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. 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 Principal Executive Officer and Principal 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, which 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 Principal Executive Officer and Principal 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 December 31, 2022 and based upon the such evaluation, have concluded that the disclosure controls and procedures as of December 31, 2022 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. 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. 26 Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. 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, 2022 and that material weaknesses in internal controls over financial reporting described below existed. 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: ● 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 ● Evaluation of disclosure controls and procedures was not sufficiently comprehensive due to limited personnel. Internal Control Remediation Efforts . Subject to sufficient resources, 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, where possible. The Company is in the process of hiring additional personnel in the accounting department as part of the internal controls implementation and documentation of those controls and procedures. ● The Company plans on evaluating various accounting systems to enhance our system controls. We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting 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 internal control over financial reporting. 27 Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during our fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. PART III Item 10. Directors, Executive Officers, and Corporate Governance. The following are the names, ages and positions of our current executive officers and directors. Name Age Position Robert M. Carmichael 61 Chairman, President, and Chief Financial Officer and Director Christopher H. Constable 56 Chief Executive Officer and Director Charles F. Hyatt 54 Director Key Employee Blake Carmichael 28 Chief Executive Officer and President of BLU3 Our directors are elected for a term of one year and serve until such director’s successor is duly elected and qualified. Each executive officer serves at the pleasure of the Board. Robert M. Carmichael. Since April 2004, Mr. Carmichael has served as our Chairman and President, and from April 2004 until November 2020 served as our Chief Executive Officer. Mr. Carmichael has served as our Chief Financial Officer since 2017 and a director since 2005. Mr. Carmichael was selected to serve as a director for his general business management experience with specific experience in the diving industry. Christopher H. Constable . Mr. Constable as served as our Chief Executive Officer and a director since November 2020. Mr. Constable sat on the board of directors of Bon Natural Life, Ltd. (NASDAQ: BON), and served as the Chairman of the audit committee until March, 2022. Prior to joining our company, from August 2020 through the November 2020, Mr. Constable provided business and financial consulting services. From 2003 through February 2020 Mr. Constable served as Chief Financial Officer of John Keeler & Co., Inc., d/b/a Blue Star Foods, a privately held international seafood company which in 2018 merged into Blue Star Foods Corp., a Miami, Florida-based sustainable seafood company (NASDAQ: BSFC). Mr. Constable served as Chief Financial Officer and a director of Blue Star Foods Corp until 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. Mr. Constable received his B.S. in Finance with an Accounting Minor from the Merrick School of Business at the University of Baltimore in 1989. Mr. Constable was selected to serve as a director for his experience with public companies and over 30 years background in finance and accounting. 28 Charles F. Hyatt . Mr. Hyatt has served as a director since 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). In the past his ownerships also included Hyatt Buick & GMC (from 2001 to 2022), 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 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. There are no family relationships between any of the executive officers and directors. Committees of the Board of Directors We have not established an Audit Committee, Compensation Committee or a Nominating Committee The entire Board participates in the nomination and audit oversight processes and considers executive and director compensation. Given the size of the Company, the entire Board is involved in such decision-making processes. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors. We are not a “listed company” under SEC rules and therefore are not required to have an audit committee comprised of independent directors. Christopher Constable is an “financial expert” within the meaning of the rules and regulations of the SEC. Compensation of Directors The following table provides information concerning the compensation paid to our Company’s non-employee director for services rendered as a director during the year ended December 31, 2022. 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 Hyatt 18,000 - - - - - 18,000 Delinquent Section 16(a) Reports Not applicable. 29 Code of Ethics The Company has not as yet adopted a code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions as required by the Sarbanes-Oxley Act of 2002 due to our small size and limited resources and because management’s attention has been focused on matters pertaining to business operations. 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 provides certain information regarding compensation awarded to, earned by or paid to our Chief Executive Officer and the other executive officer with compensation exceeding $100,000 during the year ended December 31, 2022 (each a “Named Executive Officer”). Summary Compensation Table Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($)(1) Option Awards ($) (1) No equity incentive plan compensation ($) Non-qualified deferred compensation earnings ($) All other compensation ($) Total ($) Robert Carmichael 2021 120,000 - - - - 105,474 (2) 225,474 Chairmen, President and CFO 2022 120,000 - - - 84,994 (3) 204,994 Christopher Constable, 2021 199,474 - 98,976 (4) - - 2,661 (5) 301,111 CEO 2022 199,255 95,969 (6) - - 5,756 (5) 300,980 (1) Represents 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 13 of the notes to our consolidated financial statements. (2) Represents (i) $18,000 in director compensation (ii) $12,313 in health insurance premiums paid on behalf of Mr. Carmichael, and (iii) an aggregate of $75,161 in royalties paid to an entity controlled by Mr. Carmichael under the terms of a license agreement with the Company. (3) Represents (i) $18,000 in director compensation (ii) $5,686 in health insurance premiums paid on behalf of Mr. Carmichael, and (iii) an aggregate of $61,308 in royalties paid to an entity controlled by Mr. Carmichael under the terms of a license agreement with the Company. (4) Represents a five-year option to purchase 2,403,846 shares of common stock. (5) Represents health insurance premiums paid by the Company on behalf of Mr. Constable. (6) Represents a five-year option to purchase 3,968,254 shares of common stock. 30 Equity Plan On May 26, 2021, the Company adopted the Company’s Equity Compensation Plan (the “Plan”). The Plan provides for the award of stock options (incentive and non-qualified), stock awards and stock appreciation rights to officers, directors, employees and consultants who provide services to the Company. The terms of awards under the Plan are made by the Administrator of the Plan appointed by the Company’s Board of Directors, or in the absence of an Administrator, by the Board. The Company has reserved 25,000,000 for issuance under the Plan. The term of the Plan is ten years. Outstanding Equity Awards at December 31, 2022 The table below reflects all equity awards made to each Named Executive Officer that were outstanding on December 31, 2022. Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date Robert Carmichael 20,761,904 (1) - - 0.018 7/29/2024 25,000,000 (2) 100,000,000 - 0.045 4/30/2023 Christopher 5,434,783 (3) - - 0.0184 11/5/2025 Constable 5,000,000 (4) 25,000,000 - 0.0184 11/5/2024 2,403,846 (5) - - 0.0401 11/5/2026 3,968,254 (6) - - 0.0252 11/5/2027 (1) Options fully vested in January 2020 (2) Options vest based upon certain corporate milestones as discussed in Note 13 of the financial statements included in this Annual Report. (3) Options fully vested in November 2020 (4) Options vest based upon certain corporate milestones as discussed in Note 13 of the financial statements included in this Annual Report. (5) Options fully vested in November 2021 (6) Options fully vested in November 2022 31 Christopher Constable Employment Agreement On November 5, 2020, we entered into a three-year employment agreement (the “Constable Employment Agreement”), which agreement will automatically renew for one-year successive terms unless either party notifies the other of its desire to terminate the agreement at least 60 days prior to the then current term. Pursuant to the Agreement, Mr. Constable will serve as our Chief Executive Officer and a director. In consideration for his services, Mr. Constable is entitled to an annual base salary of $200,000, payable in accordance with the customary payroll practices of the Company, and upon execution of the Constable Employment Agreement and on each anniversary thereof, 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. Pursuant to the Agreement, on November 5, 2020, we issued Mr. Constable an option to purchase 5,434,783 shares of common stock at an exercise price of $0.0184 per share pursuant to an option award agreement and upon the first anniversary we issued Mr. Constable an option to purchase 2,403,846 shares of common stock at an exercise price of $0.0401. 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. The agreement may be terminated for “cause” (as defined in the Agreement), 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 terminates the Agreement without cause or Mr. Constable terminates the Agreement for good reason, the Company is obligated to continue to pay Mr. Constable’s base salary for a period of six months. The Agreement also contains customary confidentiality, non-disclosure and indemnification provisions. Blake Carmichael Employment Agreement On August 1, 2021, we entered into a three-year employment agreement with Blake Carmichael (the “Blake Carmichael Employment Agreement”) pursuant to which Mr. Carmichael will continue to serve as Chief Executive Officer of BLU3. In consideration for his services, Blake Carmichael will receive (i) an annual base salary of $120,000, payable in accordance with the customary payroll practices of the Company, and (ii) a cash bonus equal to 5% of the net income of BLU3 payable quarterly, beginning with the first full calendar quarter after the execution of the agreement, and (iii) a non-qualified five-year stock option to purchase 3,759,400 shares of common stock at an exercise price $0.0399, 33.3% of which stock subject to the option vested immediately upon grant, 33.3% vests on the second anniversary and 33.3% vests on the third anniversary of the agreement. In addition, Blake Carmichael was granted a five-year stock option to purchase up to 18,000,000 shares of common stock at an exercise price of $0.0399 per share which vests upon the achievement of certain annual financial metrics as set forth in the Agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Our voting securities consist of our common stock and preferred stock, par value $0.001 per share, designated Series A Convertible Preferred Stock (the “Series A Stock”). Each share of Series A Stock is convertible into one 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 Stock are entitled to 250 votes for each share held. Our common stock and Series A Stock vote together as on any matters submitted to our shareholders for a vote. 32 Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of March 30, 2023, the number of shares of common stock and Series A Stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of the Company’s directors (iii) each Named Executive Officer and (iv) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder’s address is c/o Brownie’s Marine Group, Inc., 3001 NW 25th Avenue, Suite 1, Pompano Beach, Florida 33069. The percentages below are calculated based on 436,949,252 issued and outstanding shares of common stock and 425,000 shares of Series A Stock outstanding as of March 30, 2023. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class Named Executive Officers and Directors Robert M. Carmichael 110,006,047 (1) 21.7 % Christopher H. Constable 16,806,833 (2) 3.7 % Charles F. Hyatt 164,285,713 (3) 36.2 % All directors and executive officers as a group (three persons) 228,781,648 (1)(2)(3) 53.7 % 5% or Greater Shareholder Joseph Perez 135 Weston Road, Suite 328, Weston, Florida 33326 50,000,000 11.4 % Summit Holdings V, LLC 3427 Bannerman Road, Suite D208 Tallahassee, Florida 32312 27,032,388 6.4 % Series A Convertible Preferred Stock Robert M. Carmichael 425,000 100 % All directors and executive officers as a group (one person) 425,000 100 % (1) Includes: (i) 14,587,190 shares held by 940A Associates, Inc., a corporation over which Mr. Carmichael is the sole owner and has voting and dispositive power; (ii) an aggregate of 23,320 shares issuable upon conversion of 425,000 shares of Series A Stock (iii) options to purchase an aggregate of 20,761,904 shares of common stock at an exercise price of $0.018 per share and (iv) options to purchase an aggregate of 50,000,000 shares of common stock at an exercise price of $0.045. Does not include the voting power over 106,250,000 shares of common stock by virtue of Mr. Carmichael’s beneficial ownership of 425,000 shares of Series A Stock. (2) Includes (i) options to purchase an aggregate of 10,434,783 shares of common stock at an exercise price of $0.0184 per share, (ii) options to purchase 2,403,846 shares of common stock at an exercise price of $0.0401 per share and (iii) options to purchase 3,968,254 shares of common stock at an exercise price of $.0252 per share. (3) Includes warrants to purchase an aggregate of 17,142,858 shares of common at an exercise price of $.0175 per share. 33 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 Robert Carmichael. Combined net revenues from these entities for the years December 31, 2022 and 2021, totaled $977,145 and $1,116,085, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2022, were $16,875, $6,773 and $15,532, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2021, were $50,818, $7,195 and $17,779, respectively. We also sell products to Brownie’s Global Logistics, LLC (“BGL”) and 940 Associates, Inc. (“940 A”), entities wholly-owned by Robert Carmichael. Combined net revenues from these three entities for the years ended December 31, 2022 and 2021 were $4,646 and $245, respectively. In addition, from time to time Mr. Carmichael purchases products from us for his personal use. Accounts receivable from BGL, 940 A and Mr. Carmichael totaled $2,408 at December 31,2022 and $897 at December 31, 2021. We owed BGL $2,980 and $32,267 at December 31, 2022 and 2021, respectively, which represents purchase of inventory including batteries for Sea Lion (battery operated unit) and Honda engines for our regular gasoline powered units. As of December 31, 2022, the Company also had an amount due of $5,000 to Mr. Carmichael for an advance to BLU3,Inc. We are a party to an exclusive license agreement, dated February 22, 2005, with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. The agreement provides for a royalty to be paid equal to the greater of 2.5% on all sales of Trebor or $15,000 per quarter. Total royalty fees paid to 940 A in the years ended December 31, 2022 and 2021 totaled $61,308 and $75,161, respectively. The Company had accrued royalties of $2,845 and $7,735 for the years ended December 31, 2022 and 2021, respectively. On September 30, 2022, the Company issued a convertible demand 8% promissory note in the principal amount of $66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. Interest on the note is payable in shares of common stock of the Company at a conversion price equal to the 90 day value weighted average price (“VWAP”) of the Company’s stock prior to the quarterly interest payment date. The note holder may demand payment or convert the outstanding principal at a conversion rate of $0.021 per share at any time. The conversion rate was calculated at a 35% discount to the 90 day VWAP of the Company’s stock as of the date of the note. On March 25, 2021, the Company issued 27,500,000 shares of common stock to Charles Hyatt, a director, in a private offering for proceeds of $275,000. On August 1, 2021, we entered into the Blake Carmichael Employment Agreement with Blake Carmichael, Chief Executive Officer of BLU3, and son of Robert Carmichael, the Company’s Chairman, President and a director. On September 1, 2021, the Company issued 10,000,000 units, each unit (“Unit”) consists of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $0.025 per share to Charles Hyatt a director, in a private offering for proceeds of $250,000. On September 1, 2021, the Company issued 600,000 Units to Grace Hyatt, the adult child of Charles Hyatt, in a private offering for proceeds of $15,000. On February 2, 2022, the Company issued Charles Hyatt, a director, 10,000,000 shares upon the exercise of a warrant at $0.025 per share in consideration of $250,000. On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, 600,000 shares upon the exercise of a warrant at $0.025 per share in consideration of $15,000. On March 14, 2022, the Company issued 10,000,000 shares of common stock to Charles Hyatt, a director, upon exercise of a warrant at an exercise price of $0.04 per share for proceeds of $250,000. On March 14, 2022, the Company issued 600,000 shares of common stock to Grace Hyatt, the adult daughter of Charles Hyatt, a director, upon exercise of a warrant at an exercise price of $0.04 per share for proceeds of $15,000. On December 13, 2022, the Company issued 5,714,286 shares of common stock and a two-year warrant to purchase 5,714,286 shares of common stock at an exercise price of $0.0175 per share to Charles Hyatt a director, in a private offering for proceeds of $100,000. Blake Carmichael, the Chief Executive Officer of BLU3 is the son of Robert Carmichael, the Company’s Chairman, President and a director. Director Independence The Company has one independent director, Charles Hyatt, who is considered “independent” as defined under Rule 5605 of the Nasdaq Marketplace Rules. 34 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 2022 (until October 10, 2022) and 2021. As of October 10, 2022, Liggett & Webb, P.A. resigned as the independent registered public accounting firm engaged to audit the financial statements of the Company. Also on such date, the Company’s Board of Directors engaged Assurance Dimensions, Inc. to serve as its independent registered public accounting firm to review its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 and year ended December 31, 2022 year end audit. 2022 2021 Audit Fees $ 90,040 $ 72,900 Audit-Related Fees - - Tax Fees 2,700 2,200 Other - 37,500 Total $ 92,740 $ 112,600 Audit Fees Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K and the review of financial statements included in the Company’s Quarterly Reports on Form 10-Q. The other fees in 2021 of $37,500 consist of expenses associated with the audit of the Company’s acquisition in September, 2021. Additionally, we incurred tax related fees of $2,700 and $2,200 for the years ended December 31, 2022 and 2021, respectively. Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services We have not yet established an audit committee. Until then, there are no formal pre-approval policies and procedures. The audit and tax fees paid to the auditors with respect to 2022 and 2021 were pre-approved by the entire board of directors. The percentage of hours expended on Assurance Dimensions respective engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%. 35 PART IV Item 15. Exhibits, Financial Statements Schedules Incorporated by Reference No. Exhibit Description Form Date Filed Exhibit Number 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 Agreement and Plan of Merger and Reorganization, dated September 3, 2021, among the Company, Submersible Acquisition, Inc., Submersible Systems, Inc. and the Shareholders of Submersible Systems, Inc. 8-K 9/9/21 10.1 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 4.1 2021 Equity Compensation Plan 10-Q 8/16/21 4.1 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 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 4.7 $66,793 Convertible Demand Note, dated September 30, 2022 8-K 10/12/22 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 10.2 Commercial Multi-Tenant Lease, dated September 14, 2022 between Submersible Systems, Inc. and Slater Palms LLC 8-K 10/12/22 10/1/22 10.3 Exclusive License Agreement, effective January 1, 2005, between 940 Associates, Inc. and Trebor Industries Inc. 10-QSB 8/15/05 10.20 10.4 Lease Agreement, dated September 1, 2014, between Liberty Property Limited Partnership and Trebor Industries, Inc. 10-K 4/17/18 10.11 10.5 Lease Amendment, dated December 1, 2016, between Liberty Property Limited Partnership and Trebor Industries, Inc. 10-K 4/22/22 10.5 10.6 Exclusive Distribution Agreement, dated August 7, 2017, between and Lenhardt & Wagner GmbH 10-K 6/7/19 10.15 10.7 Lease Agreement, dated November 11, 2018, between Liberty Property Limited Partnership and the Company 10-K 6/7/19 10.16 10.9 Non-Qualified Stock Option Agreement, dated April 14, 2020, between the Company and Robert Carmichael + 8-K 4/17/20 10.1 10.10 Form of Restricted Stock Award Agreement 8-K 4/30/20 10.1 10.11 Promissory Note, dated May 12, 2020, in the principal amount of $159,600 issued to South Atlantic Bank 8-K 5/13/20 10.1 10.12 Patent License Agreement, dated April 6, 2018 between Setaysha Technical Solutions, Inc. and the Company 10-K 6/29/20 10.17 10.13 Addendum No. 1 to Patent License Agreement dated December 31, 2019, between Setaysha Technical Solutions, Inc. and the Company 10-K 6/29/20 10.18 10.18 Employment Agreement Dated August 1, 2021, between the Company and Blake Carmichael 10-Q 11/22/21 10.22 10.19 Director Agreement, dated April 1, 2019, between the Company and Charles Hyatt 8-K 4/4/19 10.1 10.20 Employment Agreement dated September 3, 2021, between the Company and Christeen Buban 8-K 11/22/21 10.23 10.21 Form of letter agreement for incentive compensation + 8-K 6/1/20 10.1 36 10.22 Addendum No. 2 to Patent License Agreement, dated June 30, 2020, between Setaysha Technical Solutions, Inc. and the Company 10-Q 8/26/20 10.1 10.23 Employment Agreement, dated November 5, 2020, between Christopher Constable and the Company. + 8-K 11/12/20 10.2 10.24 Non-Qualified Stock Option Agreement Non-Plan, dated November 5, 2020, between the Company and Christopher Constable 8-K 11/12/20 10.1 10.27 First Amendment to Lease Agreement, dated December 1, 2016 between Trebor Industries, Inc. and Liberty Property Limited Partnership 10-K 4/22/22 10.27 10.28 8% Convertible Promissory Note, dated September 3, 2021 8-K 9/9/21 4.1 10.29 Confidentiality, Non-Competition And Non-Solicitation Agreement, dated September 3, 2021, between the Company and Richard S. Kearney 8-K 9/9/21 10.2 10.30 Investment Banking Engagement Agreement, dated August 6, 2021, between the Company and Newbridge Securities Corporation 10-Q 11/22/21 10.21 10.31 Asset Purchase Agreement, dated May 2, 2022, among the Company, Gold Coast Scuba, LLC, LLC Members and Live Blue, Inc. 8-K 5/3/22 10.67 10.32 Form of Subscription Agreement 8-K 9/12/22 10.1 10.33 Form of Common Stock Purchase Warrant 8-K 9/12/22 10.2 10.34 Lease Agreement, dated September 14, 2022, between Slater Palms, LLC and the Company * 10.35 Sublease Agreement, dated September 20, 2022, between Camburg Engineering, Inc. and the Company * 21 Subsidiaries * 31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) * 31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) * 32.1 Certification Pursuant to Section 1350 * 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith + Management Contract Item 16. Form 10-K Summary None. 37 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 30, 2023 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 (Principal Executive Officer) Date: March 30, 2023 /s/ Christopher H. Constable Christopher H. Constable Chief Executive Officer and Director (Principal Executive Officer) Date: March 30, 2023 /s/ Charles F. Hyatt Charles F. Hyatt Director Date: March 30, 2023 38 Financial Statements and Supplementary Data Brownie’s Marine Group, Inc. Index to Audited Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 5036) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 287) F-3 Consolidated Balance Sheet as of December 31, 2022 and 2021 F-5 Consolidated Statement of Operations for the years ended December 31, 2022 and 2021 F-6 Consolidated Statement of Stockholders' Equity for the years ended December 31, 2022 and 2021 F-7 Consolidated Statement of Cash Flows for the years ended December 31, 2022 and 2021 F-8 Notes to Consolidated Financial Statements F-9 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Brownie’s Marine Group, Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Brownie’s Marine Group, Inc. and Subsidiaries (the Company) as of December 31, 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related consolidated notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had a net loss of approximately $1,893,000 and cash used in operating activities of approximately $678,000 for the year ended December 31, 2022 as well as an accumulated deficit of approximately $16,437,000 as of December 31, 2022. 