Brownie's Marine Group, Inc - Quarter Report: 2010 March (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 March 31, 2010

o Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

Commission File No. 000-28321

Brownie’s Marine Group, Inc.

(Name of Small Business Issuer in Its Charter)

Nevada	90-0226181
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

940 N.W. 1stStreet, Fort Lauderdale, Florida	33311
(Address of Principal Executive Offices)	(Zip Code)

(954) 462-5570
(Issuer’s Telephone Number, Including Area Code) (Former Name, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Yes o No o

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

Large accelerated filer o		Accelerated filer 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 1,837,678 shares of common stock outstanding as of April 30, 2010.

PART I

Item 1. Financial Statements

Financial Information

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,
	2010			December 31,
	(Unaudited)			2009
ASSETS

Current assets
Cash	$	58,322		$	2,713
Accounts receivable, net of $30,000 and $31,000 allowance
for doubtful accounts, respectively		13,770			9,704
Accounts receivable - related parties		46,478			14,419
Inventory		549,642			488,694
Income tax refunds receivable		112,445			121,802
Prepaid expenses and other current assets		37,659			67,078
Deferred tax asset, net - current		171			219
Total current assets		818,487			704,629

Property, plant and equipment, net		1,159,003			1,165,940

Deferred tax asset, net - non-current		111,076			42,685
Other assets		2,895			6,968

Total assets	$	2,091,461		$	1,920,222

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable and accrued liabilities	$	524,161		$	391,767
Customer deposits		84,620			11,365
Royalties payable - related parties		60,450			49,611
Other liabilities		102,286			2,921
Other liabilities and accrued interest - related parties		23,128			18,570
Notes payable - current portion		248,077			247,424
Notes payable - related parties - current portion		155,453			137,408
Total current liabilities		1,198,175			859,066

Long-term liabilities
Notes payable - long-term portion		822,378			834,966
Notes payable - related parties - long-term portion		196,167			219,319

Total liabilities		2,216,720			1,913,351

Commitments and contingencies

Stockholders' deficit
Common stock; $0.001 par value; 250,000,000 shares authorized;
1,837,678 and 1,785,538 shares issued and outstanding, respectively		1,837			1,785
Common stock payable; $0.001 par value;
550,000 and 502,140 shares, respectively		550			502
Prepaid equity based compensation		(120,768	)		(43,542	)
Additional paid-in capital		1,463,483			1,358,333
Accumulated deficit		(1,470,361	)		(1,310,207	)
Total stockholders' deficit		(125,259	)		6,871

Total liabilities and stockholders' deficit	$	2,091,461		$	1,920,222

See Accompanying Notes to Consolidated Financial Statements

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2010			2009

Net revenues
Net revenues	$	318,916		$	399,308
Net revenues - related parties		145,267			111,996
Total net revenues		464,183			511,304

Cost of net revenues
Cost of net revenues		378,887			402,646
Royalties expense - related parties		12,840			20,263
Total cost of net revenues		391,727			422,909

Gross profit		72,456			88,395

Operating expenses
Selling, general and administrative		258,163			227,600
Research and development costs		15,560			10,079
Total operating expenses		273,723			237,679

Loss from operations		(201,267	)		(149,284	)

Other (income) expense, net
Other expense, net		1,133			60,781
Interest expense		20,342			19,955
Interest expense - related parties		5,755			7,102
Total other expense, net		27,230			87,838

Net loss before provision for income taxes		(228,497	)		(237,122	)

Provision for income tax benefit		(68,343	)		(67,528	)

Net loss	$	(160,154	)	$	(169,594	)

Basic loss per common share	$	(0.09	)	$	(0.09	)
Diluted loss per common share	$	(0.09	)	$	(0.09	)

Basic weighted average common
shares outstanding		1,803,497			1,785,538
Diluted weighted average common
shares outstanding		1,803,497			1,785,538

See Accompanying Notes to Consolidated Financial Statements

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

											Prepaid			Additional					Total
	Common stock				Common stock payable						Equity based			paid-in		Accumulated			stockholders'
	Shares		Amount		Shares			Amount			compensation			capital		deficit			equity (deficit)

Balance, December 31, 2009		1,785,538	$	1,785		502,140		$	502		$	(43,542	)	$	1,358,333	$	(1,310,207	)	$	6,871

Issuance of stock		52,140		52		(52,140	)		(52	)		--			--		--			--

Prepaid equity based compensation
for consulting services		--		--		100,000			100			(99,000	)		98,900		--			--

Legal expense recognized for stock
warrants		--		--		--			--			--			6,250		--			6,250

Current period amortization of
prepaid equity based compensation		--		--		--			--			21,774					--			21,774

Net loss		--		--		--			--			--			--		(160,154	)		(160,154	)

Balance, March 31, 2010 (Unaudited)		1,837,678	$	1,837		550,000		$	550		$	(120,768	)	$	1,463,483	$	(1,470,361	)	$	(125,259	)

See Accompanying Notes to Consolidated Financial Statements

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2010			2009

Cash flows from operating activities:
Net loss	$	(160,154	)	$	(169,594	)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation		8,567			9,034
Amortization		--			180
Change in deferred tax asset, net		(68,343	)		(65,117	)
Change in deferred tax liability, net		--			(2,411	)
Stock based compensation		6,250			63,000
Amortization of prepaid equity based compensation expense		21,774			--
Changes in operating assets and liabilities:
Change in accounts receivable, net		(4,066	)		6,733
Change in accounts receivable - related parties		(32,059	)		15,565
Change in inventory		(60,948	)		89,467
Change in prepaid expenses and other current assets		29,419			(1,419	)
Change in costs and estimated earnings in excess of billings
on uncompleted contract		--			287,861
Change in other assets		4,073			--
Change in accounts payable and accrued liabilities		132,394			33,596
Change in customer deposits		73,255			(154,354	)
Change in income tax refunds receivable		9,357			--
Change in income taxes payable		--			(20,000	)
Change in other liabilities		(635	)		86
Change in other liabilities and accrued interest - related parties		4,558			(3,187	)
Change in royalties payable - related parties		10,839			(11,189	)
Net cash (used in) provided by operating activities		(25,719	)		78,251

