U.S. UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DCWashington, D.C. 20549

 

FORM 10-Q

 

(mark one)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934

 

For the quarterly period endedSeptember 30, 2017(Mark One)

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021

[  ] Transition report under Section 13

or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______ to _______.

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

 

Commission File No.file number 333-99393

 

Brownie’s Marine Group, Inc.

(NameExact name of Small Business Issuerregistrant as specified in Its Charter)its charter)

 

Florida 90-0226181

(State or Other Jurisdictionother jurisdiction of

Incorporationincorporation or Organization)organization

 

(I.R.S. Employer

Identification No.)

3001 NW 25th Avenue, Suite 1
Pompano Beach, Florida 33069
(Address of Principal Executive Offices)principal executive offices (Zip Code)code

 

(954) 462-5570
(Issuer’s Telephone Number, Including Area Code)

(954) 462-5570

Registrant’s telephone number, including area code

Not applicable

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading Symbol(s)Name of each exchange on which registered
(Former Name, if Changed Since Last Report)nonen/an/a

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Website, in any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)[X]Smaller reporting company [X]
 Emerging growth company [  ]

 

If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act:Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined byin Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. There were 86,710,793337,223,694 shares of common stock outstanding as of November 13, 2017.

at May 17, 2021.

 

 

 

TABLE OF CONTENTS

Page No.
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS.4
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.19
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.24
ITEM 4.CONTROLS AND PROCEDURES.24
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS.25
ITEM 1A.RISK FACTORS.25
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.25
ITEM 3.DEFAULTS UPON SENIOR SECURITIES.25
ITEM 4.MINE SAFETY DISCLOSURES.25
ITEM 5.OTHER INFORMATION.25
ITEM 6.EXHIBITS.26

2

 

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

●Financial risks, including:
●our history of losses;
●our ability to continue as a going concern;
●our dependence on revenues from related parties; and
●material risks in our disclosure controls and internal control over financial reporting.
●Business and operational risks, including:
●our dependence on key members of our management;
●our need to hire additional employees;
●our ability to protect our intellectual property rights;
●reliance on third party vendors and manufacturers;
●dependence on consumer discretionary spending;
●the impact of government regulations;
●any failure to protect personal information;
●the impact of bad weather;
●the exposure to potential product liability claims; and
●The continuing impact of COVID-19 on our company;
●Shareholder risks, including:
●dilution to our common shareholders upon the possible conversion of outstanding convertible debt and/or the exercise of outstanding options;
●the limited market for our common stock and the impact of penny stock rules; and
●we are a voluntary filer with the Securities and Exchange Commission.

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission on March 31, 2021 (the “2020 10-K”) and our other filings with the Securities and Exchange Commission in their entirety. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “BWMG,” the “Company,” “we,” “our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and our wholly owned subsidiaries, Trebor Industries, Inc., a Florida corporation (“Trebor”), Brownie’s High Pressure Compressor Services, Inc. (“BHP”), a Florida corporation, and BLU3, Inc., a Florida corporation (“BLU3”). In addition, “First Quarter 2021” refers to the period ended March 31, 2021, “First Quarter 2020” refers to the period ended March 31, 2020, “2020” refers to the year ended December 31, 2020 and “2021” refers to the year ending December 31, 2021.

We maintain a corporate website at www.browniesmarinegroup.com. Unless specifically set forth to the contrary, the information which appears on our websites or our social media platforms is not part of this report.

3

PART I

Item 1. Financial Statements

 

Financial Information

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2017  December 31, 2016 
  (Unaudited)    
ASSETS       
Current assets        
Cash $96,184  $191,749 
Accounts receivable, net of $22,713 and $18,000 allowance for doubtful accounts, respectively  53,567   1,026 
Accounts receivable - related parties  54,989   68,239 
Inventory  706,643   672,520 
Prepaid expenses and other current assets  251,122   84,336 
Total current assets  1,162,505   1,017,870 
         
Property and equipment, net  36,848   56,908 
         
Deferred tax asset, net - non-current  2,520   2,520 
Other assets  6,649   6,649 
         
Total assets $1,208,522  $1,083,947 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities        
Accounts payable and accrued liabilities $386,108  $323,578 
Customer deposits and unearned revenue  20,086   31,577 
Royalties payable - related parties  -   64,240 
Other liabilities  139,429   176,614 
Convertible debentures, net  312,743   312,743 
Notes payable - current portion  2,002   6,133 
Total current liabilities  860,368   914,885 
         
Total liabilities  860,368   914,885 
         
Commitments and contingencies        
         
Stockholders’ deficit        
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding  425   425 
Common stock; $0.0001 par value;1,000,000,000 shares authorized; 81,493,402 and 68,906,212 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively  8,149   6,890 
Common stock payable; $0.0001 par value; 138,941 and 138,941 shares, respectively  14   14 
Additional paid-in capital  8,954,826   8,792,782 
Accumulated deficit  (8,615,260)  (8,631,049)
Total stockholders’ deficit  348,154   169,062 
         
Total liabilities and stockholders’ deficit $1,208,522  $1,083,947 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2

BROWNIE’S MARINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

  Three Months Ended  Nine months ended 
  September 30,  September 30, 
  2017  2016  2017  2016 
             
Net revenues                
Net revenues $574,684  $597,882  $1,149,690  $1,300,414 
Net revenues - related parties  220,586   240,102   585,972   574,862 
Total net revenues  795,270   837,984   1,735,662   1,875,276 
                 
Cost of net revenues                
Cost of net revenues  394,429   368,979   794,192   933,889 
Cost of net revenue-related parties  109,589   148,144   293,043   344,917 
Royalties expense - related parties  12,761   20,714   42,247   46,332 
Total cost of net revenues  516,788   537,837   1,129,482   1,325,138 
                 
Gross profit  278,482   300,147   606,180   550,138 
                 
Operating expenses                
Selling, general and administrative  225,194   161,929   555,561   474,944 
Research and development costs  12,730   10   13,935   1,425 
Total operating expenses  237,924   161,939   569,496   476,369 
                 
Income from operations  40,558   138,208   36,684   73,769 
                 
Other (income) expense, net                
Other (income) expense, net  (1,038)  (3,173)  (2,245)  (274,117)
Interest expense  7,750   7,734   23,140   23,251 
Interest expense - related parties  -   499   -   572 
Total other (income) expense, net  6,712   5,060   20,895   (250,294)
                 
Net income before provision for income taxes  33,846   133,148   15,789   324,063 
                 
Income tax  -   -   -   - 
                 
Net income $33,846  $133,148  $15,789  $324,063 
                 
Basic income per common share $0.00  $0.00  $0.00  $0.00 
Diluted income per common share $0.00  $0.00  $0.00  $0.00 
                 
Basic weighted average common shares outstanding  78,710,793   58,773,434   74,243,470   69,481,418 
Diluted weighted average common shares outstanding  136,867,655   63,618,438   132,400,332   74,326,422 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.SHEET

 

3

  March 31, 2021  December 31, 2020 
ASSETS  (Unaudited)     
Current Assets        
Cash $343,900  $345,187 
Accounts receivable – net  100,024   81,251 
Accounts receivable - related parties  61,729   67,644 
Inventory  958,016   863,791 
Prepaid expenses and other current assets  244,873   111,164 
Total current assets  1,708,542   1,469,037 
Property, equipment and leasehold improvements, net  137,183   143,413 
Operating Lease Assets  423,114   446,981 
Other assets  12,148   13,649 
Total assets $2,280,987  $2,073,080 
Liabilities and stockholders’ equity        
Current liabilities        
Accounts payable and accrued liabilities $427,148  $386,977 
Accounts payable - related parties  91,014  $102,360 
Customer deposits and unearned revenue  39,633   20,353 
Other liabilities  137,017   100,817 
Operating lease liabilities  110,042   107,691 
Current maturities long term debt  45,016   151,006 
Notes payable  25,000   50,000 
Convertible debentures, net  100,000   110,000 
Total current liabilities  974,870   1,029,204 
Long term debt  216,940   120,782 
Operating lease liabilities  313,072   339,290 
Total liabilities  1,504,882   1,489,276 
Commitments and contingent liabilities (see note 7)        
Stockholders’ equity        
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of March 31, 2021 and December 31, 2020.  425   425 
Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 337,223,694 shares issued and outstanding at March 31, 2021 and 306,185,206 shares issued and outstanding at December 31, 2020, respectively.  33,724   30,620 
Common stock payable 138,941 shares and 138,941 shares, respectively as of March 31, 2021 and December 31, 2020.  14   14 
Additional paid-in capital  14,139,060   13,508,882 
Accumulated deficit  (13,397,118)  (12,956,137)
Total stockholders’ equity $776,105  $583,804 
Total liabilities and stockholders’ equity $2,280,987  $2,073,080 

 

BROWNIE’S MARINE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

  Nine months ended September 30,
  2017  2016 
Cash flows from operating activities:        
Net income $15,789  $324,063 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:        
Depreciation and amortization  20,060   27,157 
Debt settlement  -   (233,825)
Shares issued for interest expense  -   572 
Shares-based compensation  66,393   36,000 
Changes in operating assets and liabilities:        
Change in accounts receivable, net  (52,541)  49,506 
Change in accounts receivable - related parties  13,250   (14,002)
Change in inventory  (34,123)  41,993 
Change in prepaid expenses and other current assets  (133,179)  (40,014)
Change in other current assets - related parties  —   3,020 
Change in accounts payable and accrued liabilities  62,530   11,693 
Change in customer deposits and unearned revenue  (11,491)  2,679 
Change in other liabilities  (37,185)  (22,135)
Change in royalties payable - related parties  (937)  323 
Net cash (used in) provided by operating activities  (91,434)  187,030 
         
Cash flows from investing activities:  -     
Purchase of fixed assets      (7,586)
Net cash used in investing activities  —   (7,586)
         
Cash flows from financing activities:        
Principal reduction on convertible debentures  -   (472)
Principal payments on notes and loans payable  (4,131)  (5,084)
Principal payments on note payable - related parties  -   (11,098)
Net cash used in financing activities  (4,131)  (16,654)
         
Net change in cash  (95,565)  162,790 
         
Cash, beginning of period  191,749   141,822 
         
Cash, end of period $96,184  $304,612 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

4

 

 

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE THREE MONTHS ENDED MARCH 31

(UNAUDITED)

  2021  2020 
Net revenues        
Net revenues $746,353  $478,235 
Net revenues - related parties  204,416   156,555 
Total net revenues  950,769   634,790 
Cost of net revenues        
Cost of net revenues  509,069   431,955 
Cost of net revenues - related parties  105,431   80,998 
Royalties expense - related parties  11,593   4,850 
Royalties expense  13,704   14,093 
Total cost of revenues  639,797   531,896 
Gross profit  310,972   102,894 
Operating expenses        
Selling, general and administrative  737,035   377,578 
Research and development costs  21,107   16,093 
Total operating expenses  758,142   393,671 
Loss from operations  (447,170)  (290,777)

Other income (expense), net

        
Gain on settlement of debt  10,000   - 
Interest expense  (3,811)  (5,916)
Total other income (expense) – net  6,189   (5,916)
Loss income before provision for income taxes  (440,981)  (296,693)
Provision for income taxes  -   - 

Net loss

 $(440,981) $(296,693)

Basic loss per common share

 $(0.00) $(0.00)

Diluted loss per common share

 $(0.00) $(0.00)
Basic weighted average common shares outstanding  309,236,042   252,655,891 
Diluted weighted average common shares outstanding  309,236,042   252,655,891 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Supplemental disclosures of cash flow information:

  Nine months ended September 30,
 2017  2016 
        
Cash paid for interest $—   954 
         
Non-cash investing and financing activities:        
Conversion of related party royalty payable to stock $63,303  $— 
         
Conversion of accrued payroll to stock $—  $36,000 
         
Conversion of accrued interest on note payable - related party to stock $—  $572 
Prepaid share-based compensation $33,607  $- 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
(Unaudited)

 

  Preferred Stock  Common Stock  Common Stock Payable  Additional     Total 
  Shares Outstanding  Par  Shares Outstanding  Par  Shares  Amount  Paid-in
Capital		  Accumulated
Deficit		  Stockholders’ Equity 
Balance, December 31, 2020  425,000  $425   306,185,206  $30,620   138,941  $14  $13,508,882  $(12,956,137)  583,804 
Shares issued for cash  -   -   27,500,000   2,750   -   -   272,250   -   275,000 
Shares issued for services  -   -   3,116,279   312   -   -   124,688   -   125,000 
Stock Option Expense  -   -   -   -   -   -   218,505   -   218,505 
Shares issued for conversion of convertible debentures and accrued interest  -   -   422,209   42   -   -   14,735   -   14,777 
Net loss  -   -   -   -   -   -   -   (440,981)  (440,981)
Balance, March 31, 2021 (unaudited)  425,000  $425   337,223,694  $33,724   138,941  $14  $14,139,060  $(13,397,118)  776,105 