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control 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 included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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. Assessment of Impairment The Company is required to test the carrying amount of goodwill at least annually, or more frequently upon the occurrence of certain events. The Company is also required to assess the recoverability of its long-lived assets, including its amortizable intangible assets, whenever certain events occur or circumstances change that may be indicators of impairment. We identified this area as a critical audit matter because the annual goodwill impairment test and the evaluation of recovery of long-lived assets requires significant judgment regarding the evaluation of qualitative factors. Additionally, these assessments also require appropriate determination of reporting units and asset groups, including the allocation of acquired tangible and intangible assets to such groupings. The evaluation of a certain asset group also required comparison of future non-discounted cash flows to the carrying value of the asset group, which required estimates of future cash flows associated with that asset group, including growth rates, profitability rates and estimates of other sources and uses of cash such as changes in working capital and capital expenditures. The Company engaged a third-party valuation specialist to assist with its assessment. Our audit procedures to address the risk of material misstatement relating to goodwill and intangible assets included, among others, evaluating the appropriateness of asset groupings at the reporting unit level and asset group level. We also evaluated management’s assessment of qualitative factors associated with the reporting unit containing goodwill and associated with all relevant asset groups. Our procedures also included evaluating management’s forecast of non-discounted cash flows associated with a certain asset group where a qualitative factor required such further analysis. We also assessed the competence, independence, qualifications, experience, and capabilities of the third-party valuation specialist, and evaluated the appropriateness and reasonableness of the methodology and assumptions used by comparing them to external and historical data; testing the calculation and forecast model for mathematical accuracy; validating the appropriateness and reliability of inputs and amounts used; and evaluating the adequacy of the financial statement disclosures relating to goodwill, intangible assets and other long-lived assets, including disclosure of key assumptions and judgments. As a result of our testing we did not take exception to management’s conclusion that no impairment should be recognized related to goodwill or long-lived assets for the year ended December 31, 2022. We have served as the Company’s auditor since 2023 Margate, Florida March 30, 2023 PCAOB No.: 5036 F- 2 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 sheet of Brownie’s Marine Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2021, 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, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, 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. W e conducte d ou r audit s i n ac c ordanc e wit h th e standard s o f th e PCAOB . Thos e s tan d ar d s requir e tha t w e pla n an d perfor m th e a udit to obta i n r e asonable as s u r a nc e abou t whethe r th e fina n cial stat e m e nts ar e fre e o f materia l misstatement , w h eth e r du e t o erro r o r fraud . Th e Compa n y i s n ot require d t o hav e , nor w er e w e engage d to p erform , a n audi t o f it s interna l c ontrol s o ve r financia l re p o rting . As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accor d ingly , w e ex p r e ss n o suc h opini on. 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. F- 3 Valuation of Stock Options As described in Note 13 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. Merger with Submersible Systems, Inc. As described in Note 11 to the consolidated financial statements, on September 3, 2021, the Company completed its merger with Submersible Systems, Inc. The Company recognizes separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values under ASC 805, Business Combinations. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. The Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and actual results may differ from expectations. The Company may record measurement period adjustments during the measurement period (one year from the acquisition date) that result from obtaining additional information about the facts and circumstances that existed as of the acquisition date. If this additional information had been known, it would have affected the accounting for the business combination as of the acquisition date. Auditing management’s estimate for the fair value of the consideration paid, identifiable assets acquired, and liabilities assumed including an amount for goodwill was highly judgmental as it involved our assessment of the significant assumptions used by the Company regarding certain future expected cash flows and the valuation methodologies used by the valuation specialist engaged by the Company in determining the fair values of these assets. To test the fair value of consideration paid, identifiable assets acquired, and liabilities assumed including an amount for goodwill, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions used by the Company and the valuation specialist. /s/ Liggett & Webb, P. A . We have served as the Company’s auditor since 2018 Boynton Beach, Florida April 22, 2022 PCAOB No.: 287 F- 4 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2022 December 31, 2021 ASSETS Current Assets Cash $ 484,427 $ 643,143 Accounts receivable - net 111,844 123,270 Accounts receivable - related parties 55,428 77,301 Inventory, net 2,421,885 1,895,260 Prepaid expenses and other current assets 192,130 227,458 Total current assets 3,265,714 2,966,432 Property, equipment and leasehold improvements, net 339,546 270,065 Operating lease assets 1,133,092 454,475 Intangible assets, net 646,422 718,905 Goodwill 249,986 249,986 Other assets 30,724 14,098 Total assets $ 5,665,484 $ 4,673,961 Liabilities and stockholders’ equity Current liabilities Accounts payable and accrued liabilities $ 829,456 $ 744,383 Accounts payable - related parties 37,538 37,267 Customer deposits and unearned revenue 167,534 143,938 Other liabilities 372,943 187,924 Operating lease liabilities 269,046 232,283 Related party convertible demand note, net 49,147 - Current maturities loans payable 66,486 50,402 Total current liabilities 1,792,151 1,396,197 Loans payable, net of current portion 143,960 87,956 Convertible notes, net of current portion 342,943 339,254 Operating lease liabilities 864,057 222,899 Total liabilities 3,143,111 2,046,306 Commitments and contingent liabilities (see note 15) - - Stockholders’ equity Preferred stock; $ 0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively. 425 425 Common stock; $ 0.0001 par value; 1,000,000,000 shares authorized; 425,520,662 shares issued and outstanding at December 31, 2022 and 393,850,475 shares issued and outstanding at December 31, 2021. 42,553 39,386 Common stock payable 138,941 shares and 138,941 shares, respectively as of December 31, 2022 and December 31, 2021. 14 14 Additional paid-in capital 18,916,876 17,132,434 Accumulated deficit ( 16,437,495 ) ( 14,544,604 ) Total stockholders’ equity $ 2,522,373 $ 2,627,655 Total liabilities and stockholders’ equity $ 5,665,484 $ 4,673,961 The accompanying notes are an integral part of these consolidated financial statements. F- 5 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 2022 2021 Revenues 8,577,372 6,227,379 Cost of revenues 5,783,173 4,337,820 Gross profit 2,794,199 1,889,559 Operating expenses Selling, general and administrative 4,626,203 3,666,823 Research and development costs 18,393 75,439 Total operating expenses 4,644,596 3,742,262 Loss from operations ( 1,850,397 ) ( 1,852,703 ) Other (income) expense, net Gain on settlement of debt - 10,000 Gain on the forgiveness of PPP loan - 275,760 Interest expense ( 42,494 ) ( 21,524 ) Total other (income) expense - net ( 42,494 ) 264,236 Loss income before provision for income taxes ( 1,892,891 ) ( 1,588,467 ) Provision for income taxes - - Net loss $ ( 1,892,891 ) $ ( 1,588,467 ) Basic loss per common share $ ( 0.00 ) $ ( 0.00 ) Diluted loss per common share $ ( 0.00 ) $ ( 0.00 ) Basic weighted average common shares outstanding 410,509,853 349,597,953 Diluted weighted average common shares outstanding 410,509,853 349,593,953 The accompanying notes are an integral part of these consolidated financial statements. F- 6 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Preferred Stock Common Stock Common Stock Payable Additional Total Shares Outstanding Par Shares Outstanding Par Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Equity Balance, December 31, 2020 425,000 $ 425 306,185,206 $ 30,620 138,941 $ 14 $ 13,508,882 $ ( 12,956,137 ) $ 583,804 Units issued for cash - - 14,600,000 1,460 - - 363,540 - 365,000 Shares issued for cash - - 27,500,000 2,750 - - 272,250 - 275,000 Shares issued for acquisition - - 27,305,442 2,731 - - 1,447,188 - 1,449,919 Debt Discount on sellers note - - - - - - 12,480 - 12,480 Shares issued for services - - 4,903,761 490 - - 201,462 - 201,952 Stock option expense - - - - - - 1,154,801 - 1,154,801 Debentures and accrued interest - - 12,592,083 1,259 - - 135,217 - 136,476 Shares issued for exclusivity - - 763,983 76 - - 36,614 - 36,690 Net Loss - - - - - - - ( 1,588,467 ) ( 1,588,467 ) Balance, December 31, 2021 425,000 $ 425 393,850,475 $ 39,386 138,941 $ 14 $ 17,132,434 $ ( 14,544,604 ) $ 2,627,655 Balance 425,000 $ 425 393,850,475 $ 39,386 138,941 $ 14 $ 17,132,434 $ ( 14,544,604 ) $ 2,627,655 Shares issued for the purchase of units - - 14,255,951 1,426 - - 303,574 - 305,000 Shares issued for exercise of warrants - - 10,600,000 1,060 - - 263,940 - 265,000 Shares issued for Asset Purchase - - 3,084,831 308 - - 119,692 - 120,000 Shares issued for Royalty Agreement - - 1,155,881 116 - - 29,884 - 30,000 Shares issued for accrued interest in convertible notes - - 784,253 78 - - 38,306 - 38,384 Shares issued for employee bonus - - 280,000 28 - - 11,032 - 11,060 Shares issued for services - - 1,509,271 151 - - 47,350 - 47,501 Beneficial conversion feature - - - - - - 19,250 - 19,250 Stock option expense - - - - - - 951,414 - 951,414 Net loss - - - - - - - ( 1,892,891 ) $ ( 1,892,891 ) Balance, December 31, 2022 425,000 $ 425 425,520,662 $ 42,553 138,941 $ 14 $ 18,916,876 $ ( 16,437,495 ) 2,522,373 Balance 425,000 425 425,520,662 $ 42,553 138,941 $ 14 $ 18,916,876 $ ( 16,437,495 ) 2,522,373 The accompanying notes are an integral part of these consolidated financial statements. F- 7 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2022 2021 Cash flows provided by operating activities: Net loss $ ( 1,892,891 ) $ ( 1,588,467 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 149,120 56,472 Amortization of debt discount 5,305 1,734 Amortization of right-of-use asset 241,995 152,688 Common stock issued for services 47,501 201,952 Shares issued for royalty 30,000 - Allowance (recovery) for bad debt - 32,079 Allowance for slow moving inventory 26,207 54,301 Allowance for Nomad recall 160,500 - Shares issued for exclusivity - 36,690 Stock Based Compensation - options 951,414 1,154,801 Shares issued for employee bonus 11,060 - Shares issued for accrued interest in convertible notes 38,385 - Gain on settlement of debt - ( 10,000 ) Gain on forgiveness of PPP loan - ( 275,760 ) Changes in operating assets and liabilities Change in accounts receivable, net 11,426 ( 32,443 ) Change in accounts receivable - related parties 21,873 ( 9,657 ) Change in inventory ( 443,421 ) ( 649,414 ) Change in prepaid expenses and other current assets 99,017 ( 109,612 ) Change in other assets ( 16,626 ) 21,555 Change in accounts payable and accrued liabilities 85,073 216,703 Change in customer deposits and unearned revenue 23,596 118,210 Change in long term lease liability ( 242,690 ) ( 151,981 ) Change in other liabilities 14,519 75,775 Change in accounts payable - related parties 272 ( 65,093 ) Net cash used in operating activities ( 678,356 ) ( 769,467 ) Cash flows used in investing activities: Cash used in asset acquisition ( 30,000 ) - Cash acquired in business acquisition - 541,378 Cash used in purchase of fixed assets, net of debt ( 21,124 ) Purchase of fixed assets ( 11,040 ) ( 23,677 ) Net cash provided by (used in) investing activities ( 62,164 ) 517,701 Cash flows from financing activities: Proceeds from issuance of common stock - 275,000 Proceeds from issuance of units 305,000 365,000 Proceeds from exercise of warrants 265,000 - Proceeds of convertible note 66,793 - Repayment of notes payable ( 54,988 ) ( 90,278 ) Net cash provided by financing activities 581,805 549,722 Net (decrease) Increase in cash ( 158,716 ) 297,956 Cash, beginning balance 643,143 345,187 Cash, end of period $ 484,427 $ 643,143 Supplemental disclosures of cash flow information: Cash Paid for Interest $ 42,496 9,141 Cash Paid for Income Taxes $ - - Supplemental disclosure of non-cash financing activities: Operating lease obtained for operating lease liability $ 920,615 $ 160,182 Shares issued for asset acquisition $ 120,000 $ 1,449,919 Convertible notes issued for acquisition $ - $ 350,000 Beneficial conversion feature on notes issued for acquisition $ 19,250 $ 12,480 Shares issued for payment of convertible note interest $ 38,384 $ - Fixed asset purchase through the issuance of debt $ 84,500 $ 76,448 Prepayment for equipment through financing $ 63,689 $ - Shares issued for the conversion of convertible notes and accrued interest $ - $ 136,476 The accompanying notes are an integral part of these consolidated financial statements. F- 8 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of business and summary of significant accounting policies Description of business – Brownie’s Marine Group, Inc., a Florida corporation (the “Company,” or “BWMG”), (1) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc., a Florida corporation organized in 1981 (“Trebor” or “BTL”), (2) manufactures and sells high pressure air and industrial compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary Brownie’s High Pressure Compressor Services, Inc., a Florida corporation organized in 2017 (“BHP”), doing business as LW Americas (“LWA”) and (3) develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“BLU3”). 