Brownie's Marine Group, Inc 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 333-99393 BROWNIE’S MARINE GROUP, INC. (Exact name of registrant as specified in its charter) Florida 90-0226181 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3001 NW 25th Avenue , Suite 1 Pompano Beach , Florida 33069 (Address of principal executive offices) (Zip code) (954) 462-5570 Registrant’s telephone number, including area code Not applicable Former name, former address and former fiscal year, if changed since last report Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None Not applicable Not applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of May 15, 2023, there were 437,147,436 shares of common stock outstanding. TABLE OF CONTENTS Page No. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. 4 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 31 ITEM 4. CONTROLS AND PROCEDURES. 31 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. 33 ITEM 1A. RISK FACTORS. 33 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 33 ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 33 ITEM 4. MINE SAFETY DISCLOSURES. 33 ITEM 5. OTHER INFORMATION. 33 ITEM 6. EXHIBITS. 33 2 NOTE REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. You should read thoroughly this Quarterly Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30 22, 2023, which risk factors could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law. 3 PART I ITEM 1. FINANCIAL STATEMENTS BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2023 December 31, 2022 (Unaudited) ASSETS Current Assets Cash $ 347,635 $ 484,427 Accounts receivable - net 165,742 111,844 Accounts receivable - related parties 99,833 55,428 Accounts receivable Inventory, net 2,215,861 2,421,885 Prepaid expenses and other current assets 134,860 192,130 Total current assets 2,963,931 3,265,714 Property, equipment and leasehold improvements, net 389,455 339,546 Operating lease assets 1,057,327 1,133,092 Intangible assets, net 628,305 646,422 Goodwill 249,986 249,986 Other assets 30,725 30,724 Total assets $ 5,319,729 $ 5,665,484 Liabilities and stockholders’ equity Current liabilities Accounts payable and accrued liabilities $ 696,523 $ 829,456 Accounts payable - related parties 23,778 37,539 Customer deposits and unearned revenue 229,946 167,534 Other liabilities 307,498 372,943 Operating lease liabilities, current 268,202 269,046 Related party convertible demand note, net 49,213 49,147 Current maturities long term debt 67,954 66,486 Total current liabilities 1,643,114 1,792,151 Loans payable, net of current portion 126,188 143,960 Convertible notes, net of current portion 344,104 342,943 Operating lease liabilities, net of current portion 792,502 864,057 Total liabilities 2,905,908 3,143,111 Commitments and contingent liabilities (see note 9) - - Stockholders’ equity Preferred stock; $ 0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding as of March 31, 2023 and December 31, 2022. 425 425 Common stock; $ 0.0001 par value; 1,000,000,000 shares authorized; 437,147,436 shares issued and outstanding at March 31, 2023 and 425,520,662 shares issued and outstanding at December 31, 2022. 43,716 42,553 Common stock payable 138,941 shares and 138,941 shares, as of March 31, 2023 and December 31, 2022, respectively. 14 14 Additional paid-in capital 19,135,083 18,916,876 Accumulated deficit ( 16,765,417 ) ( 16,437,495 ) Total stockholders’ equity 2,413,821 2,522,373 Total liabilities and stockholders’ equity $ 5,319,729 $ 5,665,484 The accompanying notes are an integral part of these unaudited consolidated financial statements 4 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, (unaudited) 2023 2022 Revenues $ 1,639,053 $ 1,974,969 Cost of revenues 1,225,028 1,299,209 Gross profit 414,025 675,760 Operating expenses Selling, general and administrative 726,220 1,105,739 Research and development costs 529 3,920 Total operating expenses 726,749 1,109,659 Loss from operations ( 312,724 ) ( 433,899 ) Other expense Interest expense ( 15,198 ) ( 10,193 ) Total other expense - net ( 15,198 ) ( 10,193 ) Loss income before provision for income taxes ( 327,922 ) ( 444,092 ) Provision for income taxes - - Net loss $ ( 327,922 ) $ ( 444,092 ) Other comprehensive income Unrealized gain on foreign currency contract - 1,587 Total other comprehensive income - 1,587 Comprehensive loss $ ( 327,922 ) $ ( 442,505 ) Basic loss per common share $ ( 0.00 ) $ ( 0.00 ) Diluted loss per common share $ ( 0.00 ) $ ( 0.00 ) Basic weighted average common shares outstanding 427,289,742 401,483,605 Diluted weighted average common shares outstanding 427,289,742 401,483,605 The accompanying notes are an integral part of these unaudited consolidated financial statements 5 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHARHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (Unaudited) Shares Outstanding Par Shares Outstanding Par Shares Amount Paid-in Capital Accumulated Deficit Stockholders Equity 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, 2022 425,000 $ 425 425,520,662 $ 42,553 138,941 $ 14 $ 18,916,876 - $ ( 16,437,495 ) $ 2,522,373 Shares issued for the purchase of units - - 11,428,570 1,143 - - 198,857 - 200,000 Shares issued for accrued interest in convertible notes - - 198,204 20 - - 8,316 - 8,336 Stock Option Expense 11,034 - 11,034 Net Loss - ( 327,922 ) ( 327,922 ) Balance, March 31, 2023 (unaudited) 425,000 $ 425 437,147,436 $ 43,716 138,941 $ 14 $ 19,135,083 - $ ( 16,765,417 ) $ 2,413,821 Balance 425,000 $ 425 437,147,436 $ 43,716 138,941 $ 14 $ 19,135,083 - $ ( 16,765,417 ) $ 2,413,821 Shares Outstanding Par Shares Outstanding Par Shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit Stockholders Equity Preferred Stock Common Stock Common Stock Payable Additional Accumulated Other Total Shares Outstanding Par Shares Outstanding Par Shares Amount Paid-in Capital Comprehensive Income Accumulated Deficit Stockholders Equity 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 exercise of warrants - - 10,600,000 1,060 - - 263,940 - - 265,000 Shares issued for services - - 1,206,318 120 - - 35,380 - - 35,500 Stock Option Expense - - - - - - 230,034 - - 230,034 Net Loss - - - - - - - - ( 444,092 ) ( 444,092 ) Other Comprehensive Income - - - - - - - 1,587 $ - 1,587 Balance, March 31, 2022 (unaudited) 425,000 $ 425 405,656,793 $ 40,566 138,941 $ 14 $ 17,661,788 $ 1,587 $ ( 14,988,696 ) $ 2,715,684 Balance 425,000 $ 425 405,656,793 $ 40,566 138,941 $ 14 $ 17,661,788 $ 1,587 $ ( 14,988,696 ) $ 2,715,684 The accompanying notes are an integral part of these unaudited consolidated financial statements 6 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, (unaudited) 2023 2022 Cash flows provided by operating activities: Net loss $ ( 327,922 ) $ ( 444,092 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 36,966 33,859 Amortization of debt discount 2,764 922 Amortization of right-of-use asset 75,765 57,267 Common stock issued for services - 35,500 Reserve for slow moving inventory - 4,528 Reserve for Nomad recall ( 74,200 ) - Stock Based Compensation - Options 11,034 230,034 Shares issued for accrued interest in convertible notes 8,336 - Changes in operating assets and liabilities Change in accounts receivable, net ( 53,898 ) ( 