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 June 30,
2009
  o           Transition
report under Section 13 or 15(d) of the Securities Exchange Act of
1934
  For the
transition period from _______ to _______.
  Commission
File No. 000-28321
  Brownie’s
Marine Group, Inc.
 (Name of
Small Business Issuer in Its Charter)
 
 Nevada
              90-0226181(State
      or Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
      Employer Identification No.)940
      N.W. 1stStreet,
      Fort Lauderdale, Florida
              33311(Address
      of Principal Executive Offices)
              (Zip
      Code)
 
 (954)
462-5570
 (Issuer’s
Telephone Number, Including Area Code)
   (Former
Name, if Changed Since Last Report)
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
 Yes  x     No  o
 
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its Corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceeding 12 months (or for such shorter period tha 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 o
 
 Non-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 1,785,538 shares of common stock outstanding as of August 1,
2009.
 
 
  
 PART
I
 
 Item
1. Financial Statements
 
 Financial
Information
  BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
BALANCE SHEETS
 June
      30,2009
                
                
                December
      31,(Unaudited)
                
                
                2008ASSETSCurrent
      assetsCash
                
                $
                38,544
                
                
                $
                3,532Accounts
      receivable, net of $28,000 and $ 25,000 allowancefor
      doubtful accounts, respectively
                
                
                65,266
                
                
                
                34,328Accounts
      receivable - related parties
                
                
                30,988
                
                
                
                41,059Inventory
                
                
                548,411
                
                
                
                735,036Prepaid
      expenses and other current assets
                
                
                94,203
                
                
                
                94,079Costs
      and estimated earnings in excess of billings on uncompleted
      contract
                
                
                --
                
                
                
                287,861Deferred
      tax asset, net - current
                
                
                85,675
                
                
                
                456Total
      current assets
                
                
                863,087
                
                
                
                1,196,351Property,
      plant and equipment, net
                
                
                1,184,592
                
                
                
                1,199,554Deferred
      tax asset, net - non-current
                
                
                5,634
                
                
                
                --Other
      assets
                
                
                6,968
                
                
                
                6,968Total
      assets
                
                $
                2,060,281
                
                
                $
                2,402,873LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                
                $
                389,760
                
                
                $
                329,488Customer
      deposits
                
                
                6,885
                
                
                
                194,425Royalties
      payable - related parties
                
                
                37,817
                
                
                
                42,865Income
      taxes payable
                
                
                9,171
                
                
                
                30,649Other
      liabilities
                
                
                4,228
                
                
                
                4,232Other
      liabilities and accrued interest- related parties
                
                
                58,571
                
                
                
                44,151Notes
      payable - current portion
                
                
                245,783
                
                
                
                244,188Notes
      payable - related parties - current portion
                
                
                110,726
                
                
                
                86,677Total
      current liabilities
                
                
                862,941
                
                
                
                976,675Long-term
      liabilitiesDeferred
      tax liability, net - non-current
                
                
                --
                
                
                
                2,411Notes
      payable - long-term portion
                
                
                859,018
                
                
                
                882,410Notes
      payable - related parties - long-term portion
                
                
                266,185
                
                
                
                314,356Total
      liabilities
                
                
                1,988,144
                
                
                
                2,175,852Commitments
      and contingenciesStockholders'
      equityCommon
      stock; $0.001 par value; 250,000,000 shares authorized1,785,538
      and 1,785,538 shares issued and outstanding, respectively
                
                
                1,785
                
                
                
                1,785Additional
      paid-in capital
                
                
                1,147,216
                
                
                
                1,084,216Accumulated
      deficit
                
                
                (1,076,864
                )
                
                
                (858,980
                )Total
      stockholders' equity
                
                
                72,137
                
                
                
                227,021Total
      liabilities and stockholders' equity
                
                $
                2,060,281
                
                
                $
                2,402,873
  See
Accompanying Notes to Consolidated Financial Statements
  1
 
  BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (UNAUDITED)
  Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      revenuesNet
      revenues
                
                $
                444,192
                
                
                $
                1,512,712
                
                
                $
                804,972
                
                
                $
                2,449,613Net
      revenues - related parties
                
                
                125,657
                
                
                
                216,361
                
                
                
                276,181
                
                
                
                474,261Total
      net revenues
                
                
                569,849
                
                
                
                1,729,073
                
                
                
                1,081,153
                
                
                
                2,923,874Cost
      of net revenuesCost
      of net revenues
                
                
                369,486
                
                
                
                880,390
                
                
                
                772,132
                
                
                
                1,686,422Royalties
      - related parties
                
                
                15,140
                
                
                
                53,747
                
                
                
                35,403
                
                
                
                77,367Total
      cost of net revenues
                
                
                384,626
                
                
                
                934,137
                
                
                
                807,535
                
                
                
                1,763,789Gross
      profit
                
                
                185,223
                
                
                
                794,936
                
                
                
                273,618
                
                
                
                1,160,085Operating
      expensesResearch
      and development costs
                
                
                17,274
                
                
                
                993
                
                
                
                27,353
                
                
                
                1,122Selling,
      general and administrative
                
                
                217,842
                
                
                
                328,375
                
                
                
                445,442
                
                
                
                561,067Total
      operating expenses
                
                
                235,116
                
                
                
                329,368
                
                
                
                472,795
                
                
                
                562,189Income
      (loss) from operations
                
                
                (49,893
                )
                
                
                465,568
                
                
                
                (199,177
                )
                
                
                597,896Other
      expense, netOther
      expense, net
                
                
                757
                
                
                
                7,466
                
                
                
                61,538
                
                
                
                4,240Interest
      expense
                
                
                18,183
                
                
                
                16,851
                
                
                
                38,138
                
                
                
                33,600Interest
      expense - related parties
                
                
                6,671
                
                
                
                15,759
                
                
                
                13,773
                
                
                
                31,891Total
      other expense, net
                
                
                25,611
                
                
                
                40,076
                
                
                
                113,449
                
                
                
                69,731Net
      (loss) income before provision for income taxes
                
                
                (75,504
                )
                
                
                425,492
                
                
                
                (312,626
                )
                
                
                528,165Provision
      for income tax (benefit) expense
                
                
                (27,214
                )
                
                
                202,254
                
                
                
                (94,742
                )
                
                
                207,850Net
      (loss) income
                
                $
                (48,290
                )
                
                $
                223,238
                
                
                $
                (217,884
                )
                
                $
                320,315Basic
      (loss) income per common share
                
                $
                (0.03
                )
                
                $
                0.13
                
                
                $
                (0.12
                )
                
                $
                0.19Diluted
      (loss) income per common share
                
                $
                (0.03
                )
                
                $
                0.13
                
                
                $
                (0.12
                )
                
                $
                0.19Basic
      weighted average commonshares
      outstanding
                
                
                1,785,538
                
                
                
                1,685,538
                
                
                
                1,785,538
                
                
                
                1,685,538Diluted
      weighted average commonshares
      outstanding
                
                
                1,785,538
                
                
                
                1,685,538
                
                
                
                1,785,538
                
                
                
                1,685,538
   See Accompanying Notes to Consolidated Financial
Statements
  2
 
   BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS’
EQUITY
   Additional
                  
                  
                  
                  
                  
                  TotalCommon
      Stock
                  
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  EquityBalance,
      December 31, 2008
                  
                  
                  1,785,538
                  
                  
                  
                  1,784.54
                  
                  
                  $
                  1,084,216
                  
                  
                  $
                  (858,980
                  )
                  
                  $
                  227,021Purchase
      of issued and pending patents forstock
      options granted on March 3, 2009
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  63,000
                  
                  
                  
                  --
                  
                  
                  
                  63,000Net
      loss
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (169,594
                  )
                  
                  
                  (169,594
                  )Balance,
      March 31, 2009 (Unaudited)
                  
                  
                  1,785,538
                  
                  
                  
                  1,785
                  
                  
                  
                  1,147,216
                  
                  
                  
                  (1,028,574
                  )
                  
                  
                  120,427Net
      loss
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (48,290
                  )
                  
                  
                  (48,290
                  )Balance,
      June 30, 2009  (Unaudited)
                  
                  
                  1,785,538
                  
                  
                  $
                  1,785
                  
                  
                  $
                  1,147,216
                  
                  
                  $
                  (1,076,864
                  )
                  
                  $
                  72,137
 3
  BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 Six
      Months Ended June 30,2009
              
              
              2008Cash
      flows from operating activities:Net
      (loss) income
              
              $
              (217,884
              )
              
              $
              320,315Adjustments
      to reconcile net (loss)  income to netcash
      provided by operating activities:Depreciation
              
