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<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Notes payable consists of the following
as of March 31, 2017 and December 31, 2016</u>:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
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<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Promissory note payable, secured by vehicle underlying loan having carrying value of $4,590 and $6,133 at March 31, 2017 and December 31, 2016, respectively, bearing interest at 1.9% per annum, due in monthly principal and interest payments of $523, maturing on December 5, 2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less amounts due within one year</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,590</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(6,133</font></td>
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<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Long-term portion of notes payable</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
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<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2017 and December 31,
2016, principal payments on the notes payable are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
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<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
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<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2021</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Thereafter</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="line-height: 115%"> </td></tr>
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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Description of business</u> –Brownie’s
Marine Group, Inc., (hereinafter referred to as the “Company”, “we” or “BWMG”) designs, tests,
manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, and scuba
and water safety products through its wholly owned subsidiary Trebor Industries, Inc. The Company sells its products both on a
wholesale and retail basis, and does so from its headquarters and manufacturing facility in Pompano Beach, Florida. The Company
does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc. The Company’s common stock is
quoted on the OTC Markets (Pink) under the symbol “BWMG”.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation</u> –
The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the
United States of America (“GAAP”). In the opinion of management all normal recurring adjustments considered necessary
to give a fair presentation of operating results for the periods presented have been included.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The condensed consolidated financial
statements as of March 31, 2017 and for the three month periods ended March 31, 2017 and 2016 are unaudited and, in the opinion
of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 2017, and the results of operations for the three month periods ended March 31, 2017 and 2016, the statement
of stockholders’ equity for the three months ended March 31, 2017 and the statements of cash flows for the three month periods
ended March 31, 2017 and 2016. The condensed consolidated results of operations for the three months ended March 31, 2017 are not
necessarily indicative of the results to be expected for the entire year. The condensed consolidated balance sheet as of December
31, 2016 has been derived from the Company’s audited financial statements for the year ended December 31, 2016. While management
of the Company believes that the disclosures presented are adequate to make the information not misleading, these condensed consolidated
financial statements should be read in conjunction with our audited financial statements and the footnotes thereto for the fiscal
year ended December 31, 2016 as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K which
was filed on April 17, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Definition of fiscal year</u> –
The Company’s fiscal year end is December 31.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Use of estimates</u> – The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Reclassifications </u>– Certain
reclassifications may have been made to the 2016 financial statement amounts and disclosures to conform to the 2017 financial statement
presentation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Going Concern</u> – The accompanying
unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern,
which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month
period following the date of these financial statements. Although profitable for the three years ended December 31, 2016, we have
frequently incurred losses since 2009.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is behind on payments due
for matured convertible debentures, accrued liabilities and certain vendor payables. The Company is handling delinquencies on a
case by case basis. However, there can be no assurance that cooperation the Company has received thus far will continue.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Because the Company does not expect
that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt
about BWMG’s ability to continue as a going concern within one year from date the financial statements are issued. Therefore,
the Company may need to raise additional funds and is currently exploring alternative sources of financing. BWMG has issued a number
of convertible debentures in the past as an interim measure to finance working capital needs and may continue to raise additional
capital through sale of restricted common stock or other securities, and obtaining some short term loans. The Company has previously
paid for some legal and consulting services with restricted stock to maximize working capital and intends to continue this practice
when possible. In addition, the Company continues to explore additional cost saving measures.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">If BWMG fails to raise additional funds
when needed, or does not have sufficient cash flows from sales, it may be required to scale back or cease operations, liquidate
assets and possibly seek bankruptcy protection. The accompanying unaudited consolidated financial statements do not include any
adjustments that may result from the outcome of this uncertainty.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Cash and equivalents</u> –
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments
are stated at cost, which approximates market value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Accounts receivable</u> – Accounts
receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful
accounts is estimated based on historical customer experience and industry knowledge.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Inventory </u>– Inventory is
stated at the lower of cost or net realizable value. Cost is principally determined by using the average cost method that approximates
the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials as well as finished goods
held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation
adjustments when indicated.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Property, equipment and leasehold
improvements</u> – Property, equipment and leasehold improvements are stated at cost less accumulated depreciation or amortization.
Depreciation and amortization is provided principally on the straight-line method over the estimated useful lives of the assets
or term of the lease, which are primarily 3 to 5 years. The cost of repairs and maintenance is charged to expense as incurred.
Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company periodically evaluates whether
events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining
balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash
flows over the remaining life of the fixed assets in measuring their recoverability.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Revenue recognition</u> – Revenues
from product sales are recognized when the Company’s products are shipped or when service is rendered. Revenues from fixed-price
contracts are recognized on the percentage-of-completion method, when applicable, measured by the percentage of cost incurred to
date to estimated total cost of each contract. This method is used because management considers the percentage of cost incurred
to date to estimated total cost to be the best available measure of progress on the contracts. As of March 31, 2017 and 2016, there
were no ongoing contracts being accounted for using the percentage of completion method.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and
depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Change in job performance, job conditions, and estimated
profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Revenue and costs incurred for time and material projects are recognized as the work is performed.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Product development costs</u> –
Product development expenditures are charged to expenses as incurred.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Advertising and marketing costs</u>
– The Company expenses the costs of producing advertisements and marketing material at the time production occurs, and expenses
the costs of communicating advertisements and participating in trade shows in the period in which occur. Advertising and trade
show expense incurred for the three months ended March 31, 2017 and 2016, totaled $1,157 and $1,997, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Research and development costs </u>–
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10,
<i>Research and Development</i> (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged
to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and
developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored
research and development costs related to both present and future products are expensed in the period incurred. During the three
month periods ending March 31, 2017 and 2016 the Company incurred $563 and $1,352, respectively, of expenses related to research
and development costs.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Customer deposits and returns policy</u>
– The Company takes a minimum 50% deposit against custom and large tankfill systems prior to ordering and/or building the
systems. The remaining balance due is payable upon delivery, shipment, or installation of the system. There is no provision for
cancellation of custom orders once the deposit is accepted, nor return of the custom ordered product. Additionally, returns of
all other merchandise are subject to a 15% restocking fee as stated on each sales invoice. The Company provides our customers with
an industry standard one year warranty on systems sold. Historically, the cost of our warranty policy has been immaterial and no
reserve has been established.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Income taxes</u> – The Company
accounts for its income taxes under the assets and liabilities method, which requires recognition of deferred tax assets and liabilities
for future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company records net deferred tax
assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the
Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established
against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would
be able to realize deferred income tax assets in the future in excess of their net recorded amount, they would make an adjustment
to the valuation allowance which would reduce the provision for income taxes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company follows the accounting guidance
which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical
merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially
and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Comprehensive income</u> –
The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods
presented.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Stock-based compensation</u> –
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation
cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually
the vesting period. The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued
to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance
with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The
fair value is determined through use of the quoted stock price.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Beneficial conversion features on
convertible debentures</u> – The fair value of the stock upon which beneficial conversion feature (BCF) computations, as
applicable, was determined through use of the quoted stock price.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair value of financial instruments</u>
– Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. There are three levels of inputs that may be used to measure fair value:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 1 - Quoted prices in active markets
that are accessible at the measurement date for identical assets or liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 2 - Quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not
active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 3 - Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment
or estimation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions
about risk. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment
by the Company. Management considers observable data to be market data which is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, provided by multiple, independent sources that are actively involved in the relevant
market. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does
not necessarily correspond to the Company’s perceived risk of that investment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At March 31, 2017, and December 31,
2016, the carrying amount of cash, accounts receivable, accounts receivable – related parties, customer deposits and unearned
revenue, royalties payable – related parties, other liabilities, notes payable, and accounts payable and accrued liabilities
approximate fair value because of the short maturity of these instruments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Earnings per common share</u> –
Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per share
are computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per
share is computed using the weighted average number of common and dilutive and common stock equivalent shares, if any, outstanding
during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. Potentially
dilutive shares included in dilutive earnings per share totaled 35,477,603 and 5,529,699 for the three months ended March 31, 2017
and 2016, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>New accounting pronouncements</u>
– In April 2016, the FASB issued ASU No. 2016-15, <i>“Classification of Certain Cash Receipts and Cash Payments”
</i>ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is
effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have
an impact on our results of operation, cash flows, other than presentation, or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2016, the FASB issued ASU 2016–10
<i>Revenue from Contract with Customers (Topic 606)</i>: identifying Performance Obligations and Licensing. The amendments in this
Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following
two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related
principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services
in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with
either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the
entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more
detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We
are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash
flows or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In March 2016, the FASB issued ASU 2016-09,
<i>Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting</i>, which relates to the accounting
for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption of ASU 2016-09 did not have a material effect on our condensed consolidated financial
statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU
2016-02, <i>Leases</i>, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which
is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions
of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company believes there was no other
new accounting guidance adopted, but not yet effective that either has not already been disclosed in prior reporting periods or
is relevant To Whom It May Concern: the readers of our financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">2. <u>INVENTORY</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory consists of the following
as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">515,637</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">402,407</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Work in process</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">245,814</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">270,113</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">761,451</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">672,520</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">3. <u>PREPAID EXPENSES AND OTHER CURRENT
ASSETS</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid inventory</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,876</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,076</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid insurance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,968</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid other current assets</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">32,478</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">47,292</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">41,354</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">84,336</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">4. <u>PROPERTY AND EQUIPMENT, NET</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment consists of the
following as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Factory and office equipment</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">125,832</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">121,782</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Computer equipment and software</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">27,469</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">31,519</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Vehicles</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,160</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,160</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Leasehold improvements</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,779</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,779</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">241,240</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">241,240</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less: accumulated depreciation and amortization</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(193,133</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(184,332</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">48,107</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">56,908</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Depreciation and amortization expense
totaled $8,801 and $8,979 for the three month periods ending March 31, 2017 and 2016, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">5. <u>OTHER ASSETS</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Other assets of $6,649 at March 31,
2017 and December 31, 2016, respectively, consisted solely of refundable deposits.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">6. <u>CUSTOMER CREDIT CONCENTRATIONS</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company sells to three (3) entities
owned by the brother of Robert Carmichael, the Company’s Chief Executive Officer, and three (3) companies owned or controlled
by the Chief Executive Officer as further discussed in Note 7. RELATED PARTIES TRANSACTIONS. Combined sales to these six (6) entities
for the three months ended March 31, 2017 and 2016, represented 35.50% and 28.11% respectively, of total net revenues.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">7. <u>RELATED PARTIES TRANSACTIONS</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Net revenues and accounts receivable
– related parties</u> – The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s Palm
Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive Officer. Terms of sale
are no more favorable than those extended to any of the Company’s other customers with similar sales volume. Combined net
revenues from these entities for three months ended March 31, 2017 and 2016, was $158,423 and $110,012, respectively. Accounts
receivable from Brownie’s Southport Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys
totaled $21,485, $9,769 and $16,105 at March 31, 2017, respectively. Accounts receivable from Brownie’s Southport Diver’s,
Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys totaled $40,012, $5,809, and $18,410, at December 31, 2016,
respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company sells products to Brownie’s
Global Logistics, LLC. (“BGL”), 3D Buoy and 940 Associates, Inc., affiliated with the Company’s Chief Executive
Officer. Terms of sale are more favorable than those extended to BWMG’s regular customers, but no more favorable than those
extended to Brownie’s strategic partners. Terms of sale to BGL approximate cost or include a nominal margin. These terms
are consistent with those extended to Brownie’s strategic partners. Strategic partner terms on a per order basis include
promotion of BWMG’s technologies and “Brownie’s” brand, offered only on product or services not offered
for resale, and must provide for reciprocal terms or arrangements to BWMG on strategic partners’ product or services. BGL
is fulfilling the strategic partner terms by providing exposure for BWMG’s technologies and “Brownie’s”
brand in the yachting and exploration community world-wide through its operations. Combined net revenues from these entities for
three month periods ended March 31, 2017 and 2016, were $506 and $589, respectively. Accounts receivable from BGL, 3D Buoy and
940 Associates at March 31, 2017 totaled $0, $0, and $335<font style="background-color: yellow">,</font> respectively. Accounts
receivable from BGL, 3D Buoy and 940 Associates at December 31, 2016 totaled $0, $3,074, and $0, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Royalties expense – related
parties</u> – The Company has an Exclusive License Agreement with 940 Associates, Inc. (hereinafter referred to as “940A”),
an entity owned by the Company’s Chief Executive Officer, to license the trademark “Brownies Third Lung”, “Tankfill”,
“Brownies Public Safety” and various other related trademarks as listed in the agreement. This License Agreement calls
for the Company to pay 940A 2.5% of gross revenues per quarter. Total royalty expense for the above agreements for the three months
and ended March 31, 2017 and 2016, as disclosed on the face of the Company’s Condensed Consolidated Statements of Operations
totaled $10,873 and $9,539, respectively. In November 2016, the Company entered into a conversion agreement under which the Company
issued 10,000,000 shares of restricted common stock in satisfaction of $88,850 past due and payable to 940A. As of the date of
the conversion agreement, the Company was more than 31 months in arrears on its royalty payments totaling approximately $151,000.