68,168 ) Change in accounts receivable - related parties ( 44,405 ) 161 Change in inventory 206,024 ( 138,460 ) Change in prepaid expenses and other current assets ( 6,419 ) ( 166,342 ) Change in other assets - ( 3,733 ) Change in accounts payable and accrued liabilities ( 132,934 ) 126,696 Change in customer deposits and unearned revenue 62,412 104,495 Change in long term lease liability ( 72,399 ) ( 57,425 ) Change in other liabilities 8,756 13,656 Change in accounts payable - related parties ( 13,761 ) ( 19,235 ) Net cash used in operating activities ( 313,881 ) ( 290,337 ) Cash flows used in investing activities: Purchase of fixed assets ( 5,069 ) ( 2,884 ) Net cash used in investing activities ( 5,069 ) ( 2,884 ) Cash flows from financing activities: Proceeds from issuance of units 200,000 - Proceeds from exercise of Warrants - 265,000 Repayment of debt ( 17,842 ) ( 10,648 ) Net cash acquired in financing activities 182,158 254,352 Net change in cash ( 136,792 ) ( 38,869 ) Cash, beginning balance 484,427 643,143 Cash, end of period $ 347,635 $ 604,274 Supplemental disclosures of cash flow information: Cash paid for interest $ 6,860 $ 3,454 Cash paid for income taxes $ - $ - Supplemental disclosure of non-cash financing activities: Common Stock issued for payment of convertible note interest $ 8,336 $ - Equipment obtained through financing $ 63,689 $ - The accompanying notes are an integral part of these unaudited consolidated financial statements 7 BROWNIE’S MARINE GROUP, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (UNAUDITED) Note 1. Company Overview Brownie’s Marine Group, Inc. (the “Company”) designs, tests, manufactures and distributes recreational hookah diving, scuba and water safety products through its wholly owned subsidiary, Trebor Industries, Inc., a Florida corporation, incorporated in 1981 (“Trebor” or “BTL”), manufactures and sells high pressure air and industrial. compressor packages, yacht based scuba air compressor and nitrox generation systems through its wholly owned subsidiary, Brownie’s High Pressure Compressor Services, Inc., a Florida corporation incorporated in 2017 (“BHP”) and doing business as LW Americas (“LWA”) and develops and markets portable battery powered surface supplied air dive systems through its wholly owned subsidiary BLU3, Inc., a Florida corporation (“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, pursuant to which Acquisition Sub merged with and into Submersible (the “Merger”), and Submersible, the surviving corporation, became a wholly owned subsidiary of the Company. Submersible is a manufacturer of high pressure tanks and redundant air systems for the military and recreational diving industries, based in Huntington Beach, California and sells its products to governments, militaries, private companies and the dive industry throughout the world. On February 13, 2022 the Company filed with the Florida Department of State, the articles of incorporation for a new wholly owned subsidiary, Live Blue, Inc. (“LBI”). LBI utilizes technology developed by BLU3 to provide new users and interested divers a guided tour experience. On May 2, 2022, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Gold Coast Scuba, LLC, a Florida limited liability company (“Gold Coast Scuba”), Steven M. Gagas and William Frenier, the sole members of Gold Coast Scuba (together, the “LLC Members”) and LBI. Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Gold Coast Scuba’s assets and assumed certain non-material liabilities of the business associated with these assets. In addition, LBI assumed the lease for the premises for Gold Coast Scuba as part of this asset acquisition. Note 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such interim financial statements do not include all the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete annual financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The balance sheet as of December 31, 2022 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm but does not include all of the information and footnotes required for complete annual financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a broader discussion of the Company’s business and the risks inherent in such business. The results of operations for the three months ended March 31, 2023, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending December 31, 2023. 8 Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Trebor, BHP, BLU3, SSI and LBI. All significant intercompany transactions and balances have been eliminated in consolidation. Use of estimates The preparation of financial statements in conformity with GAAP 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. Cash and cash equivalents Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 per EIN. At March 31, 2023 and December 31, 2022, the Company had no amount in excess of the FDIC insured limit. Accounts receivable The Company manufactures and sells its products to a broad range of customers, primarily retail stores. Few customers are provided with payment terms of 30 days. The Company has tracked historical loss information for its trade receivables and compiled historical credit loss percentages for different aging categories (current, 1–30 days past due, 31–60 days past due, 61–90 days past due, and more than 90 days past due). In accordance with ASU 2016-13, management believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at March 31, 2023 because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its lending practices have not changed significantly over time). As a result, management applied the applicable credit loss rates to determine the expected credit loss estimate for each aging category. Accordingly, the allowance for expected credit losses at March 31, 2023 totaled $ 28,558 . Inventory Inventory consists of the following: Schedule of Inventory March 31, 2023 (unaudited) December 31, 2022 Raw materials $ 892,859 $ 1,207,957 Work in process 72,041 80,727 Finished goods 1,195,068 1,077,308 Rental Equipment 55,893 55,893 Inventory, net $ 2,215,861 $ 2,421,885 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. 9 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 March 31, 2023 March 31, 2022 (unaudited) (unaudited) Revenues $ 1,427,963 $ 1,701,564 Revenues - related parties 211,090 273,405 Total Revenues $ 1,639,053 $ 1,974,969 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 Related Party and Non-Related Party Royalty Expense March 31, 2023 March 31, 2022 (unaudited) (unaudited) Cost of revenues $ 1,071,068 $ 1,121,638 Cost of revenues - related parties 108,925 121,174 Royalty expense - related parties 10,212 12,789 Royalty expense 34,823 43,608 Total cost of revenues $ 1,225,028 $ 1,299,209 Lease Accounting The Company accounts for leases in accordance with ASC 842, Leases. The lease standard requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. The Company elected the practical expedients permitted under the 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. The Company did not reassess whether any contracts entered into prior to adoption are leases or contain leases. The Company categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. The Company did not have any finance leases as of March 31, 2023. The Company’s leases generally have terms that range from three years for equipment and five to twenty years for property. The Company elected the accounting policy to include both the lease and non-lease components of its agreements as a single component and account for them as a lease. Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. 10 When the Company has the option to extend the lease term, terminate the lease for the contractual expiration date, or purchase the leased asset, and it is reasonably certain that the Company we will exercise the option, it considers 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. For the three months ended March 31, 2023, lease expenses were approximately $ 70,400 , and approximately $ 64,200 for the three months ended March 31, 2022. Cash paid for operating liabilities for the three months ended March 31, 2023 was approximately $ 89,570 and approximately $ 64,400 for the three months ended March 31, 2022. Supplemental balance sheet information related to leases was as follows: Schedule of Supplemental Balance Sheet Information Operating Leases March 31, 2023 (unaudited) Right-of-use assets $ 1,057,327 Current lease liabilities $ 268,202 Non-current lease liabilities 792,502 Total lease liabilities $ 1,060,704 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation . ASC 718 requires companies to measure the cost of employee and non-employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee and non-employee are required to provide service in exchange for the award, usually the vesting period. The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The fair value is determined through use of the quoted stock price. Derivatives The accounting treatment of derivative financial instruments requires that the Company record certain warrants and embedded conversion options at their fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into certain note agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy, by earliest issuance date, in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors, as long as the certain variable issuance terms in certain convertible instruments exist. Loss per common share Basic loss per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings 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 March 31, 2023 and March 31, 2022, 274,150,814 and 244,052,947 shares, respectively, of potentially dilutive shares were not recognized as their inclusion would be anti-dilutive. These shares reflect shares potentially issuable under convertible notes, outstanding warrants, outstanding stock options and the conversion of preferred stock. 11 Recent accounting pronouncements ASU 2016-13 Current Expected Credit Loss (ASC326) In December 2021, the FASB issued an update to ASU No. 2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures. This guidance was adopted on January 1, 2023 with no effect to the financial statements. ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in 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. Note 3. 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 these consolidated financial statements. For the three months ended March 31, 2023, the Company incurred a net loss of $ 327,922 . At March 31, 2023, the Company had an accumulated deficit of $ 16,765,417 . Despite a working capital surplus of approximately $ 1,320,817 at March 31, 2023, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to increase revenues, control expenses, raise capital, and to continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Note 4. Related Party Transactions The Company sells products to Brownie’s Southport Divers, Brownie’s Yacht Toys and Brownie’s Palm Beach Divers, companies owned by the brother of Robert Carmichael, the Company’s President and Chief Financial Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers with similar sales volumes. These entities accounted for $ 211,090 or 12.9 % and $ 273,405 or 13.8 % of the net revenues for the three months ended March 31, 2023 and March 31, 2022, respectively Accounts receivable from these entities totaled $ 97,484 and $ 39,180 , at March 31, 2023 and December 31, 2022, respectively. 12 The Company sells products to BGL and 940 A, entities wholly-owned by Robert Carmichael. Terms of sale are more favorable than those extended to the Company’s regular customers, but no more favorable than those extended to the Company’s strategic partners. Accounts receivable from these entities totaled $ 2,349 and $ 2,408 at March 31, 2023 and December 31, 2022, respectively. The Company had accounts payable to related parties of $ 18,571 and $ 15,614 at March 31, 2023 and December 31, 2022, respectively. The balance payable at March 31, 2023 was comprised of $ 10,074 due to 940 A, $ 2,980 due to BGL, $ 5,441 due to Robert Carmichael and $ 76 due to Blake Carmichael. At December 31, 2022, the balance payable was comprised of $ 7,635 due to 940 A, $ 2,980 due to BGL and $ 5,000 due to Robert Carmichael. The Company has exclusive license agreements with 940 A to license the trademark “Brownie’s Third Lung”, “Tankfill”, “Brownie’s Public Safety” and various other related trademarks as listed in the agreements. The agreements provide that the Company pay 940 A 2.5 % of gross revenues per quarter as a royalty. Total royalty expense for the three months ended March 31, 2023 and March 31, 2022 was $ 10,212 and $ 12,789 , respectively. The accrued royalty for March 31, 2023 was $ 4,785 and is included in other liabilities. On September 30, 2022, the Company issued a convertible demand 8 % promissory note in the principal amount of $ 66,793 to Robert Carmichael for funds to meet the working capital needs of LBI. There is no amortization schedule for the 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. There were payments totaling $1,537 made with products in kind during the three months ended March 31, 2023. On January 18, 2023 and February 18, 2023, the Company issued to Charles Hyatt, a Company director, an aggregate of 11,428,570 units, with each unit consisting of one share of common stock and a two-year common stock purchase warrant to purchase one share of common stock at an exercise price of $ 0.0175 per share in consideration of $ 200,000 . On March 31, 2022, the Company issued 61,204 shares of common stock to Robert Carmichael for payment of interest on the convertible demand note for the three months ending March 31, 2022. The fair value of these shares was $ 1,336 . Note 5. Convertible Promissory Notes and Loans Payable Convertible Promissory Notes Convertible promissory notes consisted of the following at March 31, 2023: 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 $ ( 5,834 ) $ 340,666 - (1 ) 9/03/21 9/03/24 8 % 3,500 ( 125 ) 3,500 ( 62 ) 3,438 - (2 ) 9/30/22 Demand 8 % 66,793 ( 19,245 ) 65,256 ( 16,043 ) 49,213 - ( 3 ) $ 415,256 $ ( 21,939 ) $ 393,317 $ - (1) On September 3, 2021, the Company issued a three-year 8 % convertible promissory note in the principal amount of $ 346,550 to Summit Holding V, LLC as part of the acquisition of SSI. The Company is required to make quarterly payments under the note in an amount equal to 50 % of the adjusted net profit of SSI. Interest is payable quarterly in shares of common stock of the Company at a conversion price of $ 0.051272 per share. The note holder may convert outstanding principal and interest into shares of common stock at a conversion price of $ 0.051272 per share at any time during the term of the note. The Company recorded $ 12,355 for the beneficial conversion feature. This note is classified as a long-term liability for this period. 