Item 1A. Risk Factors
Item
1A.
Risk
Factors.
Investing
in our common stock involves risks. In addition to the other information contained in this report, you should carefully consider the
following risks before deciding to purchase our common stock. The occurrence of any of the following risks might cause you to lose all
or a part of your investment. Some statements in this report, including statements in the following risk factors, constitute forward-looking
statements. Please refer to “Cautionary Statement Regarding Forward-Looking Statements” for more information regarding forward-looking
statements.
FINANCIAL
RISKS
We
have a history of losses.
We
incurred net losses of $254,066 and $1,248,115, respectively, for the year ended December 31, 2024 and 2023. On December 31, 2024, we
had an accumulated deficit of $17,940,797. Revenues increased by 8.11% for the year ended December 31, 2024, from 2023, and our gross
profit margin increased from 27.8% in 2023 to 41.6% in 2024. Our gross profit is not sufficient to cover our operating expenses of $3,573,279
and $3,277,319 for the twelve months ending December 31, 2024 and 2023, respectively. Operating expenses include non-cash stock compensation
expenses of $159,992 and $81,424 for the years ending December 31, 2024 and 2023, respectively. In the year ended December 31, 2024,
our selling, general and administrative expenses, increased 9.2% from 2023. There are no assurances that we will be able to increase
our revenues to a level which supports profitable operations and provide sufficient capital to pay our operating expenses and other obligations
as they become due.
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Our
auditors have disclosed substantial doubt as to our ability to continue as a going concern .
Our
independent registered public accounting firm has included an explanatory paragraph expressing substantial doubt relating to our ability
to continue as a going concern in its report on our audited consolidated financial statements for the year ended December 31, 2023. We
have recurring losses from operations and had a net loss of approximately $254,066 and have used approximately $299,000 in net cash used
in our operations in the year ended December 31, 2024 as well as an accumulated deficit of approximately $17,941,000. These factors,
among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty. Our principal sources of liquidity are sales of equity
and debt securities. We do not have any firm commitments to raise additional working capital. As we are a small company who stock
is quoted on the OTC Markets, we expect to encounter difficulty in raising working capital upon terms and conditions satisfactory to
us, if at all. If we are unable to obtain sufficient funding or generate sufficient revenues, our business and results of operations
will be adversely affected, and we may be unable to continue as a going concern.
Our
common stock is currently traded on the OTC Expert Market and is only eligible for unsolicited quotes.
Our
commons stock is not eligible for proprietary broker-dealer quotations. Unsolicited-only stocks have a higher risk of wider spreads,
increased volatility, and price dislocations. Investors may have difficulty selling this stock.
We
rely on revenues from related parties.
We
generate revenues from sales to related parties, which accounted for 6.9% of our net revenues in 2024 and 11.2% of our net revenues in
2023. The loss of revenues from these related parties would have a material adverse impact on our business, results of operations and
financial condition in future periods.
We
depend on licenses with Robert Carmichael, our Chairman, who owns much of our intellectual property.
The
Company has licensed from entities in which Robert Carmichael, our Chairman, has an ownership interest, the following registered and
unregistered trade names, trademarks and service marks: Brownie’s Third Lung™, browniedive.com, Brownie’s, Brownie’s
Third Lung oval symbol, browniedive, YachtPro. Failure to maintain such licenses with Mr. Carmichael would have a material adverse effect
on the Company’s financial condition.
If
we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial
results. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business
and the trading price of our stock.
Our
management has previously determined that we did not maintain effective internal controls over financial reporting.
If the result of our remediation of the identified material weaknesses is not successful, or if additional material weaknesses
are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness
of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further implement
expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness of our financial
reports which could have an adverse effect on our stock price and potentially subject us to litigation.
The
U.S. Consumer Products Safety Commission (“CPSC”) has issued a voluntary recall for one of our products.
On
December 22, 2022, 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 a reserve for those costs related to the recall of $160,500. In 2023 the Company finalized the recall and adjusted the reserve
down to approximately $86,300 to reflect the actual impact on the Company’s financial condition. There have been no further recalls
on our products in 2024.
BUSINESS
AND OPERATIONAL RISKS
We
are dependent upon certain key members of management and qualified employees and consultants.
Our
success depends to a significant degree on the abilities and efforts of our senior management. and on our ability to attract, retain
and motivate highly qualified marketing, technical, engineering and sales personnel and consultants. These people are in high demand
and often have competing employment opportunities. The labor market for skilled employees is highly competitive and we may lose key employees
or be forced to increase their compensation to retain these people. Employee turnover could significantly increase our recruitment, training
and other related employee costs. The loss of key personnel, or the failure to attract qualified personnel, could result in delays in
development or fulfillment of any current strategic and operational plans and have a material adverse effect on our business, financial
condition or results of operations.
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Our
failure to obtain and enforce intellectual property protection may have a material adverse effect on our business.
