BROWNIE'S MARINE GROUP, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law. The management's discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). Overview
The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products inthe United States and internationally.
The Company has five subsidiaries focused on various sub-sectors:
? Brownie's Third Lung -Surface Supplied Air ("SSA") ?BLU3, Inc. - Ultra-Portable Tankless Dive Systems ? LW Americas - High Pressure Gas Systems ?Submersible Systems, Inc. - Redundant Air Tank Systems ?Live Blue, Inc. - Guided Tours and Retail
Our wholly owned subsidiaries do business under their respective trade names on
both a wholesale and retail basis from our headquarters and manufacturing
facility in
The Company, through its wholly owned subsidiaries, designs, tests, and
manufactures tankless dive systems, rescue air systems and yacht-based
self-contained underwater breathing apparatus ("SCUBA") air compressor and
nitrox generation fill systems and acts as the exclusive distributor for North
and South America for Lenhardt & Wagner GmbH ("L&W") compressors in the
high-pressure breathing air and industrial gas markets. The Company is also
building a guided tour operation that also include dive retail. Lastly, The
Company is the exclusive United States and Caribbean distributor for Chrysalis
Trading CC, a South African manufacturer of fitness and dive equipment, doing
business as Bright Weights ("Bright Weights"), of a dive ballast system produced
in South Africa .
28
Impact of COVID-19 Pandemic
The Company has previously been affected by temporary manufacturing closures and
employment and compensation adjustments. The market continues to suffer from the
impacts of the pandemic via supply chain shortages and freight delays. The
continued freight delays have and will likely continue to result in additional
expenses to expedite delivery of critical parts. Additionally, increased demand
for personal electronics has created a shortfall of microchip supply which are
used in our battery powered products, and it is yet unknown how we may be
impacted.
We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly.
Results of Operations
Net Revenues, Costs of Net Revenues and Gross Profit
Three Months Ended
Net revenues increased 80.2% for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 as a result of a 187.2% increase in revenue forBLU3, Inc. from the continued expansion of its customer base as well as the addition of NOMAD to its product line, an increase in LWA's revenues of 193.9% as a result of the addition of a new distributor inMexico during the three months endedSeptember 30, 2022 and the addition of revenue from both SSI and LBI. SSI was acquired in September, 2021, therefore SSI revenue for the three months endedSeptember 30, 2021 reflected only a partial month of revenue activity. For the three months endedSeptember 30, 2022 , cost of net revenues was 65.9% as compared with the cost of revenues of 75.9% for the three months endedSeptember 30, 2021 . Included in cost of net revenues are royalty expenses paid toRobert Carmichael which increased 17.8% for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Gross profit margin was 34.1% for the three months endedSeptember 30, 2022 as compared to gross profit margin of 24.1% for the three months endedSeptember 30, 2021 . The improvement in gross margin, is directly attributable to improvement inBLU3's margin from a negative 6.2% margin for the three months endedSeptember 30, 2021 to a 40.0% margin for the three months endedSeptember 30, 2022 .
Nine Months Ended
Net revenues increased 70.2% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This increase is a result of a 120.8% increase in revenue forBLU3, Inc. from the continued expansion of its customer base as well as the addition of NOMAD to its product line, an increase in LWA's revenues of 88.2% as a result of the expansion of its customer base with the addition of a new distributor inMexico during the nine months endedSeptember 20, 2022 and the addition of SSI and LBI revenue. SSI was acquired in September, 2021 therefore SSI revenue for the three months endedSeptember 30, 2021 reflected only a partial month of revenue activity. These revenue increases were offset by a decrease of 5.3% in revenue for BTL. For the nine months endedSeptember 30, 2022 , cost of net revenues was 65.3% as compared with the cost of revenues of 69.6% for the nine months endedSeptember 30, 2021 . Included in cost of net revenues are royalty expenses paid to a third party which increased 86.7% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Gross profit margin was 34.7% for the nine months endedSeptember 30, 2022 as compared to gross profit margin of 30.4% for the nine months endedSeptember 30, 2021 . The improvement in gross margin, of 4.3% of revenue is a result of a 14.3% margin increase in theBLU3 product line.
