U.S.
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
DC  20549
   FORM
10-Q
 (mark
one)
 
 þ           Quarterly
Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of
1934
  For the
quarterly period ended September 30,
2010
  o           Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
  For the
transition period from _______ to _______.
  Commission
File No. 000-28321
  Brownie’s
Marine Group, Inc.
 (Name of
Small Business Issuer in Its Charter)
  
 Nevada
              90-0226181(State
      or Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
      Employer Identification No.)940 N.W.
      1stStreet, Fort
      Lauderdale, Florida
              33311(Address
      of Principal Executive Offices)
              (Zip
      Code)(954)
      462-5570(Issuer’s
      Telephone Number, Including AreaCode)(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 x      No
o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its Corporate Website, in any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes o No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
  Large
      accelerated filer o
                  Accelerated
      filer oNon-accelerated
      filer o (Do not
      check if a smaller reporting company)
                  Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).
 Yes o     No
x
  There
were 3,864,186 shares of common stock outstanding as of September 30, 2010.










PART
I




Item
1.  Financial Statements




Financial
Information


BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
BALANCE SHEETS
 September 30,2010
                      
                      
                      December 31,(Unaudited)
                      
                      
                      2009ASSETSCurrent
      assetsCash
                      
                      $
                      81,173
                      
                      
                      $
                      2,713Accounts
      receivable, net of $10,000 and $31,000 allowance  for doubtful
      accounts, respectively
                      
                      
                      26,994
                      
                      
                      
                      9,704Accounts
      receivable - related parties
                      
                      
                      31,064
                      
                      
                      
                      14,419Inventory
                      
                      
                      524,596
                      
                      
                      
                      488,694Income
      tax refunds receivable
                      
                      
                      —
                      
                      
                      
                      121,802Prepaid
      expenses and other current assets
                      
                      
                      76,485
                      
                      
                      
                      67,078Deferred
      tax asset, net - current
                      
                      
                      379
                      
                      
                      
                      219Total
      current assets
                      
                      
                      740,691
                      
                      
                      
                      704,629Property,
      plant and equipment, net
                      
                      
                      1,146,828
                      
                      
                      
                      1,165,940Deferred
      tax asset, net - non-current
                      
                      
                      177,096
                      
                      
                      
                      42,685Other
      assets
                      
                      
                      2,895
                      
                      
                      
                      6,968Total
      assets
                      
                      $
                      2,067,510
                      
                      
                      $
                      1,920,222LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                      
                      $
                      509,067
                      
                      
                      $
                      391,767Customer
      deposits
                      
                      
                      17,575
                      
                      
                      
                      11,365Royalties
      payable - related parties
                      
                      
                      84,953
                      
                      
                      
                      49,611Other
      liabilities
                      
                      
                      2,167
                      
                      
                      
                      2,921Other
      liabilities and accrued interest - related parties
                      
                      
                      31,743
                      
                      
                      
                      18,570Notes
      payable - current portion
                      
                      
                      1,054,223
                      
                      
                      
                      247,424Notes
      payable - related parties - current portion
                      
                      
                      181,198
                      
                      
                      
                      137,408Total
      current liabilities
                      
                      
                      1,880,926
                      
                      
                      
                      859,066Long-term
      liabilitiesNotes
      payable - long-term portion
                      
                      
                      —
                      
                      
                      
                      834,966Notes
      payable - related parties - long-term portion
                      
                      
                      147,998
                      
                      
                      
                      219,319Total
      liabilities
                      
                      
                      2,028,924
                      
                      
                      
                      1,913,351Commitments
      and contingenciesStockholders'
      equityPreferred
      stock; $0.001 par value: 10,000,000 shares authorized; No
      shares  issued and outstanding
                      
                      
                      —
                      
                      
                      
                      —Common
      stock; $0.001 par value; 250,000,000 shares authorized; 3,864,186 and
      1,785,538 shares issued and outstanding, respectively
                      
                      
                      3,862
                      
                      
                      
                      1,785Common
      stock payable; $0.001 par value;353,250 and 502,140 shares,
      respectively
                      
                      
                      353
                      
                      
                      
                      502Prepaid
      equity based compensation
                      
                      
                      (119,654
                      )
                      
                      
                      (43,542
                      )Additional
      paid-in capital
                      
                      
                      2,169,488
                      
                      
                      
                      1,358,333Accumulated
      deficit
                      
                      
                      (2,015,463
                      )
                      
                      
                      (1,310,207
                      )Total
      stockholders' equity
                      
                      
                      38,586
                      
                      
                      
                      6,871Total
      liabilities and stockholders' equity
                      
                      $
                      2,067,510
                      
                      
                      $
                      1,920,222
  See Accompanying Notes to
Consolidated Financial Statements
  2
  BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months Ended September 30,
                                          
                                          
                                          Nine Months Ended September 30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009Net
      revenuesNet
      revenues
                                          
                                          $
                                          390,152
                                          
                                          
                                          $
                                          493,162
                                          
                                          
                                          $
                                          1,154,363
                                          
                                          
                                          $
                                          1,298,405Net
      revenues - related parties
                                          
                                          
                                          171,735
                                          
                                          
                                          
                                          117,722
                                          
                                          
                                          
                                          529,772
                                          
                                          
                                          
                                          393,632Total
      net revenues
                                          
                                          
                                          561,887
                                          
                                          
                                          
                                          610,884
                                          
                                          
                                          
                                          1,684,135
                                          
                                          
                                          
                                          1,692,037Cost
      of net revenuesCost
      of net revenues
                                          
                                          
                                          378,790
                                          
                                          
                                          
                                          407,967
                                          
                                          
                                          
                                          1,232,336
                                          
                                          
                                          
                                          1,180,099Royalties
      expense - related parties
                                          
                                          
                                          16,331
                                          
                                          
                                          
                                          16,482
                                          
                                          
                                          
                                          47,293
                                          
                                          
                                          
                                          51,885Total
      cost of net revenues
                                          
                                          
                                          395,121
                                          
                                          
                                          
                                          424,449
                                          
                                          
                                          
                                          1,279,629
                                          
                                          
                                          
                                          1,231,984Gross
      profit
                                          
                                          
                                          166,766
                                          
                                          
                                          
                                          186,435
                                          
                                          
                                          
                                          404,506
                                          
                                          
                                          
                                          460,053Operating
      expensesSelling,
      general and administrative
                                          
                                          
                                          363,557
                                          
                                          
                                          
                                          215,211
                                          
                                          
                                          
                                          973,365
                                          
                                          
                                          
                                          660,653Research
      and development costs
                                          
                                          
                                          16,696
                                          
                                          
                                          
                                          17,281
                                          
                                          
                                          
                                          49,342
                                          
                                          
                                          
                                          44,634Total
      operating expenses
                                          
                                          
                                          380,253
                                          
                                          
                                          
                                          232,492
                                          
                                          
                                          
                                          1,022,707
                                          
                                          
                                          
                                          705,287Loss
      from operations
                                          
                                          
                                          (213,487
                                          )
                                          
                                          
                                          (46,057
                                          )
                                          
                                          
                                          (618,201
                                          )
                                          
                                          
                                          (245,234
                                          )Other
      (income) expense,  netOther(income)
      expense, net
                                          
                                          
                                          (26,143
                                          )
                                          
                                          
                                          1,305
                                          
                                          
                                          
                                          (31,041
                                          )
                                          
                                          
                                          62,843Interest
      expense
                                          
                                          
                                          199,930
                                          
                                          
                                          
                                          19,792
                                          
                                          
                                          
                                          239,098
                                          
                                          
                                          
                                          57,930Interest
      expense - related parties
                                          
                                          
                                          (2,957
                                          )
                                          
                                          
                                          6,284
                                          
                                          
                                          
                                          13,569
                                          
                                          
                                          
                                          20,057Total
      other expense, net
                                          
                                          
                                          170,830
                                          
                                          
                                          
                                          27,381
                                          
                                          
                                          
                                          221,626
                                          
                                          
                                          
                                          140,830Net
      loss before provision for income taxes
                                          
                                          
                                          (384,317
                                          )
                                          
                                          
                                          (73,438
                                          )
                                          
                                          
                                          (839,827
                                          )
                                          
                                          
                                          (386,064
                                          )Provision
      for income tax benefit
                                          
                                          
                                          (38,955
                                          )
                                          
                                          
                                          (25,856
                                          )
                                          
                                          
                                          (134,571
                                          )
                                          
                                          
                                          (120,598
                                          )Net
      loss
                                          
                                          $
                                          (345,362
                                          )
                                          
                                          $
                                          (47,582
                                          )
                                          
                                          $
                                          (705,256
                                          )
                                          
                                          $
                                          (265,466
                                          )Basic
      loss per common share
                                          
                                          $
                                          (0.13
                                          )
                                          
                                          $
                                          (0.03
                                          )
                                          
                                          $
                                          (0.30
                                          )
                                          
                                          $
                                          (0.15
                                          )Diluted
      loss per common share
                                          
                                          $
                                          (0.13
                                          )
                                          
                                          $
                                          (0.03
                                          )
                                          
                                          $
                                          (0.30
                                          )
                                          
                                          $
                                          (0.15
                                          )Basic
      weighted average common  shares outstanding
                                          
                                          
                                          2,685,284
                                          
                                          
                                          
                                          1,785,538
                                          
                                          
                                          
                                          2,321,727
                                          
                                          
                                          
                                          1,785,538Diluted
      weighted average common shares outstanding
                                          
                                          
                                          2,685,284
                                          
                                          
                                          
                                          1,785,538
                                          
                                          
                                          
                                          2,321,727
                                          
                                          
                                          
                                          1,785,538
 See Accompanying Notes to
Consolidated Financial Statements
  3
 BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIT) /EQUITY
 Prepaid
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      TotalCommon stock
                      
                      
                      Common stock payable
                      
                      
                      Equity based
                      
                      
                      paid-in
                      
                      
                      Accumulated
                      
                      
                      stockholders'Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      compensation
                      
                      
                      capital
                      
                      
                      deficit
                      
                      
                      equity(deficit)Balance,
      December 31, 2009
                      
                      
                      1,785,538
                      
                      
                      $
                      1,785
                      
                      
                      
                      502,140
                      
                      
                      $
                      502
                      
                      
                      $
                      (43,542
                      )
                      
                      $
                      1,358,333
                      
                      
                      $
                      (1,310,207
                      )
                      
                      $
                      6,871Issuance
      of stock payable from prior reporting periods
                      
                      
                      52,140
                      
                      
                      
                      52
                      
                      
                      
                      (52,140
                      )
                      
                      
                      (52
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Stock
      granted for consulting services
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      100,000
                      
                      
                      
                      100
                      
                      
                      
                      (99,000
                      )
                      