Our
success depends in part on our ability, and the ability of our patent and trademark licensors, and entities owned and controlled by Robert
Carmichael to obtain and defend our intellectual property, including patent protection for our products and processes, preserve our trade
secrets, defend and enforce our rights against infringement and operate without infringing the proprietary rights of third parties, both
in the United States and in other countries. Despite our efforts to protect our intellectual proprietary rights, existing copyright,
trademark and trade secret laws afford only limited protection.
Our
industry is characterized by frequent intellectual property litigation based on allegations of infringement of intellectual property
rights. Although we are not aware of any intellectual property claims against us, we may be a party to litigation in the future.
Our
intellectual property rights are valuable, and any inability to adequately protect, or uncertainty regarding validity, enforceability
or scope of them could undermine our competitive position and reduce the value of our products and brand, and litigation to protect our
intellectual property rights may be costly.
We
attempt to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements. As
a result, our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets to us. Various
events outside of our control pose a threat to our intellectual property rights as well as to our products and services. For example,
effective intellectual property protection may not be available in countries in which our products are sold. Also, although we have registered
our trademark in various jurisdictions, our efforts to protect our proprietary rights may not be sufficient or effective. Any significant
impairment of our intellectual property rights could harm our business or our ability to compete. Litigation might be necessary to protect
our intellectual property rights and any such litigation may be costly and may divert our management’s attention from our core
business. An adverse determination in any lawsuit involving our intellectual property is likely to jeopardize our business prospects
and reputation. Although we are not aware of any of such litigation, we have no insurance coverage against litigation costs, and we would
be forced to bear all litigation costs if we cannot recover them from other parties. All foregoing factors could harm our business, financial
condition, and results of operations. Any unauthorized use of our intellectual property could harm our operating results.
We
may be exposed to infringement or misappropriation claims by third parties, which, if determined against us, could adversely affect our
business and subject us to significant liability to third parties.
Our
success mainly depends on our ability to use and develop our technology and product designs without infringing upon the intellectual
property rights of third parties. We may be subject to litigation involving claims of patent infringement or violations of other intellectual
property rights of third parties. Holders of patents and other intellectual property rights potentially relevant to our product offerings
may be unknown to us, which may make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies
licensed to us and that we rely upon that are subject to infringement or other corresponding allegations or claims by third parties which
may damage our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess
appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created
by suppliers of components used in our products or by companies we work with in cooperative research and development activities. Our
current or potential competitors may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products.
The defense of intellectual property claims, including patent infringement suits, and related legal and administrative proceedings can
be both costly and time consuming, and may significantly divert the efforts and resources of our technical personnel and management.
These factors could effectively prevent us from pursuing some or all of our business operations and result in our customers or potential
customers deferring, canceling or limiting their purchase or use of our products, which may have a material adverse effect on our business,
financial condition and results of operations.
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We
may not be able to enforce our intellectual property rights throughout the world.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. Many foreign
countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries
limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive
and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and
we will not have the benefit of patent protection in such countries.
Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts from other aspects of
our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition,
changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate
protection for our technology and the enforcement of intellectual property.
We
rely on third party vendors and manufacturers.
We
deal with suppliers on an order-by- order basis and have no long-term purchase contracts or other contractual assurances of continued
supply or pricing. In addition, we have no long-term contracts with our manufacturing sources and compete with other companies for production
facility capacity. Historically, we have purchased enough inventories of products or their substitutes to satisfy demand. However, unanticipated
failure of any manufacturer or supplier to meet our requirements or our inability to build or obtain substitutes could force us to curtail
or cease operations. Certain of our product components are manufactured in China. Due to Covid, and the logistics challenges existing
currently, we have experienced delays and may experience continued delays in our supply chain, including component products, which are
manufactured in China. Our senior management will continue to monitor our situation on a daily basis; however, we expect that these factors
and others we have yet to experience may materially adversely impact our company, its business and operations for the foreseeable future.
We
are dependent on consumer discretionary spending.
The
success of our business depends largely upon a number of factors related to consumer spending, including current and future economic
conditions affecting disposable consumer income such as employment, business conditions, tax rates, and interest rates. In times of economic
uncertainty, consumers tend to defer expenditures for discretionary items, which effects demand for our products. Any significant deterioration
in overall economic conditions that diminishes consumer confidence or discretionary income can reduce our sales and adversely affect
our financial results. The impact of weakening consumer credit markets; layoffs; corporate restructurings; higher fuel prices; declines
in the value of investments and residential real estate; and increases in federal and state taxation can all negatively affect our results.
There can be no assurance that in this type of environment consumer spending will not decline, thereby adversely affecting our growth,
net sales and profitability or that our business will not be adversely affected by continuing or future downturns in the economy, boating
industry, or dive industry. If declines in consumer spending on recreational marine accessories and dive gear are other than temporary,
we could be forced to curtail or cease operations.
Government
regulations may impact us.
