U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549




FORM
10-Q


(mark
one)





þ           Quarterly
Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of
1934




For the
quarterly period ended March
31, 2010




o           Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
transition period from _______ to _______.




Commission
File No. 000-28321




Brownie’s
Marine Group, Inc.


(Name of
Small Business Issuer in Its Charter)







Nevada
                              90-0226181(State
      or Other Jurisdiction of Incorporation or Organization)
                              (I.R.S.
      Employer Identification No.)940
      N.W. 1stStreet,
      Fort Lauderdale, Florida
                              33311(Address
      of Principal Executive Offices)
                              (Zip
      Code)(954) 462-5570(Issuer’s
      Telephone Number, Including Area Code)
                                
                                (Former
      Name, if Changed Since Last
Report)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.


Yes xNo
o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its Corporate Website, in any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes oNo
o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large accelerated
      filer o
            
            Accelerated filer
      oNon-accelerated
      filer   o
            (Do not check if a
      smaller reporting company)
            Smaller reporting
      company x





Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange
Act).


Yes oNo x




There
were 1,837,678 shares of common stock outstanding as of April 30,
2010.










PART
I




Item
1.  Financial Statements




Financial
Information




BROWNIE'S
MARINE GROUP, INC.


CONSOLIDATED
BALANCE SHEETS




March
      31,2010
                                        
                                        
                                        December
      31,(Unaudited)
                                        
                                        
                                        2009ASSETSCurrent
      assetsCash
                                        
                                        $
                                        58,322
                                        
                                        
                                        $
                                        2,713Accounts
      receivable, net of $30,000 and $31,000 allowancefor
      doubtful accounts, respectively
                                        
                                        
                                        13,770
                                        
                                        
                                        
                                        9,704Accounts
      receivable - related parties
                                        
                                        
                                        46,478
                                        
                                        
                                        
                                        14,419Inventory
                                        
                                        
                                        549,642
                                        
                                        
                                        
                                        488,694Income
      tax refunds receivable
                                        
                                        
                                        112,445
                                        
                                        
                                        
                                        121,802Prepaid
      expenses and other current assets
                                        
                                        
                                        37,659
                                        
                                        
                                        
                                        67,078Deferred
      tax asset, net - current
                                        
                                        
                                        171
                                        
                                        
                                        
                                        219Total
      current assets
                                        
                                        
                                        818,487
                                        
                                        
                                        
                                        704,629Property,
      plant and equipment, net
                                        
                                        
                                        1,159,003
                                        
                                        
                                        
                                        1,165,940Deferred
      tax asset, net - non-current
                                        
                                        
                                        111,076
                                        
                                        
                                        
                                        42,685Other
      assets
                                        
                                        
                                        2,895
                                        
                                        
                                        
                                        6,968Total
      assets
                                        
                                        $
                                        2,091,461
                                        
                                        
                                        $
                                        1,920,222LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                                        
                                        $
                                        524,161
                                        
                                        
                                        $
                                        391,767Customer
      deposits
                                        
                                        
                                        84,620
                                        
                                        
                                        
                                        11,365Royalties
      payable - related parties
                                        
                                        
                                        60,450
                                        
                                        
                                        
                                        49,611Other
      liabilities
                                        
                                        
                                        102,286
                                        
                                        
                                        
                                        2,921Other
      liabilities and accrued interest - related parties
                                        
                                        
                                        23,128
                                        
                                        
                                        
                                        18,570Notes
      payable - current portion
                                        
                                        
                                        248,077
                                        
                                        
                                        
                                        247,424Notes
      payable - related parties - current portion
                                        
                                        
                                        155,453
                                        
                                        
                                        
                                        137,408Total
      current liabilities
                                        
                                        
                                        1,198,175
                                        
                                        
                                        
                                        859,066Long-term
      liabilitiesNotes
      payable - long-term portion
                                        
                                        
                                        822,378
                                        
                                        
                                        
                                        834,966Notes
      payable - related parties - long-term portion
                                        
                                        
                                        196,167
                                        
                                        
                                        
                                        219,319Total
      liabilities
                                        
                                        
                                        2,216,720
                                        
                                        
                                        
                                        1,913,351Commitments
      and contingenciesStockholders'
      deficitCommon
      stock; $0.001 par value; 250,000,000 shares authorized;1,837,678
      and 1,785,538 shares issued and outstanding, respectively
                                        
                                        
                                        1,837
                                        
                                        
                                        
                                        1,785Common
      stock payable; $0.001 par value;550,000
      and 502,140 shares, respectively
                                        
                                        
                                        550
                                        
                                        
                                        
                                        502Prepaid
      equity based compensation
                                        
                                        
                                        (120,768
                                        )
                                        
                                        
                                        (43,542
                                        )Additional
      paid-in capital
                                        
                                        
                                        1,463,483
                                        
                                        
                                        
                                        1,358,333Accumulated
      deficit
                                        
                                        
                                        (1,470,361
                                        )
                                        
                                        
                                        (1,310,207
                                        )Total
      stockholders' deficit
                                        
                                        
                                        (125,259
                                        )
                                        
                                        
                                        6,871Total
      liabilities and stockholders' deficit
                                        
                                        $
                                        2,091,461
                                        
                                        
                                        $
                                        1,920,222






See
Accompanying Notes to Consolidated Financial Statements




2




BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
  Three
      Months Ended March 31,2010
                                                      
                                                      
                                                      2009Net
      revenuesNet
      revenues
                                                      
                                                      $
                                                      318,916
                                                      
                                                      
                                                      $
                                                      399,308Net
      revenues - related parties
                                                      
                                                      
                                                      145,267
                                                      
                                                      
                                                      
                                                      111,996Total
      net revenues
                                                      
                                                      
                                                      464,183
                                                      
                                                      
                                                      
                                                      511,304Cost
      of net revenuesCost
      of net revenues
                                                      
                                                      
                                                      378,887
                                                      
                                                      
                                                      
                                                      402,646Royalties
      expense - related parties
                                                      
                                                      
                                                      12,840
                                                      
                                                      
                                                      
                                                      20,263Total
      cost of net revenues
                                                      
                                                      
                                                      391,727
                                                      
                                                      
                                                      
                                                      422,909Gross
      profit
                                                      
                                                      
                                                      72,456
                                                      
                                                      
                                                      
                                                      88,395Operating
      expensesSelling,
      general and administrative
                                                      
                                                      
                                                      258,163
                                                      
                                                      
                                                      
                                                      227,600Research
      and development costs
                                                      
                                                      
                                                      15,560
                                                      
                                                      
                                                      
                                                      10,079Total
      operating expenses
                                                      
                                                      
                                                      273,723
                                                      
                                                      
                                                      
                                                      237,679Loss
      from operations
                                                      
                                                      
                                                      (201,267
                                                      )
                                                      
                                                      
                                                      (149,284
                                                      )Other
      (income) expense,  netOther
      expense, net
                                                      
                                                      
                                                      1,133
                                                      
                                                      
                                                      
                                                      60,781Interest
      expense
                                                      
                                                      
                                                      20,342
                                                      
                                                      
                                                      
                                                      19,955Interest
      expense - related parties
                                                      
                                                      
                                                      5,755
                                                      
                                                      
                                                      
                                                      7,102Total
      other expense, net
                                                      
                                                      
                                                      27,230
                                                      
                                                      
                                                      
                                                      87,838Net
      loss before provision for income taxes
                                                      
                                                      
                                                      (228,497
                                                      )
                                                      
                                                      
                                                      (237,122
                                                      )Provision
      for income tax benefit
                                                      
                                                      
                                                      (68,343
                                                      )
                                                      
                                                      
                                                      (67,528
                                                      )Net
      loss
                                                      
                                                      $
                                                      (160,154
                                                      )
                                                      
                                                      $
                                                      (169,594
                                                      )Basic
      loss per common share
                                                      
                                                      $
                                                      (0.09
                                                      )
                                                      
                                                      $
                                                      (0.09
                                                      )Diluted
      loss per common share
                                                      
                                                      $
                                                      (0.09
                                                      )
                                                      
                                                      $
                                                      (0.09
                                                      )Basic
      weighted average commonshares
      outstanding
                                                      
                                                      
                                                      1,803,497
                                                      
                                                      
                                                      
                                                      1,785,538Diluted
      weighted average commonshares
      outstanding
                                                      
                                                      
                                                      1,803,497
                                                      
                                                      
                                                      
                                                      1,785,538
   See
Accompanying Notes to Consolidated Financial Statements




3




BROWNIE'S
MARINE GROUP, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


Prepaid
                                    
                                    
                                    Additional
                                    
                                    
                                    
                                    
                                    
                                    TotalCommon
      stock
                                    
                                    
                                    Common
      stock payable
                                    
                                    
                                    Equity
      based
                                    
                                    
                                    paid-in
                                    
                                    
                                    Accumulated
                                    
                                    
                                    stockholders'Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    Shares
                                    
                                    
                                    Amount
                                    
                                    
                                    compensation
                                    
                                    
                                    capital
                                    
                                    
                                    deficit
                                    
                                    
                                    equity
      (deficit)Balance,
      December 31, 2009
                                    
                                    
                                    1,785,538
                                    
                                    
                                    $
                                    1,785
                                    
                                    
                                    