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 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 organized in 2017, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company. Submersible is a manufacturer of high-pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world. On February 13, 2022 the Company filed with the Florida Department of State, articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition. 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, BLU3, SSI and LBI. All significant intercompany transactions and balances have been eliminated in consolidation. Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of 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, 2022 and 2021 of $ 1,892,891 and $ 1,588,467 , respectively. The Company had an accumulated deficit as of December 31, 2022 of $ 16,437,495 . 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 for the twelve months after the date that the financial statements were issued. 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 common stock and has historically issued convertible notes to finance working capital needs and may continue to seek to raise additional capital through sale of 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 the Company 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. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 per EIN. At December 31, 2022 and 2021, the Company had approximately $ 0 and $ 205,500 , respectively, in excess of the FDIC insured limit. F- 9 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 allowances 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 $ 28,558 and $ 46,555 at December 31, 2022 and 2021, 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 allowances 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 allowances are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. Though the Company considers these allowance balances to be adequate, changes in economic conditions, customer inventory levels or competitive conditions could have a favorable or unfavorable effect on required allowance 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. Goodwill The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead, goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors such as macro-economic conditions, industry and market conditions, cost factors as well as other relevant events, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will recognize an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. As of December 31, 2022 and 2021, there was no such impairment. Intangible assets Intangible assets are comprised of customer relationships, trademarks and non-compete agreements acquired in a business combination. The Company amortizes intangible assets with a definitive life over their respective useful lives. Assets with indefinite lives are tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. Unlike goodwill and indefinite-lived intangible assets, the accounting rules do not provide for an annual impairment test in determining whether fixed assets (e.g., property, plant, and equipment) and finite-lived intangible assets (e.g., customer lists) are impaired. Instead, they require that a triggering event occur before testing an asset for impairment. Once a triggering event has occurred, the impairment test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. If the intent is to hold the asset for continued use, the impairment test involves a comparison of undiscounted cash flows against the carrying value of the asset as an initial test. If the carrying value of such asset exceeds the undiscounted cash flow, the asset would be deemed to be impaired. Impairment would then be measured as the difference between the fair value of the fixed or amortizing intangible asset and the carrying value to determine the amount of the impairment. As of December 31, 2022 and 2021, there was no such impairment. Revenue Recognition The Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers . The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due upon receipt of the invoice and the contracts do not have significant financing components. Product sales occur once control or title is transferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and promotional allowances. Such provisions are calculated based on the actual allowances given. Management believes that adequate provision has been made for cash discounts, returns, spoilage and promotional allowances based on the Company’s historical experience. A breakdown of the total revenue between related party and non-related party revenue is as follows: Schedule of Total Revenue between Related Party and Non-related Party Revenue 2022 2021 Revenues $ 7,595,581 $ 5,111,049 Revenues - related parties 981,791 1,116,330 Total Revenues $ 8,577,372 $ 6,227,379 See further disaggregate revenue disclosures by segment and product type in Note 16. Cost of Sales Cost of sales consists of the cost of the components of finished goods, the costs of raw materials utilized in the manufacture of products, in-bound and out-bound freight charges, direct manufacturing labor as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products, inventory allowance for excess and obsolete products, and royalties paid on licensing agreements. Components account for the largest portion of the cost of sales. Components include plastic molded parts, gas powered engines, aluminum pressure bottles, electronic parts, batteries and packaging materials. The breakdown of cost of sales to include cost of sales for related party and non-related party as well as the related party and non-related party royalty expense is as follows: Schedule of Cost of Sales for Related Party and Non-Related Party as well as the Related Party and Non-Related Party Royalty Expense 2022 2021 Cost of revenues $ 5,055,947 $ 3,569,894 Cost of revenues - related parties 462,297 534,910 Royalty expense - related parties 61,308 75,161 Royalty expense 203,620 157,855 Total cost of revenues $ 5,783,173 $ 4,337,820 Operating Expenses Operating expenses include selling expenses such as warehousing expenses after manufacture, as well as expenses for advertising, and other marketing expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and other general and administrative costs. Lease Accounting We account for leases in accordance with ASC 842. 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 leases. 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, 2022 and 2021. 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. F- 10 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: Schedule of Supplemental Balance Sheet Information Operating Leases Classification December 31, 2022 December 31, 2021 Right-of-use assets Operating lease assets $ 1,133,092 $ 454,475 Current lease liabilities Current operating lease liabilities $ 269,046 $ 232,283 Non-current lease liabilities Long-term operating lease liabilities 864,057 222,899 Total lease liabilities $ 1,133,103 $ 455,182 Lease term and discount rate were as follows: Schedule of Operating Lease Liabilities December 31, 2022 December 31, 2021 Weighted average remaining lease term (years) 4.47 2.34 Weighted average discount rate 6.82 % 6.11 % The components of lease costs were as follows: Schedule of Lease Cost December 31, 2022 December 31, 2021 Operating lease cost $ 246,571 $ 171,292 Variable lease cost - 2,125 Total lease costs $ 246,571 $ 173,417 Supplemental disclosures of cash flow information related to leases were as follows: Schedule of Cash Flow Information Related to Leases December 31, 2022 December 31, 2021 Cash paid for operating lease liabilities $ 340,471 $ 171,272 Operating right of use assets obtained in exchange for operating lease liabilities $ 920,615 $ 160,182 F- 11 Maturities of lease liabilities were as follows as of December 31, 2022: Schedule of Maturities of Operating Lease Liabilities Trebor Industries Office Lease BMG Office Lease Submersible Systems Lease Live Blue, Inc. Total lease payments 2023 64,842 65,484 203,315 8,447 342,088 2024 49,716 50,586 210,600 - 310,902 2025 - - 216,397 - 216,397 2026 - - 222,886 - 222,886 Thereafter - - 258,342 258,342 Total 114,558 116,070 1,111,540 8,447 1,350,615 Less: Imputed interest ( 6,019 ) ( 6,098 ) ( 204,842 ) ( 553 ) ( 217,512 ) Present value of lease liabilities $ 108,539 $ 109,972 906,698 $ 7,894 $ 1,133,103 Detailed information on leases can be found in Note 15. 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, 2022 and 2021, totaled $ 499,441 and $ 343,232 , 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, 2022 and 2021, the Company incurred research and development costs of $ 18,393 and $ 75,439 , respectively. Customer deposits and unearned revenue and returns policy – The Company typically takes a minimum 50 % deposit against large tankfill systems prior to ordering and/or building the systems. It will also take deposits for large rescue tank orders for both domestic and international customers. The remaining balance due is payable upon delivery, shipment, or installation of the system. Additionally, returns of all other merchandise are subject to a 15 % restocking fee as stated on each sales invoice. Customer deposits totaled $ 167,534 and $ 143,938 at December 31, 2022 and 2021, respectively. 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 its 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 $ 27,651 and $ 13,680 at December 31, 2022 and 2021, 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. F- 12 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, it 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, 2022 and 2021, the Company recognized share based compensation with a fair value of $ 962,474 and $ 1,154,801 , respectively. Usage of Authorized but Unissued Shares of Common Stock - The Company has issued options, warrants and convertible promissory notes which are convertible into shares of common stock in certain situations the total of which exceeds the current authorization. The Company has adopted a policy for the sequence of usage of remaining authorized but unissued shares of common stock (the “Sequencing Policy”) which outlines the order in which the conversion of these equity-linked instruments may be settled in shares. Under the Company’s Sequencing Policy, the most recently issued equity-linked securities, including stock options, warrants, and convertible promissory notes, are settled in shares first. 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. 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, 2022, and 2021, 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, lease liabilities, loans payable and convertible debentures, approximate fair value because of the short maturity of these instruments. F- 13 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, 2022 and December 31, 2021, 266,722,242 and 254,577,924 , 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 ASU 2016-13 Current Expected Credit Loss (ASC326) In December 2021, the FASB issued and update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance is effective January 1, 2023. The Company is evaluating the changes from this standard to determine the impact on its consolidated financial statements and related disclosures. ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption or are not applicable. F- 14 Note 2. Inventory Inventory consists of the following as of: Schedule of Inventory 2022 2021 December 31, 2022 2021 In-Transit Inventory - 130,000 Raw materials 1,207,957 1,144,190 Work In Process 80,727 99,858 Finished goods 1,077,308 - Rental Equipment 55,893 521,212 Total Inventory, net $ 2,421,885 $ 1,895,260 As of December 31, 2022 and 2021, the Company recorded allowances for obsolete or slow moving inventory of approximately $ 166,432 and $ 308,133 , respectively. Note 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: Schedule of Prepaid Expenses and Other Current Assets 2022 2021 December 31, 2022 2021 Prepaid inventory $ 42,660 $ 166,951 Prepaid expenses and other current assets 149,470 60,507 Total prepaid expenses and other current assets $ 192,130 $ 227,458 Note 4. Property and Equipment, Net Property and equipment consist of the following as of: Schedule of Property and Equipment 2021 2021 December 31, 2022 2021 Tooling and equipment $ 586,597 $ 427,044 Computer equipment and software 40,621 54,056 Vehicles 79,557 79,557 Leasehold improvements 65,748 68,560 Total property and equipment 777,523 629,217 Less: accumulated depreciation and amortization ( 432,977 ) ( 359,152 ) Total property and equipment, net $ 339,546 $ 270,065 Depreciation and amortization expense totaled $ 149,120 and $ 56,472 for the years ended December 31, 2022 and 2021, respectively. Included in the depreciation and amortization expense for the year ending December 31, 2022 and 2021 is $ 80,597 and $ 24,095 for amortization of intangible assets, respectively. Note 5. Other Assets Other assets at December 31, 2022 of $ 30,724 consisted of refundable deposits . Other assets at December 31, 2021 of $ 14,098 consisted of refundable deposits. Note 6. Customer Credit and Vendor 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, 2022 and 2021, represented 11.4 % and 17.9 %, respectively, of total net revenues. Brownie’s Southport Divers, Inc. represented concentration in outstanding accounts receivable of 10.1 % of total