U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549






FORM
10-Q


(mark
one)





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




For the
quarterly period ended September 30,
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   ̈




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




Yes  o     No  o




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




Large accelerated filer  ̈
                  Accelerated
      filer  ̈Non-accelerated
      filer    ̈(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   ̈    No  x




There
were 1,785,538 shares of common stock outstanding as of November 1,
2009.





Item
1.  Financial Statements
  Financial
Information
  PART
I


BROWNIE'S
MARINE GROUP, INC.
 CONSOLIDATED
BALANCE SHEETS




September 30,2009
                
                
                December 31,(Unaudited)
                
                
                2008ASSETSCurrent
      assetsCash
                
                $
                45,822
                
                
                $
                3,532Accounts
      receivable, net of $28,000 and $25,000 allowance for doubtful accounts,
      respectively
                
                
                25,190
                
                
                
                34,328Accounts
      receivable - related parties
                
                
                7,709
                
                
                
                41,059Inventory
                
                
                549,401
                
                
                
                735,036Prepaid
      expenses and other current assets
                
                
                104,337
                
                
                
                94,079Costs
      and estimated earnings in excess of billings on uncompleted
      contract
                
                
                —
                
                
                
                287,861Deferred
      tax asset, net - current
                
                
                111,531
                
                
                
                456Total
      current assets
                
                
                843,990
                
                
                
                1,196,351Property,
      plant, and equipment, net
                
                
                1,174,754
                
                
                
                1,199,554Deferred
      tax asset, net - non-current
                
                
                5,634
                
                
                
                —Other
      assets
                
                
                6,968
                
                
                
                6,968Total
      assets
                
                $
                2,031,346
                
                
                $
                2,402,873LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                
                $
                317,383
                
                
                $
                329,488Customer
      deposits
                
                
                118,824
                
                
                
                194,425Royalties
      payable - related parties
                
                
                42,028
                
                
                
                42,865Income
      taxes payable
                
                
                —
                
                
                
                30,649Other
      liabilities
                
                
                3,714
                
                
                
                4,232Other
      liabilities and accrued interest - related parties
                
                
                59,870
                
                
                
                44,151Notes
      payable - current portion
                
                
                246,595
                
                
                
                244,188Notes
      payable - related parties - current portion
                
                
                128,053
                
                
                
                86,677Total
      current liabilities
                
                
                916,467
                
                
                
                976,675Long-term
      liabilitiesDeferred
      tax liability, net - non-current
                
                
                —
                
                
                
                2,411Notes
      payable - long-term portion
                
                
                847,180
                
                
                
                882,410Notes
      payable - related parties - long-term portion
                
                
                243,144
                
                
                
                314,356Total
      liabilities
                
                
                2,006,791
                
                
                
                2,175,852Commitments
      and contingenciesStockholders'
      equityCommon
      stock; $0.001 par value; 250,000,000 shares authorized 1,785,538 and
      1,785,538 shares
                  issued and outstanding, respectively
                
                
                1,785
                
                
                
                1,785Additional
      paid-in capital
                
                
                1,147,216
                
                
                
                1,084,216Accumulated
      deficit
                
                
                (1,124,446
                )
                
                
                (858,980
                )Total
      stockholders' equity
                
                
                24,555
                
                
                
                227,021Total
      liabilities and stockholders' equity
                
                $
                2,031,346
                
                
                $
                2,402,873




See
Accompanying Notes to Consolidated Financial Statements




1




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


Three Months Ended September 30,
                        
                        
                        Nine Months Ended September 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Net
      revenuesNet
      revenues
                        
                        $
                        493,162
                        
                        
                        $
                        652,869
                        
                        
                        $
                        1,298,405
                        
                        
                        $
                        3,102,091Net
      revenues - related parties
                        
                        
                        117,722
                        
                        
                        
                        110,076
                        
                        
                        
                        393,632
                        
                        
                        
                        584,728Total
      net revenues
                        
                        
                        610,884
                        
                        
                        
                        762,945
                        
                        
                        
                        1,692,037
                        
                        
                        
                        3,686,819Cost
      of net revenuesCost
      of net revenues
                        
                        
                        407,967
                        
                        
                        
                        528,731
                        
                        
                        
                        1,180,099
                        
                        
                        
                        2,214,379Royalties
      - related parties
                        
                        
                        16,482
                        
                        
                        
                        23,675
                        
                        
                        
                        51,885
                        
                        
                        
                        101,816Total
      cost of net revenues
                        
                        
                        424,449
                        
                        
                        
                        552,406
                        
                        
                        
                        1,231,984
                        
                        
                        
                        2,316,195Gross
      profit
                        
                        
                        186,435
                        
                        
                        
                        210,539
                        
                        
                        
                        460,053
                        
                        
                        
                        1,370,624Operating
      expensesResearch
      and development costs
                        
                        
                        17,281
                        
                        
                        
                        10,749
                        
                        
                        
                        44,634
                        
                        
                        
                        11,871Selling,
      general and administrative
                        
                        
                        215,211
                        
                        
                        
                        274,852
                        
                        
                        
                        660,653
                        
                        
                        
                        835,919Total
      operating expenses
                        
                        
                        232,492
                        
                        
                        
                        285,601
                        
                        
                        
                        705,287
                        
                        
                        
                        847,790Income
      (loss) from operations
                        
                        
                        (46,057
                        )
                        