  Preferred Stock  Common Stock  Common Stock Payable  Additional     Total 
  Shares Outstanding  Par  Shares Outstanding  Par  Shares  Amount  Paid-in Capital  Accumulated Deficit  Stockholders’ Deficit 
Balance, December 31, 2019  425,000  $425   225,540,501  $22,554   138,941  $14  $11,338,104  $(11,604,518) $ (243,421)
Shares issued for cash  -   -   2,647,065   265   -   -   44,735   -   45,000 
Shares issued for exercise of warrants  -   -   12,500,000   1,250   -   -   123,750   -   125,000 
Stock Option Expense  -   -   -   -   -   -   96,290   -   96,290 
Incentive Bonus Shares to CEO  -   -   20,000,000   2,000   -   -   (720)  -   1,280 
Net Loss  -   -   -   -   -   -   -   (296,693)  (296,693)
Balance, March 31, 2020 (unaudited)  425,000  $425   260,687,566  $26,069   138,941  $14  $11,602,159  $(11,901,211) $(272,544)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

56

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31

(unaudited)

  2021  2020 
Cash flows from operating activities:      
Net loss $(440,981) $(296,693)
Adjustments to reconcile net loss to cash used in operating activities:      
Depreciation and amortization  6,230   3,533 
Shares issued for services  125,000   -  
Stock Based Compensation – incentive bonus shares issued to CEO  -   1,280 
Reserve (recovery) for bad debt  1,101   (5,695)
Stock Based Compensation - Options  218,505   96,290 
Gain on settlement of debt  (10,000)   -
Amortization of right-of-use asset  23,867   23,861 
Changes in operating assets and liabilities        
Change in accounts receivable, net  (19,874)  103,343 
Change in accounts receivable - related parties  5,915   (131)
Change in inventory  (94,225)  (80,202)
Change in prepaid expenses and other current assets  (133,709)  24,998 
Change in other assets  1,501   1,500 
Change in accounts payable and accrued liabilities  44,948   61,847 
Change in customer deposits and unearned revenue  19,280   (72,911)
Change in long term lease liability  (23,867)  (23,861)
Change in other liabilities  36,200   (11,436)
Change in accounts payable - related parties  (11,346)  (23,306)
Net cash used in operating activities  (251,455)  (197,583)
Cash flows from investing activities:        
Net cash used in investing activities  -   - 
Cash flows from financing activities:        
Proceeds from sale of stock  

275,000

   - 
Proceeds from unit offering  -   45,000 

Proceeds from exercise of Warrants

  -   125,000 
Repayment on notes payable  (15,000)  (7,137)
Repayment of debt  (9,832)  - 
Net cash used in financing activities  250,168   162,863 
Net change in cash  (1,287)  (34,720)
Cash, beginning of period  345,187   70,620 
Cash, end of period $343,900  $35,900 
Supplemental disclosures of cash flow information:        
Cash Paid for Interest $7,088  $2,294 
Cash Paid for Income Taxes $-  $- 

Supplemental disclosures of non-cash financing activities:

        

Shares issued for the conversion of convertible debenture and accrued interest

 $14,777  $ - 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

7

 

 

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.Description of business and summary of significant accounting policies

 

Note 1. Description of businessCompany Overview –Brownie’s

Brownie’s Marine Group, Inc., a Florida corporation (hereinafter referred to as “Brownies,” the “Company”, “we”“Company,” “our” or “BWMG”), designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, and scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc. The Company, a Florida corporation organized in 1981 (“Trebor”), and manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its products both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Pompano Beach, Florida. The Company does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc. In August 2017 the Company organizedwholly owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a wholly-owned subsidiaryFlorida corporation organized in 2017 (“BHP”LWA”). Through BHP we expectIn addition, in December 2017, the Company formed BLU3, Inc., a Florida corporation (“BLU3”), to establish sales, distributiondevelop and service centers for high pressuremarket portable battery powered surface supplied air dive systems. When used herein, the “Company” or “BWMG” includes Brownie’s Marine Group, Inc., and industrial gas systems in the dive, fire, CNG, military, scientific, recreationalour wholly-owned subsidiaries Trebor, LWA and aerospace industries. The Company’s common stock is quoted on the OTC Markets (Pink) under the symbol “BWMG”.BLU3.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation –

The following unaudited interim consolidated financial statements of the Company have been prepared in accordance withpursuant 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 of America (“GAAP”). In the opinion for complete annual financial statements. The information furnished reflects all adjustments, consisting only of management all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included.

The unaudited condensed consolidated financial statements as of September 30, 2017 and for the three and nine month periods ended September 30, 2017 and 2016items which are, unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary in order to present fairlymake the financial position as of September 30, 2017, and the results of operations for the three and nine month periods ended September 30, 2017 and 2016, and the statements of cash flows for the nine month periods ended September 30, 2017 and 2016.not misleading. The condensed consolidated results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the entire year. The consolidated balance sheet as of December 31, 20162020 has been derived from the Company’s auditedannual financial statements for the year ended December 31, 2016. While managementthat were audited by an independent registered public accounting firm but does not include all of the Company believes that the disclosures presented are adequate to make the information not misleading, these condensed consolidatedand footnotes required for complete annual financial statements. These financial statements should be read in conjunction with ourthe audited consolidated financial statements and notes thereto which are included in our 2020 10-K for a broader discussion of our business and the footnotes theretorisks inherent in such business.

Principles of Consolidation

The consolidated financial statements include the accounts of BWMG and its wholly owned subsidiaries, Trebor, BHP and BLU3. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents

Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.

Accounts receivable

Accounts receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful accounts is estimated based on historical customer experience and industry knowledge. The allowances for doubtful accounts totaled $17,974 and $16,872 at March 31, 2021 and December 31, 2020, respectively.

Inventory

Inventory consists of the fiscalraw material, parts that make up the items that we manufacture, and finished goods. For the year ended December 31, 2016 as filed2020, The Company recorded reserves for obsolete or slow-moving inventory of approximately $227,657. No additional reserve for obsolete or slow-moving inventory during the three months ended March 31, 2021.

8

  March 31, 2021
(unaudited)		  December 31, 2020 
       
Raw materials $297,886  $408,841 
Finished goods  660,130   454,950 
Inventory, net $958,016  $863,791 

Revenue Recognition

We account for revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” and all the Securities and Exchange Commission as partrelated 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 Company’s Form 10-K which was filed on April 17, 2017.units as that is when ownership is transferred and our performance is completed. Revenues from repair and maintenance activities is recognized when the repairs are completed and the units have been shipped.

 

Definition of fiscal year – The Company’s fiscal year end is December 31.Lease Accounting

 

We account for leases in accordance with ASC 842, “Leases”. UseThe 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 estimates – The preparationMarch 31, 2021. Our leases generally have terms that range from three years for equipment and five to twenty years for property. We elected the accounting policy to include both the lease and non-lease components of financial statements in conformity with accounting principles generally acceptedour 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 United Statessame manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of Americatheir expected useful life or the lease term.

When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

For the three months ended March 31, 2021 and 2020 the lease expense was approximately $32,800 and $35,000. For the three months ended March 31, 2021 and 2020 cash paid for operating liabilities was $32,694 and $31,803, respectively.

9

Supplemental balance sheet information related to leases was as follows:

Operating Leases March 31, 2021 
Right-of-use assets $423,114 
Current lease liabilities $110,042 
Non-current lease liabilities  313,072 
Total lease liabilities $423,114 

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires managementcompanies to make estimatesmeasure the cost of employee and assumptionsnon-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.

Earnings 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 March 31, 2021 and March 31, 2020, 209,753,340 and 87,389,986, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.

Recent accounting pronouncements

The recent accounting standards that affecthave been issued or proposed by the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at theFinancial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date ofare not expected to have a material impact on the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.upon adoption.

10

Note 3. Going Concern

 

Reclassifications– Certain reclassifications may have been made to the 2016 financial statement amounts and disclosures to conform to the 2017 financial statement presentation.

Going Concern – The accompanying condensed unaudited 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.

Although For the three months ended March 31, 2021, the Company hadincurred a net income forloss of $440,981, of which $343,505 is non-cash stock related compensation. At March 31, 2021, the nine months ended September 30, 2017Company has an accumulated deficit of $13,397,118. Despite a working capital surplus of approximately $733,700 at March 31, 2021, the continued losses and cash used in operations raise substantial doubt as to the years ended December 31, 2016, 2015Company’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 2014, we have otherwise incurred annual losses since 2009,to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and expect we may have more losses in future periods.cash flows would be detrimental to the Company. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Note 4. Cash and equivalentsRelated Party Transactions – 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.

6

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, as of September 30, 2017, the allowance for bad debts is $22,713.

Inventory– Inventory is stated at the lower of cost or net realizable value. Cost is principally determined by using the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials as well as finished goods held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when indicated.

Property, equipment and leasehold improvements – Property, equipment and leasehold improvements are stated at cost less accumulated depreciation or amortization. Depreciation and amortization is provided principally on the straight-line method over the estimated useful lives of the assets or term of the lease, which are primarily 3 to 5 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

 

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Revenue recognition – Revenues from product sales are recognized when the Company’s products are shipped or when service is rendered. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, when applicable, measured by the percentage of cost incurred to date to estimated total cost of each contract. This method is used because management considers the percentage of cost incurred to date to estimated total cost to be the best available measure of progress on the contracts. As of September 30, 2017, there were no ongoing contracts being accounted for using the percentage of completion method.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Change in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Revenue and costs incurred for time and material projects are recognized as the work is performed.

Product development costs – Product development expenditures are charged to expenses as incurred.

Advertising and marketing costs – The Company expenses the costs of producing advertisements and marketing material at the time production occurs, and expenses the costs of communicating advertisements and participating in trade shows in the period in which occur. Advertising and trade show expense incurred for the three months ended September 30, 2017 and 2016, totaled $760 and $313, respectively.Advertising and trade show expense incurred for the nine months ended September 30, 2017 and 2016, was $12,730and $3,550, respectively.

Research and development costs– The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10,Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. During the three month periods ending September 30, 2017 and 2016 the Company incurred $12,730 and $10, respectively, of expenses related to research and development costs. During the nine month periods ending September 30, 2017 and 2016 the Company incurred $13,935 and $1,425, respectively, of expenses related to research and development costs.

7

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Customer deposits and returns policy – The Company takes a minimum 50% deposit against custom and large tankfill systems prior to ordering and/or building the systems. The remaining balance due is payable upon delivery, shipment, or installation of the system. There is no provision for cancellation of custom orders once the deposit is accepted, nor return of the custom ordered product. Additionally, returns of all other merchandise are subject to a 15% restocking fee as stated on each sales invoice. The Company provides our customers with an industry standard one year warranty on systems sold. Historically, the cost of our warranty policy has been immaterial, and no reserve has been established.

Income taxes – The Company accounts for its income taxes under the assets and liabilities method, which requires recognition of deferred tax assets and liabilities for future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, they would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Comprehensive income – The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods presented.

Stock-based compensation – The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price.

Beneficial conversion features on convertible debentures – The fair value of the stock upon which beneficial conversion feature (BCF) computations, as applicable, was determined through use of the quoted stock price.

Fair value of financial instruments – Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

8

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Level 2 - Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. Management considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the Company’s perceived risk of that investment.

At September 30, 2017, and December 31, 2016, the carrying amount of cash, accounts receivable, accounts receivable – related parties, customer deposits and unearned revenue, royalties payable – related parties, other liabilities, notes payable, and accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments.

Earnings per common share – Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per share are 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 and common stock equivalent shares, if any, outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive.Potentially dilutive shares are included in dilutive earnings per share totaled 58,156,862 for the nine months ended September 30, 2017.

New accounting pronouncements – In April 2016, the FASB issued ASU No. 2016-15,“Classification of Certain Cash Receipts and Cash Payments”ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.

In April 2016, the FASB issued ASU 2016–10Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In March 2016, the FASB issued ASU 2016-09,Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU 2016-09 did not have a material effect on our condensed consolidated financial statements.

9

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In February 2016, the FASB issued ASU 2016-02,Leases, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In July 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-11,Inventory (Topic 330),Simplifying the Measurement of Inventory. ASU No. 2015-11 does not apply to inventory measurement using the last-in, last-out (LIFO) or retail methods. ASU No. 2015-11 applies to all other inventory measurement methods, which includes first-in, first-out (FIFO) or average cost. Previously, inventory valuation was at the lower of cost or fair market value. This ASU changes the valuation to lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of the business, less reasonably predictable costs of completion, disposal, and transportation. ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. ASU 2015-11 should be applied prospectively with earlier application permitted. The Company opted for early adoption of ASU 2015-11 this period with no impact to financial condition, results of operations, or cash flows. The Company updated its consolidated financial statements to reflect inventory valuation at the lower of cost or net realizable value.