outstanding accounts receivable as of December 31, 2022 and 25.3 % as of December 31, 2021. Brownie’s Global Logistics, LLC represented concentration in outstanding accounts receivable of less than 10 % of total outstanding accounts receivable as of December 31, 2022 and 2021. F- 15 Additionally, the Company has a non-related party customer, Amazon, that represented 12.0 % of total outstanding accounts receivable as of December 31, 2022. Revenue from Amazon accounted for 12.0 % of revenue for the twelve months ended December 31, 2022, but did not exceed 10 % of total revenue for the year ended December 31, 2021. The Company has two vendors that for the year ended December 31, 2022 supplied more than 10% each of the Company’s overall purchases. Tian Li He Technology supplied 11.9 % of overall purchases and L&W supplied 11.7 % of overall purchases for the year ended December 31, 2022. There were no vendor concentrations beyond 10 % of total purchases for the year ended December 31, 2021. Note 7. Related Party Transactions 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 Robert Carmichael. Combined net revenues from these entities for the years December 31, 2022 and 2021, totaled $ 977,145 and $ 1,116,085 , respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2022, were $ 16,875 , $ 6,773 and $ 15,532 , respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2021, were $ 50,818 , $ 7,195 and $ 17,779 , respectively. We also sell products to Brownie’s Global Logistics, LLC (“BGL”) and 940 Associates, Inc. (“940 A”), entities wholly-owned by Robert Carmichael. Combined net revenues from these three entities for the years ended December 31, 2022 and 2021 were $ 4,646 and $ 245 , respectively. In addition, from time to time Mr. Carmichael purchases products from us for his personal use. Accounts receivable from BGL, 940 A and Mr. Carmichael totaled $ 2,408 at December 31,2022 and $ 897 at December 31, 2021. We owed BGL $ 2,980 and $ 32,267 at December 31, 2022 and 2021, respectively, which represents purchase of inventory including batteries for Sea Lion (battery operated unit) and Honda engines for our regular gasoline powered units. As of December 31, 2022, the Company also had an amount due of $ 5,000 to Mr. Carmichael for an advance to BLU3,Inc. We are a party to an exclusive license agreement, dated February 22, 2005, with 940 A to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. The agreement provides for a royalty to be paid equal to the greater of 2.5 % on all sales of Trebor or $ 15,000 per quarter. Total royalty fees paid to 940 A in the years ended December 31, 2022 and 2021 totaled $ 61,308 and $ 75,161 , respectively. The Company had accrued royalties of $ 2,845 and $ 7,735 for the years ended December 31, 2022 and 2021, respectively. On September 30, 2022, the Company issued a convertible demand 8 % promissory note in the principal amount of $ 66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note, and interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day value weighted average price (“VWAP”) of the Company’s stock prior to the quarterly interest payment date. The note holder may demand payment or convert the outstanding principal at a conversion rate of $ .021 per share at any time. The conversion rate was calculated at a 35 % discount to the 90 day VWAP of the Company’s stock as of the date of the note. The Company recorded $ 19,250 for the beneficial conversion feature. As this conversion rate is a fixed rate, the embedded conversion feature is not a derivative liability. 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, 2021, the Company had accrued $ 112,500 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, 2022. As of December 31, 2022, the Company accrued an additional $ 36,000 in Board of Directors’ fees for a total of $ 148,500 in accrued fees. F- 16 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. During the years ended December 31, 2022 and December 31, 2021 the Company expensed $ 655,516 and $ 874,021 in relation to this option agreement, respectively. As of December 31, 2022, there were 50,000,000 shares vested from this option. 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. During the years ended December 31, 2022 and December 31, 2021, the Company expensed $ 63,267 and $ 82,734 , respectively. As of December 31, 2022, there were 5,000,000 shares vested from this option. On March 25, 2021, the Company issued 27,500,000 shares of common stock to Charles. Hyatt, a member of our Board of Directors in consideration of $ 275,000 . On August 1, 2021 as part of the Blake Carmichael Agreement (see Note 15) the Company entered into a Non-Qualified Stock Option agreement with Blake Carmichael. Under the terms of the Blake Carmichael agreement, Blake Carmichael is entitled to (i) a five-year option to purchase 3,759,400 shares of the Company’s common stock at an exercise price of $ 0.0399 (the “BC Compensation Options”), 33.3% of the shares subject to the Option vest upon the execution of the agreement, 33% at the first anniversary date and 33% upon the second anniversary date and (ii)(ii) a 5 -year option to purchase up to 18,000,000 shares to vest annually on a contract year basis, based upon the achievement of certain financial metrics tied to revenue and EBITDA, which for the years ended December 31, 2022 and December 31, 2021 the Company expensed $ 49,692 and $ 21,810 , respectively. On September 1, 2021, the Company issued Charles Hyatt, a member of the Company’s Board of Directors, 10,000,000 units, with each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 250,000 . On September 1, 2021, the Company issued Grace Hyatt, the adult child of Charles Hyatt, 600,000 units of the securities of the Company, with each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercisable at $ 0.025 per share in consideration of $ 15,000 . On November 5, 2021 the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable as part of his employment agreement as the Company’s Chief Executive Officer. Under the terms of the option agreement, the Company granted Mr. Constable a five -year option to purchase 2,403,846 shares of the Company’s common stock at an exercise price of $ .0416 , the “Compensation Options”. The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $ 98,976 using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of .53 %, (ii) expected life of 2.5 years, (iii) dividend yield of 0 %, and (iv) expected volatility of 324.5 %. Stock option expense recognized during the year ended December 31, 2021 for this option was $ 98,976 . On February 2, 2022, the Company issued Charles Hyatt, a director, 10,000,000 shares upon the exercise of a warrant at $ 0.025 per share in consideration of $ 250,000 . On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, 600,000 shares upon the exercise of a warrant at $ 0.025 per share in consideration of $ 15,000 On November 5, 2022 the Company entered into a Non-Qualified Stock Option agreement with Christopher Constable as part of his employment agreement as the Company’s Chief Executive Officer. Under the terms of the option agreement, the Company granted Mr. Constable a five -year option to purchase 3,968,254 shares of the Company’s common stock at an exercise price of $ .0252 the “Compensation Options”. The Compensation Options were immediately vested. The fair value of the options on the date of the grant was $ 95,969 using the Black-Scholes option pricing model with the following assumptions: (i) risk free interest rate of . 4.64 %, (ii) expected life of 2.5 years, (iii) dividend yield of 0 % and (iv) expected volatility of 256 %. Stock option expense recognized during the year ended December 31, 2022 for this option was $ 95,969 . F- 17 On December 13, 2022, the Company issued 5,714,285 units, each unit consists of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.0175 per share to Charles Hyatt a director, in a private offering for proceeds of $ 100,000 . Note 8. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consists of the following as of: Schedule of Accounts Payable and Accrued Liabilities December 31, 2022 December 31, 2021 Accounts payable trade and other $ 504,393 $ 516,957 Accrued payroll and fringe benefits 262,113 165,969 Accrued warranty expense 27,651 13,680 Accrued payroll taxes and withholding - 9,106 Accrued Sales Tax 35,299 29,339 Accrued interest - 9,332 Total $ 829,456 $ 744,383 Balances due certain vendors are in arrears to varying degrees. The Company is handling all delinquent accounts on a case-by-case basis. Note 9. Other Liabilities Other liabilities consist of the following as of: Schedule of Other Liabilities December 31, 2022 December 31, 2021 Accrued expenses $ 63,943 $ 66,424 Accrued recall reserve fee 160,500 Accrued Board of Directors fees 148,500 121,500 Total $ 372,943 $ 187,924 Further information regarding the recall reserve fee can be found in note 15. Note 10. Convertible Promissory Notes and Loans Payable Convertible Promissory Notes Convertible Promissory Notes consist of the following at December 31, 2022: Schedule of Convertible Debentures 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. 9/03/21 9/03/24 8 % $ 346,500 $ ( 12,355 ) $ 346,500 $ ( 6,994 ) $ 339,509 - (4 ) 9/03/21 9/03/24 8 % $ 3,500 $ ( 125 ) 3,500 ( 66 ) 3,434 - (5 ) 9/30/22 Demand 8 % $ 66,793 $ ( 19,250 ) 68,397 ( 19,250 ) 49,147 - (6 ) $ 418,397 $ ( 26,310 ) $ 392,090 $ - F- 18 Convertible debentures consist of the following at December 31, 2021: Origination Date Maturity Date Interest Rate Origination Principal Balance Original Discount Balance Period End Principal Balance Period End Discount Balance Period End Balance, Net Accrued Interest Balance Reg. 8/31/11 8/31/13 5 % 10,000 ( 4,286 ) $ - $ - $ - $ - (1 ) 12/01/17 12/31/21 6 % 50,000 ( 12,500 ) - - - - (2 ) 12/05/17 12/31/21 6 % 50,000 ( 12,500 ) - - - - (3 ) 9/03/21 9/03/24 8 % 346,500 ( 12,355 ) 346,500 ( 10,639 ) 335,861 9,240 (4 ) 9/03/21 9/03/24 8 % 3,500 ( 125 ) 3,500 ( 107 ) 3,393 92 (5 ) $ 350,000 $ ( 10,746 ) $ 339,254 $ 9,332 (1) The Company borrowed $ 10,000 in exchange for a convertible note (the “Hoboken Convertible Note”). The holder at its option may convert all or part of the note plus accrued interest into common stock at a price of 30 % discount as determined from the average four highest closing bid prices over the preceding five trading days. The Company valued the beneficial conversion feature of the convertible debenture at $ 4,286 , which was accreted to interest expense over the period of the note. On February 22, 2021, this note and accrued interest of $ 4,777 were converted by the holder into 422,209 shares of common stock in accordance with the terms of the note. (2) On December 1, 2017, the Company issued a $ 50,000 principal amount 6 % secured convertible promissory note, initially due December 1, 2018 , subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, is guaranteed by the Company’s wholly-owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael. The conversion price under the note initially ranged from $ 0.02 per share if converted in the first year to $ 0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99 % of the outstanding common stock of the Company at any one time. In 2019, the maturity date of the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $ 0.01 per share. The Company recorded a loss on extinguishment of debt of $ 32,000 upon the modification of conversion price. On June 10, 2021, this note and accrued interest of $ 10,554 were converted by the holder into 6,055,358 shares of common stock in accordance with the terms of the note. (3) On December 5, 2017, the Company issued a $ 50,000 principal amount 6 % secured convertible promissory note, initially due December 4, 2018 , subject to extension. The note is secured with such assets of the Company equal to the principal and accrued interest, is guaranteed by the Company’s wholly owned subsidiaries, Trebor and BHP and the personal guarantee of Mr. Carmichael. The conversion price under the note initially ranged from $ 0.02 per share if converted in the first year to $ 0.125 per share if converted in year five. The lender may convert at any time until the note plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 9.99 % of the outstanding common stock of the Company at any one time. In 2019, the note was extended for one additional year to December 31, 2019 with a reduction in the conversion price to $ 0.01 per share. The Company recorded a loss on extinguishment of debt of $ 99,000 upon the modification of conversion price. The maturity date was further extended to December 31, 2021. On August 18, 2021, this note and accrued interest of $ 11,145 were converted by the holder into 6,114,516 shares of common stock in accordance with the terms of the note. (4) On September 3, 2021, the Company issued a $ 346,500 note payable to Summit Holding V, LLC as part of the acquisition of SSI. The note carries 8 % unsecured convertible promissory note, due September 3, 2024 . Payments on the note are to be equivalent to 50 % of the adjusted net profit of Submersible Systems, Inc., payable calendar quarterly commencing on December 31, 2021. Interest is payable in company stock at the conversion price of $ 0.051272 and shall be paid quarterly. The note holder may convert any outstanding principal and unpaid interest at a conversion rate of $ 0.051272 at any time up to the maturity date of the note. The Company recorded $ 12,355 for the beneficial conversion feature. Schedule of