                                    502,140
                                    
                                    
                                    $
                                    502
                                    
                                    
                                    $
                                    (43,542
                                    )
                                    
                                    $
                                    1,358,333
                                    
                                    
                                    $
                                    (1,310,207
                                    )
                                    
                                    $
                                    6,871Issuance
      of stock
                                    
                                    
                                    52,140
                                    
                                    
                                    
                                    52
                                    
                                    
                                    
                                    (52,140
                                    )
                                    
                                    
                                    (52
                                    )
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Prepaid
      equity based compensationfor
      consulting services
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    100
                                    
                                    
                                    
                                    (99,000
                                    )
                                    
                                    
                                    98,900
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Legal
      expense recognized for stockwarrants
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    6,250
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    6,250Current
      period amortization ofprepaid
      equity based compensation
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    21,774
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    21,774Net
      loss
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (160,154
                                    )
                                    
                                    
                                    (160,154
                                    )Balance,
      March 31, 2010 (Unaudited)
                                    
                                    
                                    1,837,678
                                    
                                    
                                    $
                                    1,837
                                    
                                    
                                    
                                    550,000
                                    
                                    
                                    $
                                    550
                                    
                                    
                                    $
                                    (120,768
                                    )
                                    
                                    $
                                    1,463,483
                                    
                                    
                                    $
                                    (1,470,361
                                    )
                                    
                                    $
                                    (125,259
                                    )






See
Accompanying Notes to Consolidated Financial Statements




4




BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)


Three
      Months Ended March 31,2010
                                    
                                    
                                    2009Cash
      flows from operating activities:Net
      loss
                                    
                                    $
                                    (160,154
                                    )
                                    
                                    $
                                    (169,594
                                    )Adjustments
      to reconcile net loss to netcash
      (used in)  provided by operating activities:Depreciation
                                    
                                    
                                    8,567
                                    
                                    
                                    
                                    9,034Amortization
                                    
                                    
                                    --
                                    
                                    
                                    
                                    180Change
      in deferred tax asset, net
                                    
                                    
                                    (68,343
                                    )
                                    
                                    
                                    (65,117
                                    )Change
      in deferred tax liability, net
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (2,411
                                    )Stock
      based compensation
                                    
                                    
                                    6,250
                                    
                                    
                                    
                                    63,000Amortization
      of prepaid equity based compensation expense
                                    
                                    
                                    21,774
                                    
                                    
                                    
                                    --Changes
      in operating assets and liabilities:Change
      in accounts receivable, net
                                    
                                    
                                    (4,066
                                    )
                                    
                                    
                                    6,733Change
      in accounts receivable - related parties
                                    
                                    
                                    (32,059
                                    )
                                    
                                    
                                    15,565Change
      in inventory
                                    
                                    
                                    (60,948
                                    )
                                    
                                    
                                    89,467Change
      in prepaid expenses and other current assets
                                    
                                    
                                    29,419
                                    
                                    
                                    
                                    (1,419
                                    )Change
      in costs and estimated earnings in excess of billingson
      uncompleted contract
                                    
                                    
                                    --
                                    
                                    
                                    
                                    287,861Change
      in other assets
                                    
                                    
                                    4,073
                                    
                                    
                                    
                                    --Change
      in accounts payable and accrued liabilities
                                    
                                    
                                    132,394
                                    
                                    
                                    
                                    33,596Change
      in customer deposits
                                    
                                    
                                    73,255
                                    
                                    
                                    
                                    (154,354
                                    )Change
      in income tax refunds receivable
                                    
                                    
                                    9,357
                                    
                                    
                                    
                                    --Change
      in income taxes payable
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (20,000
                                    )Change
      in other liabilities
                                    
                                    
                                    (635
                                    )
                                    
                                    
                                    86Change
      in other liabilities and accrued interest - related
parties
                                    
                                    
                                    4,558
                                    
                                    
                                    
                                    (3,187
                                    )Change
      in royalties payable - related parties
                                    
                                    
                                    10,839
                                    
                                    
                                    
                                    (11,189
                                    )Net
      cash (used in) provided by operating activities
                                    
                                    
                                    (25,719
                                    )
                                    
                                    
                                    78,251Cash
      flows from investing activities:Purchase
      of fixed assets
                                    
                                    
                                    (1,630
                                    )
                                    
                                    
                                    (3,600
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (1,630
                                    )
                                    
                                    
                                    (3,600
                                    )Cash
      flows from financing activities:Proceeds
      from borrowing on loan payable
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    --Principal
      payments on notes payable
                                    
                                    
                                    (11,935
                                    )
                                    
                                    
                                    (30,978
                                    )Principal
      payments on notes payable - related parties
                                    
                                    
                                    (5,107
                                    )
                                    
                                    
                                    (19,188
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    82,958
                                    
                                    
                                    
                                    (50,166
                                    )Net
      change in cash
                                    
                                    
                                    55,609
                                    
                                    
                                    
                                    24,485Cash,
      beginning of period
                                    
                                    
                                    2,713
                                    
                                    
                                    
                                    3,532Cash,
      end of period
                                    
                                    $
                                    58,322
                                    
                                    
                                    $
                                    28,017Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                                    
                                    $
                                    20,510
                                    
                                    
                                    $
                                    26,930Cash
      paid for income taxes
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    20,000Supplemental
      disclosures of non-cash investing activitiesand
      future operating activities:Amortization
      of prepaid equity based compensation
                                    
                                    $
                                    21,774
                                    
                                    
                                    $
                                    --Equity
      based compensation for warrants grantedeffective
      December 31, 2009
                                    
                                    $
                                    6,250
                                    
                                    
                                    $
                                    --






See
Accompanying Notes to Consolidated Financial Statements




5




BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


1.    DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Description of
business –Brownie’s Marine Group, Inc., (hereinafter referred to as the
“Company” 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 Fort Lauderdale, 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 OTCBB under the symbol
“BWMG”.
  Definition of fiscal
year – The Company’s fiscal year end is December 31.
 
 Use of estimates -
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.
  Reclassifications –
Certain reclassifications have been made to the 2009 financial statement amounts
to conform to the 2010 financial statement presentation.
  Cash and equivalents – 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.
  Inventory – Inventory
is stated at the lower of cost or market.  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
required.
  Property, Plant, and
Equipment – Property, Plant and Equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets, which is
primarily 3 to 5 years except for the building that is being depreciated over a
life of 39 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).
  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.
  Revenue recognition –
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, 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.
  6
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 1.    DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 
 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.
 
 Product development
costs – Product development expenditures are charged to expenses as
incurred.
 
 Advertising and marketing
costs – 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, 2010 and 2009, was $6,041 and $1,289,
respectively.
 
 Customer deposits and return
policy– 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 has been 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.
 
 Income taxes – 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.
 
 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.
 
 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.
 
 Comprehensive income
– The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
  7
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 1.    DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Stock-based
compensation – 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 pricing model to calculate
the fair value of options and warrants issued to both employees and
non-employees.  Stock issued for compensation is valued using the
market price of the stock on the date of the related agreement.
 
 For the
three months ended March 31, 2010, the Company amortized prepaid stock based
compensation associated with stock options granted October 1 and December 1,
2009.  See Note 10. EQUITY INCENTIVE PLAN
for further discussion.  For the three months ended March 31, 2010,
the Company recorded stock based compensation associated with warrants granted
on December 31, 2009.  See Note 12. STOCK WARRANTS ISSUED FOR
LEGAL SERVICES for further discussion. The Company granted stock options
for the three months ended March 31, 2009 associated with the purchase of
intellectual property for the Company’s Chief Executive Officer.  See
Note 6. RELATED PARTY
TRANSACTIONS, Patent Purchase Agreements, for further
discussion.
 
 Fair value of financial
instruments – The carrying amounts and estimated fair values of the
Company’s financial instruments approximate their fair value due to the
short-term nature.
 
 Earnings per common
share – Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities.  Basic earnings per
share is 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 common stock equivalent shares
outstanding during the period.  Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.  All
common stock equivalent shares were excluded in the computation for the three
months ended March 31, 2010 and 2009 since their effect was
antidilutive.
 
 New accounting
pronouncements – In June 2009, FASB established the Accounting
Standards Codification (“ASC”) as the single source of authoritative US GAAP to
be applied by nongovernmental entities.  Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative US GAAP for SEC registrants.  The ASC is a new
structure which took existing accounting pronouncements and organized them by
accounting topic.  The ASC did not change current US GAAP, but was
intended to simplify user access to all authoritative US GAAP by providing all
the relevant literature related to a particular topic in one
place.  All previously existing accounting standards were superseded
and all other accounting literature not included in the ASC is considered
non-authoritative.  New accounting standards issued since June 30,
2009 are communicated by the FASB through Accounting Standards Updates
(“ASU”).  The ASC was effective during the period ended September 30,
2009.  Adoption of the ASU did not have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.
 