The Company believes there was no other new accounting guidance adopted, but not yet effective that either has not already been disclosed in prior reporting periods or is relevant to the readers of our financial statements.

10

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.INVENTORY

Inventory consists of the following as of:

  September 30, 2017  December 31, 2016 
       
Raw materials $558,339  $402,407 
Work in process  —   — 
Finished goods  148,304   270,113 
  $706,643  $672,520 

3.PREPAID EXPENSES AND OTHER CURRENT ASSETS

  September 30, 2017 December 31, 2016
     
Prepaid inventory $108,383  $30,076 
Prepaid insurance  —   6,968 
Prepaid other current assets  142,739   47,292 
  $251,122  $84,336 

4.PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following as of:      
       
  September 30, 2017  December 31, 2016 
       
Factory and office equipment $125,832  $121,782 
Computer equipment and software  27,469   31,519 
Vehicles  44,161   44,160 
Leasehold improvements  43,779   43,779 
   241,241   241,240 
Less: accumulated depreciation and amortization  (204,393)  (184,332)
  $36,848  $56,908 

Depreciation and amortization expense totaled $2,219 and $20,060 for the three and nine month periods ending September 30, 2017, and $9,197 and $27,157 for the three and nine month periods ending September 30, 2016, respectively.

5.OTHER ASSETS

Other assets of $6,649 at September 30, 2017 and December 31, 2016, respectively, consisted solely of refundable deposits.

6.CUSTOMER CREDIT CONCENTRATIONS

The Company sells to three (3) entities owned by the brother of Robert Carmichael, the Company’s Chief Executive Officer, and three (3) companies owned or controlled by the Chief Executive Officer as further discussed in Note 7. RELATED PARTIES TRANSACTIONS. Combined sales to these six (6) entities for the three months ended September 30, 2017 and 2016, represented 27.76% and 28.64% respectively, of total net revenues. Combined sales to these six (6) entities for the nine months ended September 30, 2017 and 2016, represented 33.76% and 30.65% respectively, of total net revenues.

11

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.RELATED PARTIES TRANSACTIONS

Net revenues and accounts receivable – related parties – The Company sells products to Brownie’sthree entities, Brownies Southport Divers, Inc., Brownie’sBrownies Yacht Toys and Brownies Palm Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Mr. Robert M. Carmichael, the Company’s President and Chief ExecutiveFinancial Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers with similar sales volume. Combinedvolumes. These entities accounted for 21.2% and 24.6% of the net revenues from these entities for the three months ended September 30, 2017March 31, 2021 and 2016, was $220,363 and $234,368, respectively. Combined net revenues from these entities for nine months ended September 30, 2017 and 2016, was $582,683 and $567,1962020, respectively. Accounts receivable from Brownie’s Southport Diver’s, Inc., Brownie’s Palm Beach Divers,these entities totaled $38,408 and Brownie’s Yacht Toys totaled $51,700$44,323, respectively, at September 30, 2017March 31, 2021 and $58,420, at December 31, 2016, 2020.

 

The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”), 3D Buoy and 940 Associates, Inc. (“940 A”), affiliated with the Company’s Chief Executive Officer.entities wholly-owned by Mr. Carmichael. Terms of sale are more favorable than those extended to BWMG’s regular customers, but no more favorable than those extended to Brownie’s strategic partners. Terms of sale to BGL approximate cost or include a nominal margin. These terms are consistent with those extended to Brownie’s strategic partners. Strategic partner terms on a per order basis include promotion of BWMG’s technologies and “Brownie’s” brand, offered only on product or services not offered for resale, and must provide for reciprocal terms or arrangements to BWMG on strategic partners’ product or services. BGL is fulfilling the strategic partner terms by providing exposure for BWMG’s technologies and “Brownie’s” brand in the yachting and exploration community world-wide through its operations. Combined net revenues from these entities for three months ended September 30, 2017, and 2016, were $223 and $5,734, respectively. Combined net revenues from these entities for nine months ended September 30, 2017, and 2016, were $3,289 and $7,666, respectively. Accounts receivable from these threethe combined entities and Mr. Carmichael totaled $23,321 and $23,321 at September 30, 2016 was $2,146. Accounts receivable fromMarch 31, 2021 and December 31, 2020, respectively.

The Company had accounts payable to related parties of $91,014 and $102,360 at March 31, 2021 and December 31, 2020, respectively. The balance payable at March 31, 2021 is comprised of $5,000 due to Robert Carmichael and $86,014 due to BGL 3D Buoy and 940 Associates, Inc. at September 30, 2017 was $3,289, respectively. Accounts receivable from BGL, 3D Buoy and 940 Associates, Inc. at December 31, 20162020 was $9,819.comprised of $5,000 due to Robert Carmichael and $97,360 due to BGL.

 

Royalties expense – related parties –The Company has an Exclusive License AgreementAgreements with 940 Associates, Inc. (hereinafter referred to as “940A”), an entity owned by the Company’s Chief Executive Officer,A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. This license agreement calls forExclusive License Agreement provides that the Company towill pay 940A940 A 2.5% of gross revenues per quarter.quarter as a royalty. Total royalty expense for the above agreementsthree months ended March 31, 2021 and March 31, 2020 were $11,593 and $4,850, respectively. The accrued royalty for March 31, 2021 is $4,136 and it is included in other liabilities.

On March 25, 2021, the Company issued 27,500,000 shares of common stock in exchange for $275,000 to Mr. Charles F. Hyatt, a member of our Board of Directors.

As of March 31, 2021, Mr. Carmichael vested 25,000,000 common shares in accordance with Carmichael Option agreement as further discussed in Note 6 of these financial statements.

Note 5. Convertible Debentures and Notes Payable

Convertible Debentures

Convertible debentures consisted of the following at March 31, 2021:

Origination
Date		 Maturity
Date		 Interest
Rate		  Origination
Principal
Balance		  Original
Discount
Balance		  Period
End
Principal
Balance		  Period
End
Discount
Balance		  Period
End
Balance,
Net		  Accrued
Interest
Balance		  Reg. 
8/31/11 8/31/13  5%  10,000   (4,286)  -   -   -   -   (1)
12/01/17 12/31/21  6%  50,000   (12,500)  50,000   —   50,000   10,000   (2)
12/05/17 12/31/21  6%  50,000   (12,500)  50,000   —   50,000   9,967   (3)
                $100,000  $—  $100,000  $19,666     

(1)The Company borrowed $10,000 in exchange for a convertible debenture (the “Hoboken Convertible Note”). The holder at its option may convert all or part of the note plus accrued interest into common stock at a price of 30% discount as determined from the average four highest closing bid prices over the preceding five trading days. The Company valued the beneficial conversion feature of the convertible debenture at $4,286, which was accreted to interest expense over the period of the note. On February 22, 2021, this note and accrued interest of $4,777 were converted by the holder for 422,209 shares of common stock in accordance with the terms of the note.

11

(2)On December 1, 2017, the Company entered into a $50,000 principal amount 6% secured convertible promissory note, initially due December 1, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.
The conversion price under the note initially ranged from $0.02 per share if converted in the first year to $0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99% of the outstanding common stock of the Company at any one time. In 2019, the maturity date of the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $0.01 per share. The Company recorded a loss on extinguishment of debt of $32,000 upon the modification of conversion price. The maturity date was further extended to December 31, 2021.

(3)On December 5, 2017, the Company entered into a $50,000 principal amount 6% secured convertible promissory note, initially due December 4, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael.
The conversion price under the note initially ranged from $0.02 per share if converted in the first year to $0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99% of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $0.01 per share. The Company recorded a loss on extinguishment of debt of $99,000 upon the modification of conversion price. The maturity date was further extended to December 31, 2021.

Notes Payable

Gonzales Note

The Company issued an unsecured, non-interest-bearing note of $200,000 with Mr. Tom Gonzales on July 1, 2013. The note is payable upon demand. The Company made repayments totaling $15,000 during the three months ending March 31, 2021. The note balance was $25,000 at March 31, 2021 and ended September 30, 2017 and 2016, is disclosed on the face of the Company’s Condensed Consolidated Statements of Operations totaled $12,761 and $20,714, respectively, and for the nine months and ended September 30, 2017 and 2016 totaled $42,247 and $46,332, respectively. In November 2016, the Company entered into a conversion agreement under which the$40,000 December 31, 2020.

Hoboken Note

The Company issued 10,000,000 sharesan unsecured, non-interest-bearing note of restricted common stock in satisfaction of $88,850 past due and payable to 940A. As of the date$10,000 with Hoboken Street Association on October 15, 2016. The note was forgiven as part of the conversion agreement, the Company was more than 31 months in arrears on its royalty payments totaling approximately $151,000. In addition, 940A agreed to forebear on any default under the License Agreement due to the Company’s remaining past due amount for a period of three months from the effective date of the conversion agreement.Hoboken Convertible Note on February 22, 2021 as described above. The shares issued were valued at $0.008885 per share, the closing pricenote balance as of the stock on the effective date of the conversion agreement. No default notice had been received prior to the conversion agreement.March 31, 2021 and December 31, 2020 was $0 and $10,000, respectively.

Loan Payable

Marlin Note

 

On March 1, 2017,September 30, 2019 the Company, and 940A entered into a second conversion agreement. Undervia its wholly owned subsidiary BLU3, executed an equipment finance agreement financed for the purchase of certain plastic molding equipment through Marlin Capital Solutions (“Marlin Capital”). The initial principal balance was $96,725 payable over 36 equal monthly installments of $3,143.80. The equipment finance agreement the Company issued 940A 4,587,190 sharescontains customary events of restricted common stock in satisfaction of $63,303, which represented all past due and payable amounts to 940A under the Exclusive License Agreementdefault. The loan balance was $52,147 as of March 1, 2017. As of the date of the agreement the Company was more than 3 months in arrears on royalty payments due under the Exclusive License Agreement. The shares were issued at a price per share of $0.0138, which exceeded the closing price of the Company’s common stock as reported on the OTC Markets on the date immediately preceding the closing.31, 2021

 

  Payment Amortization 
2021 (8 months remaining)  25,051 
2022  27,095 
Total Loan Payments $52,146 
Current portion of Loan payable  (33,848)
Non-Current Portion of Loan Payable $18,298 

12

 

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMercedes Benz Note

 

Stock options outstanding from patent purchase – Effective March 3, 2009,On August 21, 2020, the Company entered intoexecuted an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a Patent Purchase Agreement2019 Mercedes Benz Sprinter delivery van. The installment agreement was for $55,841 with Robert M. Carmichael,a zero interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Mr. Carmichael. The first payment was due on October 5, 2020. The loan balance as of March 31, 2021 is $50,210.

  Payment Amortization 
2021 (9 months remaining) $8,330 
2022 $11,168 
2023 $11,168 
2024 $11,168 
2025 and thereafter $8,376 
Total note payments $50,210 
Current portion of note payable $(11,168)
Non-Current Portion of notes payable $39,042 

PPP Loan

On May 12, 2020, we received an unsecured loan from South Atlantic Bank in the Chief Executive Officerprincipal amount of $159,600 (the “SBA Loan”), under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose of the Company. PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, we used the proceeds from this loan to primarily help maintain our payroll and cover our rent and utilities as we navigated our business through the lockdowns associated with the COVID-19 pandemic until our return to normal operations earlier in 2020.

The Company purchased several patentsterm of the note is two years, though it had previously been paying royalties onmay be payable sooner in connection with an event of default under the note. The SBA Loan carries a fixed interest rate of one percent per year, and several related unissued patents. In exchangea monthly payment of $8,983, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the Intellectual Property (“IP),maintenance of employment and compensation levels. We used the SBA Loan for qualifying expenses and have applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. The loan balance as of March 31, 2021 was $159,600.

As of April 28, 2021, the Company issued Mr. Carmichael 234 stock options at a $1,350 exercise price expiring ten years fromwas notified by South Atlantic Bank, that the effective date of grant, or March 2, 2019. NoneSBA Loan was forgiven in full under the terms of the options have been exercised to-date.CARES Act.

 

8.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
  Payment
Amortization		 
2021  124,579 
2022  35,021 
Total loan payments $159,600 
Current portion of SBA Loan payable  - 
Non-Current Portion of SBA Loan payable $159,600 

 

Accounts payable and accrued liabilities consists of the following as of:

  September 30, 2017  December 31, 2016 
       
Accounts payable trade and other $142,275  $110,020 
Accrued payroll & fringe benefits  24,589   20,416 
Accrued payroll taxes & withholding  19,417   16,400 
Accrued interest  199,827   176,742 
  $386,108  $323,578 

Balances due certain vendors are in arrears to varying degrees. The Company is handling all delinquent accounts on a case-by-case basis.

