U.S.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DCWashington, D.C. 20549

FORM 10-Q

FORM 10-Q(Mark One)

(mark one)or

[X] Quarterly Report PursuantCommission file number 333-99393

BROWNIE’S MARINE GROUP, INC.

(Exact name of registrant as specified in its charter)

(954)462-5570

Registrant’s telephone number, including area code

Securities registered pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934

For the quarterly period endedSeptember 30, 2017

[  ] Transition report under Section 13 or 15(d)12(b) of the Securities Exchange Act of 1934Act:

For the transition period from _______ to _______.

Commission File No. 333-99393

Brownie’s Marine Group, Inc.

(Name of Small Business Issuer in Its Charter)

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 ☒ No ☐

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 ☒ No ☐

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.

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] ☒

ThereAs of August 14, 2023, there were 86,710,793437,345,641 shares of common stock outstanding as of November 13, 2017.outstanding.

TABLE OF CONTENTS

NOTE REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs.

You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2023, which risk factors could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law.

PART I

Item

ITEM 1. Financial StatementsFINANCIAL STATEMENTS

Financial Information

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)FOR THE THREE AND SIX MONTHS ENDED JUNE 30,

(unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHARHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(Unaudited)

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

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)FOR THE SIX MONTHS ENDED JUNE 30,

(unaudited)

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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

BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Supplemental disclosures of cash flow information:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

Description of business –Brownie’s(UNAUDITED)

Note 1. Company Overview

Brownie’s Marine Group, Inc., (hereinafter referred to as the (the “Company”, “we” 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, incorporated in 1981 (“Trebor” or “BTL”), manufactures and sells high pressure air and industrial. compressor packages, yacht based scuba air compressor and nitrox generation systems through its 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-ownedFlorida corporation incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BHP”BLU3”). Through BHP we expect to establish sales, distributionOn September 3, 2021, the Company, entered into an Agreement and service centers for high pressure airPlan of Merger and industrial gas systems in the dive, fire, CNG, military, scientific, recreationalReorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation and aerospace industries. The Company’s common stock is quoted on the OTC Markets (Pink) under the symbol “BWMG”.

Basis of Presentation – The financial statementswholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or “SSI”), and Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company.

Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world.

On February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition.

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

Basis of Presentation

The unaudited interim consolidated financial statements 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, 20162022 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 the footnotes theretoCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission as part2022 for a broader discussion of the Company’s Form 10-K which was filed on April 17, 2017.

Definitionbusiness and the risks inherent in such business. The results of fiscal year – The Company’soperations for the six months ended June 30, 2023, are not necessarily indicative of results to be expected for any other interim period or the fiscal year end isending December 31.31, 2023.

Principles of Consolidation

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

Use of estimates –

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

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 financial statements.

Although the Company had net income for the nine months ended September 30, 2017 and the years 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.

Cash and cash equivalents –

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

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per EIN. At June 30, 2023 and December 31, 2022, the Company had no amount in excess of the FDIC insured limit.

Accounts receivable

The Company manufactures and sells its products to a broad range of customers, primarily retail stores. Few customers are provided with payment terms of 30 days. The Company has tracked historical loss information for its trade receivables and compiled historical credit loss percentages for different aging categories (current, 1–30 days past due, 31–60 days past due, 61–90 days past due, and more than 90 days past due).

In accordance with ASU 2016-13, management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at June 30, 2023 because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed significantly over time). As a result, management applied the applicable credit loss rates to determine the expected credit loss estimate for each aging category. Accordingly, the allowance for expected credit losses at June 30, 2023 totaled $28,558.

Inventory

Inventory consists of the following:

Schedule of Inventory

As of June 30, 2023 and December 31, 2022, the Company recorded allowances for obsolete or slow moving inventory of approximately $166,698.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSRevenue Recognition

Accounts receivable – Accounts receivable consistThe Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers. The Company recognizes revenue when performance obligations under the terms of amountsa contract with the customer are satisfied. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due fromupon receipt of the sale of all of our products to wholesaleinvoice and retail customers. The allowance for doubtful accountsthe contracts do not have significant financing components. Product sales occur once control or title is estimatedtransferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and promotional allowances. Such provisions are calculated based on the actual allowances given. Management believes that adequate provision has been made for cash discounts, returns, spoilage and promotional allowances based on the Company’s historical customer experienceexperience.

