10-K: Brownies Marine Group Reports Increased Revenue and Gross Profit Amidst Continued Losses and Going Concern Doubts

Brownies Marine Group, Inc. reported an 8.11% increase in total net revenues and a significant improvement in gross profit margin for the fiscal year ended December 31, 2024, despite incurring a net loss and facing substantial doubt about its ability to continue as a going concern.

Summary

• Total net revenues increased by 7.88% to $8,169,669 in 2024, up from $7,580,798 in 2023.
• Gross profit margin improved significantly to 41.6% in 2024, compared to 27.8% in 2023.
• The company reported a net loss of $240,599 in 2024, a substantial improvement from the $1,248,115 net loss in 2023.
• Operating expenses increased by 9.0% in 2024 to $3,451,122, from $3,277,319 in 2023.
• The accumulated deficit as of December 31, 2024, was $17,927,329.
• Cash used in operating activities was $293,434 in 2024, an improvement from $374,827 in 2023.
• Sales to related parties decreased by 29.8% in 2024, accounting for 6.9% of total net revenues, down from 10.6% in 2023.
• The Nomad tankless dive system recall allowance was reduced to $0 as of December 31, 2024, reflecting that all related expenses had been realized.
• The company's common stock trades on the OTC Expert Market and is only eligible for unsolicited quotes, posing risks of wider spreads and increased volatility.
• Material weaknesses in internal control over financial reporting were identified, including insufficient accounting personnel, lack of written policies, and inadequate segregation of duties.

Sentiment

Score: 3

Explanation: While the company showed improvement in revenue growth and reduced net losses, the persistent 'going concern' doubt from auditors, negative working capital trend, and reliance on related party financing and future capital raises indicate significant financial instability and high risk. The positive segment growth is overshadowed by overall operational losses and governance issues.

Positives

• Total net revenues increased by 7.88% from $7,580,798 in 2023 to $8,169,669 in 2024, indicating sales growth.
• Gross profit margin significantly improved to 41.6% in 2024, up from 27.8% in 2023, demonstrating better cost management relative to revenue.
• Net loss decreased substantially from $1,248,115 in 2023 to $240,599 in 2024, showing progress towards profitability.
• Cash used in operating activities decreased from $374,827 in 2023 to $293,434 in 2024, indicating improved operational cash flow efficiency.
• The Ultra-Portable Tankless Dive Systems segment (BLU3) saw a 29.5% increase in net revenues, and the Redundant Air Tank Systems segment (SSI) increased by 42.8% in 2024.
• The Nomad recall allowance was fully utilized and reduced to $0, indicating the issue has been addressed and costs finalized.
• The company continues to expand its distribution channels beyond traditional U.S. markets to offset seasonality and diversify geography risks.

Negatives

• The company incurred a net loss of $240,599 in 2024 and has a significant accumulated deficit of $17,927,329 as of December 31, 2024.
• Operating expenses of $3,451,122 in 2024 still exceed the gross profit of $3,304,419, indicating that the company is not yet profitable from operations.
• The independent registered public accounting firm has expressed substantial doubt about the company's ability to continue as a going concern.
• Working capital decreased by 55.0% from $233,814 in 2023 to $170,175 in 2024.
• Sales to related parties, while decreasing as a percentage of total revenue, still represent a notable portion (6.9% in 2024), posing a risk if these relationships are lost.
• The Guided Tour Retail segment (LBI) experienced a significant decrease in net revenues of 53.1% in 2024.
• The company's common stock trades on the OTC Expert Market, which is only eligible for unsolicited quotes, leading to higher risk of wider spreads, increased volatility, and difficulty for investors to sell.

Risks

• The company has a history of losses and an accumulated deficit, raising substantial doubt about its ability to continue as a going concern.
• Reliance on sales of equity and debt securities for liquidity, with no firm commitments for additional working capital, makes the company vulnerable to funding difficulties.
• The common stock trading on the OTC Expert Market with unsolicited quotes only may lead to wider spreads, increased volatility, price dislocations, and difficulty for investors to sell.
• Dependence on revenues from related parties (6.9% of net revenues in 2024) poses a material adverse impact risk if these revenues are lost.
• The company relies on licenses with Robert Carmichael, its Chairman, for much of its intellectual property; failure to maintain these licenses would have a material adverse effect.
• Failure to maintain an effective system of internal control over financial reporting, as material weaknesses have been identified, could lead to inaccurate financial reporting and loss of investor confidence.
• The U.S. Consumer Products Safety Commission (CPSC) issued a voluntary recall for the Nomad tankless dive system in 2022, indicating potential product liability risks.
• Dependence on certain key members of management and qualified employees, with the risk of losing them to competitors or being forced to increase compensation.
• Failure to obtain and enforce intellectual property protection, or exposure to infringement claims by third parties, could adversely affect the business.
• Reliance on third-party vendors and manufacturers, with no long-term purchase contracts, creates supply chain risks, especially for components manufactured in China.
• The business is dependent on consumer discretionary spending, making it vulnerable to economic downturns, layoffs, and other factors affecting disposable income.
• Bad weather patterns (unseasonably cool weather, excessive rainfall, rough surf) could decrease boat use and diving, adversely affecting sales.
• The manufacture and distribution of recreational diving equipment inherently carries product liability claims risk, and the company does not obtain indemnification from all parties in the supply chain.
• The issuance of shares upon exercise of outstanding options, warrants, and convertible debt may cause immediate and substantial dilution to existing shareholders.
• The company is a voluntary filer with the SEC and may elect to cease reporting, limiting information available to investors.
• The common stock is deemed 'penny stock,' which may make it more difficult for investors to sell due to suitability requirements.
• Officers and directors control a majority of the common stock, giving them significant influence over corporate decisions that may differ from other shareholders' interests.