9.OTHER LIABILITIES

Other liabilities consist of the following as of:

  September 30, 2017  December 31, 2016 
       
Short-term loans $139,429  $160,782 
Asset purchase agreement payable  —   12,857 
On-line training liability  —   2,975 
  $139,429  $176,614 

10.NOTES PAYABLE

Notes payable consists of the following as of September 30, 2017 and December 31, 2016:

  September 30, 2017  December 31, 2016 
Promissory note payable, secured by vehicle underlying loan having carrying value of $2,002 and $6,133 at September 30, 2017 and December 31, 2016, respectively, bearing interest at 1.9% per annum, due in monthly principal and interest payments of $523, maturing on December 5, 2017 $2,002  $6,133 
         
Less amounts due within one year  (2,002)  (6,133)
         
Long-term portion of notes payable $—  $— 

13

 

 

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNote 6. Shareholders’ Equity

 

As of September 30, 2017, principal payments on the notes payable are as follows:Common Stock

 

2017 $2,002  $6,133 
2018  —   — 
2019  —   — 
2020  —   — 
2021  —   — 
Thereafter  —   — 
         
  $2,002  $6,133 

11.CONVERTIBLE DEBENTURES

Convertible debentures consistOn February 22, 2021, the Company issued 422,209 shares of common stock related to the following at September 30, 2017conversion of a convertible debenture and December 31, 2016:

Origination Date Maturity Date Interest Rate  Origination Principal  Origination Discount  September 30, 2017 Debenture Balance  September 30, 2017 Accrued Interest  December 31, 2016 Debenture Balance  December 31, 2016 Accrued Interest  Ref. 
5/3/2011 5/5/2012  5%  300,000   (206,832)  300,000   177,500   300,000   170,000   (1)
8/31/2011 8/31/2013  5%  10,000   (4,286)  10,000   2,813   10,000   2,687   (2)
2/10/2012 2/10/2014  10%  39,724   —   2,743   4,124   2,743   4,055   (3)
                $312,743  $199,827  $312,743  $176,742     

Reference numbers in right hand columnaccrued interest of table entitled Ref. refer to paragraphs with corresponding numbers that immediately follow this paragraph.$14,777.

 

(1) On May 3, 2011,March 1, 2021, the Company borrowed $300,000issued a consultant 3,000,000 shares of its common stock related to investor relation services at a fair value of $120,000.

On March 25, 2021, the Company issued 27,500,000 shares of common stock in exchange for $275,000 to Mr. Charles F. Hyatt, a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert any portionmember of the debenture to common shares at a 30% discountour Board of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaningDirectors.

On February 25, 2021, the Company the funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share (after restatementissued 116,279 shares of common stock to a consultant with a fair value of $5,000 for 1 for -1,350- reverse stock split), respectively. As a result, the Company allocated the fair market value (“FMV”) to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through maturity and will accrue interest expense until paid in full or converted. Before the discount, the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.professional business services.

 

(2) The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286, which was accreted to interest expense.Preferred Stock

(3) The Company entered into three new debenture agreements upon sale or assignment by the original lender. Because the stated terms of the new debenture agreement and principal amounts were significantly different from the original debenture, including analysis of the value of the beneficial conversion feature at the assignment or purchase date, the transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. As of September 30, 2017, the principle amount was $2,743.

The conversion price under the debentures is $0.37125 and the lender may convert at any time until the debenture 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 4.99% of the outstanding Common Stock of the Company at any one time.

14

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.AUTHORIZATION OF PREFERRED STOCK

 

During the second quarter of 2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation authorizing the issuance of 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. Before modification, the existing Articles of Incorporation did not authorize the issuance of shares of preferred stock. The Company authorized the preferred stock for the purpose of added flexibility in seeking capital and potential acquisition targets. The amendment authorizing the issuance of shares of preferred stock grantsIn April 2011 the Board authority, without further action by our stockholders, to designate and issue preferred stock in one or more series and to designate certain rights, preferences and restrictions of each series, any or all of which may be greater than the rights of the common stock. As of September 30, 2017, and December 31, 2016, theDirectors designated 425,000 shares of the blank check preferred stock are owned by the Company’s Chief Executive Officer. The preferred shares have 250 to 1 voting rights over the common stock, and areas Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into 31,481 sharesa share of common stock. The preferred stock votes with the Company’s common stock except as otherwise required under Florida law. Accordingly, Mr. Carmichael will have approximately 55%at any time at the option of the combined voting powerholder at a conversion price of the Common$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 votingvote together as a single class and will control the outcome ofon any corporate transaction or other mattermatters submitted to theour shareholders for approval, including mergers, consolidationsa vote. As of March 31, 2021, and December 31, 2020, the 425,000 shares of Series A Convertible Preferred Stock are owned by Mr. Carmichael.

Options

Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 10,380,952 shares of common stock to Mr. Blake Carmichael. The options were issued pursuant to a stock option grant agreement and are exercisable at $0.018 per share for a period of five years from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $43,575 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.10%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 172%. These stock options were fully expensed as of December 31, 2020.

Effective July 29, 2019, the Company issued Mr. Carmichael options to purchase up to 20,761,904 shares of common stock. The options were issued pursuant to a Grant Agreement and are exercisable at $0.018 per share for a period of five years from the date of issuance, subject to vesting over a period of six months. The fair value of the options totaled $87,147 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2.01%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 172%. These stock options were fully expenses during the year ending December 31, 2020.

Effective January 6, 2020, the Company issued options to purchase up to 2,000,000 shares of common stock to Mr. Jeffrey Guzy, then a member of the Board of Directors of the Company. The options were issued pursuant to a stock option grant agreement and is exercisable at $0.0229 per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $40,107 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.55%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 250%. These stock options were fully expenses during the year ending December 31, 2020.

Effective January 11, 2020, the Company issued options to purchase up to 2,000,000 shares of common stock to BizLaunch Advisors, LLC. The options were issued pursuant to a professional services agreement and are exercisable at $0.0229 per share for a period of three years from the date of issuance. The options were immediately vested. The fair value of the options on the date of the grant was $40,097 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.54%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 250%. These stock options were fully expenses during the year ending December 31, 2020.

14

On April 14, 2020, the Company entered into a Non-Qualified Stock Option Agreement with Mr. Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of 125,000,000 shares of the Company’s common stock at an exercise price of $.045 per share, of which the right to purchase 75,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the saleright to purchase 50,000,000 shares of allcommon 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 substantially allsimilar stock exchange. The Net Revenue Portion of our assets, and also the power to prevent or cause a change in control.Option shall vest as follows:

 

13.●COMMITMENTS AND CONTINGENCIESthe 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.

 

From time to timeThe 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 subject to legal proceedings, claimsexercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and litigation arising inMr. Carmichael has no further rights thereto.

The fair value of the ordinary courseCarmichael Option on the date of business, including matters relating to product liability claims. Such product liability claims sometimes involving wrongful death or injury have historically been covered by product liability insurance, which provided coverage for each claim up to $1,000,000. During the third quartergrate was $4,370,109 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 2014, the Company did not renew its product liability insurance since the renewal policy amount was cost prohibitive...26%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 320%. The Company is currently seeking a new insurance carrier or alternative means to satisfy this potential liability exposure, as well as to fulfillanalyzed the sales terms of some of our customers, which requirelikelihood that the insurance coverage.vesting qualifications would be met. As of August 15, 2017,March 31, 2021, 25,000,000 of options were vested as the Company has obtained Product Liability Insurance, although prior claims are not covered under the new policy. The policy is already prepaid and will remain in effect until its renewal date of August 14, 2018.

As previously disclosed, the Company and Trebortargeted net revenues were co-defendants under an action filed by an individual in September 2013 in the Circuit Court of Broward County claiming personal injury resulting from use of a Brownie’s Third Lung. Plaintiff claimed damages in excess of $1,000,000. This matter was settledreached. Therefore, stock option expense recognized during the three months ended September 30, 2016 byMarch 31,2020 for this option was $218,505.

On November 5, 2020, the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable the “Constable Option Agreement” as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a 5 year option to purchase 5,434,783 shares of the Company’s insurance carriercommon stock at no additional cost toan exercise price of $.0184, the Company.“Compensation Options”. The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $106,199 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .16%, ii) expected life of 2.5 years, iii) dividend yield of 0%, iv) expected volatility of 341%. These stock options were fully expensed as of December 31, 2020.

 

In addition, as previously disclosed,As part of the Constable Option Agreement the Company Trebor and other third parties, are each named as co-defendants underalso granted Mr. Constable an action filed in March 2015 in the Circuit Courtoption (the “Bonus Option”) to purchase up to an aggregate of Broward County under Case No. CACE15-03238 by the Estate30,000,000 shares of Ernesto Rodriguez, claiming wrongful death and products liability resulting in the decedent’s drowning death while using a Brownie’s Third Lung product. This claim falls outside the Company’s periodcommon stock at an exercise price of insurance coverage. Plaintiff has claimed damages exceeding $1,000,000. A default judgment$.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”);

15

●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 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. Constable 4 years.

The fair value of the Bonus Options on the date of the grant was entered against Trebor in 2015 due to its failure to timely respond to$578,082 using the complaint.Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .14%, ii) expected life of 2.0 years, iii) dividend yield of 0%, iv) expected volatility of 312.2%. The Company has obtained different legal representation inanalyzed the likelihood that the vesting qualifications would be met, and as of March 31, 2021, deemed that there was a 0% chance that the options would vest. Therefore, stock option expense recognized during the three months ended March 31, 2021 for this matter and attempted to have the default set aside. On November 2, 2016, the court granted plaintiff’s motion for sanctions against our company for frivolous litigation relating to our attempt to have the matter dismissed and granted the plaintiff’s motion to strike our motion foroption was $0.

A summary judgment due to our initial default. The Company believes the claim to be a Workers Compensation claim relating exclusively against other non-affiliated defendants and without merit, and will aggressively defend this action and to appeal the default judgment. In the event Trebor is unable to overturn the default judgment and the defendants are determined to be at fault, we would seek to allocate damages among all of the other parties, includingCompany’s stock option as of December 31, 2020, and changes during the plaintiff. At this time, the amount of any loss, or range of loss, cannot be reasonably estimated due to the undetermined validity of any claim or claims made by plaintiffthree months ended March 31, 2021 is presented below:

  Number of
Options		  Weighted
Average
Exercise Price		  Weighted
Average
Remaining
Contractual
Life in Years		  Aggregate
Intrinsic
Value		 
Outstanding - December 31, 2020  199,730,020  $0.0323   2.84   168,892 
Granted  -   -         
Forfeited  -  -         
Exercised  -   -         
Outstanding - March 31, 2021 (unaudited)  199,730,020  $0.0323   2.58     
Exercisable - March 31, 2021 (unaudited)  69,730,020  $0.029   2.87  $3,135,167 

Note 7. Commitments and the mitigating factors among the parties. Therefore, the Company has not recorded reserves and contingent liabilities related to this matter. However, in the future, as the case progress, the Company may be required to record a contingent liability or reserve for these matters.contingencies

 

On August 14, 2014, the Company entered into a newthirty-seven-month term lease commitment. Terms of the new lease include thirty-seven-month termfor its initial facilities in Pompano Beach, Florida, commencing on September 1, 2014;2014. Terms included payment of $5,367 security deposit; base rent of approximately $4,000 per month over the term of the lease plus sales tax; and payment of 10.76% of annual operating expenses (i.e. common areas maintenance), which iswas approximately $2,000 per month subject to periodic adjustment. On December 1, 2016, we entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending the term for an additional eighty-four months, expiring September 30, 2024. The base rent was increased to $4,626 per month with a 3% annual escalation throughout the amended term. We believe that the facilities are suitable for their intended purpose, are being efficiently utilized and provide adequate capacity to meet demand for the foreseeable future.

15

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Base rent expense attributable to the Company’s headquarters facility totaled approximately $30,000 and $12,000 for the three-month periods ending September 30, 2017 and 2016 and $54,000 and $36,000 for the nine-month periods ending September 30, 2017 and 2016, respectively.

The following is an estimate of future minimum rental payments required under our lease agreement on August 14, 2014 and as amended December 1, 2016 :

  Operating lease 
year 1 $24,239 
year 2  49,931 
year 3  51,429 
year 4  52,972 
year 5 and thereafter  96,710 
  $275,281 

14.EQUITY INCENTIVE PLAN

On August 22, 2007, the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to employees, directors, and consultants in the form of Incentive Stock Options or Non-statutory Stock Options. Stock Purchase Rights, time vested and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The maximum number of shares that may be issued under the Plan was 297 shares, and no more than 75 Shares of Common Stock may be granted to any one Participant with respect to Options, Stock Purchase Rights and Stock Appreciation Rights during any one calendar year period. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan was ten years. The Plan expired on August 22, 2017. All 297 options issued under the Plan remain outstanding.

