any time up to the maturity date of the note. The Company recorded $125
for the beneficial conversion feature. This note is classified as a long-term liability for this period. |
| |
|
| (5) |
On
September 30, 2022, the Company issued a convertible demand 8%
promissory note in the principal amount of $66,793
to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note, and
interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day VWAP of the Company’s
stock prior to the quarterly interest payment date. This note is classified as a current liability as the note holder may demand
payment or convert the outstanding principal at a conversion rate of $0.021
per share at any time. The Company recorded $19,250
for the beneficial conversion feature. |
Loan
Payable
Marlin
Note
On
September 30, 2019 the Company, through 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 in 36 equal monthly
installments of $3,144. The equipment finance agreement contains customary events of default. The loan
balance was $3,116 as of September 30, 2022.
Schedule of Future Amortization of Loans Payable
| | |
| | |
| | |
Payment Amortization | |
| 2022 (3 months remaining) | |
| 3,116 | |
| Total Loan Payments | |
$ | 3,116 | |
| Current portion of Loan payable | |
| (3,116 | ) |
| 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 Robert Carmichael.
The first payment was due on October 5, 2020. The loan balance was $33,815 as of September 30, 2022. .
Schedule of Future Amortization of Loans Payable
| | |
| | |
| | |
Payment Amortization | |
| 2022 (3 months remaining) | |
$ | 2,793 | |
| 2023 | |
$ | 11,168 | |
| 2024 | |
$ | 11,168 | |
| 2025 and thereafter | |
$ | 8,684 | |
| Total note payments | |
$ | 33,815 | |
| Current portion of note payable | |
$ | (11,168 | ) |
| Non-Current Portion of notes payable | |
$ | 22,647 | |
Navitas
Note
On
May 19, 2021 the Company, through its wholly owned subsidiary BLU3, executed an equipment finance agreement for the purchase of certain
plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $79,309
payable in 60
equal monthly installments of $1,611.
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 | |
| 2022 (3 months remaining) | |
| 3,386 | |
| 2023 | |
| 15,342 | |
| 2024 | |
| 16,629 | |
| 2025 | |
| 18,204 | |
| 2026 | |
| 6,007 | |
| Total Note Payments | |
$ | 58,568 | |
| Current portion of Note payable | |
| (15,036 | ) |
| Non-Current Portion of Note Payable | |
$ | 43,532 | |
Alliance
Lease
On
January 19, 2022, SSI entered into a capital lease with Alliance Funding Group (“Lessor”) to secure a new piece of
essential equipment for its operations. The lease has a 36
month term with a monthly payment of $3,522. At
the end of the lease SSI has the option to purchase the equipment for $3,522
plus applicable taxes. The total purchase price of the equipment was $108,675.
The vendor was unable to supply the equipment, and the purchase order for this equipment was cancelled in May 2022. The Lessor
initially funded 50% of the purchase price, or approximately $54,000,
directly to the vendor which the vendor has committed to return once properly instructed by the Lessor. This lease was cancelled
effective June 29, 2022. For the nine months ended September 30, 2022, the Company wrote off approximately $6,300
related to fees for cancellation of this financing.
NFS
Note
On
June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement
production molds. The total purchase price of the molds was $84,500
of which $63,375
was financed by NFS Leasing on August 15, 2022. The
financing agreement has a 33
month term beginning in August 2022 with a monthly payment of $2,571.
The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the
assets of SSI.
Schedule of Future Amortization of Loans Payable
| | |
| | |
| | |
Payment Amortization | |
| 2022 (3 months remaining) | |
| 2,571 | |
| 2022 | |
| 2,571 | |
| 2025 | |
| - | |
| 2026 | |
| - | |
| 2023 | |
| 22,197 | |
| 2024 | |
| 26,279 | |
| 2025 (5 months) | |
| 12,329 | |
| 2025 and thereafter | |
| 12,329 | |
| Total Note Payments | |
$ | 63,376 | |
| Current portion of Note payable | |
| (18,863 | ) |
| Non-Current Portion of Note Payable | |
$ | 44,513 | |
Note
6. Business Combination
Merger
with Submersible Systems, Inc.