              
              17,877
              
              
              
              19,686Amortization
              
              
              685
              
              
              
              --Change
      in deferred tax asset, net
              
              
              (90,853
              )
              
              
              41,255Change
      in deferred tax liability, net
              
              
              (2,411
              )
              
              
              6,279Issuance
      of equity based stock options
              
              
              63,000
              
              
              
              --Changes
      in operating assets and liabilities:Change
      in accounts receivable, net
              
              
              (30,938
              )
              
              
              (105,389
              )Change
      in accounts receivable - related parties
              
              
              10,071
              
              
              
              --Change
      in inventory
              
              
              186,625
              
              
              
              6,321Change
      in prepaid expenses and other current assets
              
              
              (124
              )
              
              
              (38,348
              )Change
      in costs and estimated earnings in excess of billingson
      uncompleted contract
              
              
              287,861
              
              
              
              --Change
      in accounts payable and accrued liabilities
              
              
              60,272
              
              
              
              (134,497
              )Change
      in customer deposits
              
              
              (187,540
              )
              
              
              (124,226
              )Change
      in income taxes payable
              
              
              (21,478
              )
              
              
              150,401Change
      in other liabilities
              
              
              (4
              )
              
              
              (2,273
              )Change
      in other liabilities and accrued interest - related
parties
              
              
              14,420
              
              
              
              (107,601
              )Change
      in royalties payable - related parties
              
              
              (5,048
              )
              
              
              38,450Net
      cash provided by operating activities
              
              
              84,531
              
              
              
              70,373Cash
      flows from investing activities:Purchase
      of fixed assets
              
              
              (3,600
              )
              
              
              (4,210
              )Net
      cash used in investing activities
              
              
              (3,600
              )
              
              
              (4,210
              )Cash
      flows from financing activities:Principal
      payments on notes payable
              
              
              (21,797
              )
              
              
              (22,822
              )Principal
      payments on notes payable - related parties
              
              
              (24,122
              )
              
              
              (37,396
              )Net
      cash used in financing activities
              
              
              (45,919
              )
              
              
              (60,218
              )Net
      change in cash
              
              
              35,012
              
              
              
              5,945Cash,
      beginning of period
              
              
              3,532
              
              
              
              142,516Cash,
      end of period
              
              $
              38,544
              
              
              $
              148,461Supplemental
      disclosure of cash flow information:Cash
      paid for interest
              
              $
              44,397
              
              
              $
              65,383Cash
      paid for income taxes
              
              $
              20,000
              
              
              $
              5,072Supplemental
      disclosure of non-cash investing activitiesStock
      options and additional paid in capital issued forpurchase
      of issued and pending patents on March 3, 2009
              
              $
              63,000
              
              
              $
              --
 
   4
  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.
 
 Prior to
August 22, 2007 the Company was known as United Companies Corporation
(hereinafter referred to as “UCC”).  The Company changed its name to
Brownie’s Marine Group, Inc. during the third quarter of 2007, a name the
Company believes more closely reflect its line of business, and also has
associated tradename recognition.
 
 History –The Company
was incorporated under the laws of Nevada on November 26, 2001, with authorized
common stock of 250,000,000 shares with a par value of $0.001.  On
August 22, 2007, the Company effectuated a 1-for-100 reverse stock split of the
Common Stock whereby every one hundred shares of Common Stock outstanding was
combined and reduced to one share of Common Stock.  Fractional shares
were rounded up and this resulted in an additional 146 shares
issued.  All footnotes and financial statement amounts that relate to
common share data have been retrospectively adjusted to reflect the reverse
stock split.
 
 On March
23, 2004, UCC consummated an agreement to acquire all of the outstanding capital
stock of Trebor Industries, Inc., dba Brownies Third Lung, in exchange for
950,000 shares of the Company’s common stock (“the UCC
Transaction”).  Prior to the UCC Transaction, UCC was a non-operating
public shell company with no operations, nominal assets, accrued liabilities
totaling $224,323 and 144,837 shares of common stock issued and outstanding; and
Trebor Industries, Inc., dba Brownies Third Lung, was a manufacturer and
distributor of hookah diving, and yacht based scuba air compressor and Nitrox
Generation Systems from its factory in Ft. Lauderdale, Florida.  The
UCC Transaction is considered to be a capital transaction in substance, rather
than a business combination.  Inasmuch, the UCC Transaction is
equivalent to the issuance of stock by Trebor Industries, Inc., for the net
monetary assets of a non-operational public shell company, accompanied by a
recapitalization.  UCC issued 950,000 shares of its common stock for
all of the issued and outstanding common stock of Trebor Industries, Inc. The
accounting for the UCC Transaction is identical to that resulting from a reverse
acquisition, except goodwill or other intangible assets will not be
recorded.  Accordingly, these financial statements are the historical
financial statements of Trebor Industries, Inc.  Trebor Industries,
Inc. was incorporated in September 17, 1981.  Therefore, these
financial statements reflect activities from September 17, 1981 (date of
inception for Trebor Industries, Inc.) and forward.
 
 Definition of fiscal
year – The Company’s fiscal year end is December 31.
 
 Use of estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
 
 Reclassifications –
Certain reclassifications have been made to the 2008 financial statement amounts
to conform to the 2009 financial statement presentation.
 
 Cash and equivalents– Only highly liquid investments with original maturities of 90 days or
less are classified as cash and equivalents.  These investments are
stated at cost, which approximates market value.
 
 5
  BROWNIE’S MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (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.
 
 Fixed assets – Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is primarily 3 to 5 years except for the building that is
being depreciated over a life of 39 years. The cost of repairs and maintenance
is charged to expense as incurred. Expenditures for property betterments and
renewals are capitalized. Upon sale or other disposition of a depreciable asset,
cost and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in other income (expense).
 
 The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful lives of fixed assets or
whether the remaining balance of fixed assets should be evaluated for possible
impairment.  The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the fixed assets in measuring their
recoverability.
 
 Revenue recognition –
Revenues from product sales are recognized when the Company’s products are
shipped or when service is rendered.  Revenues from fixed-price
contracts are recognized on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost of each
contract.  This method is used because management considers the
percentage of cost incurred to date to estimated total cost to be the best
available measure of progress on the contracts.
 
 Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation costs.  General and administrative costs are
charged to expense as incurred.  Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.  Change in job performance, job conditions, and estimated
profitability may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
 
 Revenue
and costs incurred for time and material projects are recognized as the work is
performed.
 
 Product development
costs – Product development expenditures are charged to expenses as
incurred.
 
 Advertising and marketing
costs – The Company recognizes advertising expenses in accordance with
Statement of Position 93-7 “Reporting on Advertising Costs.” Accordingly, the
Company expenses the costs of producing advertisements at the time production
occurs, and expenses the costs of communicating advertisements in the period in
which the advertising space or airtime is used.  Advertising and trade
show expense incurred for the three months ended June 30, 2009 and 2008, was
$5,160 and $9,235, respectively.  Advertising and trade show expense
incurred for the six months ended June 30, 2009 and 2008, was $6,448 and $17,758
respectively.
 
 Customer deposits and return
policy– The Company takes a minimum 50% deposit against custom and large
tankfill systems prior to ordering and/or building the systems.  The
remaining balance due is payable upon delivery, shipment, or installation of the
system.  There is no provision for cancellation of custom orders once
the deposit has been accepted, nor return of the custom ordered
product.  Additionally, returns of all other merchandise are subject
to a 15% restocking fee as stated on each sales invoice.
  6
  BROWNIE’S MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1.
                DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)
 
 Income taxes – The
Company accounts for its income taxes in accordance with the Financial
Accounting Standards Board Statement (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) No. 109, which requires recognition of deferred tax assets
and liabilities for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
 
 The
Company accounts for uncertainty in tax positions in accordance with FASB
Interpretation 48 (“FIN 48”).  FIN 48 requires the recognition of a
tax position when it is more likely than not that the tax position will be
sustained upon examination by relevant taxing authorities, based on the
technical merits of the position.
 
 Comprehensive income
– The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
 
 Stock-based
compensation –  The Company accounts for stock based
compensation in accordance with Statement of Financial Accounting Standards No.
123 revised that requires that the Company measures the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award.  That cost is recognized over the
period the employee is required to provide service in exchange for the
award.
 
 For the
three and six months ended June 30, 2009 and 2008, the Company did not grant any
incentive stock options to employees, consultants or officers.
 
 Fair value of financial
instruments – The carrying amounts and estimated fair values of the
Company’s financial instruments approximate their fair value due to the
short-term nature.
 