Cash flows from investing activities:
Purchase of fixed assets		(1,630	)		(3,600	)
Net cash used in investing activities		(1,630	)		(3,600	)

Cash flows from financing activities:
Proceeds from borrowing on loan payable		100,000			--
Principal payments on notes payable		(11,935	)		(30,978	)
Principal payments on notes payable - related parties		(5,107	)		(19,188	)
Net cash provided by (used in) financing activities		82,958			(50,166	)

Net change in cash		55,609			24,485

Cash, beginning of period		2,713			3,532

Cash, end of period	$	58,322		$	28,017

Supplemental disclosures of cash flow information:
Cash paid for interest	$	20,510		$	26,930

Cash paid for income taxes	$	--		$	20,000

Supplemental disclosures of non-cash investing activities
and future operating activities:
Amortization of prepaid equity based compensation	$	21,774		$	--

Equity based compensation for warrants granted
effective December 31, 2009	$	6,250		$	--

See Accompanying Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business –Brownie’s Marine Group, Inc., (hereinafter referred to as the “Company” or “BWMG”) designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and Nitrox Generation Systems, and scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc. The Company sells its products both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Fort Lauderdale, Florida. The Company does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc. The Company’s common stock is quoted on the OTCBB under the symbol “BWMG”.

Definition of fiscal year – The Company’s fiscal year end is December 31.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications – Certain reclassifications have been made to the 2009 financial statement amounts to conform to the 2010 financial statement presentation.

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

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

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

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

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

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Advertising and marketing costs – The Company expenses the costs of producing advertisements and marketing material at the time production occurs, and expenses the costs of communicating advertisements and participating in trade shows in the period in which occur. Advertising and trade show expense incurred for the three months ended March 31, 2010 and 2009, was $6,041 and $1,289, 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.

Income taxes – The Company accounts for its income taxes under the assets and liabilities method, which requires recognition of deferred tax assets and liabilities for future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, they would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Comprehensive income – The Company has no components of other comprehensive income. Accordingly, net income equals comprehensive income for all periods.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 months ended March 31, 2010, the Company amortized prepaid stock based compensation associated with stock options granted October 1 and December 1, 2009. See Note 10. EQUITY INCENTIVE PLAN for further discussion. For the three months ended March 31, 2010, the Company recorded stock based compensation associated with warrants granted on December 31, 2009. See Note 12. STOCK WARRANTS ISSUED FOR LEGAL SERVICES for further discussion. The Company granted stock options for the three months ended March 31, 2009 associated with the purchase of intellectual property for the Company’s Chief Executive Officer. See Note 6. RELATED PARTY TRANSACTIONS, Patent Purchase Agreements, for further discussion.

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 months ended March 31, 2010 and 2009 since their effect was antidilutive.

New accounting pronouncements – In June 2009, FASB established the Accounting Standards Codification (“ASC”) as the single source of authoritative US GAAP to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. The ASC is a new structure which took existing accounting pronouncements and organized them by accounting topic. The ASC did not change current US GAAP, but was intended to simplify user access to all authoritative US GAAP by providing all the relevant literature related to a particular topic in one place. All previously existing accounting standards were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued since June 30, 2009 are communicated by the FASB through Accounting Standards Updates (“ASU”). The ASC was effective during the period ended September 30, 2009. Adoption of the ASU did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

New accounting pronouncements (continued) – In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements. Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated. This ASU is effective upon the issuance of this ASU. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In March 2010, the FASB issued ASU No. 2010-11 which clarifies the transfer of credit risk that is only in the form of subordination of one financial instrument to another is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting. This ASU will be effective for the first fiscal quarter beginning after June 15, 2010, with early adoption permitted. The Company does not expect adoption of this ASU to have a material financial impact.

In April 2010, the FASB issued ASU No. 2010-13 which will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted. The Company does not expect adoption of this ASU to have a material financial impact.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

2. INVENTORY

Inventory consists of the following as of:

	March 31, 2010		December 31, 2009

Raw materials	$	354,982	$	303,230
Work in process		--		--
Finished goods		194,660		185,464
	$	549,642	$	488,694

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets totaling $37,659 at March 31, 2010, consists of $13,660 of prepaid inventory, $22,295 of prepaid insurance, $825 of prepaid software maintenance, $785 sales tax refund due, and $94 of other prepaid expenses and current assets.