                        
                        (75,062
                        )
                        
                        
                        (245,234
                        )
                        
                        
                        522,834Other
      expense, netOther
      expense (income), net
                        
                        
                        1,305
                        
                        
                        
                        (602
                        )
                        
                        
                        62,843
                        
                        
                        
                        3,638Interest
      expense
                        
                        
                        19,792
                        
                        
                        
                        15,848
                        
                        
                        
                        57,930
                        
                        
                        
                        49,448Interest
      expense - related parties
                        
                        
                        6,284
                        
                        
                        
                        2,942
                        
                        
                        
                        20,057
                        
                        
                        
                        34,833Total
      other expense, net
                        
                        
                        27,381
                        
                        
                        
                        18,188
                        
                        
                        
                        140,830
                        
                        
                        
                        87,919Net
      (loss) income before provision for income taxes
                        
                        
                        (73,438
                        )
                        
                        
                        (93,250
                        )
                        
                        
                        (386,064
                        )
                        
                        
                        434,915Provision
      for income tax (benefit) expense
                        
                        
                        (25,856
                        )
                        
                        
                        (29,895
                        )
                        
                        
                        (120,598
                        )
                        
                        
                        177,955Net
      (loss) income
                        
                        $
                        (47,582
                        )
                        
                        $
                        (63,355
                        )
                        
                        $
                        (265,466
                        )
                        
                        $
                        256,960Basic
      (loss) income per common share
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.15
                        )
                        
                        $
                        0.15Diluted
      (loss) income per common share
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.04
                        )
                        
                        $
                        (0.15
                        )
                        
                        $
                        0.15Basic
      weighted average common shares outstanding
                        
                        
                        1,785,538
                        
                        
                        
                        1,751,842
                        
                        
                        
                        1,785,538
                        
                        
                        
                        1,707,801Diluted
      weighted average common shares outstanding
                        
                        
                        1,785,538
                        
                        
                        
                        1,751,842
                        
                        
                        
                        1,785,538
                        
                        
                        
                        1,712,805




See
Accompanying Notes to Consolidated Financial Statements


2




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


Additional
                        
                        
                        
                        
                        
                        TotalCommon Stock
                        
                        
                        Paid-in
                        
                        
                        Accumulated
                        
                        
                        Stockholders'Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Deficit
                        
                        
                        EquityBalance,
      December 31, 2008
                        
                        
                        1,785,538
                        
                        
                        $
                        1,785
                        
                        
                        $
                        1,084,216
                        
                        
                        $
                        (858,980
                        )
                        
                        $
                        227,021Purchase
      of issued and pending patents for stock 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
                        )
                        
                        
                        72,137Net
      loss
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (47,582
                        )
                        
                        
                        (47,582
                        )Balance,
      September 30, 2009  (Unaudited)
                        
                        
                        1,785,538
                        
                        
                        $
                        1,785
                        
                        
                        $
                        1,147,216
                        
                        
                        $
                        (1,124,446
                        )
                        
                        $
                        24,555




See
Accompanying Notes to Consolidated Financial Statements


3


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


Nine Months Ended September 30,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      (loss) income
                      
                      $
                      (265,466
                      )
                      
                      $
                      256,960Adjustments
      to reconcile net (loss)  income to net cash provided by (used
      in) operating activities:Depreciation
                      
                      
                      27,385
                      
                      
                      
                      30,296Amortization
                      
                      
                      1,015
                      
                      
                      
                      25Change
      in deferred tax asset, net
                      
                      
                      (116,709
                      )
                      
                      
                      43,091Change
      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
                      
                      
                      9,138
                      
                      
                      
                      (5,444
                      )Change
      in accounts receivable - related parties
                      
                      
                      33,350
                      
                      
                      
                      (4,886
                      )Change
      in inventory
                      
                      
                      185,635
                      
                      
                      
                      (162,928
                      )Change
      in prepaid expenses and other current assets
                      
                      
                      (10,258
                      )
                      
                      
                      (43,125
                      )Change
      in costs and estimated earnings in excess of billingson
      uncompleted contract
                      
                      
                      287,861
                      
                      
                      
                      —Change
      in accounts payable and accrued liabilities
                      
                      
                      (12,105
                      )
                      
                      
                      (59,619
                      )Change
      in customer deposits
                      
                      
                      (75,601
                      )
                      
                      
                      (27,687
                      )Change
      in income taxes payable
                      
                      
                      (30,649
                      )
                      
                      
                      31,160Change
      in other liabilities
                      
                      
                      (518
                      )
                      
                      
                      (6,126
                      )Change
      in other liabilities and accrued interest - related
parties
                      
                      
                      15,719
                      
                      
                      
                      (107,357
                      )Change
      in royalties payable - related parties
                      
                      
                      (837
                      )
                      
                      
                      7,605Net
      cash provided by (used in) operating activities
                      
                      
                      108,549
                      
                      
                      
                      (41,756
                      )Cash
      flows from investing activities:Proceeds
      from receivable purchased through issuance of common stock in conjunction
      with asset/patent acquisition
                      
                      
                      —
                      
                      
                      
                      228,000Purchase
      of fixed assets
                      
                      
                      (3,600
                      )
                      
                      
                      (24,052
                      )Net
      cash (used in) provided by investing activities
                      
                      
                      (3,600
                      )
                      