 Earnings 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 six months ended June 30, 2009 since their effect was
antidilutive.   There were no common stock equivalents for the
three and six months ended June 30, 2008.
 
 Subsequent events–
We have evaluated all subsequent events through August 12, 2009, the date the
financial statements were available to be issued.
 
 New accounting
pronouncements – In June 2009, the FASB issued SFAS No. 168 “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles – A Replacement of SFAS No. 162”.  SFAS No. 168
establishes the FASB Accounting Standards Codification as the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied by nongovernmental entities.  According to SFAS
No. 168, rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants.  On the effective date of this
Statement, the Codification will supersede all then-existing non-SEC accounting
and reporting standards.  All other nongrandfathered, non-SEC
accounting literature not included in the Codification will become
nonauthoritative. .This Statement is effective for financial statements issued
for interim and annual periods ending after September 15, 2009.  The
Company does not expect any significant financial impact upon adoption of SFAS
No. 168.
 
 7
  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 June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)”.  SFAS No. 167 addresses the effect on FASB
Interpretation 46(R), “Consolidation of Variable Interest Entities” of the
elimination of the qualifying special-purpose entity concept of SFAS No. 166,
“Accounting for Transfers of Financial Assets”.  SFAS No. 167 also
amends the accounting and disclosure requirements of FASB Interpretation 46(R)
to enhance the timeliness and usefulness of informationabout an enterprise’s
involvement in a variable interest entity. This Statement shall be effective as
of the Company’s first interim reporting period that begins after November 15,
2009. Earlier application is prohibited.  The Company does not
anticipate any significant financial impact from adoption of SFAS No.
167.
 
 In June 2009, the FASB issued SFAS No.
166, “Accounting for Transfers of Financial Assets – an amendment of FASB
Statement No. 140”.  SFAS No. 166 amends SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”
by eliminating the concept of special-purpose entity, requiring the reporting
entity to provide more information about sales of securitized financial assets
and similar transactions, particularly if the seller retains some risk to the
assets, changes the requirements for the de-recognition of financial assets, and
provides for the sellers of the assets to make additional
disclosures.This Statement shall be
effective as of the Company’s first interim reporting period that begins after
November 15, 2009. Earlier application is prohibited.  The Company
does not anticipate any significant financial impact from adoption of SFAS No.
166.
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”.  This
Statement addresses accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or available to be
issued.  SFAS No. 165 requires disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, the date
issued or date available to be issued.  The Company adopted this
Statement in the second quarter of 2009.  As a result the date through
which the Company has evaluated subsequent events and the basis for that date
have been disclosed in Note 1, Subsequent
Events.
 
 In April
2009, the FASB issued Staff Position (“FSP”) SFAS No. 157-4, “Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.  The Statement clarifies the methodology to be used to
determine fair value when there is no active market or where the price inputs
being used represent distressed sales.  FSP SFAS No. 157-4 also
reaffirms the objective of fair value measurement, as stated in SFAS No. 157,
which is to reflect how much an asset would be sold in and orderly transaction,
and the need to use judgment to determine if a formerly active market has become
inactive, as well as to determine fair values when markets have become
inactive.  The Company adopted this Statement in the second quarter of
2009 without significant financial impact.
 
 In April
2009, the FASB issued FSP SFAS 115-2 and SFAS No. 124-2, “Recognition and
Presentation of Other-Than Temporary Impairments”.  FSP SFAS 115-2 and
SFAS No. 124-2 modifies the other-than-temporary guidance for debt securities
through increased consistency in the timing of impairment recognition and
enhanced disclosures related to credit and noncredit components impaired debt
securities that are not expected to be sold.  Also, the Statement
increases disclosures for both debt and equity securities regarding expected
cash flows, securities with unrealized losses, and credit losses.  The
Company adopted this Statement in the second quarter of 2009 without significant
impact to our financial statements.
 
 In April
2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1, “Interim Disclosures about the Fair Value of Financial
Instruments” (“FSP 107-1/APB 28”).  FSP 107-1/APB 28 enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures of those assets and liabilities falling within the scope of SFAS No.
107. The Company adopted this Statement in the second quarter of 2009 without
significant impact to the financial statements.
 
 8
 
  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 2009, the FASB issued FSP SFAS No.
141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination that Arise from Contingencies” that clarifies and amends FASB SFAS
No. 141(revised 2007), as it applies to all assets acquired and liabilities
assumed in a business combination that arise from contingencies.  FSP
SFAS No. 141(R)-1 addresses initial recognition and measurement issues,
subsequent measurement and accounting, and disclosures regarding these assets
and liabilities arising from contingencies in a business
combination.  The Company adopted this Statement in the second quarter
of 2009 without significant impact to the financial statements.
 
 In
January 2009, the FASB issued FSP Emerging Issues Task Force (“EITF”) 99-20-1,
“Amendments to the Impairment Guidance of EITF Issue No. 99-20”.  FSP
EITF 99-20-1 amends the impairments guidance in EITF Issue 99-20, “Recognition
of Interest Income and Impairment on Purchased Beneficial Interests and
Beneficial Interests That Continue to Be Held by a Transferor in Securitized
Financial Assets,” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The FSP also retains and
emphasizes the objective of an other than-temporary impairment assessment and
the related disclosure requirements in FASB
 Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
other related guidance.  The adoption of this Statement in the second
quarter of 2009 did not have a significant impact on the Company’s financial
statements.
 
 In
November 2008, EITF issued Issue No. 08-07, “Accounting for Defensive Intangible
Assets”.  The Statement applies to all acquired intangible assets in
which the acquirer does not intend to actively use the asset but intends to hold
(lock up) the asset to prevent its competitors from obtaining or using the asset
(a defensive asset).  EITF Issue No. 08-07 was adopted by the Company
in January 2009 without impact to the financial statements.
 
 In May
2008, the FASB issued STAFF POSITION (“FSP”) No. APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
Including Partial Cash Settlement”.  This FSP applies to convertible
debt instruments that, by their stated terms, may be settled in cash (or other
assets) upon conversion, including partial cash settlement, unless the embedded
conversion option is required to be separately accounted for as a derivative
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. FSP No. 14-1 clarifies that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies
that issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost recognized in subsequent periods. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years.  The
Company does not currently have any debt instruments for which this FSP would
apply.  This FSP was adopted in January 2009 without significant
financial impact.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No.
133.”  This statement is intended to enhance the current disclosure
framework in SFAS No. 133.  Under SFAS No. 161, entities will have to
provide disclosures about (a) how and why and entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c), how
derivative instruments and related hedged items effect an entity’s financial
position, financial performance and cash flows.  SFAS No. 161 is
effective for all financial statements issued for fiscal and interim periods
beginning after November 15, 2008.  The Company does not currently
have any derivative instruments, nor does it engage in hedging activities,
therefore, the Company’s adoption of this SFAS in the first quarter of 2009 was
without significant financial impact.
 
 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 December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree, and the
goodwill acquired. SFAS 141R also establishes disclosure requirements to enable
the evaluation of the nature and financial effects of the business combination.
SFAS 141R is effective for the Company with respect to business combinations for
which the acquisition date is on or after January 1, 2009. The Company
adopted this SFAS in the first quarter of 2009 without significant financial
impact.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership interests
in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of
noncontrolling owners. SFAS 160 is effective for the Company as of
January 1, 2009. The Company adopted this SFAS in January 2009 without
significant impact on the consolidated financial position, results of
operations, and disclosures.
 
 
 2.
                INVENTORY
 
 Inventory
consists of the following as of:
 
 June
      30, 2009
                
                
                December31, 2008(Unaudited)Raw
      materials
                
                $
                319,652
                
                
                $
                485,367Work
      in process
                
                
                --
                
                
                
                --Finished
      goods
                
                
                228,759
                
                
                
                249,669$
                548,411
                
                
                $
                735,036
 
 
 3.
                PREPAID EXPENSES AND
      OTHER CURRENT ASSETS
 
 Prepaid
expenses and other current assets totaling $94,203 at June 30, 2009, consists of
$70,000 of prepayments for inventory, $14,851 of prepaid insurance, $3,302 of
prepaid software maintenance, $5,400 prepaid advertising, and $650 of employee
advances.
 
 Prepaid
expenses and other current assets totaling $94,079 at December 31, 2008,
consists of $70,000 of prepaid inventory, $20,267 of prepaid insurance, $1,040
of prepaid software maintenance, $2,550 of employee advances, and $222 of other
prepaid expenses and current assets.
 