The
SCUBA industry is self-regulating, therefore, from an industry perspective the Company is not subject to government industry specific
regulation. However, our tank manufacturing operation is required to comply with DOT, as well as being approved to sell in various countries
outside of the United States. The Company strives to be a leader in promoting safe diving practices within the industry and is at the
forefront of self-regulation through responsible diving practices. The Company is subject to all regulations applicable to “for
profit” companies as well as all trade and general commerce governmental regulation. All required federal and state permits, licenses,
and bonds to operate its facility have been obtained. There can be no assurance that our operations will not be subject to more restrictive
regulations in the future, which could force us to curtail or cease operations.
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Our
failure to adequately protect personal information that is collected on our website and our third-party payment platforms could have
a material adverse effect on our business.
A
wide variety of local, state, national, and international laws, directives and regulations apply to the collection, use, retention, protection,
disclosure, transfer, and other processing of personal data (including with respect to the European Union’s General Data Protection
Regulation and U.S. state laws such as the California Consumer Privacy Act). These data protection and privacy-related laws and regulations
continue to evolve and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions
and increased costs of compliance. Our failure to comply with applicable laws and regulations, or to protect such data, could result
in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by end-customers
and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing end-customers and prospective
end-customers), any of which could have a material adverse effect on our operations, financial performance, and business. Changing definitions
of personal data and personal information, within the European Union, the United States, and elsewhere may limit or inhibit our ability
to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. The evolving data
protection regulatory environment may require significant management attention and financial resources to analyze and modify our information
technology infrastructure to meet these changing requirements all of which could reduce our operating margins and impact our operating
results and financial condition.
Bad
weather could have an adverse effect on operating results.
Our
business is significantly impacted by weather patterns. Unseasonably cool weather, extraordinary amounts of rainfall, or unseasonably
rough surf, may decrease boat use and diving, thereby decreasing sales. Accordingly, our results of operations for any prior period may
not be indicative of results of any future period.
The
manufacture and distribution of recreational diving equipment could result in product liability claims.
We,
like any other retailer, distributor and manufacturer of products that are designed for recreational sporting purposes, face an inherent
risk of exposure to product liability claims in the event that the use of our products results in injury. Such claims may include, among
other things, that our products are designed and/or manufactured improperly or fail to include adequate instructions as to proper use
and/or side effects, if any. We do not obtain indemnification from parties supplying raw materials , manufacturing our products
or marketing our products. In the event that we do not have adequate insurance or contractual indemnification, product liabilities relating
to defective products could have a material adverse effect on our operations and financial conditions, which could force us to curtail
or cease our business operations.
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SHAREHOLDER
RISKS
The
issuance of shares of our common stock upon exercise of our outstanding options, warrants, convertible debt and Series A Convertible
Preferred Stock may cause immediate and substantial dilution to our existing shareholders.
We
presently have vested and unvested options, warrants, convertible debt and Series A Convertible Preferred Stock that if exercised would
result in the issuance of an additional 50,824,019 shares of our common stock. The issuance of shares upon exercise of options will result
in dilution to the interests of other shareholders.
Our
common stock may be affected by limited trading volume and may fluctuate significantly.
The Company’s common stock was quoted on the OTCPink tier of the OTC Markets under the symbol “BWMG”
until April 15, 2025. As of April 15, 2025, the Company’s common stock has traded on the Expert Market of the OTC. Our commons stock
is not eligible for proprietary broker-dealer quotations on the Expert Market. Unsolicited-only stocks have a higher risk of wider spreads,
increased volatility, and price dislocations. Investors may have difficulty selling our stock. There can be no assurance that we can regain
quotation on a higher tier of the OTC Markets or that an active trading market for our common stock will develop. As a result, this could
adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Thinly traded common
stock can be more volatile than common stock traded in an active public market. Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard
to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes
in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially
Our
company is a voluntary filer with the SEC and in the event that we cease reporting under the Exchange Act, investors would have limited
information available to them about the company.
While
we voluntarily file reports with the SEC under Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), we do not have a class of securities registered under Section 12(g) of the Exchange Act. To the extent that our duty to
file Exchange Act reports has automatically suspended under Section 15(d) of the Exchange Act, as a voluntary filer, we may elect to
cease reporting under the Exchange Act at such time which would limit the information available to investors and shareholders about the
company.
Our
common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability
requirements.
Our
common stock is deemed to be “penny stock” as that term is defined under the Exchange Act. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges. Our common stock
is covered by an SEC rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other
than established customers and accredited investors, which are generally institutions with assets in excess of $5,000,000, or individuals
with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.
Broker/dealers
dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers
are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements
may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for
investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.
Our
officers and directors are able to control the Company.
Our
officers and directors and their affiliates own or have the right to vote a majority of the common stock of our company. As a result,
they have significant influence over the management and affairs of the Company and control over matters requiring stockholder approval,
including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets.
Their interests may differ from the interests of other shareholders and thus result in corporate decisions that are disadvantageous to
other shareholders. This concentration of ownership and influence in management and board decision-making could also harm the price of
our capital stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our capital stock (whether
by making a tender offer or otherwise) or otherwise attempting to obtain control of our company.
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