Item 1. Business
Item
1.
Business.
Unless
specifically set forth to the contrary, when used in this report references to “BWMG,” the “Company,” “we,”
“our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and our wholly
owned subsidiaries, Trebor Industries, Inc., a Florida corporation (“Trebor”) doing business as Brownie’s Third Lung,
Brownie’s High Pressure Compressor Services, Inc. a Florida corporation (“BHP”) doing business as LW America’s, BLU3, Inc., a Florida corporation (“BLU3”) and Submersible Systems, Inc., a Florida corporation (“SSI”), doing
business as Spare Air.
General
The
Company owns and operates a portfolio of companies with a concentration in the industrial, and recreational diving industry. The Company,
through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors
and nitrox generation systems, and scuba and water safety products in the United States and internationally.
The
Company has four subsidiaries focused on various sub-sectors of our industry:
● Brownie’s
Third Lung | Surface Supplied Air (“SSA”)
● BLU3,
Inc. | Ultra-Portable Tankless Dive Systems
● LW
Americas | High Pressure Gas Systems
● Submersible
Systems, Inc. | Redundant Air Tank Systems
Our
wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and
manufacturing facility in Pompano Beach, Florida, and a manufacturing facility in Huntington Beach, California.
The
Company , through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based
self-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems and acts as the
exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure
breathing air and industrial gas markets. The Company is also the exclusive United States and Caribbean distributor for Chrysalis
Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”),
of a dive ballast system produced in South Africa. Our wholly owned subsidiaries and related product lines are as follows:
Surface
Supplied Air Products
Our
Brownie’s Third Lung systems have been a dominant figure in gasoline powered, high-performance, and more recently in the battery
powered SSA diving systems. Taking full advantage of the proprietary compressor system, a complete series of traditional “fixed
speed” electric compressors were developed for the built-in-boat market in 2005. In 2010, we introduced our variable-speed battery
powered hookah system which provides divers with gasoline-free all day shallow diving experiences. These systems provide performance
and runtimes for up to 3 hours by utilizing a variable speed technology that controls battery consumption based on diver demand.
In
2021 we continued to expand our dealer network and our marketing efforts with both the consumer and our network of dealers. The Company
continues to pursue dealers outside of the United States in order to diversify the seasonality as well as the geography risks. Additionally,
we continue to pursue more aggressively the boat builder market to offer our SSA systems as an option on newly built boats, expanding
our market beyond the traditional consumer markets for our products.
Our
SSA products include:
●
Tankless Dive Systems: The Company produces a line of tankless dive products, commonly called hookah or recreational SSA systems.
These systems allow one to four divers to enjoy the marine environment up to a depth of 45 feet without the bulk and weight of conventional
SCUBA gear. We believe that the removal of barriers to entry into the sport of diving and the reduction of complicated and bulky SCUBA
gear invites a broader range of the general public to participate more actively and enjoyably at their own pace and schedule. Our product
is designed to reduces the effort required for its transport and use while exploring, cruising or traveling.
A
line of land-based systems is available for light-duty commercial applications that demand portability and performance. In addition to
the gasoline-powered units and the variable speed battery powered units, a series of AC electric powered systems is also available for
light to commercial use. Powered by battery for portability or household current for unlimited dive duration, these units are used primarily
by businesses that work in aquatic maintenance and marine environments.
●
BIAS (Boat Integrated Air Systems): The Company developed several tankless products and complimentary accessories that
it believes makes boat diving easier. The BIAS battery powered tankless kit allows boat builders, dealers and end users to seamlessly
install a pre-packaged kit directly into the boat and our E-Reel, a level-winding battery powered hose reel system, provides compact
storage of up to 150 feet of hose. Boaters can perform their own in-water maintenance and inspections, or just dive for enjoyment. In
addition to supplying air to divers, BIAS may be used for supporting air horns, inflating boat fenders/water toys and activating pneumatically
operated doors.
4
Ultra
Portable Tankless Dive Systems
Through
our wholly-owned subsidiary BLU3, we develop and market a next generation electric, surface supplied air shallow dive system that is
completely portable to the user. The BLU3 line currently consists of two models, NEMO and NOMAD, targeting specific performance levels
and price points.
NEMO
dive systems are currently sold in 9 countries through Amazon, and also through 54 dealers worldwide. NEMO, designed to be the world’s
smallest dive system is capable of taking a diver to 10 feet for 60 to 90 minutes on one charge of its lithium-ion battery. NEMO is portable
and its batteries are FAA compliant for airline travel.