The following tables provides net revenues, total costs of net revenues and gross profit margins for our segments for the periods presented.
Net Revenues
Three Months Ended Nine Months Ended
September 30, % of September 30, % of
2022 2021 Change 2022 2021 Change
(unaudited) (unaudited)
Legacy SSA Products $ 913,785 $ 976,904 (6.5 )%
350,839 119,392 193.9 % 897,849 477,085 88.2 %
Ultra-Portable Tankless Dive Systems 980,169 341,287 187.2 % 2,659,027 1,204,265 120.8 %
Redundant Air Tank Systems 471,051 121,131 288.9 % 1,192,986 121,131 884.9 %
Guided Tour Retail 92,960 - 100.0 % 143,233 - 100.0 %
Total net revenues $ 2,808,804 $ 1,558,714 80.2 % $ 7,185,011 $ 4,222,401 70.2 %
29
Cost of revenues as a percentage of net revenues
Three Months Nine Months Ended
Ended September 30, September 30,
2022 2021 2022 2021
(unaudited) (unaudited)
Legacy SSA Products 63.3 % 66.0 % 69.8 % 69.5 %
High Pressure Gas Systems 72.6 % 70.8 % 61.9 % 58.5 %
Ultra-Portable Tankless Dive Systems 60.0 % 106.2 % 59.2 % 73.5 %
Redundant Air Tank Systems 68.4 % 76.0 % 70.2 % 76.0 %
Guided Tour Rental 117.3 % - 86.0 % -
Gross profit (loss) margins
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(unaudited) (unaudited)
Legacy SSA Products 36.7 % 34.0 % 30.2 % 30.5 %
High Pressure Gas Systems 27.4 % 29.2 % 38.1 % 41.5 %
Ultra-Portable Tankless Dive Systems 40.0 % (6.2 )% 40.8 % 26.5 %
Redundant Air Tank Systems 31.6 % 24.0 % 29.8 % 24.0 %
Guided Tour Rental (17.3 )% - 14.0 % -
SSA Products
Net revenues decreased 5.3% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The decrease can be primarily attributed to a 12.3% decrease in the dealer segment for the nine months endedSeptember 30, 2022 as compared to the same period in 2021. The decrease in dealer orders can be attributed to the 22.1% net revenue decrease during the three months endedSeptember 30, 2022 as compared the same period in 2021 as a result of, we believe, many dealers increasing purchases during the first quarter of 2022 for the summer season and holding with restocking orders due to trepidation regarding the economy. Affiliate sales, while the smallest segment of revenue increased 348.7% for the three months endingSeptember 30, 2022 as compared to the three months endedSeptember 30 30, 2021 and increased 56.0% for the nine months endedSeptember 30, 2022 compared to the nine month endedSeptember 30, 2021 . Direct to consumer sales increased 5.1% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 as direct consumer demand continues to shift to online sales.
The costs of revenues as a percentage of net revenues in this segment increased
slightly from 69.5% to 69.8% for the nine months ended
A breakdown of the revenue channels for this segment are below. Direct to
Consumer represents items sold via our website, trade shows and walk-ins to our
factory store. Dealer revenue represents sales to customers under dealer
agreements which typically have lower margins. Affiliates are resellers of our
products with which we do not have formal dealer arrangements.