In addition, 940A agreed to forebear on any default under the License Agreement due to the Company’s remaining past due amount
for a period of three months from the effective date of the conversion agreement. The shares issued were valued at $0.008885 per
share, the closing price of the stock on the effective date of the conversion agreement. No default notice had been received prior
to the conversion agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 1, 2017, the Company and 940A
entered into a second conversion agreement with 940A. Under the agreement the Company issued 940A 4,587,190 shares of restricted
common stock in satisfaction of $63,303, which represented all past due and payable amounts to 940A under the License Agreement
by and between the parties as of March 1, 2017. As of the date of the agreement the Company was more than 3 months in arrears on
royalty payments due under the License Agreement. The shares were issued at a price per share of $0.0138, which exceeded the closing
price of the Company’s common stock as reported on the OTC Markets on the date immediately preceding the closing.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Stock options outstanding from patent
purchase</u> – Effective March 3, 2009, the Company entered into a Patent Purchase Agreement with Robert M. Carmichael, the
Chief Executive Officer of the Company. The Company purchased several patents it had previously been paying royalties on and several
related unissued patents. In exchange for the Intellectual Property, the Company issued Mr. Carmichael 234 stock options at a $1,350
exercise price expiring ten years from the effective date of grant, or March 2, 2019. None of the options have been exercised to-date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">8. <u>ACCOUNTS PAYABLE AND ACCRUED LIABILITIES</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued liabilities
consists of the following as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable trade and other</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">102,300</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">110,020</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued payroll & fringe benefits</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">27,181</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">20,416</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued payroll taxes & withholding</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,221</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,400</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued interest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">184,437</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,742</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">330,139</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">323,578</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Balances due certain vendors are in
arrears to varying degrees. The Company is handling all delinquent accounts on a case-by-case basis.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">9. <u>OTHER LIABILITIES</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Other liabilities consist of the
following as of</u>:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Short-term loans</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">170,971</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">160,782</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Asset purchase agreement payable</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">12,857</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">On-line training liability</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,663</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,975</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">173,634</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,614</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">10. <u>NOTES PAYABLE</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Notes payable consists of the following
as of March 31, 2017 and December 31, 2016</u>:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Promissory note payable, secured by vehicle underlying loan having carrying value of $4,590 and $6,133 at March 31, 2017 and December 31, 2016, respectively, bearing interest at 1.9% per annum, due in monthly principal and interest payments of $523, maturing on December 5, 2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less amounts due within one year</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,590</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(6,133</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Long-term portion of notes payable</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2017 and December 31,
2016, principal payments on the notes payable are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2021</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Thereafter</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,590</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,133</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">11. <u>CONVERTIBLE DEBENTURES </u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Convertible debentures consist of the
following at March 31, 2017 and December 31, 2016:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Date</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Maturity Date</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Interest Rate</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Principal</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Discount</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017 Debenture Balance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017 Accrued Interest</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016 Debenture Balance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016 Accrued Interest</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Ref.</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 25%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5/3/2011</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 6%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5/5/2012</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; text-align: center; line-height: 115%"> </td>
<td style="width: 4%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(206,832</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">177,500</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">170,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8/31/2011</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8/31/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,286</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,813</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,687</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/10/2012</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/10/2014</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">39,724</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,124</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,055</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">312,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">184,437</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">312,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,742</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 11pt/normal Calibri, Helvetica, Sans-Serif; margin: 0"><br clear="all" />
</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Reference numbers in right hand column
of table entitled Ref. refer to paragraphs with corresponding numbers that immediately follow this paragraph.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(1) On May 3, 2011, the Company borrowed
$300,000 in exchange for a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert
any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average
of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay
the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the
funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share (after restatement for 1 for
-1,350- reverse stock split), respectively. As a result, the Company allocated fair market value (“FMV”) to both the
BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount
to the convertible debenture through maturity and will accrue interest expense until paid in full or converted. Before discount,
the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(2) The Company borrowed $10,000 in
exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into
common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over
