Brownie's Marine Group, Inc - Quarter Report: 2008 September (Form 10-Q)

Unassociated Document

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, 2008

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. 1^st Street, Fort Lauderdale, Florida	33311
(Address of Principal Executive Offices)	(Zip Code)

(954) 462-5570

(Issuer’s Telephone Number, Including Area Code)

(Former Name, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Large accelerated filer o	Accelerated filer o

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

There were 1,785,538 shares of common stock outstanding as of November 1, 2008.

PART I

ITEM 1. FINANCIAL STATEMENTS

Financial Information

BROWNIE’S MARINE GROUP, INC.

CONSOLIDATED BALANCE SHEETS



	September 30,
	2008			December 31,
	(Unaudited)			2007
ASSETS

Current assets
Cash	$	75,212		$	142,516
Accounts receivable, net of $16,000 and $9,000, respectively, allowance
for doubtful accounts		48,842			38,512
Inventory		819,231			656,303
Prepaid expenses and other current assets		125,004			81,879
Deferred tax asset, net - current		41,600			32,328
Total current assets		1,109,889			951,538

Property, plant and equipment, net		1,208,629			1,229,898

Deferred tax asset, net - non-current		--			52,363
Other assets		6,968			6,968

Total assets	$	2,325,486		$	2,240,767

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
Accounts payable and accrued liabilities	$	347,917		$	397,292
Customer deposits		258,533			286,220
Royalties payable - related parties		22,868			15,263
Other liabilities - related parties		--			117,601
Income taxes payable		31,160			--
Other liabilities		3,351			9,477
Notes payable - current portion		115,155			46,031
Notes payable - related parties - current portion		80,168			70,924
Total current liabilities		859,152			942,808

Long-term liabilities
Deferred tax liability, net - non-current		6,279			--
Notes payable - long-term portion		891,188			925,399
Notes payable - related parties - long-term portion		336,204			609,857

Total liabilities		2,092,823			2,478,064

Commitments and contingencies

Stockholders' equity (deficit)
Common stock; $0.001 par value; 250,000,000 shares authorized
1,785,538 shares issued and outstanding		1,785			1,685
Additional paid-in capital		1,052,566			839,666
Accumulated deficit		(821,688	)		(1,078,648	)
Total stockholders' equity (deficit)		232,663			(237,297	)

Total liabilities and stockholders' equity (deficit)	$	2,325,486		$	2,240,767

See Accompanying Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

COSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008		2007

Net revenues	$	762,945		$	850,471		$	3,686,819	$	2,653,037

Cost of net revenues		559,335			563,934			2,323,124		1,726,165

Gross profit		203,610			286,537			1,363,695		926,872

Operating expenses
Research and development costs		3,081			1,476			4,203		3,298
Selling, general and administrative		275,591			255,440			836,658		760,039
Total operating expenses		278,672			256,916			840,861		763,337

(Loss) income from operations		(75,062	)		29,621			522,834		163,535

Other expense, net
Other (income) expense		(602	)		3,980			3,638		(57,706	)
Interest expense		18,790			34,279			84,281		91,118
Total other expense, net		18,188			38,259			87,919		33,412

Net (loss) income before provision for income taxes		(93,250	)		(8,638	)		434,915		130,123

Provision for income tax (benefit) expense		(29,895	)		39,874			177,955		9,936

Net (loss) income	$	(63,355	)	$	(48,512	)	$	256,960	$	120,187

Basic (loss) income per common share	$	(0.04	)	$	(0.03	)	$	0.15	$	0.07
Diluted (loss) income per common share	$	(0.04	)	$	(0.03	)	$	0.15	$	0.07

Basic weighted average common
shares outstanding		1,751,842			1,658,357			1,707,801		1,612,425
Diluted weighted average common
shares outstanding		1,751,842			1,658,357			1,712,805		1,812,667

See Accompanying Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

COSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

					Additional					Total Stockholders'
	Common Stock				Paid-in		Accumulated			Equity
	Shares		Amount		Capital		Deficit			(Deficit)

Balance, December 31, 2007		1,685,538	$	1,685	$	839,666	$	(1,078,648	)	$	(237,297	)

Net income		--		--		--		97,077			97,077

Balance, March 31, 2008 (Unaudited)		1,685,538		1,685		839,666		(981,571	)		(140,220	)

Net income		--		--		--		223,238			223,238

Balance, June 30, 2008 (Unaudited)		1,685,538		1,685		839,666		(758,333	)		83,018

Purchase of Asset and Patents on July 31, 2008		100,000		100		212,900		--			213,000

Net loss		--		--		--		(63,355	)		(63,355	)

Balance, September 30, 2008 (Unaudited)		1,785,538	$	1,785	$	1,052,566	$	(821,688	)	$	232,663

See Accompanying Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

COSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
	2008			2007

Cash flows from operating activities:
Net income	$	256,960		$	120,187
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization		30,321			27,679
Change in deferred tax asset		43,091			679
Change in deferred tax liability		6,279
Loan payable settlement loss		--			777
Changes in operating assets and liabilities:
Change in accounts receivable, net		(10,330	)		(152,455	)
Change in inventory		(162,928	)		(48,094	)
Change in prepaid expenses and other current assets		(43,125	)		3,538
Change in accounts payable and accrued liabilities		(49,375	)		85,118
Change in customer deposits		(27,687	)		(52,214	)
Change in other liabilities		(6,126	)		(41,308	)
Change in income taxes payable		31,160			(11,029	)
Change in other liabilities - related parties		(117,601	)		--
Change in royalties payable - related parties		7,605			14,849
Net cash used in operating activities		(41,756	)		(52,273	)

