BWMG 10-K & 10-Q changes, risk factors and insider trading

We incurred net lossesloss of $254,066 $105,149 and $1,248,115,a $ 240,599, respectively, for the year ended December 31, 20242025 and 2023.2024. On December 31, 2024,2025, we had an accumulated deficit of $17,940,797.$18,031,358. Revenues increaseddecreased by 8.11%7.99% for the year ended December 31, 2024,2025, from 2023,2024, and our gross profit margin increased decreased from 27.8%40.4% in 20232024 to 41.6%37.4% in 2024.2025. Our gross profit iswas not sufficient to cover our operating expenses of $3,573,279 and $3,277,319$2,958,659 for the twelve months ending December 31, 2024 and 2023, respectively.2025. Operating expenses include non-cash stock compensation expenses of $159,992$198,478 and $81,424 $151,492 for the years ending December 31, 20242025 and 2023,2024, respectively. In the year ended December 31, 2024, 2025, our selling, general and administrative expenses, increaseddecreased 9.2%14.13% from 2023.2024. ThereAlthough we continue to show improvements in our cost control, 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.

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, 2023.2025. We have recurring lossesloss from operations and had a net loss of approximately $254,066 $105,149 and have used approximately $299,000$109,793 in net cash used in our operations in the year ended December 31, 20242025 as well as an accumulated deficit of approximately $17,941,000.$18,031,358. TheseAlthough these factors, among others, raise substantial doubt about our ability to continue as a going concern.concern, Ourwe consolidatedhave financialshown statementsimprovements doin not includeour anycost adjustmentscontrol, thatwe mightshow resulta fromnet loss for the outcomeyear ofended thisDecember uncertainty.31, 2025. Our principal sources of liquidity are sales of equity and debt securities. We do not have any firm commitments to raise additional working capital. Because Asour wecompany’s are a small company whocommon stock is quoted on the OTCOTCID Markets,Basic Market, and our stock is currently not eligible for proprietary broker-dealer quotations, 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 ExpertOTCID Market and is only eligible for unsolicited quotes.

We depend on licenses with Robert Carmichael, our Chairman,Chairman and Chief Executive Officer, who owns much of our intellectual property.

The Company has licensed from entities in which Robert Carmichael, our Chairman,Chairman and Chief Executive Officer, has an ownership interest, the following registered and and unregistered trade names, trademarks and service marks: Brownie’s Third Lung™, browniedive.com, Brownie’s, 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.

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 favorablyfavourably 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.

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 20232023, 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 productsproducts. The Company reversed the remaining allowance for recall in 2024.2025.

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 fulfillmentfulfilment of any current strategic and operational plans and have a material adverse effect on our business, financial condition or results of operations.

Overall, our net revenues increaseddecreased 7.88%7.99% in 20242025 from 2023,2024, which included an a decreaseincrease of 29.8%12.47% in sales to related parties. Our cost of revenues in 20242025 was 58.4%62.60% of our total net revenues as compared to 72.2% 59.55% in 2023.2024. Included in our cost of revenues are royalty expenses we pay to Robert Carmichael which decreased 10.6%13.19% in 20242025 from 2023.2024. We reported a gross profit margin of 41.6%37.4% in 20242025 as compared to 27.8% 40.4% in 2023.2024.

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 increaseddecreased 9.0%14.3% for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024.

SG&A increaseddecreased 9.2%14.13% for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. SG&A during those years were as follows:

Payroll increased decreased by 8.9%39.2% for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024. The increasedecrease can be attributed to acontrols coston ofovertime livingexpenses, increasechanges in personnel and yearno endyear-end bonuses bonuses.for .SSI personnel.

Non-Cash Stock based compensation expenses increased 12.4%16.9 for the year ended December 31, 20242025 as compared to the year ended December 31, 2023. 2024. The reason for this increase canis be attributed tothat the vestingBoard of incentiveDirectors were basedissued optionsstock for thetheir Presidentaccrued service for prior year and nine months of SSI.2025. .

Professional fees, representing legal, accounting and other professional fees, which wewas paid in a combination of cash, common stock, or stock options, decreasedincreased 24.0%18.5% for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. Accounting fees increaseddecreased 31.83%21.6% in 2024,2025, due to athe substantialfinancial increasereview infor 2025 being done by one audit feesfirm duringrather than two firms for the first2024 review. three quarters of 2024, and legalLegal fees decreased byincreased 23.0%40.0% due to fewerwork stockin awardsconnection with a prior lease closing and ISO audit for legal feesSSI in 2024.2025.

