Brownie's Marine (BWMG) 10-Q 2008 Q1 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(mark one)

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

For the quarterly period ended March 31, 2008

oTransition 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. 1st 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 oAccelerated 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 1,658,357 shares of common stock outstanding as of May 6, 2008.

PART I

Item 1.Financial Statements

Financial Information

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2008			2007
		(Unaudited)
ASSETS
Current assets
Cash	$	132,137		$	142,516
Accounts receivable, net of $8,000 and $9,000 allowance for doubtful accounts, respectively		26,940			38,512
Inventory		528,131			656,303
Costs and estimated earnings in excess of billings on uncompleted contracts		334,135			-
Prepaid expenses and other current assets		64,435			81,879
Deferred tax asset, net - current		43,595			32,328
Total current assets		1,129,373			951,538
Property, plant and equipment, net		1,221,127			1,229,898
Deferred tax asset, net - non-current		40,572			52,363
Other assets		6,968			6,968
Total assets	$	2,398,040		$	2,240,767
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	326,763		$	397,292
Customer deposits		451,303			286,220
Royalties payable - related parties		23,586			15,263
Other liabilities - related parties		100,781			117,601
Income taxes payable		5,072			-
Other liabilities		6,296			9,477
Notes payable - current portion		45,726			46,031
Notes payable - related parties - current portion		72,572			70,924
Total current liabilities		1,032,099			942,808
Long-term liabilities
Notes payable - long-term portion		914,383			925,399
Notes payable - related parties - long-term portion		591,778			609,857
Total liabilities		2,538,260			2,478,064
Commitments and contingencies
Stockholders' deficit
Common stock; $0.001 par value; 250,000,000 shares authorized
1,685,538 shares issued and outstanding		1,685			1,685
Additional paid-in capital		839,666			839,666
Accumulated deficit		(981,571	)		(1,078,648	)
Total stockholders' deficit		(140,220	)		(237,297	)
Total liabilities and stockholders' deficit	$	2,398,040		$	2,240,767

See Accompanying Notes to Consolidated Financial Statements

1

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2008			2007
Net revenues	$	1,194,801		$	879,257
Cost of net revenues		829,652			585,851
Gross profit		365,149			293,406
Operating expenses
Research and development costs		130			323
Selling, general and administrative		232,691			251,248
Total operating expenses		232,821			251,571
Income from operations		132,328			41,835
Other expenses (income)
Other expense (income), net		(3,227	)		(10,766	)
Interest expense		32,882			22,222
Total other expense (income)		29,655			11,456
Net income before provision for income taxes		102,673			30,379
Provision for income tax expense		5,596			7,357
Net income	$	97,077		$	23,022
Basic income per common share	$	0.06		$	0.01
Diluted income per common share	$	0.06		$	0.01
Basic weighted average common
shares outstanding		1,685,538			1,575,147
Diluted weighted average common
shares outstanding		1,685,538			1,752,545

See Accompanying Notes to Consolidated Financial Statements

2

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders'
	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	)

See Accompanying Notes to Consolidated Financial Statements

3

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	97,077		$	23,022
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization		9,803			8,628
Change in deferred tax asset		524			--
Changes in operating assets and liabilities:
Change in accounts receivable, net		11,572			(76,806	)
Change in inventory		128,172			(29,933	)
Change in costs and estimated earnings in excess of billings		(334,135	)		--
Change in prepaid expenses and other current assets		17,444			(42,157	)
Change in accounts payable and accrued liabilities		(70,529	)		11,914
Change in customer deposits		165,083			(12,683	)
Change in other liabilities		(3,181	)		(1,360	)
Change in income taxes payable		5,072			7,357
Change in other liabilities - related parties		(16,820	)		--
Change in royalties payable - related parties		8,323			14,950
Net cash provided by (used in) operating activities		18,405			(97,068	)
Cash flows from investing activities:
Purchase of fixed assets		(1,032	)		(1,118,362	)
Net cash used in investing activities		(1,032	)		(1,118,362	)
Cash flows from financing activities:
Proceeds from borrowings on notes payable - related parties		--			100,000
Proceeds from borrowings on notes payable		--			1,000,000
Principal payments on notes payable - related parties		(11,321	)		(14,453	)
Principal payments on notes payable		(16,431	)		(5,793	)
Net cash (used in) provided by financing activities		(27,752	)		1,079,754
Net change in cash		(10,379	)		(135,676	)
Cash, beginning of period		142,516			208,187
Cash, end of period	$	132,137		$	72,511
Supplemental disclosure of cash flow information:
Cash paid for interest	$	31,336		$	9,521
Cash paid for income taxes	$	--		$	--
Supplemental disclosure of non-cash investing activities
Common stock issued toward real property purchase on
February 21, 2007	$	--		$	100,000

See Accompanying Notes to Consolidated Financial Statements

4

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Prior to August 22, 2007 the Company was known as United Companies Corporation (hereinafter referred to as “UCC”). The Company changed its name to Brownie’s Marine Group, Inc. during the third quarter of 2007 since it believes BWMG 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., dba Brownies Third Lung, 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., dba Brownies Third Lung. 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., dba Brownies Third Lung. Trebor Industries, Inc., dba Brownies Third Lung, was incorporated in September 17, 1981. Therefore, these financial statements reflect activities from September 17, 1981 (Date of Inception for Trebor Industries, Inc., dba Brownies Third Lung) 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.