Prepaid expenses and other current assets totaling $67,078 at December 31, 2009, consists of $48,645 of prepayments for inventory, $14,116 of prepaid insurance, $1,651 of prepaid software maintenance, $2,248 sales tax refund due, and $418 other prepaid and expenses and current assets.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. PROPERTY, PLANT AND EQUIPMENT

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

	March 31, 2010		December 31, 2009

Building, leasehold improvements, and land	$	1,224,963	$	1,224,963
Furniture, fixtures, vehicles and equipment		117,240		115,610
		1,342,203		1,340,573
Less: accumulated depreciation and amortization		183,200		174,633
	$	1,159,003	$	1,165,940

5.	CUSTOMER CREDIT CONCENTRATIONS

The Company sells to three entities owned by the brother of Robert Carmichael, the Company’s Chief Executive officer as further discussed in Note 6 – RELATED PARTIES TRANSACTIONS. Combined sales to these entities for the three months ended March 31, 2010 and 2009 represented 31.18% and 18.01%, respectively, of total net revenues. For the three months ended March 31, 2010, sales to one unrelated customer represented 12.83% of total net revenues. For the three months ended March 31, 2009, sales to two unrelated customer represented 17.07% of total net revenues. Sales to no other customers represented greater than 10% of net revenues for the three months ended March 31, 2010 and 2009.

6.	RELATED PARTIES TRANSACTIONS

Notes payable – related parties

Notes payable – related parties consists of the following as of March 31, 2010:

Promissory note payable to the Chief Executive Officer of the Company, unsecured, bearing interest at 7.5% per annum, due in monthly principal and interest payments of $7,050, maturing on August 1, 2013.	$	307,412

Promissory note payable due an entity in which the Company’s Chief Executive Officer has a financial interest, GKR Associates, LLC., secured by third mortgage on real property, having a carrying value of $1,141,567 at March 31, 2010, bearing 6.99% interest per annum, due in monthly principal and interest payments of $1,980, maturing on February 22, 2012.		44,208

		351,620

Less amounts due within one year		155,453

Long-term portion of notes payable – related parties	$	196,167

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.	RELATED PARTY TRANSACTIONS (continued)

Notes payable – related parties (continued)

As of March 31, 2010, principal payments on the notes payable – related parties are as follows:

2010	$	132,301
2011		95,218
2012		82,152
2013		41,949
2014		--
Thereafter		--

	$	351,620

As of March 31, 2010, the Company was approximately eleven months in arrears on payments due under the Note payable to the Chief Executive Officer. No default notice has been received and the Company plans to make payments as able. See Other liabilities and accrued interest– related parties within this Note for the related accrued interest also in arrears.

On February 12, 2010, as part of the requirements for conversion of its non-related party, revolving line of credit to a term loan, the Company converted GKR Associates, LLC’s second mortgage to a third mortgage. See Note 9. NOTES PAYABLE for further discussion.

Notes payable – related parties consists of the following as of December 31, 2009:

Promissory note payable to the Chief Executive Officer of the Company, unsecured, bearing interest at 7.5% per annum, due in monthly principal and interest payments of $7,050, maturing on August 1, 2013.	$	307,412

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, having a carrying value of $1,148,425 at December 31, 2009, bearing 6.99% interest per annum, due in monthly principal and interest payments of $1,980, maturing on February 22, 2012.		49,315

		356,727

Less amounts due within one year		137,408

Long-term portion of notes payable – related parties	$	219,319

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.	RELATED PARTY TRANSACTIONS (continued)

Net revenues and accounts receivable – related parties – The Company sells products to three entities, Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers. Combined net revenues from these entities for three months ended March 31, 2010 and 2009, was $145,267 and $111,996, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at March 31, 2010, was $33,450, $7,250, and $5,778. respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2009, was $10,459, $3,078, and $882 respectively.

Royalties expense – related parties – The Company has Non-Exclusive License Agreements with the Carleigh Rae Corporation (herein referred to as “CRC”), an entity that the Company’s Chief Executive Officer has an ownership interest, to license product patents it owns. Based on the license agreements with CRC, the Company pays royalties ranging from $1.00 to $50.00 per licensed products sold, with rates increasing 5% annually. Also with CRC, the Company has a Non-Exclusive License Agreement to license a trademark of products owned by CRC. Based on the agreement, the Company will pay the entity $0.25 per licensed product sold, with rates increasing $0.05 annually.

The Company has Non-Exclusive License Agreements with 940 Associates, Inc. (herein referred to as “940AI”), an entity owned by the Company’s Chief Executive Officer, to license product patents it owns. Under the terms of the license agreements effective January 1, 2005, the Company pays 940AI $2.00 per licensed product sold, rates increasing 5% annually. Also with 940AI, the Company has an Exclusive License Agreement to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. Based on this license agreement, the Company pays 940AI 2.5% of gross revenues per quarter.

Total royalty expense for the above agreements for the three months ended March 31, 2010 and 2009, was $12,840 and $20,263, respectively. As of December 31, 2009, the Company was approximately fourteen months in arrears on royalty payments due. No default notice has been received and the Company plans to make payments as able.

Patent Purchase Agreements – Effective December 31, 2009, the Company entered into a Patent Purchase Agreement with Robert M. Carmichael, the Chief Executive Officer of the Company. In exchange for the Intellectual Property (“IP), the Company granted Mr. Carmichael 400,000 shares of common stock. For financial reporting purposes the Company 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. Accordingly, the Company realized a $100,000 loss on the transaction, the fair market value of the stock on the December 31, 2009 grant date less the $0 historical cost. By acquiring the IP the Company (i) has an opportunity to further develop the IP, (ii) has the ability to incorporate the IP into current and future products, and (iii) has the opportunity to license the IP to third parties.