A breakdown of the total revenue between related party and industry knowledge,non-related party revenue is as follows:

Schedule of September 30, 2017,Total Revenue between Related Party and Non-Related Party Revenue

Cost of sales consists of the allowance for bad debts is $22,713.

Inventory– Inventory is stated atcost of the lowercomponents of cost or net realizable value. Cost is principally determined by usingfinished goods, the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consistscosts of raw materials utilized in the manufacture of products, in-bound and out-bound freight charges, direct manufacturing labor as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished goods held for sale. The Company’s management monitors theproducts, inventory allowance for excess and obsolete itemsproducts, 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 principallyroyalties paid on licensing agreements. Components account for the straight-line method over the estimated useful liveslargest portion of the assets or term of the lease, which are primarily 3 to 5 years. The cost of repairssales. Components include plastic molded parts, gas powered engines, aluminum pressure bottles, electronic parts, batteries and maintenance is chargedpackaging materials.

The breakdown of cost of sales to expenseinclude cost of sales for related party and non-related party 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 ofwell as the related undiscounted cash flows over the remaining lifeparty and non-related party royalty expense is as follows:

Schedule of the fixed assets in measuring their recoverability.Related Party and Non-Related Party Royalty Expense

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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSLease Accounting

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 taxesleases in accordance with ASC 842, Leases.

The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. The Company elected the practical expedients permitted under the assetstransition guidance of the new standard that retained the lease classification and liabilities method, which requires recognitioninitial direct costs for any leases that existed prior to adoption of deferred tax assetsthe standard. The Company did not reassess whether any contracts entered into prior to adoption are leases or contain leases.

The Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and liabilitiesequipment, net. All other leases are categorized as operating leases. The Company did not have any finance leases as of June 30, 2023. The Company’s leases generally have terms that range from three years for future tax consequencesequipment and five to twenty years for property. The Company elected the accounting policy to include both the lease and non-lease components of events that have been included in the financial statements. Under this method, deferred tax assetsits agreements as a single component and account for them as a lease.

Lease liabilities are determinedrecognized 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 differences betweeninitial present value of the financial statementsfixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and tax basisamortized over the lesser of assets and liabilities using enacted tax rates in effecttheir expected useful life or the lease term.

When the Company has the option to extend the lease term, terminate the lease for the year in whichcontractual expiration date, or purchase the differences are expected to reverse. The effect of a change in tax rates on deferred tax assetsleased asset, and liabilitiesit is recognized in income in the periodreasonably certain that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believeswe will exercise the option, it considers these options in determining the classification and measurement of the lease. Costs associated with operating lease assets will more likely than not be realized. In making such determination,are recognized on a straight-line basis within operating expenses over the Company considers all available positiveterm of the lease.

For the three and negative evidence, including future reversalssix months ended June 30, 2023, lease expenses were approximately $82,000 and approximately $133,400, respectively. For the three and six months ended June 30, 2022, lease expenses were approximately $64,500 and approximately $104,800, respectively. Cash paid for operating liabilities for the three and six months ended June 30, 2023 was approximately $77,800 and approximately $170,400, respectively. For the six months ended June 30, 2022 cash paid for operating liabilities was approximately $128,400.

Supplemental balance sheet information related to leases was as follows:

Schedule 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.Supplemental Balance Sheet Information

Stock-Based Compensation

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 allstock-based compensation relatedin accordance with ASC 718, Compensation-Stock Compensation. ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the grant-date fair value of the award and is recognizedto recognize it as compensation expense over the period the employee and non-employee are required to provide service period, which isin exchange for the award, usually the vesting period.

The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price.

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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSDerivatives

Level 2 - Quoted prices for similar assetsThe accounting treatment of derivative financial instruments requires that the Company record certain warrants 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 theembedded conversion options at their fair value as of the assets or liabilities. Level 3 assetsinception date of the agreement and liabilities include financial instruments whoseat fair value as of each subsequent balance sheet date. Any change in fair value is determined using pricing models, discounted cash flow methodologies,recorded as non-operating, non-cash income or similar techniques,expense for each reporting period at each balance sheet date. If the classification changes as wella result of events during the period, the contract is reclassified as instrumentsof the date of the event that caused the reclassification. As a result of entering into certain note agreements, for which such instruments contained a variable conversion feature with no floor, the determinationCompany has adopted a sequencing policy, by earliest issuance date, in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of fair value requires significant management judgmentinstruments related to share-based compensation issued to employees or estimation.directors, as long as the certain variable issuance terms in certain convertible instruments exist. As of June 30, 2023 the Company did not have any derivative liabilities.