 10
  BROWNIE’S MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 4.
                PROPERTY, PLANT AND
      EQUIPMENT
 
 Property, plant and equipment consists
of the following as of:
 
 June
      30, 2009
                
                
                December 31, 2008(Unaudited)Building,
      leasehold improvements, and land
                
                $
                1,224,962
                
                
                $
                1,221,362Furniture,
      fixtures, vehicles and equipment
                
                
                240,787
                
                
                
                248,7871,465,749
                
                
                
                1,470,149Less:  accumulated
      depreciation and amortization
                
                
                281,157
                
                
                
                270,595$
                1,184,592
                
                
                $
                1,199,554
 
 
 5.
                CUSTOMER CREDIT
      CONCENTRATIONS
 
 Sales to
Brownie’s Southport Diver’s, Inc. for the three months ended June 30, 2009 and
2008 represented 11.95% and 8.53%, respectively, of total net
revenues.  Sales to Privacy LTD. for the three and six months ended
June 30, 2009 represented 12.13% and 41.53%, respectively, of total net
revenues.  Sales to Al Masaood Marine and Engineering Division and to
Shadow Marine for the three months ended June 30, 2008 represented 20.50% and
16.36%, respectively, of total net revenues.  Sales to Brownie’s
Southport Diver’s, Inc. for the six months ended June 30, 2009 and 2008
represented 13.67% and 11.69%, respectively, of total net
revenues.  Sales to Al Masaood Marine and Engineering Division and to
Shadow Marine for the six months ended June 30, 2008 represented 16.92% and
18.00%, respectively, of total net revenues.  Sales to no other
customers represented greater than 10% of net revenues for the three or six
months ended June 30, 2009 and 2008.
 
 The
brother of Robert Carmichael, the Company’s Chief Executive Officer, as further
discussed in Note 6 - RELATED PARTY
TRANSACTIONS, owns Brownie’s Southport Diver’s, Inc.
 
 
 6.
                RELATED PARTY
      TRANSACTIONS
 
 Notes payable – related
parties
 
 Notes
payable – related parties consists of the following as of June 30,
2009:
 
 Promissory
      note payable to the Chief Executive Officer of the Company,
                  unsecured,
      bearing interest at 7.5% per annum, due in monthly principal
                  and
      interest payments of $7,050, maturing on August 1, 2013.
                
                $
                319,279Promissory
      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
      $1,162,261
                  at
      June 30, 2009, bearing 6.99% interest per annum, due in monthly principal
                  and
      interest payments of $1,980, maturing on February 22,
2012.
                
                
                57,632376,911Less
      amounts due within one year
                
                
                110,726Long-term
      portion of notes payable – related parties
                
                $
                266,185
  11
  BROWNIE’S MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 6.
                RELATED PARTY
      TRANSACTIONS (continued)
 
 Notes payable – related
parties (continued)
 
 As of
June 30, 2009, principal payments on the notes payable – related parties are as
follows:
 
 2009
                
                $
                67,3162010
                
                
                88,3242011
                
                
                95,0662012
                
                
                81,9882013
                
                
                44,217Thereafter
                
                
                --$
                376,911
 
 Notes
payable – related parties consists of the following as of December 31,
2008:
 
 Promissory
      note payable to the Chief Executive Officer of the Company,
                  unsecured,
      bearing interest at 7.5% per annum, due in monthly principal
                  and
      interest payments of $7,050, maturing on August 1, 2013.
                
                $
                333,737Promissory
      note payable due an entity in which the Company’s Chief
                  Executive
      Officer has a financial interest, GKR Associates, LLC.,
      secured
                  by
      second mortgage on real property, having a carrying value of
      $1,172,227
                  at
      December 31, 2008, bearing 6.99% interest per annum, due in monthly
                  principaland
      interest payments of $1,980, maturing on February 22,
2012.
                
                
                67,296401,033Less
      amounts due within one year
                
                
                86,677Long-term
      portion of notes payable – related parties
                
                $
                314,356
 
 Net revenues and accounts
receivable – related parties – The Company sells products to three
entities owned by the brother of the Company’s Chief Executive Officer,
Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s
Yacht Toys.  Terms of sale are no more favorable than those extended
to any of the Company’s other customers.  Combined net revenues from
these entities for the three months ended June 30, 2009 and 2008, was $125,657
and $216,361, respectively.  Combined net revenues from these same
three entities for the six months ended June 30, 2009 and 2008 was $238,208 and
$474,261.  Net revenue from Robert Carmichael and 940 Associates,
Inc., an entity owned by Robert Carmichael, the Chief Executive officer, was
$37,973 for the six months ended June 30, 2009.  Accounts receivable
from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and
Brownie’s Yacht Toys at June 30, 2009, was $12,042, $9,144, and $10,390,
respectively.  Accounts receivable from Brownie’s SouthPort Diver’s,
Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31,
2008, was $11,875, $8,903, and $3,982, respectively.  Accounts
receivable from Robert Carmichael and 940 Associates, Inc. at June 30, 2009 was
$144 and $(731), respectively.  Accounts receivable from Robert
Carmichael and 940 Associates, Inc. was $2,207 and $13,679, respectively, at
December 31, 2008.
  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 the
Carleigh Rae Corporation (herein referred to as “CRC”), an entity that the
Company’s Chief Executive Officer has an ownership interest, to license product
patents it owns.  Based on the license agreements with CRC, the
Company pays royalties ranging from $1.00 to $50.00 per licensed products sold,
with rates increasing 5% annually.   Also with CRC, the Company
has a Non-Exclusive License Agreement to license a trademark of products owned
by CRC.  Based on the agreement, the Company will pay the entity $0.25
per licensed product sold, with rates increasing $0.05 annually.
 
 The
Company has Non-Exclusive License Agreements with 940 Associates, Inc. (herein
referred to as “940AI”), an entity owned by the Company’s Chief Executive
Officer, to license product patents it owns.  Under the terms of the
license agreements effective January 1, 2005, the Company pays 940AI $2.00 per
licensed product sold, rates increasing 5% annually.  Also with 940AI,
the Company has an Exclusive License Agreement to license the trademark
“Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other
related trademarks as listed in the agreement.  Based on this license
agreement, the Company pays 940AI 2.5% of gross revenues per
quarter.
 
 Total
royalty expense for the above agreements for the three months ended June 30,
2009 and 2008, was $15,140 and $53,747, respectively.  Total royalty
expense for the above agreements for the six months ended June 30, 2009 and
2008, was $35,403 and $77,367, respectively.
 
 Consulting expense –
Jeff Morris, an approximately 5% beneficial owner of common stock of the
Company, provides management and strategic consulting services for
BWMG.  For these services, Mr. Morris earned $18,500, and $30,000,
from the Company for the three months ended June 30, 2009, and 2008,
respectively.  For the six months ended June 30, 2009 and 2008 Mr.
Morris earned $38,500 and $60,000, respectively, for these
services.  As of June 30, 2009, the Company was $47,000 in arrears on
payments due Mr. Morris for management and strategic consulting
services.
 
 Patent Purchase
Agreement – Effective March 3, 2009, the Company entered into a Patent
Purchase Agreement with Robert M. Carmichael, the Chief Executive Officer of the
Company.  The Company purchased several patents it had previously been
paying royalties on and several related unissued patents.  In exchange
for the Intellectual Property (“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)
 
 Other liabilities and
accrued interest– related parties
 
 Other
liabilities and accrued interest– related parties consists of the following
at:
 
 June
      30, 2009
                
                
                December 31, 2008(Unaudited)Accrued
      interest on Notes payable – related parties
                
                $
                11,517
                
                
                $
                4,151Management
      and strategic consulting services due Jeff Morris
                
                
                47,000
                
                
                
                40,000Other
      liabilities – related parties
                
                $
                58,571
                
                
                $
                44,151
 
 
 7.
                ACCOUNTS PAYABLE AND
      ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities of $389,759 at June 30, 2009 consists of
$227,620 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$84,491 of accrued payroll and related fringe benefits, $12,000 accrued real
estate taxes, $1,635 of accrued interest, and $3,439 of other liabilities and
accruals.
 
 Accounts
payable and accrued liabilities of $329,488 at December 31, 2008 consists of
$186,774 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$79,072 of accrued payroll and related fringe benefits, $1,487 of accrued
interest, and $1,581 of other liabilities and accruals.
  
 8.
                OTHER
      LIABILITIES
 
 Other
liabilities of $4,228 at June 30, 2009 consist of on-line training liability.
Other liabilities of $4,232 at December 31, 2008 consists of $4,193 on-line
training liability and $39 of deferred tooling expense.
 