Future Outlook

The company expects to continue distributing L&W compressors through its YachtPro and BIAS systems, focusing on expanding into non-marine related distribution channels to positively impact market reach. It also aims to build a network of jobbers, dealers, installers, and high-pressure compressor distributors. The company's vision for Live Blue, Inc. (LBI) is to become a fully integrated retail experience, showcasing products, offering training, and creating a tourist model, with a guided tour program intended as an incubator for a scalable franchise model. The company will continue to monitor and evaluate the effectiveness of its internal control over financial reporting and is committed to taking further action and implementing additional enhancements or improvements as necessary and as funds allow. The company is continuing to engage in discussions with potential sources for additional capital.

Management Comments

• "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."
• "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."
• "The Company continues to address the seasonality of the business by expanding its reach beyond the traditional markets in the U.S. to other areas of the world that may somewhat offset the seasonality."
• "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."
• "The Company is in the process of hiring additional personnel in the accounting department as part of the internal controls implementation and documentation of those controls and procedures."
• "The Company plans on evaluating various accounting systems to enhance our system controls."
• "We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow."
• "We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved internal control over financial reporting."
• "The maturity due date of the convertible notes has been verbally extended by the lender while the Company works through to determines a restructure of the notes."

Industry Context

The company operates within several growing segments of the marine and industrial markets. The global scuba diving equipment market was valued at $2.1 billion in 2023 and is projected to grow at a CAGR of over 4% between 2024 and 2032, driven by post-pandemic recovery, safety equipment development, accessibility of courses, e-commerce, coastal tourism, and rising disposable income. The global luxury yacht market was valued at $7.67 billion in 2023 and is projected to grow to $17.33 billion by 2033, exhibiting an 8.9% CAGR. The recreational boating market was valued at $38.2 billion in 2024 and is projected to reach $65.9 billion by 2034, with a CAGR of 5.6%. The North American high-pressure compressor market is estimated at $880 million, growing at a 3% CAGR. Brownies Marine Group's product lines, including tankless dive systems, yacht-integrated air systems, and high-pressure gas systems, are positioned to capitalize on these growth trends.

Comparison to Industry Standards

• The scuba diving equipment market is projected to grow at a CAGR of over 4% (2024-2032). The company's BLU3 (Ultra-Portable Tankless Dive Systems) segment grew 29.5% in 2024, significantly outperforming the overall market growth rate, suggesting strong product adoption in this niche.
• The luxury yacht market is projected to grow at an 8.9% CAGR (2024-2033). The company's BIAS systems are designed for this market, but specific revenue growth for BIAS within the High Pressure Gas Systems segment (which decreased 27.3% overall) is not detailed, making a direct comparison difficult.
• The recreational boating market is projected to grow at a 5.6% CAGR (2024-2034). The company's products, including BIAS and Third Lung systems, cater to this market, but specific segment performance related to this growth is not isolated.
• The North American high-pressure compressor market is growing at an estimated 3% CAGR. The company's High Pressure Gas Systems segment, which includes L&W compressors, saw a 27.3% decrease in net revenues in 2024, significantly underperforming the industry growth rate.
• The Redundant Air Tank Systems segment (SSI) grew 42.8% in 2024, indicating strong performance in its specialized market, though no specific industry growth rate for this niche was provided for direct comparison.