NOMAD
dive system (“NOMAD”) began shipping in the third quarter, 2021 and is currently sold to consumers via our website,
Amazon and through our network of dealers worldwide. The NOMAD is highly portable and expands dive capability to up to 30 feet. NOMAD
has been marketed through BLU3’s internet presence and marketing campaigns as well as at industry and other trade shows across
the country.
We
believe the BLU3 product lines are changing the way that people get into the water and explore the next atmosphere. The units are ultra-portable
and can travel with the consumer to their adventures, wherever they may be.
High
Pressure Gas Systems
Through
our wholly-owned subsidiary LW America’s, we design, manufacture, sell and install SCUBA tank fill systems for on-board yacht use
under the brand “Yacht-Pro™”. Our systems provide complete diving solutions for yachts, including nitrox systems which
allow yacht owners to fill tanks with oxygen enriched air on board. The Yacht-Pro™ compressor systems offer a completely marine-prepared,
variable frequency drive(“VFD”) driven, automated alternative to other compressors on the market. We also design complete
dive lockers, mixed gas production and distribution systems, and the Nitrox Maker™. Nitrox is oxygen-enriched air, which reduces
the effects of nitrogen on divers and is the industry standard for dive professionals. The Nitrox Maker™ continuously generates
oxygen rich breathing gas directly from low-pressure air with no stored oxygen or other gases required onboard. Our light duty compressor,
the new Yacht Pro Essential is specifically designed as a turn-key kit for the boat builders and is optimized to integrate to onboard
power systems and withstand the marine environment with all components and hardware impervious to spray from the elements. The Yacht
Pro™ series contains models for both medium-duty applications, such as recreational divers and small groups, and heavy-duty use
as found on research vessels, commercial operations and live-aboard dive boats. All Yacht Pro™ models come with the variable speed
frequency drive reducing the initial start-up power demand typically associated with high pressure compressor systems.
5
In
August 2017, we entered into a five-year exclusive distribution agreement with L&W, which agreement renews for successive one-year
terms unless terminated as provided for in the agreement. Under the terms of the Exclusive Distribution Agreement, we were appointed
the exclusive distributor of L&W’s complete product line in North America and South America, including the Caribbean. We are
conducting this business direct to end-users and establishing sales, distribution and service centers for high pressure air and industrial
gas systems in the dive, fire, CNG, military, scientific, recreational and aerospace industries under the brand name “L&W Americas/LWA”.
We
are exclusively developing a sales, distribution and service capability to assist L&W with completing a worldwide network of L&W’s
agencies and service centers.
In
addition to breathing air compressors and related peripheral equipment, L&W also offers compressors, storage and purification systems
to meet the high-pressure requirements for natural gas filling stations, and high-pressure inert gases such as argon, helium and nitrogen
for industrial applications including welding and laser cutting, and for general laboratory use.
We
believe the product lines from L&W, will allow LW Americas to offer high quality, competitive products into the first responder and
industrial market that utilize compressed air. Our goal will be to build a network of jobbers, dealers, installers and high-pressure
compressor distributors by leveraging our know-how, brand awareness, complimentary products and creating sustainable distribution and
core product original equipment manufacturer (“OEM”) integration relationships.
Redundant
Air Tank Systems
In
September 2021, the Company acquired SSI to further expand its product offerings and manufacturing capabilities. SSI has been manufacturing
redundant air systems for recreational divers, private companies and militaries throughout the world for more than 40 years. Their state-of-the-art
manufacturing facility in Huntington Beach, California is equipped to add to the machining and product development capabilities of the
Company.
The
SSI acquisition gives the Company access to a world-wide base of in excess of 400 dealers and distributors, GSA contracting capability,
as well as the direct source for the redundant air needs for our Brownie’s Third Lung and BLU3 diving equipment and expands warehousing
capabilities, reducing freight costs for both sets of customers.
SSI
continues to innovate their technologies to meet changing military and commercial needs and is in development of the next generation
of their Helicopter Emergency Egress Device (“HEED”) product line, specifically designed for aircraft and military vehicle
use. Additionally, SSI has found use for their products in the medical field and continues to develop customer relationships in that
area to grow revenue and diversify its product and customer portfolio.
Diving
and Snorkeling Industry
The
Sports, Fitness Industry Association (“SFIA”) estimated there were 2.6 million participants in the U.S. scuba diving market
in 2020. According to a report published by the Dive Equipment Manufacturing Association (“DEMA”) in first quarter 2021,
there were approximately 87,000 new participants in U.S. diving market in 2020 as compared to approximately 151,000 in 2019. DEMA attributes
the drop in new open water certifications in 2020 primarily to the pandemic.
In
contrast, the SFIA study indicated that participation in snorkeling increased by nearly 1% in 2020 as compared to 2019 with estimated
participation of 7.7 million in the U.S.