On
September 3, 2020, the Company completed its merger with SSI. Under the terms of the Merger Agreement, the Company paid $1.79 million,
consisting of the issuance of 27,305,442 shares of its common stock (valued at $1.4 million) and the issuance of 8% unsecured convertible
promissory notes in the aggregate principal amount of $350,000 in exchange for all of the equity of SSI. The 27,305,442 shares are subject
to leak out agreements whereby the sellers are unable to sell or transfer shares 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 restriction may be waived by the Company, upon written request by a seller, if the Company’s common stock is trading on
the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of 50,000 shares per day; provided, however, that
(i) only up to 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer.”
The
transaction costs associated with the merger were $65,000 in legal fees paid in $40,000 in cash, and 1,190,476 shares of the Company’s
common stock with a fair value of $55,952.
Fair
Value of Consideration Transferred and Recording of Assets Acquired
The
following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed,
including an amount for goodwill:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
| | |
| | |
| Common stock, 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 | |
$ | 1,101,604 | |
| Liabilities assumed | |
| (294,671 | ) |
| Net tangible assets acquired | |
| 806,933 | |
| | |
| | |
| Identified Intangible Assets | |
| | |
| Customer relationships | |
$ | 600,000 | |
| Trademarks | |
| 121,000 | |
| Non-compete agreements | |
| 22,000 | |
| Total intangible assets | |
| 743,000 | |
| | |
| | |
| Goodwill | |
$ | 249,986 | |
| | |
| | |
| Total purchase price | |
$ | 1,799,919 | |
The
value of the stock was calculated based on the VWAP of a share of the Company’s common
stock on the OTC Markets for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term sheet for
the merger or (ii) 180 days prior to the closing date of the merger, whichever results in a lower VWAP which resulted in a conversion
price of $0.051271831 and the issuance of 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, 2022, the Company recorded an estimated fair value of the intangible assets and goodwill of $992,986 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.
Asset
acquisition Gold Coast Scuba, LLC
On
May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba,
LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold
Coast Scuba (together, the “LLC Members”) and Live Blue, Inc. Pursuant to the terms of the Asset Purchase Agreement, Live
Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated
with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.
In
consideration for the assets purchased, the Company paid $150,000
to the LLC Members. The purchase price was paid by (a) the issuance to the LLC Members of an aggregate of 3,084,831
shares of the Company’s common stock (the “Consideration Shares”) with a fair market value of $120,000;
and (b) a cash payment of $30,000.
The
Consideration Shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares 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 25.0% |
| 9
months |
|
Up
to 50.0% |
| 12
months |
|
Up
to 100.0% |
The
leak-out restriction may be waived by the Company, upon written request by a LLC Member, if the Company’s common stock is trading on
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 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer.”
The
transaction costs associated with the acquisition were $10,000 in legal fees paid in cash.
Fair
Value of Consideration Transferred and Recording of Assets Acquired
The
following table summarizes the asset acquisition date fair value of the consideration paid, identifiable assets acquired, including an
amount for overpayment and transaction fees:
Summary of Asset Acquisition
| | |
Book Value | | |
Overpayment Allocation | | |
Transaction Cost Allocation | | |
Fair Value | |
| Rental Inventory | |
$ | 23,408 | | |
$ | 22,156 | | |
$ | 3,038 | | |
$ | 48,602 | |
| Fixed Assets | |
| 24,360 | | |
| 23,058 | | |
| 3,161 | | |
| 50,579 | |
| Retail Inventory | |
| 29,292 | | |
| 27,726 | | |
| 3,801 | | |
| 60,819 | |
| Total Cost | |
$ | 77,060 | | |
$ | 72,940 | | |
$ | 10,000 | | |
$ | 160,000 | |
Pro
Forma Information
The
following unaudited pro forma information assumes all business combinations 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
(unaudited)
| |
| Revenue | |
$ | 5,489,338 | |
| Net Loss | |
$ | (1,096,903 | ) |
| Basic and Diluted Loss per Share | |
$ | (0.00 | ) |
| Basic and Diluted Weighted Average Common Shares Outstanding | |
| 348,134,156 | |
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 and the assets of LBI.
Pro
Forma Information
The
following unaudited pro forma information assumes all business acquisitions occurred on January 1, 2022. 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.
The
information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The
pro forma amounts for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection
with the acquisition of Gold Coast Scuba.