15.EQUITY BASED INCENTIVE/RETENTION BONUSES

 

On November 2, 2012, the Board of Directors consented to grant equity based bonuses to certain key employees and consultants as an incentive to retain their services. Stock incentive bonuses were to vest, and be paid out on May 2, 2013, contingent upon continued employment or service. The stock bonus price per share was calculated based on last closing price as reported on per the OTCBB prior to the grant date for a total of $75,100. Shares were set aside and reserved for this transaction. The Company accrued operating expense ratably from the time of the awards through May 2, 2013, when vested. Of the 61,852 vested shares, only 5,185 were issued. On April 29, 2016, the Board of Directors determined it was not in the best interest of either the Company or the recipients to pay bonuses based on the current and foreseeable share price and cancelled the bonuses payable.

On August 1, 2017, Mikkel Pitzner, was appointed by the Company’s board of directors to serve on the Company’s board of directors, filling a vacancy on the board. Mr. Pitzner shall serve on the board of directors and shall hold office until the next election of directors by stockholders and until his successor is elected and qualified or until his earlier resignation or removal. The Company has agreed to pay Mr. Pitzner an annual fee of $6,000 and has issued Mr. Pitzner 2,000,000 shares of restricted common stock valued at $25,000. 

On August 1, 201711, 2018, the Company entered into sixa new lease agreement for approximately 8,025 square feet adjoining its existing facility in Pompano Beach, Florida. Terms of the new lease include a sixty-nine month advisory agreement with Wesley P. Siebenthal to provide certain advisory services toterm commencing on January 1, 2019, or the date the Company took possession of the premises, if earlier; a $6,527 security deposit; initial base rent of approximately $4,848 per month escalating at 3% per year during the term of the lease plus Florida state sales tax and servepayment of 10.11% of the buildings annual operating expenses (i.e. common area maintenance) which is approximately $1,679 per month subject to adjustment as its Chief Technology Advisor. As compensation forprovided in the services, the Company issued him 2,000,000 shares of its common stock valued at $25,000.lease.

 

16

 

 

On June 30, 2020, the Company entered into Amendment No. 2 to the Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products, and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $60,000, or $15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.15% per year. The minimum royalty was temporarily increased to $60,000 for fiscal years 2022, 2023 and 2024, with a fourth quarter true up against earned royalties. In addition, if the Company should terminate the agreements with STS prior to December 31, 2023, then the Company is obligated to pay STS $180,000, less cumulative royalties paid in excess of $334,961 for the years 2019 through 2024. Royalty recorded in relation to this agreement totaled $13,704 and $14,093 for the three months ended March 31, 2021 and 2020. respectively.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSOn June 9, 2020, the Company entered into an advertising and marketing agreement with Figment Design. The term of the agreement is for one year, and thereafter renew or cancel the agreement in writing 60 days before the final date. The Company will continue to be billed $8,840 per month through the expiration date of July 2021.

 

On August 1, 2017, the Company2020, BLU3 entered into a sixmarketing agreement with This Way Media PTY, Ltd. The term of this agreement is for 11 months and can be cancelled with 30 days notice during the first 90 days of the agreement. After the first 90 days, the agreement can be cancelled with 60 days’ notice after the completion of the term of the agreement. BLU3 will pay This Way Media PTY, LTD $500 per month, and 5% of each affiliate sale.

On November 5, 2020, the Company and Christopher H. Constable entered into a three year employment agreement (the “Constable Employment Agreement”) pursuant to which the Mr. Constable shall serve as Chief Executive Officer of the Company. Previously, Mr. Constable had provided advisory services to the Company through the agreement with Blake Carmichael,Brandywine LLC. In consideration for his services, Mr. Constable shall receive (i) an annual base salary of $200,000, payable in accordance with the soncustomary payroll practices of the Company, and (ii) issuable upon execution of the Employment Agreement and on each anniversary of the date of the agreement during the term, a non-qualified immediately exercisable five-year stock option to purchase that number of shares equal to $100,000 of the value of the Company’s chief executive officer andcommon stock at an electrical engineer,exercise price equal to serve as the Company’s products development manager, electrical engineer and marketing team member. Under the termsmarket price of the employmentCommon Stock on the date of issuance. Therefore, the Executive shall receive an initial stock option grant to purchase 5,434,783 shares of the Corporation’s common stock at an exercise price of $0.0184 per share pursuant to an option award agreement in(the “Option Award Agreement”).

In addition, Mr. Constable shall be entitled to a monthly salary of $3,600, the Company issued Mr. Carmichael 2,000,000receive four-year stock options to purchase shares of common stock valued at $25,000. an exercise price equal to $0.0184 per share in the amounts listed below based upon the following performance milestones during the term of the Constable Employment Agreement: (i) 2,000,000 shares - if the Company’s total net revenues, as reported in its statement of operations in its financial statements in its filings with the SEC, including as a result of a stock or asset acquisition of a third party (“Net Revenues”) are in excess of $5,000,000, in the aggregate, for four consecutive fiscal quarters; (ii) 3,000,000 shares - if the Company’s Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) 5,000,000 shares - if the Company’s Net Revenues are in excess of $10,000,000, in the aggregate, for four consecutive fiscal quarters; and (iv) 20,000,000 shares - if the Company’s common stock is listed on the on NASDAQ or New York Stock Exchange.

Mr. CarmichaelConstable is also entitled to performance bonuses atparticipate in all benefit programs the discretionCompany offers to its executives, reimbursement for business expenses and three weeks of the board of directors.annual paid vacation.

 

Effective August 1, 2017,The agreement may be terminated for cause, upon his death or disability, or by the boardCompany without cause. Furthermore, Mr. Constable may terminate the agreement for “good reason” as defined in the agreement. If the Company terminates the Constable Employment Agreement for cause, or if it terminates upon Mr. Constable’s death or disability, or if he voluntarily terminates the agreement, neither Mr. Constable nor his estate (as the case may be) is entitled to any severance or other benefits following the date of directors issuedtermination. If the Company should terminate the Constable Employment Agreement without cause or if Mr. Robert Carmichael,Constable terminates for good reason, the Company’s chief executive officer, chief financial officerCompany is obligated to continue to pay him his base salary for a period of six months. The Constable Employment Agreement also contains customary confidentiality, non-disclosure and member ofindemnification provisions.

Pursuant to the Company’s board of directors, 2,000,000 shares of restricted common stock valued at $25,000 in consideration of servingConstable Employment Agreement, Mr. Constable also agreed to serve on the Company’s boardBoard of directors.

As of September 30, 2017, a total of $66,393 share-based compensation was recorded. The share-based compensation of $50,000 was for the two directors, Robert CarmichaelDirectors and Mikkel Pitzner. The remaining $16,393 share-based compensation was for two service contracts with an employee and an advisor. Since the Company has six months agreements with each share recipient, a prepaid compensationagreed to nominate him to serve on the Board during the term of $33,607 was recorded as of September 30, 2017.

the Constable Employment Agreement.

 

16.INTEREST EXPENSE NON-RELATED PARTIES AND OTHER EXPENSE (INCOME), NET

For the three months ended September 30, 2017, non-related parties interest expense of $7,750 is comprised of interest on convertible debentures. For the three months ended September 30, 2016, non-related parties interest expense of $7,734 is comprised of $7,695 interest on convertible debentures and $39 interest on notes payable and other interest. 

For the nine months ended September 30, 2017, non-related parties interest expense of $23,140 is comprised of interest on convertible debentures. For the nine months ended September 30, 2016, non-related parties interest expense of $23,251 is comprised of $23,093 interest on convertible debentures and $158 interest on notes payable and other interest.

For the three months ended September 30, 2017, $6,712 other expense, net is comprised primarily of $7,750 of interest expense, and $1,038 of other income. For the three months ended September 30, 2016, $3,173 other income, net is comprised primarily of $2,273 from the expiration of online training liability certificates and no other individually significant items

For the nine months ended September 30, 2017, $20,895 other expense, net is comprised primarily of $23,140 of interest expense, and $2,245 of other income. For the nine month ended September 30, 2016, is comprised primarily of $23,823 of interest expense, and $274,117 of other income.

17.SUBSEQUENT EVENTS

Subsequent to the third quarter of 2017, the Company received gross proceeds of $60,000 pursuant to the sale of 1,304,348 Units at $0.046 per Unit, each Unit consisting of four shares of common stock, par value $0.0001 per share and one two year common stock purchase warrant exercisable at $0.0115 per share.

17

 

On March 1, 2021, the Company entered into an investor relations consulting agreement with BMG Equity Partners, LLC. The term of the agreement is twelve months. As compensation the Company issued 3,000,000 shares of its common stock valued at $120,000.

Legal

The Company is a defendant in that certain lawsuit styled Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The complaint, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $15,870.97 in unpaid consulting fees together with interest. In April 2020, the Company filed a Motion to Dismiss, and at a hearing held in May 2021, the Court struck certain allegations contained in the complaint, the parties agreed that the quantum meruit allegation is deemed to be an alternative to the breach of contract allegation, but permitted certain other allegations to stand. The parties are in the process of scheduling mediation pursuant to the Court’s order. While the Company is vigorously defending this matter, the Company is unable at this time to predict the ultimate outcome of this litigation.

Note 8. Segment Reporting

The Company has three operating segments as described below:

1.Legacy SSA Products, which sells recreational hookah diving systems.
2.High Pressure Gas Systems, which sells high pressure air and industrial gas compressor packages.
3.Ultra Portable Tankless Dive Systems, which sells next generation electric surface supply air diving systems and electric shallow dive system that are battery operated and completely portable to the user.

  Three months ended
March 31,		 
  Legacy SSA Products  High Pressure Gas Systems  Ultra Portable Tankless Dive Systems  Total Company 
  2021  2020  2021  2020  2021  2020  2021  2020 
Net Revenues $466,043  $294,118  $150,128  $198,216  $334,598  $142,456  $950,769  $634,790 
Cost of Revenue  (369,826)  (228,187)  (81,178)  (149,800)  (188,793)  (153,909)  (639,797)  (531,896)
Gross Profit  96,217   65,931   68,950   48,416   145,805   (11,453)  310,972   102,894 
Depreciation  3,812   1,116   -   -   2,418   2,417   6,230   3,533 
Loss from operations $(444,151) $(206,656) $9,366  $(2,771) $(12,385) $(81,350) $(447,170) $(290,777)
                                 
Total Assets $1,503,762  $1,152,136  $265,604  $138,743  $511,621  $269,759  $2,280,987  $1,560,638 

Note 10. Subsequent Events

On April 28, 2021, South Atlantic Bank, the lender of the SBA Loan of $159,600 informed the Company that our loan forgiveness application had been accepted, and the SBA Loan was fully forgiven in accordance with the terms of the CARES Act.

18

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introductory Statements

Information included or incorporated by reference in this filing may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

 

Overview

 

Brownie’s Marine Group, Inc., a Florida corporation (referred to herein as “BWMG”, “the Company”, “we” or “Brownie’s”), does businessBWMG, through its wholly owned subsidiary, Trebor Industries, Inc., d/b/a Brownie’s Third Lung, a Florida corporation and Brownie’s High Pressure Compressor Services, Inc., a Florida corporation. The Companysubsidiaries, designs, tests, and manufactures and distributes recreational hookah diving, yacht based scubatankless dive systems, yacht-based SCUBA air compressor and nitrox generation fill systems and scubaacts as the exclusive distributor for North and water safety products. BWMG sells its products both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Pompano Beach, Florida.

On August 7, 2017 the Company entered into an Exclusive Distribution Agreement withSouth America for Lenhardt & Wagner GmbH (“L&W”), a German-based company engaged compressors in the development, manufacturing and sales of high pressurehigh-pressure breathing air and industrial gas compressor packages. Under the terms of the Exclusive Distribution Agreement, we were appointed the exclusive distributor of L&W’s completemarkets. Our wholly owned subsidiaries and related product line in North America and South America, including the Caribbean (the “Territory”). Pursuant to an intercompany assignment, Brownie’s High Pressure Compressor Services, Inc., our newly-formed wholly-owned subsidiary (“BHP”), is party to the agreement. Through BHP we expect to conduct business and build the brand name “L&W Americas/LWA”, establishing sales, distribution and service centers for high pressure air and industrial gas systems in the dive, fire, CNG, military, scientific, recreational and aerospace industries. Our goal will be to build a network of jobbers, dealers, installers and high-pressure compressor distributors throughout the Territory by leveraging our know-how, brand awareness, complimentary products and creating sustainable distribution and core product OEM integration relationships.lines are as follows:

 

The Company’s common stock is quoted on the OTC Markets (Pink) under the symbol “BWMG”. The Company’s website iswww.browniesmarinegroup.com. Information contained on the website is not part of this report.

