Brownie's Marine Group, Inc 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures 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. Based on their evaluations as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. Our management, including our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the design and operations of our disclosure controls and procedures (defined in Exchange Act Rules 13a-15(c) and 15d-15(e)) as of the end of the periods covered by this report. Based upon the evaluation, our Chief Executive Officer who also serves as our principal financial and accounting officer have concluded that the disclosure controls and procedures as of December 31, 2020 were not effective due to the material weaknesses identified below. To address these material weaknesses, management performed additional procedures to ensure the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. 23 Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. The framework used by management in making that assessment was the criteria set forth in the documents entitled “2013 Internal Controls – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that, during the period covered by this report, such internal controls and procedures were not effective as of December 31, 2020 and the material weaknesses in internal controls over financial reporting (“ICFR”) existed as more fully described below. A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCOAB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses, which have caused management to conclude that as of December 31, 2020 our ICFR were not effective at the reasonable assurance level: ● There are an insufficient number and lack of qualified accounting department and administrative personnel and support; ● There are insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to GAAP and SEC disclosure requirements; ● Insufficient segregation of duties, oversight of work performed and lack of controls in our finance and accounting functions due to limited personnel; ● The Company’s systems that impact financial information and disclosures have ineffective information technology controls; ● Inadequate controls surrounding revenue recognition, to ensure that all material transactions and developments impacting the financial statements are reflected and properly recorded; and ● Management evaluation of (i) the disclosure controls and procedures, and (ii) our ICFR was not sufficiently comprehensive due to limited personnel. Notwithstanding the existence of these material weaknesses in our ICFR, management believes that the consolidated financial statements included in this Form 10-K present in all material respects our financial condition, results of operations and cash flows for the periods presented. Internal Control Remediation Efforts . Management expects to remediate the material weaknesses identified above as follows: ● Management has leveraged and will continue to leverage experienced consultants to assist with ongoing GAAP and SEC compliance requirements. We intend to expand our finance department through the hiring of a certified public accountant to strengthen the segregation of duties, internal controls and enhance our current staff. ● Segregation of duties will be analyzed and adjusted Company-wide as part of the internal controls implementation and documentation of those controls and procedures that is expected to commence in 2021. ● The Company plans on evaluating various accounting systems to enhance our system controls. 24 We will continue to monitor and evaluate the effectiveness of our ICFR on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved ICFR. Changes in Internal Control over Financial Reporting There have been no changes in our ICFR during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers, and Corporate Governance. The following are our executive officers and directors . Name Age Position Robert M. Carmichael 58 Chairman, President, and Chief Financial Officer Christopher H. Constable 54 Chief Executive Officer and director Charles F. Hyatt 52 Director Key Employees Blake Carmichael 26 Chief Executive Officer and President of BLU3 Robert M. Carmichael. Since April 2004, Mr. Carmichael has served as our Chairman and President, and from April 2004 until November 2020 he also served as our Chief Executive Officer. He also serves as our Chief Financial Officer. Mr. Carmichael is the holder and co-holder of numerous patents, some of which are used by our company and several other major companies in the diving industry. Mr. Carmichael was selected to serve on the board of directors for his general business management with specific experience in diving industry. Robert M. Carmichael is the father of Blake Carmichael. Christopher H. Constable . Mr. Constable as served as our Chief Executive Officer and member of our board of directors since November 2020. Prior to joining our company, from August 2020 through the November 2020 Mr. Constable provided consulting services. Mr. Constable has over 16 years experience as serving as a Chief Financial Officer. From 2003 through February 2020 he served as Chief Financial Officer of John Keeler & Co., Inc., d/b/a Blue Star Foods, a privately held Florida corporation, an international seafood company. In 2018 John Keeler & Co., Inc. merged into Blue Star Foods Corp., a Miami, Florida-based sustainable seafood company (OTC Pink: BSFC). Mr. Constable served as Chief Financial Officer and a member of Blue Star Foods Corp.’s board of directors from the closing of the merger through February 2020. Prior thereto, from 1999 to 2003, Mr. Constable was a consultant at Gateway Capital Corp., a business consulting firm, where he analyzed the financial and reporting capabilities of prospective lending customers with revenues from $10 to $100 million. Additionally, Mr. Constable was involved with loan workouts of facilities that required either liquidation or restructuring to ensure collectability for the financial institutions. From 1990 to 1999, Mr. Constable was a commercial banker at Mercantile Bankshares in Baltimore, Maryland, Finova Capital Corporation and Capital Bank, both in south Florida. During 2020 Mr. Constable has also provided business and financial consulting services. In 1989 Mr. Constable received his B.S. in Finance with an Accounting Minor from the Merrick School of Business at the University of Baltimore. Mr. Constable’s experience with public companies and over 30 year background in finance and accounting led to the decision to appoint him to the board of directors. 25 Charles F. Hyatt . Mr. Hyatt was appointed to the Company’s board of directors in March 2019. Mr. Hyatt is involved in the automotive industry and present owner of several franchise car dealerships in Myrtle Beach, South Carolina, including Myrtle Beach Hyundai (since 1999) and Hyatt Buick & GMC (since 2001). In the past his ownerships also included Myrtle Beach Suzuki (from 2004 until 2012), Sun Coast Mazda and Mitsubishi (from 2001 until 2009), Stone Mountain Chevrolet (from 2001 until 2009. From 1994 to 1997, Mr. Hyatt has served as Wholesale Purchase Director with Lamar Ferrel Chevrolet, and from 1991 to 1994 as General Manager of Bob Harris Ford. From 1988 to 1990 Mr. Hyatt was the Demonstration Director of Auto Dialysis, and from 1986 to 1998 the General Manager/Operational Partner of Ken Hyatt Dodge, Chrysler and Plymouth. Since 2013, Mr. Hyatt has owned and operates the Gilligan Island Funland Golf amusement park. Mr. Hyatt sits on the American Cross Heroes committee and is the winner of the Jefferson Award (2017) for his community involvement. Mr. Hyatt was selected to serve on the board of directors for his general business management experience. Key Employee Blake Carmichael . Since December 2017, Mr. Carmichael has served as Chief Executive Officer of BLU3. He joined our company in May 2017 as an electrical engineer with a primary focus to develop new battery powered hookah diving products. Mr. Carmichael graduated from Florida Atlantic University in May 2017 with a Bachelor of Science in Electrical Engineering. During college, he worked in 2014 and 2015 as a participant in the University of Central Florida / Lockheed Martin College Work Experience Program as a systems engineer with a focus on testing for infrared imaging systems used in military aircraft. In the summer of 2016, he participated in the Naval Surface Warfare Center’s Naval Research Enterprise Intern Program with a focus on integrating underwater vehicles for survey and recovery at the South Florida Ocean Measurement Facility. Blake Carmichael is the son of Robert M. Carmichael. There are no family relationships between any of the executive officers, directors and key employees other than as set forth above. Board of Directors Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out his or her term, or if the Board increases the number of directors, the Board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Our board of directors may consist of up to nine directors. Board Leadership Structure and Board’s Role in Risk Oversight The board of directors is comprised of two members of our management and one independent director. Given the size of our company, our Board believes the current leadership structure is appropriate for our company. As our company grows, we expect to expand our board of directors through the appointment of independent directors. Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including economic risk, liquidity risk, product liability risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of the risks we face and have responsibility for the oversight of risk management in their dual roles as directors. Committees of the Board Of Directors; Stockholder Nominations; Audit Committee Financial Expert We have not established any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing similar functions. The functions of those committees are being undertaken by our board of directors as a whole. We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our board of directors established a process for identifying and evaluating director nominees, nor do we have a policy regarding director diversity. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board of directors and we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board. 26 Mr. Constable is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or board of directors who: ● understands generally accepted accounting principles and financial statements; ● is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves; ● has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements; ● understands internal controls over financial reporting; and ● understands audit committee functions. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our board of directors. Compensation of Directors The following table provides information concerning the compensation paid to our independent directors for their services as members of our board of directors during 2020. Mr. Carmichael’s and Mr. Constable’s director compensation is included in the Executive Compensation table appearing later in this report. For awards of stock, the aggregate grant date fair value is computed in accordance with FASB ASC Topic 718. The information in the following table excludes any reimbursement of out-of-pocket travel and lodging expenses which we may have paid: Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) Non-equity incentive plan compensation ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Charles F. Hyatt 18,000 - - - - - 18,000 Mikkel Pitzner (1) - - - - - - - Jeffrey Guzy (2) 10,000 - 40,107 - - - 50,107 (1) Mr. Pitzner resigned from our Board of Directors in January 2020. (2) Mr. Guzy resigned from our Board of Directors in November 2020. Compliance with Section 16(a) of the Exchange Act Not applicable to our company. Code of Ethics The Company has adopted a formal code of ethics that applies to our principal executive officer and principal accounting officer, all other officers, directors and employees. The code of ethics was provided as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2008. The Company undertakes to provide to any person without charge, upon written request to the Company’s Chief Executive Officer, a copy of the code of ethics. 27 Shareholder Communications Although we do not have a formal policy regarding communications with our Board, shareholders may communicate with the Board by writing to us at Brownie’s Marine Group, Inc., 3001 NW 25th Avenue, Suite 1, Pompano Beach, Florida 33069, Attention: Mr. Christopher H. Constable. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate. Item 11. Executive Compensation The following table summarizes all compensation recorded by us in the past two years for: ● our principal executive officer or other individual serving in a similar capacity; ● our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2020; and ● up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2020. For definitional purposes, these individuals are sometimes referred to as the “named executive officers.” The amounts included in the “Stock Awards” column represent the aggregate grant date fair value of the shares of our common stock, computed in accordance with ASC Topic 718. The assumptions made in the valuations of the stock awards are included in note 11 of the notes to our consolidated financial statements appear later in this report. Information regarding his compensation is set forth below. Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) No equity incentive plan compensation ($) Non-qualified deferred compensation earnings ($) All other compensation ($) Total ($) Robert M. Carmichael 2020 120,000 - 33,184 (2 ) 666,239 (3 ) - - 107,528 (4 ) 926,951 CFO (1) 2019 120,000 - 188,144 (2 ) 76,423 (3 ) - - 90,362 (4 ) 474,929 Christopher H Constable, CEO (5) 2020 26,923 - 45,659 (6 ) 106,890 (7 ) - - - 179,472 (1) Mr. Carmichael served as our Chief Executive Officer from 2004 until November 2020 when Mr. Constable joined our company. Mr. Carmichael continues to serve as Chairman, President and Chief Financial Officer. (2) Stock awards included $31,904 representing the fair value of 725,087 shares of common stock issued to Mr. Carmichael for his participation in the BLU3-VENT project. in 2020. On December 11, 2018, the Company awarded 20,000,000 common shares to Mr. Carmichael as an incentive bonus, subject to his continued employment through January 2, 2020. Expense for the issuance was recognized over the full vesting period, and accordingly, we recognized stock compensation expense of $188,144 during 2019 and stock compensation expenses of $1,280 during 2020. (3) On April 14, 2020 the Company issued Mr. Carmichael an option to purchase up to 125,000,000 shares of common stock at an exercise price of $0.045 subject to vesting as discussed in note 11 of the audited financial statements attached to this report. The Company expensed $655,515 of the fair market value of these options in 2020. On July 29, 2019 the Company issued Mr. Carmichael five year options to purchase up to 20,761,904 shares of common stock at an exercise price of $0.018 per share, subject to vesting over a period of six months. We recognized stock option expense of $10,724 and $76,423 during 2020 and 2019. 28 (4) All Other Compensation for Mr. Carmichael for 2020 includes (i) $18,000 in director compensation (ii) $21,720 in health insurance, and (iii) an aggregate of $67,808 in royalties paid to an entity controlled by Mr. Carmichael under the terms of an Exclusive License Agreement. All Other Compensation for Mr. Carmichael for 2019 includes (i) $18,000 in director compensation (ii) $21,720 in health insurance, and (iii) an aggregate of $50,642 in royalties paid to an entity controlled by Mr. Carmichael under the terms of an Exclusive License Agreement. (5) Mr. Constable has served as our Chief Executive Officer since November 2020. (6) This includes stock issued to Mr. Constable on behalf of Brandywine, LLC for consulting services prior to his employment. The Company issued 2,795,000 shares with a fair value of $45,659. (7) On November 5, 2020 the Company entered into an option agreement with Mr. Constable the details of which are disclosed in Note 11 of the audited financial statements included in this report. The Company expensed vested options of 5,434,783 shares with a fair value of $106,890. Outstanding Equity Awards at Fiscal Year End The following table provides information concerning unexercised stock options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2020, together with unexercised stock options, stock that has not vested and equity incentive plan awards for each of our other executive officers outstanding as of December 31, 2020: OPTION AWARDS STOCK AWARDS Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) Robert M. Carmichael 20,761,904 .018 7/29/2024 - - - - - 125,000,000 - .045 4/30/2023 - - - - Christopher H. Constable 5,483,783 - - .0184 11/5/2025 - - - - - 30,000,000 - .0184 11/5/2024 - - - - Compensation of our executive officers Robert M. Carmichael We are not a party to an employment agreement with Mr. Carmichael. His compensation is determined at the discretion of the board of directors, of which he is a member, and is subject to change from time to time. While his base compensation remained unchanged in 2020 from 2019, in 2020 the board of directors has granted Mr. Carmichael certain additional compensation. In April 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 we granted Mr. Carmichael an option to purchase up to an aggregate of 125,000,000 shares of our common stock at an exercise price of $0.045 per share, of which the right to purchase 75,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 50,000,000 shares of common stock is subject to vesting upon official notice of the listing of our common stock on The Nasdaq Stock Market, the NYSE American LLC or 29 ● the right to purchase 25,000,000 shares of our common stock shall vest at such time as we report cumulative consolidated net revenues, including revenues from related parties and revenues recognized by our company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Carmichael 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 “Carmichael Net Revenue Period”); ● the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as we report cumulative Carmichael Net Revenues in excess of $7,000,000 in the aggregate over four consecutive fiscal quarters during the Carmichael Net Revenue Period; and ● the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as we report cumulative Carmichael Net Revenues in excess of $10,500,000 in the aggregate over four consecutive quarters during the Carmichael Net Revenue Period. The Carmichael Option Agreement provides that the Option is exercisable by Mr. Carmichael on a cashless basis. The option is not transferrable by Mr. Carmichael, and he must remain an employee of our company as an additional term of vesting. Once a portion of the option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the option which does not vest during the Carmichael Net Revenue Period lapses and Mr. Carmichael has no further rights thereto. On May 21, 2020 the Board of Directors agreed to provide incentive compensation to six individuals who are either our employees or independent contractors, including Mr. Carmichael, for additional time spent by these individuals on our BLU3-Vent project. In recognition of the additional time devoted to this project, and to further incentivize him, Mr. Carmichael received a total of $31,904 of incentive compensation which was paid through the issuance of 725,087 shares of our common stock. Christopher H. Constable On November 5, 2020 we entered into a three year employment agreement (the “Constable Employment Agreement”) pursuant to which Mr. Constable serves as our Chief Executive Officer of the Company. Pursuant to the Constable Employment Agreement, Mr. Constable also agreed to serve on our Board of Directors and we agreed to nominate him to serve on the Board during the term of the Constable Employment Agreement. In consideration for his services, we agreed to (i) pay Mr. Constable an annual base salary of $200,000, payable in accordance with the customary payroll practices of the Company, and (ii) issuable upon execution of the Constable Employment Agreement and on each anniversary of the date of the agreement during the term, issue him 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 common stock at an exercise price equal to the market price of the common stock on the date of issuance. Initially he received 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 (the “Option Award Agreement”). In addition, Mr. Constable is entitled to receive four-year stock options to purchase shares of common stock at 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 Net Revenues are in excess of $7,500,000, in the aggregate, for four consecutive fiscal quarters; (iii) 5,000,000 shares - if the 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. Constable is also entitled to participate in all benefit programs the Company offers to its executives, reimbursement for business expenses and three weeks of annual paid vacation. 30 The agreement may be terminated for cause, upon his death or disability, or by the Company without cause. Furthermore, Mr. Constable may terminate the agreement for “good reason” as defined in the agreement. If the Company terminates the 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 termination. If the Company should terminate the agreement without cause or Mr. Constable terminates for good reason, the Company is obligated to continue to pay him his base salary for a period of six months. The agreement also contains customary confidentiality, non-disclosure and indemnification provisions. How Blake Carmichael is Compensated He is employed with the Company as a full time employee and CEO of BLU3 and focused on the operations of the Company’s BLU3 subsidiary . In September 2020, his salary was adjusted to $78,000 per year. There is no written employment agreement between the Company and Blake Carmichael. In May 2020 Mr. Blake Carmichael also received a total of $37,369 of incentive compensation which was paid through the issuance of 849,305 shares of our common stock in for his additional time spent on our BLU3-Vent project. Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2020. Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights ($) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column Plans approved by our shareholders: 0 - Plans not approved by shareholders 199,730,020 .0323 - Please see note 11 of the notes to our audited consolidated financial statements appearing later in this report for more information on these outstanding options. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Our voting securities consist of our common stock and our Series A Convertible Preferred Stock. Each share of our Series A Convertible Preferred Stock is convertible into a share of our common stock at any time at the option of the holder at a conversion price of $18.23 per share. Holders of our common stock are entitled to one vote for each share held, and holders of our Series A Convertible Preferred Stock are entitled to 250 votes for each share held. Our common stock and Series A Convertible Preferred Stock votes together as on any matters submitted to our shareholders for a vote. 31 The following table sets forth certain information known to us with respect to the beneficial ownership of our voting securities by: (1) all persons who are beneficial owners of 5% or more of any class of our voting securities; (2) each of our directors; (3) each of our executive officers; and (4) our directors and executive officers as a group. Applicable percentage ownership in the following table is based on 337,107,415 shares of common stock and 425,000 shares of our Series A Convertible Preferred Stock outstanding as of March 31, 2021. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have assumed the conversion of the shares of Series A Convertible Preferred Stock and the shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 31, 2021, are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise disclosed the address for each person below is c/o Brownie’s Marine Group, Inc., 3001 NW 25th Avenue, Suite 1, Pompano Beach, FL 33069. Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class Executive Officers and Directors Common Robert M. Carmichael 60,006,034 (1) 16.8 % Common Christopher H. Constable 8,229,783 (2) 2.4 % Common Charles F. Hyatt 112,647,065 (3) 33.4 % Common All directors and executive officers as a group (three persons) 180,882,882 (1)(2)(3) 49.8 % 5% Shareholders Common Joe Perez 50,000,000 (4) 14.9 % Series A Convertible Preferred Stock Robert M. Carmichael 425,000 100 % Series A Convertible Preferred Stock All directors and executive officers as a group (one person) 425,000 100 % (1) Includes the following: (i) 14,587,190 outstanding shares held by 940A, an entity over which Mr. Carmichael has voting and dispositive control; (ii) an aggregate of 23,320 shares issuable upon conversion of 425,000 shares of Series A Convertible Preferred Stock; and (iii) options to purchase an aggregate of 20,761,904 shares of common stock at an exercise price of $0.018 per share. Excludes unvested options to purchase 125,000,000 shares of common stock at an exercise price of $0.045 per share. (2) Includes options to purchase an aggregate of 5,434,783 shares of common stock at an exercise price of $0.0184 per share, but excludes (i) unvested five-year options to purchase shares of common stock vesting on the second and third anniversary of his employment agreement equal $100,000 of the value of the Company’s common stock at an exercise price equal to the market price of the common stock on the date of issuance, and (ii) unvested options to purchase 30,000,000 shares of common stock at an exercise price of $0.0184 per share. (3) Includes 2,647,065 shares of outstanding shares held by Mr. Hyatt’s minor child over which he has voting and dispositive control. (4) Address is 135 Weston Road, Suite 328, Weston, FL 33326. Item 13. Certain Relationships and Related Transactions, and Director Independence. We sell products to Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys, companies owned by the brother of Mr. Robert M. Carmichael. Terms of sale are no more favorable than those extended to any of our other customers with similar sales volumes. Combined net revenues from these entities for 2020 and 2019, totaled $821,474 and $653,315, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2020, was $29,443, $6,643 and $8,237, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys December 31, 2019, was $28,555, $10,914, and $4,973, respectively. 