Cash flows from investing activities:
Proceeds from receivable purchased through issuance of common
stock in conjunction with asset/patent acquisition		228,000			--
Purchase of fixed assets		(24,052	)		(1,118,363	)
Net cash provided by (used in) investing activities		203,948			(1,118,363	)

Cash flows from financing activities:
Proceeds from borrowings on notes payable - related parties		--			100,000
Proceeds from borrowings on notes payable		70,000			1,000,000
Principal payments on notes payable - related parties		(264,409	)		(40,593	)
Principal payments on notes payable		(35,087	)		(30,566	)
Net cash (used in) provided by financing activities		(229,496	)		1,028,841

Net change in cash		(67,304	)		(141,795	)

Cash, beginning of period		142,516			208,187

Cash, end of period	$	75,212		$	66,392

Supplemental disclosure of cash flow information:
Cash paid for interest	$	90,691		$	82,580

Cash paid for income taxes	$	87,510		$	9,915

See Accompanying Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

COSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

Supplemental disclosure of non-cash investing activities:
Common stock and additional paid in capital issued toward
patent/asset purchase on July 31, 2008	$	213,900	$	--

Common stock and additional paid in capital issued toward
real property purchase on February 21, 2007	$	--	$	100,000

Supplemental disclosure of non-cash financing activities:
Redemption of warrant for common stock pursuant to
warrant dated January 1, 2005	$	--	$	5,689

Assumption of other liabilites - related parties
Loan payable		--		(266,000	)
Accounts receivable		--		156,246
Loan payable settlement loss		--		(777	)
	$	--	$	(110,531	)

See Accompanying Notes to Consolidated Financial Statements

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 since it believes “Brownie’s Marine Group” more closely reflects its line of business, and it also brings brand recognition to the Company as a result of its existing products.

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 2007 financial statement amounts to conform to the 2008 financial statement presentation.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Cash and equivalents - Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents. These investments are stated at cost, which approximates market value.

Inventory - Inventory is stated at the lower of cost or market. Cost is principally determined by using the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials as well as finished goods held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required.

Fixed assets - Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is primarily 3 to 5 years except for the building that is being depreciated over a life of 39 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Revenue recognition - Revenues from product sales are recognized when the Company’s products are shipped or when service is rendered. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost of each contract. This method is used because management considers the percentage of cost incurred to date to estimated total cost to be the best available measure of progress on the contracts.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Change in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Revenue and costs incurred for time and material projects are recognized as the work is performed.

Product development costs - Product development expenditures are charged to expenses as incurred.

Advertising and marketing costs - The Company recognizes advertising expenses in accordance with Statement of Position 93-7 “Reporting on Advertising Costs.” Accordingly, the Company expenses the costs of producing advertisements at the time production occurs, and expenses the costs of communicating advertisements in the period in which the advertising space or airtime is used. Advertising and trade show expense incurred for the three months ended September 30, 2008 and 2007, was $7,102 and $4,243, respectively. Advertising and trade show expense incurred for the nine months ended September 30, 2008 and 2007, was $24,861 and $12,597, 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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)

Income taxes - The Company accounts for its income taxes in accordance with Statement of Financial Accounting Standards No. 109, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, (“FIN 48”) which clarifies the accounting for uncertainty in tax positions. FIN 48 requires the recognition of a tax position when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The Company adopted FIN 48 in the first quarter of 2007 without significant financial impact.

Comprehensive income (loss) - The Company has no components of other comprehensive income. Accordingly, net income (loss) equals comprehensive income (loss) for all periods.

Stock-based compensation - The Company accounts for stock based compensation in accordance with Statement of Financial Accounting Standards No. 123 revised that requires that the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period the employee is required to provide service in exchange for the award.

The Company did not issue any stock, warrants or options to employees for compensation for the nine months ended September 30, 2008.

Fair value of financial instruments - The carrying amounts and estimated fair values of the Company’s financial instruments approximate their fair value due to the short-term nature.

Earnings (loss) per common share - Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. All common stock equivalent shares were included in the computation for the nine months ended September 30, 2008 and 2007respectively, since their effect was dilutive. All common stock equivalent shares were excluded in the computation for the three months ended September 30, 2008 and 2007, respectively, since their effect was antidilutive.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)

New accounting pronouncements - In May 2008, FASB issued Financial Accounting Statement (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles (“GAAP”). The GAAP hierarchy is currently set forth in the American Institute of Certified Public Accountants (“AICPA”) Statement on Auditing Standards No. 69, the Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. Auditing Standards No. 69 is (1) directed to the auditor, (2) is complex, and (3) ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as the FASB Statements of Financial Accounting Statements, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should reside in the accounting literature established by the FASB and instead of being directed to the auditor, should be directed to entities since they are responsible for selecting accounting principles for financial statements that are presented in accordance with GAAP. This statement is to become effective 60 days following the Security and Exchange Commission’s (“SEC”) approval of the Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect any significant financial impact upon adoption of SFAS No. 162.

