Brownie's Marine Group, Inc 10-Q

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. Recent Developments On July 1, 2026, the Company executed and consummated the transactions contemplated by an asset purchase agreement (the “Asset Purchase Agreement”) by and among Sunrise Paddleboards LLC, a Florida limited liability company (“Sunrise Paddleboards”), Brian Galton, the sole member of Sunrise Paddleboards (the “LLC Member”), the Company and Live Blue, Inc. (“LBI”). Pursuant to the terms of the Asset Purchase Agreement, LBI acquired substantially all of Sunrise Paddleboards’ assets and assumed certain liabilities of the business associated with these assets. Sunrise Paddleboards is in the business of providing paddleboarding and kayaking experiences, including paddleboard rental, tour, retail and training. In consideration for the assets purchased, the Company issued 42,000,000 shares of its common stock to the LLC Member at a price of $0.0044 per share, based upon the closing price of the Company’s common stock on the OTC Markets on June 30, 2026. In 2022, the Company applied for a tax credit for employees of its operating subsidiaries that were retained on payroll during the Covid-19 pandemic under the Internal Revenue Service’s Employee Retention Credit (“ERC”) program from 2020 to the second quarter of 2021. The Company engaged a third party service, Omega Accounting (“Omega”), to make such application on the Company’s behalf for which Omega would be entitled to 15% of the ERC refund received by the Company. It was unknown and uncertain at the time the application was made whether the Company would receive a refund. Subsequently, in the first quarter of 2026, the Company received an ERC refund of $494,828.78 (which included interest), for which we paid Omega $74,224 for its services. These funds were reported in miscellaneous income as they were not directly related to the Company’s operations. The Company has not yet received a ERC refund for Submersible Systems, Inc. employees. 23 On July 16, 2026, the board of directors of the Company appointed Mikkel Pitzner to serve as a member of the board, effective on such date. Results of Operations Net Revenues, Costs of Net Revenues and Gross Profit Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 Net revenues increased 38.32 % for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 as a result of an increase in revenues of BLU3, SSI and LWA. There was a slight decrease in BTL revenue for the first quarter of 2026 compared to the first quarter of 2025. The increase in SSI’s revenues was due to sales to new customers attributable to the continued momentum of the Company’s newest product, HEED3, as well as increased demand from international users for SSI’s Spare Air product line. The increase in LWA and SSI’s revenue was offset by a small decrease in revenues in BTL. There were no sales recorded for LBI because its assets were sold in the third quarter of 2024. For the three months ended March 31, 2026, cost of net revenues was 53.6% as compared with the cost of net revenues of 67.% for the three months ended March 31, 2025. The decrease of cost of revenue as a percentage of revenue, is directly attributable to the increase in sales revenue. The royalty expenses paid to Robert Carmichael increased by 72.8% for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. Gross profit margin was 46.4% for the three months ended March 31, 2026 compared to gross profit margin of 33.9% for the three months ended March 31, 2025. The Increase in gross margin, is directly attributable to a decrease in BTL labor costs margin and decrease on cost of materials due to better purchasing practice. Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025 Net revenues increased 11.0% for the six month ended June 30, 2026 as compared to the six month ended June 30, 2025 as a result of an increase in revenues of BTL, BLU3, and SSI. This increase was offset by a slight decrease in revenues for LWA. The increase in SSI’s revenues was due to sales to a broadened customer base and to the continued momentum of the Company’s newest product, HEED3, as well as increased demand from international users for SSI’s Spare Air product line. The increase in BTL increase in revenue is mainly attributable to better terms to our dealers, and modification in our SeaLion unit. BLU3 sales increase is due to offering a better mix of products, aggressive social media marketing. This increase was offset by a small decrease in revenues of LWA. There were no sales recorded for LBI because its assets were sold in the third quarter of 2024. For the six months ended June 30, 2026, cost of net revenues was 50.9% as compared with the cost of net revenues of 65.7% for the six months ended June 30,2025. The decrease of cost of revenue as a percentage of revenue, is directly attributable to the increase in sales revenue, The royalty expenses paid to Robert Carmichael increased by 64.6% for the six months ended June 30,2026.as compared to the six months ended June 30, 2025. Gross profit margin was 49.1% for the six months ended June 30, 2026 compared to gross profit margin of 38.0% for the six months ended June 30 2025. The increase in gross margin, is directly attributable to increase in sales, decrease in BTL labor costs and a decrease in cost of materials due to better purchasing practices. 