                      
                      98,900
                      
                      
                      
                      —
                      
                      
                      
                      —Legal
      expense recognized for stock warrants
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      6,250
                      
                      
                      
                      —
                      
                      
                      
                      6,250Current
      period amortization of prepaid equity based compensation
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      21,774
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      21,774Net
      loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (160,154
                      )
                      
                      
                      (160,154
                      )Balance,
      March 31, 2010 (Unaudited)
                      
                      
                      1,837,678
                      
                      
                      
                      1,837
                      
                      
                      
                      550,000
                      
                      
                      
                      550
                      
                      
                      
                      (120,768
                      )
                      
                      
                      1,463,483
                      
                      
                      
                      (1,470,361
                      )
                      
                      
                      (125,259
                      )Issuance
      of stock payable from prior reporting periods
                      
                      
                      450,000
                      
                      
                      
                      450
                      
                      
                      
                      (450,000
                      )
                      
                      
                      (450
                      )
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Stock
      granted for consulting services
                      
                      
                      375,000
                      
                      
                      
                      375
                      
                      
                      
                      250,000
                      
                      
                      
                      250
                      
                      
                      
                      (180,000
                      )
                      
                      
                      179,575
                      
                      
                      
                      —
                      
                      
                      
                      200Legal
      expense recognized for stock warrants
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      6,250
                      
                      
                      
                      —
                      
                      
                      
                      6,250Stock
      issued for consulting services during the period
                      
                      
                      4,958
                      
                      
                      
                      5
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,482
                      
                      
                      
                      —
                      
                      
                      
                      1,487Current
      period amortization of prepaid equity based compensation
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      105,753
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      105,753Net
      loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (199,740
                      )
                      
                      
                      (199,740
                      )Balance,
      June 30, 2010 (Unaudited)
                      
                      
                      2,667,636
                      
                      
                      
                      2,667
                      
                      
                      
                      350,000
                      
                      
                      
                      350
                      
                      
                      
                      (195,015
                      )
                      
                      
                      1,650,790
                      
                      
                      
                      (1,670,101
                      )
                      
                      
                      (211,309
                      )Stock
      issued for consulting services during the period
                      
                      
                      7,118
                      
                      
                      
                      7
                      
                      
                      
                      3,250
                      
                      
                      
                      3
                      
                      
                      
                      —
                      
                      
                      
                      3,690
                      
                      
                      
                      —
                      
                      
                      
                      3,700Legal
      expense recognized for stock warrants
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      6,250
                      
                      
                      
                      —
                      
                      
                      
                      6,250Conversion
      of loan payable to stock and warrants
                      
                      
                      818,182
                      
                      
                      
                      818
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      360,628
                      
                      
                      
                      —
                      
                      
                      
                      361,446Stock
      issued for purchase of intellectual property
                      
                      
                      371,250
                      
                      
                      
                      370
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      148,130
                      
                      
                      
                      —
                      
                      
                      
                      148,500Current
      period amortization of of prepaid equity based
compensation
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      75,361
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      75,361Net
      loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (345,362
                      )
                      
                      
                      (345,362
                      )Balance,
      September 30, 2010 (Unaudited)
                      
                      
                      3,864,186
                      
                      
                      $
                      3,862
                      
                      
                      
                      353,250
                      
                      
                      $
                      353
                      
                      
                      $
                      (119,654
                      )
                      
                      $
                      2,169,488
                      
                      
                      $
                      (2,015,463
                      )
                      
                      $
                      38,586
  See Accompanying Notes to
Consolidated Financial Statements
 4
 BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Nine Months Ended September
    30,2010
                        
                        
                        2009Cash
      flows from operating activities:Net
      loss
                        
                        $
                        (705,256
                        )
                        
                        $
                        (265,466
                        )Adjustments
      to reconcile net loss to net  cash provided by operating
      activities:Depreciation
                        
                        
                        25,898
                        
                        
                        
                        27,385Amortization
                        
                        
                        —
                        
                        
                        
                        1,015Change
      in deferred tax asset, net
                        
                        
                        (134,571
                        )
                        
                        
                        (116,709
                        )Change
      in deferred tax liability, net
                        
                        
                        —
                        
                        
                        
                        (2,411
                        )Loss
      on issuance of stock for purchase of intellectual property
                        
                        
                        148,500
                        
                        
                        
                        —Stock
      based compensation
                        
                        
                        24,137
                        
                        
                        
                        63,000Stock
      and warrant interest expense on loan payable conversion
                        
                        
                        181,446
                        
                        
                        
                        —Amortization
      of prepaid equity based compensation expense
                        
                        
                        202,888
                        
                        
                        
                        —Changes
      in operating assets and liabilities:Change
      in accounts receivable, net
                        
                        
                        (17,290
                        )
                        
                        
                        9,138Change
      in accounts receivable - related parties
                        
                        
                        (16,645
                        )
                        
                        
                        33,350Change
      in inventory
                        
                        
                        (35,902
                        )
                        
                        
                        185,635Change
      in prepaid expenses and other current assets
                        
                        
                        (9,407
                        )
                        
                        
                        (10,258
                        )Change
      in costs and estimated earnings in excess of billingson uncompleted
      contract
                        
                        
                        —
                        
                        
                        
                        287,861Change
      in other assets
                        
                        
                        4,073
                        
                        
                        
                        —Change
      in accounts payable and accrued liabilities
                        
                        
                        297,300
                        
                        
                        
                        (12,105
                        )Change
      in customer deposits
                        
                        
                        6,210
                        
                        
                        
                        (75,601
                        )Change
      in income tax refunds receivable
                        
                        
                        121,802
                        
                        
                        
                        —Change
      in income taxes payable
                        
                        
                        —
                        
                        
                        
                        (30,649
                        )Change
      in other liabilities
                        
                        
                        (754
                        )
                        
                        
                        (518
                        )Change
      in other liabilities and accrued interest - related
parties
                        
                        
                        13,173
                        
                        
                        
                        15,719Change
      in royalties payable - related parties
                        
                        
                        35,342
                        
                        
                        
                        (837
                        )Net
      cash provided by operating activities
                        
                        
                        140,944
                        
                        
                        
                        108,549Cash
      flows from investing activities:Purchase
      of fixed assets
                        
                        
                        (6,786
                        )
                        
                        
                        (3,600
                        )Net
      cash used in investing activities
                        
                        
                        (6,786
                        )
                        
                        
                        (3,600
                        )Cash
      flows from financing activities:Proceeds
      from borrowing on loan payable
                        
                        
                        —
                        
                        
                        
                        —Principal
      payments on notes payable
                        
                        
                        (28,167
                        )
                        
                        
                        (32,823
                        )Principal
      payments on notes payable - related parties
                        
                        
                        (27,531
                        )
                        
                        
                        (29,836
                        )Net
      cash used in financing activities
                        
                        
                        (55,698
                        )
                        
                        
                        (62,659
                        )Net
      change in cash
                        
                        
                        78,460
                        
                        
                        
                        42,290Cash,
      beginning of period
                        
                        
                        2,713
                        
                        
                        
                        3,532Cash,
      end of period
                        
                        $
                        81,173
                        
                        
                        $
                        45,822Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                        
                        $
                        57,273
                        
                        
                        $
                        65,368Cash
      paid for income taxes
                        
                        $
                        —
                        
                        
                        $
                        38,528Supplemental
      disclosures of non-cash investing activities and future operating
      activities:Stock
      issued for prepaid equity based compensation
                        
                        $
                        279,000
                        
                        
                        $
                        —Stock
      options and additional paid-in capital for  purchase of issued
      and pending patents on March 3, 2009
                        
                        $
                        —
                        
                        
                        $
                        63,000Stock
      and additional paid-in capital for purchase of  intellectual
      property
                        
                        $
                        148,500
                        
                        
                        $
                        —Conversion
      of loan payable for stock and warrants (excluding  interest of
      $181,446)
                        
                        $
                        180,000
                        
                        
                        $
                        —
  See Accompanying Notes to
Consolidated Financial Statements
  5
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES
 
 Description of
business –Brownie’s Marine Group, Inc., (hereinafter referred to as the
“Company” or “BWMG”) designs, tests, manufactures and distributes recreational
hookah diving, yacht based scuba air compressor and nitrox generation systems,
and scuba and water safety products through its wholly owned subsidiary Trebor
Industries, Inc.  The Company sells its products both on a wholesale
and retail basis, and does so from its headquarters and manufacturing facility
in Fort Lauderdale, Florida.  The Company does business as (dba)
Brownie’s Third Lung, the dba name of Trebor Industries, Inc.  The
Company’s common stock is quoted on the OTCBB under the symbol
“BWMG”.
  Definition of fiscal
year – The Company’s fiscal year end is December 31.
 
 Use of estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
  Reclassifications –
Certain reclassifications have been made to the 2009 financial statement amounts
to conform to the 2010 financial statement presentation.
  Cash and
equivalents – Only highly liquid investments with original maturities of 90 days
or less are classified as cash and equivalents.  These investments are
stated at cost, which approximates market value.
  Liquidity –The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates realization of
assets and the satisfaction of liabilities in the normal course of business for
the twelve month period following the date of these financial
statements.  However, we have incurred losses since 2009, and expect
to have losses into a portion of 2011.  We have had a working capital
deficit since 2009.  In the third quarter of 2010, the Company also
defaulted on its first mortgage resulting in an automatic default on its second
mortgage further discussed in Note. 9.  NOTES
PAYABLE.
 
 During
the third quarter of 2010, the Company settled several lawsuits for infringement
of one of the Company’s patents.  The settlement was in the form of
cash and inventory credits, and the Company was granted exclusive distributor
rights in the United States for certain of the products of the settling parties,
as well as non-exclusive distributor rights for others as further discussed
in  Note 15. PATENT INFRINGEMENT
SETTLEMENTS.
 In
addition, the Company introduced some of its own new products to market in mid
2010, the variable speed electric and battery powered diving
units.  We believe the combined addition of these products to
complement the sales of our other products will allow us to generate enough
sales to supply us with sufficient working capital in the
future.  However, we do not expect that our existing current cash flow
will be sufficient to fund our presently anticipated operations beyond the first
quarter of 2011.  This raises substantial doubt about our ability to
continue as a going concern.
 
 We will
need to raise additional funds and are currently exploring alternative sources
of financing. We are in the process of negotiating with our mortgage lender for
debt restructure to reduce our payments and cure of our
defaults.   We have implemented some cost saving measures and
will continue to explore more to reduce operating expenses.
 