                      
                      203,948Cash
      flows from financing activities:Proceeds
      from borrowings on notes payable
                      
                      
                      —
                      
                      
                      
                      70,000Principal
      payments on notes payable
                      
                      
                      (32,823
                      )
                      
                      
                      (35,087
                      )Principal
      payments on notes payable - related parties
                      
                      
                      (29,836
                      )
                      
                      
                      (264,409
                      )Net
      cash used in financing activities
                      
                      
                      (62,659
                      )
                      
                      
                      (229,496
                      )Net
      change in cash
                      
                      
                      42,290
                      
                      
                      
                      (67,304
                      )Cash,
      beginning of period
                      
                      
                      3,532
                      
                      
                      
                      142,516Cash,
      end of period
                      
                      $
                      45,822
                      
                      
                      $
                      75,212Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                      
                      $
                      65,368
                      
                      
                      $
                      90,691Cash
      paid for income taxes
                      
                      $
                      38,528
                      
                      
                      $
                      87,510Supplemental
      disclosures of non-cash investing activities:Stock
      options and additional paid in capital issued for purchase of issued and
      pending patents on March 3, 2009
                      
                      $
                      63,000
                      
                      
                      $
                      —Common
      stock and additional paid in capital issued toward patent/asset purchase
      on July 31, 2008
                      
                      $
                      —
                      
                      
                      $
                      213,900




See
Accompanying Notes to Consolidated Financial Statements


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 reflects its line of business, and also has
associated trade name 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.
 
 Property, Plant, and
Equipment – Property, Plant and Equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization 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 and amortization 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, marketing and
trade show costs – The Company expenses the costs of producing
advertisements and marketing material at the time production occurs, and
expenses the costs of communicating the advertisements and participating in
trade shows in the period in which each occur.  Advertising and trade
show expense incurred for the three months ended September 30, 2009 and 2008,
was $831 and $7,102, respectively.  Advertising and trade show expense
incurred for the nine months ended September 30, 2009 and 2008, was $7,275 and
$24,861, 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 income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements.  Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.  The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
 
 The
Company records net deferred tax assets to the extent the Company believes these
assets will more likely than not be realized.  In making such
determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent financial
operations.  A valuation allowance is established against deferred tax
assets that do not meet the criteria for recognition.  In the event
the Company were to determine that it would be able to realize deferred income
tax assets in the future in excess of their net recorded amount, they would make
an adjustment to the valuation allowance which would reduce the provision for
income taxes.
 
 The
Company follows the accounting guidance which provides that a tax benefit from
an uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the technical merits. Income
tax positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized initially and in subsequent
periods.  Also included is guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.
 
 Comprehensive income
– The Company has no components of other comprehensive income. Accordingly, net
income equals comprehensive income for all periods.
 
 Stock-based
compensation – The Company accounts for all compensation related to
stock, options or warrants using a fair value based method whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period.  The Company uses the Black-Scholes pricing model to calculate
the fair value of options and warrants issued to both employees and
non-employees.  Stock issued for compensation is valued using the
market price of the stock on the date of the related agreement.
 
 For the
three and nine months ended September 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 nine months ended September 30, 2009 since their effect was
antidilutive.  There were no common stock equivalents for the three
and nine months ended September 30, 2008.
 
 Subsequent events–
We have evaluated all subsequent events through November 11, 2009, the date the
financial statements were available to be issued.
  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 – On July 1, 2009, the Financial Accounting Standards
Board ("FASB") officially launched the FASB ASC 105 – "Generally Accepted
Accounting Principles", which established the FASB Accounting Standards
Codification ('the Codification'), as the single official source of
authoritative, nongovernmental, U.S. Generally Accepted Accounting Principles
("GAAP"), in addition to guidance issued by the Securities and Exchange
Commission.  The Codification is designed to simplify U.S. GAAP into a
single, topically ordered structure.  All guidance contained in the
Codification carries an equal level of authority.  The Codification is
effective for interim and annual periods ending after September 15,
2009.  Accordingly, the Company refers to the Codification in respect
of the appropriate accounting standards throughout this document as “FASB
ASC”.  Implementation of the Codification did not have any impact on
the Company’s consolidated financial statements.
 
 In August
2009, the FASB issued ASU No. 2009-05 – “Fair Value Measurements and Disclosures
(Topic 820) – Measuring Liabilities at Fair Value”.  This ASU
clarifies the fair market value measurement of liabilities.  In
circumstances where a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques: a technique that uses quoted
price of the identical or a similar liability or liabilities when traded as an
asset or assets, or another valuation technique that is consistent with the
principles of Topic 820 such as an income or market approach.  ASU No.
2009-05 was effective upon issuance and it did not result in any significant
financial impact on the Company upon adoption.
 
 In
September 2009, the FASB issued ASU No. 2009-12 – “Fair Value Measurements and
Disclosures (Topic 820) – Investments in Certain Entities That Calculate Net
Asset Value per Share (or its equivalent)”.  This ASU permits use of a
practical expedient, with appropriate disclosures, when measuring the fair value
of an alternative investment that does not have a readily determinable fair
value.  ASU No. 2009-12 is effective for interim and annual periods
ending after December 15, 2009, with early application
permitted.  Since the Company does not currently have any such
investments, it does not anticipate any impact on its financial statements upon
adoption.
 