Net Revenue Cost of Sales as a % of Net Revenue Margin
Three Months Three Months
Three Months Three Months Ended Three Months Ended Three Months
Ended September Ended September September Ended September September Ended September
30, 2022 30, 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Dealers $ 514,566 $ 660,180 (22.1 )% 70.3 % 70.4 % 29.7 % 29.6 %
Direct to
Consumer
(includes
website ) 375,680 311,479 20.6 % 55.3 % 54.8 % 44.7 % 45.2 %
Affiliates 23,539 5,245 348.7 % 36.5 % 173.4 % 63.5 % (73.4 )%
Total $ 913,785 $ 976,904 (6.5 )% 63.3 % 66.0 % 36.7 % 34.0 %
30
Cost of Sales as a % of Net
Net Revenue Revenue Margin
Nine months Nine months Nine months Nine months Nine months Nine months
ended ended ended ended ended ended
September 30, September 30, September September September September
2022 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Dealers $ 1,383,321 $ 1,577,607 (12.3 )% 74.8 % 75.3 % 25.2 % 24.7 %
Direct to
Consumer
(includes
website ) 837,214 796,565 5.1 % 59.4 % 57.2 % 40.6 % 42.8 %
Affiliates 71,381 45,748 56.0 % 92.3 % 85.8 % 7.7 % 14.2 %
Total $ 2,291,916 $ 2,419,920 (5.3 )% 69.8 % 69.5 % 30.2 % 30.5 %
High Pressure Gas Systems
Sales of high-pressure breathing air compressors increased 88.2% for the nine
months ended September 30, 2022 compared with the nine months ended September
30, 2021 as LWA was able to continue to supply its customers with their needs
despite industry supply chain issues. The reseller segment revenues increased
significantly by 205.7% and 73% for the three and nine months ended September
30, 2022 as compared to the same periods in the prior year with the addition of
a new distributor in Mexico in July 2022 . The Original Equipment Manufacturer
segment continued to show growth of 156.0% through the nine months ended
September 30, 2022 due to international orders to boat manufacturers but
decreased 280.3% for the three months ended September 30, 2022 as compared to
the same period in the prior year, as OEM volume has proven to be sporadic. The
direct to consumer segment, which includes yacht owners and direct to dive
stores, increased 69.9% for the three months ended September 30, 2022 as
compared to the three months ended September 30, 2021 and increased 102.8% for
the nine months ended September 30, 2022 as compared to September 30, 2021 , as
this segment has become more active post-COVID, and we believe these customers
are beginning to re-invest in their operations.
Costs of revenues as a percentage of net revenues in this segment increased to
61.9% for the nine months ended September 30, 2022 as compared to 58.5% for the
nine months ended September 30, 2021 . This increase is attributed increased
revenue in the reseller segment during the three months ended September 30,
2022 , which yields a lower margin than that of the segments as these customers
are typically larger volume customers and are given volume discounts.
Cost of Sales as a % of Net
Net Revenue Revenue Margin
Three Months Three Months Three Months Three Months
Three Months Three Months Ended Ended Ended Ended
Ended September Ended September September September September September
30, 2022 30, 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Resellers $ 316,914 $ 103,667 205.7 % 76.1 % 73.6 % 23.9 % 26.4 %
Direct to
Consumers 20,903 12,301 69.9 % 28.1 % 53.4 % 71.9 % 46.6 %
Original
EquipmentManufacturers 13,022 3,424 280.3 %
57.4 % 48.1 % 42.6 % 51.9 % Total$ 350,839 $ 119,392 193.9 % 72.6 % 70.8 % 27.4 % 29.2 % 31
Cost of Sales as a % of Net
Net Revenue Revenue Margin
Nine months Nine months Nine months Nine months
Nine months Nine months ended ended ended ended
ended September ended September September September September September
30, 2022 30, 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Resellers $ 556,454 $ 321,590 73.0 % 65.6 % 73.0 % 34.4 % 27.0 %
Direct to
Consumers 216,148 106,564 102.8 % 55.3 % 49.1 % 44.7 % 50.9 %
Original
EquipmentManufacturers 125,247 48,931 156.0 %
57.0 % 83.9 % 43.0 % 16.1 % Total$ 897,849 $ 477,085 88.2 % 61.9 % 58.5 % 38.1 % 41.5 %
Ultra Portable Tankless Dive Systems
Net revenue for the nine months endedSeptember 30, 2022 in the Ultra Portable Tankless Dive System segment increased 120.8% as compared to the nine months endedSeptember 30, 2021 as a result of the addition of the Nomad product line. The 146.2% increase in the Dealers segment represents the continued expansion of the international dealer base. The addition of Nomad to the Amazon segment during the three months endedSeptember 30, 2022 resulted in a 334.1% growth in that segment as compared to the three months endedSeptember 30, 2021 . Cost of revenues from this segment as a percentage of net revenues for the three and nine months endedSeptember 30, 2022 showed improvement over both the three and nine months endedSeptember 30, 2021 , primarily due to the impact of the cost and production efficiencies of the Nomad dive system and the resulting increase in margin as a percentage of revenue for the same periods in 2022
as
compared to 2021.
