BROWNIE’S MARINE GROUP, INC Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-K)

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").



Recent Developments



On September 3, 2021, the Company, entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") with Submersible Acquisition, Inc.,
a Florida corporation and wholly owned subsidiary of the Company ("Acquisition
Sub"), SSI, and Summit Holdings V, LLC, a Florida limited liability company
("Summit") and Tierra Vista Group, LLC, a Florida limited liability company
("Tierra Vista" and, together with Summit, the "Sellers"), the owners of all of
the capital stock of SSI (the "Submersible Shares"), pursuant to which
Acquisition Sub merged with and into Submersible (the "Merger"), and
Submersible, the surviving corporation, became a wholly owned subsidiary of the
Company. The Merger became effective upon the filing of Articles of Merger with
the Secretary of State of the State of Florida.



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Pursuant to the terms and conditions of the Merger Agreement, the Company
acquired all of the Submersible Shares from the Sellers for an aggregate
purchase price of $1,799,919 (the "Merger Consideration"), which was paid to the
Sellers at closing by issuance to the Sellers of three-year 8% convertible
promissory notes in the aggregate principal amount of $350,000 and an aggregate
of 27,305,442 shares (the " Merger Shares") of the Company's common stock.



The Merger Shares are subject to a leak-out restriction commencing on the date
of issuance, as follows: (i) up to 12.5% may be sold after 6 months; (ii) up to
25% may be sold after 9 months; (iii) up to 75% may be sold after 24 months; and
(iv) up to 100% may be sold after 36 months. Notwithstanding the foregoing, the
leak-out restriction may be waived by the Company under certain conditions.



The Sellers were granted "piggyback" registration rights with respect to the
Merger Shares and the shares of common stock that may be received upon their
conversion of the 8% convertible notes.



Interest under the notes is payable at the end of each 3-month period commencing
on September 30, 2021, in shares of common stock of the Company. The Company may
prepay the notes in whole or in part at any time without penalty or premium.
Within 30 days after the end of each quarter, commencing on the first full
quarter after the closing, the Company is obligated to pay, as a reduction of
the principal amount of the notes, in cash, payments equal to 50% of SSI's
operating net income before interest, taxes, depreciation and amortization (but
expressly excluding any overhead cost allocation applied to SSI by the Company).
The final payment will be a balloon payment of the balance due upon the end of
the term of the notes. The holders of notes may convert the notes, in whole or
in part, at any time, into shares of common stock.



In connection with the Merger, Rick Kearney, Submersible's founder, entered into
a five-year confidentiality, non-competition and non-solicitation agreement
with
the Company.



On September 17, 2021 the Company completed a private placement of an aggregate
of 14,600,000 Units to five purchasers at a purchase price of $0.025 per Unit
for gross proceeds of $365,000, with each Unit consisting of one restricted
share of the Company's common stock and one two year common stock purchase
warrant to purchase one restricted share of common stock at an exercise price of
$0.025 per share. The Units were offered and sold pursuant to the terms of a
subscription agreement (the "Subscription Agreement") to accredited or otherwise
qualified investors and included Charles Hyatt, a director and an affiliate of
Mr. Hyatt, who purchased an aggregate of 10,600,000 Units. The Company did not
pay any commissions or finder's fees and is using the proceeds for working
capital.



Impact of COVID-19 Pandemic



The Company has previously been affected by temporary manufacturing closures,
and employment and compensation adjustments. The market continues to suffer from
the impacts of the pandemic via supply chain shortages and freight delays. The
continued freight delays have and will likely continue to result in additional
expenses to expedite delivery of critical parts. Additionally, increased demand
for personal electronics has created a shortfall of microchip supply which are
used in our battery powered products, and it is yet unknown how we may be
impacted.



We continue to monitor macroeconomic conditions to remain flexible and to optimize and scale our business as needed, and we will need to accurately project demand and infrastructure needs globally and deploy our production, workforce work and other resources accordingly.