 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. As of
September 30, 2009, SFAS No. 167 has not been added to the
Codification.
 
 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. As of September 30, 2009, SFAS No. 166 has not been added to the
Codification.
  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 May 2009, the FASB issued FASB ASC 855,
“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.  FASB ASC
855 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 an update to FASB ASC 820, “Fair Value Measurements and
Disclosures”, related to providing guidance on when the volume and level of
activity for the asset or liability have significantly decreased and identifying
transactions that are not orderly.  The update 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.  The
update also reaffirms the objective of fair value measurement, as stated in FASB
ASC 820, 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 ASC 320, “Investments – Debt and Equity”, that amends
current 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 an update to FASB ASC 825, “Financial Instruments”, to
require interim disclosures about the fair value of financial
instruments”.  This update enhances consistency in financial reporting
by increasing the frequency of fair value disclosures of those assets and
liabilities falling within the scope of FASB ASC 825. The Company adopted this
update in the second quarter of 2009 without significant impact to the financial
statements.
 
 In April
2009, the FASB issued an update to FASB ASC 805, “Business Combinations”, that
clarifies and amends  FASB ASC 805, as it applies to all assets
acquired and liabilities assumed in a business combination that arise from
contingencies.  This update 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 an update to FASB ASC 325, “Investments – Other”,
which amends the impairments guidance on 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 update also retains and emphasizes the objective of an
other-than-temporary impairment assessment and the related disclosure
requirements in FASBASC 320, “Investments – Debt and Equity Securities”, and
other related guidance.  The adoption of this update in the second
quarter of 2009 did not have a significant impact on the Company’s financial
statements.
  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 November 2008, EITF issued new guidance
under FASB ASC 350, “Intangibles – Goodwill and Other” on accounting for
defensive intangible assets.  The new guidance 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).  This guidance was
adopted by the Company in January 2009 without impact to the financial
statements.
 
 In May
2008, the FASB issued an update to FASB ASC 470, “Debt”, with respect to
accounting for convertible debt instruments that may be settled in cash upon
conversion including partial cash settlement.  This update 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 ASC 815, “Derivatives and
Hedging”.  Additionally, this update 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 is recognized in subsequent periods. The update 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 update would
apply.  This update was adopted in January 2009 without significant
financial impact.
 
 In March
2008, the FASB issued an update to FASB ASC 815, “Derivatives and
Hedging”.  This update is intended to enhance the current disclosure
framework in FASB ASC 815.  Under this update, 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 FASB ASC 815 and its related interpretations, and (c), how
derivative instruments and related hedged items effect an entity’s financial
position, financial performance and cash flows.  This update 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 update in the first quarter of 2009
was without significant financial impact.
 
 In
December 2007, the FASB issued an update to FASB ASC 805, “Business
Combinations” which 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 an update to FASB ASC 810, “Consolidation”, which
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.
This update is effective for the Company as of January 1, 2009. The Company
adopted this update in January 2009 without significant impact on the
consolidated financial position, results of operations, and
disclosures.
  10
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 2.    INVENTORY
 
 Inventory
consists of the following as of:
 
 September
      30, 2009
                        (Unaudited)
                      
                      
                      December 31, 2008Raw
      materials
                      
                      $
                      314,795
                      
                      
                      $
                      485,367Work
      in process
                      
                      
                      —
                      
                      
                      
                      —Finished
      goods
                      
                      
                      234,606
                      
                      
                      
                      249,669$
                      549,401
                      
                      
                      $
                      735,036
 
 3.    PREPAID EXPENSES AND OTHER
CURRENT ASSETS
 
 Prepaid
expenses and other current assets totaling $104,337 at September 30, 2009,
consists of $57,619 of prepayments for inventory, $29,809 of prepaid insurance,
$2,476 of prepaid software maintenance, $4,925 prepaid advertising and trade
show expense, $9,357 state tax overpayment from 2008, and $151 other prepaid and
expenses and current assets.
 
 Prepaid
expenses and other current assets totaling $94,079 at December 31, 2008,
consists of $70,000 of prepaid inventory, $20,267 of prepaid insurance, $1,040
of prepaid software maintenance, $2,550 of employee advances, and $222 of other
prepaid expenses and current assets.
 
 4.    PROPERTY, PLANT, AND
EQUIPMENT
 
 Property, plant, and equipment consists
of the following as of:
 
 September
      30, 2009
                        (Unaudited)
                      
                      
                      December 31, 2008Building,
      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
                      
                      
                      290,995
                      
                      
                      
                      270,595$
                      1,174,754
                      
                      
                      $
                      1,199,554
 
 5. CUSTOMER CREDIT
CONCENTRATIONS
 
 The
Company sells to three entities owned by the brother of Robert Carmichael, the
Companies Chief Executive officer as further discussed in Note 6 – RELATED PARTIES
TRANSACTIONS.  Combined sales to these entities for the three
months ended September 30, 2009 and 2008 represented 19.02% and 13.97%,
respectively, of total net revenues.  Combined sales to these same
entities for the nine months ended September 30, 2009 and 2008 represented
16.70% and 15.75%, respectively, of total net revenues.  In addition,
for the nine months ended September 30, 2009 sales to one unrelated customer
represented 23.19% of total net revenues.  For the three months ended
September 30, 2008, sales to a different unrelated customer represented 10.72%
of total net revenues.  Sales to no other customers represented
greater than 10% of net revenues for the three or nine months ended September
30, 2009 and 2008.
  11
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 6.    RELATED
PARTIES TRANSACTIONS
 
 Notes payable – related
parties
 
 Notes
payable – related parties consists of the following as of September 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.
                      