13 Schedule of Future Amortization of Notes Payable Payment Amortization 2023 (9 months) $ - 2024 346,500 Total Note Payments $ 346,500 Current portion of note payable - Non-Current Portion of Notes Payable $ 346,500 (2) On September 3, 2021, the Company issued a three-year 8 % promissory note in the principal amount of $ 3,500 to Tierra Vista Partners, LLC as part of the acquisition of SSI. The Company is required to make quarterly payments under the note in an amount equal to 50 % of the adjusted net profit of SSI. Interest is payable quarterly in common stock of the Company at a conversion price of $ 0.051272 per share. The note holder may convert outstanding principal and interest into shares of common stock at a conversion price of $ 0.051272 at any time up to the maturity date of the note. The Company recorded $ 125 for the beneficial conversion feature. This note is classified as a long-term liability for this period. Schedule of Future Amortization of Notes Payable Payment Amortization 2023 (9 months) $ - 2024 3,500 Total Note Payments $ 3,500 Current portion of note payable - Non-Current Portion of Notes Payable $ 3,500 (3) 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 Mercedes BMG (1) Navitas BLU3 (2) NFS SSI (3) Navitas 2022 BLU3 (4) Total 2023 (9 months) $ 8,376 $ 10,550 $ 16,994 $ 14,261 $ 50,182 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 $ 28,231 $ 51,210 $ 55,601 $ 59,100 $ 194,142 Current Portion of Loan Payable $ ( 11,169 ) $ ( 14,270 ) $ ( 23,154 ) $ ( 19,361 ) $ ( 67,954 ) Non-Current Portion of Loan Payable $ 17,062 $ 36,940 $ 32,447 $ 39,739 $ 126,188 (1) 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 March 31, 2023 was $ 28,231 and $ 31,023 as of December 31, 2022. 14 (2) 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 March 31, 2023 was $ 51,210 and $ 54,930 as of December 31, 2022. (3) 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 March 31, 2023 and December 31, 2022 was $ 55,601 and $ 60,804 , respectively. (4) 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 March 31, 2023 was $ 59,100 and $ 63,689 as of December 31, 2022. Note 6. Business Combination Asset acquisition Gold Coast Scuba, LLC 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 % 15 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. 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 7. Goodwill and Intangible Assets, Net The following table sets for the changes in the carrying amount of the Company’ Goodwill for the three months ended March 31, 2023. Summary of Changes in Goodwill 2023 Balance, January 1 $ 249,986 Addition: - Balance, March 31 $ 249,986 The Company performed an evaluation of the value of goodwill at December 31, 2022. Based upon this evaluation it was determined that there should be no adjustment to goodwill. There has been nothing noted during the three months ended March 31, 2023 that would indicate that the value of goodwill should change through that date. 16 The following table sets for the components of the Company’s intangible assets at March 31, 2023: Summary of Intangible Assets Amortization Period (Years) Cost Accumulated Amortization Net Book Value Intangible Assets Subject to amortization Trademarks 15 $ 121,000 $ ( 12,728 ) $ 108,272 Customer Relationships 10 600,000 ( 95,000 ) 505,000 Non-Compete Agreements 5 22,000 ( 6,967 ) 15,033 Total $ 743,000 $ ( 114,695 ) $ 628,305 The aggregate amortization remaining on the intangible assets as of March 31, 2023 is a follows: Schedule of Estimated Intangible Assets Amortization Expense Intangible Amortization 2023 (9 months remaining) 54,394 2024 72,467 2025 72,467 2026 71,367 2027 68,066 Thereafter 289,544 Total $ 628,305 Note 8. Stockholders’ Equity Common Stock 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 . On March 31, 2023, the Company issued 61,204 shares of common stock to Robert Carmichael for payment of interest on the convertible demand note for the three months ending March 31, 2023. The fair value of these shares was $ 1,336 . On March 31, 2023, the Company issued 137,000 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 $ 7,000 . Preferred Stock During the second quarter of 2010, the holders 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 on any matters submitted to our shareholders. As of March 31, 2023, and December 31, 2022, the 425,000 shares of Series A Convertible Preferred Stock are owned by Robert Carmichael. Equity Incentive Plan On May 26, 2021 the Company adopted an Equity Incentive 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-qualified stock options, stock purchase rights, time vested and/performance invested restricted stock, and stock appreciation rights and unrestricted shares may also be granted under the Plan. 25,000,000 shares are reserved for issuance under the Plan. The term of the Plan is ten years. 17 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. Equity Compensation Plan Information as of March 31, 2023: 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 $ 0.0400 21,532,353 Equity Compensation Plans Not Approved by Security Holders 230,971,520 0.0362 — Total 234,439,167 $ 0.0362 21,532,353 Options The Company has issued options to purchase approximately 234,439,167 shares at an average price of $ 0.036 with a fair value of approximately $ 69,000 . For the three months ended March 31, 2023, the Company issued no options to purchase shares. Upon exercise, shares of new common stock are issued by the Company. For the three months ended March 31, 2023 and 2022, the Company recognized an expense of approximately $ 11,000 and $ 230,000 , 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 March 31, 2023, the Company had approximately $ 3,763,100 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 1.2 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 and expirations as they occur. There are options to purchase approximately 107,790,000 shares that have vested as of March 31, 2023. 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 Three Months ended March 31, 2023 2022 Expected volatility 172.0 % - 346.4 % 172.0 – 346.4 % Expected term 1.50 – 5.0 Years 1.5 – 5.0 Years Risk-free interest rate 0.16 % - 4.64 % 0.16 % - 2.10 % Forfeiture rate 0.17 % 0.03 % 18 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 March 31, 2023 and December 31, 2022 and changes during the periods ending on such dates is as follows : Schedule of Outstanding Stock Option Activity Weighted Weighted Average Average Remaining Aggregate Number of Options Exercise Price Contractual Life in Years Intrinsic Value Outstanding at December 31, 2021 233,128,266 $ 0.0362 2.23 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 Granted - - Forfeited ( 4,000,000 ) 0.0229 Exercised - - Cancelled - - Outstanding – March 31, 2023 234,439,167 $ 0.0362 1.21 Exercisable – March 31, 2023 107,790,004 $ 0.0325 1.14 $ 265,633 The following table summarizes information about employee stock options outstanding at March 31, 2023. 