Effective March 3, 2009, the Company entered into a Patent Purchase Agreement with Robert M. Carmichael, the Chief Executive Officer of the Company. The Company purchased several patents it had previously been paying royalties on and several related unissued patents. In exchange for the Intellectual Property (“IP), the Company issued Mr. Carmichael 315,000 stock options at a $1.00 exercise price. For financial reporting purposes the Company has valued the group of patents at $0 which is the lower of Mr. Carmichael’s historical cost as compared to the fair market value of the stock options on the date of the transaction as determined using the Black-Scholes Valuation Model. Accordingly, the Company realized a $63,000 loss on the transaction, the fair market value of the options on the March 3, 2009 grant date using the Black-Scholes valuation model less the $0 historical cost. By acquiring the IP the Company (i) eliminated an estimated $41,000 net discounted cash flows it would otherwise have had to pay related to the IP through 2018, (ii) has an opportunity to further develop the IP, (iii) has the ability to incorporate the IP into current and future products, and (iv) has the opportunity to license the IP to third parties.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.	RELATED PARTY TRANSACTIONS (continued)

Other liabilities and accrued interest– related parties

Other liabilities and accrued interest– related parties consists of the following at:

	March 31, 2010		December 31, 2009

Accrued interest on Notes payable – related parties	$	23,128	$	18,205

Accounts payable – 940 Associates, Inc.		--		365

Other liabilities – related parties	$	23,128	$	18,570

As of March 31, 2010, the Company was approximately eleven months in arrears on accrued interest due under the Note payable to the Chief Executive Officer. No default notice has been received and the Company plans to make payments as able.

7.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities of $524,161 at March 31, 2010 consists of $350,635 accounts payable trade, $60,574 balance of legal expenses that were a Company expense prior to the reverse merger with Trebor Industries, Inc., $80,746 of accrued payroll and related fringe benefits, $30,000 of accrued real estate taxes, and $2,206 of accrued interest.

Accounts payable and accrued liabilities of $391,767 at December 31, 2009 consists of $232,065 accounts payable trade, $60,574 balance of legal expenses that was a Company expense prior to the reverse merger with Trebor Industries, Inc., $69,981 of accrued payroll and related fringe benefits, $24,000 accrued real estate taxes, $1,542 of accrued interest, and $3,605 of other accrued liabilities.

8. OTHER LIABILITIES

Other liabilities of $102,286 at March 31, 2010 consists of a $100,000 loan from a consultant of the Company and $2,286 of on-line training liability. The Company is in the process of finalizing an agreement with the consultant to convert the $100,000 debt into restricted common stock during the second quarter of 2010. In addition, a consulting agreement was entered into during the first quarter of 2010 with this same consultant. See Note 13. STOCK ISSUED FOR CONSULTING SERVICES for further discussion of this matter.

Other liabilities of $2,921 at December 31, 2009, consists of on-line training liability.

Effective July 1, 2005, the Company began including on-line training certificates with all hookah units sold. The training certificates entitle the holder to an on-line interactive course at no additional charge to the holder. The number of on-line training certificates issued per unit is the same as the number of divers the unit as sold is designed to accommodate (i.e., a three diver unit configuration comes with three on-line training certificates). The certificates have an eighteen-month redemption life after which time they expire. The eighteen-month life of the certificates begins at the time the customer purchases the unit. The Company owes the on-line training vendor the agreed upon negotiated rate for all on-line certificates redeemed payable at the time of redemption. For certificates that expire without redemption, no amount is due the on-line training vendor.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. OTHER LIABILITIES (continued)

Until the Company accumulated historical data related to the certificate redemption ratio, it assumed that 100% of certificates issued with unit sales would be redeemed. Accordingly, at the time a unit was sold, the related on-line training liability was recorded. The same liability was reduced as certificates were redeemed and the related payments were made to the on-line training vendor. In July 2007, the Company had accumulated 24 months of historical data regarding redemption rates so the liability estimate was adjusted accordingly to reflect the actual redemption history. The Company continues to monitor and maintain a reserve for certificate redemption that approximates the historical redemption rate that is 10%.

9.	NOTES PAYABLE

Notes payable consists of the following as of March 31, 2010:

Term loan secured by a second mortgage on the real property of the Company with a carrying value of $1,141,567 at March 31, 2010, interest rate at 6.50% per annum, due in monthly principal and interest payments of $1,200 with a balloon payment due February 12, 2011.	$	199,810

Promissory note payable secured by a first mortgage on the real property of the Company having a carrying value of $1,141,567 at March 31, 2010, interest at 6.99% per annum, due in monthly principal and interest payments of $9,038, maturing on January 22, 2022.		870,645

		1,070,455

Less amounts due within one year		248,077

Long-term portion of notes payable	$	822,378

As of March 31, 2010, principal payments on the notes payable are as follows:

2010	$	36,577
2011		249,818
2012		54,475
2013		58,623
2014		62,915
Thereafter		608,047

	$	1,070,455

The Company converted its revolving line of credit that matured on December 2, 2009 into the above Term loan that matures on February 12, 2011. As part of the conversion, the Company granted the bank a second mortgage on the underlying security. Accordingly, the Company converted GKR Associates, LLC’s, second mortgage to a third mortgage.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9.	NOTES PAYABLE (continued)

Notes payable consists of the following as of December 31, 2009:

Revolving Line of Credit secured by a third mortgage on the real property of the Company with a carrying value of $1,148,425 at December 31, 2009, bearing interest at the lender’s base rate plus 1.00% per annum. Interest payments are due monthly on the outstanding principal balance and the Line of Credit matures on December 2, 2009.	$	199,990

Promissory note payable secured by a first mortgage on the real property of the Company having a carrying value of $1,148,425 at December 31, 2009, interest at 6.99% per annum, due in monthly principal and interest payments of $9,038, maturing on January 22, 2022.		882,400

		1,082,390

Less amounts due within one year		247,424

Long-term portion of notes payable	$	834,966

10.	EQUITY INCENTIVE PLAN

On August 22, 2007 the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees, Directors, and Consultants in the form of Incentive Stock Options or Nonstatutory Stock Options. Stock Purchase Rights, time vested and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The initial maximum number of shares that may be issued under the Plan shall be 400,000 shares, and no more than 100,000 Shares of Common Stock may be granted to any one Participant with respect to Options, Stock Purchase Rights and Stock Appreciation Rights during any one calendar year period. Common Stock to be issued under the Plan may be either authorized and unissued or shares held in treasury by the Company. The term of the Plan shall be ten years. The Board of Directors may amend, alter, suspend, or terminate the Plan at any time.