 If we
fail to raise additional funds when needed, are not able to renegotiate our bank
loans, or do not have sufficient cash flows from sales, it may have a material
adverse effect on the Company. The accompanying consolidated financial
statements do not include any adjustments that may result from the outcome of
this uncertainty.
  6
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 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.
  Property, Plant, and
Equipment – Property, Plant and Equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets, which is
primarily 3 to 5 years except for the building that is being depreciated over a
life of 39 years. The cost of repairs and maintenance is charged to expense as
incurred. Expenditures for property betterments and renewals are capitalized.
Upon sale or other disposition of a depreciable asset, cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
other income (expense).
  The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful lives of fixed assets or
whether the remaining balance of fixed assets should be evaluated for possible
impairment.  The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the fixed assets in measuring their
recoverability.
  Revenue recognition –
Revenues from product sales are recognized when the Company’s products are
shipped or when service is rendered.  Revenues from fixed-price
contracts are recognized on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost of each
contract.  This method is used because management considers the
percentage of cost incurred to date to estimated total cost to be the best
available measure of progress on the contracts.
  Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs.  General and administrative costs are
charged to expense as incurred.  Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.  Change in job performance, job conditions, and estimated
profitability may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
 
 Revenue
and costs incurred for time and material projects are recognized as the work is
performed.
 
 Product development
costs – Product development expenditures are charged to expenses as
incurred.
 
 Advertising and marketing
costs – The Company expenses the costs of producing advertisements and
marketing material at the time production occurs, and expenses the costs of
communicating advertisements and participating in trade shows in the period in
which occur.  Advertising and trade show expense incurred for the
three months ended September 30, 2010 and 2009, was $8,194 and $831,
respectively.  Advertising and trade show expense incurred for the
nine months ended September 30, 2010 and 2009, was $9,802 and $17,996,
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 is
accepted, nor return of the custom ordered product. Additionally, returns of all
other merchandise are subject to a 15% restocking fee as stated on each sales
invoice.
  7
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
 
 Income taxes – The
Company accounts for its income taxes under the assets and liabilities method,
which requires recognition of deferred tax assets and liabilities for future tax
consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.
 
 The
Company records net deferred tax assets to the extent the Company believes these
assets will more likely than not be realized.  In making such
determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial
operations.  A valuation allowance is established against deferred tax
assets that do not meet the criteria for recognition.  In the event
the Company were to determine that it would be able to realize deferred income
tax assets in the future in excess of their net recorded amount, they would make
an adjustment to the valuation allowance which would reduce the provision for
income taxes.
 
 The
Company follows the accounting guidance which provides that a tax benefit from
an uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits. Income
tax positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized initially and in subsequent
periods.  Also included is guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
 
 Comprehensive income
– The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
 
 Stock-based
compensation – The Company accounts for all compensation related to
stock, options or warrants using a fair value based method whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period.  The Company uses the Black-Scholes valuation model to
calculate the fair value of options and warrants issued to both employees and
non-employees.  Stock issued for compensation is valued using the
market price of the stock on the date of the related agreement.
 
 For the
three and nine months ended September 30, 2010, the Company amortized prepaid
stock based compensation associated with stock options granted October 1 and
December 1, 2009.  See Note 10. EQUITY INCENTIVE PLAN
for further discussion.  For the three and nine months ended September
30, 2010, the Company recorded stock based compensation associated with warrants
granted on December 31, 2009.  See Note 12. STOCK WARRANTS ISSUED FOR
LEGAL SERVICES for further discussion.  For the three and nine
months ended September 30, 2010, the company granted stock for consulting
services.  See Note 13. STOCK ISSUED FOR CONSULTING
SERVICES. For the three and nine months ended September 30, 2010, the
Company issued capital stock to the Carleigh Rae Corp, a related party which the
Company’s Chief Executive Officer has a financial interest, upon finalization of
a patent purchase agreement.  The Company granted stock options for
the nine months ended September 30, 2009 associated with the purchase of
intellectual property from the Company’s Chief Executive Officer.  See
Note 6. RELATED PARTY
TRANSACTIONS, Patent purchase
agreements, for further discussion.  During the three and nine
months ended September 30, 2010, the Company converted a loan payable to capital
stock and warrants.  See Note 6. RELATED PARTY
TRANSACTIONS, Loan conversion and other
equity transactions, for further discussion of the
transaction.
  8
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)
 
 Fair value of financial
instruments – The carrying amounts and estimated fair values of the
Company’s financial instruments approximate their fair value due to the
short-term nature.
 
 Earnings per common
share – Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities.  Basic earnings per
share is computed using the weighted-average number of outstanding common shares
during the applicable period.  Diluted earnings per share is computed
using the weighted average number of common and common stock equivalent shares
outstanding during the period.  Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.  All
common stock equivalent shares were excluded in the computation for the three
and nine months ended September 30, 2010 and 2009 since their effect was
antidilutive.
 
 New accounting
pronouncements – In June 2009, FASB established the Accounting
Standards Codification (“ASC”) as the single source of authoritative US GAAP to
be applied by nongovernmental entities.  Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative US GAAP for SEC registrants.  The ASC is a new
structure which took existing accounting pronouncements and organized them by
accounting topic.  The ASC did not change current US GAAP, but was
intended to simplify user access to all authoritative US GAAP by providing all
the relevant literature related to a particular topic in one
place.  All previously existing accounting standards were superseded
and all other accounting literature not included in the ASC is considered
non-authoritative.  New accounting standards issued since September
30, 2009 are communicated by the FASB through Accounting Standards Updates
(“ASU”).  The ASC was effective during the period ended September 30,
2009.  Adoption of the ASU did not have a financial impact on the
Company’s consolidated financial position, results of operations or cash
flows.
 
 In
January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements
and disclosures and improvement in the disclosure about fair value
measurements.  This ASU requires additional disclosures regarding
significant transfers in and out of Levels 1 and 2 of fair value measurements,
including a description of the reasons for the transfers.  Further,
this ASU requires additional disclosures for the activity in Level 3 fair value
measurements, requiring presentation of information about purchases, sales,
issuances, and settlements in the reconciliation for fair value
measurements.  This ASU is effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal
years.  We are currently evaluating the impact of this ASU; however,
we do not expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
 
 In
February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and
amendments to certain recognition and disclosure requirements.  Under
this ASU, a public company that is a SEC filer, as defined, is not required to
disclose the date through which subsequent events have been
evaluated.  This ASU is effective upon the issuance of this
ASU.  The adoption of this ASU did not have a material impact on our
consolidated financial statements.
 
 In March
2010, the FASB issued ASU No. 2010-11 which clarifies the transfer of credit
risk that is only in the form of subordination of one financial instrument to
another is an embedded derivative feature that should not be subject to
potential bifurcation and separate accounting.  This ASU will be
effective for the first fiscal quarter beginning after June 15, 2010, with early
adoption permitted.  The Company does not expect adoption of this ASU
to have a material financial impact.
  9
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.
                  DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)
 
 New accounting
pronouncements (continued) – In April 2010, the FASB issued ASU No.
2010-13 which will clarify the classification of an employee share based payment
award with an exercise price denominated in the currency of a market in which
the underlying security trades.  This ASU will be effective for the
first fiscal quarter beginning after December 15, 2010, with early adoption
permitted. The Company does not expect adoption of this ASU to have a material
financial impact.
 
 There
were various other updates recently issued, most of which represented technical
corrections to the accounting literature or application to specific industries
and are not expected to a have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
 
 2.
                  INVENTORY
 
 Inventory
consists of the following as of:
 
 September 30, 2010
                            
                            
                            December 31, 2009Raw
      materials
                            
                            $
                            341,667
                            
                            
                            $
                            303,230Work
      in process
                            
                            
                            —
                            
                            
                            
                            —Finished
      goods
                            
                            
                            182,929
                            
                            
                            
                            185,464$
                            524,596
                            
                            
                            $
                            488,694
 
 3.
                  PREPAID EXPENSES AND
      OTHER CURRENT ASSETS
 
 Prepaid
expenses and other current assets totaling $76,485 at September 30, 2010,
consists of $31,950 credit toward inventory resulting from patent infringement
settlements, $20,670 of prepaid inventory, $22,290 of prepaid insurance, and
$1,575 of other prepaid expenses and current assets.
 
 Prepaid
expenses and other current assets totaling $67,078 at December 31, 2009,
consists of $48,645 of prepayments for inventory, $14,116 of prepaid insurance,
$1,651 of prepaid software maintenance, $2,248 sales tax refund due, and $418
other prepaid and expenses and current assets.
 
 4.
                  PROPERTY, PLANT AND
      EQUIPMENT
 
 Property, plant and equipment consists
of the following as of:
 
 September 30, 2010
                          
                          
                          December 31, 2009Building,
      building improvements, and land
                          
                          $
                          1,224,963
                          
                          
                          $
                          1,224,963Furniture,
      fixtures, vehicles and equipment
                          
                          
                          122,396
                          
                          
                          
                          115,6101,347,359
                          
                          
                          
                          1,340,573Less:  accumulated
      depreciation and amortization
                          
                          
                          200,531
                          
                          
                          
                          174,633$
                          1,146,828
                          
                          
                          $
                          1,165,940
  10
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 5.
                  CUSTOMER CREDIT
      CONCENTRATIONS
 
 The
Company sells to three entities owned by the brother of Robert Carmichael, the
Company’s Chief Executive officer as further discussed in Note 6 – RELATED PARTIES
TRANSACTIONS.  Combined sales to these entities for the three
months ended September 30, 2010 and 2009 represented 30.55% and 19.03%,
respectively, of total net revenues.  Combined sales to these entities
for the nine months ended September 30, 2010 and 2009 represented 31.45% and
58.03%, respectively, of total net revenues.  For the three months
ended September 30, 2010, sales to one unrelated customer represented 12.53% of
total net revenues.  Sales to no other customers represented greater
than 10% of net revenues for the three and nine months ended September 30, 2010
and 2009.
 
 6.
                  RELATED PARTIES
      TRANSACTIONS
 
 Notes payable – related
parties
 
 Notes
payable – related parties consists of the following as of September 30,
2010:
 
 Promissory
      note payable to the Chief Executive Officer of the Company, unsecured,
      bearing interest at 7.5% per annum, due in monthly principal and interest
      payments of $7,050, maturing on August 1, 2013.
                          
                          $
                          291,936Promissory
      note payable due an entity in which the Company’s Chief Executive Officer
      has a financial interest, GKR Associates, LLC., secured by third mortgage
      on real property, having a carrying value of $1,127,852 at September 30,
      2010, bearing 6.99% interest per annum, due in monthly principal and
      interest payments of $1,980, maturing on February 22,
2012.
                          