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 2.00 $ 0.0182 45,730,020 $ 0.0181 1.62 $ 0.0229 - $ 0.0325 5,093,254 4.27 $ 0.0268 5,024,504 $ 0.0267 4.29 $ 0.0360 - $ 0.0425 25,530,893 3.32 $ 0.0398 6,166,730 $ 0.0396 3.26 $ 0.0440 - $ 0.0531 133,085,000 0.28 $ 0.0455 50,868,750 $ 0.0450 0.12 Outstanding options 234,439,167 1.21 0.0362 107,790,004 0.0325 1.14 At March 31, 2023, there was approximately $ 3,689,800 of unrecognized stock option expense which may be recognized only if the full vesting requirements for these options are met. At March 31, 2023, there was approximately $ 64.200 of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of 1.15 years. 19 Warrants 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 . A summary of the Company’s warrants as of December 31, 2022 and changes during the three months ended March 31, 2023 is presented below: Schedule of Warrant Activity   Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic Value Outstanding – December 31, 2022 18,255,951 $ 0.0245 1.55 $ 12,000 Granted 11,428,570 $ 0.0175 Exercised - - Forfeited or Expired - Outstanding – March 31, 2023 29,684,521 $ 0.0247 1.52 Exercisable – March 31, 2023 29,684,521 $ 0.0247 1.52 $ 109,714 Note 9. 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, which extended the term of the lease for an additional eighty-four months until September 30, 2024 . The base rent was increased to $ 4,626 per month with a 3 % annual escalation. 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. 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. Royalty recorded under this Agreement was $ 34,823 and $ 43,608 for the three months ended March 31, 2023 and 2022, respectively. 20 Consulting and Employment Agreements 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, 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 and on November 5, 2022, Mr. Constable was issued an option to purchase 3,968,254 shares of the Company’s common stock at an exercise price of $ 0.0252 per share. In addition, Mr. Constable shall be entitled to receive four-year stock options to purchase shares of common stock at an exercise price of $ 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 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, (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) upon execution of the Carmichael 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. A measurement was made for the three months ended March 31, 2023 resulting in no additional vesting. 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. 21 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 SEC reporting work and its normal hourly rate for other legal work and issued 1,000,000 shares of common stock with a fair market value of $ 27,500 to CLG. 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 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 of a three year lease for the property located at 259 Commercial Blvd., Suites 2 and 3 in Lauderdale-By-The Sea, Florida for $ 2,816 per month base rent. The lease expired on March 31, 2023 and LBI is currently renting on a month to month basis. LBI has the option to renew the lease for a two year term with an increase of base rent of 3.5 % . On September 14, 2022, SSI entered into a sixty-month lease renewal for its facility in Huntington Beach, California commencing on February 1, 2022 with 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. 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. During the three months ended March 31, 2023 the Company repaired and returned 520 units to customers resulting in a reduction of the reserve of $ 74,187 . 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, which relates to consulting services provided to the Company by the deceased between 2005 and 2017, alleges breach of contract and quantum meruit and is seeking $ 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 10. Segment Reporting 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. 22 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. Three Months Ended March 31 (unaudited) Schedule of Segment Reporting Information 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Legacy SSA Products High Pressure Gas Systems Ultra Portable Tankless Dive Systems Redundant Air Tank Systems Guided Tour Retail Total Company 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Net Revenues $ 455,380 $ 581,109 $ 234,880 $ 276,817 $ 476,915 $ 794,587 $ 392,976 $ 322,456 $ 78,902 $ - $ 1,639,053 $ 1,974,969 Cost of Revenue ( 417,814 ) ( 461,958 ) ( 124,186 ) ( 160,791 ) ( 344,516 ) ( 416,958 ) ( 287,740 ) ( 259,502 ) ( 50,771 ) - ( 1,225,028 ) ( 1,299,209 ) Gross Profit 37,566 119,151 110,694 116,026 132,398 377,629 105,236 62,954 28,131 - 414,025 675,760 Depreciation/Amortization 3,913 4,370 - - 5,043 4,478 29,166 25,011 1,607 - 39,730 33,859 Income (loss) from operations $ ( 114,275 ) $ ( 369,590 ) $ 29,322 $ 40,459 $ ( 103,210 ) $ 16,672 $ ( 104,260 ) $ ( 121,530 ) $ ( 20,302 ) $ - ( 312,724 ) $ ( 433,899 ) - Total Assets $ 1,312,440 $ 1,503,762 $ 400,082 $ 460,496 $ 878,287 $ 1,037,192 $ 2,506,422 $ 1,995,439 $ 222,497 $ - $ 5,319,729 $ 4,996,889 Note 11. Subsequent Events None 23 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. Actual future results may be materially different from what we expect. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by applicable law. The management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Overview The Company owns and operates a portfolio of companies with a concentration in the industrial and recreational diving industry. The Company, through its subsidiaries, designs, tests, manufactures, and distributes recreational hookah diving, yacht-based scuba air compressors and nitrox generation systems and scuba and water safety products in the United States and internationally. The Company has five subsidiaries focused on various sub-sectors: ● Brownie’s Third Lung - Surface Supplied Air (“SSA”) ● BLU3, Inc. - Ultra-Portable Tankless Dive Systems ● LW Americas - High Pressure Gas Systems ● Submersible Systems, Inc. - Redundant Air Tank Systems ● Live Blue, Inc. – Guided Tours and Retail Our wholly owned subsidiaries do business under their respective trade names on both a wholesale and retail basis from our headquarters and manufacturing facility in Pompano Beach, Florida, a manufacturing facility in Huntington Beach, California, and a retail facility in Lauderdale-By-The-Sea, Florida. The Company, through its wholly owned subsidiaries, designs, tests, and manufactures tankless dive systems, rescue air systems and yacht-based self-contained underwater breathing apparatus (“SCUBA”) air compressor and nitrox generation fill systems. In addition, the Company is the exclusive distributor for North and South America for Lenhardt & Wagner GmbH (“L&W”) compressors in the high-pressure breathing air and industrial gas markets. The Company is also building a guided tour operation that includes dive retail. Lastly, The Company is the exclusive United States and Caribbean distributor for Chrysalis Trading CC, a South African manufacturer of fitness and dive equipment, doing business as Bright Weights (“Bright Weights”), of a dive