the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286, which was accreted to interest
expense through August 2013, the initial maturity date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(3) The Company entered into three new
debenture agreements upon sale or assignment by the original lender. Because the stated terms of the new debenture agreement and
principal amounts were significantly different from the original debenture, including analysis of the value of the beneficial conversion
feature at the assignment or purchase date, the transactions are treated as extinguishment of the old debentures and recorded as
new for accounting purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The conversion price under the debentures
is $0.37125 and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees
and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion
of 4.99% of the outstanding Common Stock of the Company at any one time.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">12. <u>AUTHORIZATION OF PREFERRED STOCK</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the second quarter of 2010, the
holder of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s Articles
of Incorporation authorizing the issuance of 10,000,000 shares of preferred stock. The preferred stock as authorized has such voting
powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board of Directors
of the Company from time to time in accordance with the provisions of the Florida Business Corporation Act. Before modification,
the existing Articles of Incorporation did not authorize the issuance of shares of preferred stock. The Company authorized the
preferred stock for the purpose of added flexibility in seeking capital and potential acquisition targets. The amendment authorizing
the issuance of shares of preferred stock grants the Board authority, without further action by our stockholders, to designate
and issue preferred stock in one or more series and to designate certain rights, preferences and restrictions of each series, any
or all of which may be greater than the rights of the common stock. As of March 31, 2017, and December 31, 2016, the 425,000 shares
of preferred stock are owned by the Company’s Chief Executive Officer. The preferred shares have 250 to 1 voting rights over
the common stock, and are convertible into 31,481 shares of common stock. The preferred stock votes with the Company’s common
stock, except as otherwise required under Florida law. Accordingly, Mr. Carmichael will have approximately 55% of the combined
voting power of the Common Stock and Series A Convertible Preferred Stock, voting as a single class and will control the outcome
of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and
the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">13. <u>COMMITMENTS AND CONTINGENCIES</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time the Company is subject
to legal proceedings, claims and litigation arising in the ordinary course of business, including matters relating to product liability
claims. Such product liability claims sometimes involving wrongful death or injury have historically been covered by product liability
insurance, which provided coverage for each claim up to $1,000,000. During the third quarter of 2014, the Company did not renew
its product liability insurance since the renewal policy amount was cost prohibitive. The Company is currently seeking a new insurance
carrier or alternative means to satisfy this potential liability exposure, as well as to fulfil the sales terms of some of our
customers, which require the insurance coverage.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As previously disclosed, the Company
and Trebor were co-defendants under an action filed by an individual in June 2013 in the Circuit Court of Broward County claiming
personal injury resulting from use of a Brownie’s Third Lung. Plaintiff claimed damages in excess of $1,000,000. This matter
was settled during the three months ended September 30, 2016 by the Company’s insurance carrier at no additional cost to
the Company.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In addition, as previously disclosed,
the Company, Trebor and other third parties, are each named as a co-defendants under an action filed in March 2015 in the Circuit
Court of Broward County under Case No. CACE15-03238 by the Estate of Ernesto Rodriguez, claiming wrongful death and products liability
resulting in the decedent’s drowning death while using a Brownie’s Third Lung product. This claim falls outside the
Company’s period of insurance coverage. Plaintiff has claims damages exceeding $1,000,000. A default judgment was entered
against Trebor in 2015 due to its failure to timely respond to the complaint. The Company has obtained different legal representation
in this matter and attempted to have the default set aside. On November 2, 2016, the court granted plaintiff’s motion for
sanctions against our company for frivolous litigation relating to our attempt to have the matter dismissed and granted the plaintiff’s
motion to strike our motion for summary judgment due to our initial default. The Company believes the claim to be a Workers Compensation
claim relating exclusively against other non-affiliated defendants and without merit, and will aggressively defend this action
and appeal the default judgment. In the event Trebor is unable to overturn the default judgment and the defendants are determined
to be at fault, we would seek to allocate damages among all of the other parties, including the plaintiff. At this time, the amount
of any loss, or range of loss, cannot be reasonably estimated due to the undetermined validity of any claim or claims made by plaintiff
and the mitigating factors among the parties. Therefore, the Company has not recorded reserves and contingent liabilities related
to this matter. However, in the future, as the case progresses, the Company may be required to record a contingent liability or
reserve for these matters.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 14, 2014, the Company entered
into a new lease commitment. Terms of the new lease include thirty-seven-month term commencing on September 1, 2014; payment of
$5,367 security deposit; base rent of approximately $4,000 per month over the term of the lease plus sales tax; and payment of
10.76% of annual operating expenses (i.e. common areas maintenance), which is approximately $2,000 per month subject to periodic
adjustment. On December 1, 2016, we entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending
the term for an additional eighty-four months, expiring September 30, 2024. The base rent was increased to $4,626 per month with
a 3% annual escalation throughout the amended term. We believe that the facilities are suitable for their intended purpose, are
being efficiently utilized and provide adequate capacity to meet demand for the foreseeable future.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Base rent expense, attributable to the
Company’s headquarters facility totaled approximately $12,000 and $12,000 for the three month periods ended March 31, 2017
and 2016, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following is an estimate of future
minimum rental payments required under our lease agreement on August 14, 2014 and as amended December 1, 2016:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Operating</font><br />
<font style="font: 10pt Times New Roman, Times, Serif">lease</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">36,358</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">49,931</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">51,429</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">52,972</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2021 and thereafter</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">228,265</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">418,955</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">14. <u>EQUITY INCENTIVE PLAN</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 22, 2007, the Company adopted
an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to employees, directors, and consultants
in the form of Incentive Stock Options or Nonstatutory Stock Options. Stock Purchase Rights, time vested and/performance invested
Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The initial maximum
number of shares that may be issued under the Plan shall be 297 shares, and no more than 75 Shares of Common Stock may be granted
to any one Participant with respect to Options, Stock Purchase Rights and Stock Appreciation Rights during any one calendar year
period. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company.