32 We also sell products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940 A”), entities wholly-owned by Robert M. Carmichael. Terms of sale are more favorable than those extended to our regular customers, but no more favorable than those extended to our strategic partners. Terms of sale to BGL approximate cost or include a nominal margin. These terms are consistent with those extended to our strategic partners. Strategic partner terms on a per order basis include promotion of our technologies and “Brownie’s” brand, offered only on products or services not offered for resale, and must provide for reciprocal terms or arrangements to us on strategic partners’ product or services. BGL is fulfilling the strategic partner terms by providing exposure for our technologies and “Brownie’s” brand in the yachting and exploration community world-wide through its operations. Combined net revenues from these three entities for 2020 and 2019 were $16,943 and $9,427, respectively. In addition, from time to time Mr. Carmichael purchases products from us for his personal use. He either pays the amount at the time of purchase or we provide him a courtesy account which he settles from time to time. Accounts receivable from BGL, 940 A and Mr. Carmichael totaled $23,321 at December 31, 2020 and $4,320 and $12,603, respectively, at December 31, 2019. We owed BGL an accounts payable to related parties of $102,360 and $263,544 at December 31, 2020 and 2019, respectively, which represents purchase of inventory including batteries for Sea Lion (battery operated unit) and Honda engines for our regular gasoline powered units. We are a party to license agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreements. Total royalty fees paid to 940 A in 2020 and 2019 totaled $67,808 and $50,642, respectively. Director Independence The Company has one independent director, Mr. Charles F. Hyatt, who is considered “independent” as defined under Rule 5605 of the Nasdaq Marketplace Rules. Item 14. Principal Accounting Fees and Services. The following table shows the fees that were billed for the audit and other services provided by Liggett & Webb, PA for 2020 and 2019. 2020 2019 Audit Fees $ 63,580 $ 60,500 Audit-Related Fees - - Tax Fees 2,000 2,000 All Other Fees - - Total $ 65,580 $ 62,500 Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements. Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting. 33 Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice. All Other Fees — This category consists of fees for other miscellaneous items. Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the board, or, in the period between meetings, by a designated member of the board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to 2019 and 2018 were pre-approved by the entire board of directors. PART IV Item 15. Exhibits, Financial Statements Schedules (a) (1) Financial statements. The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules” beginning on page F-1. (2) Financial statement schedules All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the consolidated financial statements herein. (3) Exhibits. The exhibits that are required to be filed or incorporated by reference herein are listed in the Exhibit Index. Incorporated by Reference Filed OR No. Exhibit Description Form Date Filed Exhibit Number Furnished Herewith 2.2 Merger Agreement, dated June 18, 2002 by and among United Companies Corporation, Merger Co., Inc. and Avid Sportswear & Golf Corp. S-4 6/24/02 2.02 2.3 Articles of Merger of Avid Sportswear & Golf Corp. with and into Merger Co., Inc. S-4 6/24/02 2.03 2.4 Plan of Conversion 8-K 10/28/15 2.1 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 3.5 Articles of Amendment 8-K 12/16/15 3.5 3.6 Bylaws 8-K 10/28/15 3.4 4.2 Form of 2017 Secured Convertible Promissory Note 10-K 4/17/18 4.2 4.3 10% Unsecured Convertible Debenture dated May 3, 2011 8-K 11/20/18 4.3 4.5 Form of Stock Option Grant to Robert M. Carmichael dated July 29, 2019 + 8-K 8/1/19 4.5 4.6 Form of Stock Option Grant to Jeffrey Guzy dated January 9, 2020 8-K 1/10/20 4.1 10.1 Share Exchange Agreement, dated March 23, 2004 by and among the Company, Trebor Industries, Inc. and Robert M. Carmichael 8-K 4/9/04 16.1 34 Incorporated by Reference Filed or No. Exhibit Description Form Date Filed Exhibit Number Furnished Herewith 10.2 Non-Exclusive License Agreement for the BC Keel trademark effective January 1, 2004 by and between The Carleigh Rae Corporation and Trebor Industries Inc. 10-QSB 8/15/05 10.18 10.3 Non-Exclusive License Agreement for the buoyancy compensator and weight belt dive system effective January 1, 2005 by and between 940 Associates, Inc. and Trebor Industries Inc. 10-QSB 8/5/05 10.19 10.3 Exclusive License Agreement for the Brownie’s Third Lung, Brownie’s Public Safety Tankfill, and Related trademarks and copyrights effective January 1, 2005 by and between 940 Associates, Inc. and Trebor Industries Inc. 10-QSB 8/15/05 10.20 10.4 Non-Exclusive License Agreement for the drop weight dive belt effective January 1, 2005 by and between 940 Associates, Inc. and Trebor Industries Inc. 10-QSB 8/5/05 10.21 10.5 Non-Exclusive License Agreement for the garment integrated or garment attachable floatation aid and/or PDF effective January 1, 2004 by and between The Carleigh Rae Corporation and Trebor Industries Inc. 10-QSB 8/5/05 10.22 10.6 Non-Exclusive License Agreement for the inflatable dive marker and collection bag effective January 1, 2005 by and between 940 Associates Inc. and Trebor Industries Inc. 10-QSB 8/5/05 10.23 10.7 Non-Exclusive License Agreement for the SHERPA trademark and inflatable flotation aid/signal device technology effective January 1, 2004 by and between The Carleigh Rae Corporation and Trebor Industries Inc. 10-QSB 8/5/05 10.24 10.8 Non-Exclusive License Agreement for tank-mounted weight, BC or PDF mounted trim weight or trim weight holding system effective January 1, 2004 by and between The Carleigh Rae Corporation and Trebor Industries, Inc. 10-QSB 8/5/05 10.25 10.9 Lease Agreement commencing September 1, 2014 by and between Liberty Property Limited Partnership and Trebor Industries, Inc. 10-K 4/17/18 10.11 10.10 Lease Amendment dated December 1, 2016 by and between Liberty Property Limited Partnership and Trebor Industries, Inc. Filed 10.11 Exclusive Distribution Agreement between Brownie’s Marine Group, Inc. and Lenhardt & Wagner GmbH dated August 7, 2017 10-K 6/7/19 10.15 10.12 Lease Agreement dated November 11, 2018 by and between Liberty Property Limited Partnership and Brownie’s Marine Group, Inc. 10-K 6/7/19 10.16 10.13 Director Agreement dated January 9, 2020 by and between Brownie’s Marine Group, Inc. and Jeffrey Joseph Guzy 8-K 1/10/20 10.1 10.14 Form of Non-Qualified Stock Option Agreement dated April 14, 2020 by and between Brownie’s Marine Group, Inc. and Robert M. Carmichael + 8-K 4/17/20 10.1 10.15 Form of Restricted Stock Award Agreement for grants by Brownie’s Marine Group, Inc. of restricted stock awards to employees 8-K 4/30/20 10.1 10.16 Promissory Note in the principal amount of $159,600 issued by Brownie’s Marine Group, Inc. to South Atlantic Bank 8-K 5/13/20 10.1 10.17 Patent License Agreement dated April 6, 2018 by and between Setaysha Technical Solutions, Inc. and Brownie’s Marine Group, Inc. 10-K 6/29/20 10.17 10.18 Addendum No. 1 to Patent License Agreement dated December 31, 2019 by and between Setaysha Technical Solutions, Inc. and Brownie’s Marine Group, Inc. 10-K 6/29/20 10.18 10.19 Investor Relations Consulting Agreement dated April 9, 2020 by and between HIR Holdings, LLC and Brownie’s Marine Group, Inc . 10-K 6/29/20 10.19 10.20 Corporate Communication Consulting Agreement dated April 9, 2020 by and between Impact IR Inc. and Brownie’s Marine Group, Inc . 10-K 6/29/20 10.20 35 Incorporated by Reference Filed or No. Exhibit Description Form Date Filed Exhibit Number Furnished Herewith 10.21 Form of Note Extension and Amendment Agreement dated May 29, 2020 for the $50,000 principal amount 6% Secured Convertible Promissory Note by and between Curt Martin and Brownie’s Marine Group, Inc. 10-K 6/29/20 10.21 10.22 Form of Note Extension and Amendment Agreement dated May 29, 2020 for the $50,000 principal amount 6% Secured Convertible Promissory Note by and between Joe Steinbron and Brownie’s Marine Group, Inc. 10-K 6/29/20 10.22 10.23 Director Agreement dated April 1, 2019 by and between Brownie’s Marine Group, Inc. and Charles F. Hyatt 8-K 4/4/19 10.1 10.24 Form of letter agreement for incentive compensation + 8-K 6/1/20 10.1 10.25 Addendum No. 2 to Patent License Agreement dated June 30, 2020 by and between Setaysha Technical Solutions, Inc. and Brownie’s Marine Group, Inc. 10-Q 8/26/20 10.1 10.26 Form of Employment Agreement dated November 5, 2020 by and between Christopher H. Constable and Brownie’s Marine Group, Inc. + 8-K 11/12/20 10.2 10.27 Form of Non-Qualified Stock Option Agreement Non-Plan dated November 5, 2020 by and between Brownie’s Marine Group, Inc. and Christopher H. Constable + 8-K 11/12/20 10.1 10.28 Form of Note Extension and Amendment Agreement dated December 21, 2020 for the $50,000 principal amount 6% Secured Convertible Promissory Note by and between Joe Steinbron and Brownie’s Marine Group, Inc Filed 10.29 Form of Note Extension and Amendment Agreement dated December 21, 2020 for the $50,000 principal amount 6% Secured Convertible Promissory Note by and between Curt Martin and Brownie’s Marine Group, Inc. Filed 21.1 Subsidiaries of the Registrant 10-K 4/17/18 21.1 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 + Management Contract Item 16. Form 10-K Summary None. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 31, 2021 Brownie’s 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 Chief Financial Officer, principal financial and accounting officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Robert M. Carmichael Robert M. Carmichael Chairman of the Board, President and Chief Financial Officer March 31, 2021 /s/ Christopher H. Constable Christopher H. Constable Chief Executive Officer and Director March 31, 2021 /s/ Charles F. Hyatt Charles F. Hyatt Director March 31, 2021 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of: Brownie’s Marine Group, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Brownie’s Marine Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced net losses and has an accumulated deficit. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures including examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also include evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Stock Options As described in Note 11 to the consolidated financial statements, the Company measures fair value of stock options at fair value using level three inputs. To determine fair value of stock options, the Company determines the appropriate valuation methodology and assumptions, including unobservable inputs. Stock options are measured at fair value using a Black-Scholes valuation model that uses significant assumptions, including the Company’s stock price, volatility, risk-free interest rate, probability of vesting and probability of exercise occurrence through expiration date. Auditing management’s estimate for the fair value of stock options was highly judgmental as it involved our assessment of the significant assumptions used by the Company because the fair value calculations were sensitive to changes in assumptions described above, and certain inputs used in the determination of fair values were based on unobservable data, including, but not limited to, the volatility, probability of vesting and probability of exercise. To test the fair value of stock options, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions used by the Company. /s/ Liggett & Webb, P.A. LIGGETT & WEBB, P.A. Certified Public Accountants We have served as the Company’s auditor since 2018 Boynton Beach, Florida March 31, 2021 F- 1 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 December 31, 2019 ASSETS Current Assets Cash $ 345,187 $ 70,620 Accounts receivable – net 81,251 111,291 Accounts receivable - related parties 67,644 48,762 Inventory, net 863,791 719,108 Prepaid expenses and other current assets 111,164 48,523 Total current assets 1,469,037 998,304 Property, equipment and leasehold improvements, net 143,413 103,077 Operating Lease Assets 446,981 545,035 Other assets 13,649 20,149 Total assets $ 2,073,080 $ 1,666,565 Liabilities and stockholders’ equity (deficit) Current liabilities Accounts payable and accrued liabilities $ 386,977 $ 518,678 Accounts payable - related parties 102,360 263,544 Customer deposits and unearned revenue 20,353 121,208 Other liabilities 100,817 151,749 Operating lease liabilities 107,691 98,060 Current maturities long term debt 151,006 29,702 Notes payable 50,000 110,000 Convertible debentures, net 110,000 110,000 Total current liabilities 1,029,204 1,402,941 Long term debt 120,782 60,070 Long-term operating lease liabilities 339,290 446,975 Total liabilities 1,489,276 1,909,986 Commitments and contingencies (see note 13) Stockholders’ equity (deficit) Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of December 31, 2020 and December 31, 2019. 425 425 Common stock; $0.0001 par value; 1,000,000,000 shares authorized; 306,185,206 shares issued and outstanding at December 31, 2020 and 245,540,501 shares issued and 225,540,501 shares outstanding at December 31, 2019, respectively. 30,620 22,554 Common stock payable 138,941 shares and 138,941 shares, respectively as of December 31, 2020 and December 31, 2019. 14 14 Additional paid-in capital 13,508,882 11,338,104 Accumulated deficit (12,956,137 ) (11,604,518 ) Total stockholders’ equity (deficit) $ 583,804 $ (243,421 ) Total liabilities and stockholders’ equity (deficit) $ 2,073,080 $ 1,666,565 The accompanying notes are an integral part of these consolidated financial statements. F- 2 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 2020 2019 Net revenues Net revenues $ 3,717,556 $ 2,304,936 Net revenues - related parties 838,417 662,742 Total net revenues 4,555,973 2,967,678 Cost of net revenues Cost of net revenues 2,537,922 2,093,152 Cost of net revenues - related parties 431,925 326,494 Royalties expense - related parties 67,808 50,642 Royalties expense 53,929 48,963 Total cost of revenues 3,091,584 2,519,251 Gross profit 1,464,389 448,427 Operating expenses Selling, general and administrative 2,682,293 1,664,932 Research and development costs 115,156 67,161 Total operating expenses 2,797,449 1,732,093 Loss from operations (1,333,060 ) (1,283,666 ) Other expense, net Loss on extinguishment of debt - (131,000 ) Interest Expense (18,559 ) (7,074 ) Total other expense - net (18,559 ) (138,074 ) Loss income before provision for income taxes (1,351,619 ) (1,421,740 ) Provision for income taxes - - Net loss $ (1,351,619 ) $ (1,421,740 ) Basic loss per common share $ (0.00 ) $ (0.01 ) Diluted loss per common share $ (0.00 ) $ (0.01 ) Basic weighted average common shares outstanding 288,295,422 206,288,923 Diluted weighted average common shares outstanding 288,295,422 206,288,923 The accompanying notes are an integral part of these consolidated financial statements. F- 3 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 Preferred Stock Common Stock Common Stock Payable Additional Paid-in Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit) Balance, December 31, 2018 425,000 $ 425 161,086,228 $ 16,109 138,941 $ 14 $ 10,213,595 $ (10,182,778 ) $ 47,365 Shares issued for services - - 11,954,273 1,195 - - 153,551 - 154,746 Unit offering - - 52,500,000 5,250 - - 519,750 - 525,000 Stock Option Expense - - - - - 132,064 - 132,064 Incentive Bonus Shares to CEO - - - - - - 188,144 - 188,144 Modification of debt instruments - - - - - - 131,000 - 131,000 Net loss - - - - - - - (1,421,740 ) (1,421,740 ) 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 services - - 9,895,000 990 - - 307,489 - 308,479 Shares issued for cash - - 22,647,065 2,265 - - 542,735 - 545,000 Shares issued for exercise for warrants - - 22,500,000 2,250 222,750 225,000 Stock Option Expense - - - - - - 858,695 - 858,695 Incentive Bonus Shares to CEO 20,725,087 2,073 31,111 33,184 Incentive shares issued to Employees - - 4,877,553 488 - - 207,998 - 208,486 Net loss - - - - - - - (1,351,619 ) (1,351,619 ) Balance, December 31, 2020 425,000 $ 425 306,185,206 $ 30,620 138,941 $ 14 $ 13,508,882 $ (12,956,137 ) $ 583,804 The accompanying notes are an integral part of these consolidated financial statements. F- 4 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2020 2019 Cash flows provided by operating activities: Net loss $ (1,351,619 ) $ (1,421,740 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 21,005 9,282 Loss on debt extinguishment - 131,000 Shares issued for services 308,479 342,890 Stock Based Compensation-incentive bonus shares issued to CEO and employees 241,670 - Reserve (recovery) for bad debt (618 ) 9,439 Reserve for slow moving inventory 51,700 32,000 Stock Based Compensation - Options 858,695 132,064 Amortization of operating lease asset 98,054 90,578 Changes in operating assets and liabilities Change in accounts receivable, net 30,658 (93,526 ) Change in accounts receivable - related parties (18,882 ) 29,661 Change in inventory (196,383 ) (27,938 ) Change in prepaid expenses and other current assets (62,641 ) 15,995 Change in other assets 6,500 - Change in accounts payable and accrued liabilities (131,701 ) 181,453 Change in customer deposits and unearned revenue (100,855 ) (124,699 ) Change in operating lease liability (98,054 ) (90,578 ) Change in other liabilities (50,932 ) 136,179 Change in accounts payable - related parties (161,184 ) 138,301 Net cash used in operating activities (556,108 ) (509,639 ) Cash flows from investing activities: Purchase of fixed assets (5,500 ) (96,724 ) Net cash used in investing activities (5,500 ) (96,724 ) Cash flows from financing activities: Proceeds from sale of common stock 545,000 - Proceeds from unit offering - 525,000 Proceeds from exercise of Warrants 225,000 - Proceeds of debt 159,600 96,725 Repayment on notes payable (60,000 ) (23,525 ) Repayment of debt (33,425 ) Net cash provided by financing activities 836,175 598,200 Net change in cash 274,567 (8,164 ) Cash, beginning of year 70,620 78,784 Cash, end of year $ 345,187 $ 70,620 Supplemental disclosures of cash flow information: Cash Paid for Interest $ 10,024 $ - Cash Paid for Income Taxes $ - $ - Supplemental disclosure of non-cash financing activities: Operating lease obtained in exchange for liabilities $ - $ 635,613 Loan payable for purchase of vehicle $ 55,841 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 5 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of business and summary of significant account policies Description of business –Brownie’s Marine Group, Inc., a Florida corporation (hereinafter referred to as the “Company,” “our” or “BWMG”), designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc., a Florida corporation organized in 1981 (“Trebor”), and manufactures and sells high pressure air and industrial compressor packages (“Legacy SSA Products”) through its wholly owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organized in 2017 (“BHPCS”). In addition, in December 2017, the Company formed BLU3, Inc., a Florida corporation organized in 2017 (“BLU3”), to develop and market innovation electric shallow dive systems (“Ultra Dive Systems”). When used herein, the “Company” or “BWMG” includes Brownie’s Marine Group, Inc., and our wholly-owned subsidiaries Trebor, BHP and BLU3. Basis of Presentation – The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). Definition of fiscal year – The Company’s fiscal year end is December 31. 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. Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Going Concern – The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these financial statements. We incurred net losses for the years ended December 31, 2020 and 2019 of $1,351,619 and $1,421,740, respectively. The Company had an accumulated deficit as of December 31, 2020 of $12,956,137. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures have had a significant adverse impact upon many sectors of the economy, including retail commerce. F- 6 While we are not able to estimate the ultimate impact of the COVID-19 pandemic on our financial condition and future results of operations, depending on the prolonged impact of the COVID-19 outbreak, this situation has had a significant impact on one of our operating companies in our reported results of operations for the year ended December 31, 2020. The extent to which the coronavirus impacts our results and financial condition, however, will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge and the actions to contain and treat its impacts, among others. The Company believes that existing operational cash flow may not be sufficient to fund presently anticipated operations, this raises substantial doubt about our ability to continue as a going concern. Therefore, the Company will seek to continue to raise additional funds as needed and is currently exploring alternative sources of financing including commercial banks and other lending institutions. The Company has issued a number of common shares and has historically issued convertible notes to finance working capital needs and may continue to seek to raise additional capital through sale of restricted common stock or other securities or obtaining short term loans. The Company has no firm commitment for any additional capital and there are no assurances it will be successful in obtaining additional funds. If BWMG fails to raise additional funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back or cease operations, liquidate assets and possibly seek bankruptcy protection. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties. Cash and equivalents – Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. 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 are estimates that are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates and any specific customer collection issues the Company identifies could have a favorable or unfavorable effect on required reserve balances. The allowances for doubtful accounts totaled $16,872 and $17,784 at December 31, 2020 and 2019, respectively. Inventory – The Company values inventory at the lower of cost (determined using the first-in first-out method) or net realizable value. Management’s judgment is required to determine the reserve for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated or because the amount on hand is more than will be used to meet future needs. Inventory reserves are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. Though the Company considers these reserve balances to be adequate, changes in economic conditions, customer inventory levels or competitive conditions could have a favorable or unfavorable effect on required reserve balances. Property and equipment and leasehold improvements – Property and equipment and leasehold improvement is 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. F- 7 Revenue Recognition We account for our revenues in accordance with the Accounting Standard Codification topic 606, “Revenue from Contracts with Customers” and all the related amendments. This standards core principal is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to receive. We recognize the sale of products under single performance obligations upon shipment of the units as that is when ownership is transferred and our performance is completed. Revenues from repair and maintenance activities is recognized when the repairs are completed and the units have been shipped. Lease Accounting On January 1, 2019, we adopted ASC 842 and all the related amendments using the modified retrospective method. The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods. The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We elected the practical expedients permitted under the transition guidance of the new standard that retained the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. We did not reassess whether any contracts entered into prior to adoption are leases or contain leases. 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 December 31, 2020. Our leases generally have terms that range from three years for equipment and three to six years for property. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease. Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease. Supplemental balance sheet information related to leases was as follows: Operating Leases Classification December 31, 2020 December 31, 2019 Right-of-use assets Operating lease assets $ 446,981 $ 545,035 Current lease liabilities Current operating lease liabilities $ 107,691 $ 98,060 Non-current lease liabilities Long-term operating lease liabilities 339,290 446,975 Total lease liabilities $ 446,981 $ 545,035 F- 8 Lease term and discount rate were as follows: December 31, 2020 December 31, 2019 Weighted average remaining lease term (years) 3.69 4.68 Weighted average discount rate 5.91 % 5.91 % The components of lease costs were as follows: December 31, 2020 December 31, 2019 Operating lease cost $ 127,650 $ 131,340 Variable lease cost 5,729 4,160 Total lease costs $ 133,379 $ 135,500 Supplemental disclosures of cash flow information related to leases were as follows: December 31, 2020 December 31, 2019 Cash paid for operating lease liabilities $ 127,654 $ 151,567 Operating right of use assets obtained in exchange for operating lease liabilities $ - $ 635,613 Maturities of lease liabilities were as follows as of December 31, 2020: Trebor Industries Office Lease BMG Office Lease Copier Total lease payments 2021 61,119 61,725 8,388 131,232 2022 62,953 63,576 8,388 134,917 2023 64,842 65,484 2,796 133,122 2024 49,717 50,586 — 100,303 Total 238,631 241,371 19,572 499,574 Less: Imputed interest (25,484 ) (25,778 ) (1,331 ) (52,593 ) Present value of lease liabilities $ 213,147 $ 215,593 $ 18,241 $ 446,981 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 they occur. Advertising and trade show expense incurred for the years ended December 31, 2020 and 2019, totaled $154,642 and $56,047 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 years ended December 31, 2020 and 2019 the Company incurred research and development costs of $115,156 and $67,161, respectively. Customer deposits and unearned revenue and returns policy – The Company typically 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. Customer deposits and unearned revenue totaled $20,353 and $121,208 at December 31, 2020 and 2019, respectively. F- 9 Warranty policy – Under the provisions of the Financial Accounting Standards Board (“FASB”) ASC 460, Guarantor’s Guarantees , the Company accrues a liability for estimated warranty policy costs based on standard quantitative measures based on criteria established by the Company. Estimates of costs to service its warranty obligations are based on historical experience, expectation of future conditions and known product issues. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, revisions to the estimated warranty reserve would be required. The Company engages in product quality programs and processes, including monitoring and evaluating the quality of its suppliers, to help minimize warranty obligations. The Company provides our customers with an industry standard one year warranty on systems sold and recognizes a warranty reserve based on gross sales multiplied by the historical warranty expense return rate. The warranty reserve charged to cost of net revenues and is included in accrued expenses and is deemed sufficient to absorb any material or labor costs that might be incurred on sales recorded during the period. The Company recorded a reserve for warranty work of $13,680 and $13,695 at December 31, 2020 and 2019 respectively. 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. 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. During the years ended December 31, 2020 and 2019, the Company recognized share based compensation with a fair value of $550,149 and $342,890, respectively. 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. 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. F- 10 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 December 31, 2020, and 2019, the carrying amount of cash, accounts receivable, accounts receivable – related parties, accounts payable and accrued liabilities, accounts payable-related parties, customer deposits and unearned revenue, other liabilities, loans payable and convertible debentures, approximate fair value because of the short maturity of these instruments. F- 11 Loss per common share – Basic loss per share excludes any dilutive effects of options, warrants and convertible securities. Basic loss per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted loss 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 December 31, 2020 and December 31, 2019, 210,500,305 and 98,498,711, respectively, potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible note agreements, outstanding warrants, outstanding stock options and the conversion of preferred stock. New accounting pronouncements The Company has reviewed other ASU’s and has noted that they will have no material impact on its financial statements. Note 2. Inventory Inventory consists of the following as of: December 31, 2020 2019 Raw materials $ 408,841 $ 314,529 Finished goods 454,950 404,579 Total Inventory, net $ 863,791 $ 719,108 As of December 31, 2020 and 2019, the Company recorded reserves for obsolete or slow moving inventory of approximately $227,657 and $175,957 respectively. Note 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: December 31, 2020 2019 Prepaid inventory $ 85,028 $ 48,523 Prepaid expenses and other current assets 26,136 - Total prepaid expenses and other current assets $ 111,164 $ 48,523 F- 12 Note 4. Property and Equipment, Net Property and equipment consist of the following as of: December 31, 2020 2019 Tooling and equipment $ 233,839 $ 235,356 Computer equipment and software 27,469 27,469 Vehicles 79,557 44,160 Leasehold improvements 43,779 43,779 Total property and equipment 384,644 350,764 Less: accumulated depreciation and amortization (241,231 ) (247,687 ) Total property and equipment, net $ 143,413 $ 103,077 Depreciation and amortization expense totaled $21,005 and $9,282 for the years ended December 31, 2020 and 2019, respectively. Note 5. Other Assets Other assets at December 31, 2020 of $13,649 consisted of refundable deposits of $6,649 and an unamortized license fee of $7,000. Other assets at December 31, 2019 of $20,149 consisted of refundable deposits of $6,649 and an unamortized license fee of $13,500. Note 6. Customer Credit Concentrations The Company sells to three entities owned by the brother of Robert M. Carmichael and three companies owned by Robert M. Carmichael as further discussed in note 7 - Related Parties Transactions. Combined sales to these six entities for the years ended December 31, 2020 and 2019, represented 18% and 22%, respectively, of total net revenues. In excess of 90% of our total net revenues are made up of product sales to customers within the state of Florida . Note 7. Related Party Transactions The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys, companies owned by the brother of Robert M. Carmichael. Terms of sale are no more favorable than those extended to any of the Company’s other customers with similar sales volumes. Combined net revenues from these entities for years ended December 31, 2020 and 2019, totaled $821,474 and $653,315, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2020, was $29,443, $6,643, and $8,237, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2019, was $28,555, $10,914, and $4,973, respectively. The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940 A”), entities wholly-owned by Robert M. 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 the Company’s strategic partners. Strategic partner terms on a per order basis include promotion of BWMG’s technologies and “Brownie’s” brand, offered only on products 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 three entities for years ended December 31, 2020, and 2019, were $16,943 and $9,427, respectively. In addition, from time to time Mr. Carmichael purchases products from us for his personal use. He either pays the amount at the time of purchase or we provide him a courtesy account which he settles from time to time. Accounts receivable from BGL, 940 A and Mr. Carmichael totaled $23,321, and $4,230, which is net of credit memo of $14,944 for 940 A at December 31, 2020, and December 31, 2019, respectively. The Company had accounts payable to related parties of $102,360 and $263,544 at December 31, 2020 and 2019, respectively. The balance payable at December 31, 2020 was due to BGL. F- 13 The Company has Exclusive License Agreements with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. This Exclusive License Agreement provides that the Company will pay 940 A 2.5% of gross revenues per quarter as a royalty. Total royalty expense for the years ended December 31, 2020 and 2019, totaled $67,808 and $50,642, respectively. Effective July 29, 2019 the Company agreed to pay the members of the Company’s Board of Directors, including Mr. Carmichael, a management director, an annual fee of $18,000 for serving on the Company’s Board of Directors for the year ending December 31, 2019. As of December 31, 2019, the Company has accrued $49,500 in Board of Directors’ fees. On August 21, 2020 the Company’s Board of Directors approved the continuation of the 2019 Board compensation policy for the year ending December 31, 2020. As of December 31, 2020, the Company had accrued an additional $36,000 in Board of Directors’ fees. On August 1, 2017, Mr. Mikkel Pitzner was appointed to serve on the Company’s Board of Directors. The Company agreed to pay Mr. Pitzner an annual fee of $6,000 and issued Mr. Pitzner 5,000,000 shares of restricted common stock under a consulting agreement expiring in January 2019. During the year ended December 31, 2019 the Company issued 3,333,333 shares of restricted common stock with a total fair value of $62,500. During the year ended December 31, 2019, the Company recognized $31,250 of stock compensation pursuant to this agreement. Commencing in February 2019, the Company began paying Mr. Pitzner, then a member of the Company’s Board of Directors, $9,300 per month, inclusive of a $1,300 auto allowance, for consulting services. These payments were not covered by a written agreement. In August 2019 the agreement with Mr. Pitzner was terminated, and Mr. Pitzner has been paid in full. On August 1, 2017, the Company entered into a six month employment agreement with Blake Carmichael, the son of Robert M. Carmichael, to serve as the Company’s products development manager, electrical engineer and marketing team member. Under the terms of the employment agreement, in addition to a monthly salary of $3,600, the Company issued Mr. Carmichael 2,000,000 shares of common stock valued at $25,000. Mr. Carmichael was also entitled to performance bonuses at the discretion of the Board of Directors. On January 31, 2018, Mr. Carmichael’s written employment agreement expired. He continues with the Company as a full-time employee and serves as chief executive officer of BLU3. In April 2018, his salary was adjusted to $75,000 per year. There is no written employment agreement between the Company and Mr. Carmichael. In December 2018, the Company issued 20,000,000 shares of common stock to Robert M. Carmichael as an incentive bonus. As the vesting of the shares was subject to continued employment by Mr. Carmichael through January 2, 2020, for the years ended December 31, 2020, the Company treated the shares as issued but not as yet outstanding for the twelve months ended December 31, 2019. Expense for the issuance is being recognized over the full vesting period, and accordingly, the Company recognized stock compensation expense of $1,280 and $188,144 during the years ended December 31, 2020 and 2019. See note 11. Effective March 3, 2009, the Company entered into a Patent Purchase Agreement with Robert M. Carmichael. The Company purchased several patents it had previously been paying royalties on and several related unissued patents. In exchange for the purchase, the Company issued Mr. Carmichael 234 stock options at a $1,350 exercise price expiring ten years from the effective date of grant. The options expired on March 2, 2019 without being exercised. On March 7, 2019 the Company entered into a Subscription Agreement with Mr. Charles F. Hyatt, an accredited investor, pursuant to which the Company sold a unit of the securities consisting of 50,000,000 shares of common stock and 50,000,000 18 month common stock purchase warrants exercisable at $0.01 per share (the “Hyatt Warrants”) in consideration of $500,000 in a private transaction. The Company used the proceeds from the sale for product research and development and working capital purposes. The Company did not pay any fees or commissions in connection with the sale of the unit. Subsequently, on March 29, 2019 Mr. Hyatt was appointed to the Company’s Board of Directors to fill a vacancy. F- 14 Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 12,457,142 shares of common stock to Mr. Pitzner. The options were issued pursuant to a stock option grant agreements 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 $52,280 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%. In August 2019 8,304,761 options belonging to Mr. Pitzner were cancelled. Stock option expense recognized during for the year ended December 31, 2019 was $17,429. Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 10,380,952 shares of common stock to Blake Carmichael. The options were issued pursuant to a stock option grant agreements 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 $43,582 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%. Stock option expense recognized during for the years ended December 31, 2020 and 2019 was $5,362 and $38,212, respectively. Effective July 29, 2019 the Company issued Robert M. 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 2.10%, ii) expected life of 5 years, iii) dividend yield of 0%, iv) expected volatility of 172%. Stock option expense of $10,274 and $76,423 was recognized during the years ended December 31, 2020 and 2019, respectively. In January 2020 the Company issued 2,647,065 shares of common stock in exchange for $45,000 to an accredited investor and daughter of Mr. Charles F. Hyatt, a member of our Board of Directors. In February 2020 the Company issued 12,500,000 shares of common stock related to the exercise of common stock purchase warrants at an exercise price of $.01, for a total conversion price of $125,000. The shares were issued to Mr. Hyatt, a member of the Board of Directors. In April, 2020 the Company issued 10,000,000 shares of common stock related to the exercise of common stock purchase warrant at an exercise price of $.01 per share. The Company received proceeds of $100,000 upon such exercise from Mr. Hyatt. Also, in April 2020 the Company sold an aggregate of 20,000,000 shares of its common stock at a purchase price $0.025 per share to Mr. Hyatt, resulting in proceeds to the Company of $500,000. On April 14, 2020 the Company entered into a Non-Qualified Stock Option Agreement with Mr. Carmichael. Under the terms of the option agreement, as additional compensation the Company granted Mr. Carmichael an 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. This option is further detailed in Note 11. During the year ended December 31, 2020 the Company expensed $655,515 in relation to this option agreement. On May 21, 2020, the Company issued to Mr. Carmichael a total 725,087 shares with a fair value of $31,904 for his work on the BLU3-VENT project. On August 31, 2020, September 30, 2020 and October 31, 2020 the Company issued and aggregate of 2,795,000 shares with a fair market value of $45,292 to Christopher Constable on behalf of Brandywine, LLC in accordance with a consulting contract dated August 10, 2020. This consulting agreement was terminated upon the execution of Mr. Constable’s employment agreement. On November 5, 2020 the company entered into a Non-Qualified Stock Option agreement with Christopher Constable as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a 5-year option to purchase 5,434,783 shares of the Company’s common stock at an exercise price of $.0184, the “Compensation Options”. The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $106,199 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .16%, ii) expected life of 2.5 years, iii) dividend yield of 0%, iv) expected volatility of 341%. Stock option expense recognized during the year ended December 31, 2020 for this option was $106,890. Also, on November 5, 2020 the Company entered into a Non-Qualified Option Agreement with Mr. Constable. Under the terms of this option agreement, as additional compensations, the Company granted an option (the “Bonus Option”) to purchase up to an aggregate of 30,000,000 shares of the Company’s common stock at an exercise price of $.0184 per share. This option is further detailed in Note 11. During the year ended December 31, 2020, the company did not book any expense related to this option agreement. F- 15 Note 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consists of the following as of: December 31, 2020 December 31, 2019 Accounts payable trade and other $ 244,626 $ 414,422 Accrued payroll and fringe benefits 96,241 65,915 Accrued warranty expense 13,680 13,695 Accrued payroll taxes and withholding 9,268 7,984 Accrued interest 23,162 16,662 $ 386,977 $ 518,678 Balances due certain vendors are in arrears to varying degrees. The Company is handling all delinquent accounts on a case-by-case basis. F- 16 Note 9. Other Liabilities Other liabilities consist of the following as of: December 31, 2020 December 31, 2019 Asset purchase agreement payable $ 12,857 $ 12,857 Accrued expenses 2,460 16,216 Accrued vendor settlement - 23,176 Accrued Board of Directors fees 85,500 49,500 Accrued legal settlement - 50,000 $ 100,817 $ 151,749 Note 10. Convertible Debentures, and Loans Payable Convertible Debentures Convertible debentures consist of the following at December 31, 2020: 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. 8/31/2011 8/31/2013 5 % 10,000 (4,286 ) 10,000 — 10,000 4,694 (1 ) 12/01/17 12/31/21 6 % 50,000 (12,500 ) 50,000 — 50,000 9,250 (2 ) 12/05/17 12/31/21 6 % 50,000 (12,500 ) 50,000 — 50,000 9,218 (3 ) $ 110,000 $ — $ 110,000 $ 23,162 Convertible debentures consist of the following at December 31, 2019: 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. 8/31/2011 8/31/2013 5 % 10,000 (4,286 ) 10,000 — 10,000 4,194 (1 ) 12/01/17 12/31/20 6 % 50,000 (12,500 ) 50,000 — 50,000 6,250 (2 ) 12/05/17 12/31/20 6 % 50,000 (12,500 ) 50,000 — 50,000 6,218 (3 ) $ 110,000 $ — $ 110,000 $ 16,662 (1) The Company borrowed $10,000 in exchange for a convertible debenture. The lender 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. As of February 22, 2021 the noteholder requested conversion and the note was converted into 422,209 shares at a conversion price of $.035 per share. (2) On December 1, 2017 the Company entered into a $50,000 principal amount 6% secured convertible promissory note, due December 1, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert M. 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. Subsequent to December 31, 2019, the maturity date was further extended to December 1, 2020 and on December 21, 2020, the maturity date was further extended to December 31, 2021. F- 17 (3) On December 5, 2017 the Company entered into a $50,000 principal amount 6% secured convertible promissory note, due December 4, 2018, subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, and is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Robert M. 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. Subsequent to December 31, 2019, the maturity date was further extended to December 31, 2020 2020 and on December 21, 2020, the maturity date was further extended to December 31, 2021. Loans Payable Gonzales Note The Company entered into a non-interest-bearing loan agreement of $200,000 with Mr. Tom Gonzales on July 1, 2013.The loan is payable upon demand. During the years ended December 31, 2020 and 2019, the Company repaid $60,000 and $16,572 respectively. The loan balance was $40,000 and $100,000 as of December 31, 2020 and 2019 respectively. Hoboken Note The Company entered into a non-interest-bearing loan of $10,000 with Hoboken Street Association on October 15, 2016. The loan balance was $10,000 as of December 31, 2020 and 2019 respectively. On February 22, 2021 the debt on this note was forgiven as part of the conversion of the convertible note due to Hoboken Street Association as discussed in the convertible note section above. Marlin Note On September 30, 2019 BLU3 financed the purchase of certain plastic molding equipment through Marlin Capital Solutions (“Marlin Capital”). The loan amount at inception was $96,725. It entered into an Equipment Finance Agreement with Marlin Capital pursuant to which it agreed to make 36 equal monthly installments of $3,143.80. The Equipment Finance Agreement contains customary events of default. The loan balance was $60,070 as of December 31, 2020. Payment Amortization 2021 $ 32,975 2022 27,095 Total Loan Payments $ 60,070 Current portion of Loan payable (32,975 ) Non-Current Portion of Loan Payable $ 27,095 Mercedes Benz Note On August 21, 2020 the Company executed an installment sales contract with Mercedes Benz Coconut Creek for the purchase of a 2019 Mercedes Benz Sprinter delivery van. The installment agreement is for $55,841 with a zero interest rate payable over 60 months with a monthly payment of $931 and is personally guaranteed by Mr. Carmichael. The first payment was due on October 5, 2020. The loan balance as of December 31, 2020 was $52,118. F- 18 Payment Amortization 2021 $ 11,168 2022 11,168 2023 11,168 2024 11,168 2025 and thereafter 7,446 Total note payments $ 52,118 Current portion of note payable (11,168 ) Non-Current Portion of notes payable $ 40,950 PPP Loan On May 12, 2020, we received an unsecured loan from Bank United in the principal amount of $159,600 (the “SBA Loan”), under the Paycheck Protection Program (“PPP”), which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration. The intent and purpose of the PPP is to support companies, during the COVID-19 pandemic, by providing funds for certain specified business expenses, with a focus on payroll. As a qualifying business as defined by the SBA, we used the proceeds from this loan to primarily help maintain our payroll and cover our rent and utilities as we navigated our business through the lockdowns associated with the COVID-19 pandemic until our return to normal operations earlier in 2020. The term of the note is two years, though it may be payable sooner in connection with an event of default under the note. The SBA Loan carries a fixed interest rate of one percent per year, and a monthly payment of $8,983, with the first payment due seven months from the date of initial cash receipt. Under the CARES Act and the PPP, certain amounts of loans made under the PPP may be forgiven if the recipients use the loan proceeds for eligible purposes, including payroll costs and certain rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. We used the SBA Loan for qualifying expenses and have applied for forgiveness of the SBA Loan in accordance with the terms of the CARES Act. The loan balance as of December 31, 2020 was $159,600. The Company has applied for forgiveness through its lender, and the application has been processed. The Company expects the entire balance of the loan to be forgiven under the parameters of the CARES Act. The lender has waived any payments on this loan, until a decision on forgiveness is rendered by the U.S. Small Business Administration. Payment Amortization 2021 $ 106,893 2022 52,737 Total loan payments $ 159,600 Current portion of SBA Loan payable (106,863 ) Non-Current Portion of SBA Loan payable $ 52,737 Note 11. Shareholders’ Equity Common Stock The Company had 306,185,206 and 225,540,501 common shares outstanding at December 31, 2020 and December 31, 2019, respectively. In December 2018, the Company issued 20,000,000 shares of common stock to Robert M. Carmichael as an incentive bonus with a fair value of $200,000. As the shares are subject to continued employment by Mr. Carmichael through January 2, 2020, the Company has treated the shares as issued but not as yet outstanding. Expense for the issuance is being recognized over the full vesting period, and accordingly, the Company recognized stock compensation expense of $1,280 and $188,144 for the years ended December 31, 2020 and 2019 respectively. F- 19 In January 2019, the Company entered into an investment banking and corporate advisory agreement. The term of the agreement was for one year and provided for compensation of 2,700,000 common shares with a fair value of $29,700 plus related expenses. The shares were issued in February, 2019 and March 2019. For the year ended December 31, 2019 the Company recorded $29,700 in stock based compensation expense. In January 2019, the Company issued 1,000,000 common shares with a fair value of $12,500 to a consultant for general administrative advisory services for the period from December 1, 2018 through April 30, 2019, of which $10,000 was expensed during year ended December 31, 2019. In March 2019 the Company issued Mr. Hyatt a unit of the securities of the Company, with the unit consisting of 50,000,000 shares of common stock and 50,000,000 18 month common stock purchase warrants exercisable at $0.01 per share in consideration of $500,000. The Company did not pay any fees or commissions in connection with the sale of the unit. During the year ended December 31, 2019, the Company issued 1,332,885 shares of common stock valued at $19,391 an average of ($0.0145) per share for services to an employee related to an employment agreement that provided $10 