Effective December 31, 2008, the Company granted 210,000 fully vested incentive stock options to certain key employees, consultants and officers under the Plan. The fair value of the options was determined to be $31,650 using the using the Black-Scholes Model. Accordingly, the Company recognized $31,650 as operating expense for the options as of December 31, 2008.

Effective October 1, 2009 and December 1, 2009 the Company granted 75,000 and 115,000 incentive stock options, respectively, to certain consultants under the Plan. The fair value of the options was determined to be $47,500 using the Black-Scholes Model. The options that have a term of one year were issued in conjunction with consulting agreements for certain business and financial advisory services. The stock options are in lieu of payment for these services and as such the Company will recognize operating expense over the term of the agreements. Accordingly, the Company recognized $11,874 operating expense for these options in the three months ended March 31, 2010. Prepaid equity based compensation is reflected as a component of shareholders’ deficit for the related consulting services as yet to be provided at the end of each period.

As of December 31, 2009 all Stock Options authorized under Plan had been granted.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.	STOCK ISSUED FOR LEGAL SERVICES

Effective December 30, 2009, the Company granted 50,000 shares of restricted common stock to an outside attorney for certain legal and advisory services provided in 2009. The stock was valued at the fair market price on the effective date of grant, or $12,500. The underlying the stock as granted did not assign a stated value to the services rendered. Accordingly, the Company recognized $12,500 as legal expense associated with the stock issue. See Note 12. Stock Warrants for a discussion of the warrants granted.

Pursuant to an agreement dated February 9, 2010, the Company granted 52,140 shares of restricted common stock to an outside attorney for legal and advisory services valued at $13,035 provided through December 31, 2009. The effective date of the agreement is stated as December 31, 2009. Accordingly, the stock granted was valued at the fair market price on the date of the agreement, or $51,519. Accordingly, as of December 31, 2010, $13,035 was recognized as legal expense, and $38,584 was recognized as a loss on the transaction.

12.	STOCK WARRANTS ISSUED FOR LEGAL SERVICE

Effective December 30, 2009, the Company issued to an outside attorney warrants to purchase 100,000 shares of restricted common stock for certain legal and advisory services to be performed in 2010, as evidenced by a signed proposal. The warrants are exercisable at fair market value as of the date of grant, and will vest in two tranches of 50,000 each, on June 30, 2010 and December 31, 2010, respectively. In addition, the agreement provides for a cashless exercise of the tranches. The fair value of the warrants was determined to be $25,000 using the Black-Scholes Model. The stock warrants are in lieu of payment for these services and as such the Company will recognize operating expense over the term of the agreement. Accordingly, the Company recognized $6,250 as operating expense for the three months ended March 31, 2010.

13.	STOCK ISSUED FOR CONSULTING SERVICES

On March 9, 2010, the Company granted 100,000 shares of restricted common stock pursuant to a consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's web design, marketing and advertising and in such other matters and areas as may be mutually approved by Consultant and Company. The Company recorded the transaction at the fair market value of the stock on the effective date of the transaction, $.99 per share. The Company will amortize the operating expense over the term of the agreement. Accordingly, the Company recognized $9,900 as operating expense for the three months ended March 31, 2010. The agreement expires on December 31, 2010. This same consultant loaned the Company $100,000 during the first quarter of 2010. See Note 8. OTHER LIABILITIES for discussion of terms surrounding the $100,000 debt. Prepaid equity based compensation is reflected as a component of shareholders’ deficit for the related consulting services as yet to be provided at the end of the period.

14.	OFFERING AGREEMENT AND INDEPENDENT CONSULTANT AND ADVISORY AGREEMENT

Effective December 31, 2009, the Company signed an independent consulting and an advisory agreement with a registered broker dealer. Effective as of the end of the first quarter of 2010, these agreements were terminated without liability or associated cost to the Company.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.	INCOME TAXES

The components of the provision for income tax benefit are as follows for the three months ended:

	March 31, 2010			March 31, 2009
Current taxes
Federal	$	--		$	--
State		--			--
Current taxes		--			--
Change in deferred taxes		(119,826	)		(77,991	)
Change in valuation allowance		51,483			10,463

Provision for income tax (benefit) expense	$	(68,343	)	$	(67,528	)

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at March 31, 2010:

Deferred tax assets:
Stock options and warrants	$	39,689
Allowance for doubtful accounts		10,200
Depreciation and amortization timing differences		11,817
Net operating loss carryforward		172,775
On-line training certificate reserve		342
Total deferred tax assets		234,823
Valuation allowance		(123,576	)

Deferred tax assets net of valuation allowance		111,247

Less deferred tax assets – non-current, net of valuation allowance		111,076

Deferred tax assets – current, net of valuation allowance	$	171

The effective tax rate used for calculation of the deferred taxes as of March 31, 2010 was 34%. The Company has established a valuation against deferred tax assets of $119,259 due to the uncertainty regarding realization, comprised primarily of a 75% reserve against the deferred tax assets attributable to the stock options and warrants, a 100% reserve against the allowance for doubtful accounts, and a 50% reserve against the net operating carryforward.