                          
                          37,260329,196Less
      amounts due within one year
                          
                          
                          181,198Long-term
      portion of notes payable – related parties
                          
                          $
                          147,998
 
 As of
September 30, 2010, principal payments on the notes payable – related parties
are as follows:
 
 2010
                              
                              $
                              109,9612011
                              
                              
                              95,2232012
                              
                              
                              82,1592013
                              
                              
                              41,8532014
                              
                              
                              —Thereafter
                              
                              
                              —$
                              329,196
  11
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  6.
                  RELATED PARTY
      TRANSACTIONS (continued)
 
 Notes payable – related
parties (continued)
 
 As of
September 30, 2010, the Company was approximately fifteen months in arrears on
payments due under the Note payable to the Chief Executive
Officer.  No default notice has been received and the Company plans to
make payments as able.  See Other liabilities and
accrued interest– related parties within this Note for the related
accrued interest also in arrears.
 
 On
February 12, 2010, as part of the requirements for conversion of its non-related
party, revolving line of credit to a term loan, the Company converted GKR
Associates, LLC’s (GKR) second mortgage to a third mortgage.  See Note
9. NOTES PAYABLEfor further discussion. The Company was three months in arrears on
mortgage payments due GKR at September 30, 2010.  No default notice
has been received and the Company plans to make payments as able.
 
 Notes
payable – related parties consists of the following as of December 31,
2009:
 
 Promissory
      note payable to the Chief Executive Officer of the Company, unsecured,
      bearing interest at 7.5% per annum, due in monthly principal and interest
      payments of $7,050, maturing on August 1, 2013.
                          
                          $
                          307,412Promissory
      note payable due an entity in which the Company’s Chief Executive Officer
      has a financial interest, GKR Associates, LLC., secured by second mortgage
      on real property, having a carrying value of $1,148,425 at December 31,
      2009, bearing 6.99% interest per annum, due in monthly principal and
      interest payments of $1,980, maturing on February 22,
2012.
                          
                          
                          49,315356,727Less
      amounts due within one year
                          
                          
                          137,408Long-term
      portion of notes payable – related parties
                          
                          $
                          219,319
 
 Net revenues and accounts
receivable – related parties – The Company sells products to three
entities, Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and
Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive
Officer.  Terms of sale are no more favorable than those extended to
any of the Company’s other customers.  Combined net revenues from
these entities for three months ended September 30, 2010 and 2009, was $171,682
and $116,259, respectively.  Combined net revenues from these entities
for nine months ended September 30, 2010 and 2009, was $529,719 and $354,467,
respectively.  Accounts receivable from Brownie’s SouthPort Diver’s,
Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at September 30,
2010, was $9,429, $10,522, and $2,997, respectively.  Net revenue from
940 Associates, Inc. (hereinafter referred to as “940AI”), an entity owned by
the Company’s Chief Executive Officer, for the nine months ended September 30,
2009 was $38,789.  Accounts receivable from Brownie’s SouthPort
Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December
31, 2009, was $1,178, $1,726, and $4,688, respectively.
  12
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 6.
                  RELATED PARTY
      TRANSACTIONS (continued)
 
 Royalties expense – related
parties
 
 The
Company has Non-Exclusive License Agreements with 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 September
30, 2010 and 2009, was $16,631 and $16,482, respectively.  Total
royalty expense for the above agreements for the nine months ended September 30,
2010 and 2009, was $47,293 and $51,885, respectively.  As of September
30, 2010, the Company was approximately eighteen months in arrears on royalty
payments due. No default notice has been received and the Company plans to make
payments as able.
 
 Patent purchase
agreements – In the first quarter of 2010, the Carleigh Rae Corporation
(herein referred to as “CRC”), an entity that the Company’s Chief Executive
Officer has an ownership interest, transferred ownership rights to the Company
of patents previously subject to Non-Exclusive License
Agreements.  Effective September 24, 2010, the Company finalized and
executed terms of the purchase from CRC for payment of $25,500 and 371,250
shares of the Company’s common stock.   In addition, the CRC is
entitled to a percentage of future sales amounting to $8,250 of products the
Company is to receive in conjunction with two patent infringement lawsuits
settled in the third quarter of 2010.  For financial reporting
purposes the Company valued the group of patents at $0 which is the lower of
CRC’s historical cost as compared to the fair market value of the
stock.  Accordingly, the Company realized a $182,250 loss on the
transaction comprised of $148,500 fair market value of the stock on the
September, 30, 2010 grant date less the $0 historical cost, plus the $25,500
cash, plus the $8,250 liability.  See Other liabilities and
accrued interest– related parties below for inclusion of the $8,250. By
acquiring the IP the Company (i) has an opportunity to further develop the IP,
(ii) has the ability to incorporate the IP into current and future products, and
(iii) has the opportunity to license the IP to third parties. In addition, see
Note 15. PATENT
INFRINGEMENT SETTLEMENT for further discussion on income earned in the
third quarter of 2010, from the Company’s successful settlement of several
lawsuits for infringement of one of these patents.
 
 Effective
December 31, 2009, the Company entered into a Patent Purchase Agreement with
Robert M. Carmichael, the Chief Executive Officer of the Company.  In
exchange for the Intellectual Property (“IP), the Company granted Mr. Carmichael
400,000 shares of common stock.  For financial reporting purposes the
Company valued the group of patents at $0 which is the lower of Mr. Carmichael’s
historical cost as compared to the fair market value of the
stock.  Accordingly, the Company realized a $100,000 loss on the
transaction, the fair market value of the stock on the December 31, 2009, grant
date less the $0 historical cost.  By acquiring the IP the Company (i)
has an opportunity to further develop the IP, (ii) has the ability to
incorporate the IP into current and future products, and (iii) has the
opportunity to license the IP to third parties.
 
 Effective
March 3, 2009, the Company entered into a Patent Purchase Agreement with Robert
M. Carmichael, the Chief Executive Officer of the Company.  The
Company purchased several patents it had previously been paying royalties on and
several related unissued patents.  In exchange for the Intellectual
Property (“IP), the Company issued Mr. Carmichael 315,000 stock options at a
$1.00 exercise price.  For financial reporting purposes the Company
has valued the group of patents at $0 which is the lower of Mr. Carmichael’s
historical cost as compared to the fair market value of the stock options on the
date of the transaction as determined using the Black-Scholes valuation
model.  Accordingly, the Company realized a $63,000 loss on the
transaction, the fair market value of the options on the March 3, 2009 grant
date using the Black-Scholes valuation model less the $0 historical
cost.  By acquiring the IP the Company (i) eliminated an estimated
$41,000 net discounted cash flows it would otherwise have had to pay related to
the IP through 2018, (ii) has an opportunity to further develop the IP, (iii)
has the ability to incorporate the IP into current and future products, and (iv)
has the opportunity to license the IP to third parties.
  13
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 6.
                  RELATED PARTY
      TRANSACTIONS (continued)
 
 Loan conversion and other
equity transactions– On September 30, 2010, the Company converted an
$180,000 loan from Mikkel Pitzner, a consultant, to 818,182 shares of common
stock.  Mr. Pitzner was also granted a warrant to purchase 147,727
shares of common stock at $.22 per shares exercisable through November 15, 2010
as part of the conversion.  The Company recognized $181,446 as
interest expense on conversion: the fair market value of the Company’s stock on
the date of conversion plus the fair market value of the warrant determined
using the Black-Scholes valuation model, less the $180,000 value of the
loan.  This transaction resulted in classification of Mr. Pitzner as a
related party of the Company owning greater than 5% of the outstanding shares of
common stock.
 
 Effective
October 1, 2009, the Company granted  Mr. Pitzner an option to
purchase 75,000 shares of common stock for $25 per share pursuant to an Equity
Incentive Plan..  The option expires five years from the date of
grant. The option was valued at $18,750 using the Black-Scholes valuation
model.  This amount was recognized as prepaid equity compensation and
is being amortized over the one year term of the agreement for business advisory
services. As of September 30, 2010, prepaid equity based compensation under this
agreement totaled $0 since all services pursuant to the agreement had been
provided. In addition, Mr. Pitzner was granted 100,000 shares of the Company’s
common stock on March 3, 2010 pursuant to another consulting
agreement.  The fair market value of the stock was $99,000 on the
effective date of the agreement.  This amount was recognized as
prepaid equity compensation and is being amortized over the one year term of the
agreement for marketing advisory services. As of September 30, 2010, prepaid
equity based compensation totaled $31,263 under the agreement and is reflected
as a component of shareholders’ equity for the related consulting services as
yet to be provided as of that date.  For the three and nine months
ended September 30, 2010, the Company recognized combined consulting expense
of  $35,951 and $85,445, respectively, under these  two
agreements.
  Other liabilities and
accrued interest– related parties
 
 Other
liabilities and accrued interest– related parties consists of the following
at:
 
 September 30, 2010
                          
                          
                          December 31, 2009Accrued
      interest on Notes payable – related parties
                          
                          
                          23,493
                          
                          
                          $
                          18,205Due
      to Principals of Carleigh Rae Corp.
                          
                          
                          8,250
                          
                          
                          
                          —Accounts
      payable – 940 Associates, Inc.
                          
                          
                          —
                          
                          
                          
                          365Other
      liabilities – related parties
                          
                          $
                          31,743
                          
                          
                          $
                          18,570
 
 As of
September 30, 2010, the Company was approximately fifteen months in arrears on
accrued interest due under the Note payable to the Chief Executive
Officer.  No default notice has been received and the Company plans to
make payments as able.
  14
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 7.
                  ACCOUNTS PAYABLE AND
      ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities of $509,067 at September 30, 2010, consists of
$329,526 accounts payable trade, $60,574 balance of legal expense that was a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$83,461 accrued payroll and related fringe benefits, $18,978 accrued real estate
taxes, $12,397  accrued interest, and $4,131 other accrued
liabilities.
 
 Accounts
payable and accrued liabilities of $391,767 at December 31, 2009, consists of
$232,065 accounts payable trade, $60,574 balance of legal expenses that was a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$69,981 accrued payroll and related fringe benefits, $24,000 accrued real estate
taxes, $1,542 accrued interest, and $3,605 other accrued
liabilities.
 
 8.
                  OTHER
      LIABILITIES
 
 Other
liabilities of $2,167and $2,921, at September 30, 2010, and December 31, 2009,
respectively, consists of on-line training liability.
 
 Effective
July 1, 2005, the Company began including on-line training certificates with all
hookah units sold.  The training certificates entitle the holder to an
on-line interactive course at no additional charge to the holder.  The
number of on-line training certificates issued per unit is the same as the
number of divers the unit as sold is designed to accommodate (i.e., a three
diver unit configuration comes with three on-line training
certificates).  The certificates have an eighteen-month redemption
life after which time they expire.  The eighteen-month life of the
certificates begins at the time the customer purchases the unit.  The
Company owes the on-line training vendor the agreed upon negotiated rate for all
on-line certificates redeemed payable at the time of redemption.  For
certificates that expire without redemption, no amount is due the on-line
training vendor.
 