18

Mr. Robert Carmichael, our Chief Executive Officer, has operated Trebor as its President since 1986. Since April 16, 2004, Mr.Carmichael has served as President, Acting Principal Accounting Officer and Acting Chief Financial Officer of the Company. From March 23, 2004 to April 16, 2004, Mr. Carmichael served as the Company’s Executive Vice-President and Chief Operating Officer. The Company was organized under the laws of the State of Nevada and effective October 22, 2015, the Company reincorporated to the State of Florida pursuant to a plan of conversion, effective October 22, 2015.

The Company’s diving and marine based products are generally marketed under the Brownie’s Third Lung, Brownie’s Tankfill, and Brownie’s Public Safety trade names.

Results of Operations for the Three Months Ended September 30, 2017, as Compared to the Three Months Ended September 30, 2016

Net revenues. For the three months ended September 30, 2017, we had net revenues of $795,270 as compared to net revenues of $837,984 for the three months ended September 30, 2016, a decrease of $42,714 or 5%. The small decrease is primarily attributable to a decrease in sales of our hookah systems and related products to non-related parties. Tankfill and Nitrox sales to related parties had a slight decrease of 8% for the three months ended September 30, 2017 compared to 2016. This change in sales and customer mix is not believed to be attributable to any particular sales trend or competitive pressures but rather normal fluctuations in market demand.

Cost of net revenues. Cost of net revenues remained relatively constant during the third quarter 2017 compared to the third quarter 2016 representing, 65% of total net revenues compared to 64% for the prior year.

Gross profit. For the three months ended September 30, 2017, we had a gross profit of $278,482 as compared to gross profit of $300,147 for the three months ended September 30, 2016, a decrease of 7% totaling $21,665. This decrease resulted from the 5% decrease in total net revenues.

Operating expenses. Operating expenses increased 47% for the three months ended September 30, 2017 compared to the same period of the preceding year due to an increase in selling, general and administrative expenses increase of $63,265 or 39%. The increase in selling, general and administrative expense is mainly due to increase in payroll cost related to the hire of additional employees and stock based compensation cost.

Other (income) expense, net. Other expense, net totaled $6,712 and $5,060 for the three months ended September 30, 2017 and 2016, respectively. Other (income) expense for the three months ended September 30, 2017 was comprised of $1,038 in other income and $7,750 in interest expense. Other (income) expenses for the three months ended September 30, 2016 was comprised of $3,173 in other income and $8,233 in interest expense.

Net Income. For the three months ended September 30, 2017, we had net income of $33,846 as compared to net income of $133,148 for the three months ended September 30, 2016. It should be noted that the net income for the three months of 2016 was attributable to the settlement of a convertible note and related accrued interest. Absent this settlement transaction, we would have had a net loss during the third quarter 2016 of $36,070.

Results of Operations for the Nine months Ended September 30, 2017, as Compared to the Nine months Ended September 30, 2016

Net revenues. For the nine months ended September 30, 2017, we had net revenues of $1,735,662 as compared to net revenues of $1,875,276 for the nine months ended September 30, 2016, a small decrease of $139,614 or 7%. The decrease is primarily attributable to a decrease of 18% in sales of our hookah systems and related products to non-related parties. This decrease was partially offset by Tankfill and Nitrox sales to related parties which had an increase of 2% for the nine months ended September 30, 2017 compared to 2016. This change in sales and customer mix is not believed to be attributable to any particular sales trend or competitive pressures but rather normal fluctuations in market demand.

Cost of net revenues.Cost of net revenues decreased during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 representing, 65% of total net revenues compared to 71% for the prior year. This decrease reflects the company’s cost cutting efforts implemented in 2016 including a decrease in direct factory labor costs and modified raw materials purchasing procedures further reducing direct manufacturing costs.

[
]

 

Legacy SSA Products

This segment represents our surface supplied air (SSA) product line. Trebor began its business making surface supplied air diving systems in the late 1960s. Our Brownie’s Third Lung systems have long been a dominant figure in gasoline powered, high-performance, and now the battery powered surface supplied air diving systems. Taking full advantage of the proprietary compressor system, a complete series of traditional “fixed speed” electric compressors were developed for the built-in-boat market in 2005. After years of inventing, testing and development, in 2010 we introduced our variable-speed battery powered hookah system which provides divers with gasoline-free all day shallow diving experiences. These systems provide performance and runtimes as great as 300% better than the best devices previously on the market by utilizing a variable speed technology that controls battery consumption based on diver demand.

The Legacy SSA segment has experienced a 54.3% growth in units sold in the First Quarter of 2021 as compared to the First Quarter of 2020, as we continue to expand our dealer network and the breadth of product that each of the dealers provide.

This segment is seeing results from its focus on breaking the seasonality curve currently experienced by this segment thanks to its aggressive marketing campaigns in geographic regions that experience diving season when the US market is slowing down due to weather. Additionally, we continue to pursue more aggressively the boat builder market to offer our Legacy SSA systems as an option on newly built boats, expanding our market beyond the traditional consumer markets for our products.   Our Legacy SSA products include:

● Tankless Dive Systems: The Company produces a line of tankless dive products, commonly called hookah or recreational surface supplied air systems. These systems allow one to four divers to enjoy the marine environment up to a depth of up to 45 feet without the bulk and weight of conventional SCUBA gear. The removal of barriers to entry into the sport of diving and the reduction of complicated and bulky SCUBA gear invites a broader range of the general public to participate more actively and enjoyably at their own pace and schedule. The design of our product also reduces the effort required for both its transport and continued use while exploring, cruising or traveling.   A line of land-based systems is available for light-duty commercial applications that demand portability and performance. In addition to the gasoline-powered units and the variable speed battery powered units, a series of AC electric powered systems is also available for light to commercial duty. Powered by battery for portability or household current for virtually unlimited dive duration, these units are used primarily by businesses that work in aquatic maintenance and marine environments.

● BIAS (Boat Integrated Air Systems): The Company developed several tankless products and complimentary accessories that it believes makes boat diving even easier. The BIAS battery powered tankless kit allows boat builders, dealers and end users to seamlessly install a pre-packaged kit directly into the boat. The E-Reel advances this idea by adding a level-winding battery powered hose reel system to provide compact storage of up to 150 feet of hose. Boaters can perform their own in-water maintenance and inspections, or just dive for enjoyment. In addition to supplying air to divers, BIAS is useful for supporting air horns, inflating boat fenders/water toys, activating pneumatically operated doors, and more. The Company strategy is to align the easy to install, complete kit packages with boat builders, dealer and end users through a vertically targeted sales and marketing program.

 

High Pressure Gas Systems

Through this segment, we design, manufacture, sell and install SCUBA tank fill systems for on-board yacht use under the brand “Yacht-Pro™”. Our systems provide complete diving packages and dive training solutions for yachts, includes Nitrox systems which allow yacht owners to fill tanks with oxygen enriched air on board. The Yacht-Pro™ compressor systems offer a completely marine-prepared, VFD (variable frequency drive)-driven, automated alternative to other compressors on the market. We also design complete dive lockers, mixed gas production and distribution systems, and the unique Nitrox Maker™. Nitrox is oxygen-enriched air, which reduces the effects of nitrogen on divers; it is the industry standard for dive professionals. The Nitrox Maker™ continuously generates the oxygen rich breathing gas directly from low-pressure air; no stored oxygen or other gases are required onboard.

Consistent with our goals for 2021 , this segment of our business continues to work to expand its customer base beyond that of the diving community. We believe the product lines from L&W, will allow LW Americas to put a high quality, competitive products into the first responder and industrial market that utilize compressed air for many applications. Our goal will be to build a network of jobbers, dealers, installers and high-pressure compressor distributors throughout the territory by leveraging our know-how, brand awareness, complimentary products and creating sustainable distribution and core product OEM integration relationships.

[https:||www.sec.gov|Archives|edgar|data|1166708|000149315219018165|form10q_004.jpg]

Ultra Portable Tankless Dive Systems

In the continued expansion of our business, in December 2017, we formed a wholly-owned subsidiary BLU3, to develop and market a next generation electric surface supplied air diving systems electric shallow dive system that is completely portable to the user. The BLU3 line currently consists of two models targeting specific performance levels and price points – NEMO and NOMAD.

Currently, NOMAD nearing the end of the design phase and full production has been pushed into early in the third quarter of 2021, as the company continues to ensure that it will deliver a product that will excite the consumer but be safe as well. This  product will expand the customers dive capability to up to 33 feet and continue to drive the vertical integration of the diving experience.

19

 

 

First Quarter 2021 Highlights

As can be seen by continued growth of revenue in the First Quarter 2021 from the comparable period in 2020, the Company’s mission of providing a platform that encourages innovation and growth in both the people we employ and the companies that we own with a goal of creating sustainable shareholder value is being brought to fruition. We believe that we are changing the way that people will approach the next atmosphere, by providing innovative, portable and easy to use surface supplied air products that will allow the users to explore what is below the surface.

First Quarter 2021 Highlights:

●Our total revenue increased 49.8% for the First Quarter 2021 over that of First Quarter 2020.
●Unit sales for the Legacy SSA product segment increased 54.3% for the First Quarter 2021 over that of the same quarter in 2020.
●Gross margins increased from 16.2% to 32.7%.

Results of Operations

Net Revenues, Costs of Net Revenues and Gross profit.ProfitFor the nine months ended September 30, 2017, we had a gross profit of $606,180 as compared to gross profit of $550,138

Overall, our net revenues increased 49.8% for the nine months ended September 30, 2016,First Quarter 2021 from the comparable period in 2020. These increases included an increase of 10%. This56.1% in net revenues from sales to third parties, and an increase resultedof 30.6% in net revenues from the approximately 6% decrease insales to related parties.

Our total cost of net revenues overin the First Quarter 2021 was 67.3% of our total net revenues as described above.compared to 83.8% in First Quarter 2020. Included in our total cost of net revenues are royalty expenses we pay to Mr. Carmichael which increased 139.0% in the First Quarter 2021 from the First Quarter 2020. Also included in the total cost of net revenue are royalties paid pursuant to our agreement with STS. These royalties accounted for approximately 1.4% of total net revenue for the three months ended March 31, 2021, as compared to 2.2% for the same period in 2020.

We reported an overall gross profit margin of 32.7% for the First Quarter 2021 as compared to 16.2% for the First Quarter 2020. The Legacy SSA product lines showed growth in direct to consumer sales combined with a restructure of the dealer sales model structure increasing margin in this segment. The High Pressure Gas Systems margins show an increase for the three months ended March 31, 2021 primarily due to a shift to selling direct to customer rather than through distribution that has continued since the third quarter of 2020. Margins related to the Ultra-Portable Tankless dive segment helped contribute to the increased margin for the three months ending March 31, 2021, as it had contributed a negative margin for the three months ended March 31, 2020 due to production inefficiencies consistent with the start of a new product and production process.

20

The following tables provides net revenues, total costs of net revenues, and gross profit margins for our segments for the periods presented.

 

Operating expensesNet Revenues. Operating expenses increased by 20%

  

Three Months Ended

March 31

 
  2021  2020 
  (unaudited) 
Legacy SSA Products $466,043  $294,118 
High Pressure Gas Systems  150,128   198,216 
Ultra-Portable Tankless Dive Systems  334,598   142,456 
Total net revenues $950,769  $634,790 

Cost of revenues as a percentage of net revenues

  

Three Months Ended

March 31,

 
  2021  2020 
  (unaudited) 
Legacy SSA Products  79.4%  77.6%
High Pressure Gas Systems  54.1%  75.6%
Ultra-Portable Tankless Dive Systems  56.4%  108.0%

Gross profit(loss) margins

  

Three Months Ended

March 31,

 
  2021  2020 
  (unaudited) 
Legacy SSA Products  20.6%  22.4%
High Pressure Gas Systems  45.9%  24.4%
Ultra-Portable Tankless Dive Systems  43.6%  (8.0%)

Legacy SSA Products segment

The increase in net revenues from this segment for the ninethree months ended September 30, 2017March 31, 2021 as compared to the same period in 2020 can be attributed to increased demand at the consumer level with a 162.3% increase and the dealer level with a 25.6% increase. Affiliate sales for the same period decreased by 85.8%. This is a direct result of our shift to online marketing targeted consumers directly. Additionally, our marketing partnerships targeted consumers and sent them directly to our dealers. The Company improved dealer incentives via extended payment terms up to 120 days to expand the product offering within their stores also attributed to the overall increase for this segment.

Our costs of revenues as a percentage of net revenues in this segment increased from 77.6% to 79.4% for the three months ended March 31, 2020 and 2021, respectively. The increased cost of sales, and in turn reduction in product margin, can be attributed to purchase incentives offered to all revenue channels in January and February 2021 that did not exist in 2020.

A breakdown of the preceding year duerevenue channels for this segment are below. Direct to anConsumer represent items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers that we have dealer agreements that typically operate with the lowers margin. Affiliates are resellers of our products that are not in a formal dealer arrangement.