The
Company intends to enter the tourist market via a guided tour program that is currently intended to be launched in the second quarter
of 2022. The Company sees the guided tour model as an important building block in introducing its battery powered diving products to
the consumer market. Additionally, this model will not only give consumers the opportunity to “try before you buy”, but also
provide experiential training for the consumer to increase enjoyment and safety of our diving products.
6
Yachting
Industry
The
global luxury yacht market is estimated to reach $6.5 billion and is poised to grow at a compound annual growth rate (“CAGR”)
of 11% from 2020 to 2024, according to Technavio, a market research firm, in their industry report dated November 2020. The Company’s
BIAS systems have been designed with this industry in mind. The Company markets directly to the yachting industry, by leveraging its
relationships with large yacht servicing companies, yacht builders and yacht brokerages.
The
recreational sailing and boating market and yachting industries also continue to grow. Allied Market Research estimates that the recreational
boating market is growing at a CAGR of 5.1% through 2027 reaching total revenues of $35.4 billion.
High
Pressure Compressor Line
According
to Allied Market Research report published in February 2018, the North American high pressure compressor market is $880 million growing
at an estimated CAGR of 3%.
The
Company expects to continue to distribute L&W compressors through its YachtPro, and BIAS systems, while continuing to focus on the
expansion of its distribution into non-marine related distribution channels that the Company believe should positively impact its market
reach.
Intellectual
Property
Trade
Names
The
Company either owns or has licensed from entities in which Robert Carmichael, our Chief Executive Officer, has an ownership interest,
the following registered and unregistered trade names, trademarks and service marks: Brownie’s Third Lung™, browniedive.com,
Brownie’s, Brownie’s Third Lung oval symbol, browniedive, YachtPro, NitroxMaker™, BLU3, diveBLU3.com, BLU3 Nemo, BLU3-Vent,
Submersible Systems, Spare Air, HEED 3, Snorkelator, easy dive, spareair.com, HELO, RES, fast float rescue harness, tankfill.com, browniestankfill,
browniestankfill.com, browniespublicsafety.com, browniespublicsafety, Peleton Hose System, Twin-Trim, and Kayak Diving Hose Kit.
The
Company owns the following patents:
Patent
number
Description
Issued
Date
Expiration
Date
Owned
by
10,758,246
Abdominal
Aortic Tourniquet
9/1/2020
3/17/2034
Trebor
Industries, Inc.
9,782,182
Abdominal
Aortic Tourniquet
10/10/2021
10/26/2033
Trebor
Industries, Inc.
9,351,737
Abdominal
Aortic Tourniquet
5/31/2016
3/2/2034
Trebor
Industries, Inc.
11,265,625
Automated
Self-Contained Hooka system with unobtrusive aquatic data recording
3/1/2022
10/30/2039
BLU3,
Inc.
11,077,924
System
for adjusting pressure limits based on depth of diver(s)
8/3/2021
3/20/2039
Brownie’s
Marine Group, Inc.
Application
number
Description
Filed
Date
Owned
by
17/683,502
Automated
Self-Contained Hooka system with unobtrusive aquatic data recording
3/1/2022
BLU3,
Inc.
17/389,648
System
for adjusting pressure limits based on depth of diver(s)
7/30/2021
Brownie’s
Marine Group, Inc.
7
License
Agreements
On
April 6, 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. 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 STS Agreement further provides for royalties to be paid based on annual net revenues
achieved. On December 31, 2019, the Company entered into Addendum No. 1 to the Patent License Agreement (“Addendum No. 1”)
which amended the payments due upon the first commercial sale of Nemo. Upon entering into Addendum No. 1, $8,250 was paid to STS in cash
and $8,250 which was accrued and paid on January 10, 2020. On February 6, 2020, the Company issued 828,221 shares of its common stock
with a fair value of $18,635 in satisfaction of $13,500 for the first commercial sale. On June 30, 2020, the Company entered into Amendment
No. 2 to the STS Agreement which set forth STS’s assistance related to designing and commercializing certain diving products, and
provides for a minimum yearly royalty of $60,000, or $15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.15% per
year. With the introduction of the NOMAD in the last quarter of 2021, the Company is obligated to pay an additional annual minimum
royalty of $60,000 per year for the years 2022, 2023 and 2024, also increasing the quarterly minimum royalty by $15,000 per quarter.
Marketing
Print
Literature, Public Relations, and Advertising
We
have in-house graphic design capability to create and maintain product support literature, catalogs, mailings, web-based advertising,
newsletters, editorials, advertorials, and press releases. We also, from time-to-time, target specific markets by selectively advertising
in journals and magazines that we believe reach our potential customers. In addition, we strive to issue press releases, newsletters,
and social media postings periodically to keep the public informed of our latest products and related endeavors.