Results of Operations


Completed exercises December 31, 2021 and 2020

Overall, our net revenues increased 36.7% in 2021 from 2020, which included an
increase of 37.5% in net revenue from sales to third parties and an increase of
33.2% in sales to related parties. Our cost of revenues in 2021 was 69.7% of our
total net revenues as compared to 67.9% in 2020. Included in our cost of
revenues are royalty expenses we pay to Robert Carmichael which increased 10.8%
in 2021 from 2020. We reported a gross profit margin of 31.2% in 2021 as
compared to 32.1% in 2020.



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Net Revenues


The following tables present the net revenues, cost of revenues and gross profit margins of our segments for 2021 and 2020.



                                         Year Ended December 31,           %
                                           2021            2020         change

Legacy SSA Products                    $  2,897,210     $ 2,721,753         6.4 %
High Pressure Gas Systems                   616,039         489,590        25.8 %
Ultra-Portable Tankless Dive Systems      2,241,359       1,344,630       
66.7 %
Redundant Air Tank Systems                  472,771               -         N/A
Total revenue                          $  6,227,379     $ 4,555,973        36.7 %



Cost of revenue as a percentage of net revenue



                                          Year Ended December 31,
                                          2021              2020

Legacy SSA Products                           74.6 %            65.1 %
High Pressure Gas Systems                     62.7 %            63.4 %
Ultra-Portable Tankless Dive Systems          64.1 %            74.2 %
Redundant Air Tank Systems                    74.6 %               -




Gross profit margins



                                          Year Ended December 31,
                                          2021              2020

Legacy SSA Products                           25.4 %            34.5 %
High Pressure Gas Systems                     37.3 %            36.6 %
Ultra-Portable Tankless Dive Systems          35.9 %            25.8 %
Redundant Air Tank Systems                    25.4 %               -




SSA Products segment



The increase in net revenues of 6.4% from this segment for the year ended
December 31, 2021 as compared to the year ended December 31, 2020 can be
attributed to increased demand at the dealer level with a 20.2% increase. This
increase was offset by decreases in direct to consumer revenues of 11.4%, and
revenues to affiliates of 1.1%. The decrease in consumer demand is attributed to
a shift to purchases at retail from our dealer base, as the economy has allowed
the retail shops to re-open after the pandemic, and consumers switched their
buying habits away from our website. Management believes that total sales were
stifled by supply chain issues with the critical parts delays not allowing
shipment for nearly the entire month of August 2021. Additionally, the Company
has been unable to supply its popular Pioneer model of the Third Lung line since
the middle of 2021 due to the lack of availability in North America of the
engine that is the core selling feature of that unit.



Our costs of revenues as a percentage of net revenues in this segment increased
from 65.5% in the year ended December 31, 2020 to 74.6% in the year ended
December 31, 2021. The increase in cost of sales, and in turn decrease product
margin, can be attributed primarily to an increase in suppliers cost of products
during the latter half of 2021, and the cost of having to air freight a larger
amount of products in order to keep the production lines occupied, and customer
demand met. Additionally, The Company reserved an additional $58,829 for slow
moving inventory. Lastly, the Company made a decision to not increase prices to
dealers and consumers in the second half of 2021 and accept a smaller margin to
ensure the continued movement by supporting our dealer base during the second
quarter of 2021 in an effort to ensure continued product movement during the
fourth quarter of 2021.



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Revenue channels for this segment are set forth below. Direct to Consumer
represents items sold via our website, trade shows and walk-ins to our factory
store. Dealer revenue represents sales to customers that have dealer agreements
that typically operate with the lowers margin. Affiliates are resellers of our
products that do not have formal dealer agreements. Other represents all other
sales that do not fit in any of the categories.



                                      Revenue                  %            Cost of Sales               Margin
                               2021            2020          Change        2021        2020        2021         2020
Direct to Consumer
(website included)          $   895,348     $ 1,010,527        (11.4 )%      62.5 %     51.9 %       37.5 %      48.1 %
Dealers                       1,888,233       1,570,683         20.2 %       79.9 %     74.2 %       20.1 %      25.8 %
Affiliates                       97,222          98,324         (1.1 )%      61.6 %     68.6 %       38.4 %      31.4 %
Other                            16,407          42,219        (61.1 )%     201.4 %     61.9 %     (101.4 )%     38.1 %
Total                       $ 2,897,210     $ 2,721,753          6.4 %       74.6 %     65.1 %       25.4 %      34.5 %