                      $
                      318,527Promissory
      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
      $1,155,403
                        at
      September 30, 2009, bearing 6.99% interest per annum, due in monthly
                        principal
      and interest paymentsof
      $1,980, maturing on February 22, 2012.
                      
                      
                      52,670371,197Less
      amounts due within one year
                      
                      
                      128,053Long-term
      portion of notes payable – related parties
                      
                      $
                      243,144
 
 As of
September 30, 2009, principal payments on the notes payable – related parties
are as follows:
 
 2009
                      
                      $
                      62,3782010
                      
                      
                      88,3852011
                      
                      
                      95,1312012
                      
                      
                      82,0582013
                      
                      
                      43,245Thereafter
                      
                      
                      —$
                      371,197
 
 As of
September 30, 2009, the Company was approximately six months in arrears on
payments due under the Note payable to the Chief Executive
Officer.  No default notice has been received and the Company plans to
make payments as able.  See Other liabilities and
accrued interest– related parties within this Note for the related
accrued interest also in arrears.
  12
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 6.    RELATED
PARTY TRANSACTIONS (continued)
 
 Notes payable – related
parties (continued)
 
 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
      $1,155,403
                        at
      December 31, 2008, bearing 6.99% interest per annum, due in monthly
      principal and interest payments of $1,980, maturing on February 22,
      2012.
                      
                      
                      67,296401,033Less
      amounts due within one year
                      
                      
                      86,677Long-term
      portion of notes payable – related parties
                      
                      $
                      314,356
 
 Net revenues and accounts
receivable – related parties – The Company sells products to three
entities, Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and
Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive
Officer.  Terms of sale are no more favorable than those extended to
any of the Company’s other customers.  Combined net revenues from
these entities for the three months ended September 30, 2009 and 2008, was
$116,259 and $106,572, respectively.  Combined net revenues from these
same three entities for the nine months ended September 30, 2009 and 2008 was
$354,467 and $580,833, respectively.  Combined net revenues from
Robert Carmichael and 940 Associates, Inc., an entity owned by Robert
Carmichael, the Chief Executive officer for the three and nine months ended
September 30, 2009 was $1,463 and $39,165, respectively.  Net revenues
from Robert Carmichael for the three and nine months ended September 30, 2008
was $3,504 and $3,895, respectively.  Accounts receivable from
Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s
Yacht Toys at September 30, 2009, was $1,178, $1,726, and $4,688,
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 September 30, 2009
was $4 and $114, respectively.  Accounts receivable from Robert
Carmichael and 940 Associates, Inc. at December 31, 2008 was $2,207 and $13,679,
respectively.
 
  13
  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 September
30, 2009 and 2008, was $16,482 and $23,675, respectively.  Total
royalty expense for the above agreements for the nine months ended September 30,
2009 and 2008, was $51,885 and $101,816, respectively.  As of
September 30, 2009, the Company was approximately seven months in arrears on
royalty payments due.
 
 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 $18,000, and $30,000,
from the Company for the three months ended September 30, 2009, and 2008,
respectively.  For the nine months ended September 30, 2009 and 2008
Mr. Morris earned $56,500 and $90,000, respectively, for these
services.  As of September 30, 2009, the Company was $43,000, or
approximately seven months in arrears on payments due Mr. Morris for his
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.
  14
  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:
 
 September
      30, 2009
                        (Unaudited)
                      
                      
                      December 31, 2008Accrued
      interest on Notes payable – related parties
                      
                      $
                      16,870
                      
                      
                      $
                      4,151Management
      and strategic consulting services due Jeff Morris
                      
                      
                      43,000
                      
                      
                      
                      40,000Other
      liabilities – related parties
                      
                      $
                      59,870
                      
                      
                      $
                      44,151
 
 7. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
 
 Accounts
payable and accrued liabilities of $317,383 at September 30, 2009 consists of
$162,492 accounts payable trade, $60,574 balance of legal expenses that were a
Company expense prior to the reverse merger with Trebor Industries, Inc.,
$73,633 of accrued payroll and related fringe benefits, $18,000 accrued real
estate taxes, $1,388 of accrued interest, and $1,296 of other accrued
liabilities.
 
 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 accrued liabilities.
 
 8.    OTHER
LIABILITIES
 
 Other
liabilities of $3,714 at September 30, 2009 consists 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.
 
 The
Company includes 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. The
Company maintains an on-line training liability reserve for certificate
redemption of 10% that approximates the historical redemption rate.  15
 BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 9. NOTES
PAYABLE
 
 Notes
payable consists of the following as of September 30, 2009:
 
 Revolving
      Line of Credit secured by a third mortgage on the real property of the
      Company with a carrying value of $1,155,403 at September 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.
                      
                      $
                      199,990Promissory
      note payable secured by a first mortgage on the real property of the
      Company having a carrying value of $1,155,403 at September 30, 2009,
      interest at 6.99% per annum, due in monthly principal and interest
      payments of $9,038, maturing on January 22, 2022.
                      