ballast system produced in South Africa. Impact of COVID-19 Pandemic The Company has previously been affected by temporary manufacturing closures and employment and compensation adjustments. The market continues to suffer from the impacts of the pandemic via supply chain shortages and freight delays. The continued freight delays have and will likely continue to result in additional expenses to expedite delivery of critical parts. Additionally, increased demand for personal electronics has created a shortfall of microchip supply which are used in our battery powered products, and it is yet unknown how we may be impacted. We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate, and we will have to accurately project demand and infrastructure requirements globally and deploy our production, workforce and other resources accordingly. Results of Operations Net Revenues, Costs of Net Revenues and Gross Profit Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Net revenues decreased 17.0% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 as a result of a decrease in revenues in BTL, LWA and BLU3. The revenue decrease for BLU3 was 40% and can be directly attributed to the recall of the NOMAD dive system which took place during the fourth quarter of 2022. The recall has been resolved and BLU3 is in the process of repairing units as they are received from customers. The sales loss is a result of the slow ramp of production of new units after the recall. BTL’s revenue reduction of 21.6% can be attributed to consumer concerns about the economy. While the first quarter is traditionally a slow selling period for BTL, economic uncertainties compounded the seasonal change. The loss of revenue in BLU3 and BTL was somewhat offset by increased revenue in SSI. This increase can be attributed to the momentum of the Company’s newest product, HEED3. 24 For the three months ended March 31, 2023, cost of net revenues was 74.7% as compared with the cost of net revenues of 65.8% for the three months ended March 31, 2022. The cost increase as a percentage of revenue, can be directly attributed to the cost of direct labor, which accounted for a larger portion of costs and significantly impacted the profit margin. Included in cost of net revenues are royalty expenses paid to Robert Carmichael which decreased 20.1% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. Gross profit margin was 25.3% for the three months ended March 31, 2023 as compared to gross profit margin of 34.2% for the three months ended March 31, 2022. The reduction in gross margin, is directly attributable to BTL’s margin of 8.2% and BLU3’s margin of 27.8%. Both BTL and BLU3 offered discounted pricing in order to move inventory during the three months ended March 31, 2023. The following tables provide net revenues, total costs of net revenues and gross profit margins for the Company’s segments for the periods presented. Net Revenues Three Months Ended March 31, % of 2023 2022 Change (unaudited) Legacy SSA Products $ 455,380 $ 581,109 (21.6 )% High Pressure Gas Systems 234,880 276,817 (15.1 )% Ultra-Portable Tankless Dive Systems 476,915 794,587 (40.0 )% Redundant Air Tank Systems 392,976 322,456 21.9 % Guided Tour Retail 78,902 - 100.0 % Total net revenues $ 1,639,053 $ 1,974,969 (17.0 )% Cost of revenues as a percentage of net revenues Three Months Ended March 31, 2023 2022 (unaudited) Legacy SSA Products 91.8 % 79.5 % High Pressure Gas Systems 52.8 % 58.1 % Ultra-Portable Tankless Dive Systems 72.2 % 52.5 % Redundant Air Tank Systems 73.2 % 80.5 % Guided Tour Rental 64.4 % - Gross profit (loss) margins Three Months Ended March 31, 2023 2022 (unaudited) Legacy SSA Products 8.2 % 20.5 % High Pressure Gas Systems 47.2 % 41.9 % Ultra-Portable Tankless Dive Systems 27.8 % 47.5 % Redundant Air Tank Systems 26.8 % 19.5 % Guided Tour Rental 35.7 % - SSA Products Revenues decreased 21.6% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The largest decrease in revenue came from the Direct to Consumer revenue channel of 31.7%. This decrease is likely attributable to economic concerns that were lingering from late 2022. Dealer revenue dropped 25.8% for the three months ended March 31, 2023 as compared to the same period in 2022. Our dealers have indicated that they were taking a conservative approach in the offseason to conserve cash for the season. BTL was able to stimulate some demand during the three months ended March 31, 2023 with a discounting program. Affiliate sales, while the smallest segment of revenue increased 149.8% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. 25 The costs of revenues as a percentage of net revenues in this segment increased from 79.5% to 91.8% for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to a decrease in margins in the Direct to Consumer and Dealer revenue channels, as a result of the discounting to stimulate revenue. A breakdown of the revenue channels for this segment are below. Direct to Consumer represents items sold via our website, trade shows and walk-ins to our factory store. Dealer revenue represents sales to customers under dealer agreements which typically have lower margins. Affiliates are resellers of our products with which we do not have formal dealer arrangements. Revenue Cost of Revenue as a % of Revenue Margin Three months ended March 31, 2023 Three months ended March 31, 2022 % change Three months ended March 31, 2023 Three months ended March 31, 2022 Three months ended March 31, 2023 Three months ended March 31, 2022 Dealers $ 265,372 $ 357,853 (25.8 )% 99.4 % 85.2 % 0.6 % 14.8 % Direct to Consumer (website Included) 138,487 202,635 (31.7 )% 85.4 % 70.5 % 14.6 % 29.5 % Affiliates 51,521 20,621 149.8 % 69.6 % 73.3 % 30.4 % 26.7 % Total $ 455,380 $ 581,109 (21.6 )% 91.8 % 79.5 % 8.2 % 20.5 % High Pressure Gas Systems Sales of high-pressure breathing air compressors decreased 15.1% for the three months ended March 31, 2023 compared with the three months ended March 31, 2022. The drop in revenues can be directly attributed to a 74.7% decrease in Original Equipment Manufacturers, as this channel has proven to be inconsistent over the long term. The reseller channel remained consistent with prior periods with a .3% increase for the three months ended March 31, 2023 as compared to the same period in 2022. The Direct to Consumer channel increased 30.1% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, as LWA is seeing an increase in sales to dive stores that have begun to reinvest in their operations after recouping from the challenges of COVID in 2020. Costs of revenues as a percentage of net revenues in this segment decreased to 52.9% for the three months ended March 31, 2023 as compared to 58.1% for the three months ended March 31, 2022. This increase is attributed to increased revenue in the Direct to Consumer channel during the three months ended March 31, 2023, which generally has a higher margin. 