At March 31, 2010, the Company had income tax refunds receivable of $112,445 comprised of tax refund due from the federal government. The federal income tax refund receivable is attributable to net operating loss carryback from 2009 to recuperate taxes paid in 2008.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.	INCOME TAXES (continued)

The significant differences between the statutory tax rate and the effective tax rates for the Company for the three months ended are as follows:

	March 31, 2010			March 31, 2009
Statutory tax rate benefit		--	%		--	%
Increase (decrease) in rates resulting from:
Net operating loss carryforward or carryback		(44	)%		(25	)%
Equity based compensation and loss		(3	)%		(9	)%
Book/tax depreciation and amortization differences		(6	)%		--
Change in valuation allowance		23	%		4	%
Other		--	%		2	%
Effective tax rate benefit		(30	)%		(28	)%

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at December 31, 2009:

Deferred tax assets:
Stock options	$	33,527
Allowance for doubtful accounts		10,540
Net operating loss carryforward		72,382
On-line training certificate reserve		438
Total deferred tax assets		116,887
Valuation allowance		(72,095	)

Deferred tax assets net of valuation allowance		44,792

Less deferred tax assets – non-current, net of valuation allowance		44,573

Deferred tax assets – current, net of valuation allowance	$	219

Deferred tax liability
Depreciation and amortization timing differences	$	1,888

Less deferred tax liability – non-current		1,888

Deferred tax liability – current	$	--

The effective tax rate used for calculation of the deferred taxes as of December 31, 2009 was 34%. The Company has established a valuation allowance against deferred tax assets of $72,095 due to the uncertainty regarding realization, comprised primarily of a 75% reserve against the deferred tax assets attributable to the stock options, a 100% reserve against the allowance for doubtful accounts, and a 50% reserve against part of the net operating loss that must be carried forward.

At December 31, 2009, the Company had income tax refunds receivable of $121,802 comprised of tax refunds due from the state and federal government of $9,357 and $112,445, respectively. The state income tax refund receivable is attributable to a 2008 state income tax overpayment carried forward into 2009 and not utilized as a result of the Company’s net operating loss in 2009. The federal income tax refund receivable it attributable to net operating loss carryback from 2009 to recuperate taxes paid in 2008.

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.	SUBSEQUENT EVENTS

In March 2010, the CRC, an entity defined in Note 6. RELATED PARTY TRANSACTIONS, assigned a patent to the Company for a nominal fee. The assignment anticipated purchase of additional patents form the CRC pursuant to an agreement to be finalized in the second quarter of 2010. The Company anticipates terms of the agreement will be similar to those of its most recent intellectual property purchases.

On April 19, 2010, the Company granted 100,000 shares of restricted common stock to an individual pursuant to a consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's web design, marketing and advertising and in such other matters and areas as may be mutually approved by Consultant and Company. The term of the agreement expires on December 31, 2010.

On April 19, 2010, the Company granted 100,000 shares of restricted common stock to another individual pursuant to consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's web design, marketing and advertising and in such other matters and areas as may be mutually approved by Consultant and Company. The term of the agreement expires on December 31, 2010.

On April 16, 2010, the Company granted 100,000 shares of restricted common stock to an individual pursuant to a consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's web design, marketing and advertising and in such other matters and areas as may be mutually approved by Consultant and Company. The term of the agreement expires on December 31, 2010.

On April 16, 2010, the Company granted 50,000 shares of restricted common stock to another individual pursuant to a consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's “new”: business development, overall sales programs, marketing and training and in such other matters and areas as may be mutually approved by Consultant and Company. The term of the agreement expires on April 15, 2011.

On April 26, 2010, the Company granted 25,000 shares of restricted common stock to a company for $200 pursuant to a consulting agreement for management consulting, business advisory, shareholder information and public relations advisory services. Such services include, but are not limited to, assisting the Company in its efforts to enhance its visibility in the financial community. The term of the agreement expires on July 25, 2010, and may be renewed upon mutual written consent of the Parties.

On April 28, 2010, Melissa Metz, individually and as personal representative of the Estate of Lester M. Metz, deceased (the “Plaintiff”), filed a wrongful death complaint against Trebor Industries, Inc. and the Company in United States District Court for the Eastern District of Pennsylvania. The lawsuit alleges that the deceased suffered fatal injuries while using a Brownie’s product while performing maintenance in a residential swimming pool. The lawsuit further alleges that the Brownie’s product caused the deceased to be electrocuted, thus contributing to the cause of his death. Plaintiff seeks recovery of unspecified amounts to exceed $75,000 from the Company and Trebor. We intend to vigorously defend the lawsuit, and although the ultimate outcome of the lawsuit cannot be determined at this time, based on our present knowledge of the facts, believe the lawsuit is without merit. The Company's legal costs of defending against the civil action will be funded by the Company's insurance policies. Management believes coverage is adequate to provide for such lawsuit. In the event we were found to be responsible or liable, such costs could be material to the Company.

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

Introductory Statements

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

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

Overview

Brownie’s Marine Group, Inc., a Nevada corporation (referred to herein as “BWMG”,”the Company” or “Brownie’s”), does business through its wholly owned subsidiary, Trebor Industries, Inc., d/b/a Brownie’s Third Lung, a Florida corporation. The Company designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and Nitrox Generation Systems, and scuba and water safety products. BWMG sells its products both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Fort Lauderdale, Florida. The Company’s common stock is quoted on the OTCBB under the symbol “BWMG”. The Company’s website is www.Browniesmarinegroup.com.