                      
                      893,7851,093,775Less
      amounts due within one year
                      
                      
                      246,595Long-term
      portion of notes payable
                      
                      $
                      847,180
 
 As of
September 30, 2009, principal payments on the notes payable are as
follows:
 
 2009
                      
                      $
                      211,3742010
                      
                      
                      47,4342011
                      
                      
                      50,9072012
                      
                      
                      54,4752013
                      
                      
                      58,623Thereafter
                      
                      
                      670,962$
                      1,093,775
 
 The
Company does not foresee that it will have the financial ability to settle the
balance due under the Revolving Line of Credit by December 2, 2009, the maturity
date.  Unless a favorable change in the financial condition of the
Company occurs before the maturity date, the Company will request a restructure
of payment terms or an extension of the maturity date.
  16
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 9. NOTES PAYABLE
(continued)
 
 Notes payable consists of the following
as of December 31, 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.
 
 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 nine months ended September 30, 2009, no
options were granted or exercised under the Plan.
  17
  BROWNIE’S
MARINE GROUP, INC.
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.  INCOME
TAXES
 
 The
components of the provision for income tax benefit are as follows for the three
months ended:
 
 September 30, 2009
                      
                      
                      September 30, 2008Current
      taxesFederal
                      
                      $
                      —
                      
                      
                      $
                      (30,381
                      )State
                      
                      
                      —
                      
                      
                      
                      (1,350
                      )Current
      taxes
                      
                      
                      —
                      
                      
                      
                      (31,731
                      )Change
      in deferred taxes
                      
                      
                      (25,675
                      )
                      
                      
                      2,824Change
      in valuation allowance
                      
                      
                      (181
                      )
                      
                      
                      (988
                      )Provision
      for income tax benefit
                      
                      $
                      (25,856
                      )
                      
                      $
                      (29,895
                      )
 
 The
components of the provision for income tax (benefit) expense are as follows for
the nine months ended:
 
 September 30, 2009
                      
                      
                      September 30, 2008Current
      taxesFederal
                      
                      $
                      3,706
                      
                      
                      $
                      102,925State
                      
                      
                      (5,184
                      )
                      
                      
                      25,660Current
      taxes
                      
                      
                      (1,478
                      )
                      
                      
                      128,585Change
      in deferred taxes
                      
                      
                      (133,478
                      )
                      
                      
                      55,200Change
      in valuation allowance
                      
                      
                      14,358
                      
                      
                      
                      (5,830
                      )Provision
      for income tax (benefit) expense
                      
                      $
                      (120,598
                      )
                      
                      $
                      177,955
 
 The
following is a summary of the significant components of the Company’s deferred
tax assets and liabilities at September 30, 2009:
 
 Deferred
      tax assets:Stock
      options
                      
                      $
                      32,181Allowance
      for doubtful accounts
                      
                      
                      9,520Tax
      loss carryback
                      
                      
                      111,395On-line
      training certificate reserve
                      
                      
                      273Total
      deferred tax assets
                      
                      
                      153,369Valuation
      allowance
                      
                      
                      (33,793
                      )Deferred
      tax assets net of valuation allowance
                      
                      
                      119,576Less
      deferred tax assets – non-current, net of valuation
    allowance
                      
                      
                      8,045Deferred
      tax assets – current, net of valuation allowance
                      
                      $
                      111,531
 
 Deferred
      tax liabilityDepreciation
      and amortization timing differences
                      
                      $
                      2,411Less
      deferred tax liability – non-current
                      
                      
                      2,411Deferred
      tax liability – current
                      
                      $
                      —
  18
  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 September
30, 2009 was 34%.  The Company has established a valuation allowance
against deferred tax assets of $33,793 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
                      
                      $
                      456
 
 Deferred
      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 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 nine months ended are as follows:
 
 September 30, 2009
                      
                      
                      September 30, 2008Statutory
      tax rate (benefit) expense
                      
                      
                      —
                      %
                      
                      
                      34
                      %Increase
      (decrease) in rates resulting from:Net
      operating loss carryforward or carryback
                      
                      
                      (29
                      )%
                      
                      
                      (7
                      )%Equity
      based compensation and loss
                      
                      
                      (6
                      )%
                      
                      
                      4
                      %State
      taxes
                      
                      
                      —
                      %
                      
                      
                      4
                      %Change
      in valuation allowance
                      
                      
                      4
                      %
                      
                      
                      (1
                      )%Depreciation
      and amortization
                      
                      
                      —
                      %
                      
                      
                      7
                      %Other
                      
                      
                      —
                      %
                      
                      
                      —
                      %Effective
      tax rate (benefit) expense
                      
                      
                      (31
                      )%
                      
                      
                      41
                      %
  19




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




Introductory
Statements




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




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




Overview




Brownie’s
Marine Group, Inc., a Nevada corporation (referred to herein as “BWMG” 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 September 30, 2009, As Compared To the
Three Months Ended September 30, 2008




Net revenues.  For
the three months ended September 30, 2009, we had net revenues of $610,884 as
compared to net revenues of $762,945 for the three months ended September 30,
2008, a decrease of $152,061, or 19.93%.  The net decrease is
primarily attributable to a decrease in low pressure hookah system and related
sales of approximately $110,000 and a decrease in tankfill system sales of
approximately $40,000.  The Company attributes the overall decline in
all product sales to be reflective of the depressed state of the
economy.  The Company’s products are largely non-essential, disposable
income type items, and therefore are more likely to be sacrificed by consumers
in preference for essential goods during depressed economic
conditions.