 In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value
measurements.  This ASU requires additional disclosures regarding
significant transfers in and out of Levels 1 and 2 of fair value measurements,
including a description of the reasons for the transfers.  Further,
this ASU requires additional disclosures for the activity in Level 3 fair value
measurements, requiring presentation of information about purchases, sales,
issuances, and settlements in the reconciliation for fair value
measurements.  This ASU is effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal
years.  We are currently evaluating the impact of this ASU; however,
we do not expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
  8
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 1.    DESCRIPTION OF BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 New accounting
pronouncements (continued) – In February 2010, the FASB issued ASU No.
2010-09 regarding subsequent events and amendments to certain recognition and
disclosure requirements.  Under this ASU, a public company that is a
SEC filer, as defined, is not required to disclose the date through which
subsequent events have been evaluated.  This ASU is effective upon the
issuance of this ASU.  The adoption of this ASU did not have a
material impact on our consolidated financial statements.
 
 In March
2010, the FASB issued ASU No. 2010-11 which clarifies the transfer of credit
risk that is only in the form of subordination of one financial instrument to
another is an embedded derivative feature that should not be subject to
potential bifurcation and separate accounting.  This ASU will be
effective for the first fiscal quarter beginning after June 15, 2010, with early
adoption permitted.  The Company does not expect adoption of this ASU
to have a material financial impact.
  In April
2010, the FASB issued ASU No. 2010-13 which will clarify the classification of
an employee share based payment award with an exercise price denominated in the
currency of a market in which the underlying security trades.  This
ASU will be effective for the first fiscal quarter beginning after December 15,
2010, with early adoption permitted. The Company does not expect adoption of
this ASU to have a material financial impact.
 
 There
were various other updates recently issued, most of which represented technical
corrections to the accounting literature or application to specific industries
and are not expected to a have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
 
 
 2.    INVENTORY
 
 Inventory
consists of the following as of:
 
 March 31, 2010
                        
                        
                        December 31, 2009Raw
      materials
                        
                        $
                        354,982
                        
                        
                        $
                        303,230Work
      in process
                        
                        
                        --
                        
                        
                        
                        --Finished
      goods
                        
                        
                        194,660
                        
                        
                        
                        185,464$
                        549,642
                        
                        
                        $
                        488,694
 
 3.    PREPAID EXPENSES AND OTHER
CURRENT ASSETS
 
 Prepaid
expenses and other current assets totaling $37,659 at March 31, 2010, consists
of $13,660 of prepaid inventory, $22,295 of prepaid insurance, $825 of prepaid
software maintenance, $785 sales tax refund due, and $94 of other prepaid
expenses and current assets.
 
 Prepaid
expenses and other current assets totaling $67,078 at December 31, 2009,
consists of $48,645 of prepayments for inventory, $14,116 of prepaid insurance,
$1,651 of prepaid software maintenance, $2,248 sales tax refund due, and $418
other prepaid and expenses and current assets.
  9
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 4.    PROPERTY, PLANT AND
EQUIPMENT
 
 Property, plant and equipment consists
of the following as of:
 
 March 31, 2010
                  
                  
                  December 31, 2009Building,
      leasehold improvements, and land
                  
                  $
                  1,224,963
                  
                  
                  $
                  1,224,963Furniture,
      fixtures, vehicles and equipment
                  
                  
                  117,240
                  
                  
                  
                  115,6101,342,203
                  
                  
                  
                  1,340,573Less:  accumulated
      depreciation and amortization
                  
                  
                  183,200
                  
                  
                  
                  174,633$
                  1,159,003
                  
                  
                  $
                  1,165,940
   5.
              CUSTOMER CREDIT
      CONCENTRATIONS
 
 The
Company sells to three entities owned by the brother of Robert Carmichael, the
Company’s Chief Executive officer as further discussed in Note 6 – RELATED PARTIES
TRANSACTIONS.  Combined sales to these entities for the three
months ended March 31, 2010 and 2009 represented 31.18% and 18.01%,
respectively, of total net revenues.  For the three months ended March
31, 2010, sales to one unrelated customer represented 12.83% of total net
revenues.  For the three months ended March 31, 2009, sales to two
unrelated customer represented 17.07% of total net revenues.  Sales to
no other customers represented greater than 10% of net revenues for the three
months ended March 31, 2010 and 2009.
 
 
 6.
              RELATED PARTIES
      TRANSACTIONS
 
 Notes payable – related
parties
 
 Notes
payable – related parties consists of the following as of March 31,
2010:
  Promissory
      note payable to the Chief Executive Officer of the Company,
                      unsecured,
      bearing interest at 7.5% per annum, due in monthly principal
                      and
      interest payments of $7,050, maturing on August 1, 2013.
                    
                    $
                    307,412Promissory
      note payable due an entity in which the Company’s Chief
                      Executive
      Officer has a financial interest, GKR Associates, LLC.,
      secured
                      by
      third mortgage on real property, having a carrying value of
      $1,141,567
                      at
      March 31, 2010, bearing 6.99% interest per annum, due in monthly principal
                      and
      interest payments of $1,980, maturing on February 22,
2012.
                    
                    
                    44,208351,620Less
      amounts due within one year
                    
                    
                    155,453Long-term
      portion of notes payable – related parties
                    
                    $
                    196,167
  10
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 6.
              RELATED PARTY
      TRANSACTIONS (continued)
 
 Notes payable – related
parties (continued)
 
 
 As of
March 31, 2010, principal payments on the notes payable – related parties are as
follows:
 
 2010
                    
                    $
                    132,3012011
                    
                    
                    95,2182012
                    
                    
                    82,1522013
                    
                    
                    41,9492014
                    
                    
                    --Thereafter
                    
                    
                    --$
                    351,620
 
 As of
March 31, 2010, the Company was approximately eleven months in arrears on
payments due under the Note payable to the Chief Executive
Officer.  No default notice has been received and the Company plans to
make payments as able.  See Other liabilities and
accrued interest– related parties within this Note for the related
accrued interest also in arrears.
 
 On
February 12, 2010, as part of the requirements for conversion of its non-related
party, revolving line of credit to a term loan, the Company converted GKR
Associates, LLC’s second mortgage to a third mortgage.  See Note 9.
NOTES
PAYABLEfor
further discussion.
 
 Notes
payable – related parties consists of the following as of December 31,
2009:
 
 Promissory
      note payable to the Chief Executive Officer of the Company,
                      unsecured,
      bearing interest at 7.5% per annum, due in monthly principal
                      and
      interest payments of $7,050, maturing on August 1, 2013.
                    
                    $
                    307,412Promissory
      note payable due an entity in which the Company’s Chief
                      Executive
      Officer has a financial interest, GKR Associates, LLC.,
      secured
                      by
      second mortgage on real property, having a carrying value of
      $1,148,425
                      at
      December 31, 2009, bearing 6.99% interest per annum, due in monthly
                      principal
      and interest payments of $1,980, maturing on February 22,
      2012.
                    
                    
                    49,315356,727Less
      amounts due within one year
                    
                    
                    137,408Long-term
      portion of notes payable – related parties
                    
                    $
                    219,319
  11
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 6.
              RELATED PARTY
      TRANSACTIONS (continued)
 
 Net revenues and accounts
receivable – related parties – The Company sells products to three
entities, 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.  Combined net revenues from
these entities for three months ended March 31, 2010 and 2009, was $145,267 and
$111,996, respectively.  Accounts receivable from Brownie’s SouthPort
Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at March
31, 2010, was $33,450, $7,250, and
$5,778.  respectively.  Accounts receivable from Brownie’s
SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys
at December 31, 2009, was $10,459, $3,078, and $882 respectively.
 
 Royalties expense – related
parties– The Company has Non-Exclusive License Agreements with the
Carleigh Rae Corporation (herein referred to as “CRC”), an entity that the
Company’s Chief Executive Officer has an ownership interest, to license product
patents it owns.  Based on the license agreements with CRC, the
Company pays royalties ranging from $1.00 to $50.00 per licensed products sold,
with rates increasing 5% annually.   Also with CRC, the Company
has a Non-Exclusive License Agreement to license a trademark of products owned
by CRC.  Based on the agreement, the Company will pay the entity $0.25
per licensed product sold, with rates increasing $0.05 annually.
 
 The
Company has Non-Exclusive License Agreements with 940 Associates, Inc. (herein
referred to as “940AI”), an entity owned by the Company’s Chief Executive
Officer, to license product patents it owns.  Under the terms of the
license agreements effective January 1, 2005, the Company pays 940AI $2.00 per
licensed product sold, rates increasing 5% annually.  Also with 940AI,
the Company has an Exclusive License Agreement to license the trademark
“Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other
related trademarks as listed in the agreement.  Based on this license
agreement, the Company pays 940AI 2.5% of gross revenues per
quarter.
 
 Total
royalty expense for the above agreements for the three months ended March 31,
2010 and 2009, was $12,840 and $20,263, respectively.  As of December
31, 2009, the Company was approximately fourteen months in arrears on royalty
payments due. No default notice has been received and the Company plans to make
payments as able.
 
 Patent Purchase
Agreements – Effective December 31, 2009, the Company entered into a
Patent Purchase Agreement with Robert M. Carmichael, the Chief Executive Officer
of the Company.  In exchange for the Intellectual Property (“IP), the
Company granted Mr. Carmichael 400,000 shares of common stock.  For
financial reporting purposes the Company has valued the group of patents at $0
which is the lower of Mr. Carmichael’s historical cost as compared to the fair
market value of the stock.  Accordingly, the Company realized a
$100,000 loss on the transaction, the fair market value of the stock on the
December 31, 2009 grant date less the $0 historical cost.  By
acquiring the IP the Company (i) has an opportunity to further develop the IP,
(ii) has the ability to incorporate the IP into current and future products, and
(iii) has the opportunity to license the IP to third parties.
 
 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 (“IP), the Company issued Mr. Carmichael 315,000 stock options at a
$1.00 exercise price.  For financial reporting purposes the Company
has valued the group of patents at $0 which is the lower of Mr. Carmichael’s
historical cost as compared to the fair market value of the stock options on the
date of the transaction as determined using the Black-Scholes Valuation
Model.  Accordingly, the Company realized a $63,000 loss on the
transaction, the fair market value of the options on the March 3, 2009 grant
date using the Black-Scholes valuation model less the $0 historical
cost.  By acquiring the IP the Company (i) eliminated an estimated
$41,000 net discounted cash flows it would otherwise have had to pay related to
the IP through 2018, (ii) has an opportunity to further develop the IP, (iii)
has the ability to incorporate the IP into current and future products, and (iv)
has the opportunity to license the IP to third parties.
  12
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 6.
              RELATED PARTY
      TRANSACTIONS (continued)
 
 Other liabilities and
accrued interest– related parties
 
 Other
liabilities and accrued interest– related parties consists of the following
at:
 
 March 31, 2010
                    
                    
                    December 31, 2009Accrued
      interest on Notes payable – related parties
                    
                    $
                    23,128
                    
                    
                    $
                    18,205Accounts
      payable – 940 Associates, Inc.
                    
                    
                    --
                    
                    
                    
                    365Other
      liabilities – related parties
                    
                    $
                    23,128
                    
                    
                    $
                    18,570
 
 As of
March 31, 2010, the Company was approximately eleven months in arrears on
accrued interest due under the Note payable to the Chief Executive
Officer.  No default notice has been received and the Company plans to
make payments as able.
 
 
 7.
              ACCOUNTS PAYABLE AND
      ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities of $524,161 at March 31, 2010 consists of
$350,635 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$80,746 of accrued payroll and related fringe benefits, $30,000 of accrued real
estate taxes, and $2,206 of accrued interest.
 
 Accounts
payable and accrued liabilities of $391,767 at December 31, 2009 consists of
$232,065 accounts payable trade, $60,574 balance of legal expenses that was a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$69,981 of accrued payroll and related fringe benefits, $24,000 accrued real
estate taxes, $1,542 of accrued interest, and $3,605 of other accrued
liabilities.
  8.    OTHER
LIABILITIES
 
 Other
liabilities of $102,286 at March 31, 2010 consists of a $100,000 loan from a
consultant of the Company and $2,286 of on-line training liability. The Company
is in the process of finalizing an agreement with the consultant to convert the
$100,000 debt into restricted common stock during the second quarter of 2010. In
addition, a consulting agreement was entered into during the first quarter of
2010 with this same consultant.  See Note 13. STOCK ISSUED FOR CONSULTING
SERVICES for further discussion of this matter.
 
 Other
liabilities of $2,921 at December 31, 2009, consists of on-line training
liability.
 
 Effective
July 1, 2005, the Company began including on-line training certificates with all
hookah units sold.  The training certificates entitle the holder to an
on-line interactive course at no additional charge to the holder.  The
number of on-line training certificates issued per unit is the same as the
number of divers the unit as sold is designed to accommodate (i.e., a three
diver unit configuration comes with three on-line training
certificates).  The certificates have an eighteen-month redemption
life after which time they expire.  The eighteen-month life of the
certificates begins at the time the customer purchases the unit.  The
Company owes the on-line training vendor the agreed upon negotiated rate for all
on-line certificates redeemed payable at the time of redemption.  For
certificates that expire without redemption, no amount is due the on-line
training vendor.
  13
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 8.    OTHER LIABILITIES(continued)
 
 Until the
Company accumulated historical data related to the certificate redemption ratio,
it assumed that 100% of certificates issued with unit sales would be
redeemed.  Accordingly, at the time a unit was sold, the related
on-line training liability was recorded.  The same liability was
reduced as certificates were redeemed and the related payments were made to the
on-line training vendor.  In July 2007, the Company had accumulated 24
months of historical data regarding redemption rates so the liability estimate
was adjusted accordingly to reflect the actual redemption
history.  The Company continues to monitor and maintain a reserve for
certificate redemption that approximates the historical redemption rate that is
10%.
  
 9.
              NOTES
      PAYABLE
 
 Notes
payable consists of the following as of March 31, 2010:
 
 Term
      loan secured by a second mortgage on the real property of the Company
                      with
      a carrying value of $1,141,567 at March 31, 2010, interest rate at
      6.50%
                      per
      annum, due in monthly principal and interest payments of $1,200 with a
                      balloon
      payment due February 12, 2011.
                    
                    $
                    199,810Promissory
      note payable secured by a first mortgage on the real property of the
                      Company
      having a carrying value of $1,141,567 at March 31, 2010, interest at
                      6.99%
      per annum, due in monthly principal and interest payments of $9,038,
                      maturing
      on January 22, 2022.
                    
                    
                    870,6451,070,455Less
      amounts due within one year
                    
                    
                    248,077Long-term
      portion of notes payable
                    
                    $
                    822,378
 
 As of
March 31, 2010, principal payments on the notes payable are as
follows:
 
 2010
                    
                    $
                    36,5772011
                    
                    
                    249,8182012
                    
                    
                    54,4752013
                    
                    
                    58,6232014
                    
                    
                    62,915Thereafter
                    
                    
                    608,047$
                    1,070,455
 
 The
Company converted its revolving line of credit that matured on December 2, 2009
into the above Term loan that matures on February 12, 2011.  As part
of the conversion, the Company granted the bank a second mortgage on the
underlying security.  Accordingly, the Company converted GKR
Associates, LLC’s, second mortgage to a third mortgage.
  14
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 9.
              NOTES PAYABLE
      (continued)
  Notes
      payable consists of the following as of December 31,
2009:Revolving
      Line of Credit secured by a third mortgage on the real property of
                              the
      Company with a carrying value of $1,148,425 at December 31, 2009,
                              bearing
      interest at the lender’s base rate plus 1.00% per
      annum.  Interest
                              payments
      are due monthly on the outstanding principal balance and the Line of
                              Credit
      matures on December 2, 2009.
                            
                            $
                            199,990Promissory
      note payable secured by a first mortgage on the real property of the
                              Company
      having a carrying value of $1,148,425 at December 31, 2009,
                              interest
      at 6.99% per annum, due in monthly principal and interest payments of
                              $9,038,
      maturing on January 22, 2022.
                            
                            
                            882,4001,082,390Less
      amounts due within one year
                            
                            
                            247,424Long-term
      portion of notes payable
                            
                            $
                            834,966
 
 
 10.
              EQUITY INCENTIVE
      PLAN
 
 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 400,000
shares, and no more than 100,000 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.
 
 Effective
December 31, 2008, the Company granted 210,000 fully vested incentive stock
options to certain key employees, consultants and officers under the
Plan.  The fair value of the options was determined to be $31,650
using the using the Black-Scholes Model.  Accordingly, the Company
recognized $31,650 as operating expense for the options as of December 31,
2008.
 
 Effective
October 1, 2009 and December 1, 2009 the Company granted 75,000 and 115,000
incentive stock options, respectively, to certain consultants under the
Plan.  The fair value of the options was determined to be $47,500
using the Black-Scholes Model.  The options that have a term of one
year were issued in conjunction with consulting agreements for certain business
and financial advisory services.  The stock options are in lieu of
payment for these services and as such the Company will recognize operating
expense over the term of the agreements.  Accordingly, the Company
recognized $11,874 operating expense for these options in the three months ended
March 31, 2010.  Prepaid equity based compensation is reflected as a
component of shareholders’ deficit for the related consulting services as
yet to be provided at the end of each period.
 
 As of
December 31, 2009 all Stock Options authorized under Plan had been
granted.
  15
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 11.
              STOCK ISSUED FOR LEGAL
      SERVICES
 
 Effective
December 30, 2009, the Company granted 50,000 shares of restricted common stock
to an outside attorney for certain legal and advisory services provided in 2009.
The stock was valued at the fair market price on the effective date of grant, or
$12,500.  The underlying the stock as granted did not assign a stated
value to the services rendered.  Accordingly, the Company recognized
$12,500 as legal expense associated with the stock issue.  See Note
12. Stock
Warrants for a discussion of the warrants granted.
 
 Pursuant
to an agreement dated February 9, 2010, the Company granted 52,140 shares of
restricted common stock to an outside attorney for legal and advisory services
valued at $13,035 provided through December 31, 2009.   The
effective date of the agreement is stated as December 31,
2009.  Accordingly, the stock granted was valued at the fair market
price on the date of the agreement, or $51,519.  Accordingly, as of
December 31, 2010, $13,035 was recognized as legal expense, and $38,584 was
recognized as a loss on the transaction.
 
 
 12.
              STOCK WARRANTS ISSUED
      FOR LEGAL SERVICE
 
 Effective
December 30, 2009, the Company issued to an outside attorney warrants to
purchase 100,000 shares of restricted common stock for certain legal and
advisory services to be performed in 2010, as evidenced by a signed
proposal.  The warrants are exercisable at fair market value as of the
date of grant, and will vest in two tranches of 50,000 each, on June 30, 2010
and December 31, 2010, respectively.  In addition, the agreement
provides for a cashless exercise of the tranches.  The fair value of
the warrants was determined to be $25,000 using the Black-Scholes
Model.  The stock warrants are in lieu of payment for these services
and as such the Company will recognize operating expense over the term of the
agreement.  Accordingly, the Company recognized $6,250 as operating
expense for the three months ended March 31, 2010.
 
 
 13.
              STOCK ISSUED FOR
      CONSULTING SERVICES
 
 On March
9, 2010, the Company granted 100,000 shares of restricted common stock pursuant
to a consulting agreement for assistance in the planning, design, direction,
supervision and implementation of Company's web design, marketing and
advertising and in such other matters and areas as may be mutually approved by
Consultant and Company.  The Company recorded the transaction at the
fair market value of the stock on the effective date of the transaction, $.99
per share.  The Company will amortize the operating expense over the
term of the agreement.  Accordingly, the Company recognized $9,900 as
operating expense for the three months ended March 31, 2010.  The agreement
expires on December 31, 2010.  This same consultant loaned the Company
$100,000 during the first quarter of 2010.  See Note 8. OTHER LIABILITIES for
discussion of terms surrounding the $100,000 debt.  Prepaid equity based
compensation is reflected as a component of shareholders’ deficit for the
related consulting services as yet to be provided at the end of the
period.
 
 
 14.
              OFFERING AGREEMENT AND
      INDEPENDENT CONSULTANT AND ADVISORY
  AGREEMENT
 
 Effective
December 31, 2009, the Company signed an independent consulting and an
advisory agreement with a registered broker dealer.  Effective as of
the end of the first quarter of 2010, these agreements were terminated without
liability or associated cost to the Company.
  16
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
    15.
                INCOME
      TAXES
 The
components of the provision for income tax benefit are as follows for the three
months ended:
 
 March 31, 2010
                    
                    
                    March 31, 2009Current
      taxesFederal
                    
                    $
                    --
                    
                    
                    $
                    --State
                    
                    
                    --
                    
                    
                    
                    --Current
      taxes
                    
                    
                    --
                    
                    
                    
                    --Change
      in deferred taxes
                    
                    
                    (119,826
                    )
                    
                    
                    (77,991
                    )Change
      in valuation allowance
                    
                    
                    51,483
                    
                    
                    
                    10,463Provision
      for income tax (benefit) expense
                    
                    $
                    (68,343
                    )
                    
                    $
                    (67,528
                    )
 
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at March 31, 2010:
 
 Deferred
      tax assets:Stock
      options and warrants
                    
                    $
                    39,689Allowance
      for doubtful accounts
                    
                    
                    10,200Depreciation
      and amortization timing differences
                    
                    
                    11,817Net
      operating loss carryforward
                    
                    
                    172,775On-line
      training certificate reserve
                    
                    
                    342Total
      deferred tax assets
                    
                    
                    234,823Valuation
      allowance
                    
                    
                    (123,576
                    )Deferred
      tax assets net of valuation allowance
                    
                    
                    111,247Less
      deferred tax assets – non-current, net of valuation
    allowance
                    
                    
                    111,076Deferred
      tax assets – current, net of valuation allowance
                    
                    $
                    171
 
 
 The
effective tax rate used for calculation of the deferred taxes as of March 31,
2010 was 34%.  The Company has established a valuation against
deferred tax assets of $119,259 due to the uncertainty regarding realization,
comprised primarily of a 75% reserve against the deferred tax assets
attributable to the stock options and warrants, a 100% reserve against the
allowance for doubtful accounts, and a 50% reserve against the net operating
carryforward.
 
 At March
31, 2010, the Company had income tax refunds receivable of $112,445 comprised of
tax refund due from the federal government. The federal income tax refund
receivable is attributable to net operating loss carryback from 2009 to
recuperate taxes paid in 2008.
  17
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 15.
              INCOME TAXES
      (continued)
 
 The
significant differences between the statutory tax rate and the effective tax
rates for the Company for the three months ended are as follows:
 
 March 31, 2010
                    
                    
                    March 31, 2009Statutory
      tax rate benefit
                    
                    
                    --
                    %
                    
                    
                    --
                    %Increase
      (decrease) in rates resulting from:Net
      operating loss carryforward or carryback
                    
                    
                    (44
                    )%
                    
                    
                    (25
                    )%Equity
      based compensation and loss
                    
                    
                    (3
                    )%
                    
                    
                    (9
                    )%Book/tax
      depreciation and amortization differences
                    
                    
                    (6
                    )%
                    
                    
                    --Change
      in valuation allowance
                    
                    
                    23
                    %
                    
                    
                    4
                    %Other
                    
                    
                    --
                    %
                    
                    
                    2
                    %Effective
      tax rate benefit
                    
                    
                    (30
                    )%
                    
                    
                    (28
                    )%
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at December 31, 2009:
 
 Deferred
      tax assets:Stock
      options
                      
                      $
                      33,527Allowance
      for doubtful accounts
                      
                      
                      10,540Net
      operating loss carryforward
                      
                      
                      72,382On-line
      training certificate reserve
                      
                      
                      438Total
      deferred tax assets
                      
                      
                      116,887Valuation
      allowance
                      
                      
                      (72,095
                      )Deferred
      tax assets net of valuation allowance
                      
                      
                      44,792Less
      deferred tax assets – non-current, net of valuation
    allowance
                      
                      
                      44,573Deferred
      tax assets – current, net of valuation allowance
                      
                      $
                      219
 
 Deferred
      tax liabilityDepreciation
      and amortization timing differences
                    
                    $
                    1,888Less
      deferred tax liability – non-current
                    
                    
                    1,888Deferred
      tax liability – current
                    
                    $
                    --
 
 The
effective tax rate used for calculation of the deferred taxes as of December 31,
2009 was 34%.  The Company has established a valuation allowance
against deferred tax assets of $72,095 due to the uncertainty regarding
realization, comprised primarily of a 75% reserve against the deferred tax
assets attributable to the stock options, a 100% reserve against the allowance
for doubtful accounts, and a 50% reserve against part of the net operating loss
that must be carried forward.
 
 At
December 31, 2009, the Company had income tax refunds receivable of $121,802
comprised of tax refunds due from the state and federal government of $9,357 and
$112,445, respectively.  The state income tax refund receivable is
attributable to a 2008 state income tax overpayment carried forward into 2009
and not utilized as a result of the Company’s net operating loss in
2009.  The federal income tax refund receivable it attributable to net
operating loss carryback from 2009 to recuperate taxes paid in
2008.
  18
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 16.
              SUBSEQUENT
      EVENTS
 
 In March
2010, the CRC, an entity defined in Note 6. RELATED PARTY TRANSACTIONS, assigned a
patent to the Company for a nominal fee. The assignment anticipated purchase of
additional patents form the CRC pursuant to an agreement to be finalized in the
second quarter of 2010. The Company anticipates terms of the agreement will be
similar to those of its most recent intellectual property
purchases.
  On April
19, 2010, the Company granted 100,000 shares of restricted common stock to an
individual pursuant to a consulting agreement for assistance in the planning,
design, direction, supervision and implementation of Company's web design,
marketing and advertising and in such other matters and areas as may be mutually
approved by Consultant and Company.  The term of the agreement expires
on December 31, 2010.
 
 On April
19, 2010, the Company granted 100,000 shares of restricted common stock to
another individual pursuant to consulting agreement for assistance in the
planning, design, direction, supervision and implementation of Company's web
design, marketing and advertising and in such other matters and areas as may be
mutually approved by Consultant and Company.  The term of the
agreement expires on December 31, 2010.
 
 On April
16, 2010, the Company granted 100,000 shares of restricted common stock to an
individual pursuant to a consulting agreement for assistance in the planning,
design, direction, supervision and implementation of Company's web design,
marketing and advertising and in such other matters and areas as may be mutually
approved by Consultant and Company.  The term of the agreement expires
on December 31, 2010.
 
 On April
16, 2010, the Company granted 50,000 shares of restricted common stock to
another individual pursuant to a consulting agreement for assistance in the
planning, design, direction, supervision and implementation of Company's “new”:
business development, overall sales programs, marketing and training and in such
other matters and areas as may be mutually approved by Consultant and
Company.  The term of the agreement expires on April 15,
2011.
 
 On April
26, 2010, the Company granted 25,000 shares of restricted common stock to a
company for $200 pursuant to a consulting agreement for management consulting,
business advisory, shareholder information and public relations advisory
services.  Such services include, but are not limited to, assisting
the Company in its efforts to enhance its visibility in the financial
community.  The term of the agreement expires on July 25, 2010, and
may be renewed upon mutual written consent of the Parties.
 
 On April
28, 2010, Melissa Metz, individually and as personal representative of the
Estate of Lester M. Metz, deceased (the “Plaintiff”), filed a wrongful death
complaint against Trebor Industries, Inc. and the Company in United States
District Court for the Eastern District of Pennsylvania. The lawsuit alleges
that the deceased suffered fatal injuries while using a Brownie’s product while
performing maintenance in a residential swimming pool. The lawsuit further
alleges that the Brownie’s product caused the deceased to be electrocuted, thus
contributing to the cause of his death. Plaintiff seeks recovery of unspecified
amounts to exceed $75,000 from the Company and Trebor.  We intend to
vigorously defend the lawsuit, and although the ultimate outcome of the lawsuit
cannot be determined at this time, based on our present knowledge of the facts,
believe the lawsuit is without merit. The Company's legal costs of defending
against the civil action will be funded by the Company's insurance policies.
Management believes coverage is adequate to provide for such
lawsuit.  In the event we were found to be responsible or liable, such
costs could be material to the Company.




19




Item
2.  Management’s Discussion and Analysis of Financial Condition and Results
of Operations.




Introductory
Statements




Information
included or incorporated by reference in this filing may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act.  This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements.  Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable
terminology.




This
filing contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
Company’s growth strategies, (c) our Company’s future financing plans and
(d) our Company’s anticipated needs for working capital.  These
statements may be found under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business,” as well as in this
prospectus generally.  Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Risk Factors”
and matters described in this filing generally.  In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this filing will in fact occur.




Overview




Brownie’s
Marine Group, Inc., a Nevada corporation (referred to herein as “BWMG”,”the
Company” or “Brownie’s”), does business through its wholly owned subsidiary,
Trebor Industries, Inc., d/b/a Brownie’s Third Lung, a Florida
corporation.  The Company designs, tests, manufactures and distributes
recreational hookah diving, yacht based scuba air compressor and Nitrox
Generation Systems, and scuba and water safety products.  BWMG sells
its products both on a wholesale and retail basis, and does so from its
headquarters and manufacturing facility in Fort Lauderdale, Florida. The
Company’s common stock is quoted on the OTCBB under the symbol “BWMG”. The
Company’s website is www.Browniesmarinegroup.com.




Mr.
Carmichael has operated Trebor as its President since 1986.  Since
April 16, 2004, Mr. Carmichael has served as President, Acting Principal
Accounting Officer and Acting Chief Financial Officer of the
Company.  From March 23, 2004 to April 26, 2004, Mr. Carmichael served
as the Company’s Executive Vice-President and Chief Operating
Officer.  He is the holder or co-holder of numerous patents that are
used by Trebor and several other large original equipment manufacturers in the
diving industry.




The
Company’s diving and marine based products are generally marketed under the
Brownie’s
Third Lung, Brownie’s Tankfill, and Brownie’s Public
Safety trade names.




Results
of Operations for the Three Months Ended March 31, 2010, As Compared To the
Three Months Ended March 31, 2009




Net
revenues.  For
the three months ended March 31, 2010, we had net revenues of $464,183 as
compared to net revenues of $511,304, for the three months ended March 31, 2009,
a decrease of $47,121, or 9.22%.  The net decrease is primarily
attributable to a decrease in tankfill system sales of approximately $101,000,
partially offset by an increase in hookah system and related sales of
approximately $56,000.  While the Company is encouraged by the
increase in hookah systems sales over the same period in 2009,theCompany
believes thedepressed
stateof
the economy continues to negatively impact overall sales.The
Company’s
productsare
largely non-essential, disposable income type items, and therefore are more
likely to be sacrificed by consumers in preference
for essential goods duringdepressed
economic conditions.




Cost
of net revenues.For
the three months endedMarch
31,2010,
we hadcost
of net revenues of $391,727as
compared withcost
of net revenues of $422,909for
the three months endedMarch
31,2009,
a decrease of $31,182,
or7.37%.Cost
of net revenues decreased primarily as a result of a decrease in net revenues
for the three months ended March 31, 2010, as compared to the three months ended
March 31, 2009.  As a percentage of net revenues, cost of net revenues
remained fairly consistent for the first quarter of 2010, compared to the first
quarter of 2009, 84.39% and 82.71%. respectively, or a change of
1.68%.




20




Gross profit.  For
the three months ended March 31, 2010, we had a gross profit of $72,456 as
compared to gross profit of $88,395 for the three months ended March 31, 2009, a
decrease of $15,939, or 18.03%.  This decrease is primarily
attributable to the decrease in net revenues for the three months ended March
31, 2010, as compared to the same period in 2009.




Operating
expenses.  For the three months ended March 31, 2010, we had
total operating expenses of $273,723 as compared to total operating expenses of
$237,679 for the three months ended March 31, 2009, an increase of $36,044, or
15.16%.  The $36,044 increase is due to an increase
in selling and administrative costs of $30,563, and an increase in research and
development expenses of $5,481 for the three months ended March 31, 2010, as
compared to the same period in 2009.  The increase in research and
development was primarily for allocation of salaries for additional time spent
on research and development activities during the period.  The net
increase in sales and administrative costs for the quarter ended March 31, 2010,
as compared to the same period in 2009, is a net of an increase in accounting
expense of approximately $14,000, an increase in other professional fees of
approximately $22,100, and numerous individually insignificant increases and
decreases in other operating expenses.  The increase in accounting
expense is primarily a result of a restructure in the payment terms of the
external auditor’s engagement.  Previously, the Company paid an agreed
upon monthly fee to the outside auditors for services, resulting in fees being
amortized throughout the year in which the services were provided rather than
for which period the services were for.  Variance in amount under the
engagement letter from year to year has not been significantly different making
treatment in this manner acceptable under generally accepted accounting
principles.  However, in 2010, the Company will no longer pay an
agreed upon monthly amount, but rather pay for services in the period occurred
or shortly thereafter.  As a result, in the first quarter of 2010, the
Company expensed and paid for the 2009 audit and first quarter review resulting
in the increase for the period.  The increase in other professional
fees expense is primarily due to non-cash expense associated with stock options
and stock issued to consultants in the fourth quarter of 2009 and the first
quarter of 2010 as discussed in the Company’s notes to the consolidated
financial statements for the first quarter of 2010.




Other expense,
net.  For the three months ended March 31, 2010, we had other
expense, net of $27,230 as compared to other expense, net of $87,838 for the
three months ended March 31, 2009, a decrease of $60,608, or
69.00%.  This account is comprised of other (income) expense, net
(“other expense”), and interest expense.  Interest expense for the
period decreased $960 and other expense decreased $59,648.  Other expense is comprised of transactions
that are generally of a non recurring nature.The decrease in other expense was primarily a result of $63,000
loss on purchase of patents in the first quarter of 2009, for which there was no
comparable transaction in the first quarter of 2010.




Provision for income tax
benefit.  For the three months ended March 31, 2010, we had a
provision for income tax benefit of $68,343, as compared to $67,528 for the
three months ended March 31, 2009, an increase in provision for income tax
benefit of $815, or 1.21%.




Net loss.For the
three months ended March 31, 2010, we had net loss of $160,154 as compared to
net loss of $169,594 for the three months ended March 31, 2009, a decrease of
$9,440, or 5.57%.




Liquidity
and Capital Resources




As of
March 31, 2010, the Company had cash and current assets of $818,487 and current
liabilities of $1,198,175, or a current ratio of .68.  As of December
31, 2009, the Company had cash and current assets of $704,629 and current
liabilities of $859,066, or a current ratio of .82.




On
February 10, 2010, the Company formalized an extension and modification of their
revolving line of credit that matured on December 2, 2009.  Under the
terms of the modification, the balance due under the revolving line of credit
plus accrued interest was termed out with monthly principal and interest
payments of $1,200 bearing an interest rate of $6.5% per annum. The term of the
loan is one year, maturing on February 12, 2011, with a balloon payment of
$198,816.  Related party debt has been subordinated to this
loan.




The
Company anticipates that cash generated from operations should be sufficient to
satisfy the Company’s contemplated requirements for its current operations for
at least the next twelve months.  The Company does not anticipate any
significant purchases of equipment during fiscal year 2010. The number and level
of employees at March 31, 2010 is deemed adequate to maintain the Company's
operations for at least the next 12 months.




21




Certain
Business Risks




The
Company is subject to various risks, which may materially harm its business,
financial condition and results of operations.  You should carefully
consider the risks and uncertainties described below and the other information
in this filing before deciding to purchase the Company’s common
stock.  These are not the only risks and uncertainties that the
Company faces.  If any of these risks or uncertainties actually
occurs, the Company’s business, financial condition or operating results could
be materially harmed.  In that case, the trading price of the
Company’s common stock could decline and you could lose all or part of your
investment.




Our
Common Stock May Be Affected By Limited Trading Volume and May Fluctuate
Significantly




Our
common stock is traded on the Over-the-Counter Bulletin Board.  There
is a limited public market for our common stock and there can be no assurance
that an active trading market for our common stock will develop. As a result,
this could adversely affect our shareholders’ ability to sell our common stock
in short time periods, or possibly at all.  Thinly traded common stock
can be more volatile than common stock traded in an active public
market.  Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our common stock without regard to our operating
performance.  In addition, we believe that factors such as quarterly
fluctuations in our financial results and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially.




Our
Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
Investors to Sell Their Shares Due To Suitability Requirements




Our common stock is deemed to be
“penny stock” as that term is defined under the Securities Exchange Act of
1934.  Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). Our common stock is covered by an SEC rule that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors,
which are generally institutions with assets in excess of $5,000,000, or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse.




Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks.  Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.




We
Depend On the Services of Our Chief Executive Officer




Our
success largely depends on the efforts and abilities of Robert M. Carmichael,
our President and Chief Executive Officer.  Mr. Carmichael has been
instrumental in securing our existing financing arrangements.  Mr.
Carmichael is primarily responsible for the development of our technology and
the design of our products.  The loss of the services of Mr.
Carmichael could materially harm our business because of the cost and time
necessary to recruit and train a replacement.  Such a loss would also
divert management attention away from operational issues. We do not presently
maintain a key-man life insurance policy on Mr. Carmichael.




We
Require Additional Personnel and Could Fail To Attract or Retain Key
Personnel




Our
continued growth depends on our ability to attract and retain a Chief Financial
Officer, a Chief Operations Officer, and additional skilled
associates.  We are currently utilizing the services of two
professional consultants in the absence of a Chief Financial Officer and Chief
Operations Officer.  The loss of the services of these consultants
prior to our ability to attract and retain a Chief Financial Officer or Chief
Operations Officer may have a material adverse effect upon us. Also, there can
be no assurance that we will be able to retain our existing personnel or attract
additional qualified associates in the future.




22




Our
Failure to Obtain Intellectual Property and Enforce Protection Would Have a
Material Adverse Effect on Our Business




Our
success depends in part on our ability, and the ability of our patent and
trademark licensors, entities owned and controlled by Robert M. Carmichael, our
President and Chief Executive Officer, to obtain and defend our intellectual
property, including patent protection for our products and processes, preserve
our trade secrets, defend and enforce our rights against infringement and
operate without infringing the proprietary rights of third parties, both in the
United States and in other countries.  Despite our efforts to protect
our intellectual proprietary rights, existing copyright, trademark and trade
secret laws afford only limited protection.




Our
industry is characterized by frequent intellectual property litigation based on
allegations of infringement of intellectual property rights.  Although
we are not aware of any intellectual property claims against us, we may be a
party to litigation in the future.




We
May Be Unable To Manage Growth




Successful
implementation of our business strategy requires us to manage our growth. Growth
could place an increasing strain on our management and financial
resources.  If we fail to manage our growth effectively, our business,
financial condition or operating results could be materially harmed, and our
stock price may decline.




Reliance
on Vendors and Manufacturers




We deal
with suppliers on an order-by order basis and have no long-term purchase
contracts or other contractual assurances of continued supply or
pricing.  In addition, we have no long-term contracts with our
manufacturing sources and compete with other companies for production facility
capacity.  Historically, we have purchased enough inventories of
products or their substitutes to satisfy demand.  However,
unanticipated failure of any manufacturer or supplier to meet our requirements
or our inability to build or obtain substitutes could force us to curtail or
cease operations.




Dependence
on Consumer Spending




The
success of the our business depends largely upon a number of factors related to
consumer spending, including current and future economic conditions affecting
disposable consumer income such as employment, business conditions, tax rates,
and interest rates.  In times of economic uncertainty, consumers tend
to defer expenditures for discretionary items, which affects demand for our
products.  Any significant deterioration in overall economic
conditions that diminishes consumer confidence or discretionary income can
reduce our sales and adversely affect our financial results.  The
impact of weakening consumer credit markets; layoffs; corporate restructurings;
higher fuel prices; declines in the value of investments and residential real
estate; and increases in federal and state taxation can all negatively affect
our results.  There can be no assurance that in this type of
environment consumer spending will not decline beyond current levels, thereby
adversely affecting our growth, net sales and profitability or that our business
will not be adversely affected by continuing or future downturns in the economy,
boating industry, or dive industry.  If declines in consumer spending
on recreational marine accessories and dive gear are other than temporary, we
could be forced to curtail operations.




Government
Regulations May Impact Us




The SCUBA
industry is self-regulating; therefore, Brownie’s is not subject to government
industry specific regulation.  Nevertheless, Brownie’s strives to be a
leader in promoting safe diving practices within the industry and is at the
forefront of self-regulation through responsible diving
practices.  Brownie’s is subject to all regulations applicable to “for
profit” companies as well as all trade and general commerce governmental
regulation.  All required federal and state permits, licenses, and
bonds to operate its facility have been obtained.  There can be no
assurance that our operations will not be subject to more restrictive
regulations in the future, which could force us to curtail or cease
operations.




Bad
Weather Conditions Could Have an Adverse Effect on Operating
Results




Our
business is significantly impacted by weather patterns. Unseasonably cool
weather, extraordinary amounts of rainfall, or unseasonably rough surf, may
decrease boat use and diving, thereby decreasing
sales.   Accordingly, our results of operations for any prior
period may not be indicative of results of any future period.




23




Investors
Should Not Rely On an Investment in Our Stock for the Payment of Cash
Dividends




We have
not paid any cash dividends on our capital stock and we do not anticipate paying
cash dividends in the future.  Investors should not make an investment
in our common stock if they require dividend income.  Any return on an
investment in our common stock will be as a result of any appreciation, if any,
in our stock price.




The
Manufacture and Distribution of Recreational Diving Equipment Could Result In
Product Liability Claims




We, like
any other retailer, distributor and manufacturer of products that are designed
for recreational sporting purposes, face an inherent risk of exposure to product
liability claims in the event that the use of our products results in
injury.  Such claims may include, among other things, that our
products are designed and/or manufactured improperly or fail to include adequate
instructions as to proper use and/or side effects, if any.  We do not
anticipate obtaining contractual indemnification from parties-supplying raw materials,manufacturing our products
or marketing our products.  In any event, any such indemnification if
obtained will be limited by our terms and, as a practical matter, to the
creditworthiness of the indemnifying party. In the event that we do not have
adequate insurance or contractual indemnification, product liabilities relating
to defective products could have a material adverse effect on our operations and
financial conditions, which could force us to curtail or cease our business
operations.




Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.




Market
risk generally represents the risk of loss that may be expected to result from
the potential change in value of a financial instrument as a result of
fluctuations in credit ratings of the issuer, equity prices, interest rates or
foreign currency exchange rates. We do not use derivative financial instruments
for any purpose.




Item
4T.  Controls and Procedures




Evaluation of Disclosure Controls and
Procedures




As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Principal
Executive Officer/Principal Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and
procedures.  The Company’s disclosure controls and procedures are
designed to provide a reasonable level of assurance of achieving the Company’s
disclosure control objectives.  The Company’s Principal Executive
Officer/Principal Accounting Officer has concluded that the Company’s disclosure
controls and procedures are, in fact, effective at this reasonable assurance
level as of the end of period covered by this report.




Changes in Internal
Controls




There
were no changes in our internal controls over financial reporting during the
period covered by this report that have materially affected or are likely to
materially affect the Company’s internal controls over financial
reporting.




24




PART
II – OTHER INFORMATION




Item
1.  Legal Proceedings




On April
28, 2010, Melissa Metz, individually and as personal representative of the
Estate of Lester M. Metz, deceased (the “Plaintiff”), filed a wrongful death
complaint against Trebor Industries, Inc. and the Company in United States
District Court for the Eastern District of Pennsylvania. The lawsuit alleges
that the deceased suffered fatal injuries while using a Brownie’s product while
performing maintenance in a residential swimming pool. The lawsuit further
alleges that the Brownie’s product caused the deceased to be electrocuted, thus
contributing to the cause of his death. Plaintiff seeks recovery of unspecified
amounts to exceed $75,000 from the Company and Trebor.  We intend to
vigorously defend the lawsuit, and although the ultimate outcome of the lawsuit
cannot be determined at this time, based on our present knowledge of the facts,
believe the lawsuit is completely without merit. The Company's legal costs of
defending against the civil action will be funded by the Company's insurance
policies. Management believes coverage is adequate to provide for such
lawsuit.  In the event we were found to be responsible or liable, such
costs could be material to the Company.




Item
1a. Risk Factors




Not
Applicable to Smaller Reporting Company.




Item 2.Unregistered sales of equity
securitiesand Use of Proceeds




During the quarter ended March 31, 2010
and in April 2010, the Company sold securities without registration under the
Securities Act of 1933 in reliance upon the exemption provided in Section 4(2)
as described below.  The securities were issued with a legend
restricting their transferability absent registration of applicable
exemption.





On March 9, 2010, the Company granted
100,000 shares of restricted common stock pursuant to a consulting agreement for
assistance in the planning, design, direction, supervision and implementation of
Company's web design, marketing and advertising and in such other matters and
areas as may be mutually approved by Consultant and Company.





On April
19, 2010, the Company granted 100,000 shares of restricted common stock to an
individual pursuant to a consulting agreement for assistance in the planning,
design, direction, supervision and implementation of Company's web design,
marketing and advertising and in such other matters and areas as may be mutually
approved by Consultant and Company.  The term of the agreement expires
on December 31, 2010.





On April
19, 2010, the Company granted 100,000 shares of restricted common stock to
another individual pursuant to consulting agreement for assistance in the
planning, design, direction, supervision and implementation of Company's web
design, marketing and advertising and in such other matters and areas as may be
mutually approved by Consultant and Company.  The term of the
agreement expires on December 31, 2010.





On April
16, 2010, the Company granted 100,000 shares of restricted common stock to an
individual pursuant to a consulting agreement for assistance in the planning,
design, direction, supervision and implementation of Company's web design,
marketing and advertising and in such other matters and areas as may be mutually
approved by Consultant and Company.  The term of the agreement expires
on December 31, 2010.





On April
16, 2010, the Company granted 50,000 shares of restricted common stock to
another individual pursuant to a consulting agreement for assistance in the
planning, design, direction, supervision and implementation of Company's new
business development strategy, overall sales programs, marketing and training
and in such other matters and areas as may be mutually approved by Consultant
and Company.  The term of the agreement expires on April 15,
2011.





On April
26, 2010, the Company granted 25,000 shares of restricted common stock to a
consulting company for $200 pursuant to a consulting agreement for management
consulting, business advisory, shareholder information and public relations
advisory services.  Such services include, but are not limited to,
assisting the Company in its efforts to enhance its visibility in the financial
community.  The term of the agreement expires on July 25, 2010, and
may be renewed upon mutual written consent of the Parties.




25




Item
3.  Defaults Upon Senior Securities




None.




Item
4.  (Removed and Reserved)




Item
5.  Other Information




None.




26




Item
6.  Exhibits




Exhibit
      No.
            
            Description
            
            Location2.2
            
            Merger
      Agreement, dated June 18, 2002 by and
              among
      United Companies Corporation, Merger Co.,
              Inc.
      and Avid Sportswear & Golf Corp.
            
            Incorporated
      by reference to Exhibit 2.02 Amendment No. 1 to Form S-4 filed June 24,
      2002.2.3
            
            Articles
      of Merger of Avid Sportswear & Golf
              Corp.
      with and into Merger Co., Inc.
            
            Incorporated
      by reference to Exhibit 2.03 Amendment No. 1 to Form S-4 filed June 24,
      2002.3.1
            
            Articles
      of Incorporation
            
            Incorporated
      by reference to Exhibit 3.1 of 10-Q for the quarter ended September 30,
      2009 filed on November 13, 2009.3.2
            
            Articles
      of Amendment
            
            Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.3.2
            
            Bylaws
            
            Incorporated
      by reference to Exhibit 3.04 to the Registration Statement on Form
      10-SB.5.1
            
            2007
      Stock Option Plan
            
            Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.10.1
            
            Share
      Exchange Agreement, dated March 23, 2004
              by
      and among the Company, Trebor Industries, Inc.
              and
      Robert Carmichael
            
            Incorporated
      by reference to Exhibit 16.1 to Current Report on Form 8-K filed April 9,
      200410.2
            
            Non-Exclusive
      License Agreement –
              BC
      Keel Trademark
            
            Incorporated
      by reference to Exhibit 10.18 to Form 10QSB for the quarter ended June 30,
      2005 filed August 15, 2005.10.3
            
            Exclusive
      License Agreement - Brownie's Third
              Lung,
      Brownie's Public Safety, Tankfill, and
              Related
      Trademarks and Copyrights
            
            Incorporated
      by reference to Exhibit 10.20 to Form 10QSB for the quarter ended March
      31, 2005 filed August 15, 2005.10.4
            
            Non-Exclusive
      License Agreement -
              Garment
      Integrated or Garment Attachable
              Flotation
      Aid and/or PFD
            
            Incorporated
      by reference to Exhibit 10.22 to Form 10QSB for the quarter ended June 30,
      2005 filed August 15, 2005.10.5
            
            Non-Exclusive
      License Agreement - SHERPA
              Trademark
      and Inflatable Flotation Aid/Signal
              Device
      Technology
            
            Incorporated
      by reference to Exhibit 10.24 to Form 10QSB for the quarter ended June 30,
      2005 filed August 15, 2005.10.6
            
            Non-Exclusive
      License Agreement - Tank-
              Mounted
      Weight, BC or PFD-Mounted Trim
              Weight
      or Trim Weight Holding System
            
            Incorporated
      by reference to Exhibit 10.25 to Form 10QSB for the quarter ended June 30,
      2005 filed August 15, 2005.10.7
            
            Exclusive
      License Agreement – Brownie’s Third
              Lung
      and Related Trademarks and Copyright
            
            Incorporated
      by reference to Exhibit 10.26 to Form 10KSB for the year ended December
      31, 2006 filed April 4, 2007.10.8
            
            Agreement
      for Purchase and Sale of Property
              Between
      Trebor Industries, Inc. and GKR
              Associates,
      Inc. dated February 21, 2007
            
            Incorporated
      by reference to Exhibit 10.28 to Form 10KSB for the year ended December
      31, 2006 filed April 4, 2007.  27
  Exhibit
      No.
                
                Description
                
                Location
 10.9
                                                
                                                First
      Mortgage dated February 22, 2007
                                                  between
      Trebor Industries, Inc. and
                                                  Colonial
      Bank
                                                
                                                Incorporated
      by reference to Exhibit 10.29 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.10
                                                
                                                Note
      dated February 22, 2007 payable
                                                  to
      GKR Associates, Inc.
                                                
                                                Incorporated
      by reference to Exhibit 10.30 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.11
                                                
                                                Second Mortgage dated February 22, 2007
                                                  between
      Trebor Industries, Inc. and  GKR
                                                  Associates,
      LLC.
                                                
                                                Incorporated
      by reference to Exhibit 10.31 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.12
                                                
                                                Promissory Note dated January 1, 2007
                                                  payable
      to Robert M. Carmichael.
                                                
                                                Incorporated
      by reference to Exhibit 10.32 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.13
                                                
                                                Asset
      Purchase Agreement between Trebor
                                                  Industries,
      Inc. and Robert Carmichael.
                                                
                                                Incorporated by reference to Form 8Kfiled on August 1, 2008.10.14
                                                
                                                Asset
      Purchase Agreement between Trebor
                                                  Industries,
      Inc. and Robert Carmichael.
                                                
                                                Incorporated by reference to Form 8K filed on March 5,
      2009.10.15
                                                
                                                Asset
      Purchase Agreement between Trebor
                                                  Industries,
      Inc. and Robert Carmichael.
                                                
                                                Incorporated by reference to Form 8K filed on January 19,
      2010.31.1
                                                
                                                Certification
      Pursuant to Rule 13a-14(a)/15d-14(a)
                                                
                                                Provided
      herewith.31.2
                                                
                                                Certification
      Pursuant to Rule 13a-14(a)/15d-14(a)
                                                
                                                Provided
      herewith.32.1
                                                
                                                Certification
      Pursuant to Section 1350
                                                
                                                Provided
      herewith.32.2
                                                
                                                Certification
      Pursuant to Section 1350
                                                
                                                Provided
      herewith




28




SIGNATURES




In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




Date:    
      May 17,
      2010
                Brownie’s
      Marine Group, Inc.By:
                /s/  Robert
      M. CarmichaelRobert
      M. CarmichaelPresident,
      Chief Executive Officer,Chief
      Financial Officer/Principal
      Accounting Officer




29