Future Amortization of Notes Payable Payment Amortization 2023 $ - 2024 346,500 Total Note Payments $ 346,500 Current portion of note payable - Non-Current Portion of Notes Payable $ 346,500 F- 19 (5) On September 3, 2021, the Company issued a three-year 8 % unsecured convertible promissory note for $ 3,500 to Tierra Vista Partners, LLC as part of the acquisition of SSI. Payments on the note are to be equivalent to 50 % of the adjusted net profit of SSI, payable calendar quarterly commencing on December 31, 2021. Interest is payable quarterly in common stock of the Company at the conversion price of $ 0.051272 per share. The note holder may convert any outstanding principal and unpaid interest at a conversion rate of $ 0.051272 at any time up to the maturity date of the note. The Company recorded $ 125 for the beneficial conversion feature. Schedule of Future Amortization of Notes Payable Payment Amortization 2023 $ - 2024 3,500 Total Note Payments $ 3,500 Current portion of note payable - Non-Current Portion of Notes Payable $ 3,500 (6) On September 30, 2022, the Company issued a convertible demand 8 % promissory note in the principal amount of $ 66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the note, and interest is payable in shares of common stock of the Company at a conversion price equal to the 90 day VWAP of the Company’s stock prior to the quarterly interest payment date. This note is classified as a current liability as the note holder may demand payment or convert the outstanding principal at a conversion rate of $ 0.021 per share at any time. The Company recorded $ 19,250 for the beneficial conversion feature. Loans Payable Schedule of Future Amortization of Loans Payable Marlin Capital BLU3 (1) Mercedes BMG (2) Navitas 1 BLU3 (3) PPP Loan BMG (4) PPP loan SSI (5) NFS SSI (6) Navitas 2 BLU3 (7) Total 2023 $ - $ 11,168 $ 14,270 $ - $ - $ 22,197 $ 18,851 $ 66,486 2024 - 11,168 16,629 - - 26,279 21,228 75,304 2025 - 8,687 18,024 - - 12,328 23,611 62,649 2026 - - 6,007 - - - - 6,007 Total Loan Payments $ - $ 31,023 $ 54,930 $ - $ - $ 60,804 $ 63,689 $ 210,446 Current Portion of Loan Payable $ - $ ( 11,168 ) $ ( 14,270 ) $ - $ - $ ( 22,197 ) $ ( 18,851 ) $ ( 66,486 ) Non-Current Portion of Loan Payable $ - $ 19,855 $ 40,660 $ - $ - $ 38,607 $ 44,838 $ 143,960 (1) 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 . The Company 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 $ 0 as of December 31, 2022 and $ 25,079 as of December 31, 2021. (2) 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 loan balance as of December 31, 2022 was $ 31,023 and $ 43,122 as of December 31, 2021. (3) On May 19, 2021, subsidiary BLU3, executed an equipment finance agreement to finance the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ 75,764 payable over 60 equal monthly installments of $ 1,611 (the “Navitas 1”). The equipment finance agreement contains customary events of default. The loan balance as of December 31, 2022 was $ 54,930 and $ 70,157 as of December 31, 2021. F- 20 (4) On May 12, 2020, we received an unsecured loan from South Atlantic Bank 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. On April 28, 2021, the Company was notified by South Atlantic Bank that the SBA Loan was forgiven in full under the terms of the CARES Act. The company recorded the forgiveness as a gain on the forgiveness of the PPP loan of $ 159,600 on our consolidated income statement. The note balance as of December 31, 2022 and December 31, 2021 was $ 0 . (5) On May 12, 2020, SSI received an unsecured loan from City National Bank in the principal amount of $ 116,160 (the “Submersible SBA Loan”), under the CARES Act. The term of the note is two years , but may become due and payable upon an event of default under the note. The Submersible SBA Loan carries a fixed interest rate of 1% per year , and a monthly payment of $ 6,925 , with the first payment due seven months from the date of initial cash receipt. As part of the forgiveness application and directly related to the acquisition of SSI by the Company, SSI was required to place $ 121,953 in an escrow account until forgiveness is determined and City National Bank has been paid in full by the SBA. On October 15, 2021, the Company was notified by City National Bank that the Submersible SBA Loan was forgiven in full under the terms of the CARES Act. The restricted cash in escrow was released in full by the bank as a result of this forgiveness on November 8, 2021. The note balance as of December 31, 2022 and December 31, 2021 was $ 0 . (6) On June 29, 2022, SSI executed an equipment financing agreement with NFS Leasing (“NFS Leasing”) to secure replacement production molds. The total purchase price of the molds was $ 84,500 of which $ 63,375 was financed by NFS Leasing on August 15, 2022. The financing agreement has a 33 month term beginning in August 2022 with a monthly payment of $ 2,571 . The financing agreement contains customary events of default, is guaranteed by the Company and NFS Leasing has a lien on all of the assets of SSI. The loan balance as of December 31, 2022 and December 31, 2021 was $ 60,804 and $ 0 , respectively. (7) On December 12, 2022, BLU3 executed an equipment finance agreement to finance the purchase of certain plastic molding equipment through Navitas Credit Corp. (“Navitas”). The amount financed is $ 63,689 payable over 36 equal monthly installments of $ 2,083 (“Navitas 2”). The equipment finance agreement contains customary events of default. The loan balance as of December 31, 2022 was $ 63,689 and $ 0 as of December 31, 2021. F- 21 Note 11. Business Combinations Merger with Submersible Systems, Inc. On September 3, 2021, the Company completed its merger with Submersible Systems, Inc. Under the terms of the Merger Agreement, the Company paid $ 1.79 million in consideration consisting of the issuance of 27,305,442 shares of its common stock (valued at $ 1.4 million), the issuance of $ 350,000 in 8 % unsecured convertible promissory notes in exchange for all of the equity of Submersible. The 27,305,442 shares of the Company’s common stock issued for the $ 1.45 million in consideration are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following: Summary of Holding Period and Shares Eligible To Sold Holding Period from Closing Date Percentage of shares eligible to be sold or transferred 6 months Up to 12.5 % 9 months Up to 25.0 % 24 months Up to 75.0 % 36 months Up to 100.0 % The Leak-Out provision may be waived by the Company, upon written request by the holder of the common stock, if the Company is trading on either the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of 50,000 shares per day; provided, however , that (i) only up to 5% of the previous days total volume can be sold in one day by a holder; and (ii) the holder can only sell through executing trades “On the Offer.” The transaction costs associated with the Merger were $ 65,000 in legal fees paid $ 40,000 in cash, and 1,190,476 shares of the Company’s common stock with a fair value of $ 55,952 . Fair Value of Consideration Transferred and Recording of Assets Acquired The following table summarizes the acquisition date fair value of the consideration paid, identifiable assets acquired, and liabilities assumed including an amount for goodwill: Schedule of Recognized Identified Assets Acquired and Liabilities Assumed Common stock, 27,305,442 shares at fair market value $ 1,449,919 8% Unsecured, Convertible promissory note payable to seller 350,000 Total purchase price $ 1,799,919 Tangible assets acquired $ 1,101,604 Liabilities assumed ( 294,671 ) Net tangible assets acquired 806,933 Identified Intangible Assets Customer Relationships $ 600,000 Trademarks 121,000 Non-compete agreements 22,000 Total Intangible Assets 743,000 Goodwill $ 249,986 Total purchase price $ 1,799,919 F- 22 In determining the number of shares of the common stock issued, the Company considered the value of the stock as defined the Merger Agreement to be the calculated based on the volume weighted average price (“VWAP”) of a share of the Company’s common stock on the OTC Markets for (i) 180 days prior to the date of the parties’ execution and delivery of the binding term sheet for the Merger or (ii) 180 days prior to the closing date of the Merger, whichever results in a lower VWAP. Based on this calculation, the Company utilized calculation (i) resulting in a conversion price of $ .051271831 . This conversion price resulted in the issuance of 27,305,442 shares of common stock with a fair value of $ 1,449,919 on the closing date. Inventory was assessed at the time of closing as to its fair value, and it was determined that a step-up analysis was necessary in order to evaluate the fair value of the inventory at the time of closing. The step up represents the net profit that would be attained when the inventory is sold. The key assumptions used in this analysis is a gross margin of 38.3% and selling costs of 5.0%, The analysis resulted in a necessary step up of $31,000 at the time of closing . Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the acquisition is attributable to the value of the potential expanded market opportunity with new customers. The goodwill is not expected to be deductible for tax purposes. Pro Forma Information The following unaudited pro forma information assumes all business combinations occurred on January 1, 2021. For all of the business acquisitions depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs. Schedule of Business Acquisition, Pro Forma Information Year ended December 31, 2021 (unaudited) Revenue $ 7,259,384 Net Loss $ ( 1,560,900 ) Basic and Diluted Loss per Share $ ( 0.00 ) Basic and Diluted Weighted Average Common Shares Outstanding 368,144,534 The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average common shares outstanding have been adjusted to include the stock issued in connection with the acquisition of SSI. Gold Coast Scuba, LLC Asset Acquisition 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 Live Blue, Inc. Pursuant to the terms of the Asset Purchase Agreement, Live Blue acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition. In consideration for the assets purchased, the Company paid $ 150,000 to the LLC Members. The purchase price was paid by (a) the issuance to the LLC Members of an aggregate of 3,084,831 shares of the Company’s common stock (the “Consideration Shares”) with a fair market value of $ 120,000 ; and (b) a cash payment of $ 30,000 . The Consideration Shares are subject to leak out agreements whereby the shareholders are unable to sell or transfer shares based upon the following: Summary of Holding Period and Shares Eligible To Sold Holding Period from Closing Date Percentage of shares eligible to be sold or transferred 6 months Up to 25.0 % 9 months Up to 50.0 % 12 months Up to 100.0 % The leak-out restriction may be waived by the Company upon written request by a LLC Member, if the Company’s common stock is trading on the NYSE American or Nasdaq, and has a rolling 30-day average trading volume of 50,000 shares per day; provided, however , that (i) only up to 5% of the previous days total volume can be sold in one day and (ii) only through executing trades “On the Offer .” The transaction costs associated with the acquisition were $ 10,000 in legal fees paid in cash. F- 23 While the agreement was structured as an asset purchase agreement, we also assumed the operations of Gulf Coast Scuba resulting in the recognition of a business combination. During 2022 we recognized revenue of $ 212,876 and net loss of ($ 75,579 ) associated with this business. The business combination was not material for purposes of disclosing pro forma financial information. In connection with this transaction, we recognized the following assets and liabilities: Summary of Asset Acquisition Fair Value Rental Inventory $ 48,602 Fixed Assets 50,579 Retail Inventory 60,819 Right of use asset 29,916 Lease liability ( 29,916 ) Net Assets Acquired $ 160,000 Note 12. Goodwill and Intangible Assets, Net The following table sets forth the changes in the carrying amount of the Company’ Goodwill for the years ended December 31, 2022 and 2021: Summary of Changes in Goodwill 2022 2021 Balance, January 1 $ 249,986 $ - Acquisitions of Submersible Systems, Inc. - 249,986 Balance, December 31 $ 249,986 $ 249,986 The following table sets forth the components of the Company’s intangible assets at December 31, 2022: Summary of Intangible Assets Amortization Period (Years) Cost Accumulated Amortization Net Book Value Intangible Assets Subject to amortization Trademarks 15 $ 121,000 $ ( 10,712 ) $ 112,299 Customer Relationships 10 600,000 ( 80,000 ) 520,000 Non-Compete Agreements 5 22,000 ( 5,867 ) 16,133 Total $ 743,000 $ ( 96,622 ) $ 646,422 The aggregate amortization remaining on the intangible assets as of December 31, 2022 is a follows: Schedule of Estimated Intangible Assets Amortization Expenses Intangible Amortization 2023 $ 72,467 2024 72,467 2025 72,467 2026 71,367 Thereafter 357,654 Total $ 646,422 Note 13. Stockholders’ Equity Common Stock On February 22, 2021, the Company issued 422,209 shares of common stock related to the conversion of a convertible note and accrued interest of $ 14,777 . On March 1, 2021, the Company issued a consultant 3,000,000 shares of its common stock related to investor relation services at a fair value of $ 120,000 . On March 25, 2021, the Company issued 27,500,000 shares of common stock to Charles F. Hyatt, a member of our Board of Directors, in consideration