 Effective
July 1, 2005, the Company began including on-line training certificates with all
hookah units sold.  The training certificates entitle the holder to an
on-line interactive course at no additional charge to the holder.  The
number of on-line training certificates issued per unit is the same as the
number of divers the unit as sold is designed to accommodate (i.e., a three
diver unit configuration comes with three on-line training
certificates).  The certificates have an eighteen-month redemption
life after which time they expire.  The eighteen-month life of the
certificates begins at the time the customer purchases the unit.  The
Company owes the on-line training vendor the agreed upon negotiated rate for all
on-line certificates redeemed payable at the time of redemption.  For
certificates that expire without redemption, no amount is due the on-line
training vendor.
 
 Until the
Company accumulated historical data related to the certificate redemption ratio,
it assumed that 100% of certificates issued with unit sales would be
redeemed.  Accordingly, at the time a unit was sold, the related
on-line training liability was recorded.  The same liability was
reduced as certificates are redeemed and the related payments are made to the
on-line training vendor.   In July 2007, the Company had
accumulated 24 months of historical data regarding redemption rates so the
liability estimate was adjusted accordingly to reflect the actual redemption
history.  The Company continues to maintain a reserve for certificate
redemption of 10% that approximates the historical redemption rate.
 
 14
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 9.
                NOTES
      PAYABLE
 
 Notes
payable consists of the following as of June 30, 2009:
 
 Revolving
      Line of Credit secured by a third mortgage on the real property of
                  the
      Company with a carrying value of $1,162, 261 at June 30, 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.
                
                $
                200,000Promissory
      note payable secured by a first mortgage on the real property of the
                  Company
      having a carrying value of $1,162,261 at June 30, 2009, interest at
                  6.99%
      per annum, due in monthly principal and interest payments of $9,038,
                  maturing
      on January 22, 2022.
                
                
                904,8011,104,801Less
      amounts due within one year
                
                
                245,783Long-term
      portion of notes payable
                
                $
                859,018
 
 As of
June 30, 2009, principal payments on the notes payable are as
follows:
 
 2009
                
                $
                222,4002010
                
                
                47,4342011
                
                
                50,9072012
                
                
                54,4752013
                
                
                58,623Thereafter
                
                
                670,962$
                1,104,801
 
 Notes
payable consists of the following as of December 31, 2008:
 
 Revolving
      Line of Credit secured by a third mortgage on the real property of
                  the
      Company with a carrying value of $1,172,227 at December 31, 2008,
                  bearing
      interest at the lender’s base rate plus 1.00% per
      annum.  Interest
                  payments
      are due monthly on the outstanding principal balance and the Line of
                  Credit
      matures on December 2, 2009.
                
                $
                200,000Promissory
      note payable secured by a first mortgage on the real property of the
                  Company
      having a carrying value of $1,172,227 at December 31, 2008,
                  interest
      at 6.99% per annum, due in monthly principal and interest payments of
                  $9,038,
      maturing on January 22, 2022.
                
                
                926,5981,126,598Less
      amounts due within one year
                
                
                244,188Long-term
      portion of notes payable
                
                $
                882,410
 
 On
December 2, 2008 the balance available under the line of credit was increased
from $100,000 to $200,000 subject to the same terms and conditions with the
exception that the maturity date was extended to December 2, 2009.
  15
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  10.
                EQUITY INCENTIVE
      PLAN
 
 On August
22, 2007 the Company adopted an Equity Incentive Plan (the
“Plan”).  Under the Plan, Stock Options may be granted to Employees,
Directors, and Consultants in the form of Incentive Stock Options or
Nonstatutory Stock Options.  Stock Purchase Rights, time vested
and/performance invested Restricted Stock, and Stock Appreciation Rights and
Unrestricted Shares may also be granted under the Plan.  The initial
maximum number of shares that may be issued under the Plan shall be 400,000
shares, and no more than 100,000 Shares of Common Stock may be granted to any
one Participant with respect to Options, Stock Purchase Rights and Stock
Appreciation Rights during any one calendar year period.  Common Stock
to be issued under the Plan may be either authorized and unissued or shares held
in treasury by the Company.  The term of the Plan shall be ten
years.  The Board of Directors may amend, alter, suspend, or terminate
the Plan at any time.
 
 From
inception to-date, 211,000 stock options have been issued under the
Plan.  For the three and six months ended June 30, 2009, no options
were granted under the Plan.
  
 11.
                INCOME
      TAXES
 
 The
components of the provision for income tax benefit are as follows for the three
months ended:
 
 June 30, 2009
                
                
                June 30, 2008Current
      taxesFederal
                
                $
                3,706
                
                
                $
                133,306State
                
                
                (5,184
                )
                
                
                27,010Current
      taxes
                
                
                (1,478
                )
                
                
                155,244Change
      in deferred taxes
                
                
                (29,812
                )
                
                
                51,678Change
      in valuation allowance
                
                
                4,076
                
                
                
                (4,668
                )Provision
      for income tax (benefit) expense
                
                $
                (27,214
                )
                
                $
                202,254
 
 The
components of the provision for income tax benefit are as follows for the six
months ended:
 
 June 30, 2009
                
                
                June 30, 2008Current
      taxesFederal
                
                $
                3,706
                
                
                $
                133,307State
                
                
                (5,184
                )
                
                
                27,010Current
      taxes
                
                
                (1,478
                )
                
                
                160,316Change
      in deferred taxes
                
                
                (107,803
                )
                
                
                52,376Change
      in valuation allowance
                
                
                14,539
                
                
                
                (4842
                )Provision
      for income tax (benefit) expense
                
                $
                (94,742
                )
                
                $
                207,850
  16
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 11.
                INCOME TAXES
      (continued)
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at June 30, 2009:
  Deferred
      tax assets:Stock
      options
                  
                  $
                  32,181Allowance
      for doubtful accounts
                  
                  
                  9,520Tax
      loss carryback
                  
                  
                  85,358On-line
      training certificate reserve
                  
                  
                  634Total
      deferred tax assets
                  
                  
                  127,693Valuation
      allowance
                  
                  
                  (33,973
                  )Deferred
      tax assets net of valuation allowance
                  
                  
                  93,720Less
      deferred tax assets – non-current, net of valuation
    allowance
                  
                  
                  8,045Deferred
      tax assets – current, net of valuation allowance
                  
                  $
                  85,675Deferred
      tax liabilityDepreciation
      and amortization timing differences
                  
                  $
                  2,411Less
      deferred tax liability – non-current
                  
                  
                  2,411Deferred
      tax liability – current
                  
                  $
                  --
  The
effective tax rate used for calculation of the deferred taxes as of June 30,
2009 was 34%.  The Company has established a valuation allowance
against deferred tax assets of $33,973 comprised predominantly of a 75% reserve
against the deferred tax assets attributable to the stock options and a 100%
reserve against the allowance for doubtful accounts due to the uncertainty
regarding realization.
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at December 31, 2008:
  Deferred
      tax assets:Stock
      options
                  
                  $
                  10,761Allowance
      for doubtful accounts
                  
                  
                  8,500On-line
      training certificate reserve
                  
                  
                  629Total
      deferred tax assets
                  
                  
                  19,890Valuation
      allowance
                  
                  
                  (19,434
                  )Deferred
      tax assets net of valuation allowance
                  
                  
                  456Less
      deferred tax assets – non-current
                  
                  
                  --Deferred
      tax assets – current
                  
                  $
                  456Deferred
      tax liabilityDepreciation
      and amortization timing differences
                  
                  $
                  2,411Less
      deferred tax liability – non-current
                  
                  
                  2,411Deferred
      tax liability – current
                  
                  $
                  --
  17
 
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 11.
                INCOME TAXES
      (continued)
 
 The
effective tax rate used for calculation of the deferred taxes as of December 31,
2008 was 34%.
 As of
December 31, 2008, the Company fully utilized the federal net operating loss
(“NOL”) carryforward that would have otherwise expired in 2026.  The
Company established a valuation allowance of $19,434 comprised predominantly of
a 100% reserve against the deferred tax assets attributable to both the stock
options and the allowance for doubtful accounts due to the uncertainty regarding
realization.
 
 The
significant differences between the statutory tax rate and the effective tax
rates for the Company for the six months ended are as follows:
 
 June 30, 2009
                
                
                June 30, 2008Statutory
      tax rate (benefit) expense
                
                
                --
                %
                
                
                34
                %Increase
      (decrease) in rates resulting from:Net
      operating loss carryforward or carryback
                
                
                (27
                )%
                
                
                (6
                )%Equity
      based compensation and loss
                
                
                (7
                )%
                
                
                3
                %State
      taxes
                
                
                --
                %
                
                
                3
                %Change
      in valuation allowance
                
                
                5
                %
                
                
                (1
                )%Depreciation
      and amortization
                
                
                --
                %
                
                
                6
                %Other
                
                
                (2
                )%
                
                %Effective
      tax rate (benefit) expense
                
                
                (30
                )%
                
                
                39
                %
 18
 
 Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
 
 Introductory
Statements
 
 Information
included or incorporated by reference in this filing may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act.  This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements.  Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable
terminology.
 