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 increased 70.3% and 215.17%for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. Selling, General & Administrative Expenses SG&A increased 70.30% for the six months ended June 30, 2026 as compared to 21.0% for the six months ended June 30, 2025 The increase is due to an increase in audit fees and consulting fees paid for filing of employee retentions credit refunds. SG&A expenses were comprised of the following: Expense Item Three Months Ended June 30, 2026 Three Months Ended June 30, 2025 % Change Six Months Ended June 30, 2026 Six Months Ended June 30, 2025 % Change Payroll, Selling & Administrative $ 254,624 $ 322,556 (29.8 )% $ 576,056 $ 550,938 4.6 % Stock Compensation Expense 9,000 9,000 0 % 18,000 18,000 0 % Professional Fees 184,084 161,143 14.5 % 305,032 229,613 32.7 % Advertising 110,691 146,619 (24.5 )% 217,471 184,982 17.6 % All Other 472,199 74,965 529.9 % 1,100,915 318.582 245.8 % Total SG&A $ 1,030,598 $ 753,990, 36.7 % $ 2,217,475 $ 1,302,116 70.3 % 24 Payroll for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025 decreased 29.8% and increased 4.6%, respectively. The decrease reflects control of employee over-time hours and the increase is due to hiring of additional personnel in the second quarter of 2026 . Non-Cash Stock Compensation expenses reminded unchanged for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025. Professional fees, including legal and accounting and professional fees increased 14.5 % and 37.2%, for the three months and six months ended June 30, 2026, respectively, to the three and six months ended June 30, 2025. The increase can be attributed to an increase in audit fees and other professional fees. Advertising expense for the three and six months ended June 30, 2026 decreased 24.5%. in the three months ended June 30, 2026 and increased 17.6% compared to the three months ended June 30, 2025. The decrease is due to selective participation in trade shows in the first quarter of 2026 as compared with the same period in 2025. The increase in the three months ended June 30, 2026 is attributable to increased social media advertising for all subsidiaries during the busy summer. Other expenses increased 529.9% and 245.8 % for the three months and six months ended June 30, 2026 compared to the three and six months ended June 30, 2026 due primarily to rent increases for BMG and Submersible Systems, Inc’s office and recording of interest on loans from a related party which interest was not recorded in prior periods. Research & Development Expenses (R&D Expenses) R&D expenses for the three and six months ended June 30, 2026 increased 354.3% and 215.2% respectively, compared to the three months and six months ended June 30, 2025, respectively, as a result of an increase in innovation, modification and product development activity. Other Income/Expense For the three and six months ended June 30, 2026 and 2025, other income/expense consisted primarily of interest expense and income recognized from the employee retention credit program. The increase in the other income for the three and six months ended June 30, 2026 compared to the prior year was due to the recognition of the employee retention credit in 2026. Liquidity and Capital Resources We had cash of $714,411 as of June 30, 2026. The following table summarizes total current assets, total current liabilities, and working capital at June 30, 2026, as compared to December 31, 2025. June 30, 2026 December 31, 2025 % change (unaudited) Total current assets $ 4,005,466 $ 3,040,113 31.75 % Total current liabilities $ 2, 606,279 $ 2,461,0409 5.9 % Working capital $ 1,399,187 $ 579,073 141.6 % The increase in current assets at June 30, 2026 from December 31, 2025 primarily reflects an increase in cash, accounts receivable, prepaid expenses and inventory. The increase in current liabilities primarily reflects an increase in accounts payable and, an increase in customer deposits and unearned revenue. 25 Summary Cash Flows Six months ended June 30, 2026 2025 (unaudited) Net cash provided by (used) in operating activities $ 532,827 $ (35,869 ) Net cash used in investing activities $ 0 $ 0 Net cash provided by (used) in financing activities $ (126,303 ) $ 0 Net cash used in operating activities for the six months ended June 30, 2026 was $532,827 due to net income of approximately $711,689. No net cash was used in investing activities for the six months ended June 30, 2026. Net cash used in financing activities was 126,303 for the six months ended June 30, 2026. 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, 2025 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 $17,319,669 as of June 30, 2026, which represents a significant improvement as compared to prior years. We had a working capital surplus of $1,399,187 at June 30, 2026. However, continued losses and cash used in operations in the past 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. 26