Advertising expense increaseddecreased 16.8%14.4% for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. The increasedecrease is attributed to increaseddecreased expenses associated with trade showsshows, , and increasedalthough direct and internet advertising by BTL, BLU3 and SSI increased in 2024. 2025.

Other expenses increased 19.0%12.8% for the year ended December 31, 20242025 as compared the year ended December 31, 2023.2024 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.

R&D expenses for the year ended December 31, 20242025 decreased 28.0%63.6% as compared to the year ended December 31, 2023.2024. The decrease can be primarily attributed to the Company’s focus on productsnon-proprietary that are not proprietary.products.

For the year ended December 31, 20242025, interest expenses totaledtotalled approximately $79,600$66,899 as compared to approximately $78,700$87,374 in interest expense for the year ended December 31, 2023.2024. This small increasedecrease can be attributed to a slight increasedecrease 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.

We had cash of $417,678$307,885 on December 31, 2024.The2025. The following table summarizes total current assets, total current liabilities and working working capital at December 31, 20242025 as compared to December 31, 2023.2024.

The small increase in our current assets on December 31, 20242025 from December 31, 20232024 primarily reflects increases in accounts receivable, decrease prepaid in expenses and increase in inventory of approximately $336,000.$277,652 and decrease in prepaid expenses of $146,412.

The increasedecrease in our total current liabilities for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 reflects ana increasedecrease in customer deposits of approximately $212,699,$254,600, ana increasedecrease of approximately $307,915$9,055 related party demandaccounts debt with the increase in loans from the Company’s chief executive officer,payable, an increase in the operating lease liabilities in connection with the lease for the Davie, FloridsFlorida facility. These increases are offset by by decreases in accounts payable of $102,491,$90,420 and an increase in current maturities of long term debt of $64,136, accounts payable related parties of $33,103$104,667 and a decrease in other liabilities of 31,184, and the release of the reserve for Nomad recall expenses of approximately $86,000.$246,516.

Net cash used in operating activities for 2024the year ended December 31, 2025 was primarily the result of a net loss of $254,066,$105,148 as well as an increase in amortization of right-of-use asset of $428,685, the decrease in long term lease liability of $290,363, the reduction of accounts payable and accrued liabilities of $157,533,$135,322, the increase ofin accounts receivable of $135, 455,$118,171, and the increase in prepaid expenses expensesand other current assets of $137,770. The cash used related to net loss was offset by $124,930 in depreciation and amortization, and $151,492 in stock related compensation expense during the year ended December 31, 2024.$284,785.

NetThere was no cash providedused byin financinginvesting activities for the year ended December 31, 2024 reflects $307,915 in proceeds from related party demand notes.2025.

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, 20242025 includes an explanatory paragraph stating the Company has net lossesloss 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 $17,949,435$18,031,358 as of December 31, 2024.2025. Despite a working capital surplus of $105,210$579,074 atas of December 31, 2024,2025, the continuedaccumulated 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.

Net revenues decreasedincreased 16.1%38.32% for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 as a result of a decrease in revenues in BTL and BLU3 and an increase in revenues inof 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 demand from international users for SSI’s Spare Air product line. The increase in LWA and SSI’s revenue was offset by a small decreaseddecrease in revenues in BTLBTL. and BLU3 revenues and because thereThere 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 61.1%67.% for the three three months ended March 31, 2025. The slightdecrease of cost percentageof decreaserevenue as a percentage of revenue, is directly attributable to the decreaseincrease in sales revenue,revenue. decrease in royalty expenses and decrease in labor cost. Included in cost of net revenues areThe royalty expenses paid to Robert Carmichael which increased by 24.0%72.8% for the three months ended March 31, 2026 as compared 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 38.9%33.9% for the three months months ended March 31, 2025. The Increase in gross margin, is directly attributable to a decrease in BTL labor costs margin and decrease on margin.cost of materials due to better purchasing practice.