 Until the
Company accumulated historical data related to the certificate redemption ratio,
it assumed that 100% of certificates issued with unit sales would be
redeemed.  Accordingly, at the time a unit was sold, the related
on-line training liability was recorded.  The same liability was
reduced as certificates were redeemed and the related payments were made to the
on-line training vendor.  In July 2007, the Company had accumulated 24
months of historical data regarding redemption rates so the liability estimate
was adjusted accordingly to reflect the actual redemption
history.  The Company continues to monitor and maintain a reserve for
certificate redemption that approximates the historical redemption rate that is
10%.
  15
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 9.
                  NOTES
      PAYABLE
 
 Notes
payable consists of the following as of September 30, 2010:
 
 Term
      loan secured by a second mortgage on the real property of the Company with
      a carrying value of $1,127,852 at September 30, 2010, interest rate at
      6.50% per annum, due in monthly principal and interest payments of $1,200
      with a balloon payment due February 12, 2011.
                          
                          $
                          199,239Promissory
      note payable secured by a first mortgage on the real property of the
      Company having a carrying value of $1,127,852 at September 30, 2010,
      interest at 6.99% per annum, due in monthly principal and interest
      payments of $9,038, maturing on January 22, 2022.
                          
                          
                          854,9841,054,223Less
      amounts due within one year
                          
                          
                          1,054,223Long-term
      portion of notes payable
                          
                          $
                          —
  As of
September 30, 2010, principal payments on the notes payable are as
follows:
 
 2010
                          
                          $
                          1,054,2232011
                          
                          
                          —2012
                          
                          
                          —2013
                          
                          
                          —2014
                          
                          
                          —Thereafter
                          
                          
                          —$
                          1,054,223
 
 The
Company converted its revolving line of credit that matured on December 2, 2009
into the above term loan that matures on February 12, 2011. As part of the
conversion, the Company granted the bank a second mortgage on the underlying
security. Accordingly, the Company converted GKR Associates, LLC’s secured
position from second to third position. As of September 30, 2010, the Company
was two months in arrears on payments to its first mortgage lender on the
property. On September 15, 2010, the Company received a default letter from the
bank demanding both the first and second mortgage (which it also holds), be
brought current by October 15, 2010. Under the terms of the default notice, if
the Company failed to bring the loans current by October 15, 2010, the Bank
would accelerate as due the full principal and accrued interest due under both
notes, as well as initiate collection and legal action. Because the Company did
not anticipate cure of the defaults without restructure of the debt, the Company
reclassified the full balance of the debt to current knowing a restructure by
October 15, 2010, was unlikely. See Note 18. SUBSEQUENT EVENTS for
further discussion of this matter.
  16
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 9.
                  NOTES PAYABLE
      (continued)
 
 Notes payable consists of the
following as of December 31, 2009:
 
 Revolving
      Line of Credit secured by a third mortgage on the real property of the
      Company with a carrying value of $1,148,425 at December 31, 2009, bearing
      interest at the lender’s base rate plus 1.00% per
      annum.  Interest payments are due monthly on the outstanding
      principal balance and the Line of Credit matures on December 2,
      2009.
                          
                          $
                          199,990Promissory
      note payable secured by a first mortgage on the real property of the
      Company having a carrying value of $1,148,425 at December 31, 2009,
      interest at 6.99% per annum, due in monthly principal and interest
      payments of $9,038, maturing on January 22, 2022.
                          
                          
                          882,4001,082,390Less
      amounts due within one year
                          
                          
                          247,424Long-term
      portion of notes payable
                          
                          $
                          834,966
 
 10.
                  EQUITY INCENTIVE
      PLAN
 
 On August
22, 2007, the Company adopted an Equity Incentive Plan (the
“Plan”).  Under the Plan, Stock Options may be granted to Employees,
Directors, and Consultants in the form of Incentive Stock Options or
Nonstatutory Stock Options.  Stock Purchase Rights, time vested
and/performance invested Restricted Stock, and Stock Appreciation Rights and
Unrestricted Shares may also be granted under the Plan.  The initial
maximum number of shares that may be issued under the Plan shall be 400,000
shares, and no more than 100,000 Shares of Common Stock may be granted to any
one Participant with respect to Options, Stock Purchase Rights and Stock
Appreciation Rights during any one calendar year period.  Common Stock
to be issued under the Plan may be either authorized and unissued or shares held
in treasury by the Company.  The term of the Plan shall be ten
years.  The Board of Directors may amend, alter, suspend, or terminate
the Plan at any time.
 
 Effective
December 31, 2008, the Company granted to certain key employees, consultants and
officers, fully vested incentive stock options to purchase 210,000 shares of
common stock under the Plan.  The fair value of the options was
determined to be $31,650 using the using the Black-Scholes
Model.  Accordingly, the Company recognized $31,650 as operating
expense for the options as of December 31, 2008.
 
 Effective
October 1, 2009, the Company granted an option to a related party to purchase
75,000 shares of common stock under the plan. See Note 6. RELATED PARTY
TRANSACTIONS – Loan conversion and other equity transactions for further
discussion of this.
 
 Effective
December 1, 2009, stock options to purchase 115,000 shares of common stock were
granted to certain consultants under the Plan.  The fair value of the
options was determined to be $28,750 using the Black-Scholes valuation
model.  The options having a term of five years were issued in
conjunction with one-year consulting agreements for certain business, marketing
and financial advisory services.  The stock options are in lieu of
payment for these services and as such the Company is recognizing operating
expense over the term of the agreements.  Accordingly, the Company
recognized $7,168 and $21,5638 as operating expense for the options during the
three and nine months ended September 30, 2010, respectively.  As of
September 30, 2010, prepaid equity based compensation totaled $4,792 under the
agreements and is reflected as a component of shareholders’ equity for the
related consulting services as yet to be provided as of that date.
 
 As of
December 31, 2009 all Stock Options authorized under Plan had been
granted.
  17
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.
                  STOCK ISSUED FOR LEGAL
      SERVICES
 
 Effective
December 30, 2009, the Company granted 50,000 shares of restricted common stock
to an outside attorney for certain legal and advisory services provided in 2009.
The stock was valued at the fair market price on the effective date of grant, or
$12,500.  The agreement underlying the stock as granted did not assign
a stated value to the services rendered.  Accordingly, the Company
recognized $12,500 for the year ended December 31, 2009, as legal expense
associated with the stock issue.  See Note 12. Stock Warrants for a
discussion of the warrants granted.
 
 Pursuant
to an Agreement and Release dated February 9, 2010, the Company granted 52,140
shares of restricted common stock to an outside attorney for legal and advisory
services valued at $13,035 provided through December 31, 2009.  The
effective date of the Agreement was December 31, 2009.  Accordingly,
the stock granted was valued at the fair market price on the date of the
Agreement, or $51,619.  As of December 31, 2009, $13,035 was
recognized as legal expense, and $38,584 was recognized as a loss on the
transaction.
 
 12.
                  STOCK WARRANTS ISSUED
      FOR LEGAL SERVICE
 
 Effective
December 30, 2009, the Company issued to an outside attorney warrants to
purchase 100,000 shares of restricted common stock for certain legal and
advisory services to be performed in 2010, as evidenced by a signed
proposal.  The warrants are exercisable at fair market value as of the
date of grant, and will vest in two tranches of 50,000 each, on September 30,
2010 and December 31, 2010, respectively.  In addition, the agreement
provides for a cashless exercise of the tranches.  The fair value of
the warrants was determined to be $25,000 using the Black-Scholes valuation
model.  The stock warrants are in lieu of payment for these services
and as such the Company will recognize operating expense over the term of the
agreement.  Accordingly, the Company recognized $6,250 and $18,750 as
operating expense for the three and nine months ended September 30, 2010,
respectively.  As of September 30, 2010, the first tranche of warrants
were unexercised.
 
 13.
                  STOCK ISSUED FOR
      CONSULTING SERVICES
 
 From
April 16, through September 30, 2010, the Company granted a combined 640,316
shares of restricted common stock to eight consultants pursuant to individual
consulting agreements.  The consulting services provided for include
predominantly management advisory services in the areas of sales, marketing,
public relations, financing, and business development. Grant of the stock was in
lieu of payment for these services.  The length of consulting services
under the agreements ranges from completed during the second quarter of 2010
through one year from effective transaction date, or July 1,
2011.  The majority of the agreements expire on December 31,
2010.  The Company recorded the transactions at the fair market value
of the stock on the effective date of each transaction.  The Company
is recognizing operating expense over the term of the
agreements.  Accordingly, the Company recognized $35,923 and $101,267
as operating expense under the agreements for the three and nine months ended
September 30, 2010, respectively. As of September 30, 2010, prepaid equity based
compensation under these agreements totaled $83,599 and is reflected as a
component of shareholders’ equity for the related consulting services as yet to
be provided as of that date.
 
 14.
                  OFFERING AGREEMENT AND
      INDEPENDENT CONSULTANT AND ADVISORY
  AGREEMENT
 
 Effective
December 31, 2009, the Company signed an independent consulting and
advisory agreement with a registered broker dealer.  Effective as of
the end of the first quarter of 2010, these agreements were terminated without
liability or associated cost to the Company.
  18
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 15.
                  PATENT INFRINGEMENT
      SETTLEMENTS
 
 In August
2010, the Company settled several lawsuits for infringement of one of the
Company’s patents. The Company recorded $206,950 as other income that was
settled in cash and inventory credits. The Company granted non-exclusive license
of its patent to the settling parties along with future licensing and purchasing
terms. In exchange, the Company was granted exclusive distributor rights in the
United States for certain of the products of the settling parties, as well as
non-exclusive distributor rights for others. The Company acquired the subject
patent from the Carleigh Rae Corporation, a related party, in 2010, and it is
discussed in Note 6. RELATED PARTY
TRANSACTIONS, Patent purchase
agreements.
 