High Pressure Gas Systems Segment




Sales of high-pressure breathing air compressors had a 25.8% increase for the
year ended December 31, 2021 as compared to the year ended December 31, 2020 as
the marketplace showed an economic recovery during 2021. All segments have
opened up, and demand is continuing to increase, with travel returning, and
diving operations throughout the US and Caribbean re-opened and receiving
tourists. The majority of our dive resort and dive operator customers'
businesses were back-up and running during the year ended December 31, 2021, and
the recovery of this customer segment is reflected in the increases in revenue
of 59.8% in the reseller segment. The Original Equipment Manufacturer segment
showed the largest growth with an increase of 151.1% for the year ended December
31, 2021 as compared to 2020. The direct to consumer segment, which includes
yacht owners and direct to dive stores declined for the year ended December 31,
2021 as compared to the same period in the prior year as product was allocated
from this customer base to increase the reseller and OEM categories.



Our cost of products as a percentage of net revenues in this segment remained constant at 63.4% during the years ended December 31, 2021 and 2020.




                                    Revenue                %            Cost of Sales             Margin
                              2021          2020         Change        2021        2020       2021       2020
Resellers                   $ 347,034     $ 217,150         59.8 %       63.6 %     73.6 %     36.4 %     26.4 %
Direct to Consumers            96,380       203,702        (52.7 )%      68.9 %     54.4 %     31.1 %     45.6 %
Original Equipment
Manufacturers                 172,625        68,738        151.1 %       57.3 %     57.9 %     42.7 %     42.1 %
Total                       $ 616,039     $ 489,590         25.8 %       62.7 %     63.4 %     37.3 %     36.6 %



Ultra-Portable Tankless Diving Systems




Net revenues in this segment increased 66.7% for the year ended December 31,
2021 as compared to the year ended December 31, 2020 inclusive of the one-time
revenue from the BLU-Vent project booked in the year ended December 31, 2020.
During the second quarter of 2020, BLU3 received a purchase order from a
third-party to adapt the design of the NEMO into a functional ventilator
prototype, to potentially help with the ventilator shortage that the country was
facing due to the COVID-19 pandemic. BLU3 Vent emerged as the first in the
Hack-a-Vent challenge to pass through preliminary testing at Uniformed Services
University to confirm feasibility to treat an ARDS inflicted patient. BLU3 Vent
has submitted initial documents for a review with the FDA at the direction and
with the support of the Wright Brothers Institute. This project is currently
suspended as urgent demand for emergency use ventilators has declined. Revenue
from this agreement totaled $570,060 for the year ended December 31, 2020. Net
of the one-time BLU-Vent project, revenue increased 189.4% during the year ended
December 31, 2021. The increase in revenue for 2021 can be attributed to a 73.5%
increase in NEMO sales over the prior year, and the introduction of the NOMAD to
the market in the late third quarter of 2021 at a price point is nearly double
that of NEMO. The largest contributors to the revenue increases for year ended
December 31, 2021 as compared to the prior year, are the growth in dealer sales
and sales via the Amazon channel. Through December 31, 2021, BLU3 is selling to
Amazon in nine countries as well as a significant presence in the US Amazon
Channel. BLU3 continues to expand its dealer base which can be seen by the
225.6% revenue growth for the year ended December 31, 2021 as compared to the
same period in 2020. The Company's continued focus on direct to consumer via its
website accounted for an 84.1% increase for the year ended December 31, 2021 as
compared to the prior year.



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Our aggregate cost of revenue from this segment as a percentage of net revenues
for the year ended December 31, 2021 decreased to 64.1% as compared to 74.2% for
the year ended December 31 2020. The decrease can be attributed to efficiencies
found in both the product cost and labor cost in building the NOMAD.