26 Revenue Cost of Revenue as a % of Revenue Margin Three months ended March 31, 2023 Three months ended March 31, 2022 % change Three months ended March 31, 2023 Three months ended March 31, 2022 Three months ended March 31, 2023 Three months ended March 31, 2022 Resellers $ 130,216 $ 129,773 0.3 % 64.5 % 54.4 % 35.5 % 45.6 % Direct to Consumers 83,790 64,429 30.1 % 32.9 % 55.9 % 67.1 % 44.1 % Original Equipment Manufacturers 20,874 82,615 (74.7 )% 60.5 % 65.5 % 39.5 % 34.5 % Total $ 234,880 $ 276,817 (15.1 )% 52.9 % 58.1 % 47.1 % 41.9 % Ultra Portable Tankless Dive Systems Revenue for the three months ended March 31, 2023 in the Ultra Portable Tankless Dive System segment decreased increased 40.0% as compared to the three months ended March 31, 2022 as a result of the loss of sales momentum from the recall of the NOMAD dive system in the fourth quarter of 2022. Revenue was down across all channels with the largest lost to the Amazon channel with a drop of 47.5% for the three months ended March 31, 2023 as compared to the same period in 2022. Cost of revenues from this segment as a percentage of net revenues for the three months ended March 31, 2023 increased to 72.2% from 64.1% for the same period in 2022. The increase in cost of revenue as it compares to revenue was impacted by direct labor costs, necessary in connection with the recalled products. In addition, BLU3 discounted its selling price in order to stimulate demand in all of its diving systems during the three months ended March 31, 2023. Net Revenue Cost of Revenue as a % of Net Revenue Margin as a % of Net Revenue Three months ended March 31, 2023 Three months ended March 31, 2022 % change Three months ended March 31, 2023 Three months ended March 31, 2022 Three months ended March 31, 2023 Three months ended March 31, 2022 Direct to Consumer 207,781 319,005 (34.9 )% 67.1 % 46.3 % 32.9 % 53.7 % Dealers 177,484 300,906 (41.0 )% 85.6 % 56.4 % 14.4 % 43.6 % Amazon 91,650 174,676 (47.5 )% 57.9 % 56.9 % 42.1 % 43.1 % Total $ 476,915 $ 794,587 (40.0 )% 72.2 % 64.1 % 27.8 % 35.9 % Redundant Air Tank Systems Revenue in the Redundant Air Tank Systems System segment increased 21.9% for the three months ended March 31, 2023 as compared to the same period in 2022. This increase can be attributed to increases in both the Dealer and Government sales channels increasing 23.8% and 269.2%, respectively, for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. These channels are drivers of sales volume for the new HEED3 product line and have also seen increased quantity orders from their international dealer base on their Spare Air product. These increases were offset by decreases in the commercial channel of 38.7% and website sales of 3.1% for the three months ended March 31, 2023 as compared to the same period in 2022. 27 The margins for the three months ended March 31, 2023 increased to 26.8% as compared to 19.5% for the three months ended March 31, 2022 as the margins across all channels improved. This improvement can be attributed to the increased revenue from the HEED3 which offers higher margins than SSI’s traditional product Spare Air. SSI has a worldwide customer base that includes (1) commercial accounts with aircraft requiring redundant air systems for their pilots and passengers, such as helicopters flying to oil rigs located in bodies of water (2) government accounts that are typically domestic and international military customers with egress systems (3) dealer accounts that are resellers including, international distributors to the military, commercial account or dive shops, and domestic and international dive shops that carry a spare air product (4) direct to consumer sales which are online sales and sales via trade shows direct to consumer and (5) Company provided repairs and warranty repairs to all segments. Revenue Cost of Revenue as a % of Revenue Margin Three months ended March 31, 2023 Three months ended March 31, 2022 % change Three months ended March 31, 2023 Three months ended March 31, 2022 Three months ended March 31, 2023 Three months ended March 31, 2022 Commercial $ 34,696 $ 56,606 (38.7 )% 54.7 % 43.5 % 45.3 % 56.5 % Dealers 262,632 212,119 23.8 % 73.1 % 88.8 % 26.9 % 11.2 % Government 51,687 14,001 269.2 % 24.7 % 35.0 % 75.3 % 65.0 % Repairs 13,031 7,811 66.8 % 321.0 % 256.6 % (221.0 )% (156.6 )% Direct to Consumers (Website) 30,930 31,919 (3.1 )% 71.5 % 67.3 % 28.5 % 32.7 % Total $ 392,976 $ 322,456 21.9 % 73.2 % 80.5 % 26.8 % 19.5 % Guided Tours and Retail The guided tour and retail segment is a new segment and is derived from LBI. Revenue in this segment currently primarily includes retail sales, and tours and lessons. Retail sales represent the sales of product at the retail facility, while tours and lessons represent revenue derived from diving excursions and lessons. Revenue Cost of Revenue as a % of Revenue Margin as a % of Net Revenue Three months ended March 31, 2023 Three months ended March 31, 2022 % change Three months ended March 31, 2023 Three months ended March 31, 2022 Three months ended March 31, 2023 Three months ended March 31, 2022 Retail Sales $ 46,433 - N/A 44.3 % - 55.7 % - Tours and Lessons 32,469 - N/A 93.0 % - 7.0 % - Total $ 78,902 - N/A 64.3 % - 35.7 % - Operating Expenses Operating expenses, consist of selling, general and administrative (“SG&A”) expenses and research and development costs and are reported on a consolidated basis for our operating segments. Operating expenses decreased 34.5% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. 28 Selling, General & Administrative Expenses (SG&A Expenses) SG&A decreased by 34.3% for the three months ended March 31, 2022 as compared to the three months ended March 31, 2022. SG&A expenses were comprised of the following: Expense Item Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 % Change Payroll, Selling & Administrative $ 450,806 $ 395,776 13.9 % Stock Compensation Expense 11,034 230,034 (95.2 )% Professional Fees 66,302 126,412 (47.6 )% Advertising 104,005 156,444 (33.5 )% All Others 94,073 197,073 (52.3 )% Total SG&A $ 726,220 $ 1,105,739 (34.3 )% Payroll for the three months ended March 31, 2023 increased 13.9% as compared to the three months ended March 31, 2022. BTL increased its direct marketing team and production staff to account for 46% of the increase. BLU3 increased its customer service presence as well as converting a sales person from contractor to salaried employee and accounted for 61.8% of the increase. The addition of the LBI payroll accounted for 31.1% of the increase. These are offset by the decrease in SSI payroll with a reduction in overtime and the attrition of production personnel which accounted for a 35.8% decrease in payroll. Non-Cash Stock Compensation expenses decreased by 95.2%, as vesting milestones were not met due to the reduction in revenue for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. Professional fees, including legal, accounting and other professional fees decreased 47.6% for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022. The decrease can be attributed to a decrease in legal fees of 28.5% and other professional fees of 49.1% offset by a slight increase in accounting fees of 30.6%. Legal fees reduction can be attributed to the lack of billing for acquisition activity in 2023 and the reduction in professional fees is attributable to the conversion of consultants to employees late in 2022. The decrease in advertising expense for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was 33.5%, attributable to BLU3’s decrease in advertising as it worked through its recall process. BLU3’s decrease in advertising expense was offset slightly by an increase in advertising expense for SSI. Other expenses decreased 52.3% for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022 due primarily to a reduction in the reserve for recall expenses which accounted for 78.7% of the overall decrease. 29 Research & Development Expenses (R&D Expenses) R&D expenses for the three months ended March 31, 2023 decreased 86.5% as compared to the three months ended March 31, 2022. Other Income/Expense For the three months ended March 31, 2023, other expenses totaled approximately $15,198 of interest expense. Other income for the three months ended March 31, 2022 consisted of interest expense of $10,193. The increase in interest expense can be attributed to the NFS loan, the Navitas 2022 loan, and the convertible demand note from Robert Carmichael that were funded in the third and fourth quarters of 2022. Liquidity and Capital Resources We had cash of $347,635 as of March 31, 2023. The following table summarizes total current assets, total current liabilities and working capital at March 31, 2023 as compared to December 31, 2022. March 31, December 31, % 2023 2022 change (unaudited) Total current assets $ 2,963,931 $ 3,265,714 (9.2 )% Total current liabilities $ 1,643,114 $ 1,792,151 (8.3 )% Working capital $ 1,320,817 $ 1,473,563 (10.4 )% The decrease in our current assets at March 31, 2023 from December 31, 2022 primarily reflects increases in inventory purchases reflected by a decrease in inventory and prepaid assets which includes prepayments of inventory, as the Company has tapered its purchasing to convert inventory when revenue began to slow in the third quarter of 2022. The decrease in total current liabilities primarily reflects a decrease in accounts payable of 16.9%. Summary Cash Flows Three Months Ended March 31, 2023 2022 (unaudited) Net cash used in operating activities $ (313,881 ) $ (290,337 ) Net cash used in investing activities $ (5,069 ) $ (2,884 ) Net cash provided by financing activities $ 182,158 $ 254,352 Net cash used in operating activities for the three months ended March 31, 2023 was due to the net loss of approximately $327,900. Net cash used in operating activities is also the result of increases in current assets, including, accounts receivable, accounts receivable, related party, and prepaid expenses offset by a decrease in inventory that generated approximately $101,300, a net decrease in liabilities which also utilized cash with decreases in accounts payable and accrued liabilities, long term lease liability and accounts payable-related party utilizing approximately $219,094, offset by increases in customer deposits, and other liabilities of approximately $71,200. Net cash used in investing activities for the three months ended March 31, 2023 of approximately $5,100 consists of fixed asset purchases. Net cash provided by financing activities for the three months ended March 31, 2023 reflects proceeds of $200,000 from the sale of units, offset by the payment of debt of approximately $17,800. 30 Going Concern Our unaudited consolidated financial statements included in this Quarterly Report were prepared assuming we 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 consolidated financial statements. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2022 includes an explanatory paragraph stating the Company has net losses and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. If the Company is unable to raise additional funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back, delay or cease operations, liquidate assets and possibly seek bankruptcy protection. We have a history of losses, and an accumulated deficit of $16,765,417 as of March 31, 2023. Despite a working capital surplus of $1,320,817 at March 31, 2023, the continued losses and cash used in operations raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to continue to increase revenues, control expenses, raise capital, and continue to sustain adequate working capital to finance its operations. The failure to achieve the necessary levels of profitability and cash flows would be detrimental to the Company. We are continuing to engage in discussions with potential sources for additional capital, however, our ability to raise capital is somewhat limited based upon our revenue levels, net losses and limited market for our common stock. If we fail to raise additional funds when needed, or if we do not have sufficient cash flows from operations, we may be required to scale back or cease certain of our operations. Critical Accounting Policies The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, allowance for doubtful accounts, and equity-based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report. Recent Accounting Pronouncements There were various accounting standards and interpretations issued recently, none of which are expected to have a material effect on the Company’s operations, financial position or cash flows. These recent accounting pronouncements are described in Note 2 to our unaudited consolidated financial statements contained in this Quarterly Report. Off Balance Sheet Arrangements We currently have no off-balance sheet arrangements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is a smaller reporting company and is not required to provide this information. ITEM 4. 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 March 31, 2023, 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, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. 31 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 March 31, 2023 and based upon the such evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to the material weaknesses set forth below. ● Insufficient number and lack of qualified accounting department and administrative personnel and support; ● 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; ● 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. 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 is being analyzed and adjusted Company-wide, where possible. The Company is in the process of hiring additional personnel in the accounting department, as well as the documentation of controls and procedures. ● The Company plans on evaluating various accounting systems to enhance its 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. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. 32 PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEEDINGS There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us. ITEM 1A. RISK FACTORS The Company is a smaller reporting company and is not required to provide this information. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURE None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS Exhibit Number Exhibit 31.1 Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) 101.INS Inline XBRL INSTANCE DOCUMENT 101.SCH Inline XBRL TAXONOMY EXTENSION SCHEMA 101.CAL Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE 101.DEF Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE 101.LAB Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE 101.PRE Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) 33 SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 15, 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) 34