of $ 275,000 . On February 28, 2021, the Company issued 116,279 shares of common stock to a consultant with a fair value of $ 5,000 for professional business services. F- 24 On June 10, 2021, the Company issued 6,055,358 shares of common stock related to the conversion of a convertible note and accrued interest of $ 60,554 . On August 18, 2021, the Company issued 6,114,516 shares of common stock related to the conversion of a convertible note and accrued interest of $ 61,145 . On September 1, 2021, the Company issued Charles Hyatt, a member of our Board of Directors, 10,000,000 units of the Company, with the unit consisting of one share of common stock and a two- year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 250,000 . The Company did not pay any fees or commissions in connection with the sale of the unit. On September 1, 2021, the Company issued Grace Hyatt, the adult child Charles Hyatt, 600,000 units of the Company, with each unit consisting of one share of common stock and a two- year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 15,000 . The Company did not pay any fees or commissions in connection with the sale of the unit. In September, 2021, the Company issued 4,000,000 units of the Company to three accredited investors, with each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 100,000 . The Company did not pay any fees or commissions in connection with the sale of the unit. On September 3, 2021, the Company issued 273,054 shares of common stock to Tierra Vesta Group as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $ 14,499 . On September 3, 2021, the Company issued 27,032,388 shares of common stock to Summit Holdings V, LLC. as part of the purchase agreement of Submersible Systems, Inc. with a fair value of $ 1,435,420 . On September 22, 2021, the Company issued a law firm 1,190,476 shares of common stock with a fair value of $ 55,952 as partial consideration for its legal services related to acquisition of SSI. In November and December, 2021 the Company issued 597,006 shares of its common stock with a fair value of $ 21,000 to a consultant for services related to the dive retail industry. On December 31, 2021 the Company issued 763,983 shares of its common stock with a fair market value of $ 36,690 to a vendor related to exclusive distribution of its product line in the US and Caribbean. On January 17, 2022, the Company issued a law firm 1,000,000 shares of common stock with a fair value of $ 27,500 as part of the agreed upon compensation for a representation agreement. On January 31, 2022, the Company issued a consultant 121,212 shares of common stock with a fair value of $ 4,000 for consulting services related to the dive industry. On February 2, 2022, the Company issued Charles Hyatt, a director, 10,000,000 shares from the exercise of a warrant at $ 0.025 per share in consideration of $ 250,000 . On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, a director, 600,000 shares from the exercise of a warrant at $ 0.025 per share in consideration of $ 15,000 . On February 28, 2022, the Company issued a consultant, 85,106 shares of common stock with a fair value of $ 4,000 for consulting services related to the dive industry. On May 3, 2022, the Company issued 3,084,831 shares of common stock pursuant to the asset purchase agreement with Gold Coast Scuba, LLC with a fair value of $ 120,000 . F- 25 On May 31, 2022, the Company issued a consultant, 302,953 shares of common stock with a fair value of $ 12,000 for consulting services related to the dive industry. On June 17, 2022, the Company issued 280,000 shares of common stock to an employee as a retirement gift. The fair value of this stock was $ 11,060 . On June 30, 2022, the Company issued 449,522 shares of common stock to the holders of convertible notes for payment of interest through June 30, 2022. The fair value of these shares was $ 23,048 . On September 7, 2022, the Company issued to two accredited investors, 8,541,666 units of the Company, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $ 0.024 per share in consideration of $ 205,000 . The Company did not pay any fees or commissions in connection with the sale of the units. On September 30, 2022, the Company issued 136,527 shares of common stock to the holders of convertible notes for payment of interest for the three months ending September 30, 2022. The fair value of these shares was $ 7,000 . On November 1, 2022, the Company issued an aggregate of 1,155,881 shares to the designated shareholders in accordance with the amended STS Agreement. The fair value of these shares was $ 30,000 . On December 13, 2022, the Company issued 5,714,286 units, each unit consists of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.0175 per share to Charles Hyatt a director, in a private offering for proceeds of $ 100,000 . On December 31, 2022, the Company issued 198,204 shares of common stock to the holders of convertible notes for payment of interest for the three months ending December 31, 2022. The fair value of these shares was $ 8,336 . 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, 2022 and 2021, the 425,000 shares of Series A Convertible Preferred Stock are owned by Robert Carmichael. Equity Compensation Plan On May 26, 2021 the Company adopted an Equity Compensation Plan (the “Plan”). Under the Plan, stock options may be granted to employees, directors, and consultants in the form of incentive stock options or non-statutory stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares. The maximum number of shares that may be issued under the Plan is 25,000,000 shares. The term of the Plan is ten years. The Company also issued options outside of the plan that were not approved by the security holders. These options may be granted to employees, directors, and consultants in the form of incentive stock options or non-qualified stock options. F- 26 Equity Compensation Plan Information as of December 31, 2022: Schedule of Equity Compensation Plan Information Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted – average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a) (c) Equity Compensation Plans Approved by Security Holders 3,467,647 $ .0400 21,532,353 Equity Incentive Options issued outside of the Equity Compensation Plan 234,971,520 .0359 — Total 238,439,167 $ .0360 21,532,353 Options The Company has issued options to purchase approximately 238,439,167 shares at an average price of $ 0.036 with a fair value of approximately $ 99,000 . For the years ended December 31, 2022 and 2021, the Company issued options to purchase 5,710,901 and 33,473,246 shares, respectively. Upon exercise, shares of new common stock are issued by the Company. For the years ended December 31, 2022 and 2021, the Company recognized an expense of approximately $ 951,400 and $ 1,154,800 , respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black-Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of December 31, 2022, the Company had approximately $ 3,774,300 of unrecognized pre-tax non-cash compensation expense related to options to purchase shares, which the Company expects to recognize, based on a weighted-average period of 1.5 years. The Company uses straight-line amortization of compensation expense over the requisite service period for time-based options. For performance-based options the Company evaluates the likelihood of a vesting qualification being met, and will establish the expense based on that evaluation. The maximum contractual term of the Company’s stock options is 5 years. The Company recognizes forfeitures as they occur. There are options to purchase approximately 11,558,800 shares that have vested as of December 31, 2022. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the awards using the Black-Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions regarding the following: Schedule of Valuation Assumptions of Options Year ended December 31, 2022 2021 Expected volatility 215.2 % - 266.8 % 249.4 – 346.4 % Expected term 2.0 – 2.50 Years 2 - 2.50 Years Risk-free interest rate 0.3 % - 1.4 % 0.25 % - .53 % Forfeiture Rate 0.17 % 0.03 % The expected volatility was determined with reference to the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. A summary of the status of the Company’s outstanding stock options as of December 31, 2022 and 2021 and changes during the periods ending on that date is as follows Schedule of Outstanding Stock Option Activity F- 27 Weighted Weighted Average Average Remaining Aggregate Number of Options Exercise Price Contractual Life in Years Intrinsic Value Outstanding at December 31, 2020 199,730,020 $ 0.0323 2.84 Granted 33,473,246 0.0430 Forfeited ( 75,000 ) 0.0360 Exercised - - Cancelled - - Outstanding – December 31, 2021 233,128,266 $ 0.0362 2.23 Exercisable – December 31, 2021 76,068,249 $ 0.0284 2.30 $ 795,201 Granted 5,710,901 0.0281 Forfeited ( 400,000 ) 0.0354 Exercised - - Cancelled - - Outstanding – December 31, 2022 238,439,167 $ 0.0360 1.43 Exercisable – December 31, 2022 111,558,754 $ 0.0321 1.33 $ 68,994 The following table summarizes information about employee stock options outstanding at December 31, 2022 Summary of Exercise Price of Employee Stock Options Outstanding Range of Exercise Price Number outstanding at December 31, 2022 Weighted average remaining life Weighted average exercise price Number exercisable at December 31, 2022 Weighted average exercise price Weighted average remaining life $ 0.018 - $ 0.0225 70,730,020 2.21 $ 0.0182 45,730,020 $ 0.0181 1.87 $ 0.0229 - $ 0.0325 9,093,254 2.54 $ 0.0251 9,018,254 $ 0.0250 0.99 $ 0.0360 - $ 0.0425 25,530,893 3.57 $ 0.0398 6,047,980 $ 0.0396 3.53 $ 0.0440 - $ 0.0531 133,085,000 0.52 $ 0.0455 50,762,500 $ 0.0451 0.36 Outstanding options 238,439,167 1.43 0.0360 111,558,754 0.0321 1.33 As of December 31, 2022, the Company had approximately $ 3,774,300 of unrecognized pre-tax non-cash compensation expense related to options to purchase shares, which the Company expects to recognize, based on a weighted-average period of 1.5 years. Warrants On September 1, 2021, the Company issued Charles Hyatt 10,000,000 units, each unit consisted of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 250,000 . On September 1, 2021, the Company issued Grace Hyatt, the adult child of Charles Hyatt, 600,000 units, each unit consisted of one share of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $ 0.025 per share in consideration of $ 15,000 . On September, 2021, the Company issued 4,000,000 units to three accredited investors, each unit consisting of one share of common stock and a two-year warrant to purchase one share of common stock at $ 0.025 per share in consideration of $ 100,000 . F- 28 On February 2, 2022, the Company issued Charles Hyatt 10,000,000 shares of common stock upon the exercise of a warrant at $ 0.025 per share in consideration of $ 250,000 . On February 2, 2022, the Company issued Grace Hyatt, the adult child of Charles Hyatt, 600,000 shares of common stock upon the exercise of a warrant at $ 0.025 per share in consideration of $ 15,000 . On September 7, 2022, the Company issued an aggregate of 8,541,666 units to two accredited investors. Each unit consisted of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $ 0.024 per share in consideration of $ 205,000 . On December 13, 2022, the Company issued to Charles Hyatt, 5,714,285 units. Each unit consisted of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $ 0.0175 per share in consideration of $ 100,000 . A summary of the Company’s warrants as of December 31, 2022 and 2021, and changes during the years ended December 31, 2022 and 2021 is presented below: Schedule of Warrants Activity Weighted Weighted Average Average Remaining Number of Warrants Exercise Price Contractual Life in Years Aggregate Intrinsic Value Outstanding at December 31, 2020 - $ - - Granted 14,600,000 0.0250 Forfeited - - Exercised - - Cancelled - - Outstanding – December 31, 2021 14,600,000 $ 0.0250 1.67 Exercisable – December 31, 2021 14,600,000 $ 0.0250 1.67 $ 153,300 Granted 14,255,951 0.0214 Forfeited - - Exercised ( 10,600,000 ) 0.0250 Cancelled - Outstanding – December 31, 2022 18,255,951 $ 0.0245 1.55 Exercisable – December 31, 2022 18,255,951 $ 0.0245 1.55 $ 12,000 Note 14. 