Tradeshows
In
2021, the Company was represented directly or indirectly at The Palm Beach Boat Show, The Annapolis Motor and Sailing Shows, The Fort
Lauderdale Boat show, Diving Equipment and Manufacturing show. In 2022, the Company currently intends to expand its marketing reach via
tradeshows by attending all shows attended in 2021, The Seattle Boat Show, The Dubai Boat Show, and the HAI Heli-Expo, along with various
other trade and industry shows.
Websites
We
sell our products online through our and our subsidiaries websites and many of our products are marketed on some of our customers’
websites. In addition to these websites, numerous other websites have quick links to the Company’s website. Our products are available
both domestically and internationally. Internet sales and inquiries are also supported by the Company.
Product
Research and Development
Research
and development costs for the year ended December 31,2021 and December 31, 2020, were $75,439 and $115,156, respectively, none of which
cost is borne directly by customers.
Government
Regulation
The
SCUBA industry is self-regulating; therefore, the Company is not subject to government industry specific regulation. However, SSI, our
tank manufacturing company is subject to Department of Transportation (“DOT”) regulation and testing of each of their tanks.
The Company strives to be a leader in promoting safe diving practices within the industry and believes it is at the forefront of self-regulation
through responsible diving practices. The Company is subject to all regulations applicable to “for profit” companies as well
as all trade and general commerce governmental regulation. All required federal and state permits, licenses, and bonds to operate its
facility have been obtained.
Distribution/Customers
The
Company has historically been predominantly a wholesale distributor to retail dive stores, marine stores, boat dealers builders, and
the US and international militaries. Currently, the Company generates a significant amount of direct to consumer sales via its websites
and its relationship with Amazon via BLU3, BTL and SSI. Our retail sales customers include boat owners, recreational divers, commercial
divers, and pilots. The Company sells products to three entities owned by the brother of Robert Carmichael, the Company’s Chief
Executive Officer, and three companies owned by Mr. Carmichael. Combined sales to these six entities for 2021 and 2020, represented 17.9%
and 18.4%, respectively, of total net revenues.
8
The
majority of L&W high pressure compressors and NitroxMaker™ systems have been sold to commercial dive stores, dive operators
(resorts and liveaboard dive boats), yacht builders, yacht owners and high pressure compressor distribution partners.
Sales
of YachtPro™ compressor systems have been split between retail sales directly to consumers and wholesale sales to OEM boat builders/resellers/brokers.
Suppliers/Raw
Materials
Principal
raw materials for our business include machined parts such as rods; pistons; bearings; hoses; regulators; compressors; engines; high-pressure
valves and fittings; sewn goods; and various plastic parts including pans, covers, intake staffs, and quick release connections which
are typically purchased on a per order basis. Most materials are readily available from multiple vendors. Some materials require greater
lead times than other materials. Accordingly, we strive to avoid out of stock situations through careful monitoring of these inventory
lead times, and through avoiding single source vendors whenever possible. Principle suppliers include Lenhardt & Wagner GmbH, Xometry,
Inc., Burgess Manufacturing Corp, Bix International, Inc., Carrol Stream Motor Company, Zhejiang Xiangyang Gear Electormechan, Co, Xiamen
Feipeng Insdustry Co. Ltd. and Catalina Cylinders, Inc.
Competition
We
consider the most significant competitive factors in our business to be innovation, lifestyle, fair prices, shopping convenience, the
variety of available products, knowledgeable and prompt customer service, rapid and accurate fulfillment of orders. We currently recognize
one significant competitor Airline by JSink, Inc.in gasoline powered hookah sales and a variety of competitors, including Aqua Lung America,
Colti America and Bauer Compressors, Inc. in our redundant air tank systems and high-pressure compressor systems sales. Currently, we
believe there is limited competition for our BLU3, Sea Lion and BIAS systems products.
Overall,
we are operating in a moderately competitive environment. The price structure for all the products we distribute compares favorably with
the majority of our competitors based on quality and available features. We believe that our key competitive advantage is our ability
to create new products and in some cases, new markets.
Employees
We
currently have four full-time employees. Our subsidiaries have 31 full-time and 1 part-time employee, in the aggregate.
Seasonality
Our
product lines have historically been seasonal in nature in the United States. The peak season for Legacy Products and Redundant Air Tank
Systems is the second and third quarters of the year. The peak season for High Pressure products is typically the fourth and first quarters
of the year. The BLU3 product line is emerging as a less seasonally influenced enterprise due to the global appeal. The Company continues
to address the seasonality of the business by expanding its reach beyond the traditional markets in the U.S. and reaching to other areas
of the world that may somewhat offset the seasonality.