Net Revenue Cost of Sales as a % of Net Revenue Margin
Three Three Three
Three Months Three Months Months Months Months
Ended Ended Ended Three Months Ended Ended
September 30, September 30, September Ended September September September
2022 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021Direct to Consumer 366,178 146,901 149.3 % 67.3 % 82.4 % 32.7 % 17.6 % Amazon 410,513 94,569 334.1 % 44.6 % 106.8 % 55.4 % (6.8 )% Dealers 203,478 99,817 103.9 % 78.0 % 82.9 % 22.0 % 17.1 % Total$ 980,169 $ 341,287 187.2 % 60.0 % 106.2 % 40.0 % (6.2 )% 32 Cost of Sales as a % of Net Net Revenue Revenue Margin Nine months Nine months Nine months Nine months Nine months Nine months ended ended ended ended ended ended September 30, September 30, September September September September 2022 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Direct to Consumer 906,133 487,566 85.8 %
57.6 % 61.3 % 42.4 % 38.7 %
Amazon 859,633 353,834 142.9 % 54.1 % 90.1 % 45.9 % 9.9 %
Dealers 893,261 362,865 146.2 % 65.8 % 73.6 % 34.2 % 26.4 %
Total $ 2,659,027 $ 1,204,265 120.8 % 59.2 % 73.5 % 40.8 % 26.5 %
Redundant Air Tank Systems
Net revenue in the Redundant Air Tank Systems System segment was $1,192,986 and
$471,051 for the nine and three months ended September 30, 2022 , respectively.
The margins for the three months ended September 30, 2022 increased 31.6% as
compared to 29.8% for the nine months ended September 30, 2022 as the margin for
dealer sales improved during the three months ended September 30, 2022 to 30.9%
as compared to 25.7% for the nine months ended September 30, 2022 . Except for
the margin for repairs, dealer margins continue to be the lowest margin segment
as SSI sees this segment as the volume driver and sets prices help enable
dealers to also generate profits. SSI has a worldwide customer base that
includes (1) commercial accounts with aircraft requiring redundant air systems
for their pilots and passengers, such as helicopters flying to oil rigs located
in bodies of water (2) government accounts that are typically domestic and
international military customers with egress systems (3) dealer accounts that
are resellers including, international distributors to the military, commercial
account or dive shops, and domestic and international dive shops that carry a
spare air product (4) direct to consumer sales which are online sales and sales
via trade shows direct to consumer and (5) Company provided repairs and warranty
repairs to all segments.
Net Revenue Cost of Sales as a % of Net Revenue Margin
Three Three
Three Months Three Months Months Months
Ended Ended Three Months Ended Three Months Ended
September 30, September 30, Ended September September Ended September September
2022 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Commercial $ 73,691 $ 7,020 949.7 % 45.8 % 53.2 % 54.2 % 46.8 %
Dealers 329,739 95,191 246.4 % 69.1 % 88.5 % 30.9 % 11.5 %
Government 14,017 14,302 -2.0 % 76.5 % 19.7 % 23.5 % 80.3 %
Repairs 2,620 - 100.0 % 569.6 % - -469.6 % -
Direct to
Consumers
(Website) 50,984 4,618 1004.0 % 68.0 % 28.3 % 32.0 % 71.7 %
Total $ 471,051 $ 121,131 288.9 % 68.4 % 76.0 % 31.6 % 24.0 %
33
Net Revenue Cost of Sales as a % of Net Revenue Margin
Nine months Nine months Nine months
ended Nine months Nine months ended ended Nine months ended
September 30, ended September September 30, September ended September September
2022 30, 2021 % change 2022 30, 2021 30, 2022 30, 2021
Commercial $ 176,847 $ 7,020 2419.2 % 44.5 % 53.2 % 55.5 % 46.8 %
Dealers 792,081 95,191 732.1 % 74.3 % 88.5 % 25.7 % 11.5 %
Government 66,729 14,302 366.6 % 45.1 % 19.7 % 54.9 % 80.3 %
Repairs 21,478 - 100.0 % 276.8 % 0.0 % -176.8 % -
Direct to
Consumers
(Website) 135,851 4,618 2841.8 % 59.2 % 28.3 % 40.8 % 71.7 %
Total $ 1,192,986 $ 121,131 884.9 % 70.2 % 76.0 % 29.8 % 24.0 %
Guided Tours and Retail
The guided tour and retail segment is a new segment and is derived from LBI.