 This
filing contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
Company’s growth strategies, (c) our Company’s future financing plans and
(d) our Company’s anticipated needs for working capital.  These
statements may be found under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business,” as well as in this
prospectus generally.  Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Risk Factors”
and matters described in this filing generally.  In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this filing will in fact occur.
 
 Overview
 
 Brownie’s
Marine Group, Inc., a Nevada corporation (referred to herein as “BWMG” or “the
Company”), does business through its wholly owned subsidiary, Trebor Industries,
Inc., d/b/a Brownie’s Third Lung, a Florida corporation.  The Company
designs, tests, manufactures and distributes recreational hookah diving, yacht
based scuba air compressor and Nitrox Generation Systems, and scuba and water
safety products.  BWMG sells its products both on a wholesale and
retail basis, and does so from its headquarters and manufacturing facility in
Fort Lauderdale, Florida.
 
 Since
April 16, 2004, Mr. Carmichael has served as President, Acting Principal
Accounting Officer and Acting Chief Financial Officer of the
Company.  From March 23, 2004 to April 26, 2004, Mr. Carmichael served
as the Company’s Executive Vice-President and Chief Operating
Officer.  Mr. Carmichael has operated Trebor as its President since
1986.  He is the holder or co-holder of numerous patents that are used
by Trebor and several other original equipment manufacturers in the diving
industry.
 
 Results
of Operations for the Three Months Ended June 30, 2009, As Compared To the Three
Months Ended June 30, 2008
 
 Net
revenues.  For the three months ended
June 30, 2009, we had net revenues of $569,849 as compared to net revenues of
$1,729,073 for the three months ended June 30, 2008, a decrease of $1,159,224,
or 67.04%.  The net decrease is primarily attributable to a decrease
in low pressure hookah system and related sales of approximately $500,000, and a
decrease in tankfill system sales of approximately $700,000.  The
Companyhad
three large custom tankfill projects in process during the second quarter of
2008 that contributed approximately $530,000 to revenue for that period while
there were no comparable sales during the secondquarter
of 2009.The
Companyattributes
the overall declinein
all product salesto
be reflective of the economy’s depressed state.  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
in depressed economic conditions.
  Cost
of net revenues.For
the three months ended June 30, 2009, we had cost of net revenues of $384,626 as
compared with cost of net revenues of $934,137 for the three months ended June
30, 2008, a decrease of $549,511, or 58.83%.  The decrease in cost of
net revenues for the second quarter of 2009 as compared to the second quarter of
2008 is primarily a result of the lower net revenues for the period, thus a
decline in total material costs.  As a percentage of net revenues,
cost of net revenues for the three months ended June 30, 2009 increased 13.47%
as compared to the same period in 2008.  This is primarily a result of
fairly consistent fixed costs between the periods.  Material costs as
a percentage of net revenues remained fairly consistent for the three months
ended June 30, 2009 as compared to the three months ended June 30,
2008.
 
 19
 
 Gross profit.  For
the three months ended June 30, 2009, we had a gross profit of $185,223 as
compared to gross profit of $794,936 for the three months ended June 30, 2008, a
decrease of $609,713, or 76.70%.  This decrease is primarily
attributable to the decrease in net revenues for the three months ended June 30,
2009 as compared to the same period in 2008.
 
 Operating
expenses.  For the three months ended June 30, 2009, we had
total operating expenses of $235,116 as compared to total operating expenses of
$329,368 for the three months ended June 30, 2008, a decrease of $94,252, or
28.62%.  The $94,252 decrease is due to a net
decrease in selling and administrative costs of $110,533, which was partially
offset by an increase in research and development expenses of $16,281 for the three months ended June 30, 2009 as compared to the
same period in 2008.  The increase in research and development was
primarily for allocation of salaries for time spent on research and development
activities during the period.  The decrease in sales and
administrative costs is primarily a result of a decrease in overall payroll and
subcontract costs attributable to fewer hours worked and less overtime in order
maximize cash available for operations.  In addition, there was less
travel and advertising for the three months ended June 30, 2009 compared to
three months ended June 30, 2008, also to maximize cash available for
operations.
 
 Other expense,
net.  For the three months ended June 30, 2009, we had other
expense, net of $25,611 as compared to $40,076 for the three months ended June
30, 2008, a decrease of $14,465, or 36.09%.  This account is comprised
of other (income) expense, net (“other expense”), and interest
expense.  Interest expense for the period decreased $7,756 and other
expense decreased $6,709.  The
interest expense decrease is a net of $9,088 decrease in interest expense –
related parties, which was partially offset by a $1,332 increase in other
interest.  The decline in interest expense – related parties is
primarily a result of pay down and retirement of some related party debtinAugust
2008.  The increase in other interest expense is primarily a result of
a significantly higher average credit line balance outstanding for the three
months ended June 30, 2009 as compared to the same period in
2008.  Other expense is comprised of transactions that are generally
of a non recurring nature.  The $6,709 decrease for the period is
primarily attributable to a $7,907 expense adjustment during the three months
ended June 30, 2008 for a change in estimate to prepaid current and deferred
taxes for which there was no comparable transaction during the three months
ended June 30, 2009. The decrease was partially offset by other individually
insignificant transactions.
 
 Provision for income tax (benefit)
expense.  For the three months ended June 30, 2009, we had a
provision for income tax benefit of $27,214, as compared to a provision of
income tax expense of $202,254 for the three months ended June 30, 2008, an
increase in provision for income tax benefit of $229,468, or
113.46%.  This increase is primarily attributable to the increase in
net loss before provision for income taxes for the three months ended June 30,
2009 as compared to the net income for three months ended June 30,
2008.  The provision for income tax benefit for the period is
comprised primarily of a net operating loss available for
carryback.
 
 Net loss.For the
three months ended June 30, 2009, we had net loss of $48,290 as compared to net
income of $223,238 for the three months ended June 30, 2008, an increase in net
loss of $271,528, or 121.63%.  The net increase is attributable to a decrease in gross profit of $609,713, a decrease
in operating expenses of $94,252, a decrease in other expense, net of $14,465,
and an increase in the provision for income tax benefit of
$229,468.
 
 Results
of Operations for the Six Months Ended June 30, 2009, As Compared To the Six
Months Ended June 30, 2008
  Net revenues.  For
the six months ended June 30, 2009, we had net revenues of $1,081,153 as
compared to net revenues of $2,923,874 for the six months ended June 30, 2008, a
decrease of $1,842,721, or 63.02%.  The decrease is primarily
attributable to a decrease in low pressure hookah system sales of approximately
$650,000, and a decrease in tankfill system sales of approximately
$1,200,000.  The Company had three large custom tankfill projects
during the six months ended June 30, 2008 that contributed approximately
$970,000 to revenue for that period while there were no comparable sales during
the six months ended June 30, 2009.  The Companyattributes the overall
decline in all product salesto be reflective of the
economy’s depressed state.  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 in depressed economic
conditions.
  Cost of net
revenues.  For the six months ended June 30, 2009, we had cost
of net revenues of $807,535 as compared with cost of net revenues of $1,763,789
for the six months ended June 30, 2008, a decrease of $956,254, or
54.22%.  The decrease in cost of net revenues for the six months ended
June 30, 2009 as compared to the first quarter of 2008 is primarily a result of
the lower net revenues,thus a decline in total material costs.  As a percentage of net
revenues, cost of net revenues for the six months ended June 30, 2009
increased 14.37% as compared to the same period in 2008.  This is
primarily a result of fairly consistent fixed costs between the
periods.  Material costs as a percentage of net revenues remained
fairly consistent for the six months ended June 30, 2009 as compared to the
three months ended June 30, 2008.
  20
 
 Gross profit.  For
the six months ended June 30, 2009, we had a gross profit of $273,618 as
compared to gross profit of $1,160,085 for the six months ended June 30, 2008, a
decrease of $886,467, or 76.41%.  This decrease is primarily
attributable to the decrease in net revenues for the six months ended June 30,
2009 as compared to the same period in 2008.
 