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. F- 29 The components of the provision for income tax expense are as follows for the years ended: Schedule of Provision for Income Tax Expense December 31, 2022 2021 Current taxes Federal $ — $ — State — — Current taxes — — Change in deferred taxes 680,108 40,100 Change in valuation allowance ( 680,108 ) ( 40,100 ) 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, 2022 and 2021: Summary of Significant Components of Deferred Tax Assets and Liabilities December 31, 2022 2021 Deferred tax assets: Equity based compensation $ 395,600 $ 154,400 Allowance for doubtful accounts 7,200 11,700 Reserves for slow moving inventory 42,200 46,500 Depreciation 13,800 6,000 Reserve for recall ( 33,700 ) - Net operating loss carryforward 1,759,300 1,285,500 Total deferred tax assets 2,218,100 1,504,200 Deferred tax liabilities Reserve for recall ( 33,700 ) - Total deferred tax liability ( 33,700 ) - Total deferred tax 2,184,400 1,504,200 Valuation allowance ( 2,184,400 ) ( 1,504,200 ) Deferred tax assets, net of valuation allowance $ - $ - The effective tax rate used for calculation of the deferred taxes as of December 31, 2022 was 25.35 %. The Company has established a 100 % valuation allowance against deferred tax assets of approximately $ 2,184,400 , due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $ 680,108 . The Company has approximately $ 3,346,650 of net loss carryforward that expire through 2037 and $ 2,125,933 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, 2021 was 25.35 %. The Company has established a 100 % valuation allowance against deferred tax assets of $ 1,504,200 due to the uncertainty regarding realization reserve against the deferred tax assets. The change in valuation allowance was an increase of $ 40,100. The significant differences between the statutory tax rate and the effective tax rates for the Company for the years ended are as follows: Schedule of Differences Between Statutory Tax Rate and Effective Tax Rate December 31, 2022 2021 Statutory tax rate ( 21.00 )% ( 21.00 )% State tax, net of Federal benefits ( 4.30 )% ( 4.35 )% Permanent differences 0.07 % 5.20 % Temporary differences 10.90 % 22.76 % Change in valuation allowance 14.35 % ( 2.61 )% Effective tax rate — % — % The Company’s income tax returns for 2019 through 2022 remain subject to examination by the Internal Revenue Services and state tax authorities. F- 30 Note 15. Commitments and Contingencies Leases On August 14, 2014, the Company entered into a thirty-seven month lease for its facilities in Pompano Beach, Florida, commencing on September 1, 2014. Terms included payment of a $ 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 (common areas maintenance), which was approximately $ 2,000 per month subject to periodic adjustment. On December 1, 2016, the Company entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending the term of the lease 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 January 4, 2018, the Company entered into a sixty-one month lease renewal for its facility in Huntington Beach, California commencing on February 1, 2018. Terms included base rent of approximately $ 9,300 per month for the first 12 months with an annual escalation clause of 2.5 % thereafter. The Company paid a security deposit of $ 8,450 upon entering into the lease. On November 11, 2018, the Company entered a sixty-nine month lease commencing on January 1, 2019 for approximately 8,025 square feet adjoining its existing facility in Pompano Beach, Florida. Terms of the new lease include 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 10.11 % of the buildings annual operating expenses (common area maintenance) which is approximately $ 1,679 per month, subject to adjustment as provided in the lease. On May 2, 2022, LBI entered into a lease assignment agreement with Gold Coast Scuba, LLC and Vicnsons Realty Group, LLC whereby LBI is the assignee to the remainder of the lease for the property located at 259 Commercial Blvd., Suites 2 and 3 in Lauderdale-By-The Sea, Florida. The lease is in its third year of a three-year term and has a $ 2,816 per month base rent. The lease provides an option to renew for an additional term of two years with an increase of base rent by 3.5 %. On September 14, 2022, SSI entered into a sixty-month lease renewal for its facility in Huntington Beach, California effective February 1, 2022. Terms included base rent of approximately $ 17,550 per month for the first 24 months with an annual escalation clause of 3.0 % thereafter. Obligations under the lease are guaranteed by the Company. The Company paid an additional security deposit of $ 10,727 upon entering into the lease. On September 30, 2022, SSI entered into a sublease of its facility in Huntington Beach, California with Camburg Engineering, Inc.(“Tenant”) commencing October 1, 2022, The term of the sublease is through December 31, 2023 with a base monthly rent of $ 2,247 for the first twelve months with an 3 % annual escalation thereafter. The Tenant also pays a monthly common area maintenance of $ 112 . The Tenant provided a security deposit of $ 2,426 upon entering into the sublease. Royalty Agreement On June 30, 2020, the Company entered into Amendment No. 2 to its Patent License Agreement with Setaysha Technical Solutions, LLC (“STS”). The amendment set certain limits and expectations of the assistance from STS related to designing and commercializing certain diving products and revised the royalty payments due to STS as consideration for uncompensated services. The Company is obligated to pay STS a minimum yearly royalty of $ 60,000 , or $ 15,000 per fiscal quarter, beginning in December 2019 and increasing by 2.15 % per year. The minimum royalty was temporarily increased to $ 60,000 for fiscal years 2022, 2023 and 2024, with a fourth quarter true up against earned royalties. In addition, if the Company terminates the Agreement with STS prior to December 31, 2023, the Company is obligated to pay STS $ 180,000 , less cumulative royalties paid in excess of $ 200,174 for the years 2019 through 2024. In accordance with the amendment, the Company will pay additional minimum royalties of $ 60,000 per year or $ 15,000 per quarter for the years 2022 through 2024. 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 Patent License Agreement. Royalty recorded under this Agreement was $ 203,621 and $ 157,855 for twelve months ended December 31, 2022 and December 31, 2021, respectively. As included in other liabilities, accrued royalties under this agreement were $ 18,870 and 59,493 at December 31, 2022 and 2021, respectively. Consulting and Employment Agreements On June 9, 2020, the Company entered into a one-year advertising and marketing agreement with Figment Design for $ 8,840 per month which agreement terminated on July 31, 2021. On November 5, 2020, the Company entered into a three-year employment agreement with Christopher Constable (the “Constable Employment Agreement”) pursuant to which Mr. Constable serves as Chief Executive Officer of the Company. Previously, Mr. Constable had provided advisory services to the Company through an 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) 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 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 Company’s common stock on the date of issuance. Accordingly, on November 5, 2020, Mr. Constable was issued an option to purchase 5,434,783 shares of the common stock at an exercise price of $ 0.0184 per share and on November 5, 2021, Mr. Constable was issued an option to purchase 2,403,846 shares of the Company’s common stock at an exercise price of $ 0.0401 per share. F- 31 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 following amounts 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 NASDAQ or New York Stock Exchange. On March 1, 2021, the Company entered into an investor relations consulting agreement with BGM Equity Partners, LLC. The term of the agreement is twelve months. As compensation, the Company issued 3,000,000 shares of its common stock valued at $ 120,000 to BGM Equity Partners. The agreement expired on March 1, 2022. On August 1, 2021, the Company and Blake Carmichael entered into a three-year employment agreement (the “Blake Carmichael Employment Agreement”) pursuant to which Mr. Carmichael shall serve as Chief Executive Officer of BLU3. In consideration for his services, Blake Carmichael shall receive (i) an annual base salary of $ 120,000 , payable in accordance with the customary payroll practices of the Company, and (ii) a cash bonus equal to 5% of the net income of BLU3 payable quarterly, beginning with the first full calendar quarter after the execution of the agreement. (iii) upon execution of the Employment Agreement, a non-qualified five-year stock option to purchase 3,759,400 shares at $ 0.0399 , 33.3% of which shares vest immediately, 33.3% vest on the second anniversary, and 33.3% vest on the third anniversary of the agreement . In addition, Blake Carmichael shall be entitled to receive a five-year stock option to purchase up to 18,000,000 shares of common stock at an exercise price of $ 0.0399 per share that will vest upon annual financial metrics based upon a revenue measurement, expediency measurement and an EBITDA measurement. On August 6, 2021, the Company entered into a six-month, non-exclusive mergers and acquisitions services agreement with Newbridge Securities Corporation which provides for a 7 % commission for the first $ 2,000,000 paid in aggregate purchase price consideration and 6 % on an aggregate purchase price in excess of $ 2,000,000 for any merger or acquisition target sourced by Newbridge, to be paid in common stock of the Company. Such agreement expired by its terms. On September 3, 2021, SSI and Christeen Buban entered into a three-year employment agreement (the “Buban Employment Agreement”) pursuant to which Ms. Buban shall serve as the President of SSI. In consideration for her services, Mrs. Buban shall receive (i) an annual base salary of $ 110,000 , payable in accordance with the customary payroll practices of the Company, (ii) a car allowance and cell phone allowance of $ 10,800 per year, (iii) a five-year option issued under the Plan to purchase 300,000 shares of common stock of the Company at $ 0.0531 per share, which option vests quarterly over the eight calendar quarters. In addition, Mrs. Buban shall be entitled to receive a five-year stock option to purchase up to 7,110,000 shares of common stock of the Company at an exercise price of $ 0.0531 per share, which vests upon the attainment of certain defined annual financial metrics, as set forth in the Buban Employment Agreement. On May 2, 2022, the Company entered into a two-year employment agreement with Steven Gagas (the “Gagas Employment Agreement”) pursuant to which Mr. Gagas shall serve as the General Manager of the dive shop currently operating within LBI. In consideration for his services Mr. Gagas shall receive an annual salary of $ 50,000 . On January 17, 2022, the Company entered into an agreement with The Crone Law Group, PC (“CLG”) for the provision of legal services. In consideration therefor, the Company will pay CLG a monthly flat fee of $ 3,000 for the SEC reporting work, and its normal hourly rate for any other legal work and issued 1,000,000 shares of common stock with a fair market value of $ 27,500 to CLG. F- 32 On December 22, 2022, the U.S. Consumer Products Safety Commission (the “CPSC”) issued a voluntary recall notice for the Nomad tankless dive system, which is distributed by BLU3, Inc. As part of the recall procedure, the CPSC has approved the Company’s proposed remedy for the recall and BLU3 will begin to receive units back from consumers to repair affected Nomad units. The Company has evaluated the costs of this recall and has deemed it necessary to set an allowance of $ 160,500 for such costs. Legal The Company was a defendant in an action, Basil Vann, as Personal Representative of the Estate of Jeffrey William Morris v. Brownie’s Marine Group, Inc., filed on May 6, 2019 in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida. The complaint, related to consulting services provided to the Company by the deceased between 2005 and 2017, alleged breach of contract and quantum meruit and sought $ 15,870.97 in unpaid consulting fees together with interest. In April 2020, the Company filed a Motion to Dismiss, and at a hearing held in May 2021, the Court struck certain allegations contained in the complaint, the parties agreed that the quantum meruit allegation is deemed to be an alternative to the breach of contract allegation but permitted certain other allegations to stand. The parties entered mediation pursuant to the Court’s order. This action was settled for $ 10,000 on July 12, 2021. The Company paid monthly installments of $ 1,000 . The settlement was fully paid during the second quarter of 2022. Note 16. Segments The Company has five operating segments as described below: 1. SSA Products, which sells recreational multi-diver surface supplied air 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. 4. Redundant Air Tank Systems, which manufactures and distributes a line of high-pressure tanks and redundant air systems for the military and recreational diving industries. 5. Guided Tour and Retail, which provides guided tours using the BLU3 technology, and also operates as a retail store for the diving community. Schedule of Segment Reporting Information 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Year ended December 31 Legacy SSA Products High Pressure Gas Systems Ultra-Portable Tankless Dive Systems Redundant Air Tank Systems Guided Tour Retail Total Company 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Net Revenues $ 2,601,622 $ 2,897,210 $ 1,118,081 $ 616,039 $ 3,052,193 $ 2,241,359 $ 1,592,602 $ 472,771 $ 212,876 $ - $ 8,577,373 $ 6,227,379 Cost of Revenue ( 1,941,570 ) ( 2,161,396 ) ( 690,415 ) ( 386,517 ) ( 1,866,850 ) ( 1,437,512 ) ( 1,109,340 ) ( 352,395 ) ( 174,999 ) - ( 5,783,173 ) ( 4,337,820 ) Gross Profit 660,052 735,814 427,666 229,522 1,185,343 803,847 483,262 120,016 37,877 - 2,794,200 1,889,199 Depreciation/Amortization 17,487 17,447 - - 17,913 14,479 105,677 24,546 13,348 - 154,425 56,472 Income (loss) from operations $ ( 1,161,446 ) $ ( 1,778,463 ) $ 84,342 $ 17,980 $ ( 193,777 ) $ 32,995 $ ( 340,435 ) $ ( 125,215 ) $ ( 78,581 ) $ - ( 1,850,397 ) $ ( 1,852,703 ) - Total Assets $ 1,354,034 $ 1,346,096 $ 415,354 $ 346,499 $ 984,946 $ 903,718 $ 2,672,134 $ 2,077,648 $ 239,016 $ - $ 5,665,484 $ 4,673,961 Note 17. Subsequent Events On January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, an aggregate of 11,428,570 units, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $ 0.0175 per share in consideration of $ 200,000 . F- 33