per hour to be paid in common stock. In May 2019, the Company engaged a consultant to provide certain specified services under the terms of a letter agreement. As compensation, the Company issued 1,000,000 common shares with a fair value of $16,000 to a consultant which was expensed during the year ended December 31, 2019. On July 17, 2019 the Company sold 2,500,000 shares of common stock for proceeds of $25,000 ($0.01 per share). In August 2019, the Company issued 318,747 common shares with a fair value of $5,000 to a consultant for general administrative advisory services, which was expensed during the year ended December 31, 2019. In September 2019 the Company issued 1,250,000 shares of common stock valued at $20,375 ($0.016 per share) fair market value, pursuant to an investor relations agreement. In October 2019, the Company issued 191,087 shares of common stock valued at $4,395, an average of $.023 per share for consulting services for BLU3 operating manual. Under the STS Agreement, the Company paid an initial license fee in April 2018 through the issuance of 759,422 shares of common stock with a fair value of $30,000 which is being amortized on a straight-line basis over its five year term. The Company issued 828,221 shares of common stock with a fair value of $18,635 in satisfaction of $13,500 for the first commercial sale in October, 2019. In January 2020 the Company issued 2,647,065 shares of common stock in exchange for $45,000 to an accredited investor and daughter of Mr. Charles F. Hyatt, a member of our Board of Directors. In February 2020 the Company issued 12,500,000 shares of common stock related to the exercise of common stock purchase warrants at an exercise price of $.01, for a total conversion price of $125,000. The shares were issued to Mr. Hyatt, a member of the Board of Directors. On June 9, 2020 the Company issued an aggregate of 330,636 shares of common stock to an employee for services performed in December 2019 and the first five months of 2020. The fair value of these shares was $9,520. On April 2, 2020 the Company issued 10,000,000 shares of common stock related to the exercise of common stock purchase warrant at an exercise price of $.01 per share. The Company received proceeds of $100,000 upon such exercise from Mr. Hyatt, a member of our Board of Directors. F- 20 On April 10, 2020 the Company sold an aggregate of 20,000,000 shares of its common stock at a purchase price $0.025 per share to two accredited investors, including Mr. Hyatt, in a private transaction, resulting in proceeds to the Company of $500,000. On April 9, 2020, the Company issued to an investor relations consultant, 3,000,000 shares of common stock, with a fair market value of $133,500. On April 9, 2020, the Company issued, to a corporate communications consultant 2,000,000 shares of its common stock with a fair market value of $89,000. On April 28, 2020, the Company issued 1,333,333 shares of its common stock as incentives to two employees. The fair value of the stock was $64,000. On May 21, 2020, the Company issued 3,658,633 shares of common stock with a fair market value of $160,980 to six individuals for compensation related to the BLU3-VENT project. Of the shares issued, Mr. Carmichael received a total 725,087 shares with a fair value of $31,904 and Blake Carmichael, CEO of BLU3, Inc. who is also Mr. Carmichael’s adult son, received a total of 849,305 shares with a fair value of $37,369. The balance of the shares were received by employees of the Company and independent contractors. In the third quarter of 2020 the Company issued 280,038 shares of its common stock to an employee for services performed from June 2020 to August 2020. The fair value of these shares was $5,890. In the third and fourth quarters of 2020 the Company issued 2,795,000 shares of its common stock to Christopher Constable under the consulting agreement with Brandywine, LLC. The aggregate fair value of these shares was $45,659. On December 15, 2020, the Company issued 2,100,000 shares of its common stock with a fair value of $40,320 related to an agreement with Newbridge Securities to provide investment banking and business advisory services. Preferred Stock During the second quarter of 2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation authorizing the issuance of 10,000,000 shares of blank check preferred stock. The blank check preferred stock as authorized has such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board of Directors of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. In April 2011 the Board of Directors designated 425,000 shares of the blank check preferred stock as Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is convertible into a share of the Company’s common stock at any time at the option of the holder at a conversion price of $18.23 per share. Holders of shares of Series A Convertible Preferred Stock are entitled to 250 votes for each share held. The Company’s common stock and Series A Convertible Preferred Stock vote together as on any matters submitted to our shareholders for a vote. As and December 31, 2020 and 2019, the 425,000 shares of Series A Convertible Preferred Stock are owned by Robert M. Carmichael. Options Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 12,457,142 shares of common stock to Mr. Pitzner. The options were issued pursuant to a stock option grant agreements 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 $52,280 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%. In August 2019 8,304,761 options belonging to Mr. Pitzner were cancelled. Stock option expense recognized during for the year ended December 31, 2019 was $17,429. Effective July 29, 2019 the Company issued options to purchase up to an aggregate of 10,380,952 shares of common stock to Blake Carmichael. The options were issued pursuant to a stock option grant agreements 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 $43,582 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%. Stock option expense recognized during for the years ended December 31, 2020 and 2019 was $5,362 and $38,212, respectively. F- 21 Effective July 29, 2019 the Company issued Robert M. 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%. Stock option expense recognized for the years ended December 31, 2020 and 2019 was $10,724 and $76,423, respectively. Effective January 6, 2020 the Company issued options to purchase up to 2,000,000 shares of common stock to Mr. Jeffrey Guzy. 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%. Stock option expense recognized during the year ended December 31, 2020 for this option was $40,107. 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%. Stock option expense recognized during the year ended December 31, 2020 for this option was $40,097. On April 14, 2020 the Company entered into a Non-Qualified Stock Option Agreement with Mr. Carmichael (the “Carmichael Option Agreement”). Under the terms of the Carmichael Option Agreement, as additional compensation the Company granted Mr. Carmichael an option (the “Carmichael Option”) to purchase up to an aggregate of 125,000,000 shares of the Company’s common stock at an exercise price of $.045 per share, of which the right to purchase 75,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 50,000,000 shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows: ● the right to purchase 25,000,000 shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $3,500,000 in the aggregate over four consecutive fiscal quarters commencing May 1, 2020 and ending on April 30, 2023 (the “Net Revenue Period”); ● the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,000,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and ● the right to purchase an additional 25,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,500,000 in the aggregate over four consecutive quarters during the Net Revenue Period. The Carmichael Option Agreement provides that the Carmichael Option is exercisable by Mr. Carmichael on a cashless basis. The Carmichael Option is not transferrable by Mr. Carmichael, and he must remain an employee of the Company as an additional term of vesting. Once a portion of the Carmichael Option vests, it is exercisable by Mr. Carmichael for 90 days. Any portion of the Carmichael Option which does not vest during the Net Revenue Period lapses and Mr. Carmichael has no further rights thereto. F- 22 The fair value of the Carmichael Option on the date of the grate was $4,370,109 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .26%, ii) expected life of 1.5 years, iii) dividend yield of 0%, iv) expected volatility of 320%. The Company analyzed the likelihood that the vesting qualifications would be met, and as of September 30, 2020 deemed that there was a 10% chance that the options would vest. Therefore, stock option expense recognized during the year ended December 31, 2020 for this option was $655,515. On November 5, 2020 the company entered into a Non-Qualified Stock Option agreement with Christopher Constable the “Constable Option Agreement” as part of his employment agreement. Under the terms of the option agreement, the Company granted Mr. Constable a 5 year option to purchase 5,434,783 shares of the Company’s common stock at an exercise price of $.0184, the “Compensation Options”. The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $106,199 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .16%, ii) expected life of 2.5 years, iii) dividend yield of 0%, iv) expected volatility of 341%. Stock option expense recognized during the year ended December 31, 2020 for this option was $106,890. As part of the Constable Option Agreement the company also granted Mr. Constable an option (the “Bonus Option”) to purchase up to an aggregate of 30,000,000 shares of the Company’s common stock at an exercise price of $.0184 per share, of which the right to purchase 10,000,000 shares of common stock is subject to vesting upon the achievement of the net revenue milestones set forth below (the “Net Revenue Portion of the Option”) and the right to purchase 20,000,000 shares of common stock is subject to vesting upon official notice of the listing of the Company’s common stock on The Nasdaq Stock Market, the NYSE American LLC or similar stock exchange. The Net Revenue Portion of the Option shall vest as follows: ● the right to purchase 2,000,000 shares of the Company’s common stock shall vest at such time as the Company reports cumulative consolidated net revenues, including revenues from related parties and revenues recognized by the Company arising out of any subsequent acquisitions, mergers, or other business combinations following the closing date of such transaction (the collectively, “Net Revenues”), in excess of $5,000,000 in the aggregate over four consecutive fiscal quarters commencing January 1, 2021 and ending on April 30, 2023 (the “Net Revenue Period”); ● the right to purchase an additional 3,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $7,500,000 in the aggregate over four consecutive fiscal quarters during the Net Revenue Period; and ● the right to purchase an additional 5,000,000 shares of common stock shall vest at such time as the Company reports cumulative Net Revenues in excess of $10,000,000 in the aggregate over four consecutive quarters during the Net Revenue Period. The Constable Option Agreement provides that the Compensation Options and Bonus Options are exercisable by Mr. Constable on a cashless basis. The 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 $578,082 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of .14%, ii) expected life of 2.0 years, iii) dividend yield of 0%, iv) expected volatility of 312.2%. The Company analyzed the likelihood that the vesting qualifications would be met, and as of December 31, 2020 deemed that there was a 0% chance that the options would vest, as the measurement period does not begin until January 1, 2021. Therefore, stock option expense recognized during the year ended December 31, 2020 for this option was $0. F- 23 A summary of the Company’s stock option as of December 31, 2020 and 2019, and changes during the years ended December 31, 2020 and 2019 is presented below: Weighted Average Weighted Remaining Aggregate Number of Average Contractual Intrinsic Options Exercise Price Life in Years Value Outstanding at December 31, 2018 - $ - Granted 43,599,998 0.018 Forfeited - - Exercised - - Cancelled (8,304,761 ) 0.018 Outstanding – December 31, 2019 35,295,237 $ 0.018 4.58 Exercisable – December 31, 2019 24,914,285 $ 0.018 4.58 $ 112,114 Weighted Average Weighted Remaining Aggregate Number of Average Contractual Intrinsic Options Exercise Price Life in Years Value Outstanding at December 31, 2019 35,295,237 $ 0.018 4.58 Granted 164,434,783 0.0354 Forfeited - - Exercised - - Cancelled - - Outstanding – December 31, 2020 199,730,020 $ 0.0323 2.84 