Mr. Carmichael has operated Trebor as its President since 1986. Since April 16, 2004, Mr. Carmichael has served as President, 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. He is the holder or co-holder of numerous patents that are used by Trebor and several other large original equipment manufacturers in the diving industry.

The Company’s diving and marine based products are generally marketed under the Brownie’s Third Lung, Brownie’s Tankfill, and Brownie’s Public Safety trade names.

Results of Operations for the Three Months Ended March 31, 2010, As Compared To the Three Months Ended March 31, 2009

Net revenues. For the three months ended March 31, 2010, we had net revenues of $464,183 as compared to net revenues of $511,304, for the three months ended March 31, 2009, a decrease of $47,121, or 9.22%. The net decrease is primarily attributable to a decrease in tankfill system sales of approximately $101,000, partially offset by an increase in hookah system and related sales of approximately $56,000. While the Company is encouraged by the increase in hookah systems sales over the same period in 2009, the Company believes the depressed state of the economy continues to negatively impact overall sales. The Company’s products are largely non-essential, disposable income type items, and therefore are more likely to be sacrificed by consumers in preference for essential goods during depressed economic conditions.

Cost of net revenues. For the three months ended March 31, 2010, we had cost of net revenues of $391,727 as compared with cost of net revenues of $422,909 for the three months ended March 31, 2009, a decrease of $31,182, or 7.37%. Cost of net revenues decreased primarily as a result of a decrease in net revenues for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009. As a percentage of net revenues, cost of net revenues remained fairly consistent for the first quarter of 2010, compared to the first quarter of 2009, 84.39% and 82.71%. respectively, or a change of 1.68%.

Gross profit. For the three months ended March 31, 2010, we had a gross profit of $72,456 as compared to gross profit of $88,395 for the three months ended March 31, 2009, a decrease of $15,939, or 18.03%. This decrease is primarily attributable to the decrease in net revenues for the three months ended March 31, 2010, as compared to the same period in 2009.

Operating expenses. For the three months ended March 31, 2010, we had total operating expenses of $273,723 as compared to total operating expenses of $237,679 for the three months ended March 31, 2009, an increase of $36,044, or 15.16%. The $36,044 increase is due to an increase in selling and administrative costs of $30,563, and an increase in research and development expenses of $5,481 for the three months ended March 31, 2010, as compared to the same period in 2009. The increase in research and development was primarily for allocation of salaries for additional time spent on research and development activities during the period. The net increase in sales and administrative costs for the quarter ended March 31, 2010, as compared to the same period in 2009, is a net of an increase in accounting expense of approximately $14,000, an increase in other professional fees of approximately $22,100, and numerous individually insignificant increases and decreases in other operating expenses. The increase in accounting expense is primarily a result of a restructure in the payment terms of the external auditor’s engagement. Previously, the Company paid an agreed upon monthly fee to the outside auditors for services, resulting in fees being amortized throughout the year in which the services were provided rather than for which period the services were for. Variance in amount under the engagement letter from year to year has not been significantly different making treatment in this manner acceptable under generally accepted accounting principles. However, in 2010, the Company will no longer pay an agreed upon monthly amount, but rather pay for services in the period occurred or shortly thereafter. As a result, in the first quarter of 2010, the Company expensed and paid for the 2009 audit and first quarter review resulting in the increase for the period. The increase in other professional fees expense is primarily due to non-cash expense associated with stock options and stock issued to consultants in the fourth quarter of 2009 and the first quarter of 2010 as discussed in the Company’s notes to the consolidated financial statements for the first quarter of 2010.

Other expense, net. For the three months ended March 31, 2010, we had other expense, net of $27,230 as compared to other expense, net of $87,838 for the three months ended March 31, 2009, a decrease of $60,608, or 69.00%. This account is comprised of other (income) expense, net (“other expense”), and interest expense. Interest expense for the period decreased $960 and other expense decreased $59,648. Other expense is comprised of transactions that are generally of a non recurring nature. The decrease in other expense was primarily a result of $63,000 loss on purchase of patents in the first quarter of 2009, for which there was no comparable transaction in the first quarter of 2010.

Provision for income tax benefit. For the three months ended March 31, 2010, we had a provision for income tax benefit of $68,343, as compared to $67,528 for the three months ended March 31, 2009, an increase in provision for income tax benefit of $815, or 1.21%.

Net loss. For the three months ended March 31, 2010, we had net loss of $160,154 as compared to net loss of $169,594 for the three months ended March 31, 2009, a decrease of $9,440, or 5.57%.

Liquidity and Capital Resources

As of March 31, 2010, the Company had cash and current assets of $818,487 and current liabilities of $1,198,175, or a current ratio of .68. As of December 31, 2009, the Company had cash and current assets of $704,629 and current liabilities of $859,066, or a current ratio of .82.

On February 10, 2010, the Company formalized an extension and modification of their revolving line of credit that matured on December 2, 2009. Under the terms of the modification, the balance due under the revolving line of credit plus accrued interest was termed out with monthly principal and interest payments of $1,200 bearing an interest rate of $6.5% per annum. The term of the loan is one year, maturing on February 12, 2011, with a balloon payment of $198,816. Related party debt has been subordinated to this loan.

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 2010. The number and level of employees at March 31, 2010 is deemed adequate to maintain the Company's operations for at least the next 12 months.