 16.
                  INCOME
      TAXES
 
 The
components of the provision for income tax benefit are as follows for the three
months ended:
 
 September 30, 2010
                            
                            
                            September 30, 2009Current
      taxesFederal
                            
                            $
                            —
                            
                            
                            $
                            —State
                            
                            
                            —
                            
                            
                            
                            —Current
      taxes
                            
                            
                            —
                            
                            
                            
                            —Change
      in deferred taxes
                            
                            
                            (57,749
                            )
                            
                            
                            (25,675
                            )Change
      in valuation allowance
                            
                            
                            18,794
                            
                            
                            
                            (181
                            )Provision
      for income tax (benefit) expense
                            
                            $
                            (38,955
                            )
                            
                            $
                            (25,856
                            )
 
 The
components of the provision for income tax benefit are as follows for the nine
months ended:
 
 September 30, 2010
                            
                            
                            September 30, 2009Current
      taxesFederal
                            
                            $
                            —
                            
                            
                            $
                            3,706State
                            
                            
                            —
                            
                            
                            
                            (5,184
                            )Current
      taxes
                            
                            
                            —
                            
                            
                            
                            (1,478
                            )Change
      in deferred taxes
                            
                            
                            (246,506
                            )
                            
                            
                            (133,478
                            )Change
      in valuation allowance
                            
                            
                            111,935
                            
                            
                            
                            14,358Provision
      for income tax (benefit) expense
                            
                            $
                            (134,571
                            )
                            
                            $
                            (120,598
                            )
  19
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 16.
                  INCOME TAXES
      (continued)
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at September 30, 2010:
 
 Deferred
      tax assets:Equity
      based compensation
                          
                          $
                          33,362Allowance
      for doubtful accounts
                          
                          
                          3,400Depreciation
      and amortization timing differences
                          
                          
                          11,817Net
      operating loss carryforward
                          
                          
                          312,166On-line
      training certificate reserve
                          
                          
                          758Total
      deferred tax assets
                          
                          
                          361,503Valuation
      allowance
                          
                          
                          (184,028
                          )Deferred
      tax assets net of valuation allowance
                          
                          
                          177,475Less
      deferred tax assets – non-current, net of valuation
    allowance
                          
                          
                          177,096Deferred
      tax assets – current, net of valuation allowance
                          
                          $
                          379
 
 The
effective tax rate used for calculation of the deferred taxes as of September
30, 2010 was 34%.  The Company has established a valuation allowance
against deferred tax assets of $184,028 due to the uncertainty regarding
realization, comprised primarily of a 64% reserve against the deferred tax
assets attributable to the equity based compensation, a 100% reserve against the
allowance for doubtful accounts, and a 50% reserve against the net operating
carryforward and depreciation and amortization timing differences.
 
 The
significant differences between the statutory tax rate and the effective tax
rates for the Company for the nine months ended are as
follows:
 
 September 30, 2010
                          
                          
                          September 30, 2009Statutory
      tax rate benefit
                          
                          
                          —
                          %
                          
                          
                          —
                          %Increase
      (decrease) in rates resulting from:Net
      operating loss carryforward or carryback
                          
                          
                          (29
                          )%
                          
                          
                          (29
                          )%Equity
      based compensation and loss
                          
                          
                          1
                          %
                          
                          
                          (6
                          )%Book/tax
      depreciation and amortization differences
                          
                          
                          (1
                          )%
                          
                          
                          —
                          %Change
      in valuation allowance
                          
                          
                          13
                          %
                          
                          
                          4
                          %Other
                          
                          
                          —
                          %
                          
                          
                          —
                          %Effective
      tax rate benefit
                          
                          
                          (16
                          )%
                          
                          
                          (31
                          )%
  20
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 16.
                  INCOME TAXES
      (continued)
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at December 31, 2009:
 
 Deferred
      tax assets:Stock
      options
                          
                          $
                          33,527Allowance
      for doubtful accounts
                          
                          
                          10,540Net
      operating loss carryforward
                          
                          
                          72,382On-line
      training certificate reserve
                          
                          
                          438Total
      deferred tax assets
                          
                          
                          116,887Valuation
      allowance
                          
                          
                          (72,095
                          )Deferred
      tax assets net of valuation allowance
                          
                          
                          44,792Less
      deferred tax assets – non-current, net of valuation
    allowance
                          
                          
                          44,573Deferred
      tax assets – current, net of valuation allowance
                          
                          $
                          219Deferred
      tax liabilityDepreciation
      and amortization timing differences
                          
                          $
                          1,888Less
      deferred tax liability – non-current
                          
                          
                          1,888Deferred
      tax liability – current
                          
                          $
                          —
 
 The
effective tax rate used for calculation of the deferred taxes as of December 31,
2009 was 34%.  The Company established a valuation allowance against
deferred tax assets of $72,095 due to the uncertainty regarding realization,
comprised primarily of a 75% reserve against the deferred tax assets
attributable to the stock options, a 100% reserve against the allowance for
doubtful accounts, and a 50% reserve against part of the net operating loss that
must be carried forward.
 
 At
December 31, 2009, the Company had income tax refunds receivable of $121,802
comprised of tax refunds due from the state and federal government of $9,357 and
$112,445, respectively.  The state income tax refund receivable is
attributable to a 2008 state income tax overpayment carried forward into 2009
and not utilized as a result of
the Company’s net operating loss in 2009.  The federal income tax
refund receivable it attributable to net operating loss carryback from 2009 to
recuperate taxes paid in 2008.
 
 16.
                  AUTHORIZATION OF
      PREFERRED STOCK
 
 During
the second quarter of 2010, the holder of the majority of the Company’s
outstanding shares of common stock approved an amendment to the Company’s
Articles of Incorporation authorizing the issuance of 10,000,000 shares of
preferred stock.  The preferred stock as authorized has such voting
powers, designations, preferences, limitations, restrictions and relative rights
as may be determined by our Board of Directors of the Company from time to time
in accordance with the provisions of Chapter 78 of the Nevada Revised
Statutes.  Before modification, the existing Articles of Incorporation
did not authorize the issuance of shares of preferred stock.  The
Company authorized the preferred stock for the purpose of added flexibility in
seeking capital and potential acquisition targets.  The amendment
authorizing the issuance of shares of preferred stock grants the Board
authority, without further action by our stockholders, to designate and issue
preferred stock in one or more series and to designate certain rights,
preferences and restrictions of each series, any or all of which may be greater
than the rights of the common stock.
  21
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 17.
                  LEGAL
 
 On April
28, 2010, Melissa Metz, individually and as personal representative of the
Estate of Lester M. Metz, deceased (the “Plaintiff”), filed a wrongful death
complaint against Trebor Industries, Inc. and the Company in United States
District Court for the Eastern District of Pennsylvania. The lawsuit alleges
that the deceased suffered fatal injuries while using a Brownie’s product while
performing maintenance in a residential swimming pool. The lawsuit further
alleges that the Brownie’s product caused the deceased to be electrocuted, thus
contributing to the cause of his death. Plaintiff seeks recovery of unspecified
amounts to exceed $75,000 from the Company and Trebor.  The Company
intends to vigorously defend the lawsuit, and although the ultimate outcome of
the lawsuit cannot be determined at this time, based on our present knowledge of
the facts, the Company believes the lawsuit is without merit. The Company's
legal costs of defending against the civil action will be funded by the
Company's insurance policies. Management believes coverage is adequate to
provide for such lawsuit.  In the event the Company is found to be
responsible or liable, such costs could be material to the Company.
 
 18.
                  SUBSEQUENT
      EVENT
 
 On
October 15, 2010, the Company did not cure defaults on its first and second
mortgages as per a default notice from the lender.   The Company
was two months in arrears on payments to its first mortgage lender on the
property as of  September 30, 2010.  On September 15, 2010,
the Company received a default letter from the bank demanding both the first and
second mortgage (which it also holds), be brought current by October 15,
2010.   Under the terms of the default notice, if the Company
failed to bring the loans current by October 15, 2010, the bank would accelerate
as due the full principal and accrued interest due under both  notes,
as well as initiate collection and legal actions.  Since default, The
Company has been negotiating with the bank to cure the defaults through
restructure of its debt.
  22


Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
  Introductory
Statements
  Information
included or incorporated by reference in this filing may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act.  This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements.  Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable
terminology.
  This
filing contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
Company’s growth strategies, (c) our Company’s future financing plans and
(d) our Company’s anticipated needs for working capital.  These
statements may be found under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business,” as well as in this
prospectus generally.  Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Risk Factors”
and matters described in this filing generally.  In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this filing will in fact occur.
  Overview
  Brownie’s
Marine Group, Inc., a Nevada corporation (referred to herein as “BWMG”,“the
Company” or “Brownie’s”), does business through its wholly owned subsidiary,
Trebor Industries, Inc., d/b/a Brownie’s Third Lung, a Florida
corporation.  The Company designs, tests, manufactures and distributes
recreational hookah diving, yacht based scuba air compressor and nitrox
generation systems, and scuba and water safety products.  BWMG sells
its products both on a wholesale and retail basis, and does so from its
headquarters and manufacturing facility in Fort Lauderdale, Florida. The
Company’s common stock is quoted on the OTCBB under the symbol “BWMG”. The
Company’s website is www.browniesmarinegroup.com.
  Mr.
Carmichael has operated Trebor as its President since 1986.  Since
April 16, 2004, Mr. Carmichael has served as President, Principal Accounting
Officer and Chief Financial Officer of the Company.  From March 23,
2004 to April 26, 2004, Mr. Carmichael served as the Company’s Executive
Vice-President and Chief Operating Officer.  He is the holder or
co-holder of numerous patents that are used by Trebor and several other large
original equipment manufacturers in the diving industry.
  The
Company’s diving and marine based products are generally marketed under the
Brownie’s
Third Lung, Brownie’s Tankfill, and Brownie’s Public
Safety trade names.
  Results
of Operations for the Three Months Ended September 30, 2010, As Compared To the
Three Months Ended September 30, 2009
  Net revenues.  For
the three months ended September 30, 2010, we had net revenues of $561,887 as
compared to net revenues of $610,884 for the three months ended September 30,
2009, a decrease of $48,997, or 8.02%.  The net decrease is
attributable to a decrease in tankfill system sales of approximately $90,000,
partially offset by an increase in hookah system and related sales of
approximately $40,000.  The increase in hookah system and related
sales is primarily attributable to approximately $52,000 increase in sales of
the Company’s new variable speed diving systems, both electric and battery
powered.  The Company believes the depressed state of the economy
continues to negatively impact overall sales as is seen by the decline in
tankfill system sales.  The Company’s products are largely
non-essential, disposable income type items, and therefore are more likely to be
sacrificed by consumers in preference for essential goods during depressed
economic conditions.
  Cost of net
revenues.  For the three months ended September 30, 2010, we
had cost of net revenues of $395,121 as compared with cost of net revenues of
$424,449 for the three months ended September 30, 2009, a decrease of $29,328,
or 6.91%.   Cost of materials was lower by approximately $18,000
as a result of a decrease in net revenues and remained fairly constant as a
percentage of net revenues. The remainder of the net decrease is attributable to
various other individually insignificant increases and decreases in other costs
of net revenues.
  23
  Gross profit.  For
the three months ended September 30, 2010, we had a gross profit of $166,766 as
compared to gross profit of $186,435 for the three months ended September 30,
2009, a decrease of $19,669, or 10.55%.  The decrease is primarily
attributable to the decrease in net revenues.
  Operating
expenses.  For the three months ended September 30, 2010, we
had total operating expenses of $380,253 as compared to total operating expenses
of $232,492 for the three months ended September 30, 2009, an increase of
$147,761, or 63.56%.  The $147,761 increase is due to
an increase in selling, general and administrative costs of $148,346 net of $585
decrease in research and development costs as compared to the same period in
2009.  The net increase in sales, general and administrative costs for
the quarter ended September 30, 2010, as compared to the same period in 2009 is
primarily attributable to an increase of approximately $147,000 consulting
expense for business, marketing, legal, and financial advisory services, the
majority of which was in the form of equity based compensation.
  Other expense,
net.  For the three months ended September 30, 2010, we had
other expense, net of $170,830 as compared to other expense, net of $27,381 for
the three months ended September 30, 2009, an increase of $143,443, or
523.90%.  This account is comprised of other (income)
expense, net, and interest expense.  Interest expense for the period
increased $170,897 and other income, net increased $27,448.  Other
(income) expense, net, is comprised of transactions that are generally of a non
recurring nature.  The increase in interest expense of $170,897 was
primarily attributable to approximately $181,000 incremental common stock and
warrants granted upon conversion of $180,000 loan payable, and was partially
offset by interest reduction due to amortizing principal balances, and
adjustment between interest and principal on related party note.  The
increase in other income, net, of $27,448 is primarily comprised of gain on
patent infringement settlement of approximately $207,000 offset by approximately
$182,000 of loss and other expenses associated with purchase of patents
underlying the settlement.
  Provision for income tax
benefit.  For the three months ended September 30, 2010, we had
a provision for income tax benefit of $38,955, as compared to $25,856 for the
three months ended September 30, 2009, an increase in provision for income tax
benefit of $13,099, or 50.66%.  The increase is primarily a result of
the increase in deferred tax asset associated with the increase in net loss
carryforward for the period.
  Net loss.For the
three months ended September 30, 2010, we had net loss of $345,362 as compared
to net loss of $47,582 for the three months ended September 30, 2009, an
increase of $297,780, or 625.82%.  The increase in net loss is
attributable to $19,669 decrease in gross profit, $147,761 increase in operating
expenses, $143,449 increase in other expenses, net, and $13,099 increase in
provision for income tax benefit.
  Results
of Operations for the Nine Months Ended September 30, 2010, As Compared To the
Nine months Ended September 30, 2009
  Net revenues.  For
the nine months ended September 30, 2010, we had net revenues of $1,684,135 as
compared to net revenues of $1,692,037, for the nine months ended September 30,
2009, a decrease of $7,902, or less than 1%.  While net revenue during
the current period is fairly consistent with prior period, the sales composition
is different.  Tankfill system sales declined approximately $87,000
for the nine months ended September 30, 2010 as compared to the same period in
2009.  Hookah system and related sales increased approximately $89,000
for the nine months ended September 30, 2010 as compared to the nine months
ended September 30, 2009.  The increase in hookah system and related
sales is primarily attributable to approximately $70,000 increase in sales of
the Company’s new variable speed diving systems, both electric and battery
powered. The Company believes the depressed state of the economy continues to
negatively impact sales as is seen by the decline in tankfill system
sales.  The Company’s products are largely non-essential, disposable
income type items, and therefore are more likely to be sacrificed by consumers
in preference for essential goods during depressed economic
conditions.
  Cost of net
revenues.  For the nine months ended September 30, 2010, we had
cost of net revenues of $1,279,629 as compared with cost of net revenues of
$1,231,984 for the nine months ended September 30, 2009, an increase of $47,645,
or 3.87%.  The increase in cost of net revenues during the nine months
ended September 30, 2010, is primarily attributable to  approximately
$50,000 or, 3% increase in cost of materials as a percentage of net revenues
over the same period in 2009.
  Gross profit.  For
the nine months ended September 30, 2010, we had a gross profit of $404,506 as
compared to gross profit of $460,053 for the nine months ended September 30,
2009, a decrease of $55,547 or 12.07%.  This decrease is primarily
attributable to increase in material costs as a percentage of net revenues for
the nine months ended September 30, 2010, as compared to the same period in
2009.
  24
  Operating
expenses.  For the nine months ended September 30, 2010, we had
total operating expenses of $1,022,707 as compared to total operating expenses
of $705,287 for the nine months ended September 30, 2009, an increase of
$317,420, or 45.01%.  The $317,420 increase is due to an increase in
selling, general and administrative costs of $312,712, and an increase in
research and development expenses of $4,708 for the nine months ended September
30, 2010, as compared to the same period in 2009.  The increase in
research and development was primarily for allocation of salaries for additional
time spent on research and development activities during the
period.  The net increase in sales, general and administrative costs
for the nine months ended September 30, 2010 as compared to the same period in
2009 is primarily attributable to an increase of approximately $272,000
consulting expense for business, marketing, legal, and financial advisory
services, the majority of which was in the form of equity based
compensation.   The equity based compensation resulted from
consulting agreements entered into beginning in the fourth quarter of 2009
through the second quarter of 2010.  The remainder of the net increase
is attributable to various other individually insignificant increases and
decreases in other selling, general and administrative expenses.
  Other expense,
net.  For the nine months ended September 30, 2010, we had
other expense, net of $221,626 as compared to other expense, net of $140,830 for
the nine months ended September 30, 2009, a decrease of $80,796, or
57.37%.  This account is comprised of other (income) expense, net, and
interest expense.  Interest expense for the period increased $174,680
and other income, net increased $93,884.  Other (income) expense, net,
is comprised of transactions that are generally of a non recurring nature. The
increase in interest expense of $174,680 was primarily attributable to
approximately $181,000 incremental common stock and warrants granted upon
conversion of $180,000 loan payable, and was partially offset by interest
reduction due to amortizing principal balances, and adjustment between interest
and principal on related party note. The increase in other income, net, of
$93,884 is primarily comprised of gain on patent infringement settlement of
approximately $207,000 offset by approximately $182,000 of loss and other
expenses associated with purchase of patents underlying the settlement during
the nine months ended September, 30, 2010, and without a comparable $63,000 loss
on purchase of patents as occurred during the nine months ended September 30,
2009.
  Provision for income tax
benefit.  For the nine months ended September 30, 2010, we had
a provision for income tax benefit of $134,571 as compared to $120,598 for the
nine months ended September 30, 2009, an increase in provision for income tax
benefit of $13,973, or 11.59%.  The increase is primarily a result of
the increase in deferred tax asset associated with the increase in net loss
carryforward for the period.
  Net loss.For the
nine months ended September 30, 2010, we had net loss of $705,256 as compared to
net loss of $265,466 for the nine months ended September 30, 2009, an increase
of $439,790, or 165.67%.  The increase in net loss is attributable to
$55,547 decrease in gross profit, $317,420 increase in operating expenses,
$80,796 increase in other expenses, net, and $13,973 increase in provision for
income tax benefit.
   Liquidity
and Capital Resources
  As of
September 30, 2010, the Company had cash and current assets of $740,691 and
current liabilities of $1,880,926 or a current ratio of .39.  This
represents a working capital deficit of $1,140,235.  As of December
31, 2009, the Company had cash and current assets of $704,629 and current
liabilities of $859,066, or a current ratio of .82.
  The
accompanying consolidated financial statements contained herein assume the
Company will continue as a going concern, which contemplates realization of
assets and the satisfaction of liabilities in the normal course of business for
the twelve month period following the date of these financial statements.
However, we have incurred losses since 2009, and expect to have losses into a
portion of 2011. We have had a working capital deficit since 2009. In the third
quarter of 2010, the Company also defaulted on its first mortgage resulting in
an automatic default on its second mortgage further discussed in Note 9. NOTESPAYABLE of the
Company’s notes to line consolidated financial statements contained
herein.
  During
the third quarter of 2010, the Company settled several lawsuits for infringement
of one of the Company’s patents. The settlement was in the form of cash and
inventory credits, and the Company was granted exclusive distributor rights in
the United States for certain of the products of the settling parties, as well
as non-exclusive distributor rights for others as further discussed in Note 15.
PATENT INFRINGEMENTSETTLEMENTS of the
Company’s notes to the consolidated financial statements contained herein. In
addition, the Company introduced some of its own new products to market in mid
2010, the variable speed electric and battery powered diving units. We believe
the combined addition of these products to complement the sales of our other
products will allow us to generate enough sales to supply us with sufficient
working capital in the future. However, we do not expect that our existing
current cash flow will be sufficient to fund our presently anticipated
operations beyond the first quarter of 2011. This raises substantial doubt about
our ability to continue as a going concern.
  25
 We will
need to raise additional funds and are currently exploring alternative sources
of financing. We are in the process of negotiating with our mortgage lender for
debt restructure to reduce our payments and cure of our defaults. The Company
believes it will cure this default in the fourth quarter of 2010; however, there
can be no assurances. We have implemented some cost saving measures and will
continue to explore more to reduce operating expenses.
  If we
fail to raise additional funds when needed, are not able to renegotiate our bank
loans, or do not have sufficient cash flows from sales, it may have a material
adverse effect on the Company. The accompanying consolidated financial
statements included herein do not include any adjustments that may result from
the outcome of this uncertainty.
  The
Company does not anticipate any significant purchases of equipment during fiscal
year 2010. The number and level of employees at September 30, 2010 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.
  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.
  26
  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.
  Our
industry is characterized by frequent intellectual property litigation based on
allegations of infringement of intellectual property rights.  Although
we are not aware of any intellectual property claims against us, we may be a
party to litigation in the future.
  We
May Be Unable To Manage Growth
  Successful
implementation of our business strategy requires us to manage our growth. Growth
could place an increasing strain on our management and financial
resources.  If we fail to manage our growth effectively, our business,
financial condition or operating results could be materially harmed, and our
stock price may decline.
  Reliance
on Vendors and Manufacturers
  We deal
with suppliers on an order-by order basis and have no long-term purchase
contracts or other contractual assurances of continued supply or
pricing.  In addition, we have no long-term contracts with our
manufacturing sources and compete with other companies for production facility
capacity.  Historically, we have purchased enough inventories of
products or their substitutes to satisfy demand.  However,
unanticipated failure of any manufacturer or supplier to meet our requirements
or our inability to build or obtain substitutes could force us to curtail or
cease operations.
  Dependence
on Consumer Spending
  The
success of the our business depends largely upon a number of factors related to
consumer spending, including current and future economic conditions affecting
disposable consumer income such as employment, business conditions, tax rates,
and interest rates.  In times of economic uncertainty, consumers tend
to defer expenditures for discretionary items, which affects demand for our
products.  Any significant deterioration in overall economic
conditions that diminishes consumer confidence or discretionary income can
reduce our sales and adversely affect our financial results.  The
impact of weakening consumer credit markets; layoffs; corporate restructurings;
higher fuel prices; declines in the value of investments and residential real
estate; and increases in federal and state taxation can all negatively affect
our results.  There can be no assurance that in this type of
environment consumer spending will not decline beyond current levels, thereby
adversely affecting our growth, net sales and profitability or that our business
will not be adversely affected by continuing or future downturns in the economy,
boating industry, or dive industry.  If declines in consumer spending
on recreational marine accessories and dive gear are other than temporary, we
could be forced to curtail operations.
  Government
Regulations May Impact Us
  The SCUBA
industry is self-regulating; therefore, Brownie’s is not subject to government
industry specific regulation.  Nevertheless, Brownie’s strives to be a
leader in promoting safe diving practices within the industry and is at the
forefront of self-regulation through responsible diving
practices.  Brownie’s is subject to all regulations applicable to “for
profit” companies as well as all trade and general commerce governmental
regulation.  All required federal and state permits, licenses, and
bonds to operate its facility have been obtained.  There can be no
assurance that our operations will not be subject to more restrictive
regulations in the future, which could force us to curtail or cease
operations.
  27
  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.
   Item
      3.
              Quantitative
      and Qualitative Disclosures About Market
Risk.
 