 Operating
expenses.  For the six months ended June 30, 2009, we had total
operating expenses of $472,795 as compared to total operating expenses of
$562,189 for the six months ended June 30, 2008, a decrease of $89,394, or
15.90%.  The $89,394 decrease is due to a net decrease in selling and
administrative costs of $115,625, which was partially offset byan increase in research
and development expenses of $26,231, for the six months ended June 30, 2009 as
compared to the same period in 2008.  The increase in research and
development was primarily for allocation of salaries for time spent on research
and development activities during the period.  The decrease in sales
and administrative costs is primarily a result of a decrease in overall payroll
and subcontract costs attributable to fewer hours worked and less overtime in
order maximize cash available for operations.  In addition, there was
less travel and advertising for the six months ended June 30, 2009 compared to
three months ended June 30, 2008, also to maximize cash available for
operations.
 
 Other expense,
net.  For the six months ended June 30, 2009, we had other
expense, net of $113,449 as compared to $69,731 for the six months ended June
30, 2008, an increase of $43,718, or 62.70%. This account is comprised of other
(income) expense, net (“other expense”) and interest
expense.  Interest expense for the period decreased $13,580 and other
expense increased $57,298.  The
interest expense decrease is a net of $18,118 decrease in interest expense–
related parties, which was partially offset by a $4,538 increase in other
interest.  The decline in interest expense – related parties is
primarily a result of pay down and retirement of some related party debt inAugust 2008.  The increase in other interest expense is
primarily a result of a higher average credit line balance outstanding for the
six months ended June 30, 2009 as compared to the same period in
2008.  Other expense is comprised of transactions that are generally
of a non recurring nature.  Other expense increased for the period by
$57,298 which is primarily a result of a $63,000 loss on purchase of patents,
the Intellectual Property (“IP”), for which there was no comparable transaction
for the same period in 2008.  The loss was partially offset by other
individually insignificant items during the period.  The $63,000 loss
was the fair market value of the options granted in exchange for the IP using
the Black-Scholes valuation model less the $0 historical cost of Robert M
Carmichael, the seller and Chief Executive Officer of the Company.  By
acquiring the IP the Company (i) eliminated an estimated $41,000 net discounted
cash flows it would otherwise have had to pay related to the IP through 2018,
(ii) has an opportunity to further develop the IP, (iii) has the ability to
incorporate the IP into current and future products, and (iv) has the
opportunity to license the IP to third parties.
 
 Provision for income tax (benefit)
expense.  For the six months ended June 30, 2009, we had a
provision for income tax benefit of $94,742, as compared to a provision of
income tax expense of $207,850 for the six months ended June 30, 2008, an
increase in provision for income tax benefit of $302,592, or
145.58%.  This increase is primarily attributable to the increase in
net loss before provision for income taxes for the six months ended June 30,
2009 as compared to the six months ended June 30, 2008.  The provision
for income tax benefit for the period is comprised primarily of a net operating
loss available for carryback.
 
 Net loss.For the
six months ended June 30, 2009, we had net loss of $217,884 as compared to net
income of $320,315 for the six months ended June 30, 2008, an increase in net
loss of $538,199, or 168.02%.  The net increase is attributable to a
decrease in gross profit of $886,467, a decrease in operating expenses of
$89,394, an increase in other expense, net of $43,718, and an increase in
provision for income tax benefit of $302,592.
 
 Liquidity
and Capital Resources
 
 As of
June 30, 2009, we had cash and other current assets of $863,087 and current
liabilities of $862,941, or a current ratio of 1.00%.
 
 The
Company anticipates that cash generated from operations should be sufficient to
satisfy the Company’s contemplated requirements for its current operations for
at least the next twelve months.  The Company does not anticipate any
significant purchases of equipment during fiscal year 2009. The number and level
of employees at June 30, 2009 is deemed adequate to maintain the Company's
operations for at least the next 12 months.
  Certain
Business Risks
  The
Company is subject to various risks, which may materially harm its business,
financial condition and results of operations.  You should carefully
consider the risks and uncertainties described below and the other information
in this filing before deciding to purchase the Company’s common
stock.  These are not the only risks and uncertainties that the
Company faces.  If any of these risks or uncertainties actually
occurs, the Company’s business, financial condition or operating results could
be materially harmed.  In that case, the trading price of the
Company’s common stock could decline and you could lose all or part of your
investment.
 
 21
 
 Our
Common Stock May Be Affected By Limited Trading Volume and May Fluctuate
Significantly
 
 Our
common stock is traded on the Over-the-Counter Bulletin Board.  There
is a limited public market for our common stock and there can be no assurance
that an active trading market for our common stock will develop. As a result,
this could adversely affect our shareholders’ ability to sell our common stock
in short time periods, or possibly at all.  Thinly traded common stock
can be more volatile than common stock traded in an active public
market.  Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations, which could adversely
affect the market price of our common stock without regard to our operating
performance.  In addition, we believe that factors such as quarterly
fluctuations in our financial results and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially.
 
 Our
Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
Investors to Sell Their Shares Due To Suitability Requirements
 
 Our common stock is deemed to be
“penny stock” as that term is defined under the Securities Exchange Act of
1934.  Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). Our common stock is covered by an SEC rule that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors,
which are generally institutions with assets in excess of $5,000,000, or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse.
 
 Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks.  Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
 
 We
Depend On the Services of Our Chief Executive Officer
 
 Our
success largely depends on the efforts and abilities of Robert M. Carmichael,
our President and Chief Executive Officer.  Mr. Carmichael has been
instrumental in securing our existing financing arrangements.  Mr.
Carmichael is primarily responsible for the development of our technology and
the design of our products.  The loss of the services of Mr.
Carmichael could materially harm our business because of the cost and time
necessary to recruit and train a replacement.  Such a loss would also
divert management attention away from operational issues. We do not presently
maintain a key-man life insurance policy on Mr. Carmichael.
 
 We
Require Additional Personnel and Could Fail To Attract or Retain Key
Personnel
 
 Our
continued growth depends on our ability to attract and retain a Chief Financial
Officer, a Chief Operations Officer, and additional skilled
associates.  We are currently utilizing the services of two
professional consultants in the absence of a Chief Financial Officer and Chief
Operations Officer.  The loss of the services of these consultants
prior to our ability to attract and retain a Chief Financial Officer or Chief
Operations Officer may have a material adverse effect upon us. Also, there can
be no assurance that we will be able to retain our existing personnel or attract
additional qualified associates in the future.
 
 Our
Failure to Obtain Intellectual Property and Enforce Protection Would Have a
Material Adverse Effect on Our Business
 
 Our
success depends in part on our ability, and the ability of our patent and
trademark licensors, entities owned and controlled by Robert M. Carmichael, our
President and Chief Executive Officer, to obtain and defend our intellectual
property, including patent protection for our products and processes, preserve
our trade secrets, defend and enforce our rights against infringement and
operate without infringing the proprietary rights of third parties, both in the
United States and in other countries.  Despite our efforts to protect
our intellectual proprietary rights, existing copyright, trademark and trade
secret laws afford only limited protection.
  22
  Our
industry is characterized by frequent intellectual property litigation based on
allegations of infringement of intellectual property rights.  Although
we are not aware of any intellectual property claims against us, we may be a
party to litigation in the future.
 
 We
May Be Unable To Manage Growth
 
 Successful
implementation of our business strategy requires us to manage our growth. Growth
could place an increasing strain on our management and financial
resources.  If we fail to manage our growth effectively, our business,
financial condition or operating results could be materially harmed, and our
stock price may decline.
 
 Reliance
on Vendors and Manufacturers
 
 We deal
with suppliers on an order-by order basis and have no long-term purchase
contracts or other contractual assurances of continued supply or
pricing.  In addition, we have no long-term contracts with our
manufacturing sources and compete with other companies for production facility
capacity.  Historically, we have purchased enough inventories of
products or their substitutes to satisfy demand.  However,
unanticipated failure of any manufacturer or supplier to meet our requirements
or our inability to build or obtain substitutes could force us to curtail or
cease operations.
 
 Dependence
on Consumer Spending
 
 The
success of the our business depends largely upon a number of factors related to
consumer spending, including current and future economic conditions affecting
disposable consumer income such as employment, business conditions, tax rates,
and interest rates.  In times of economic uncertainty, consumers tend
to defer expenditures for discretionary items, which affects demand for our
products.  Any significant deterioration in overall economic
conditions that diminishes consumer confidence or discretionary income can
reduce our sales and adversely affect our financial results.  The
impact of weakening consumer credit markets; layoffs; corporate restructurings;
higher fuel prices; declines in the value of investments and residential real
estate; and increases in federal and state taxation can all negatively affect
our results.  There can be no assurance that in this type of
environment consumer spending will not decline beyond current levels, thereby
adversely affecting our growth, net sales and profitability or that our business
will not be adversely affected by continuing or future downturns in the economy,
boating industry, or dive industry.  If declines in consumer spending
on recreational marine accessories and dive gear are other than temporary, we
could be forced to curtail operations.
 