  Net Revenues    Cost of Sales as a % of Net Revenues  Margin 
  First Quarter 2021  First Quarter 2020  

%

Change

  First Quarter 2021  First Quarter 2020  First Quarter 2021  First Quarter 2020 
Direct to Consumer (website included) $210,672  $80,304   162.3%  76.7%  79.3%  23.3%  20.7%
Dealers  253,539   201,785   25.6%  81.5%  85.3%  18.5%  14.7%
Affiliates  1,832   12,029   (85.8%)  78.9%  72.0%  21.1%  28.0%
Total $466,043  $294,118   58.5%  79.4%  77.6%  20.6%  22.4%

21

High Pressure Gas Systems segment

Sales of high-pressure breathing air compressors showed a 24.2% decrease from First Quarter 2020 as this segment continues to recover from the COVID-19 pandemic. Tourism has begun to open up, and demand has begun to show signs of life, however, travel remains restricted through most of the Caribbean, Central and South America. The majority of our dive resort and dive operator customers’ businesses have begun to conduct a more normalized business, but are not yet in the position to commit to equipment purchases during their recovery. The largest percentage reduction took place in sales to the OEM segment decreasing by 92.9% as First Quarter 2020 this segment was beginning to accelerate prior to COVID-19. The resellers category, which represent distributors who would sell through to dive stores or tourist resorts increased by 68.2% for the period as they anticipate forward movement within their customer base. The direct to consumer segment, which includes yacht owners and direct to dive stores, decreased by 50.6%. However, we believe that the acceptance of the L&W brand is growing steadily and we expect sales to increase as the customers within this market segment recover from the pandemic. Additionally, with the addition of new marine based products developed by LWA, we expect to have increases in Selling, generalthe direct to consumer and administrativeOEM segments.

Our costs of revenues as a percentage of net revenues in this segment decreased to 54.1% as compared to 75.6% for the three months ended March 31, 2021 as compared to the same period in 2020. This can be attributed to significant improvements of in margin to the consumer across all customer segments. This is attributed to improved product mix and improvements in the bidding process.

  Net Revenues    Cost of Sales as a % of Net Revenues  Margin 
  First Quarter 2021  First Quarter 2020  

%

Change

  First Quarter 2021  First Quarter 2020  First Quarter 2021  First Quarter 2020 
Resellers $97,146  $57,773   68.2%  57.3%  77.9%  42.7%  22.1%
Direct to Consumers  50,241   101,773   (50.6)%  34.0%  74.9%  66.0%  25.1%
Original Equipment Manufacturers  2,741   38,670   (92.9)%  49.0%  74.0%  51.0%  26.0%
Total $150,128  $198,216   (24.2)%  54.1%  75.6%  45.9%  24.4%

Ultra Portable Tankless Dive Systems

Revenue in the Ultra Portable Tankless Dive System segment continues to show significant improvement with growth of 134.9% increase from First Quarter 2020 to First Quarter 2021. As the sales channels continue to develop, with the addition of Amazon as a revenue channel in the third quarter 2020, we are continuing to grow in each of the segments. The Company continues to further grow its dealer base which can be seen by the 127.7% revenue growth for First Quarter of 2021 as compared to the same period in 2020. The Company’s continued focus on direct to consumer via our website accounted for a 62.8% increase.

Our aggregate cost of revenue from this segment as percentage of net revenues for the quarter ended March 31, 2021 have shown vast improvement over the three months ended March 31, 2020. The Company continues to work to find efficiencies within the production line and expects margins to remain consistent with the possibility of improvement.

  Net Revenues    Cost of Sales as a % of Net Revenues  Margin 
  First Quarter 2021  First Quarter 2020  

%

Change

  First Quarter 2021  First Quarter 2020  First Quarter 2021  First Quarter 2020 
Direct to Consumer $152,199  $93,454   62.8%  43.0%  104.8%  56.9%  (4.8)%
Amazon  70,798   -   100.0%  45.7%  -   54.3%  - 
Dealers  111,601   49,002   127.7%  50.8%  114.2%  49.1%  (14.2)%
Total $334,598  $142,456   134.9%  45.9%  108.0%  54.1%  (8.0)%

Operating Expenses

Operating expenses, consisting of 17%. The increase in selling, general and administrative (“SG&A”) expenses and research and development costs, and are reported on a consolidated basis for our operating segments. Overall, our operating expenses increased by 92.6% for the First Quarter of 2021 from the First Quarter of 2020.

SG&A increased by 95.2% for First Quarter 2021 from the First Quarter 2020. These increases are primarily attributable to non-cash compensation expenses totaling approximately $218,505 that were paid in options and non-cash professional fees of approximately $125,000 that were paid in stock during the First Quarter 2021, as compared to approximately $97,600 in stock-based compensation expense is mainly duein the First Quarter of 2020. The other SG&A expenses increased by approximately $113,500 for the three months ended March 31, 2021. This increase can be attributed to the marketing expense associated with the Figment Design agreement, and an increase in payroll cost duringemployee cash compensation expenses.

Research and development costs increased 31.2%, or approximately $5,000, for the third quarterFirst Quarter 2021 from the comparable period in 2020. This increase for the First Quarter of 2021 is primarily related to research and development expenses for the hirenew iteration of additional employees and stock based compensation cost.its current product line.

22

Total Other Income

 

Other (income)Total other income was approximately $6,200 for First Quarter 2021 as compared to other expense net. Other (income) expense, net totaled $20,895of approximately $5,900 during the same period in expense and ($250,294) in2020. The other income for the nine months ended September 30, 2017 and 2016, respectively. Other (income) expense for the nine months ended September 30, 2017 was comprised of $2,245 in other income and $23,140 in interest expense. Other (income) for the nine months ended September 30, 2016 was comprised of transactions that are generallyFirst Quarter consists of a non-recurring nature resultinggain from the settlement of a convertible debenture, and associateddebt for $10,000 offset by interest and an insurance audit adjustment.

Net Income. For the nine months ended September 30, 2017, we had net incomeexpense of $15,789 as compared to net incomeapproximately $3,800. The other expenses for First Quarter 2020 consist only of $324,063 for the nine months ended September 30, 2016. It shouldinterest expense. The decrease in interest expense can be noted that the net income for the nine months of 2016 was attributableattributed to the settlement of a convertibledecrease in interest expense on the Marlin Note, as the reduction in the note and related accrued interest. Absent this settlement transaction, we would have had a net loss during the nine months ended September 30, 2016 of $212,301.balance due to repayments made.

 

Liquidity and Capital Resources

 

AsLiquidity is the ability of September 30, 2017, the Company hada company to generate sufficient cash andto satisfy its needs for cash. The following table summarized total current assets, (primarily consisting of inventory) of $1,162,505 andtotal current liabilities of $860,368 or a current ratio of 1.35 to 1. This represents aand working capital surplus of $302,137. This comparesat March 31, 2021(unaudited) as compared to working capital of $102,985 at December 31, 2016.2020.

  March 31,  December 31,  % of 
  2021  2020  change 
  (unaudited)       
Total current assets $1,708,542  $1,469,037   16.3%
Total current liabilities $974,870  $1,029,204   (5.3)%
Working capital $733,672  $439,833   66.8%

The increase in our current assets at March 31, 2021 from December 31, 2020 principally reflects increases in accounts receivable and inventory, net. The decrease in our total current liabilities principally reflect increases in total accounts payable, customer deposits, and other liabilities, offset by decreases in the notes payable and the convertible debentures and the decrease in current maturities of long term debt reflective of the change of terms of the SBA Loan, which extended payment dates to beyond the current year.Subsequent to the period covered by this report, the SBA Loan was forgiven.

 

Summary Cash Flows

  

Three Months Ended

March 31,

 
  2021  2020 
  (unaudited) 
Net cash used by operating activities $(251,455) $(197,583)
Net cash used by investing activities $-  $- 
Net cash provided by financing activities $250,168  $162,863 

Net cash used in operating activities totaled $91,434 compared to cash provided by operating activities of $187,030 for the ninethree months ended September 30, 2017 and 2016, respectively. Net cash usedMarch 31, 2021 was due to the net loss of approximately $440,981 which is primarily attributable to the increase in operating activities duringnon-cash expenses of approximately $245,000. The non-cash expense for the ninethree months ended September 30, 2017 included an increase in prepaid and other assets of $133,179, inventory of $34,123, an increase in depreciation of $20,060, a decrease in current liabilities of $37,185, a decrease in royalty payable of $937, a decrease in customer deposit of $11,491 and an increase in accounts receivable of $52,541 which was partially offset by an increase in accounts payable and accrued liabilities of $62,530, an decrease in accounts receivable – related parties of $13,250March 31, 2021 is attributable stock options issued to Mr. Carmichael and shares issued for service totaling $66,393.services to consultants. The Companycash used $4,131is also the result of increases in current assets, including, inventory, net, and prepaid expenses that utilized approximately $241,900 and the increases of current liabilities including accounts payable, accounts payable – related party, other liabilities, and customer deposits, which totaled to approximately $89,100.

Net cash provided by financing activities for principal payments on notes and loan payables duringin the ninethree months ended September 30, 2017.March 31, 2021 reflects proceeds from the sale of common stock, offset by the repayments of notes payable and Marlin Note.

23

Going Concern and Management’s Liquidity Plans

 

TheAs set forth in Note 3 of the unaudited condensed consolidated financial statements included herein have beenappearing in this report were prepared assuming the Companywe 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-month12-month period following the date of issuance of these consolidated financial statements. Although we had net incomeThe report of our independent registered public accounting firm on our audited consolidated financial statements for the nine months ended September 30, 2017 and the yearsyear ended December 31, 2016, 2015 and 2014, we have otherwise incurred annual losses since 2009, and expect we may have more losses in future periods.2020 contained a going concern qualification.

 

SubsequentWe have a history of losses, and an accumulated deficit of $13,397,118 as of March 31, 2021. Despite a working capital surplus of $733,672 at March 31, 2021, the continued losses and cash used in operations raise substantial doubt as to the third quarter of 2017, the Company received gross proceeds of $60,000 pursuantCompany’s ability to the sale of 1,304,348 Units at $0.046 per Unit, each Unit consisting of four shares of common stock, par value $0.0001 per share and one two year common stock purchase warrant exercisable at $0.0115 per share.

20

Certain Business Risks

continue as a going concern. The Company is subject to various risks, which may materially harm its business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this report before deciding to purchase the Company’s common stock. These are not the only risks and uncertainties that the Company faces. If any of these risks or uncertainties actually occurs, the Company’s business, financial condition or operating results could be materially harmed. In that case, the trading price of the Company’s common stock could decline and you could lose all or part of your investment.

Our ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. As set forth in substantial doubt absent obtaining adequate new debtNote 5 appearing earlier in this report, we owe third parties approximately $100,000 under the terms of convertible debentures that become due in December 2021. In addition, we have an additional $25,000 in loans which are due on demand. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or equity financing and achievingif we do not have sufficient sales levels.

Although we had a net income for the nine month period ended September 30, 2017, we anticipate that losses may occur in the foreseeable future. Additionally, the Company has negative cash flows from operations, is behind on payments due for matured convertible debentures.,. The Company is working out all matters of delinquency on a case by case basis. However, there canwe may be no assurance that cooperation the Company has received thus far will continue.. Our continued existence is dependent upon generating working capital and obtaining adequate new debtrequired to scale back or equity financing. Becausecease certain of our historical operational losses, we may not have working capital to permit us to remain in business during the twelve month period following the date of the financial statements included herein, without improvements in our cash flow from operations or new financing. Working capital limitations continue to impinge on our day-to-day operations, thus contributing to continued operating losses.operations.

 

The optional conversion features of a series of convertible debentures issued by the Company could require the Company to issue a substantial number of shares of common stock, which will cause dilution to the Company’s stockholders and a potentially negative effect on our stock price.Critical Accounting Policies

Since October 4, 2010 the Company has issued convertible debentures to several lenders and other third parties. At September 30, 2017, the outstanding principal balance of these debentures was $312,743. The debentures convert under various conversion formulas, many of which may be at a significant discount to market price of our common stock. The conversion of any of the debentures will result in the issuance of a significant number of shares of our common stock, which will cause dilution to our existing shareholders. Furthermore, the conversion at a significant discount to the market price of our common stock may have a negative effect on our stock price.

Our common stock may be affected by limited trading volume and may fluctuate significantly.

Our common stock is traded on the Over-the-Counter Markets. There is a limited public market for our common stock and there can be no assurance that an active trading market for our common stock will develop. As a result, this could adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Thinly traded common stock can be more volatile than common stock traded in an active public market. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.

Our company is a voluntary filer with the Securities and Exchange Commission and in the event that we cease reporting under the Exchange Act, investors would have limited information available to them about the company.

While we are subject to Section 15(d) of the Exchange Act, we do not have a class of securities registered under Section 12(g) of the Exchange Act. To the extent that our duty to file Exchange Act reports has automatically suspended under Section 15(d) of the Exchange Act, as a voluntary filer, we may elect to cease reporting under the Exchange Act at such time, which would limit the information available to investors and shareholders about the company.

Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements

Our common stock is deemed to be “penny stock” as that term is defined under the Securities Exchange Act of 1934. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our common stock is covered by an SEC rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, which are generally institutions with assets in excess of $5,000,000, or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.

21

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

We depend on the services of our Chief Executive Officer

Our success largely depends on the efforts and abilities of Robert M. Carmichael, our President and Chief Executive Officer. Mr. Carmichael has been instrumental in securing our existing financing arrangements. Mr. Carmichael is primarily responsible for the development of our technology and the design of our products. The loss of the services of Mr. Carmichael could materially harm our business because of the cost and time necessary to recruit and train a replacement. Such a loss would also divert management attention away from operational issues. We do not presently maintain a key-man life insurance policy on Mr. Carmichael.

We require additional personnel and could fail to attract or retain key personnel

We are currently utilizing the services of professional consultants in the absence of a Chief Financial Officer and Chief Operations Officer. The loss of the services of these consultants prior to our ability to attract and retain a Chief Financial Officer or Chief Operations Officer may have a material adverse effect upon us. Also, there can be no assurance that we will be able to retain our existing personnel or attract additional qualified associates in the future.

Our failure to obtain intellectual property and enforce protection would have a material adverse effect on our business

Our success depends in part on our ability, and the ability of our patent and trademark licensors, entities owned and controlled by Robert M. Carmichael, our President and Chief Executive Officer, to obtain and defend our intellectual property, including patent protection for our products and processes, preserve our trade secrets, defend and enforce our rights against infringement and operate without infringing the proprietary rights of third parties, both in the United States and in other countries. Despite our efforts to protect our intellectual proprietary rights, existing copyright, trademark and trade secret laws afford only limited protection.

Our industry is characterized by frequent intellectual property litigation based on allegations of infringement of intellectual property rights. Although we are not aware of any intellectual property claims against us, we may be a party to litigation in the future.

We may be unable to manage growth

Successful implementation of our business strategy requires us to manage our growth. Growth could place an increasing strain on our management and financial resources. If we fail to manage our growth effectively, our business, financial condition or operating results could be materially harmed, and our stock price may decline.

Reliance on vendors and manufacturers

We deal with suppliers on an order-by order basis and have no long-term purchase contracts or other contractual assurances of continued supply or pricing. In addition, we have no long-term contracts with our manufacturing sources and compete with other companies for production facility capacity. Historically, we have purchased enough inventories of products or their substitutes to satisfy demand. However, unanticipated failure of any manufacturer or supplier to meet our requirements or our inability to build or obtain substitutes could force us to curtail or cease operations.

22

Dependence on consumer spending

 

The successpreparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the our business depends largely upon a numberreported amount of factorsassets 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 consumer spending, including currentrevenue recognition, valuation of inventory, allowance for doubtful accounts, and future economic conditions affecting disposable consumer income such as employment, business conditions, tax rates,equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and interest rates. In times of economic uncertainty, consumers tendassumptions that are significant to defer expenditures for discretionary items,understanding our results, which affect demand forare described in Note 2 to our products. Any significant deterioration in overall economic conditions that diminishes consumer confidence or discretionary income can reduce our sales and adversely affect ourunaudited condensed consolidated financial results. The impact of weakening consumer credit markets; layoffs; corporate restructurings; higher fuel prices; declines in the value of investments and residential real estate; and increases in federal and state taxation can all negatively affect our results. There can be no assurance thatstatements appearing earlier in this type of environment consumer spending will not decline beyond current levels, thereby adversely affecting our growth, net sales and profitability or that our business will not be adversely affected by continuing or future downturns in the economy, boating industry, or dive industry. If declines in consumer spending on recreational marine accessories and dive gear are other than temporary, we could be forced to curtail operations.report.

 

Government regulations may impact usRecent Accounting Pronouncements

 

The SCUBA industry is self-regulating; therefore, Brownie’s is not subject to government industry specific regulation. Nevertheless, Brownie’s strives to be a leader in promoting safe diving practices within the industry and is at the forefront of self-regulation through responsible diving practices. Brownie’s is subject to all regulations applicable to “for profit” companies as well as all trade and general commerce governmental regulation. All required federal and state permits, licenses, and bonds to operate its facilityrecent accounting standards that have been obtained. There can be no assuranceissued or proposed by the FASB or other standards-setting bodies that our operations will not be subject to more restrictive regulations in the future, which could force us to curtail or cease operations.

Bad weather conditions could have an adverse effect on operating results

Our business is significantly impacted by weather patterns. Unseasonably cool weather, extraordinary amounts of rainfall, or unseasonably rough surf, may decrease boat use and diving, thereby decreasing sales. Accordingly, our results of operations for any prior period may not be indicative of results of any future period.

Investors should not rely on an investment in our stock for the payment of cash dividends

We have not paid any cash dividends on our capital stock and we do not anticipate paying cash dividends in the future. Investors shouldrequire adoption until a future date are not make an investment in our common stock if they require dividend income. Any return on an investment in our common stock will be as a result of any appreciation, if any, in our stock price.

The manufacture and distribution of recreational diving equipment could result in product liability claims

We, like any other retailer, distributor and manufacturer of products that are designed for recreational sporting purposes, face an inherent risk of exposureexpected to product liability claims in the event that the use of our products results in injury. Such claims may include, among other things, that our products are designed and/or manufactured improperly or fail to include adequate instructions as to proper use and/or side effects, if any. We do not anticipate obtaining contractual indemnification from parties-supplying raw materials, manufacturing our products or marketing our products. In any event, any such indemnification if obtained will be limited by our terms and, as a practical matter, to the credit worthiness of the indemnifying party. While we currently have product liability insurance, we are a defendant in a wrongful death lawsuit which is not covered by the current insurance policy. See Part II, Item 1 to this report below. In the event that we do not have adequate insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effectimpact on our operations andthe financial conditions, which could force us to curtail or cease our business operations.

23

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidencestatements upon adoption. These recent accounting pronouncements are described in our financial reporting, which would harm our business and the trading price of our stock.

Our management has previously determined that we did not maintain effective internal controls over financial reporting. For a detailed description of these material weaknesses and our remediation efforts and plans, see “Part II — Item 9A — Controls and Procedures.” If the result of our remediation of the identified material weaknesses is not successful, or if additional material weaknesses are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further implement expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness of our financial reports which could have an adverse effect on our stock price and potentially subject us to litigation.

We currently have no independent directors, which poses a risk for us from a corporate governance perspective.

Robert Carmichael, our only executive officer, also serves as our only director. Our director and executive officer is required to make interested party decisions, such as the approval of related party transactions, his level of his compensation, and oversight of our accounting function. Our director and executive officer also exercise substantial control over all matters requiring stockholder approval, including the nomination of directors and the approval of significant corporate transactions. DueNote 2 to our lack of independent directors, we have not implemented various corporate governance measures, the absence of which may cause stockholdersnotes to have more limited protections against transactions implemented by our board of directors, conflicts of interest and similar matters. Stockholders should bearunaudited condensed consolidated financial statements appearing earlier in mind our current lack of corporate governance measures in formulating their investment decisions.this report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable to Smaller Reporting Company.applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. The Company’s management, under the supervision and with the participation of Robert Carmichael, the Company’sour Chief Executive Officer and our Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2017.March 31, 2021. Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting,” theour Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reportingreport as a result of the Company. Management, withcontinuing material weakness in the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of ourCompany’s internal control over financial reporting as described in Item 9A. of September 30, 2017, based onour 2020 10-K. We do not, however, expect that the criteria establishedweaknesses in 2013 Internal Control - Integrated Framework issued byour disclosure controls will be remediated until such time as we remediate the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,material weaknesses in our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles because of the Company’s limited resources and limited number of employees. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

24

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.reporting.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15 under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

24

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In addition,

We are a defendant in that certain lawsuit styled Basil Vann, as previously disclosed,Personal Representative of the Company, Trebor and other third parties, are each named as a co-defendants under an actionEstate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., Case number CACE19009879 filed in March 2015on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, under Case No. CACE15-03238Florida. The complaint, which relates to consulting services provided to the Company by the Estatedeceased between 2005 and 2017, alleges breach of Ernesto Rodriguez, claiming wrongful deathcontract and products liability resultingquantum meruit and is seeking $15,870.97 in unpaid consulting fees together with interest. In April 2020 the Company filed a Motion to Dismiss, and at a hearing held in May 2021 the Court struck certain allegations contained in the decedent’s drowning death while using a Brownie’s Third Lung product. This claim falls outsidecomplaint, the Company’s period of insurance coverage. Plaintiff has claims damages exceeding $1,000,000. A default judgment was entered against Trebor in 2015 dueparties agreed that the quantum meruit allegation is deemed to its failure to timely respondbe an alternative to the complaint.breach of contract allegation, but permitted certain other allegations to stand. The parties are in the process of scheduling mediation pursuant to the Court’s order. While we are vigorously defending the Company has obtained different legal representation in this matter, and attempted to have the default set aside. On November 2, 2016, the court granted plaintiff’s motion for sanctions against our company for frivolous litigation relating to our attempt to have the matter dismissed and granted the plaintiff’s motion to strike our motion for summary judgment due to our initial default. The Company believes the claim to be a Workers Compensation claim relating exclusively against other non-affiliated defendants and without merit, and will aggressively defend this action and to appeal the default judgment. In the event Trebor iswe are unable to overturn the default judgment and the defendants are determined to be at fault, we would seek to allocate damages among all of the other parties, including the plaintiff. At this time to predict the amountultimate outcome of any loss, or range of loss, cannot be reasonably estimated due to the undetermined validity of any claim or claims made by plaintiff and the mitigating factors among the parties. Therefore, the Company has not recorded reserves and contingent liabilities related to this matter. However, in the future, as the case progress, the Company may be required to record a contingent liability or reserve for these matters.litigation.

 

Item1a.1A. Risk Factors

 

Not Applicable to Smaller Reporting Company.We incorporate by reference the risk factors disclosed in Part I, Item 1A of our 2020 10-K.

25

 

Item 2. Unregistered sales of equity securities and use of proceeds

 

In addition Except as to the equityunregistered sales of securities previously disclosed under Form 8-K,prior reports, during the Company recentlyperiod covered by this report we sold the equity securities disclosed below without registrationthat were not registered under the Securities Act of 1933, as amended. The securities were issued under the exemption from registration provided under Section 4(a)(2) of the Securities Act of 1933, as amended. No fees or commissions were paid by the Company.

From October 23, 2017 through November 1, 2017 the Company received gross proceeds of $60,000 pursuant to the sale of Units at $0.046 per Unit, each Unit consisting of four shares of common stock, par value $0.0001 per share and one two year common stock purchase warrant exercisable at $0.0115 per share. The Units were sold to 3 accredited investors.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety DisclosureMINE SAFETY DISCLOSURE

 

None.

 

Item 5. Other Information

 

None.

25

 

Item 6. Exhibits

 

Exhibit No.DescriptionLocation
31.1Certification Pursuant to Rule 13a-14(a)/15d-14(a)Provided herewith.
31.2Certification Pursuant to Rule 13a-14(a)/15d-14(a)Provided herewith.
32.1Certification Pursuant to Section 1350Provided herewith.
32.2Certification Pursuant to Section 1350Provided herewith.
101XBRL Interactive Data File *
    Incorporated by Reference Filed
        Exhibit or Furnished
No. Exhibit Description Form Date Filed Number Herewith
           
3.1 Articles of Conversion (Nevada) 8-K 10/28/15 3.1  
           
3.2 Certificate of Conversion (Florida) 8-K 10/28/15 3.2  
           
3.3 Articles of Incorporation (Florida) 8-K 10/28/15 3.3  
           
3.4 Articles of Amendment 8-K 12/16/15 3.5  
           
3.5 Bylaws 8-K 10/28/15 3.4  
           
10.1 Hyatt subscription agreement dated March 25, 2021        
           
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a)       Filed
           
32.1 Certification Pursuant to Section 1350       Filed
           
101 XBRL Interactive Data File       Filed

 

* Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Equity (Deficit) (iv) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text.

26

 

 

SIGNATURES

 

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 13, 2017May 17, 2021Brownie’s Marine Group,marine group, Inc.
By:/s/ Christopher H. Constable
Christopher H. Constable
Chief Executive Officer,
principal executive officer
   
 By:/s/ Robert M. Carmichael
  Robert M. Carmichael
  President, Chief ExecutiveFinancial Officer,
  Chief Financial Officer/
Principal Accounting Officerprincipal financial and accounting officer

 

27