Cost of net
revenues.  For the three months ended September 30, 2009, we
had cost of net revenues of $424,449 as compared with cost of net revenues of
$552,406 for the three months ended September 30, 2008, a decrease of $127,957,
or 23.16%.  The decrease in cost of net revenues for the third quarter
of 2009 as compared to the third quarter of 2008 is primarily a result of an
approximate 3% decline in material cost of sales as a percentage of net
revenues, a decline in material costs directly attributable to the total decline
in net revenues, and a reduction in overtime labor in an effort to reduce costs
to maximize cash available to support operations.




Gross profit.  For
the three months ended September 30, 2009, we had a gross profit of $186,435 as
compared to gross profit of $210,539 for the three months ended September 30,
2008, a decrease of $24,104, or 11.45%.  This decrease is primarily
attributable to the decrease in net revenues for the three months ended
September 30, 2009 as compared to the same period in 2008.


20




Operating
expenses.  For the three months ended September 30, 2009, we
had total operating expenses of $232,492 as compared to total operating expenses
of $285,601 for the three months ended September 30, 2008, a decrease of
$53,109, or 18.60%.  The $53,109 decrease is due to a net decrease in
selling and administrative costs of $59,641, which was partially offset by an
increase in research and development expenses of $6,532 for the three months
ended September 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 subcontract costs attributable to fewer hours worked, a
reduction in travel and advertising expenses, and a reduction in accrued
vacation expenses due to more vacation time taken during the third quarter of
2009 as compared to the same period in 2008.  These measures toward
cost reduction and more efficient labor utilization were in an effort to
maximize cash available to support operations.




Other expense,
net.  For the three months ended September 30, 2009, we had
other expense, net of $27,381 as compared to other expense, net of $18,188 for
the three months ended September 30, 2008, an increase of $9,193, or
50.54%.  This account is comprised of other (income) expense, net
(“other expense”), and interest expense.  Interest expense for the
period increased $7,286 and other expense increased $1,907.  The
interest expense increase is primarily a result of a higher average credit line
balance outstanding for the three months ended September 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 increase in other
expense for the three months ended September 30, 2009 as compared to three
months ended September 30, 2008 was primarily a result of finance costs on
vendor debt.




Provision for income tax (benefit)
expense.  For the three months ended September 30, 2009, we had
a provision for income tax benefit of $25,856, as compared to $29,895 for the
three months ended September 30, 2008, a decrease in provision for income tax
benefit of $4,039, or 13.51%.  This decrease is primarily attributable
to a decrease in net loss before provision for income taxes for the three months
ended September 30, 2009 as compared to the net loss for three months ended
September 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 September 30, 2009, we had net loss of $47,582 as compared to
net loss of $63,355 for the three months ended September 30, 2008, a decrease of
$15,773, or 24.90%.  The net decrease isattributable to a decrease
in gross profit of $24,104, a decrease in operating expenses of $53,109, an
increase in other expense, net of $9,193, and a decrease in the provision for
income tax benefit of $4,039.




Results
of Operations for the Nine Months Ended September 30, 2009, As Compared To the
Nine Months Ended September 30, 2008




Net revenues.  For
the nine months ended September 30, 2009, we had net revenues of $1,692,037 as
compared to net revenues of $3,686,819 for the nine months ended September 30,
2008, a decrease of $1,994,782, or 54.11%.  The decrease is primarily
attributable to a decrease in low pressure hookah system sales of approximately
$760,000, and a decrease in tankfill system sales of approximately
$1,230,000.  The Company had three large custom tankfill projects
during the nine months ended September 30, 2008 that contributed approximately
$970,000 to revenue for that period while there were no comparable sales during
the nine months ended September 30, 2009.  The Companyattributes the overall
decline in all product salesto be reflective of the
depressed state of the economy.  The Company’s products are largely
non-essential, disposable income type items, and therefore are more likely to be
sacrificed by consumers in preference for essential goods during depressed
economic conditions.




Cost of net
revenues.  For the nine months ended September 30, 2009, we had
cost of net revenues of $1,231,984 as compared with cost of net revenues of
$2,316,195 for the nine months ended September 30, 2008, a decrease of
$1,084,211, or 46.81%.  The decrease in cost of net revenues for the
nine months ended September 30, 2009 as compared to the nine months ended
September 30, 2008 is primarily a result of the lower net revenues resulting in
a related decline in total cost of material sold.  As a percentage of
net revenues, cost of materials sold for the nine months ended September 30,
2009 remained fairly constant as compared to the same period in 2008 and
amounted to approximately $860,000 of the decline in cost of net revenues. The
approximate $230,000 balance of the decline for the nine months ended September
30, 2009 as compared to the nine months ended September 30, 2008 is primarily
due to a decline in direct labor resulting from less overtime labor, elimination
of some royalty expense resulting from the purchase of underlying patents,
reduction in freight expense, and reduction of subcontract
labor.  These measures toward cost reduction and more efficient labor
utilization were in an effort to maximize cash available to support
operations.


21




Gross profit.  For
the nine months ended September 30, 2009, we had a gross profit of $460,053 as
compared to gross profit of $1,370,624 for the nine months ended September 30,
2008, a decrease of $910,571, or 66.43%.  This decrease is primarily
attributable to the decrease in net revenues for the nine months ended September
30, 2009 as compared to the same period in 2008.