                                      Revenue                   %            Cost of Sales              Margin
                               2021            2020          Change         2021       2020        2021       2020
Direct to Consumer          $   944,493     $   512,892          84.1 %      54.3 %      43.5 %     45.7 %      56.5 %
Dealers                         780,388         239,682         225.6 %      64.5 %      49.8 %     35.5 %      50.2 %
Amazon                          516,478          21,996       2,248.1 %      81.4 %      46.2 %     18.6 %      53.8 %
Ventilator                            -         570,060        (100.0 )%        -       127.7 %        -       (27.7 )%
Total                       $ 2,241,359     $ 1,344,630          66.7 %      64.1 %      74.2 %     35.9 %      25.8 %



Redundant air tank systems




Revenue for the year ended December 31, 2021 in the Redundant Air Tank Systems
System segment represents revenue from September 3, 2021, the closing date of
the acquisition of SSI. These margins were affected by direct labor costs, as
supply issues during September caused delays in shipments to SSI's worldwide
customer base, which includes (1) commercial accounts, that have aircraft that
require redundant air systems for their pilots and passengers, such as the oil
business with helicopters flying to oil rigs located in the middle of large
bodies of water. (2) government accounts that are typically domestic and
international military customers who use their egress systems for various uses.
(3) dealers accounts that are resellers including international distributors to
the military, commercial account or dive shops, and domestic and international
dive shops that carry their Spare Air product. (4) Direct to consumer sales
represent not only online sales, but sales via trade shows that go direct to
consumer



                                              Revenue                       Cost of Sales                Margin
                                  2021         2020       % change        2021          2020        2021       2020
Commercial                      $  88,876           -           100 %        55.5 %          -       44.5 %         -
Dealers                           287,877           -           100 %        89.0 %          -       11.0 %         -
Government                         42,875           -           100 %        25.6 %          -       74.4 %         -
Direct to Consumers (Website)      53,143           -           100 %      
 68.2 %          -       31.8 %         -
Total                           $ 472,771           -           100 %        74.6 %          -       25.4 %         -




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 increased 33.8%
for the year ended December 31, 2021 as compared to the year ended December
31,
2020.


Selling, general and administrative expenses (SG&A fees)

General and administrative expenses increased by 36.7% for the years ended December 31, 2021 compared to the year ended December 31, 2020. The general and administrative expenses during these years are as follows:



               Expense Item                      2021            2020          % Change
Payroll                                       $ 1,144,020     $   630,149           81.5 %
Non-Cash Stock based compensation - options     1,150,801         858,695  
        34.0 %
Professional Fees                                 469,206         467,271            0.4 %
Advertising                                       343,232         154,642          121.9 %
All Others                                        559,569         571,536           (2.8 )%
Total SG&A                                    $ 3,666,823     $ 2,682,293           36.7 %



Payroll increases for the year ended December 31, 2021 are primarily due to the
addition of SSI payroll which accounted for 34.3% of the increase. The balance
of the increase can be attributed to the hiring of a chief executive officer, a
social media/marketing manager, and several other operating and administrative
personnel to support the growth in each of our divisions.



20






Non-Cash Stock compensation expenses increased 34.0% for the year ended December
31, 2021 as compared to the year ended December 31, 2020. The increase can be
attributed to stock options issued to employees as part of the Company's 2021
Equity Plan, stock options issued to Blake Carmichael and Christeen Buban,
President of SSI, pursuant to their employment agreements during the year ended
December 31, 2021. Additionally, the increase can be attributed to compensation
and bonus stock options issued to our Chief Executive Officer, pursuant to his
employment agreement and expenses related to options issued to our Chairman.



Professional fees, representing legal and other professional fees, which we paid
in a combination of cash, common stock, or stock options, had an increase of .4%
for the year ended December 31, 2021 as compared to the year ended December 31,
2020. This despite an increase in professional fees related to the acquisition
of SSI.



Advertising expense increased 121.9% for the year ended December 31, 2021 as
compared to the year ended December 31, 2020. 108.0% of the increase can be
directly attributed to an increase of direct, internet and Amazon marketing by
BLU3. The addition of SSI attributed 15.4% of the increase in advertising
expenses for the year ended December 31, 2021. These increases are offset by
decreases in Trebor advertising expenses associated with the agreement with the
Company's provider of marketing and advertising, which was entered into in the
third quarter of 2020, and was not renewed as of July 31, 2021.



Research & Development expenses (R&D expenses)




R&D expenses for the year ended December 31, 2021 decreased 34.5% as compared to
the year ended December 31, 2020. The decrease can be primarily attributed to
the lack of R&D expenses related to the BLU-Vent project in 2021 as well as the
completion of the R&D for BLU3's NOMAD in 2021.