The term of the Plan shall be ten years. The Board of Directors may amend, alter, suspend, or terminate the Plan at any time. All
297 options were issued under the plan prior to January 1, 2010, and to-date all remain outstanding.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">15. <u>EQUITY BASED INCENTIVE/RETENTION BONUSES</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On November 2, 2012, the Board of Directors
consented to grant equity based bonuses to certain key employees and consultants as an incentive to retain their services. Stock
incentive bonuses were to vest, and be paid out on May 2, 2013, contingent upon continued employment or service. The stock bonus
price per share was calculated based on last closing price as reported on per the OTCBB prior to the grant date for a total of
$75,100. Shares were set aside and reserved for this transaction. The Company accrued operating expense ratably from the time of
the awards through May 2, 2013, when vested. Of the 61,852 vested shares, only 5,185 were issued. On April 29, 2016, the Board
of Directors determined it was not in the best interest of either the Company or the recipients to pay bonuses based on the current
and foreseeable share price and cancelled the bonuses payable.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">16. <u>INTEREST EXPENSE NON-RELATED PARTIES AND OTHER EXPENSE
(INCOME), NET</u></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the three months ended March 31,
2017, non-related parties interest expense of $7,722 is comprised of $7,695 interest on convertible debentures and $27 interest
on notes payable and other interest. For the three months ended March 31, 2016, non-related parties interest expense of $7,759
is comprised of $7,703 interest on convertible debentures and $56 interest on notes payable and other interest.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">For the three months ended March 31,
2017, $990 other income, net is comprised of $311 in interest income and no other individually significant items. For the three
months ended March 31, 2016, $112,409 other income, net was comprised primarily of $93,838 cancellation of convertible debentures
and related interest, $14,970 royalty income, and $5,723 from the expiration of online training liability certificates offset by
$2,122 in other insignificant expenses.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Description of business</u> –Brownie’s
Marine Group, Inc., (hereinafter referred to as the “Company”, “we” or “BWMG”) designs, tests,
manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, and scuba
and water safety products through its wholly owned subsidiary Trebor Industries, Inc. The Company sells its products both on a
wholesale and retail basis, and does so from its headquarters and manufacturing facility in Pompano Beach, Florida. The Company
does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc. The Company’s common stock is
quoted on the OTC Markets (Pink) under the symbol “BWMG”.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Basis of Presentation</u> –
The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the
United States of America (“GAAP”). In the opinion of management all normal recurring adjustments considered necessary
to give a fair presentation of operating results for the periods presented have been included.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The condensed consolidated financial
statements as of March 31, 2017 and for the three month periods ended March 31, 2017 and 2016 are unaudited and, in the opinion
of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial
position as of March 31, 2017, and the results of operations for the three month periods ended March 31, 2017 and 2016, the statement
of stockholders’ equity for the three months ended March 31, 2017 and the statements of cash flows for the three month periods
ended March 31, 2017 and 2016. The condensed consolidated results of operations for the three months ended March 31, 2017 are not
necessarily indicative of the results to be expected for the entire year. The condensed consolidated balance sheet as of December
31, 2016 has been derived from the Company’s audited financial statements for the year ended December 31, 2016. While management
of the Company believes that the disclosures presented are adequate to make the information not misleading, these condensed consolidated
financial statements should be read in conjunction with our audited financial statements and the footnotes thereto for the fiscal
year ended December 31, 2016 as filed with the Securities and Exchange Commission as part of the Company’s Form 10-K which
was filed on April 17, 2017.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Definition of fiscal year</u> –
The Company’s fiscal year end is December 31.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Use of estimates</u> – The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Reclassifications </u>– Certain
reclassifications may have been made to the 2016 financial statement amounts and disclosures to conform to the 2017 financial statement
presentation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Going Concern</u> – The accompanying
unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern,
which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month
period following the date of these financial statements. Although profitable for the three years ended December 31, 2016, we have
frequently incurred losses since 2009.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is behind on payments due
for matured convertible debentures, accrued liabilities and certain vendor payables. The Company is handling delinquencies on a
case by case basis. However, there can be no assurance that cooperation the Company has received thus far will continue.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Because the Company does not expect
that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt
about BWMG’s ability to continue as a going concern within one year from date the financial statements are issued. Therefore,
the Company may need to raise additional funds and is currently exploring alternative sources of financing. BWMG has issued a number
of convertible debentures in the past as an interim measure to finance working capital needs and may continue to raise additional
capital through sale of restricted common stock or other securities, and obtaining some short term loans. The Company has previously
paid for some legal and consulting services with restricted stock to maximize working capital and intends to continue this practice
when possible. In addition, the Company continues to explore additional cost saving measures.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">If BWMG fails to raise additional funds
when needed, or does not have sufficient cash flows from sales, it may be required to scale back or cease operations, liquidate
assets and possibly seek bankruptcy protection. The accompanying unaudited consolidated financial statements do not include any
adjustments that may result from the outcome of this uncertainty.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Cash and equivalents</u> –
Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments
are stated at cost, which approximates market value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Accounts receivable</u> – Accounts
receivable consist of amounts due from the sale of all of our products to wholesale and retail customers. The allowance for doubtful
accounts is estimated based on historical customer experience and industry knowledge.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Inventory </u>– Inventory is
stated at the lower of cost or net realizable value. Cost is principally determined by using the average cost method that approximates
the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials as well as finished goods
held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation
adjustments when indicated.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Property, equipment and leasehold
improvements</u> – Property, equipment and leasehold improvements are stated at cost less accumulated depreciation or amortization.
Depreciation and amortization is provided principally on the straight-line method over the estimated useful lives of the assets
or term of the lease, which are primarily 3 to 5 years. The cost of repairs and maintenance is charged to expense as incurred.
Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company periodically evaluates whether
events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining
balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash
flows over the remaining life of the fixed assets in measuring their recoverability.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Revenue recognition</u> – Revenues
from product sales are recognized when the Company’s products are shipped or when service is rendered. Revenues from fixed-price
contracts are recognized on the percentage-of-completion method, when applicable, measured by the percentage of cost incurred to
date to estimated total cost of each contract. This method is used because management considers the percentage of cost incurred
to date to estimated total cost to be the best available measure of progress on the contracts. As of March 31, 2017 and 2016, there
were no ongoing contracts being accounted for using the percentage of completion method.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and
depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Change in job performance, job conditions, and estimated
profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Revenue and costs incurred for time and material projects are recognized as the work is performed.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Product development costs</u> –
Product development expenditures are charged to expenses as incurred.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Advertising and marketing costs</u>
– The Company expenses the costs of producing advertisements and marketing material at the time production occurs, and expenses
the costs of communicating advertisements and participating in trade shows in the period in which occur. Advertising and trade
show expense incurred for the three months ended March 31, 2017 and 2016, totaled $1,157 and $1,997, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Research and development costs </u>–
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10,
<i>Research and Development</i> (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged
to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and
developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored
research and development costs related to both present and future products are expensed in the period incurred. During the three
month periods ending March 31, 2017 and 2016 the Company incurred $563 and $1,352, respectively, of expenses related to research
and development costs.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Customer deposits and returns policy</u>
– The Company takes a minimum 50% deposit against custom and large tankfill systems prior to ordering and/or building the
systems. The remaining balance due is payable upon delivery, shipment, or installation of the system. There is no provision for
cancellation of custom orders once the deposit is accepted, nor return of the custom ordered product. Additionally, returns of
all other merchandise are subject to a 15% restocking fee as stated on each sales invoice. The Company provides our customers with
an industry standard one year warranty on systems sold. Historically, the cost of our warranty policy has been immaterial and no
reserve has been established.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Income taxes</u> – The Company
accounts for its income taxes under the assets and liabilities method, which requires recognition of deferred tax assets and liabilities
for future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company records net deferred tax
assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the
Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established
against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would
be able to realize deferred income tax assets in the future in excess of their net recorded amount, they would make an adjustment
to the valuation allowance which would reduce the provision for income taxes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company follows the accounting guidance
which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical
merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially
and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Comprehensive income</u> –
The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods
presented.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Stock-based compensation</u> –
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation
cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually
the vesting period. The Company uses the Black-Scholes valuation model to calculate the fair value of options and warrants issued
to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance
with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The
fair value is determined through use of the quoted stock price.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Beneficial conversion features on
convertible debentures</u> – The fair value of the stock upon which beneficial conversion feature (BCF) computations, as
applicable, was determined through use of the quoted stock price.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Fair value of financial instruments</u>
– Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. An entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. There are three levels of inputs that may be used to measure fair value:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 1 - Quoted prices in active markets
that are accessible at the measurement date for identical assets or liabilities.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 2 - Quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not
active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Level 3 - Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment
or estimation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inputs are used in applying the various
valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions
about risk. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment
by the Company. Management considers observable data to be market data which is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, provided by multiple, independent sources that are actively involved in the relevant
market. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does
not necessarily correspond to the Company’s perceived risk of that investment.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At March 31, 2017, and December 31,
2016, the carrying amount of cash, accounts receivable, accounts receivable – related parties, customer deposits and unearned
revenue, royalties payable – related parties, other liabilities, notes payable, and accounts payable and accrued liabilities
approximate fair value because of the short maturity of these instruments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Earnings per common share</u> –
Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Basic earnings per share
are computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per
share is computed using the weighted average number of common and dilutive and common stock equivalent shares, if any, outstanding
during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. Potentially
dilutive shares included in dilutive earnings per share totaled 35,477,603 and 5,529,699 for the three months ended March 31, 2017
and 2016, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>New accounting pronouncements</u>
– In April 2016, the FASB issued ASU No. 2016-15, <i>“Classification of Certain Cash Receipts and Cash Payments”
</i>ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is
effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have
an impact on our results of operation, cash flows, other than presentation, or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2016, the FASB issued ASU 2016–10
<i>Revenue from Contract with Customers (Topic 606)</i>: identifying Performance Obligations and Licensing. The amendments in this
Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following
two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related
principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services
in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with
either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the
entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended to render more
detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We
are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash
flows or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In March 2016, the FASB issued ASU 2016-09,
<i>Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting</i>, which relates to the accounting
for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim
periods within those fiscal years. The adoption of ASU 2016-09 did not have a material effect on our condensed consolidated financial
statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2016, the FASB issued ASU
2016-02, <i>Leases</i>, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which
is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions
of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company believes there was no other
new accounting guidance adopted, but not yet effective that either has not already been disclosed in prior reporting periods or
is relevant To Whom It May Concern: the readers of our financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventory consists of the following
as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0 0 0 0.25in; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">515,637</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">402,407</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Work in process</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">245,814</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">270,113</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">761,451</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">672,520</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid inventory</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8,876</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,076</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid insurance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,968</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid other current assets</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">32,478</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">47,292</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">41,354</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">84,336</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment consists of the
following as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Factory and office equipment</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">125,832</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">121,782</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Computer equipment and software</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">27,469</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">31,519</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Vehicles</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,160</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,160</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Leasehold improvements</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,779</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,779</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">241,240</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">241,240</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less: accumulated depreciation and amortization</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(193,133</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(184,332</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">48,107</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">56,908</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued liabilities
consists of the following as of:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable trade and other</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">102,300</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">110,020</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued payroll & fringe benefits</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">27,181</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">20,416</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued payroll taxes & withholding</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,221</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,400</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued interest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">184,437</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,742</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">330,139</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">323,578</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><u>Other liabilities consist of the
following as of</u>:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Short-term loans</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">170,971</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">160,782</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Asset purchase agreement payable</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">12,857</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">On-line training liability</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,663</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,975</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">173,634</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,614</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Convertible debentures consist of the
following at March 31, 2017 and December 31, 2016:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Date</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Maturity Date</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Interest Rate</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Principal</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Origination Discount</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017 Debenture Balance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2017 Accrued Interest</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016 Debenture Balance</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">December 31, 2016 Accrued Interest</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Ref.</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 25%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5/3/2011</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 6%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5/5/2012</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; text-align: center; line-height: 115%"> </td>
<td style="width: 4%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(206,832</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">177,500</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 8%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">300,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">170,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 4%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(1</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8/31/2011</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8/31/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,286</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,813</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,687</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/10/2012</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/10/2014</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">39,724</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,124</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,055</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">312,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">184,437</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">312,743</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">176,742</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 11pt/normal Calibri, Helvetica, Sans-Serif; margin: 0"><br clear="all" />
</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Reference numbers in right hand column
of table entitled Ref. refer to paragraphs with corresponding numbers that immediately follow this paragraph.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(1) On May 3, 2011, the Company borrowed
$300,000 in exchange for a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert
any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average
of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay
the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the
funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share (after restatement for 1 for
-1,350- reverse stock split), respectively. As a result, the Company allocated fair market value (“FMV”) to both the
BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount
to the convertible debenture through maturity and will accrue interest expense until paid in full or converted. Before discount,
the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(2) The Company borrowed $10,000 in
exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into
common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over
the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286, which was accreted to interest
expense through August 2013, the initial maturity date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">(3) The Company entered into three new
debenture agreements upon sale or assignment by the original lender. Because the stated terms of the new debenture agreement and
principal amounts were significantly different from the original debenture, including analysis of the value of the beneficial conversion
feature at the assignment or purchase date, the transactions are treated as extinguishment of the old debentures and recorded as
new for accounting purposes.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following is an estimate of future
minimum rental payments required under our lease agreement on August 14, 2014 and as amended December 1, 2016:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Operating</font><br />
<font style="font: 10pt Times New Roman, Times, Serif">lease</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">36,358</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">49,931</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">51,429</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">52,972</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2021 and thereafter</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">228,265</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">418,955</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
250 to 1
297
7722
7759
7695
27
7703
56
311
990
112409
93838
14970
2122
-2520
On May 3, 2011, the Company borrowed $300,000 in exchange for a convertible debenture. The Debenture bears 5% interest per annum. The lender may at any time convert any portion of the debenture to common shares at a 30% discount of the "Market Price" of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share, respectively. As a result, the Company allocated fair market value ("FMV") to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount to interest expense. The Company recognized the FMV of the related warrants as $45,000 using the Black-Scholes valuation model.On May 3, 2011, the Company borrowed $300,000 in exchange for a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share (after restatement for 1 for -1,350- reverse stock split), respectively. As a result, the Company allocated fair market value (“FMV”) to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through maturity and will accrue interest expense until paid in full or converted. Before discount, the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.
The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the beneficial conversion feature of the convertible debenture at $4,286, which was accreted to interest expense over the period of the note.The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286, which was accreted to interest expense through August 2013, the initial maturity date.
The Company entered into three new debenture agreements upon sale assignment of the original lenders. Because the stated terms of the new debenture agreement and principal amounts were significantly different from the original debenture, including analysis of value of the beneficial conversion feature at the assignment purchase date, the transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. The conversion price under the debentures is $0.37125 and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time.The Company entered into three new debenture agreements upon sale or assignment by the original lender. Because the stated terms of the new debenture agreement and principal amounts were significantly different from the original debenture, including analysis of the value of the beneficial conversion feature at the assignment or purchase date, the transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes.