Brownie's Marine Group, Inc 10-K

Item 7. 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 Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual 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 Annual 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 federal securities and any other applicable law. The management’s discussion and analysis of our financial condition and results of operations are based upon our audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Reserve for Nomad Recall On December 22, 2022, the CPSC issued a 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. Additionally, BLU3 will re-start its manufacturing process for the Nomad tankless dive system utilizing the material and design changes approved during the recall process, and immediately re-establish the product in all of its sales channels. The Company has set an allowance for expenses related to this recall of $160,500. As of December 31, 2025, the Company deemed that all units effected by the recall have been serviced or are no longer in service and has reduced the recall allowance to $0. 16 Results of Operations Years Ended December 31, 2025 and 2024 Overall, our net revenues decreased 7.99% in 2025 from 2024, which included an increase of 12.47% in sales to related parties. Our cost of revenues in 2025 was 62.60% of our total net revenues as compared to 59.55% in 2024. Included in our cost of revenues are royalty expenses we pay to Robert Carmichael which decreased 13.19% in 2025 from 2024. We reported a gross profit margin of 37.4% in 2025 as compared to 40.4% in 2024. Net Revenues The following tables provide net revenues, costs of revenues, and gross profit margins for our segments for 2025 and 2024. Year Ended December 31, 2025 2024 % change Legacy SSA Products $ 1,861,813 $ 1,897,358 (1.87 )% High Pressure Gas Systems 831,298 723,935 14.83 % Ultra-Portable Tankless Dive Systems 2,236,379 2,466,550 (9.33 )% Redundant Air Tank Systems 2,587,194 2,939,883 (12.00 )% Guided Tour Retail 0 141,942 (100 )% Total revenue $ 7,516,687 $ 8,169,668 (7.99 )% Cost of revenues as a percentage of net revenues Year Ended December 31, 2025 2024 Legacy SSA Products 60.6 % 84.6 % High Pressure Gas Systems 50.0 % 60.66 % Ultra-Portable Tankless Dive Systems 53.6 % 64.32 % Redundant Air Tank Systems 52.55 % 35.57 % Guided Tour Retail 0 % 64.4 % 17 Gross profit margins Year Ended December 31, 2025 2024 Legacy SSA Products 39.4 % 15.6 % High Pressure Gas Systems 50.0 % 39.3 % Ultra-Portable Tankless Dive Systems 46.4 % 35.7 % Redundant Air Tank Systems 47.6 % 62.4.1 % Guided Tour Retail 0 % 56.2.6 % Operating Expenses Operating expenses, consisting of selling, general and administrative (“SG&A”) expenses and research and development costs, are reported on a consolidated basis for our operating segments. Aggregate operating expenses decreased 1 4.3% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Selling, General & Administrative Expenses (SG&A) SG&A decreased 14.13% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. SG&A during those years were as follows: Expense Item 2025 2024 % Change Payroll $ 1,147,805 $ 1,887,910 (39.2 )% Non-Cash Stock based compensation – options 177,078 151,492 16.9 % Professional Fees 242,690 204,829 18.5 % Advertising 367,389 427,037 (14.4 )% All Others 1,020,058 902,105 12.8 % Total SG&A $ 2,955,021 $ 3,573,373 (17.4 )% 18 Payroll decreased by 39.2% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The decrease can be attributed to controls on overtime expenses, changes in personnel and no year-end bonuses for SSI personnel. Non-Cash Stock based compensation expenses increased 16.9 for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The reason for this increase is that the Board of Directors were issued stock for their accrued service for prior year and nine months of 2025. . Professional fees, representing legal, accounting and other professional fees, which was paid in a combination of cash, common stock, or stock options, increased 18.5% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Accounting fees decreased 21.6% in 2025, due to the financial review for 2025 being done by one audit firm rather than two firms for the 2024 review. Legal fees increased 40.0% due to work in connection with a prior lease closing and ISO audit for SSI in 2025. Advertising expense decreased 14.4% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The decrease is attributed to decreased expenses associated with trade shows, although direct and internet advertising by BTL, BLU3 and SSI increased in 2025. Other expenses increased 12.8% for the year ended December 31, 2025 as compared the year ended December 31, 2024 primarily as a result of an increase in rent for both locations, new lease for BMG headquarters in , Davie, Florida and increase in repair and maintenance cost at the SSI facility in California. Research & Development Expenses (R&D Expenses) R&D expenses for the year ended December 31, 2025 decreased 63.6% as compared to the year ended December 31, 2024. The decrease can be primarily attributed to the Company’s focus on non-proprietary products. Other Expense For the year ended December 31, 2025, interest expenses totalled approximately $66,899 as compared to approximately $87,374 in interest expense for the year ended December 31, 2024. This decrease can be attributed to a decrease in interest bearing debt. An income tax expense of $17,302 is included in other expenses for 2025. We had no taxes in prior years. Liquidity and Capital Resources We had cash of $307,885 on December 31, 2025. The following table summarizes total current assets, total current liabilities and working capital at December 31, 2025 as compared to December 31, 2024. December 31, 2025 December 31, 2024 % of Change Total Current Assets $ 3,040,113 $ 3,030,924 .30 % Total Current Liabilities $ 2,461,039 $ 2,860,748 (14.0 )% Working Capital $ 579,074 $ 170,175 240.3 % 19 The small increase in our current assets on December 31, 2025 from December 31, 2024 primarily reflects increases in accounts receivable, decrease in expenses and increase in inventory of approximately $277,652 and decrease in prepaid expenses of $146,412. The decrease in our total current liabilities for the year ended December 31, 2025 as compared to the year ended December 31, 2024 reflects a decrease in customer deposits of approximately $254,600, a decrease of approximately $9,055 related party accounts payable, an increase in the operating lease liabilities in connection with the lease for the Davie, Florida facility. These increases are offset by decreases in accounts payable of $90,420 and an increase in current maturities of long term debt of $104,667 and a decrease in other liabilities of $246,516. Summary Cash Flows Years Ended December 31, 2025 2024 Net cash used in operating activities $ (170,644 ) $ (293,434 ) Net cash used in investing activities $ (14,178 ) $ 22 Net cash used in or provided by financing activities $ (75,028 ) $ 280,022 Net cash used in operating activities for the year ended December 31, 2025 was primarily the result of a net loss of $105,148 as well as an increase in amortization of right-of-use asset of $428,685, the decrease in accounts payable and accrued liabilities of $135,322, the increase in accounts receivable of $118,171, and the increase in prepaid expenses and other current assets of $284,785. There was no cash used in investing activities for the year ended December 31, 2025. There was no cash provided by financing for the year ended December 31, 2025. Going Concern Our audited consolidated financial statements included in this Annual Report were prepared assuming we will continue as a going concern, and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. The report of our independent registered public accounting firm on our audited consolidated financial statements for the year ended December 31, 2025 includes an explanatory paragraph stating the Company has net loss for the year ended December 31, 2025 and that 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 $18,031,358 as of December 31, 2025. Despite a working capital surplus of $579,074 as of December 31, 2025, the accumulated 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 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. 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. 20 Critical Accounting Estimates The Company’s management discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of its assets, liabilities, sales and expenses, and related footnote disclosures. On an on-going basis, the Company evaluates its estimates for product returns, bad debts, inventories, income taxes, warranty obligations, litigation and other subjective matters impacting the financial statements. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Allowance for Doubtful Accounts Allowances for doubtful accounts are estimated based on estimates of losses related to customer accounts receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates and any specific customer collection issues the Company identifies could have a favorable or unfavorable effect on required allowance balances. Inventories The Company values inventory at the lower of cost (determined using the first-in first-out method) or net realizable value. Management’s judgment is required to determine the allowance for obsolete or excess inventory. Inventory on hand may exceed future demand either because the product is outdated or because the amount on hand is more than will be used to meet future needs. Inventory allowances are estimated by the individual operating companies using standard quantitative measures based on criteria established by the Company. Though the Company considers these reserve balances to be adequate, changes in economic conditions, customer inventory levels, or competitive conditions could have a favorable or unfavorable effect on required allowance balances. Deferred Taxes The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. Warranties The Company accrues a warranty reserve for estimated costs to provide warranty services. Warranty reserves are estimated using standard quantitative measures based on criteria established by the Company. Estimates of costs to service its warranty obligations are based on historical experience, expectation of future conditions and known product issues. To the extent the Company experiences increased warranty claim activity or increased costs associated with servicing those claims, revisions to the estimated warranty reserve would be required. The Company engages in product quality programs and processes, including monitoring and evaluating the quality of its suppliers, to help minimize warranty obligations. 21 Off balance Sheet Arrangements We currently have no off-balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not required for smaller reporting companies. Item 8. Financial Statements and Supplementary Data. Our consolidated financial statements appear beginning on page F-1 of the Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.