Revenue in this segment currently primarily includes retail sales, and tours and
lessons. Retail sales represent the sales of product at the retail facility,
while tours and lessons represent revenue derived from diving excursions and
lessons.
Net Revenue Cost of Sales as a % of Net Revenue Margin
Three
Months
Three Months Three Months Ended Three Months Three Months Three Months
Ended September Ended September September Ended September Ended September Ended September
30, 2022 30, 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Retail Sales $ 55,693 - 100.0 % 119.4 % - (19.4 )% -
Tours and Lessons 37,267 - 100.0 % 114.3 % - (14.3 )% -
Total $ 92,960 - 100.0 % 117.3 % - (17.3 )% -
34
Net Revenue Cost of Sales as a % of Net Revenue Margin
Nine months Nine months Nine months
ended Nine months ended Nine months ended Nine months
September 30, ended September September ended September September ended September
2022 30, 2021 % change 30, 2022 30, 2021 30, 2022 30, 2021
Retail Sales $ 90,241 - 100.0 % 77.1 % - 22.9 % -
Tours and Lessons 52,992 - 100.0 % 101.3 % - (1.3 )% -
Total $ 143,233 - 100.0 % 86.0 % - 14.0 % -
Operating Expenses
Operating expenses, consist of selling, general and administrative ("SG&A")
expenses and research and development costs and are reported on a consolidated
basis for our operating segments. Operating expenses increased 35.1% for the
three months ended September 30, 2022 and 40.1% for the nine months ended
September 30, 2022 as compared to the same periods in the prior year.
Selling, General & Administrative Expenses (SG&A Expenses)
SG&A increased by 38.7% for the three months endedSeptember 30, 2022 and 43.6% for the nine months endingSeptember 30, 2022 as compared to the same periods in the prior year. SG&A expenses were comprised of the following: Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, Expense Item 2022 2021 % Change 2022 2021 % Change Payroll, Selling & Administrative$ 536,383 $ 276,262 94.2 %$ 1,476,868 $ 737,791 100.2 % Non-Cash Stock Compensation Expense 315,152 312,946 .7 % 894,453 811,821 10.2 % Professional Fees 72,144 121,470 (40.6 )% 297,175 276,998 7.3 % Advertising 125,456 64,317 95.1 % 383,029 178,158 115.0 % Other 175,583 107,942 62.7 % 456,534 438,811 4.0 % Total SG&A$ 1,224,718 $ 882,937 38.7 %$ 3,508,059 $ 2,443,579 43.6 % Payroll increases for the nine months endedSeptember 30, 2022 can be attributed primarily to the addition of SSI payroll which accounted for 47.1% of the increase. Additional payroll expenses forBLU3 made up 23.4% of the change with additions of customer service and engineering personnel. The BTL payroll increased 13.7% with the addition of marketing and social media personnel, and LWA payroll made up 12.0% of the change with increases in the pay structure of the primary operator of the business unit, and the addition of accounting personnel. Non-Cash Stock Compensation expenses increased 10.2% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The increase can be primarily attributed the issuance of options under the plan to employees and contractors for a total of approximately 1,742,600 shares with 300,000 of those shares vesting immediately upon issuance during the nine months endedSeptember 30, 2022 . 35
Professional fees, including legal, accounting and other professional fees which the Company has paid with a combination of cash and common stock increased 7.3% for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The increase can be attributed to an increase in accounting fees related to the year-end audit. For the three months endedSeptember 30, 2022 , professional fees decreased 40.6% as compared to the prior year, due to the lack of acquisition related legal fees paid during 2022. The increase in advertising expense for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 was 115.0%, attributable toBLU3's focus on social media, Google and trade show advertising. SSI added 32.9% to the increase in advertising expense attributed to a full nine months of advertising expenses as compared to the same period in the prior year. BTL's decrease in advertising expense by approximately 50% as compared to the prior year reduced the overall change in advertising expense by 22.5% for the nine months endedSeptember 30, 2022 as compared to the same period in the prior year. Other expenses increased 62.7% and 4.0% for the three and nine months endedSeptember 30, 2022 , respectively, as compared to the same periods in the prior year, The primary driver of this increase was rent expense which accounted for 92.3% of the increase for the nine months endedSeptember 30, 2022 . The Company also obtained directors and officers insurance for the fiscal year endingDecember 31, 2022 which expense accounted for 28.8% of the increase for the nine months endedSeptember 30, 2022 .