In May 2008, the FASB issued STAFF POSITION (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement”. This FSP applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. FSP No. 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost recognized in subsequent periods. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not currently have any debt instruments for which this FSP would apply and does not expect to have any significant financial impact upon adoption in January 2009. Early adoption is not permitted.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133.” This statement is intended to enhance the current disclosure framework in SFAS No. 133. Under SFAS No. 161, entities will have to provide disclosures about (a) how and why and entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c), how derivative instruments and related hedged items effect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for all financial statements issued for fiscal and interim periods beginning after November 15, 2008. Since the Company does not currently have any derivative instruments, nor does it engage in hedging activities, the Company expects to have no significant financial impact as a result of adoption of SFAS No. 161.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company does not currently anticipate a significant financial impact upon adoption of SFAS No. 141.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)

New accounting pronouncements (continued) - In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.

In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 110 (“SAB 110”). SAB 110 relates to the use of the “simplified” method, as discussed in SAB No.107 (“SAB 107”), in developing an estimate of expected term of “plain vanilla” share option in accordance with SFAS No. 123 (revised 2004), Share-Based Payment. The Staff’s view in SAB 107 was that it did not expect companies to use the simplified method for share option grants after December 31, 2007 since it believed that more detailed external information about employee exercise behavior would be available to companies by this date. Since this is not true in all cases, SAB 110 states that under certain circumstances, the Staff will continue to accept the use of the simplified method beyond December 31, 2007. The Company is currently evaluating this guidance and does not anticipate it will have significant financial impact

INVENTORY

Inventory consists of the following as of:

	September 30, 2008		December 31, 2007

Raw materials	$	414,085	$	418,123
Work in process		--		--
Finished Goods		405,146		238,180
	$	819,231	$	656,303

3.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets totaling $125,004 at September 30, 2008, consists of $93,153 of prepaid inventory, $24,159 of prepaid insurance, $3,172 of prepaid advertising, $2,416 of prepaid software maintenance, and $2,104 of other prepaid expenses and current assets.

Prepaid expenses and other current assets totaling $81,879 at December 31, 2007, consists of $47,287 of prepayments for inventory, $16,168 of prepaid insurance, $17,822 of federal and state income taxes receivable due for estimated taxes paid and net operating loss carry back, and $602 of other prepaid expenses.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following as of:

	September 30, 2008		December 31, 2007
Building and land	$	1,221,362	$	1,218,362
Furniture, fixtures, vehicles and equipment		248,787		242,735
		1,470,149		1,461,097
Less: accumulated depreciation and amortization		261,520		231,199
	$	1,208,629	$	1,229,898

For the three months ended September 30, 2008 and 2007, depreciation expense was $10,635 and $8,418, respectively. For the nine months ended September 30, 2008 and 2007, depreciation expense was $30,321 and $26,629.

On February 21, 2007, the Company purchased the corporate headquarters, factory and distribution center of the Company located at 936/940 NW 1st Street, Ft. Lauderdale, FL 33311 from GKR Associates, LLC, an entity in which the Chief Executive Officer has an ownership interest. The purchase price was $1,200,000, and is secured by a first mortgage payable to the bank of $1,000,000, and $100,000 secured by a second mortgage payable to the seller, GKR Associates, Inc. The balance of $100,000 was paid by 44,400 shares of the Company’s common stock based on market price of the stock on the purchase date. In addition, $18,362 of closing expenses were capitalized to the building.

5.	CUSTOMER CREDIT CONCENTRATIONS

Sales to Brownie’s Southport Diver’s, Inc. for the three months ended September 30, 2008 and 2007 represented 7% and 15.67%, respectively, of total net revenues for the period. Sales to Brownie’s Southport Diver’s, Inc. for the nine months ended September 30, 2008 and 2007 represented 10.72% and 21.49%, respectively, of total net revenues for the period. Sales to Al Masaood Marine and Engineering Division for the three months ended September 30, 2008 represented 13.26% of total net revenues for the period. Sales to Shadow Marine, and Al Masaood Marine and Engineering Division for the nine months ended September 30, 2008 represented 14.28%, and 16.16%, respectively, of total net revenues for the period. Sales to no other customer represented greater than 10% of net revenues for the three and nine months ended September 30, 2008 and 2007.

The brother of Robert Carmichael, the Company’s Chief Executive Officer, as further discussed in Note 6 - RELATED PARTY TRANSACTIONS, owns Brownie’s Southport Diver’s Inc.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6.	RELATED PARTY TRANSACTIONS

Notes payable - related parties - Notes payable - related parties consist of the following as of September 30, 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.	$	344,368

Promissory 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, bearing 6.99% interest per annum, due in monthly principal and interest payments of $1,980, maturing on February 22, 2012.		72,004

		416,372

Less amounts due within one year		80,168

Long-term portion of notes payable - related parties	$	336,204

As of September 30, 2008, principal payments on the notes payable - related parties are as follows:

2008	$	19,493
2009		81,655
2010		87,887
2011		94,595
2012		81,480
Thereafter		51,262

	$	416,372

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6.	RELATED PARTY TRANSACTIONS (continued)

Notes payable - related parties - Notes payable - related parties consist of the following as of December 31, 2007:

Promissory note payable to the Chief Executive Officer of the Company, secured by Company assets, bearing interest at 10% per annum, due in monthly principal and interest payments of $6,047, maturing on January 15, 2016, with final principal and interest payment of $4,360.	$	404,183

Promissory note payable to an entity owned by the Company’s Chief Executive Officer, 940 Associates, Inc., secured by Company assets, bearing interest at 10% per annum, due in monthly principal and interest payments of $2,861, maturing on January 1, 2016.		190,941

Promissory 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, bearing 6.99% interest per annum, due in monthly principal and interest payments of $1,980, maturing on February 22, 2012.		85,657

		680,781

Less amounts due within one year		70,924

Long-term portion of notes payable - related parties	$	609,857

Revenues - The Company sells products to three entities owned by the brother of the Company’s Chief Executive Officer, Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys. Terms of sale are no more favorable than those extended to any of the Company’s other customers. Combined net revenues from these entities for the three months ended September 30, 2008 and 2007, was $106,572 and $176,722, respectively. Combined net revenues from these entities for the nine months ended September 30, 2008 and 2007, was $580,833 and $695,310, respectively. Sales to Robert Carmichael, the Chief Executive Officer of the Company, for the three and nine months ended September 30, 2008, were $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, 2008, was $94, $0, and $4,300, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2007, was $2,597, $1,038, and $0, respectively. Accounts receivable from Robert Carmichael was $4,128 at September 30, 2008.

Royalties - 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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6.	RELATED PARTY TRANSACTIONS (continued)

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, 2008 and 2007, was $23,675 and $23,337, respectively. Total royalty expense for the above agreements for the nine months ended September 30, 2008 and 2007, was $101,816 and $72,295, respectively.

Jeff Morris, a greater than 10% beneficial owner of common stock of the Company, provides management and strategic consulting services for BWMG. For these services, Mr. Morris earned $30,000, and $30,000, from the Company for the three months ended September 30, 2008, and 2007, respectively. For the nine months ended September 30, 2008, and 2007, Mr. Morris earned $90,000, and $90,000, respectively.

Effective July 31, 2008, the Company entered into an Asset Purchase Agreement with Robert Carmichael, the Company’s Chief Executive Officer and largest shareholder, pursuant to which the Company acquired a granted European and pending U.S. Patent relating to active control releasable ballast systems for diving equipment ( the “Intellectual Property”) and certain contracts related to the Intellectual Property (the “Contracts”). The Contracts included a non-exclusive licensing agreement with a third party for a fee of $228,000. The Intellectual Property and Contracts are collectively referred to as the “Assets”. Per the stated terms of the Asset Purchase Agreement, the purchase price for the Assets was $297,000, consisting of issuance of 100,000 of restricted shares of the Company’s common stock and $15,000. The number of shares was determined based on the average closing price of the common stock as reported on the “OTCBB” for the 12 month period ending three days prior to the Effective Date, ($2.82 per share). For financial reporting purposes, the value of the Assets consists of the cash consideration delivered at closing under current Contracts and Mr. Carmichael’s historical cost for the Assets if the stock price on the date of the transaction supports valuation in excess of the cash exchange value. Since the average price of the stock exchanged on the transaction day was less than the cash exchange value, the Contract fee receivable was valued at $213,000, the cash exchange value ($228,000 received under contract, less the $15,000 paid), thereby resulting in zero value attributed to the acquired Intellectual Property.

The fee received in July 2008 under the non-exclusive license fee referenced above was used to reduce certain Company debt, such as the related party note payable due to 940 Associates, Inc. of approximately $181,000 was retired, and the Company paid down the related party note payable to Robert M. Carmichael by approximately $35,000.

On August 11, 2008, the related party note due Robert M. Carmichael was restructured. The $350,000 restructured note represents a reduction in the annual interest rate from 10% to 7.5%, an acceleration of the maturity date from January 15, 2016 to August 1, 2013, and an increase in the monthly note payment from $6,047 to $7,050. Additionally, the restructured note is uncollateralized and eliminated the late payment penalty clause.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6.	RELATED PARTY TRANSACTIONS (continued)

Other liabilities - related parties

At December 31, 2007, Other liabilities - related parties consists of the balance due related parties for full settlement of a loan payable due a customer as referred to in Note 8 - LOAN PAYABLE, and an amount outstanding due to a shareholder of the Company for consulting services rendered as follows:

Due to Brownies Southport Diver’s, Inc.	$	16,820
Due to Robert M. Carmichael		37,500
Due to 940 Associates, Inc.		43,281
Loan payable to related parties for settlement of customer loan payable		97,601

Management and strategic consulting service due Jeff Morris		20,000

Other liabilities - related parties	$	117,601

7.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities of $347,917 at September 30, 2008 consists of $172,334 accounts payable trade, $60,574 balance of legal expenses that were a Company expense prior to the reverse merger with Trebor Industries, Inc., $87,733 of accrued payroll and related fringe benefits, $18,000 of accrued property taxes, $3,586 of accrued interest, and $5,690 of other liabilities and accruals.

Accounts payable and accrued liabilities of $397,292 at December 31, 2007 consists of $258,923 accounts payable trade, $60,574 balance of legal expenses that were a UCC expense prior to the reverse merger with Trebor Industries, Inc., $66,593 of accrued payroll and related fringe benefits, and $11,202 of other liabilities and accruals.