Exercisable – December 31, 2020 44,730,020 $ 0.0185 3.59 $ 168,892 Warrants A summary of the Company’s warrants as of December 31, 2020 and 2019, and changes during the years ended December 31, 2020 and 2019 is presented below: Weighted Average Weighted Remaining Aggregate Number of Average Contractual Intrinsic Warrants Exercise Price Life in Years Value Outstanding at December 31, 2018 6,783,551 $ 0.0115 Granted 50,000,000 0.01 Forfeited - - Exercised - - Cancelled (4,174,826 ) 0.0115 Outstanding – December 31, 2019 52,608,725 $ 0.01 0.66 Exercisable – December 31, 2019 52,608,725 $ 0.01 0.66 $ 610,000 Weighted Average Weighted Remaining Aggregate Number of Average Contractual Intrinsic Warrants Exercise Price Life in Years Value Outstanding at December 31, 2019 52,608,725 $ 0.01 4.58 Granted - - Forfeited - - Exercised (22,500,000 ) 0.01 Cancelled (30,108,725 ) 0.0115 Outstanding – December 31, 2020 - $ - - Exercisable – December 31, 2020 - $ - - $ - On February 25, 2020, Mr. Hyatt, a member of the Company’s Board of Directors, partially exercised a warrant for the acquisition of 12,500,000 shares at $.01 per share for proceeds to the Company of $125,000. On April 2, 2020 Mr. Hyatt purchased 10,000,000 shares related to the exercise of an outstanding common stock purchase warrant at an exercise price of $.01 per share. The Company received proceeds of $100,000 upon such exercise. On September 7, 2020 the balance of 27,500,000 in common stock purchase warrant owned by Mr. Hyatt, expired. In the first quarter of 2020 warrants to purchase 2,608,725 shares of common stock held by two investors expired. F- 24 Note 12. Income Taxes The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. The components of the provision for income tax expense are as follows for the years ended: December 31, 2020 2019 Current taxes Federal $ — $ — State — — Current taxes — — Change in deferred taxes 38,600 239,300 Change in valuation allowance (38,600 ) (239,000 ) Provision for income tax expense $ — $ - The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019: December 31, 2020 2019 Deferred tax assets: Equity based compensation $ 154,400 $ 154,400 Allowance for doubtful accounts 4,300 4,500 Reserves for slow moving inventory 46,500 33,400 Depreciation 2,900 - Net operating loss carryforward 1,336,300 1,390,700 Total deferred tax assets 1,544,400 1,583,000 Valuation allowance (1,544,400 ) (1,583,000 ) Deferred tax assets net of valuation allowance $ - $ - The effective tax rate used for calculation of the deferred taxes as of December 31, 2020 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of $1,544,400, due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $38,600. The Company has approximately $3,465,000 of net loss carryforward that expire through 2037 and $1,807,000 that carryforward indefinitely, but is limited to 80% of taxable income in any one year. The effective tax rate used for calculation of the deferred taxes as of December 31, 2019 was 25.35%. The Company has established a 100% valuation allowance against deferred tax assets of $1,583,000 due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $239,300. The significant differences between the statutory tax rate and the effective tax rates for the Company for the years ended are as follows: December 31, 2020 2019 Statutory tax rate (21.00 )% (21.00 )% State tax, net of Federal benefits (4.35 )% (4.35 )% Permanent differences 28.21 % 8.51 % Change in valuation allowance (2.86) % 16.84 % Effective tax rate — % - % F- 25 Note 13. Commitments and Contingencies On August 14, 2014, the Company entered into a thirty-seven-month term lease for its initial facilities in Pompano Beach, Florida, commencing on September 1, 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 was 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. On November 11, 2018, the Company entered a 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 term 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 payment 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 provided in the lease. The Company, Trebor and other third parties, were each named as a co-defendants under actions initially filed in March 2015 in the Circuit Court of Broward County under Case No. CACE-15-03238 and CACE -16-0000242 by the Estate 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 was settled in June 2020 for $50,000, and further modified into a lump sum payment of $44,200 (88.4% of the original settlement amount) which was paid in full on August 25, 2020. In April 2018 the Company entered into a Patent License Agreement (the “STS Agreement”) with Setaysha Technical Solutions, LLC (“STS”) pursuant to which the Company licensed certain intellectual property, including patent rights, non-patent rights and know how from STS for use in our Ultra-Portable Tankless Dive system products. Effective December 31, 2019, the Company entered into Addendum No. 1 to the STS Agreement (“Addendum No. 1”) to amend the payment due upon the first commercial sale of NEMO. In accordance with Addendum No. 1, $8,250 was paid in cash and $8,250 was accrued as of December 31, 2019, and paid during the year ended December 31, 2020. The Company issued 828,221 shares of common stock in satisfaction of $13,500 for the first commercial sale of NEMO with a fair value of $19,635. Effective June 30, 2020, the Company entered into Addendum No.2 to the Patent License Agreement (“Addendum No.2”) This addendum is to set limits and expectations of the assistance from STS rated to designing and commercializing NextGen diving products, and that STS receive deferred consideration for uncompensated services. Addendum No. 2 also states that if the Company terminate the STS Agreement before December 31, 2024, then the Company will pay STS $180,000 , less cumulative royalties paid in excess of $334,961 for years 2019, 2020, 2021, 2022, 2023 and 2024. On June 30, 2020, the Company entered into Amendment No. 2 to the STS Agreement. 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 $53,929 and $48,963 for the years ended December 31, 2020 and 2019, respectively. On April 9, 2020 the Company entered into an Investor Relations Consulting Agreement with HIR Holdings, LLC pursuant to which the Company engaged the firm to provide investor relations services. The term of the agreement is for a minimum guaranteed period of six months, and thereafter is cancellable by either party upon 30 days’ notice to the other party. As compensation the Company issued the consultant 3,000,000 shares of its common stock, valued at $133,500, and is responsible for reimbursement of certain pre-approved expenses. On April 9, 2020 the Company also entered into a Corporate Communications Consulting Agreement with Impact IR Inc. pursuant to which the Company also engaged this firm to provide investor relations services. The term of the agreement is six months. As compensation the Company issued the consultant 2,000,000 shares of its common stock valued at $89,000. F- 26 On 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 be billed $5,275 for June and July 2020 and $8,840 from August 2020 to July 2021. On August 1, 2020, BLU3 entered into an advertising and marketing agreement with Figment Design. The term of the agreement is for one year beginning August 1, 2020, and thereafter renew or cancel the agreement in writing 60 days before the final date. Figment Design will bill BLU3 $3,500 per month as retainer and $1,500 to $2,000 for monthly ad spend. On August 1, 2020, BLU3 entered into a marketing 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 August 10, 2020, the Company engaged Brandywine, LLC to provide certain accounting advisory and consulting services to it under the terms of a letter agreement. As compensation for the services, we agreed to pay Brandywine, LLC an hourly rate of $125.00 and issue it 10,000 shares of our common stock for each hour billed, which such shares are issuable to a designee of Brandywine, LLC in its discretion, and reimburse it for pre-approved expenses. The agreement may be terminated by either party upon 15 days’ notice, and contains customary indemnification provisions. This agreement was terminated on November 5, 2020 upon entering into an employment agreement as detailed below, a total number of 2,795,000 shares were issued under this agreement as of December 31, 2020. 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 Brandywine LLC. In consideration for his services, Mr. Constable shall receive (i) an annual base salary of $200,000, payable in accordance with the customary 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 common stock at an exercise price equal to the market price of the Common 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 (the “Option Award Agreement”). In addition, Mr. Constable shall be entitled to receive four-year stock options to purchase shares of common stock at 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. Constable is also entitled to participate in all benefit programs the Company offers to its executives, reimbursement for business expenses and three weeks of annual paid vacation. The agreement may be terminated for cause, upon his death or disability, or by the Company 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 termination. If the Company should terminate the Constable Employment Agreement without cause or if Mr. Constable terminates for good reason, the Company 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 indemnification provisions. F- 27 Pursuant to the Constable Employment Agreement, Mr. Constable also agreed to serve on the Company’s Board of Directors and the Company agreed to nominate him to serve on the Board during the term of the Constable Employment Agreement. On December 15, 2020 the Company engaged Newbridge Securities Corporation to provide Investment Banking and Corporate Advisory services. The term of this agreement is for twelve months and can be terminated by either party with 14 day written notice. As compensation for this agreement the Company issued 2,100,000 shares of common stock with a fair market value of $40,320. Note 14. Segments 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. Years Ended December 31, 2020 2019 Net Revenues: Legacy SSA Products $ 2,721,753 $ 2,073,300 High Pressure Gas Systems 489,590 700,654 Ultra Portable Tankless Dive Systems 1,344,630 193,724 Total net revenues $ 4,555,973 $ 2,967,678 Cost of Revenues: Legacy SSA Products $ 1,783,857 $ 1,795,737 High Pressure Gas Systems 310,527 474,338 Ultra Portable Tankless Dive Systems 997,200 249,176 Total cost of revenues $ 3,091,584 $ 2,519,251 Gross Profit(loss): Legacy SSA Products $ 937,896 $ 277,564 High Pressure Gas Systems 179,063 226,315 Ultra Portable Tankless Dive Systems 347,430 (55,542 ) Total gross profit(loss) $ 1,464,389 $ 448,427 Segment Depreciation: Legacy SSA Products $ 8,916 $ 5,252 High Pressure Gas Systems - - Ultra Portable Tankless Dive Systems 12,089 4,030 Total segment depreciation $ 21,005 $ 9,282 Years Ended December 31, 2020 2019 Segment (loss) from Operations: Legacy SSA Products $ (1,063,871 ) $ (826,455 ) High Pressure Gas Systems (30,876 ) (89,108 ) Ultra Portable Tankless Dive Systems (238,313 ) (368,103 ) Total segment (loss) from operations $ (1,333,060 ) $ (1,283,666 ) F- 28 December 31, 2020 December 31, 2019 Segment assets: Legacy SSA Products $ 1,327,465 $ 1,183829 High Pressure Gas Systems 245,572 265,361 Ultra Portable Tankless Dive Systems 500,043 217.375 Total Assets $ 2,073,080 $ 1,666,565 Note 15. Subsequent Events On February 22, 2021 the holder of the convertible promissory note in the principal amount of $10,000 issued a notice of conversion. The note in the principal amount and interest of $14,777 was converted at a conversion price of $.035 for a total 422,209 shares of common stock. Further, the conversion notice stated that this conversions satisfied all of debt due to the lender, which would include an additional note of $10,000 that was not convertible and unsecured. On March 1, 2021 the Company entered into an Investor Relations Consulting Agreement with BGM Equity Partners, LLC pursuant to which the Company engaged the firm to provide investor relations services. The term of the agreement is for a minimum guaranteed period of six months, and thereafter is cancellable by either party upon 30 days notice to the other party. As compensation the Company issued the consultant 3,000,000 shares of its common stock, valued at $120,000, and is responsible for reimbursement of certain pre-approved expenses. On March 25, 2021 Charles F. Hyatt, a member of the board of directors, purchased 27,500,000 shares of common stock at a purchase price of $0.01 per shares for aggregate proceeds of $275,000. The Company did not pay any commissions or finders fees and is using the proceeds for working capital. F- 29