Certain Business Risks

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

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

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

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

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

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

We Depend On the Services of Our Chief Executive Officer

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

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

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

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

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

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

We May Be Unable To Manage Growth

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

Reliance on Vendors and Manufacturers

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

Dependence on Consumer Spending

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

Government Regulations May Impact Us

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

Bad Weather Conditions Could Have an Adverse Effect on Operating Results

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

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk generally represents the risk of loss that may be expected to result from the potential change in value of a financial instrument as a result of fluctuations in credit ratings of the issuer, equity prices, interest rates or foreign currency exchange rates. We do not use derivative financial instruments for any purpose.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

On April 28, 2010, Melissa Metz, individually and as personal representative of the Estate of Lester M. Metz, deceased (the “Plaintiff”), filed a wrongful death complaint against Trebor Industries, Inc. and the Company in United States District Court for the Eastern District of Pennsylvania. The lawsuit alleges that the deceased suffered fatal injuries while using a Brownie’s product while performing maintenance in a residential swimming pool. The lawsuit further alleges that the Brownie’s product caused the deceased to be electrocuted, thus contributing to the cause of his death. Plaintiff seeks recovery of unspecified amounts to exceed $75,000 from the Company and Trebor. We intend to vigorously defend the lawsuit, and although the ultimate outcome of the lawsuit cannot be determined at this time, based on our present knowledge of the facts, believe the lawsuit is completely without merit. The Company's legal costs of defending against the civil action will be funded by the Company's insurance policies. Management believes coverage is adequate to provide for such lawsuit. In the event we were found to be responsible or liable, such costs could be material to the Company.

Item 1a. Risk Factors

Not Applicable to Smaller Reporting Company.

Item 2. Unregistered sales of equity securities and Use of Proceeds

During the quarter ended March 31, 2010 and in April 2010, the Company sold securities without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(2) as described below. The securities were issued with a legend restricting their transferability absent registration of applicable exemption.

On April 16, 2010, the Company granted 50,000 shares of restricted common stock to another individual pursuant to a consulting agreement for assistance in the planning, design, direction, supervision and implementation of Company's new business development strategy, overall sales programs, marketing and training and in such other matters and areas as may be mutually approved by Consultant and Company. The term of the agreement expires on April 15, 2011.

On April 26, 2010, the Company granted 25,000 shares of restricted common stock to a consulting company for $200 pursuant to a consulting agreement for management consulting, business advisory, shareholder information and public relations advisory services. Such services include, but are not limited to, assisting the Company in its efforts to enhance its visibility in the financial community. The term of the agreement expires on July 25, 2010, and may be renewed upon mutual written consent of the Parties.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

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 3.1 of 10-Q for the quarter ended September 30, 2009 filed on November 13, 2009.

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

3.2	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	Non-Exclusive License Agreement – BC Keel Trademark	Incorporated by reference to Exhibit 10.18 to Form 10QSB for the quarter ended June 30, 2005 filed August 15, 2005.

10.3	Exclusive License Agreement - Brownie's Third Lung, Brownie's Public Safety, Tankfill, and Related Trademarks and Copyrights	Incorporated by reference to Exhibit 10.20 to Form 10QSB for the quarter ended March 31, 2005 filed August 15, 2005.

10.4	Non-Exclusive License Agreement - Garment Integrated or Garment Attachable Flotation Aid and/or PFD	Incorporated by reference to Exhibit 10.22 to Form 10QSB for the quarter ended June 30, 2005 filed August 15, 2005.

10.5	Non-Exclusive License Agreement - SHERPA Trademark and Inflatable Flotation Aid/Signal Device Technology	Incorporated by reference to Exhibit 10.24 to Form 10QSB for the quarter ended June 30, 2005 filed August 15, 2005.

10.6	Non-Exclusive License Agreement - Tank- Mounted Weight, BC or PFD-Mounted Trim Weight or Trim Weight Holding System	Incorporated by reference to Exhibit 10.25 to Form 10QSB for the quarter ended June 30, 2005 filed August 15, 2005.

10.7	Exclusive License Agreement – Brownie’s Third Lung and Related Trademarks and Copyright	Incorporated by reference to Exhibit 10.26 to Form 10KSB for the year ended December 31, 2006 filed April 4, 2007.

10.8	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 Form 10KSB for the year ended December 31, 2006 filed April 4, 2007.

Exhibit No.

Description

Location

10.9	First Mortgage dated February 22, 2007 between Trebor Industries, Inc. and Colonial Bank	Incorporated by reference to Exhibit 10.29 to Form 10KSB for the year ended year ended December 31, 2006 filed April 4, 2007.

10.10	Note dated February 22, 2007 payable to GKR Associates, Inc.	Incorporated by reference to Exhibit 10.30 to Form 10KSB for the year ended year ended December 31, 2006 filed April 4, 2007.

10.11	Second Mortgage dated February 22, 2007 between Trebor Industries, Inc. and GKR Associates, LLC.	Incorporated by reference to Exhibit 10.31 to Form 10KSB for the year ended year ended December 31, 2006 filed April 4, 2007.

10.12	Promissory Note dated January 1, 2007 payable to Robert M. Carmichael.	Incorporated by reference to Exhibit 10.32 to Form 10KSB for the year ended year ended December 31, 2006 filed April 4, 2007.

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

10.14	Asset Purchase Agreement between Trebor Industries, Inc. and Robert Carmichael.	Incorporated by reference to Form 8K filed on March 5, 2009.

10.15	Asset Purchase Agreement between Trebor Industries, Inc. and Robert Carmichael.	Incorporated by reference to Form 8K filed on January 19, 2010.
31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a)	Provided herewith.

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

32.1	Certification Pursuant to Section 1350	Provided herewith.

32.2	Certification Pursuant to Section 1350	Provided herewith

SIGNATURES

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

Date: May 17, 2010	Brownie’s Marine Group, Inc.

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