Schedule of Business Acquisition, Pro Forma Information
| | |
Nine months ended
September 30, 2022
(unaudited) | |
| Revenue | |
$ | 7,261,794 | |
| Net Loss | |
$ | (1,126,690 | ) |
| Basic and Diluted Loss per Share | |
$ | (0.00 | ) |
| Basic and Diluted Weighted Average Common Shares Outstanding | |
| 408,904,845 | |
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, 2022.
Summary of Changes in Goodwill
| | |
2022 | |
| Balance, January 1 | |
$ | 249,986 | |
| Addition: | |
| - | |
| Balance, September 30 | |
$ | 249,986 | |
The
following table sets for the components of the Company’s intangible assets at September 30, 2022:
Summary of Intangible Assets
| | |
Amortization Period (Years) | | |
Cost | | |
Accumulated Amortization | | |
Net Book Value | |
| | |
| | |
| | |
| | |
| |
| Intangible Assets Subject to amortization | |
| | | |
| | | |
| | | |
| | |
| Trademarks | |
| 15 | | |
$ | 121,000 | | |
$ | (8,695 | ) | |
$ | 112,305 | |
| Customer Relationships | |
| 10 | | |
| 600,000 | | |
| (65,000 | ) | |
| 535,000 | |
| Non-Compete Agreements | |
| 5 | | |
| 22,000 | | |
| (4,767 | ) | |
| 17,233 | |
| Total | |
| | | |
$ | 743,000 | | |
$ | (78,462 | ) | |
$ | 664,538 | |
The
aggregate amortization remaining on the intangible assets as of September 30, 2022 is a follows:
Schedule of Estimated Intangible Assets Amortization Expenses
| | |
Intangible Amortization |
|
| 2022 (3 months remaining) | |
$ |
18,108 |
|
| 2023 | |
|
72,467 |
|
| 2024 | |
|
72,467 |
|
| 2025 | |
|
72,467 |
|
| 2026 | |
|
71,367 |
|
| Thereafter | |
|
357,662 |
|
| Total | |
$ |
664,538 |
|
Note
8. Stockholders’ Equity
Common
Stock
On
January 17, 2022, the Company issued a law firm 1,000,000 shares of common stock with a fair value of $27,500 as part of the agreed upon
compensation for a representation agreement.
On
January 31, 2022, the Company issued a consultant 121,212 shares of common stock with a fair value of $4,000 for consulting services
related to the dive industry.
On
February 2, 2022, the Company issued Charles Hyatt, a director, 10,000,000 shares from the exercise of a warrant at $0.025 per share
in consideration of $250,000.
On
February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, 600,000 shares from the exercise of a
warrant at $0.025 per share in consideration of $15,000.
On
February 28, 2022, the Company issued a consultant, 85,106 shares of common stock with a fair value of $4,000 for consulting services
related to the dive industry.
On
May 3, 2022, the Company issued 3,084,831 shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC
with a fair value of $120,000.
On
May 31, 2022, the Company issued a consultant, 302,953 shares of common stock with a fair value of $12,000 for consulting services related
to the dive industry.
On
June 17, 2022, the Company issued 280,000 shares of common stock to an employee as a retirement gift. The fair value of this stock was
$11,060.
On
June 30, 2022, the Company issued 449,522 shares of common stock to the holders of convertible notes for payment of interest through
June 30, 2022. The fair value of these shares were $23,048.
On
September 7, 2022, the Company issued to two accredited investors, 8,541,666
units of the Company, 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 $0.024
per share in consideration of $205,000.
The Company did not pay any fees or commissions in connection with the sale of the units.
On
September 30, 2022, the Company issued 136,527 shares of common stock to the holders of convertible notes for payment of interest for
the three months ending September 30, 2022. The fair value of these shares were $7,000.
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 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 on any matters submitted to our shareholders. As of September 30, 2022, and December 31, 2021, the 425,000 shares of Series
A Convertible Preferred Stock are owned by Robert 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-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.
25,000,000 shares are reserved for issuance under the Plan. The term of the Plan is ten years.
Equity
Compensation Plan Information as of September 30, 2022:
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 | |
| 3,742,647 | | |
$ | .0396 | | |
| 21,257,353 | |
| Equity Compensation Plans Not Approved by Security Holders | |
| — | | |
| — | | |
| — | |
| Total | |
| 3,742,647 | | |
$ | .0396 | | |
| 21,257,353 | |
Options
On
April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Robert 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 $0.045 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%, and (iv) expected volatility
of 320%. The Company analyzed the likelihood that the vesting qualifications would be met. As of December 31, 2021, 25,000,000 of options
were vested as the targeted net revenues were reached and three quarters of Tranche 2 was also met and fully expensed through December
31, 2021. For the nine months ended September 30, 2022 the Company revenues reached the target revenues for Tranche 2, and an additional
25,000,000 shares of the option vested. Stock option expense recognized during the three and nine months ended September 30, 2022 for
this option was $218,505 and $655,515, respectively.