8.	OTHER LIABILITIES - RELATED PARTIES

In June 2006, the Company borrowed $266,000 from a customer. The proceeds of the loan were used to satisfy the outstanding principal balance, redemption fees, and accrued interest totaling $266,777 due under the secured convertible debentures held by a third party lender. In July 2007, the Company settled the obligation due the customer through a series of transactions that resulted in cancellation of amounts due to and from the customer and related parties of the customer and the Company. The settlement resulted in cancellation of $156,426 of trade accounts receivable due the Company from the customer and its related parties, assumption of $110,351 of liabilities incurred by the customer due to related parties of the Company, and settlement loss of $777.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9.	OTHER LIABILITIES

Other liabilities of $3,351 at September 30, 2008 consist of on-line training liability. Other liabilities of $9,477 at December 31, 2007 consist of $6,538 of on-line training liability, and $2,939 of deferred tooling expense.

Effective July 1, 2005, the Company began including on-line training certificates with all hookah units sold. The training certificates entitle the holder to an on-line interactive course at no additional charge to the holder. The number of on-line training certificates issued per unit is the same as the number of divers the unit as sold is designed to accommodate (i.e., a three diver unit configuration comes with three on-line training certificates). The certificates have an eighteen-month redemption life after which time they expire. The eighteen-month life of the certificates begins at the time the customer purchases the unit. The Company owes the on-line training vendor the agreed upon negotiated rate for all on-line certificates redeemed payable at the time of redemption. For certificates that expire without redemption, no amount is due the on-line training vendor. The Company had no historical data with regard to the percentage of certificates that would be redeemed versus those that would expire. Therefore, until the Company accumulated historical data related to the certificate redemption ratio, it assumed that 100% of certificates issued with unit sales would be redeemed. Accordingly, at the time a unit was sold, the related on-line training liability was recorded. The same liability was reduced as certificates are redeemed and the related payments are made to the on-line training vendor.

In July 2007, the Company had accumulated 24 months of historical data regarding redemption rates so the liability estimate was adjusted accordingly to reflect the actual redemption history. On a go forward basis the Company is maintaining a reserve for certificate redemption of 10% that approximates the historical redemption rate.

10.	NOTES PAYABLE

Notes payable consists of the following as of September 30, 2008:

Promissory note payable secured by a vehicle of the Company having a carrying value of $523 at September 30, 2008, bearing no interest, due inmonthly principal and interest payments of $349, maturing on November 14, 2008.	$	698

Revolving Line of Credit secured by a third mortgage on the real property of the Company with a carrying value $1,178,905 at September 30, 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 March 5, 2009.		70,000

Promissory note payable secured by a first mortgage on the real property of the Company having a carrying value of $1,178,905 at September 30, 2008, interest at 6.99% per annum, due in monthly principal and interest bearing payments of $9,038, maturing on January 22, 2022.		935,645

		1,006,343
Less amounts due within one year:		115,155

Long-term portion of notes payable	$	891,188

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10.	NOTES PAYABLE (continued)

As of September 30, 2008, principal payments on the notes payable are as follows:

2008	$	11,524
2009		115,239
2010		48,504
2011		52,006
2012		55,760
Thereafter		723,310

	$	1,006,343

Notes payable consists of the following as of December 31, 2007:

Promissory note payable secured by a vehicle of the Company having a carrying value of $3,664 at December 31, 2007, bearing no interest, due in monthly principal and interest payments of $349, maturing on November 14, 2008.	$	3,839

Promissory note payable secured by real property of the Company having a carrying value of $1,195,514 at December 31, 2007, bearing interest at 6.99% per annum, due in monthly principal and interest payments of $9,038, maturing on January 22, 2022.		967,592

		971,431

Less amounts due within one year:		46,032

Long-term portion of notes payable	$	925,399

11.	REVERSE STOCK SPLIT

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.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12.	STOCK WARRANTS

As of March 31, 2007, all the rights to exercise 285,714 warrants had vested pursuant to a Warrant agreement dated January 1, 2005. The exercise price of the warrants is $.7 per share, which equaled the bid/ask price of the Company’s common stock on January 1, 2005, the effective date of the expired consulting agreement. The warrants expire twenty-four months after the vesting date of each of tranche of 71,429 at June 30, 2007, December 31, 2007, June 30, 2008, and December 31, 2008, respectively. Further, the warrants have “piggy-back” registration rights and provide for either a cash or cashless exercise. The cashless exercise provision provides for a discount in the amount of shares provided at exercise based on a formula that takes into account as one of its factors the average of the closing sale price on the common stock for five trading days immediately prior to but not including the date of exercise.

On June 29, 2007 a warrant tranche of 71,429 related to the above agreement was exercised. The cashless exercise was elected, and accordingly, 56,894 shares of common stock were issued. On December 28, 2007, an additional warrant tranche of 71,429 related to the above agreement was exercised. The cashless exercise was elected, and accordingly, 27,181 shares of common stock were issued. The Company recognized compensation expense for the stock warrants ratably over the term of the consulting agreement, January 1, 2005 to December 31, 2006, based on the fair value of the stock warrants using the Black-Scholes model. As a result, issuance of the stock in June and December 2007 were equity only transactions. On June 30, 2008, a warrant tranche of 71,429 expired without being exercised.