Other Income



For the year ended December 31, 2021 other income and expenses, totaled
approximately $264,000 in income as compared to approximately $18,600 in
expenses for the year ended December 31, 2020. Interest expense for the year
ended December 31, 2021 was approximately $21,500 as compared to approximately
$18,600 for the year ended December 31, 2020. This increase can be attributed to
the increase in convertible debt related to the SSI acquisition. Other income
for the year ended December 31, 2021 included a gain on the forgiveness of
Trebor and SSI PPP loans totaling approximately $275,800 and the forgiveness of
a loan payable of $10,000.


Cash and capital resources

We had money $643,143 to the 31st of December2021. The following table summarizes total current assets, total current liabilities and working capital as of December 31, 2021 compared to December 31, 2020.



                             December 31,       December 31,       % of
                                 2021               2020          change
Total current assets        $    2,966,432     $    1,469,037       101.9 %
Total current liabilities   $    1,396,197     $    1,029,204        35.6 %
Working capital             $    1,570,235     $      439,833       257.0 %




The increase in our current assets at December 31, 2021 from December 31, 2020
principally reflects increases in cash of approximately $298,000, accounts
receivable of approximately $42,000, inventory of approximately $1,031,500 and
prepaid assets of approximately $116,300 for the year ended December 31, 2021.
The increase in inventory was due to the addition of SSI inventory and increased
purchasing to try to counteract the concerns over supply chain disruptions due
to the lingering effects of the COVID19 pandemic. The increase in accounts
receivable is attributable to the increase in the aggregate sales for the year
ended December 31, 2021 as compared to the year ended December 31, 2020 as well
as the inclusion of the accounts receivable related to SSI in the year ended
December 31, 2021.



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The increase in our total current liabilities for the year ended December 31,
2021 as compared to the year December 31, 2020 reflects an increase in accounts
payable and accrued liabilities of approximately $357,400, a decrease of
approximately $65,100 in accounts payable - related parties, an increase of
approximately $123,600 in customer deposits, an increase of approximately
$124,600 in operating lease liabilities with the addition of the SSI lease
liability, and a reduction of debt liabilities of approximately $260,600 due to
the conversion of short term convertible notes and the reduction of other non-
convertible debt.



Summary Cash Flows



                                                             Years Ended
                                                            December 31,
                                                         2021           2020

Net cash used in operating activities                 $ (769,467 )   $ (556,108 )
Net cash provided by (used in) investing activities   $  517,701     $   (5,500 )
Net cash provided by financing activities             $  549,723     $  836,175



Net cash used in operating activities for 2021 was primarily the result of a net
loss of $1,588,467, an increase in our inventory balances of $649,414, increases
in prepaid expenses and other current assets of $109,612, and total decreases in
all liabilities of $193,614 for the year ended December 31, 2021 as compared to
December 31, 2020. The cash used related to net loss was offset by $1,154,801 in
non-cash stock related compensation expenses and $201,952 non-cash expenses for
shares issued for professional fees during the year ended December 31, 2021.



Net cash provided by investing activities in 2021 of $517,701 reflects primarily
the cash acquired from the SSI acquisition of $541,378 offset by fixed asset
purchases of $23,677. This compares to cash used for the purchase of fixed
assets of $5,500 for the year ended December 31, 2020.



Net cash provided by financing activities in 2021 reflect $640,000 in proceeds
related to the sale of the company's common stock and units that included both
stock and warrants. The increase in cash was offset by repayments of both notes
payable and other debt of $90,278. This is compared to cash provided from the
sale of common stock and the exercise of warrants of $770,000 as well as net
proceeds of debt of $65,575 after offsetting the repayment of debt from the
proceeds of debt for the year ended December 31, 2020.



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, 2021 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 $14,544,604 as of December 31, 2021. Despite a working
capital surplus of $1,570,235 at December 31, 2021, the continued 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.


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.



22





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 reserve 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 reserve 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
reserves 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 reserve 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.



Off-balance sheet arrangements

We currently have no off-balance sheet arrangements.

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