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. As part of the Constable Option Agreement, the Company 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 $0.0184 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:
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 $0.0184 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%,
and (iv) expected volatility of 312.2%.
The Company analyzed the likelihood that the vesting qualifications would be met, and as of September 30, 2022, it was deemed that
the Company met the qualifications for four quarters for Tranches 1 and 2. For the three and nine months ended September 30, 2022,
the Company recognized option expense related to these options of $24,333 and
$63,266,
respectively.
On
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 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 three and nine months ended September 30, 2022 was $4,142 and $12,426, respectively.
On
August 1, 2021 as part of the Blake Carmichael Employment Agreement (as defined below), the Company granted Blake Carmichael a five-year
option to purchase 3,759,400 shares of the Company’s common stock at an exercise price of $0.0399, (the “BC Compensation
Options”). The BC Compensation Options vested 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%, and (iv) expected volatility of 346.36%. The Company expensed $49,692 as for the three and nine months ended September 30, 2022.
As
part of the Blake Carmichael Agreement, the Company granted Blake Carmichael a five-year option to purchase up to 18,000,000 shares of
common stock which vest annually on a contract year basis, based upon the achievement of certain revenue and EBITA financial metrics.
The fair value of the BC Bonus Options was $713,777 using the Black-Scholes option pricing model with the following assumptions: (i)
risk free interest rate of 0.25%, (ii) expected life of 2.5 years, (iii) dividend yield of 0%, (iv) expected volatility of 346.36%, and
(v) exercise price of 0.0399 per share. The Company analyzed the likelihood that the vesting qualifications would be met, and as of September
30, 2022, it was deemed that it was likely that 500,000 shares would be issued at the end of the first year, and accordingly was fully
expensed as of December 31, 2021. For the three and nine months ended September 30, 2022 there were no material changes to vesting qualifications
and no stock option expense was recognized.
During
the third quarter of 2021, the Company issued options to purchase up to an aggregate of 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 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%, and (iv) expected volatility of 249.38%
to 287.12%. The stock options expense recognized for the three and nine months ended September 30, 2022 was $1,494 and $4,483, respectively.
On
September 3, 2021, the Company issued options to purchase up to an aggregate of 300,000 shares of common stock under the Plan to Christeen
Buban, President of SSI. The options were issued pursuant to the Buban Employment Agreement and a stock option grant agreement and are
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 0.315%, (ii) expected life of 2.5 years, (iii) dividend yield of 0%, and (iv) expected volatility
of 339.21%. The stock options expense recognized for the three and nine months ended September 30, 2022 was $1,977 and $5,930, respectively.
In
connection with the Buban Employment Agreement, the Company granted Ms. Buban that will grant Ms. Buban a five-year option (the “Buban
Bonus Option”) to purchase up to 7,110,000 shares of the Company’s common stock which vest annually on a contract year basis,
based upon the achievement of certain revenue and EBITA financial metrics. The fair value of the Buban Bonus Option 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%, and (v) exercise price of $0.0531 per share. The measurement
period for the Buban Bonus Option began on September 3, 2021. The Company analyzed the likelihood that vesting qualifications would be
met during the contract year and deemed that there was no option expense to be recognized for the nine months ended September 30, 2022.
On
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 0.21%, (ii) expected life of 2 years, (iii) dividend yield of 0%, (iv) expected volatility of 276.1%. The stock options
expense recognized for the three and nine months ended September 30, 2022 was $3,150 and $9,450, respectively.
During
the fourth quarter of 2021, the Company issued options to purchase up to an aggregate of 100,000 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 $.040 to $.0419 per
share for a period of four years of from the date of issuance, with quarterly vesting periods over two years. The fair value of the options
totaled $3,863 using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of .204% (ii)
expected life of 2 years, (iii) dividend yield of 0%, (iv) expected volatility of 249.38% to 287.12%. The stock options expense recognized
for the three and nine months ended September 30, 2022 was $483 and $1,449, respectively.