13.	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. No Options, Stock Purchase Rights or Stock Appreciation Rights were granted under the Plan for the nine months ended September 30, 2008.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.	INCOME TAXES

The components of the provision for income tax (benefit) expense are as follows:

	Three months ended September 30, 2008			Nine months ended September 30, 2008
Current taxes:
Federal	$	(30,381	)	$	102,925
State		(1,350	)		25,660
Current taxes		(31,731	)		128,585
Change in deferred taxes		2,824			55,200
Change in valuation allowance		(988	)		(5,830	)
Provision for income tax (benefit) expense	$	(29,895	)	$	177,955

The current tax federal statutory and state tax rate for the three and nine months ended September 30, 2008 was 34% and 15%, respectively. The effective tax rate used for calculation of the deferred taxes as of September 30, 2008 was 34%. The adjustment to the provision resulting in a tax benefit in the third quarter of 2008 is attributable to the net loss for the period.

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at September 30, 2008:

Deferred tax assets:
Stock warrants	$	16,885
Allowance for doubtful accounts		5,440
Net loss carry forward		41,179
On-line training certificate reserve		496
Total deferred tax assets		64,000
Valuation allowance		(22,400	)

Deferred tax assets net of valuation allowance		41,600

Less: deferred tax asset - non-current		--

Deferred tax asset - current	$	41,600

Deferred tax liability:
Depreciation and amortization timing differences	$	6,279

Less: deferred liability - non-current		6,279

Deferred tax liability - current	$	--

As of September 30, 2008, the Company has available a net operating loss carry forward that will expire in 2026. The Company has established a valuation allowance for 35% of the tax benefit due to the uncertainty regarding realization.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14.	INCOME TAXES (continued)

The components of the provision for income tax benefit for the year ended December 31, 2007 are as follows:

Current Taxes:
Federal	$	(12,196	)
State		(5,626	)
Current Taxes		(17,822	)
Change in deferred taxes		(39,030	)
Change in valuation allowance		(771	)
Provision for income tax benefit	$	(57,623	)

The current tax federal statutory and state tax rate for the year ended December 31, 2007 was 0% and 0%, respectively. The effective tax rate used for calculation of the deferred taxes as of December 31, 2007 was 34%.

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at December 31, 2007:

Deferred tax assets:
Stock warrants	$	33,769
Allowance for doubtful accounts		3,060
Depreciation and amortization timing differences		22,174
Net loss carry forward		52,936
On-line training certificate reserve		981
Total deferred tax assets		112,920
Valuation allowance		(28,229	)

Deferred tax assets net of valuation allowance		84,691
Less: deferred tax asset - non-current		(52,363	)

Deferred tax asset - current	$	32,328

As of December 31, 2007, the Company has available a net operating loss carry forward that will expire in 2026. The Company established a valuation allowance for 25% of the tax benefit due to the uncertainty regarding realization.

15.	PRODUCT RECALL

In September 2008, the Company issued a voluntary product recall as a result of an internal engineering audit. Some inconsistencies were discovered with some components used in the direct drive low-pressure (hookah) compressors. These inconsistencies may result in premature wear of the compressor components and possible cessation of air flow and affected certain units manufactured since July 2007. Further details regarding the product recall are available on the Company’s website, browniedive.com, Technical Bulletin 080909. As a result, shipments were temporarily suspended during part of the third quarter of 2008 to address the recall. Recall costs were included as part of fixed labor costs since the majority of products that were the subject of the recall passed inspection without any replacement of components necessary.

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, 2008, As Compared To the Three Months Ended September 30, 2007

Net revenues. For the three months ended September 30, 2008, we had net revenues of $762,945 as compared to net revenues of $850,471 for the three months ended September 30, 2007, a decrease of $87,526, or 10.29%. The decrease is primarily attributable to a decrease in low pressure hookah system sales resulting from an engineering product recall in September 2008. This recall resulted in a significant decline in hookah sales during September 2008 while the problem was being resolved. During this time period, recalled units were given priority status, inspected and corrections made if necessary, resulting in the delay of new product shipments during September 2008. Subsequent to the recall, new products manufactured contained an engineering modification that corrected the problem going forward. Shipments of previously affected products resumed as normal toward the later part of September 2008. For more information on the product recall refer to the Notes to the Financial Statements and Technical Bulletin 080909 posted on the Company’s website, www.browniedive.com

Cost of net revenues. For the three months ended September 30, 2008, we had cost of net revenues of $559,335 as compared to cost of net revenues of $563,934 for the three months ended September 30, 2007, a decrease of $4,599, or .82%. Cost of net revenues was fairly consistent between the two periods despite the fact that material cost usually fluctuates in direct relationship to net revenues. However, this did not occur in the third quarter of 2008 with material cost as percentage of net revenues increasing approximately 2.5% over the same period in 2007. This increase was primarily due to material cost increases without corresponding sales price increases during the period. The Company plans to reevaluate sales prices on products after year end and adjust them as warranted. Recall costs were included as part of fixed labor costs since the majority of products that were the subject of the recall passed inspection without any replacement of components necessary.

Gross profit. For the three months ended September 30, 2008, we had a gross profit of $203,610 as compared to gross profit of $286,537 for the three months ended September 30, 2007, a decrease of $82,927, or 28.94%. This decrease is primarily attributable to the decrease in net revenues for the three months ended September 30, 2008 as compared to the same period in 2007.