Management Changes

Corporate Governance

Related Party Transactions

• Sales of products to Brownies Southport Divers, Inc., Brownies Palm Beach Divers, and Brownies Yacht Toys (companies owned by Robert Carmichael's brother) totaled $566,291 in 2024 and $806,824 in 2023.
• Accounts receivable from these entities at December 31, 2024, were $29,840 (Southport), $6,318 (Palm Beach), and $3,138 (Yacht Toys).
• Sales of products to Brownies Global Logistics, LLC (BGL) and 940 Associates, Inc. (940 A) (entities wholly-owned by Robert Carmichael) totaled $0 in 2024 and $1,799 in 2023.
• Accounts receivable from BGL, 940 A, and Mr. Carmichael for personal purchases totaled $0 at December 31, 2024, and $647 at December 31, 2023.
• The company owed $5,000 to Robert Carmichael for an advance to BLU3, Inc. as of December 31, 2024.
• The company owed $441 to Robert Carmichael as of December 31, 2024.
• Exclusive license agreement with 940 A (owned by Robert Carmichael) for trademarks like Brownies Third Lung, Tankfill, and Brownies Public Safety, requiring a royalty of the greater of 2.5% on Trebor sales or $15,000 per quarter. Total royalty fees paid to 940 A were $51,256 in 2024 and $57,320 in 2023.
• Accrued royalties under this agreement were $6,974 at December 31, 2024.
• A convertible demand 8% promissory note in the principal amount of $66,793 was issued to Robert Carmichael on September 30, 2022, for LBI working capital. Interest is payable in common stock, and Mr. Carmichael waived interest payments effective April 1, 2024.
• Robert Carmichael, a management director, receives an annual fee of $18,000 for serving on the Board of Directors. Accrued fees for directors totaled $220,500 as of December 31, 2024.
• A non-qualified stock option agreement was entered into with Robert Carmichael on April 14, 2020, for 125,000,000 shares at $0.045 per share, which expired unexercised on April 30, 2023.
• Blake Carmichael (son of Robert Carmichael and CEO of BLU3) has a three-year employment agreement (August 1, 2021) with an annual base salary of $120,000, a 5% cash bonus of BLU3's net income, and stock options (3,759,400 shares at $0.0399 and up to 18,000,000 shares at $0.0399 based on financial metrics).
• A convertible demand 8% promissory note in the principal amount of $50,000 was issued to Robert Carmichael on September 14, 2023, for BLU3 working capital. Mr. Carmichael waived interest payments effective September 14, 2023.
• A promissory note in the principal amount of $150,000 was issued to Charles Hyatt (a director) on November 14, 2023, bearing 9.9% interest, extended to May 5, 2025.
• A promissory note in the principal amount of $280,000 was issued to Charles Hyatt (a director) on February 5, 2024, bearing 9.9% interest, extended to May 5, 2025.
• A $25,000 demand note was issued to Robert Carmichael on December 18, 2023, for BLU3 working capital, bearing no interest.
• Shares of common stock were issued to Robert Carmichael for interest payments on the convertible demand note: 61,677 shares on March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, and March 31, 2024.
• 8,241,759 shares of common stock were issued to Blake Carmichael on December 9, 2024, as compensation for a salary reduction.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from outstanding options, warrants, and convertible debt. The stock's trading on the OTC Expert Market limits liquidity and increases volatility, making it difficult to sell shares. The concentration of ownership by officers and directors means their interests may not align with other shareholders.
• **Employees**: The company's success depends on retaining key management and qualified personnel in a competitive labor market. Identified material weaknesses in internal controls, particularly insufficient accounting and administrative personnel, could impact operational efficiency and employee workload.
• **Customers**: The voluntary recall of the Nomad dive system in 2022, though finalized, could have impacted customer trust. The company's focus on expanding distribution and improving product offerings aims to enhance customer access and experience.
• **Suppliers/Creditors**: The company's reliance on third-party vendors without long-term contracts and its 'going concern' doubt could pose risks to suppliers regarding payment stability. Creditors, particularly related parties, have extended payment terms and waived interest, indicating their support but also the company's financial strain.

Next Steps

• Continue to pursue distributors and dealers outside the United States to diversify seasonality and geography risks for SSA products.
• More aggressively pursue the boat builder market to offer variable speed, battery-powered THIRD LUNG systems as an option on newly built boats.
• BLU3 to continue marketing Nomad and Nomad Mini through internet presence, marketing campaigns, and trade shows.
• BLU3 to market the SeaNXT Elite sea scooter to end-users and resellers throughout North and South America.
• LW Americas to continue focusing on the expansion of its distribution into non-marine related distribution channels.
• LW Americas aims to build a network of jobbers, dealers, installers, and high-pressure compressor distributors.
• SSI to continue innovating technologies for their HEED product line and develop customer relationships in the medical field.
• LBI to continue developing its guided tour program as an incubator for a scalable franchise model.
• Management plans to leverage experienced consultants and hire a certified public accountant to strengthen the finance department and internal controls.
• Management plans to analyze and adjust segregation of duties Company-wide.
• The company plans on evaluating various accounting systems to enhance system controls.
• The company will continue to monitor and evaluate the effectiveness of its internal control over financial reporting.
• The company is continuing to engage in discussions with potential sources for additional capital.

Key Dates

Recommendation

Keywords

Diving Equipment, SCUBA, Tankless Dive Systems, High Pressure Compressors, Redundant Air Systems, Yachting Industry, Marine Group, SEC Filing, 10-K, Financial Reporting, Corporate Governance, Risk Management, BLU3, Brownies Third Lung, LW Americas, Submersible Systems Inc, Live Blue Inc