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 earningsLoss per share excludeof common stock

Basic loss per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share areis computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earningsloss 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 At June 30, 2023 and June 30, 2022, 149,087,986 and 245,847,251 shares, respectively, of potentially dilutive shares are includedwere not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock.

Recent accounting pronouncements

ASU 2016-13 Current Expected Credit Loss (ASC326)

In December 2021, the FASB issued an update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance was adopted on January 1, 2023 with no effect to the financial statements.

ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in dilutive earnings per share totaled 58,156,862Entity’s Own Equity (Subtopic 815-40) - Accounting for the nine months ended September 30, 2017.Convertible Instruments and Contracts on an Entity’s Own Equity.

New accounting pronouncements – In April 2016,August 2020, the FASB issued ASU No. 2016-15,“Classification of Certain Cash Receipts2020-06, Debt - Debt with Conversion and Cash Payments”Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effectivesimplifies accounting 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 renderconvertible instruments by removing major separation models required under current GAAP. Consequently, 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 thereconvertible debt instruments 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 thereported as a single liability instrument with no separate accounting for employee share-based payments. This standard addresses several aspects ofembedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for 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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In February 2016, the FASB issued ASU 2016-02,Leases,derivative scope exception, which will amend current lease accountingpermit more equity contracts 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 assetqualify for the lease term.exceptions. The ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however,also simplifies the diluted net income per share calculation in 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. ASUareas. The new guidance is effective for fiscal years beginning after December 15, 2016, and2023, including interim periods within those fiscal years. ASU 2015-11 should be applied prospectively with earlier applicationyears, and early adoption is permitted. The Company opted for earlyis currently evaluating the impact of the adoption of ASU 2015-11 this period with no impact to financial condition, results of operations, or cash flows. The Company updated itsthe standard on the consolidated financial statementsstatements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to 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 ofhave a material impact on our financial statements.statements upon adoption or are not applicable.

BROWNIE’S MARINE GROUP, INC.Note 3. Going Concern

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Inventory consistsThe accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the following as of:

Depreciation and amortization expense totaled $2,219 and $20,060satisfaction of liabilities in the normal course of business for the threetwelve-month period following the date of these consolidated financial statements. For the six months ended June 30, 2023, the Company incurred a net loss of $517,766. At June 30, 2023, the Company had an accumulated deficit of $16,955,261. Despite a working capital surplus of approximately $1,162,452 at June 30, 2023, the continued losses and nine month periods ending September 30, 2017,cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital and $9,197sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and $27,157 forcash flows would be detrimental to the three and nine month periods ending September 30, 2016, respectively.Company. The consolidated financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

Other assets of $6,649 at September 30, 2017 and December 31, 2016, respectively, consisted solely of refundable deposits.Note 4. Related Party Transactions

The Company sells products to three (3) entitiesBrownie’s Southport Divers, Brownie’s Yacht Toys and Brownie’s Palm Beach Divers, companies owned by the brother of Robert Carmichael, the Company’s Chief Executive Officer and 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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Net revenues and accounts receivable – related parties – The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Company’s 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 9.9% and 12.1% of the net revenues from these entities for the three months ended SeptemberJune 30, 20172023 and 2016, was $220,363June 30, 2022, respectively, and $234,368, respectively. Combined net revenues from these entities11.2% and 12.9% for ninethe six months ended Septemberending June 30 20172023 and 2016, was $582,683 and $567,1962023, respectively. Accounts receivable from Brownie’s Southport Diver’s, Inc.these entities totaled $59,092 and $53,079, Brownie’s Palm Beach Divers,at June 30, 2023 and Brownie’s Yacht Toys totaled $51,700 at September 30, 2017 and $58,420, at December 31, 2016, 2022, respectively.