Operating expenses. For the three months ended September 30, 2008, we had total operating expenses of $278,672 as compared to total operating expenses of $256,916 for the three months ended September 30, 2007, an increase of $21,756, or 8.47%. The increase is not primarily attributable to any significant items but rather is representative of an across the board increase in most all operating expenses, some to support sales (including but not limited to telephone, travel, advertising, and credit card charges), and others as a function of the increase in the overall cost of supplies and services (including by not limited to office supplies, auto expense, utilities, repairs and maintenance , and insurance expense).

Other expense, net. For the three months ended September 30, 2008, we had other expense, net of $18,188 as compared to other expense, net of $38,259 for the three months ended September 30, 2007, a decrease of $20,071, or 52.46%. This account is comprised of other (income) expense and interest expense. Interest expense for the period decreased $15,489 primarily as a result of pay down and retirement of some related party debt at the beginning of August 2008. Other net expense (income) declined for the period by $4,582 primarily as a result of an insurance premium adjustment of approximately $6,000 assessed in the third quarter of 2007 without a comparable assessment for the same period in 2008.

Provision for income tax (benefit) expense. For the three months ended September 30, 2008, we had a provision for income tax benefit of $29,895, as compared to a provision of income tax expense of $39,874 for the three months ended September 30, 2007, an increase in provision for income tax benefit of $69,769, or 174.97%. This increase is primarily attributable to the increase in net loss before provision for income taxes for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007, as well as a deferred tax asset adjustment in the third quarter of 2007 without comparable adjustment during the same period in 2008.

Net (loss) income. For the three months ended September 30, 2008, we had net loss of $63,355 as compared to net loss of $48,512 for the three months ended September 30, 2007, an increase in net loss of $14,843, or 30.60%. The increase is attributable to a decrease in gross profit of $82,927, an increase in operating expenses of $21,756, a decrease in other expenses of $20,071, and an increase in the provision for income tax benefit of $69,769.

Results of Operations for the Nine Months Ended September 30, 2008, As Compared To the Nine Months Ended September 30, 2007

Net revenues. For the nine months ended September 30, 2008, we had net revenues of $3,686,819 as compared to net revenues of $2,653,037 for the nine months ended September 30, 2007, an increase of $1,033,782, or 38.97%. The increase was primarily attributable to an increase in low pressure hookah system sales and related products of approximately $200,000 and an increase in high pressure tankfill system sales of approximately $825,000. The increase in hookah system sales and related products of $200,000 was comprised primarily of increased sales of recreational and electric hookah systems, built in low pressure systems, and hose reels systems. The increase in tankfill system sales was primarily attributable to three large custom tankfill projects completed during the nine months ended September 30, 2008 that contributed approximately $970,000 to revenue for the period, whereas in the same period in 2007 custom tank fill projects contributed approximately $210,000 to revenue, a $760,000 increase in the current period. With regard to non-custom tankfill systems, there was an approximate increase of $65,000 for the nine months ended September 30, 2008 compared to the same period in 2007.

Cost of net revenues. For the nine months ended September 30, 2008, we had cost of net revenues of $2,323,124 as compared with cost of net revenues of $1,726,165 for the nine months ended September 30, 2007, an increase of $596,959, or 34.58%. The increase was primarily to support the increase in sales volume for the nine months ended September 30, 2008 as compared to same period in 2007. As a percentage of net revenues, cost of net revenues was down approximately 2%. This net decrease was primarily attributable to a decrease in costs attributable to the sales mix that included the large custom tankfill sales completed during the nine months ended September 30, 2008 without comparable sales contributing to the mix for the same period of 2007, and an increase in an overall material costs.

Gross profit. For the nine months ended September 30, 2008, we had gross profit of $1,363,695 as compared to gross profit of $926,872 for the nine months ended September 30, 2007, an increase of $436,823, or 47.13%. This increase is primarily attributable to the increase in net revenues coupled with the decrease in cost of net revenues (as a percentage of net revenues) for the nine months ended September 30, 2008 as compared to the same period in 2007.

Operating expenses. For the nine months ended September 30, 2008, we had total operating expenses of $840,861 as compared to total operating expenses of $763,377 for the nine months ended September 30, 2007, an increase of $77,524, or 10.16%. The increase is not primarily attributable to a few significant items, but rather is representative of an across the board increase in most all operating expenses, some to support the increase in sales (including but not limited to telephone, travel, advertising, and credit card charges), and others as a function of the increase in the overall cost of supplies and services (including but not limited to office supplies, auto expense, utilities, repairs and maintenance, and insurance expense).

Other expense, net. For the nine months ended September 30, 2008, we had other expense, net of $87,919 as compared to other expense, net of $33,412 for the nine months ended September 30, 2007, an increase of $54,507, or 163.14%. The increase is primarily attributable to recognition of approximately $55,000 worth of other income in the second quarter of 2007 for online training certificates expiring unused, and the training liability estimate being adjusted downward to reflect the accumulated historical redemption rate. There was no comparable recognition of other income for the nine months ended September 30, 2008.