Operating
expenses.  For the nine months ended September 30, 2009, we had
total operating expenses of $705,287 as compared to total operating expenses of
$847,790 for the nine months ended September 30, 2008, a decrease of $142,503,
or 16.81%.  The $142,503 decrease is due to a net decrease in selling
and administrative costs of $175,266, which was partially offset byan increase in research
and development expenses of $32,763 for the nine months ended September 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, a
reduction in accrued vacation expense due to more vacation time being taken, and
an overall reduction in controllable costs such as supplies and office
expense.  In addition, there was less travel and advertising for the
nine months ended September 30, 2009 as compared to three months ended September
30, 2008.   These measures toward cost reduction and more
efficient labor utilization were in an effort to maximize cash available to
support operations.




Other expense,
net.  For the nine months ended September 30, 2009, we had
other expense, net of $140,830 as compared to $87,919 for the nine months ended
September 30, 2008, an increase of $52,911, or 60.18%. This account is comprised
of other (income) expense, net (“other expense”) and interest
expense.  Interest expense for the period decreased $6,294 and other
expense increased $59,205.  The interest expense decrease is a net of
$14,776 decrease in interest expense– related parties, which was partially
offset by an $8,482 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 nine months ended
September 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 $59,205 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 nine months ended September 30, 2009, we had
a provision for income tax benefit of $120,598, as compared to a provision for
income tax expense of $177,955 for the nine months ended September 30, 2008, an
increase in provision for income tax benefit of $298,553, or
167.77%.  This increase is primarily attributable to the increase in
net loss before provision for income taxes for the nine months ended September
30, 2009 as compared to the nine months ended September 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
nine months ended September 30, 2009, we had net loss of $265,466 as compared to
net income of $256,960 for the nine months ended September 30, 2008, an increase
in net loss of $522,426, or 203.31%.  The net increase isattributable to a decrease
in gross profit of $910,571, a decrease in operating expenses of $142,503, an
increase in other expense, net of $52,911, and an increase in provision for
income tax benefit of $298,553.


22




Liquidity
and Capital Resources




As of
September 30, 2009, we had cash and other current assets of $843,990 and current
liabilities of $916,467 or a current ratio of .92%.




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 September 30, 2009 is deemed adequate to maintain the Company's
operations for at least the next 12 months. .




As
mentioned in the Notes to the Company’s Financial Statements included herein,
the Company does not foresee that it will have the financial ability to settle
the $199,990 balance due under its Revolving Line of Credit by December 2, 2009,
the maturity date.  Unless a favorable change in the financial
condition of the Company occurs before the maturity date, the Company will
request a restructure of payment terms or an extension of the maturity
date.




Certain
Business Risks




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




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




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




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




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




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




We
Depend On the Services of Our Chief Executive Officer




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


23




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




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




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




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




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




We
May Be Unable To Manage Growth




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




Reliance
on Vendors and Manufacturers




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




Dependence
on Consumer Spending




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


24




Government
Regulations May Impact Us




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




Bad
Weather Conditions Could Have an Adverse Effect on Operating
Results




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




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




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




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




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




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 September 30, 2009 under the facility
was $199,990.  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.


25




Item
4T.  Controls and Procedures




Evaluation of Disclosure Controls and
Procedures




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




Changes in Internal
Controls




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




26




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.


27




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
                
                Provided
      herewith.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.




28





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 GKR
      Associates, Inc. dated February 21, 2007
              
              Incorporated
      by reference to Exhibit 10.28 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.13
              
              First
      Mortgage dated February 22, 2007 between Trebor Industries, Inc. and
      Colonial Bank
              
              Incorporated
      by reference to Exhibit 10.29 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.14
              
              Note
      dated February 22, 2007 payable to GKR Associates, Inc.
              
              Incorporated
      by reference to Exhibit 10.30 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.15
              
              Second
      Mortgage dated February 22, 2007 between Trebor Industries, Inc.
      and  GKR Associates, LLC.
              
              Incorporated
      by reference to Exhibit 10.31 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.16
              
              Promissory
      Note dated January 1, 2007 payable to Robert M. Carmichael
              
              Incorporated
      by reference to Exhibit 10.32 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.17
              
              Promissory
      Note dated January 1, 2007 Payable to 940 Associates, Inc.
              
              Incorporated
      by reference to Exhibit 10.33 to United Companies Corporation’s 10KSB for
      the year ended December 31, 2006.10.18
              
              Purchase
      and Sale Agreement with GKR Associates, LLC
              
              Incorporated
      by reference to Form 8K filed on March 23, 2007.10.19
              
              Asset
      Purchase Agreement between Trebor Industries, Inc. and Robert
      Carmichael
              
              Incorporated
      by reference to Form 8K filed on August 1, 2008.10.20
              
              Asset
      Purchase Agreement between Trebor Industries, Inc. and Robert
      Carmichael
              
              Incorporated
      by reference to Form 8K filed on March 3,
2009.




29





Exhibit No.
                
                Description
                
                Location31.1
                
                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


30




SIGNATURES






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




Date:        November 11,
      2009
                  Brownie’s
      Marine Group, Inc.By:
                  /s/   Robert
      M. CarmichaelRobert
      M. CarmichaelPresident,
      Chief Executive Officer,Chief
      Financial Officer/Principal
      Accounting
Officer




31