Research & Development Expenses (R&D Expenses)
R&D expenses for the three months endedSeptember 30, 2022 decreased 82.1% and 81.1% for the nine months endedSeptember 30, 2022 as compared to the same periods in the prior year. The decrease can be primarily attributed to the completion of the R&D forBLU3's NOMAD, as it moved into production in the
third quarter of 2021. Other Income/Expense For the nine months endedSeptember 30, 2022 , other expenses totaled approximately$31,300 of interest expense as compared to other income of approximately$157,900 for the nine months endedSeptember 30, 2021 . Other income for the nine months endedSeptember 30, 2021 consisted of a gain due to the settlement of debt of$10,000 , the forgiveness of a PPP loan less interest expense of approximately$11,700 . The increase in interest expense can be attributed to the Navitas loan that was funded in the second quarter of 2021, and the interest on the debt related to the acquisition of SSI.
Liquidity and Capital Resources
We had cash of$577,076 as ofSeptember 30, 2022 . The following table summarizes total current assets, total current liabilities and working capital atSeptember 30, 2022 as compared toDecember 31, 2021 . September 30, December 31, % 2022 2021 change (unaudited) Total current assets$ 3,575,239 $ 2,966,432 20.5 % Total current liabilities$ 1,591,371 $ 1,396,197 14.0 % Working capital$ 1,983,868 $ 1,570,235 26.3 %
The increase in our current assets atSeptember 30, 2022 fromDecember 31, 2021 primarily reflects an increases in inventory purchases reflected by an increase in inventory and prepaid assets which includes prepayments of inventory, as the Company has experienced revenue growth and ramped up purchasing and production to account for potential supply chain issues. The increase in total current liabilities primarily reflects a significant increase in account payable of 14.9% and a related party convertible demand note issued inSeptember 2022 .
Summary Cash Flows
Nine Months Ended
September 30,
2022 2021
(unaudited)
Net cash used in operating activities $ (499,713 ) $ (569,142 )
Net cash provided by (used in) investing activities $ (60,290 ) $ 517,701
Net cash provided by financing activities $ 493,935 $ 566,970
36
Net cash used in operating activities for the nine months ended September 30,
2022 was due to the net loss of approximately $1,056,444 which is primarily
attributable to non-cash stock compensation expenses of approximately $894,453 .
The non-cash stock compensation expense for the nine months ended September 30,
2022 is attributable to stock options and grants issued to our executive
officers and various employees as well as common stock issued to consultants and
professionals for services. Net cash used in operating activities is also the
result of increases in current assets, including, accounts receivable,
inventory, net, and prepaid expenses that utilized approximately $486,000 , a net
decrease in liabilities which also utilized cash with decreases in customer
deposits, long term lease liability and accounts payable-related party utilizing
approximately $215,400 offset by increases in accounts payable and accrued
liabilities as well as other liabilities of approximately $142,100 .
Net cash used in investing activities for the nine months ended September 30,
2022 of approximately $60,300 consists of $30,000 used in an asset acquisition
and fixed asset purchases, net of debt of approximately $30,200 .
Net cash provided by financing activities for the nine months ended
Going Concern
Our unaudited consolidated financial statements included in this Quarterly Report were prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year endedDecember 31, 2021 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. We have a history of losses, and an accumulated deficit of$15,601,548 as ofSeptember 30, 2022 . Despite a working capital surplus of$1,983,868 atSeptember 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 continue to increase revenues, control expenses, raise capital, and continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations. Critical Accounting Policies The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company's operations, financial position or cash flows.
These recent accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report.
37
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
© Edgar Online, source