Provision for income tax (benefit) expense. For the nine months ended September 30, 2008, we had provision for income tax expense of $177,955, as compared to provision for income tax expense of $9,936 for the nine months ended September 30, 2007, an increase of $168,019, or 1,691.01%. This increase is primarily attributable to the increase in net income before provision for income taxes for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Net (loss) income. For the nine months ended September 30, 2008, we had net income of $256,960 as compared to net income of $120,187 for the nine months ended September 30, 2007, an increase of $136,773, or 113.8%. The increase is attributable to the increase in gross profit of $436,823, offset by the increases in operating expenses of $77,524, other expenses of $54,507, and the provision for income tax expense of $168,019.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and other current assets of $1,109,889 and current liabilities of $859,152, or a current ratio of 1.29%.

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 2008. The number and level of employees at September 30, 2008 is deemed adequate to maintain the Company's operations for at least the next 12 months.

Certain Business Risks

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

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

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

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

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

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

We Depend On the Services of Our Chief Executive Officer

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

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 inventory of products or their substitutes to satisfy demand. However, unanticipated failure of any manufacturer or supplier to meet our requirements or our inability to build or obtain substitutes could force us to curtail or cease operations.

Dependence on Consumer Spending

The success of the products in the Brownie’s Third Lung and Brownie’s Tank Fill lines depend largely upon a number of factors related to consumer spending, including future economic conditions affecting disposable consumer income such as employment, business conditions, tax rates, and interest rates. In addition our opportunities are highly dependent upon the level of consumer spending on recreational marine accessories and dive gear, discretionary spending items. There can be no assurance that consumer spending in general will not decline, thereby adversely affecting our growth, net sales and profitability or that our business will not be adversely affected by current downturns in the economy, boating industry, or dive industry. If consumer spending on recreational marine accessories and dive gear declines, we could be forced to curtail or cease operations.

Government Regulations May Impact Us

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

Bad Weather Conditions Could Have an Adverse Effect on Operating Results

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

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

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

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

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

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 March 5, 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, 2008 under the facility was $70,000. We do not believe there would be a large enough increase or decrease in the lender’s base through March 5, 2009 that would have a material effect on our future results of operations.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not Applicable to Smaller Reporting Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

As disclosed on Form 8K filed on August 1, 2008, effective July 31, 2008, $100,000 shares of restricted common stock were issued to Robert Carmichael, the Chief Executive Officer of the Company, in conjunction with the Asset Purchase Agreement between him and Trebor Industries, Inc. The shares were issued under the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

EXHIBIT NO.	DESCRIPTION	LOCATION

2.2	Merger Agreement, dated June 18, 2002 by and among United Companies Corporation, Merger Co., Inc. and Avid Sportswear & Golf Corp.	Incorporated by reference to Exhibit 2.02 Amendment No. 1 to Form S-4 filed June 24, 2002

2.3	Articles of Merger of Avid Sportswear & Golf Corp. with and into Merger Co., Inc.	Incorporated by reference to Exhibit 2.03 Amendment No. 1 to Form S-4 filed June 24, 2002

3.1	Articles of Incorporation	Incorporated by reference to Exhibit 3.05 Amendment No. 1 to Form S-4 filed June 24, 2002

3.2	Articles of Amendment	Incorporated by reference to the appendix to the Company's Definitive Information Statement on Schedule 14C filed July 31, 2007

3.2	Bylaws	Incorporated by reference to Exhibit 3.04 to the Registration Statement on Form 10-SB

5.1	2007 Stock Option Plan	Incorporated by reference to the appendix to the Company's Definitive Information Statement on Schedule 14C filed July 31, 2007

10.1	Share Exchange Agreement, dated March 23, 2004 by and among the Company, Trebor Industries, Inc. and Robert Carmichael	Incorporated by reference to Exhibit 16.1 to Current Report on Form 8-K filed April 9, 2004

10.2	Two Year Consulting Agreement with Jeff Morris effective January 1, 2005 for Manage-ment and Strategic Services and Warrants issued in conjunction with the same.	Incorporated by reference to Exhibit 10.14 to Current Report on Form 8-K filed on March 11, 2005.

10.3	Non-Exclusive License Agreement - BC Keel Trademark	Incorporated by reference to Exhibit 10.18 to United Companies Corporation's 10QSB for the quarter ended September 30, 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 September 30, 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 September 30, 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 September 30, 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 September 30, 2005 filed August 15, 2005.

EXHIBIT NO.		DESCRIPTION		LOCATION

10.8	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 September 30, 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 September 30, 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 September 30, 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	Redemption Agreement - Cornell Capital Partner’s, LP Secured Convertible Debentures	Incorporated by reference to Form 8K filed on June 2, 2006

10.13	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.

10.14	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.

10.15	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.

10.16	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.

10.17	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.

10.18	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.

10.19	Purchase and Sale Agreement with GKR Associates, LLC	Incorporated by reference to Form 8K filed on March 23, 2007.

10.20	Asset Purchase Agreement between Trebor Industries, Inc. and Robert Carmichael	Incorporated by reference to Form 8K filed on August 1, 2008.

31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a)	Provided herewith

EXHIBIT NO.		DESCRIPTION		LOCATION

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

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, 2008	BROWNIE’S MARINE GROUP, INC.

	By:	/s/ Robert M. Carmichael
		Robert M. Carmichael
		President, Chief Executive Officer,
		Chief Financial Officer/
		Principal Accounting Officer