The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”), 3D BuoyBGL and 940 Associates, Inc., affiliated with the Company’s Chief Executive Officer.A, entities wholly-owned by Robert Carmichael. Terms of sale are more favorable than those extended to BWMG’sthe Company’s regular customers, but no more favorable than those extended to Brownie’sthe Company’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 three entities totaled $8,264 and $2,349at SeptemberJune 30, 2016 was $2,146. Accounts receivable from BGL, 3D Buoy2023 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, 2016 was $9,819.2022, respectively.

Royalties expense –The Company had accounts payable to related parties –of $22,841 and $37,539 at June 30, 2023 and December 31, 2022, respectively. The balance payable at June 30, 2023 was comprised of $4,352 due to 940 A, $5,441 due to Robert Carmichael and $76 due to Blake Carmichael. At December 31, 2022, the balance payable was comprised of $7,635 due to 940 A, $2,980 due to BGL and $5,000 due to Robert Carmichael.

The Company has an Exclusive License Agreementexclusive license agreements 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“Brownie’s Third Lung”, “Tankfill”, “Brownies“Brownie’s Public Safety” and various other related trademarks as listed in the agreement. This license agreement calls foragreements. The agreements provide that the Company to pay 940A 2.5%2.5% of gross revenues per quarter.quarter as a royalty to 940A. Total royalty expense for the above agreementsthree months ended June 30, 2023 and June 30, 2022 was $15,483 and $17,824, respectively. For the six months ended June 30, 2023 and June 30, 2022 the royalty expense totaled $25,695 and 30,613, respectively. The accrued royalty for June 30, 2023 was $7,513 and is included in other liabilities.

On September 30, 2022, the Company issued a convertible demand 8% promissory note in the principal amount of $66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the three monthsnote, and ended September 30, 2017 and 2016,interest is disclosed onpayable in shares of common stock of the faceCompany at a conversion price equal to the 90 day value weighted average price (“VWAP”) of the Company’s Condensed Consolidated Statements of Operations totaled $12,761 and $20,714, respectively, and forstock prior to the nine months and ended September 30, 2017 and 2016 totaled $42,247 and $46,332, respectively. In November 2016,quarterly interest payment date. The note holder may demand payment or convert the Company entered intooutstanding principal at a conversion agreement under whichrate of $0.021 per share at any time. The conversion rate was calculated at a 35% discount to the Company issued 10,000,000 shares90 day VWAP of restricted commonthe Company’s stock in satisfaction of $88,850 past due and payable to 940A. Asas of the date of the note. The Company recorded $19,250 for the beneficial conversion agreement,feature. As this conversion rate is a fixed rate, the Company was more than 31 months in arrears on its royaltyembedded conversion feature is not a derivative liability. There were payments totaling approximately $151,000. In addition, 940A agreed to forebear$3,047 made with products in kind during the six months ended June 30, 2023. The outstanding balance on any default under the License Agreement due to the Company’s remaining past due amount for a periodthis note was $63,746 as of three months from the effective date of the conversion agreement. The shares issued were valued at $0.008885 per share, the closing price of the stock on the effective date of the conversion agreement. No default notice had been received prior to the conversion agreement.June 30, 2023.

On March 1, 2017, the CompanyJanuary 18, 2023 and 940A entered into a second conversion agreement. Under the agreementFebruary 18, 2023, the Company issued 940A 4,587,190to Charles Hyatt, a Company director, an aggregate of 11,428,570 units, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $0.0175 per share in consideration of $200,000.

On March 31, 2023, the Company issued 61,204 shares of restricted common stock in satisfactionto Robert Carmichael for payment of $63,303, which represented all pastinterest on the convertible demand note for the three months ending March 31, 2023. The fair value of these shares was $1,336.

On June 30, 2023, the Company issued 61,677 shares of common stock to Robert Carmichael for payment of interest on the convertible demand note for the three months ending June 30, 2023. The fair value of these shares was $1,287.

Note 5. Convertible Promissory Notes and Loans Payable

Convertible Promissory Notes

Convertible promissory notes consisted of the following at June 30, 2023:

Schedule of Convertible Debentures

A breakdown of current and long-term amounts due and payable amounts to 940A underare broken down as follows for the Exclusive License Agreementconvertible prommisory notes as of March 1, 2017. AsJune 30, 2023:

Schedule convertible promisory notes

Schedule of Future Amortization of Notes Payable