Brownie's Marine Group, Inc 10-K

Item 1. Business. Unless specifically set forth to the contrary, when used in this report references to the “Company,” “we,” “our,” “us,” and similar terms refers to Brownie’s Marine Group, Inc., a Florida corporation, and its 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 Americas (“LWA”), BLU3, Inc., a Florida corporation (“BLU3”), Submersible Systems, Inc., a Florida corporation (“SSI”), doing business as Spare Air and Live Blue, Inc. (“LBI”), a Florida corporation. Overview The Company, through its wholly owned subsidiaries, designs, tests, manufactures and distributes 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. On September 3, 2021, the Company, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Submersible Acquisition, Inc., a Florida corporation incorporated in 2017, and wholly owned subsidiary of the Company (“Acquisition Sub”), Submersible Systems, Inc., a Florida corporation (“Submersible” or “SSI”), and Summit Holdings V, LLC, a Florida limited liability company (“Summit”) and Tierra Vista Group, LLC, a Florida limited liability company (“Tierra Vista” and, together with Summit, the “Sellers”), the owners of all of the capital stock of Submersible, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company. Submersible is a manufacturer of high-pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world. 3 On February 13, 2022 the Company formed LBI, which is being developed as a full retail, guided tour and training model utilizing the technology developed by BLU3 to provide new users and interested divers a guided tour experience, training, and the ability to purchase all of their diving and watersports needs. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba. The Company has five subsidiaries focused on various sub-sectors of our industry as described below: ● Brownie’s Third Lung | Surface Supplied Air (“SSA”) ● BLU3, Inc. | Ultra-Portable Tankless Dive Systems ● LW Americas | High Pressure Gas Systems ● ● Submersible Systems, Inc. | Redundant Air Tank Systems Live Blue, Inc. | Guided Tours 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. Surface Supplied Air Products Our Third Lung systems have been the market leader in gasoline powered, high-performance and more recently in the battery powered SSA diving systems. Taking full advantage of our proprietary compressor system, a 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 2022, 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 distributors and dealers outside of the United States in order to diversify the seasonality as well as 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. 4 ● 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. 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 various countries through Amazon, and also through 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 of 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. BLU3 continues to innovate in the SSA sector and currently expects to introduce a new product to its line-up in 2023. 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 Americas, 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 automatically renews for successive five-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. 6 In February 2022, the Company incorporated LBI to begin its expansion into the retail, training and guided tour market. The Company’s vision for LBI is to become a fully integrated retail experience where the Company’s unique products can be showcased, training can be offered, and a tourist model created. LBI will provide experienced based activities for the consumer in the various watersport activities it sells. In addition, LBI aims to provide training in those activities with the goal to have the consumer purchase the equipment, particularly the unique technologies provided by BLU3, from its retail stores. LBI looks to provide the full Live Blue experience for those consumers ready to enjoy all things watersports. In May 2022, LBI acquired the assets of Gold Coast Scuba, a dive retail and training facility based in Lauderdale-By-The-Sea, Florida. This retail location is the base in which the Live Blue brand will be developed. Diving and Snorkeling Industry The Sports, Fitness Industry Association (“SFIA”) estimated there were 2.7 million participants in the U.S. scuba diving market in 2022. According to a report published by SFIA in early 2023. The study further stated that the participation rate by casual divers increased 22% in 2022. In contrast, the SFIA study indicated that participation in snorkeling in 2022 was 7.7 million in the U.S. The Company has entered the tourist market via a guided tour program within LBI that is currently intended to act as an incubator for a scalable franchise model. The Company believes that the guided tour model is 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. Yachting Industry The global luxury yacht market is estimated to be $8.91 billion in 2022 and expected to reach $9.38 billion in 2023 according to Allied Market Research and is poised to grow at a compound annual growth rate (“CAGR”) of 5.4% from 2022 to 2030 to reach $13.6 billion, according to Research and Markets.com, a market research firm, in their industry report dated April, 2022. 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. Grandview Research estimates that the recreational boating market was valued at $44.5 billion in 2022 and is expected to grow at a CAGR of 5.4% through 2030. 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%. 7 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 believes should positively impact its market reach. Intellectual Property Trade Names The Company either owns or has licensed from entities in which Robert Carmichael, our Chairman, 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, Gold Coast Scuba, 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. 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. The STS Agreement further provides for royalties based on annual net revenues. On December 31, 2019, the Company entered into Addendum No. 1 to the STS 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 was paid on January 10, 2020. On February 6, 2020, 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 of the Nemo dive system. On June 30, 2020, the Company entered into Addendum No. 2 to the STS Agreement concerning STS’s assistance related to designing and commercializing certain diving products. Addendum No. 2 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, which increased the quarterly minimum royalty by $15,000 per quarter. On November 1, 2022 the Company issued to the designees of STS 1,155,881 shares of common stock with a fair value of $30,000 in accordance with the STS Agreement. 8 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 expanded 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, 2022 and December 31, 2021 and were $18,393 and $75,439, 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 promote 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. 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 Chairman, and two companies owned by Mr. Carmichael. Combined sales to these six entities for 2022 and 2021, represented 11.4% and 17.9%, respectively, of total net revenues. 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 distributors. Sales of YachtPro™ compressor systems have been split between retail sales directly to consumers and wholesale sales to OEM boat builders/resellers/brokers. 9 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, Tian Li He Technology Co, Ltd, 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, variety of available products, knowledgeable and prompt customer service and rapid and accurate order fulfillment. We currently have one significant competitor within the BTL business model, Airline by JSink, Inc. There are a variety of competitors, including Aqua Lung America, Coltri America and Bauer Compressors, Inc. in our redundant air tank systems and high-pressure compressor systems sales. In 2022 competition has surfaced in the BLU3 business segment from companies such as AirBuddy, and a few other very low-cost Chinese manufactured competitors. 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 thirty-six full-time employees, and four part-time employees. Seasonality Our product lines have historically been seasonal in nature in the United States. The peak season for the diving related products, BTL, BLU3, SSI and LBI 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 Company continues to address the seasonality of the business by expanding its reach beyond the traditional markets in the U.S. to other areas of the world that may somewhat offset the seasonality.