ThreeSix Months Ended MarchJune 31,30, 20252026 Compared to ThreeSix Months Ended MarchJune 31,30, 2025.2025

For the threesix months ended MarchJune 31,30, 2026, cost of net revenues was 61.6%50.9% as compared with the cost of net revenues of 62.0%65.7% for the three six months ended 2025.June 30,2025. The decrease of cost of revenue decrease,as cana bepercentage of revenue, is directly attributable to controlling the cost of direct labor, which accounted for a smaller portion of costs and significantly impacted the profit margin. Includedincrease in costsales ofrevenue, net revenues areThe royalty expenses paid to Robert Carmichael whichincreased decreasedby 24.4%64.6% for the threesix months ended MarchJune 31, 2026 as30,2026.as compared to the three six months ended MarchJune 31,30, 2025.

Gross profit margin was 38.4%49.1% for the threesix months ended MarchJune 31,30, 2026 as compared to gross profit margin of 38.0%for38.0% for the three six months ended March 31,June 30 2025. This smallThe increase in gross margin, is duedirectly attributable to the increase in sales, decrease in BTL labor costs and a decrease in cost of goodsmaterials anddue rawto materials.better purchasing practices.

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 decreasedincreased 14.6%70.3% and 21.2%, for215.17%for the threesix months ended endedJune March 31,30, 2026 as compared to the threesix months ended MarchJune 31,30, 2025.

SG&A decreasedincreased 14.6%70.30% for the threesix months ended MarchJune 31,30, 2026 as compared to 21.0% for the threesix months ended MarchJune 31,30, 2025.2025 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:

Payroll for the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025 decreased 36.2% 29.8% and increased 38.8%4.6%, respectively. The decrease reflects controlling overtime, schedulingcontrol of staffemployee over-time hours and reductionthe increase is due to hiring of additional personnel in personnel.the second quarter of 2026.

Non-Cash Stock Compensation expenses increasedreminded 100%unchanged for the three months and threesix months ended MarchJune 31,30, 2026 as compared to the three and six three months ended MarchJune 31,30, 2025 as a result of vesting milestones based upon performance goals not being met for the three ended March 31, 2026.2025.

Professional fees, including legal, decreased 2.27%legal and accounting and professional fees increased 218.2%,14.5 % and 37.2%, for the three months and six months ended June March30, 31,2026, 2026 comparedrespectively, to the three and six months ended MarchJune 31,30, 2025. The increase can be attributed to an increase in audit fees and other professional fees.

Other expenses increased 32.6%529.9% and 245.8 % for the three months and six months ended MarchJune 31,30, 2026,2026 compared to the three and six months ended June March30, 31, 20252026 due primarily to an increase in rent expenses and a new leaseincreases for BMG offices.and Submersible Systems, Inc’s office and recording of interest on loans from a related party which interest was not recorded in prior periods.

R&D expenses for the three and threesix months ended MarchJune 31,30, 2026 decreasedincreased by 73.94%354.3% and 71.12%215.2% respectively, compared to the three months months and threesix months ended MarchJune 31,30, 2025, respectively, as a result of decreasean increase in innovation, modification and product development activity.

For the three and threesix months ended MarchJune 31,30, 2026 and 2025, other income/expense consisted solelyprimarily of interest expense. For the three months ended March 31, 2026, interest expense decreasedand 5.75%income recognized from the employee retention credit program. The increase in the other income for the three and six months ended MarchJune 31,30, 2026 2025.compared Thisto decreasethe isprior year was due to payoffthe recognition of loans.the employee retention credit in 2026.

We had cash of $849,620$714,411 as of MarchJune 31,30, 2026. The following table summarizes total current assets, total current liabilities, and working capital at MarchJune 31,30, 2026, as compared to December 31, 2025.

The increase in current assets at MarchJune 31,30, 2026 from December 31, 2025 primarily reflects an increase in cash, accounts receivablereceivable, prepaid expenses and inventory. The increase in current liabilities primarily reflects an increase in accounts payable andand, accrued liabilities, a small decreasean increase in customer deposits and unearned revenue.

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2026 was $532,827 due to net income of approximately $494,458.$711,689.

NetNo net cash was used in investing activities was $144,901 for the threesix months ended MarchJune 31,30, 2026.

There was no net Net cash providedused byin financing activities was 126,303 for the threesix months ended MarchJune 31,30, 2026.

We have a history of losses, and an accumulated deficit of $17,536,900$17,319,669 as of MarchJune 31,30, 2026, which represents a significant improvement as as compared to prior years. We had a working capital surplus of $1,141,710$1,399,187 at MarchJune 31,30, 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 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.