On
November 5, 2021, the Company entered into a non-qualified stock option agreement with Christopher Constable (the “Constable Option
Agreement”) as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable an
immediately exercisable five-year option to purchase 2,403,846 shares of the Company’s common stock at an exercise price of $0.041
(the “Compensation Option”). The fair value of the Compensation Option on the date of the grant was $98,976 using the Black-Scholes
option pricing model with the following assumptions: (i) risk free interest rate of .53%, (ii) expected life of 2.5 years, (iii) dividend
yield of 0%, and (iv) expected volatility of 269.12%. The Compensation Option was fully expensed as of December 31, 2021.
On
January 21, 2022, the Company issued options to purchase up to an aggregate of 75,000 shares of common stock to an employee under the
Plan. The options were issued pursuant to stock option grant agreements and are exercisable at $0.032 per share for a period of four
years from the date of issuance, with quarterly vesting periods over two years. The fair value of the options totaled $2,259 using the
Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of 1.016% (ii) expected life of 2 years,
(iii) dividend yield of 0%, and (iv) expected volatility of 266.8%. The stock options expense recognized for the three and nine months
ended September 30, 2022 was $283 and $847, respectively.
During
the three months ended June 30, 2022, the Company issued options to purchase up to an aggregate of 217,647 shares of common stock to
three employees under the Plan. The options were issued pursuant to stock option grant agreements and are exercisable at a range of $.038
to $.045 per share for a period of four years of from the date of issuance, with quarterly vesting periods over two years. The fair value
of the options totaled $8,239 using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate
ranging from 2.495% to 2.602% (ii) expected life of 2 years, (iii) dividend yield of 0%, (iv) expected volatility of 228.7% to 232.7%.
The stock options expense recognized for the three and nine months ended September 30, 2022 was $1,030 and $2,060, respectively.
On
April -8, 2022, the Company issued an option to purchase up to 300,000 shares of common stock to one contractor under the Plan. The option
was issued pursuant to a stock option grant agreement and is exercisable at $.0406 per share for a period of four years of from the date
of issuance. The options vested immediately. The fair value of the options totaled $10,988 using the Black-Scholes option pricing model
with the following assumptions: (i) risk free interest rate of 2.469% (ii) expected life of 2 years, (iii) dividend yield of 0%, (iv)
expected volatility of 232.41%. The stock options expense of $10,988 was fully recognized as of the three and nine months ended September
30, 2022.
On
May 16, 2022, the Company issued an option to purchase up to 1,000,000 shares of common stock to one employee under the Plan. The option
was issued pursuant to a stock option grant agreement and is exercisable at $.0325 per share for a period of four years of from the date
of issuance, with quarterly vesting periods over three quarters. The fair value of the options totaled $29,161 using the Black-Scholes
option pricing model with the following assumptions: (i) risk free interest rate of 2.590% (ii) expected life of 2 years, (iii) dividend
yield of 0%, (iv) expected volatility of 228.97%. The stock options expense recognized for the three and nine months ended September
30, 2022 was $9,720 and $19,440, respectively.
In August, 2022, the Company issued options to purchase
up to 100,000 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 $.0302 to $.0320 per share for a period of four years of from the date of issuance, with quarterly vesting
periods over two years. The fair value of the options totaled $2,736 using the Black-Scholes option pricing model with the following assumptions:
(i) risk free interest rate ranging from 3.178% to 3.4330% (ii) expected life of 2 years, (iii) dividend yield of 0%, (iv) expected volatility
of 216.84% to 218.13%. The stock options expense recognized for the three and nine months ended September 30, 2022 was $342 and $342,
respectively
On September 27, 2022, the Company issued options
to purchase up to 50,000 shares of common stock to one employee under the Plan. The options were issued pursuant to stock option grant
agreements and are exercisable at $.0225 per share for a period of four years of from the date of issuance, with quarterly vesting periods
over two years. The fair value of the options totaled $987 using the Black-Scholes option pricing model with the following assumptions:
(i) risk free interest rate of 4.287% (ii) expected life of 2 years, (iii) dividend yield of 0%, (iv) expected volatility of 215.16%.
There was no stock option expense recognized for the three and nine months ended September 30, 2022.
A
summary of the Company’s outstanding stock options as of December 31, 2021, and changes during the nine months ended September
30, 2022 is presented below: