U.S.
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
DC  20549
   FORM
10-Q
 (MARK
ONE)
 
 þQuarterly Report
Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934
  For the
quarterly period ended March
31, 2009
  oTransition 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 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 filero
                  Accelerated
      filer oNon-accelerated
      filero
                  (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 1,785,538 shares of common stock outstanding as of May 1,
2009.
  
 PART
I
  Item
1. Financial Statements
  Financial
Information
  BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
BALANCE SHEETS
 March 31,2009
                          
                          
                          December
31,(Unaudited)
                          
                          
                          2008ASSETSCurrent
    assetsCash
                          
                          $
                          28,017
                          
                          
                          $
                          3,532Accounts receivable, net of
      $16,000 and $25,000 allowance
                            for doubtful accounts,
      respectively
                          
                          
                          27,595
                          
                          
                          
                          34,328Accounts receivable - related
      parties
                          
                          
                          25,494
                          
                          
                          
                          41,059Inventory
                          
                          
                          645,569
                          
                          
                          
                          735,036Prepaid expenses and other current
      assets
                          
                          
                          95,498
                          
                          
                          
                          94,079Costs and estimated earnings in
      excess of billings on uncompleted contract
                          
                          
                          --
                          
                          
                          
                          287,861Deferred tax assets, net -
      current
                          
                          
                          59,939
                          
                          
                          
                          456Total current
      assets
                          
                          
                          882,112
                          
                          
                          
                          1,196,351Property, plant and equipment,
      net
                          
                          
                          1,193,940
                          
                          
                          
                          1,199,554Deferred tax asset, net -
      non-current
                          
                          
                          5,634
                          
                          
                          
                          --Other
assets
                          
                          
                          6,968
                          
                          
                          
                          6,968Total
assets
                          
                          $
                          2,088,654
                          
                          
                          $
                          2,402,873LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilitiesAccounts payable and accrued
      liabilities
                          
                          $
                          363,084
                          
                          
                          $
                          329,488Customer
      deposits
                          
                          
                          40,071
                          
                          
                          
                          194,425Royalties payable - related
      parties
                          
                          
                          31,676
                          
                          
                          
                          42,865Other liabilities and accrued
      interest - related parties
                          
                          
                          40,964
                          
                          
                          
                          44,151Income taxes
      payable
                          
                          
                          10,649
                          
                          
                          
                          30,649Other
      liabilities
                          
                          
                          4,318
                          
                          
                          
                          4,232Notes payable - current
      portion
                          
                          
                          224,974
                          
                          
                          
                          244,188Notes payable - related parties -
      current portion
                          
                          
                          93,663
                          
                          
                          
                          86,677Total current
      liabilities
                          
                          
                          809,399
                          
                          
                          
                          976,675Deferred tax liability, net -
      non-current
                          
                          
                          --
                          
                          
                          
                          2,411Notes payable - long-term
      portion
                          
                          
                          870,646
                          
                          
                          
                          882,410Notes payable - related parties -
      long-term portion
                          
                          
                          288,182
                          
                          
                          
                          314,356Total
      liabilities
                          
                          
                          1,968,227
                          
                          
                          
                          2,175,852Commitments and
      contingenciesStockholders'
      equityCommon stock; $0.001 par value;
      250,000,000 shares authorized
                            1,785,538 and 1,785,538 shares
      issued and outstanding, respectively
                          
                          
                          1,785
                          
                          
                          
                          1,785Additional paid-in
      capital
                          
                          
                          1,147,216
                          
                          
                          
                          1,084,216Accumulated
      deficit
                          
                          
                          (1,028,574
                          )
                          
                          
                          (858,980
                          )Total stockholders'
      equity
                          
                          
                          120,427
                          
                          
                          
                          227,021Total liabilities and
      stockholders' equity
                          
                          $
                          2,088,654
                          
                          
                          $
                          2,402,873
 
  See
Accompanying Notes to Consolidated Financial Statements
  1




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






Three
      Months Ended March 31,2009
              
              
              2008Net
      revenuesNet
      revenues
              
              $
              399,308
              
              
              $
              936,901Net
      revenues - related parties
              
              
              111,996
              
              
              
              257,900Total
      net revenues
              
              
              511,304
              
              
              
              1,194,801Cost
      of net revenuesCost
      of net revenues
              
              
              402,646
              
              
              
              806,032Royalties
      - related parties
              
              
              20,263
              
              
              
              23,620Total
      cost of net revenues
              
              
              422,909
              
              
              
              829,652Gross
      profit
              
              
              88,395
              
              
              
              365,149Operating
      expensesResearch
      and development costs
              
              
              10,079
              
              
              
              130Selling,
      general and administrative costs
              
              
              227,600
              
              
              
              232,691Total
      operating expenses
              
              
              237,679
              
              
              
              232,821Income
      (loss) from operations
              
              
              (149,284
              )
              
              
              132,328Other
      expense, netOther
      expense (income), net
              
              
              60,781
              
              
              
              (3,227
              )Interest
      expense
              
              
              19,955
              
              
              
              16,749Interest
      expense - related parties
              
              
              7,102
              
              
              
              16,133Total
      other expense, net
              
              
              87,838
              
              
              
              29,655Net
      (loss) income before provision for income taxes
              
              
              (237,122
              )
              
              
              102,673Provision
      for income tax (benefit) expense
              
              
              (67,528
              )
              
              
              5,596Net
      (loss) income
              
              $
              (169,594
              )
              
              $
              97,077Basic (loss)
      earnings per common share
              
              $
              (0.10
              )
              
              $
              0.06Diluted
      (loss) earnings per common share
              
              $
              (0.10
              )
              
              $
              0.06Basic
      weighted average commonshares
      outstanding
              
              
              1,785,538
              
              
              
              1,685,538Diluted
      weighted average commonshares
      outstanding
              
              
              1,785,538
              
              
              
              1,685,538




See
Accompanying Notes to Consolidated Financial Statements




2


BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY




Additional
              
              
              
              
              
              TotalCommon
      Stock
              
              
              Paid-in
              
              
              Accumulated
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              EquityBalance,
      December 31, 2008
              
              
              1,785,538
              
              
              $
              1,785
              
              
              $
              1,084,216
              
              
              $
              (858,980
              )
              
              $
              227,021Purchase
      of Issued and Pending Patents forstock
      options granted on March 3, 2009
              
              
              --
              
              
              
              --
              
              
              
              63,000
              
              
              
              --
              
              
              
              63,000Net
      loss
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (169,594
              )
              
              
              (169,594
              )Balance,
      March 31, 2009 (Unaudited)
              
              
              1,785,538
              
              
              $
              1,785
              
              
              $
              1,147,216
              
              
              $
              (1,028,574
              )
              
              $
              120,427






See
Accompanying Notes to Consolidated Financial Statements
  3




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


(UNAUDITED)




Three
      Months Ended March 31,2009
              
              
              2008Cash
      flows from operating activities:Net
      (loss) income
              
              $
              (169,594
              )
              
              $
              97,077Adjustments
      to reconcile net income to netcash
      provided by operating activities:Depreciation
              
              
              9,034
              
              
              
              9,803Amortization
              
              
              180
              
              
              
              --Change
      in deferred tax asset, net
              
              
              (65,117
              )
              
              
              524Issuance
      of equity based stock options
              
              
              63,000
              
              
              
              --Change
      in deferred tax liability, net
              
              
              (2,411
              )
              
              
              --Changes
      in operating assets and liabilities:Change
      in accounts receivable, net
              
              
              6,733
              
              
              
              10,071Change
      in accounts receivable - related parties
              
              
              15,565
              
              
              
              1,501Change
      in inventory
              
              
              89,467
              
              
              
              128,172Change
      in costs and estimated earnings in excess of billingson
      uncompleted projects
              
              
              287,861
              
              
              
              (334,135
              )Change
      in prepaid expenses and other current assets
              
              
              (1,419
              )
              
              
              17,444Change
      in accounts payable and accrued liabilities
              
              
              33,596
              
              
              
              (68,882
              )Change
      in customer deposits
              
              
              (154,354
              )
              
              
              165,083Change
      in other liabilities, net
              
              
              86
              
              
              
              (3,181
              )Change
      in income taxes payable
              
              
              (20,000
              )
              
              
              5,072Change
      in other liabilities and accrued interest - related
parties
              
              
              (3,187
              )
              
              
              (18,467
              )Change
      in royalties payable - related parties
              
              
              (11,189
              )
              
              
              8,323Net
      cash provided by operating activities
              
              
              78,251
              
              
              
              18,405Cash
      flows from investing activities:Purchase
      of fixed assets
              
              
              (3,600
              )
              
              
              (1,032
              )Net
      cash used in investing activities
              
              
              (3,600
              )
              
              
              (1,032
              )Cash
      flows from financing activities:Principal
      payments on notes payable
              
              
              (30,978
              )
              
              
              (11,321
              )Principal
      payments on notes payable - related parties
              
              
              (19,188
              )
              
              
              (16,431
              )Net
      cash used in financing activities
              
              
              (50,166
              )
              
              
              (27,752
              )Net
      change in cash
              
              
              24,485
              
              
              
              (10,379
              )Cash,
      beginning of period
              
              
              3,532
              
              
              
              142,516Cash,
      end of period
              
              $
              28,017
              
              
              $
              132,137Supplemental
      disclosure of cash flow information:Cash
      paid for interest
              
              $
              26,930
              
              
              $
              31,336Cash
      paid for income taxes
              
              $
              20,000
              
              
              $
              --Supplemental
      disclosure of non-cash investing activities:Stock
      options and additional paid in capital issued forpurchase
      of issued and pending patents on March 3, 2009
              
              $
              63,000
              
              
              $
              --






See
Accompanying Notes to Consolidated Financial Statements




4


BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
   
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 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.
 
 Prior to
August 22, 2007 the Company was known as United Companies Corporation
(hereinafter referred to as “UCC”).  The Company changed its name to
Brownie’s Marine Group, Inc. during the third quarter of 2007, a name the
Company believes more closely reflects its line of business, and also has
associated tradename recognition.
 
 History –The Company
was incorporated under the laws of Nevada on November 26, 2001, with authorized
common stock of 250,000,000 shares with a par value of $0.001.  On
August 22, 2007, the Company effectuated a 1-for-100 reverse stock split of the
Common Stock whereby every one hundred shares of Common Stock outstanding was
combined and reduced to one share of Common Stock.  Fractional shares
were rounded up and this resulted in an additional 146 shares
issued.  All footnotes and financial statement amounts that relate to
common share data have been retrospectively adjusted to reflect the reverse
stock split.
 
 On March
23, 2004, UCC consummated an agreement to acquire all of the outstanding capital
stock of Trebor Industries, Inc., dba Brownie’s Third Lung, in
exchange for 950,000 shares of the Company’s common stock (“the UCC
Transaction”).  Prior to the UCC Transaction, UCC was a non-operating
public shell company with no operations, nominal assets, accrued liabilities
totaling $224,323 and 144,837 shares of common stock issued and outstanding; and
Trebor Industries, Inc., dba Brownie’s Third Lung, was
a manufacturer and distributor of hookah diving, and yacht-based scuba air
compressor and Nitrox Generation Systems from its factory in Ft. Lauderdale,
Florida.  The UCC Transaction is considered to be a capital
transaction in substance, rather than a business
combination.  Inasmuch, the UCC Transaction is equivalent to the
issuance of stock by Trebor Industries, Inc., for the net monetary assets of a
non-operational public shell company, accompanied by a
recapitalization.  UCC issued 950,000 shares of its common stock for
all of the issued and outstanding common stock of Trebor Industries, Inc. The
accounting for the UCC Transaction is identical to that resulting from a reverse
acquisition, except goodwill or other intangible assets will not be
recorded.  Accordingly, these financial statements are the historical
financial statements of Trebor Industries, Inc.  Trebor Industries,
Inc. was incorporated in September 17, 1981.  Therefore, these
financial statements reflect activities from September 17, 1981 (Date of
Inception for Trebor Industries, Inc.) and forward.
 
 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 2008 financial statement amounts
to conform to the 2009 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.
 
 5
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
                DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 
 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.
 
 Fixed assets – Fixed
assets 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.
 
 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 recognizes advertising expenses in accordance with
Statement of Position 93-7 “Reporting on Advertising Costs.” Accordingly, the
Company expenses the costs of producing advertisements at the time production
occurs, and expenses the costs of communicating advertisements in the period in
which the advertising space or airtime is used.  Advertising and trade
show expense incurred for the three months ended March 31, 2009 and 2008, was
$1,289 and $8,524 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.
 
 6
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 
 Income taxes – The
Company accounts for its income taxes in accordance with Statement of Financial
Accounting Standards (“FASB”) No. 109, which requires recognition of deferred
tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
 
 The
Company accounts for uncertainty in tax positions in accordance with FASB
Interpretation 48 (“FIN 48”).  FIN 48 requires the recognition of a
tax position when it is more likely than not that the tax position will be
sustained upon examination by relevant taxing authorities, based on the
technical merits of the position.
 
 Comprehensive income
– The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
 
 Stock-based
compensation –  The Company accounts for stock based
compensation in accordance with Statement of Financial Accounting Standards No.
123 revised that requires that the Company measures the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award.  That cost is recognized over the
period the employee is required to provide service in exchange for the
award.
 
 For the
three months ended March 31, 2009 and 2008, the Company did not grant any
incentive stock options to employees, consultants or officers.
 
 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 (loss) 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, 2009 and 2008, since their effect was
antidilutive.
 
 New accounting
pronouncements – In May 2008, FASB issued Financial Accounting Statement
(“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles
(“GAAP”).  The GAAP hierarchy is currently set forth in the American
Institute of Certified Public Accountants (“AICPA”) Statement on Auditing
Standards No. 69, the Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.  Auditing Standards No. 69 is (1)
directed to the auditor, (2) is complex, and (3) ranks FASB Statements of
Financial Accounting Concepts, which are subject to the same level of due
process as the FASB Statements of Financial Accounting Statements, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process.  The Board believes the GAAP hierarchy
should reside in the accounting literature established by the FASB and instead
of being directed to the auditor, should be directed to entities since they are
responsible for selecting accounting principles for financial statements that
are presented in accordance with GAAP.  This statement is to become
effective 60 days following the Security and Exchange Commission’s (“SEC”)
approval of the Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.  The Company does not expect any significant financial
impact upon adoption of SFAS No. 162.
 
 7
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 
 In May
2008, the FASB issued STAFF POSITION (“FSP”) No. APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement”.  This FSP applies to convertible
debt instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. FSP No. 14-1 clarifies that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies
that issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost recognized in subsequent periods. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years.  The
Company does not currently have any debt instruments for which this FSP would
apply.  This FSP was adopted in January 2009 without significant
financial impact.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No.
133.”  This statement is intended to enhance the current disclosure
framework in SFAS No. 133.  Under SFAS No. 161, entities will have to
provide disclosures about (a) how and why and entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c), how
derivative instruments and related hedged items effect an entity’s financial
position, financial performance and cash flows.  SFAS No. 161 is
effective for all financial statements issued for fiscal and interim periods
beginning after November 15, 2008.  The Company does not currently
have any derivative instruments, nor does it engage in hedging activities,
therefore, the Company’s adoption of this SFAS in the first quarter of 2009 was
without significant financial impact.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. SFAS 141R is effective for the Company with
respect to business combinations for which the acquisition date is on or after
January 1, 2009. The Company adopted this SFAS in the first quarter of 2009
without significant financial impact.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership interests
in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of
noncontrolling owners. SFAS 160 is effective for the Company as of
January 1, 2009. The Company adopted this SFAS in January 2009 without
significant impact on the consolidated financial position, results of
operations, and disclosures.
 
 In
December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 110 (“SAB
110”).  SAB 110 relates to the use of the “simplified” method, as
discussed in SAB No.107 (“SAB 107”), in developing an estimate of expected term
of “plain vanilla” share option in accordance with SFAS No. 123 (revised 2004),
Share-Based Payment.  The Staff’s view in SAB 107 was that it did not
expect companies to use the simplified method for share option grants after
December 31, 2007 since it believed that more detailed external information
about employee exercise behavior would be available to companies by this
date.  Since this is not true in all cases, SAB 110 states that under
certain circumstances, the Staff will continue to accept the use of the
simplified method beyond December 31, 2007.  The Company is currently
evaluating this guidance and does not anticipate it will have significant
financial impact.


8
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
    2.
                INVENTORY
 Inventory
consists of the following as of:
  March
      31, 2009
                
                
                December
      31, 2008(Unaudited)Raw
      materials
                
                $
                394,147
                
                
                $
                485,367Work
      in process
                
                
                --
                
                
                
                --Finished
      Goods
                
                
                251,422
                
                
                
                249,669$
                645,569
                
                
                $
                735,036
 3.
                PREPAID EXPENSES AND
      OTHER CURRENT ASSETS
 Prepaid
expenses and other current assets totaling $95,498 at March 31, 2009, consists
of $70,000 of prepayments for inventory, $21,633 of prepaid insurance, $2,300 of
employee advances, and $1,565 of other prepaid expenses and current
assets.
 
 Prepaid
expenses and other current assets totaling $94,079 at December 31, 2008,
consists of $70,000 of prepaid inventory, $20,267 of prepaid insurance, $1,040
of prepaid software maintenance, $2,550 of employee advances, and $222 of other
prepaid expenses and current assets.
 4.
                PROPERTY, PLANT AND
      EQUIPMENT
 Property, plant and equipment consists
of the following as of:
 
 March 31, 2009
              
              
              December 31, 2008(Unaudited)Building
      and land
              
              $
              1,224,962
              
              
              $
              1,221,362Furniture,
      fixtures, vehicles and equipment
              
              
              240,787
              
              
              
              248,7871,465,749
              
              
              
              1,470,149Less:
      accumulated depreciation and amortization
              
              
              271,809
              
              
              
              270,595$
              1,193,940
              
              
              $
              1,199,554
 
 5.
              CUSTOMER CREDIT
      CONCENTRATIONS
 
 Sales to
Brownie’s Southport Diver’s, Inc. for the three months ended March 31, 2009 and
2008 represented 15.58% and 14.60%, respectively, of total net
revenues.  Sales to Privacy LTD. and Westport Shipyard, Inc. for the
three months ended March 31, 2009 represented 18.01% and 11.07%, respectively,
of total net revenues.  Sales to Al Masaood Marine and Engineering
Division and to Shadow Marine for the three months ended March 31, 2008
represented 17.07% and 19.51%, respectively, of total net
revenues.  Sales to no other customers represented greater than 10% of
net revenues for the three months ended March 31, 2009 and 2008.
 
 The
brother of Robert Carmichael, the Company’s Chief Executive Officer, as further
discussed in Note 6 - RELATED PARTY
TRANSACTIONS, owns Brownie’s Southport Diver’s Inc.
 
 9
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 6.
              RELATED PARTY
      TRANSACTIONS
 Notes payable – related
parties
  Notes
payable – related parties consists of the following as of March 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.
                
                $
                319,339Promissory
      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 $1,169,119 at March 31, 2009,
      bearing 6.99% interest per annum, due in monthly principal and interest
      payments of $1,980, maturing on February 22, 2012.
                
                
                62,506381,845Less
      amounts due within one year
                
                
                93,663Long-term
      portion of notes payable – related parties
                
                $
                288,182
  As of
March 31, 2009, principal payments on the notes payable – related parties are as
follows:
  2009
                
                $
                72,1882010
                
                
                88,3192011
                
                
                95,0612012
                
                
                81,9822013
                
                
                44,295Thereafter
                
                
                --$
                381,845
  Notes payable – related parties consists of the following as of
December 31, 2008:
  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.
                
                $
                333,737Promissory
      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 $1,172,227 at December 31,
      2008, bearing 6.99% interest per annum, due in monthly principal and
      interest payments of $1,980, maturing on February 22, 2012
                
                
                67,296401,033Less
      amounts due within one year
                
                
                86,677Long-term
      portion of notes payable – related parties
                
                $
                314,356
 10
 
  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 owned by the brother of the Company’s Chief Executive Officer,
Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s
Yacht Toys.  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 the three months ended March 31, 2009 and 2008, was $111,996
and $257,900, respectively.  Accounts receivable from Brownie’s
SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys
at March 31, 2009, was $16,581, $1,983, and $6,930,
respectively.  Accounts receivable from Brownie’s SouthPort Diver’s,
Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31,
2008, was $11,875, $8,903, and $3,982, respectively.  Accounts
receivable from Robert Carmichael and 940 Associates, Inc. was $2,207 and
$13,679, respectively, at December 31, 2008.
 
 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,
2009 and 2008, was $20,263 and $23,620, respectively.
 
 Consulting expense –
Jeff Morris, an approximately 5% beneficial owner of common stock of the
Company, provides management and strategic consulting services for
BWMG.  For these services, Mr. Morris earned $20,000, and $30,000,
from the Company for the three months ended March 31, 2009, and 2008,
respectively.  As of March 31, 2009, the Company was $35,000 in
arrears on payments due Mr. Morris for these services.
 
 Patent Purchase
Agreement – Effective March 3, 2009, the Company entered into a Patent
Purchase Agreement with Robert M. Carmichael, the Chief Executive Officer of the
Company.  The Company purchased several patents it had previously been
paying royalties on and several related unissued patents.  In exchange
for the Intellectual Property, the Company issued Mr. Carmichael 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 Intellectual Property (“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.
  11
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  
 6.
              RELATED PARTY
      TRANSACTIONS (continued)
 
 Other liabilities – related
parties
  Other liabilities – related parties consists of the following
      at:March 31, 2009 (Unaudited)
              
              
              December 31, 2008Accrued
      Interest on Notes payable – related parties
              
              $
              5,964
              
              
              $
              4,151Management
      and strategic consulting service due Jeff Morris
              
              
              35,000
              
              
              
              40,000Other
      liabilities – related parties
              
              $
              40,964
              
              
              $
              44,151
 
 7.
              ACCOUNTS PAYABLE AND
      ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities of $363,084 at March 31, 2009 consists of
$205,903 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$85,355 of accrued payroll and related fringe benefits, $6,000 accrued real
estate taxes, $1,653 of accrued interest, and $3,599 of other liabilities and
accruals.
 
 Accounts
payable and accrued liabilities of $329,488 at December 31, 2008 consists of
$186,774 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$79,072 of accrued payroll and related fringe benefits, $1,487 of accrued
interest, and $1,581 of other liabilities and accruals.
 
 8.
              OTHER
      LIABILITIES
 
 Other
liabilities of $4,318 at March 31, 2009 consists of $4,279 of on-line training
liability, and $39 of deferred tooling expense. Other liabilities of $4,232 at
December 31, 2008 consists of $4,193 on-line training liability and $39 of
deferred tooling expense.
 
 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.
 
 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 are redeemed and the related payments are 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 maintain a reserve for certificate
redemption of 10% that approximates the historical redemption rate.
 
 12
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 9.
              NOTES
      PAYABLE
 
 Notes
payable consists of the following as of March 31, 2009:
  Revolving
      Line of Credit secured by a third mortgage on the real property of the
      Company with a carrying value $1,169,119 at March 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.
                
                $
                180,000Promissory
      note payable secured by a first mortgage on the real property of the
      Company having a carrying value of $1,169,119 at March 31, 2009, interest
      at 6.99% per annum, due in monthly principal and interest bearing payments
      of $9,038, maturing on January 22, 2022.
                
                
                915,6201,095,620Less
      amounts due within one year:
                
                
                224,974Long-term
      portion of notes payable
                
                $
                870,646
  As of
March 31, 2009, principal payments on the notes payable are as
follows:
  2009
                
                $
                213,2192010
                
                
                47,4342011
                
                
                50,9072012
                
                
                54,4752013
                
                
                58,623Thereafter
                
                
                670,962$
                1,095,620
  Notes
payable consists of the following as of December 31, 2008:
  Revolving
      Line of Credit secured by a third mortgage on the real property of the
      Company with a carrying value $1,172,227 at December 31, 2008, 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.
                
                $
                200,000Promissory
      note payable secured by a first mortgage on the real property of the
      Company having a carrying value of $1,172,227 at December 31, 2008,
      interest at 6.99% per annum, due in monthly principal and interest bearing
      payments of $9,038, maturing on January 22, 2022.
                
                
                926,5981,126,598Less
      amounts due within one year:
                
                
                244,188Long-term
      portion of notes payable
                
                $
                882,410
  On
December 2, 2008 the line of credit was increased from $100,000 to $200,000
under the same terms and conditions with the exception that the maturity date
was extended to December 2, 2009.
  13
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  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.
 
 From
inception to-date, 211,000 stock options were issued under the
Plan.  For the three months ended March 31, 2009, no options were
granted under the Plan.
 
 11.
              INCOME
      TAXES
 
 The
components of the provision for income tax (benefit) expense are as follows
for the three months ended:
  March 31, 2009
              
              
              March 31, 2008Current
      taxes:Federal
              
              $
              --
              
              
              $
              --State
              
              
              --
              
              
              
              5,072Current
      taxes
              
              
              --
              
              
              
              5,072Change
      in deferred taxes
              
              
              (77,991
              )
              
              
              698Change
      in valuation allowance
              
              
              10,463
              
              
              
              (174
              )Provision
      for income tax (benefit)
      expense
              
              $
              (67,528
              )
              
              $
              5,596
 
 14
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 11.
              INCOME TAXES
      (continued)
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at March 31, 2009:
  Deferred
      tax assets:Stock
      options
                
                $
                32,181Allowance
      for doubtful accounts
                
                
                5,440Tax
      loss carryforward or back
                
                
                59,618On-line
      training certificate reserve
                
                
                642Total
      deferred tax assets
                
                
                97,881Valuation
      allowance
                
                
                (29,897
                )Deferred
      tax assets net of valuation allowance
                
                
                67,984Less:
      deferred tax assets – non-current
                
                
                8,045Deferred
      tax assets – current
                
                $
                59,939Deferred
      tax liability:Depreciation
      and amortization timing differences
                
                $
                2,411Less:
      deferred tax liability – non-current
                
                
                2,411Deferred
      tax liability – current
                
                $
                --
 
 The
effective tax rate used for calculation of the deferred taxes as of March 31,
2009 was 34%.
  The
Company has established a valuation allowance of $67,984 comprised predominantly
of a 75% reserve against the deferred tax assets attributable to the stock
options and a 100% reserve against the allowance for doubtful accounts due to
the uncertainty regarding realization.
  15
 
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 11.
              INCOME TAXES
      (continued)
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at December 31, 2008:
 Deferred
      tax assets:Stock
      options
                  
                  $
                  10,761Allowance
      for doubtful accounts
                  
                  
                  8,500On-line
      training certificate reserve
                  
                  
                  629Total
      deferred tax assets
                  
                  
                  19,890Valuation
      allowance
                  
                  
                  (19,434
                  )Deferred
      tax assets net of valuation allowance
                  
                  
                  456Less:
      deferred tax assets – non-current
                  
                  
                  --Deferred
      tax assets – current
                  
                  $
                  456Deferred
      tax liability:Depreciation
      and amortization timing differences
                  
                  $
                  2,411Less:
      deferred tax liability – non-current
                  
                  
                  2,411Deferred
      tax liability – current
                  
                  $
                  --
  The
effective tax rate used for calculation of the deferred taxes as of December 31,
2008 was 34%.
  As of
December 31, 2008, the Company fully utilized the federal net operating loss
(“NOL”) carryforward that would have otherwise expired in 2026.  The
Company established a valuation allowance of $19,434 comprised predominantly of
a 100% reserve against the deferred tax assets attributable to both the stock
options and the allowance for doubtful accounts due to the uncertainty regarding
realization.
 
 The
significant differences between the statutory federal tax rate and the effective
tax rates for the Company for the three months ended are as follows
 March 31, 2009
                    
                    March 31, 2008Statutory
      federal tax rate (benefit)
                    
                    
                    --
                    %
                    
                    
                    34
                    %Increase
      (decrease) in rates resulting from:Net
      operating loss
                    
                    
                    (25
                    )%
                    
                    
                    (37
                    )%Equity
      based compensation and loss
                    
                    
                    (9
                    )%
                    
                    
                    --
                    %State
      taxes
                    
                    
                    --
                    %
                    
                    
                    3
                    %Change
      in valuation allowance
                    
                    
                    4
                    %
                    
                    
                    --
                    %Other
                    
                    
                    --
                    %
                    
                    
                    5
                    %Effective
      federal tax rate (benefit)
                    
                    
                    (28
                    )%
                    
                    
                    5
                    %
  16
 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” or “the
Company”), 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.
 
 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.  Mr. Carmichael has operated Trebor as its President since
1986.  He is the holder or co-holder of numerous patents that are used
by Trebor and several other original equipment manufacturers in the diving
industry.
 
 Results
of Operations for the Three Months Ended March 31, 2009, As Compared To the
Three Months Ended March 31, 2008
 
 Net
revenues.  For the three months ended March 31, 2009, we had
net revenues of $511,304 as compared to net revenues of $1,194,801 for the three
months ended March 31, 2008, a decrease of $683,497, or 57.21%.  The
net decrease is primarily attributable to a decrease in low pressure hookah
system sales of approximately $170,000, and a decrease in tankfill system sales
of approximately $530,000.  The Companyhad
three large custom tankfill projects in the first quarter of 2008 that
contributed approximately $439,000 to revenue for that period while there were
no comparable sales during the first quarter of 2009.  The
Companyattributes
the overall declinein
net revenues to be reflective of the economy’s depressed
state.  The Company’s products are largely non-essential, disposable
income type items, therefore are more likely to be sacrificed by consumers in
preference for essential goods in depressed economic
conditions.
 
 Cost of net
revenues.  For the three months ended March 31, 2009, we had
cost of net revenues of $422,909 as compared with cost of net revenues of
$829,652 for the three months ended March 31, 2008, a decrease of $406,743, or
49.03%.  The decrease in cost of net revenues for the first quarter of
2009 as compared to the first quarter of 2008 is primarily a result of the lower
net revenues for the period.  As a percentage of net revenues, cost of
net revenues for the three months ended March 31, 2009 increased 13.30% as
compared to the same period in 2008.  This is predominantly a result
of fairly consistent fixed costs between the periods.  Material costs
as a percentage of net revenues increased approximately 2% for the three months
ended March 31, 2009 as compared to the three months ended March 31, 2008 as a
result of the sales mix, the large custom tankfill sales in the first quarter of
2008 were more labor intensive than material cost intensive.
  17
 
  Gross profit.  For
the three months ended March 31, 2009, we had a gross profit of $88,395 as
compared to gross profit of $365,149 for the three months ended March 31, 2008,
a decrease of $276,754, or 75.79%.  This decrease is primarily
attributable to the decrease in net revenues for the three months ended March
31, 2009 as compared to the same period in 2008.
 
 Operating
expenses.  For the three months ended March 31, 2009, we had
total operating expenses of $237,679 as compared to total operating expenses of
$232,821 for the three months ended March 31, 2008, an increase of $4,858, or
2.09%.  The $4,858 increase is due
toa
net increase in research and development expenses of $9,949,
which was partially offset bya
decrease in selling and administrative costs of $5,049 for the three months
ended March 31, 2009 as compared to the same period in 2008.
 
 Other expense,
net.  For the three months ended March 31, 2009, we had other
expense of $87,838 as compared to $29,655 for the three months ended March 31,
2008, an increase of $58,183, or 196.20%. This account is comprised of other
(income) expense and interest expense.  Interest expense for the
period decreased $5,825 and other expense increased $64,008.  The
interest expense decrease is a net of $9,031 decrease in interest expense –
related parties and of $3,025 increase in other interest.  The decline
in interest expense – related parties is primarily a result of pay down and
retirement of some related party debtinAugust
2008.  The increase in other interest expense is primarily a result of
a higher average credit line balance outstanding for the three months ended
March 31, 2009 as compared to the same period in 2008.  Other expense,
net, increased for the period by $64,008 which is primarily a result of $63,000
losson purchase of patents, the Intellectual Property
(“IP”), for which there was no comparable transaction for the same period in
2008.  The $63,000 loss was the fair market value of the options
granted in exchange for the IP using the Black-Scholes valuation model less the
$0 historical cost of Robert M. Carmichael, the seller and Chief Executive
Officer of the Company.  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.
 
 Provision for income tax (benefit)
expense.  For the three months ended March 31, 2009, we had a
provision for income tax benefit of $67,528, as compared to a provision of
income tax expense of $5,596 for the three months ended March 31, 2008, an
increase in provision for income tax benefit of $73,124, or
1,306.72%.  This increase is primarily attributable to the increase in
net loss before provision for income taxes for the three months ended March 31,
2009 as compared to the three months ended March 31, 2008.  The net
loss for the period provides for a tax benefit comprised primarily of a net
operating loss available for carryforward or carryback.
 
 Net loss.For the
three months ended March 31, 2009, we had net loss of $169,594 as compared to
net income of $97,077 for the three months ended March 31, 2008, an increase in
net loss of $266,671, or 274.70%.  The increase is primarilyattributable to a decrease in gross profit of $276,754, an increase in
other expense, net of $58,183, and an increase in the provision for income tax
benefit of $73,124.
 
 Liquidity
and Capital Resources
 
 As of
March 31, 2009, we had cash and other current assets of $882,112 and current
liabilities of $809,399, or a current ratio of 1.09%.
 
 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 2009. The number and level
of employees at March 31, 2009 is deemed adequate to maintain the Company's
operations for at least the next 12 months.
 
 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.
  18
  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.
 
 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.
  19
  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 inventory 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.
 
 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.
  20
  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.
  We are
also subject to interest rate risk on the balance of our revolving credit
facility that matures on December 2, 2009 with Colonial
Bank.   Interest on the credit facility is variable based on the
lender’s base rate plus 1%. Our balance at March 31, 2009 under the facility was
$180,000.  We do not believe there would be a large enough increase or
decrease in the lender’s base through December 2, 2009 that would have a
material effect on our future results of operations.
 
 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 or in other factors 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.
 
 21
 PART
II – OTHER INFORMATION
 
 Item
1. Legal Proceedings
 
 None.
 
 Item
1A. Risk Factors
 
 Not
Applicable to Smaller Reporting Company.
  Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
 None,except as previously
disclosed on Form 8-K during the period covered by this report.
 
 Item
3. Defaults Upon Senior Securities
 
 None.
 
 Item
4. Submission of Matters to a Vote of Security Holders
 
 None.
 
 Item
5. Other Information
 
 None.
  22
  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 3.05 Amendment No. 1 to Form S-4 filed June 24,
      2002.3.2
                      
                      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
                      
                      Two
      Year Consulting Agreement with Jeff Morris effective January 1, 2005 for
      Manage-ment and Strategic Services and Warrants issued in conjunction with
      the same
                      
                      Incorporated
      by reference to Exhibit 10.14 to Current Report on Form 8-K filed on March
      11, 2005.10.3
                      
                      Non-Exclusive
      License Agreement -BC
      Keel Trademark
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.4
                      
                      Non-Exclusive
      License Agreement -BuoyancyCompensator
      (and Dive Belt) Weight System
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.5
                      
                      Exclusive
      License Agreement -Brownie's
      Third Lung, Brownie's Public Safety, Tankfill, and Related Trademarks and
      Copyrights
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.6
                      
                      Non-Exclusive
      License Agreement -Drop
      Weight Dive Belt
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.7
                      
                      Non-Exclusive
      License Agreement -Garment
      Integrated or Garment AttachableFlotation Aid and/or PFD
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15,
  2005.
  23
  Exhibit
      No.
                      
                      Description
                      
                      Location10.8
                      
                      Non-Exclusive
      License Agreement -Inflatable
      Dive Market and Collection Bag
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.9
                      
                      Non-Exclusive
      License Agreement - SHERPATrademark
      and Inflatable Flotation Aid/SignalDevice
      Technology
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.10
                      
                      Non-Exclusive
      License Agreement - Tank-Mounted
      Weight, BC or PFD-Mounted Trim Weight or Trim Weight Holding
      System
                      
                      Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.11
                      
                      Exclusive
      License Agreement - Brownie’s Third Lung and Related Trademarks and
      Copyright
                      
                      Incorporated
      by reference to Exhibit 10.26 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.12
                      
                      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 United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.13
                      
                      First
      Mortgage dated February 22, 2007 between Trebor Industries, Inc. and
      Colonial Bank
                      
                      Incorporated
      by reference to Exhibit 10.29 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.14
                      
                      Note
      dated February 22, 2007 payable to GKR Associates,
    Inc.
                      
                      Incorporated
      by reference to Exhibit 10.30 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.15
                      
                      Second
      Mortgage dated February 22, 2007 between Trebor Industries, Inc.
      and  GKR Associates, LLC.
                      
                      Incorporated
      by reference to Exhibit 10.31 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.16
                      
                      Promissory
      Note dated January 1, 2007 payable to Robert M.
      Carmichael
                      
                      Incorporated
      by reference to Exhibit 10.32 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.17
                      
                      Promissory
      Note dated January 1, 2007 Payable to 940 Associates,
      Inc.
                      
                      Incorporated
      by reference to Exhibit 10.33 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.18
                      
                      Purchase
      and Sale Agreement with GKR Associates, LLC
                      
                      Incorporated
      by reference to Form 8K filed on March 23, 2007.10.19
                      
                      Asset
      Purchase Agreement between Trebor Industries, Inc. and Robert
      Carmichael
                      
                      Incorporated
      by reference to Form 8K filed on August 1, 2008.10.20
                      
                      Asset
      Purchase Agreement between Trebor Industries, Inc. and Robert
      Carmichael
                      
                      Incorporated
      by reference to Form 8K filed on March 3, 2009.31.1
                      
                      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.
  24
 
 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 13,
      2009
                      Brownie’s
      Marine Group, Inc.By:
                      /s/ Robert
      M. CarmichaelRobert
      M. CarmichaelPresident,
      Chief Executive Officer,Chief
      Financial Officer/Principal
      Accounting Officer
  25