 Market
risk generally represents the risk of loss that may be expected to result from
the potential change in value of a financial instrument as a result of
fluctuations in credit ratings of the issuer, equity prices, interest rates or
foreign currency exchange rates. We do not use derivative financial instruments
for any purpose.
  Item
      4T.
              Controls
      and Procedures
  Evaluation of Disclosure Controls and
Procedures
  As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Principal
Executive Officer/Principal Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and
procedures.  The Company’s disclosure controls and procedures are
designed to provide a reasonable level of assurance of achieving the Company’s
disclosure control objectives.  Based on the evaluation, the Company
determined it failed to timely file an 8K with regard to an Asset Purchase
Agreement with the Carleigh Rae Corporation (“CRC”), a related party. The CRC
transaction is  discussed below in Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds, and is disclosed in the notes to the
Company’s Financial Statements for the period covered by this report included
herein.   The Company is currently in the process of drafting
these documents and will institute additional internal control procedures to
remedy this noted internal control deficiency.  Other than this noted
deficiency, the Company’s Principal Executive Officer/Principal Accounting
Officer has concluded that the Company’s disclosure controls and procedures are,
in fact, effective at this reasonable assurance level as of the end of period
covered by this report.
  Changes in Internal
Controls
  There
were no changes in our internal controls over financial reporting during the
period covered by this report that have materially affected or are likely to
materially affect the Company’s internal controls over financial
reporting.
  28
  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
  During  the
three months ended September 30, 2010, the Company issued 7,118 shares of
restricted common stock to a consultant pursuant to a consulting agreement for
financial services provided.  The securities were issued without
registration under the Securities Act of 1933 in reliance upon the exemption
provided in Section 4(2).  The securities were issued with a legend
restricting their transferability absent registration of applicable
exemption.
 
 Effective
September 24, 2010, the Company entered into an Asset Purchase Agreement with
Carleigh Rae Corp., a Florida corporation (“CRC”), pursuant to which the Company
acquired seven granted U.S. Patents and three pending U.S. Parents, relating to
water safety and survival products, including, but not limited to, devices
incorporated into life jackets, personal flotation devices, scuba tanks and BCs
(the “Intellectual Property”).  In consideration of the Intellectual
Property, the Company issued the shareholders of CRC an aggregate of 371,250
shares of common stock of the Company and made a cash payment of an aggregate of
$25,500 to the shareholders.  Robert Carmichael, the Company’s chief
executive officer and director, also serves as an officer and director of CRC
and is a shareholder of CRC.  As such, Mr. Carmichael received 185,625
shares of common stock and $8,500 in connection with the
Agreement.  In addition, .   In addition, CRC is
entitled to a percentage of future sales amounting to $8,250 of products the
Company is to receive in conjunction with two patent infringement lawsuits
settled in the third quarter of 2010.  For financial reporting
purposes the Company valued the group of patents at $0 which is the lower of
CRC’s historical cost as compared to the fair market value of the
stock.  Accordingly, the Company realized a $182,250 loss on the
transaction comprised of $148,500 fair market value of the stock on the
September, 30, 2010, grant date less the $0 historical cost, plus the $25,500
cash, plus the $8,250 liability. By acquiring the IP the Company (i) has an
opportunity to further develop the IP, (ii) has the ability to incorporate the
IP into current and future products, and (iii) has the opportunity to license
the IP to third parties. The shares issued to the CRC shareholders were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933. The shares contain a legend restricting their transferability
absent registration or applicable exemption.
 
 On
September 30, 2010 the Company issued 818,182 shares of restricted common stock
pursuant to the conversion of an $180,000 loan to an
individual.  Also, as part of the same transaction, the Company
granted this same individual a warrant to purchase 147,727 shares of restricted
common stock for $.22 per share by November 15, 2010.  The transaction
resulted in classification of this individual as a related party of the Company
owning greater than 5% of the outstanding shares of common stock.  The
securities were issued without registration under the Securities Act of 1933 in
reliance upon the exemption provided in Section 4(2).  The securities
were issued with a legend restricting their transferability absent registration
of applicable exemption.
  Item
      3.
              Defaults
      Upon Senior Securities
  None.
  29
 
 Item
      4.
              (Removed
      and Reserved)
 
  Item
      5.
              Other
      Information
  None.
  30
  Item
      6.
              Exhibits
  Exhibit
      No.
              
              Description
              
              Location2.2
              
              Merger
      Agreement, dated June 18, 2002 by and among United Companies Corporation,
      Merger Co., Inc. and Avid Sportswear & Golf Corp.
              
              Incorporated
      by reference to Exhibit 2.02 Amendment No. 1 to Form S-4 filed June 24,
      2002.2.3
              
              Articles
      of Merger of Avid Sportswear & Golf Corp. with and into Merger Co.,
      Inc.
              
              Incorporated
      by reference to Exhibit 2.03 Amendment No. 1 to Form S-4 filed June 24,
      2002.3.1
              
              Articles
      of Incorporation
              
              Incorporated
      by reference to Exhibit 3.1 of 10-Q for the quarter ended September 30,
      2009 filed on November 13, 2009.3.2
              
              Articles
      of Amendment
              
              Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.3.3
              
              Articles
      of Amendment Authorizationof
      Preferred Stock
              
              Incorporated
      by reference to Schedule 14C filed on June 1, 20103.4
              
              Bylaws
              
              Incorporated
      by reference to Exhibit 3.04 to the Registration Statement on Form
      10-SB.5.1
              
              2007
      Stock Option Plan
              
              Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.10.1
              
              Share
      Exchange Agreement, dated March 23, 2004 by and among the Company, Trebor
      Industries, Inc. and Robert Carmichael
              
              Incorporated
      by reference to Exhibit 16.1 to Current Report on Form 8-K filed April 9,
      200410.2
              
              Non-Exclusive
      License Agreement –BC
      Keel Trademark
              
              Incorporated
      by reference to Exhibit 10.18 to Form 10QSB for the quarter ended
      September 30, 2005 filed August 15, 2005.10.3
              
              Exclusive
      License Agreement - Brownie's Third Lung, Brownie's Public Safety,
      Tankfill, and Related Trademarks and Copyrights
              
              Incorporated
      by reference to Exhibit 10.20 to Form 10QSB for the quarter ended
      September 30, 2005 filed August 15, 2005.10.4
              
              Non-Exclusive
      License Agreement -Garment
      Integrated or Garment Attachable Flotation Aid and/or PFD
              
              Incorporated
      by reference to Exhibit 10.22 to Form 10QSB for the quarter ended
      September 30, 2005 filed August 15, 2005.10.5
              
              Non-Exclusive
      License Agreement - SHERPATrademark
      and Inflatable Flotation Aid/SignalDevice
      Technology
              
              Incorporated
      by reference to Exhibit 10.24 to Form 10QSB for the quarter ended
      September 30, 2005 filed August 15, 2005.10.6
              
              Non-Exclusive
      License Agreement - Tank-Mounted
      Weight, BC or PFD-Mounted Trim Weight or Trim Weight Holding
      System
              
              Incorporated
      by reference to Exhibit 10.25 to Form 10QSB for the quarter ended
      September 30, 2005 filed August 15, 2005.10.7
              
              Exclusive
      License Agreement – Brownie’s Third Lung and Related Trademarks and
      Copyright
              
              Incorporated
      by reference to Exhibit 10.26 to Form 10KSB for the year ended December
      31, 2006 filed April 4, 2007.
  31
  10.8
              
              Agreement
      for Purchase and Sale of PropertyBetween
      Trebor Industries, Inc. and GKRAssociates,
      Inc. dated February 21, 2007
              
              Incorporated
      by reference to Exhibit 10.28 to Form 10KSB for the year ended December
      31, 2006 filed April 4, 2007.10.9
              
              First
      Mortgage dated February 22, 2007between
      Trebor Industries, Inc. andColonial
      Bank
              
              Incorporated
      by reference to Exhibit 10.29 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.10
              
              Note
      dated February 22, 2007 payableto
      GKR Associates, Inc.
              
              Incorporated
      by reference to Exhibit 10.30 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.11
              
              Second
      Mortgage dated February 22, 2007 between Trebor Industries, Inc. and GKR
      Associates, LLC.
              
              Incorporated
      by reference to Exhibit 10.31 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.12
              
              Promissory Note dated January 1, 2007payable
      to Robert M. Carmichael.
              
              Incorporated
      by reference to Exhibit 10.32 to Form 10KSB for the year ended year ended
      December 31, 2006 filed April 4, 2007.10.13
              
              Asset
      Purchase Agreement between TreborIndustries,
      Inc. and Robert Carmichael.
              
              Incorporated by reference to Form 8Kfiled on August 1, 2008.10.14
              
              Asset
      Purchase Agreement between TreborIndustries,
      Inc. and Robert Carmichael.
              
              Incorporated by reference to Form 8K filed on March 5,
      2009.10.15
              
              Asset
      Purchase Agreement between TreborIndustries,
      Inc. and Robert Carmichael.
              
              Incorporated by reference to Form 8K filed on January 19,
      2010.10.16
              
              Loan
      Conversion for Restricted Common Stock
              
              Incorporated
      by reference to Form 8K filed on October 5, 2010.10.17
              
              Asset
      Purchase Agreement between TreborIndustries,
      Inc. and the Carleigh Rae Corporation
              
              To
      be filed.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
  32
  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:           November 22,
      2010
                Brownie’s
      Marine Group, Inc.By:
                /s/
      Robert
      M. CarmichaelRobert
      M. CarmichaelPresident,
      Chief Executive Officer, Chief Financial Officer/Principal Accounting
      Officer
  
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