 Government
Regulations May Impact Us
 
 The SCUBA
industry is self-regulating; therefore, Brownie’s is not subject to government
industry specific regulation.  Nevertheless, Brownie’s strives to be a
leader in promoting safe diving practices within the industry and is at the
forefront of self-regulation through responsible diving
practices.  Brownie’s is subject to all regulations applicable to “for
profit” companies as well as all trade and general commerce governmental
regulation.  All required federal and state permits, licenses, and
bonds to operate its facility have been obtained.  There can be no
assurance that our operations will not be subject to more restrictive
regulations in the future, which could force us to curtail or cease
operations.
 
 Bad
Weather Conditions Could Have an Adverse Effect on Operating
Results
 
 Our
business is significantly impacted by weather patterns. Unseasonably cool
weather, extraordinary amounts of rainfall, or unseasonably rough surf, may
decrease boat use and diving, thereby decreasing
sales.   Accordingly, our results of operations for any prior
period may not be indicative of results of any future period.
 
 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.
 
 23
 
 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.
  We are
also subject to interest rate risk on the balance of our revolving credit
facility that matures on December 2, 2009 with Colonial
Bank.   Interest on the credit facility is variable based on the
lender’s base rate plus 1%. Our balance at June 30, 2009 under the facility was
$200,000.  We do not believe there would be a large enough increase or
decrease in the lender’s base through December 2, 2009 that would have a
material effect on our future results of operations.
 
 Item
4T.  Controls and Procedures
 
 Evaluation of Disclosure Controls and
Procedures
 
 As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Principal
Executive Officer/Principal Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and
procedures.  The Company’s disclosure controls and procedures are
designed to provide a reasonable level of assurance of achieving the Company’s
disclosure control objectives.  The Company’s Principal Executive
Officer/Principal Accounting Officer has concluded that the Company’s disclosure
controls and procedures are, in fact, effective at this reasonable assurance
level as of the end of period covered by this report.
 
 Changes in Internal
Controls
 
 There
were no changes in our internal controls or in other factors during the period
covered by this report that have materially affected or are likely to materially
affect the Company’s internal controls over financial reporting.
  24
 
 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 securitiesand
Use of Proceeds
 
 None.
 
 Item
3. Defaults Upon Senior Securities
 
 None.
 
 Item
4. Submission Of Matters To A Vote Of Security Holders
 
 None.
 
 Item
5. Other Information
 
 None.
  25
  Item
6.  Exhibits
  Exhibit
      No.
              
              Description
              
              Location2.2
              
              Merger
      Agreement, dated June 18, 2002 by and among United Companies Corporation,
      Merger Co., Inc. and Avid Sportswear & Golf Corp.
              
              Incorporated
      by reference to Exhibit 2.02 Amendment No. 1 to Form S-4 filed June 24,
      2002.2.3
              
              Articles
      of Merger of Avid Sportswear & Golf Corp. with and into Merger Co.,
      Inc.
              
              Incorporated
      by reference to Exhibit 2.03 Amendment No. 1 to Form S-4 filed June 24,
      2002.3.1
              
              Articles
      of Incorporation
              
              Incorporated
      by reference to Exhibit 3.05 Amendment No. 1 to Form S-4 filed June 24,
      2002.3.2
              
              Articles
      of Amendment
              
              Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.3.2
              
              Bylaws
              
              Incorporated
      by reference to Exhibit 3.04 to the Registration Statement on Form
      10-SB.5.1
              
              2007
      Stock Option Plan
              
              Incorporated
      by reference to the appendix to the Company's Definitive Information
      Statement on Schedule 14C filed July 31, 2007.10.1
              
              Share
      Exchange Agreement, dated March 23, 2004 by and among the Company, Trebor
      Industries, Inc. and Robert Carmichael
              
              Incorporated
      by reference to Exhibit 16.1 to Current Report on Form 8-K filed April 9,
      200410.2
              
              Two
      Year Consulting Agreement with Jeff Morris effective January 1, 2005 for
      Management and Strategic Services and Warrants issued in conjunction with
      the same
              
              Incorporated
      by reference to Exhibit 10.14 to Current Report on Form 8-K filed on March
      11, 2005.10.3
              
              Non-Exclusive
      License Agreement -
                BC
      Keel Trademark
              
              Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.4
              
              Non-Exclusive
      License Agreement - Buoyancy
                Compensator
      (and Dive Belt) Weight System
              
              Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.5
              
              Exclusive
      License Agreement - Brownie's Third Lung, Brownie's Public Safety,
      Tankfill, and Related Trademarks and Copyrights
              
              Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.6
              
              Non-Exclusive
      License Agreement -
                Drop
      Weight Dive Belt
              
              Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.7
              
              Non-Exclusive
      License Agreement -
                Garment
      Integrated or Garment Attachable Flotation Aid and/or PFD
              
              Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15,
  2005.
  26
  Exhibit
      No.
                
                Description
                
                Location10.8
                
                Non-Exclusive
      License Agreement -
                  Inflatable
      Dive Market and Collection Bag
                
                Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.9
                
                Non-Exclusive
      License Agreement - SHERPA
                  Trademark
      and Inflatable Flotation Aid/Signal
                  Device
      Technology
                
                Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.10
                
                Non-Exclusive
      License Agreement - Tank-
                  Mounted
      Weight, BC or PFD-Mounted Trim Weight or Trim Weight Holding
      System
                
                Incorporated
      by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for
      the quarter ended March 31, 2005 filed August 15, 2005.10.11
                
                Exclusive
      License Agreement – Brownie’s Third Lung and Related Trademarks and
      Copyright
                
                Incorporated
      by reference to Exhibit 10.26 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.12
                
                Agreement
      for Purchase and Sale of Property
                  Between
      Trebor Industries, Inc. and GKRAssociates,
      Inc. dated February 21, 2007
                
                Incorporated
      by reference to Exhibit 10.28 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.13
                
                First
      Mortgage dated February 22, 2007
                  between
      Trebor Industries, Inc. and
                  Colonial
      Bank
                
                Incorporated by reference to Exhibit 10.29 to United
      Companies Corporation’s 10KSB for the year ended December 31,
      2006.10.14
                
                Note
      dated February 22, 2007 payable
                  to
      GKR Associates, Inc.
                
                Incorporated by reference to Exhibit 10.30 to United
      Companies Corporation’s 10KSB for the year ended December 31,
      2006.10.15
                
                Second
      Mortgage dated February 22, 2007
                  between
      Trebor Industries, Inc. and  GKR
                  Associates,
      LLC.
                
                Incorporated by reference to Exhibit 10.31 to United
      Companies Corporation’s 10KSB for the year ended December 31,
      2006.10.16
                
                Promissory
      Note dated January 1, 2007
                  payable
      to Robert M. Carmichael
                
                Incorporated by reference to Exhibit 10.32 to United
      Companies Corporation’s 10KSB for the year ended December 31,
      2006.10.17
                
                Promissory
      Note dated January 1, 2007
                  Payable
      to 940 Associates, Inc.
                
                Incorporated by reference to Exhibit 10.33 to United
      Companies Corporation’s 10KSB for the year ended December 31,
      2006.10.18
                
                Purchase
      and Sale Agreement with GKR
                  Associates,
      LLC
                
                Incorporated by reference to Form 8K filed on March 23,
      2007.10.19
                
                Asset
      Purchase Agreement between Trebor
                  Industries,
      Inc. and Robert Carmichael
                
                Incorporated by reference to Form 8K filed on August 1,
      2008.10.20
                
                Asset
      Purchase Agreement between Trebor
                  Industries,
      Inc. and Robert Carmichael
                
                Incorporated by reference to Form 8K filed on March 3,
      2009.31.1
                
                Certification
      Pursuant to Rule 13a-14(a)/15d-14(a)
                
                Provided
      herewith.31.2
                
                Certification
      Pursuant to Rule 13a-14(a)/15d-14(a)
                
                Provided
      herewith.32.1
                
                Certification
      Pursuant to Section 1350
                
                Provided
      herewith.32.2
                
                Certification
      Pursuant to Section 1350
                
                Provided
      herewith
  27
  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:     August 13,
      2009
              Brownie’s
      Marine Group, Inc.By:
              /s/   Robert
      M. CarmichaelRobert
      M. CarmichaelPresident,
      Chief Executive Officer,Chief
      Financial Officer/Principal
      Accounting Officer
 
 28