5

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 March 31, 2008 and 2007, was $8,524 and $10,798, respectively.

Customer deposits and return policy - The Company takes a minimum 50% deposit against custom and large tankfill systems prior to ordering and/or building the systems. The remaining balance due is payable upon delivery, shipment, or installation of the system. There is no provision for cancellation of custom orders once the deposit has been accepted, nor return of the custom ordered product. Additionally, returns of all other merchandise are subject to a 15% restocking fee as stated on each sales invoice.

6

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT 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 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 three months ended March 31, 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 excluded in the computation at March 31, 2008 since their effect was antidilutive.

New accounting pronouncements - In December 2007, the Accounting Standards Board (“FASB”) issued Financial Accounting Statement (“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 is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on the consolidated financial position, results of operations, and disclosures.

7

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 Security and Exchange Commission (“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

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for the first fiscal period beginning after November 15, 2007. The Company did not elect to measure any eligible financial instruments or assets at fair value as of March 31, 2008. As a result, the Company did not have any significant financial impact as a result of applying the provisions of the statement during the first quarter ended March 31, 2008.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 relates to the Staff’s view regarding the process of quantifying financial statement misstatements. As it relates to the Company, financial misstatements as described in SAB 108 prior to the year ended December 31, 2007 would not require restatement but rather the cumulative effect presented as an adjustment to retained earnings at the beginning of the period. For the year ended December 31, 2007, the same type of misstatements will require restatement of the financial statements for the period. The Company adopted the guidance contained within this bulletin during the year ended December 31, 2007 without significant financial impact.

In September 2006, FASB issued FAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of this SFAS 157 shall be applied prospectively as of the date of adoption with a limited form of retrospective application to certain financial instruments that will result in cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company adopted FAS 157 on January 1, 2008 without significant financial impact.

8

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. INVENTORY

Inventory consists of the following as of March 31, 2008:

Raw materials	$	309,687
Work in process		--
Finished goods		218,445
	$	528,132

Inventory consists of the following as of December 31, 2007:

Raw materials	$	418,123
Work in process		--
Finished goods		238,180
	$	656,303

3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS

Costs in excess of billings and estimated earnings on uncompleted contract consists of the following as of March, 31, 2008:

Costs incurred on uncompleted contracts	$	259,081
Estimated earnings		180,154
		439,235
Less: billings to date		105,100
Billings in excess of costs and estimated
earnings on uncompleted contract	$	334,135

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets totaling $64,435 at March 31, 2008, consists of $22,257 of prepaid insurance, $21,927 of prepaid inventory, $2,429 of other prepaid expenses, and $17,822 of federal and state income taxes receivable due for estimated taxes paid and net operating loss carry back.

Prepaid expenses and other current assets totaling $81,879 at December 31, 2007, consists of $16,770 of prepaid insurance, advertising and software maintenance expenses, $17,822 of federal and state income taxes receivable due for estimated taxes paid and net operating loss carryback, and $47,287 of prepayments for inventory.

9

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following as of March 31, 2008:

Building and land	$	1,218,362
Furniture, fixtures, vehicles and equipment		243,767
		1,462,129
Less: accumulated depreciation and amortization		(241,002	)
	$	1,221,127

Property, plant and equipment consists of the following as of December 31, 2007:

Building and land	$	1,218,362
Furniture, fixtures, vehicles and equipment		242,735
		1,461,097
Less: accumulated depreciation and amortization		(231,199	)
	$	1,229,898

For the three months ended March 31, 2008 and 2007, depreciation expense was $9,803 and $8,278, respectively.

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.

6. CUSTOMER CREDIT CONCENTRATIONS

Sales to Brownie’s Southport Diver’s, Inc. for the three months ended March 31, 2008 and 2007 represented 14.60% and 34.58%, respectively, of total net revenues for the period. Sales to Shadow Marine, and Al Masaood Marine and & Engineering Division for the three months ended March 31, 2008 represented 19.51%, and 17.07%, respectively of total Company net revenues. Sales to no other customer represented greater than 10% of net revenues for the three months ended March 31, 2008 and 2007.

The brother of Robert Carmichael, the Company’s Chief Executive Officer, as further discussed in Note 7 - RELATED PARTY TRANSACTIONS, owns Brownie’s Southport Diver’s Inc.

10

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. RELATED PARTY TRANSACTIONS

Notes payable - related parties - Notes payable - related parties consist of the following as of March 31, 2008:

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.	$	396,012
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.		187,132
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 $2,292, maturing on
February 22, 2012.
		81,206
		664,350
Less amounts due within one year		72,572
Long-term portion of notes payable - related parties	$	591,778

As of March 31, 2008, principal payments on the notes payable - related parties are as follows:

2008	$	54,511
2009		74,794
2010		81,986
2011		89,885
2012		78,255
Thereafter		284,919
	$	664,350

11

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. 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.	$	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 $2,292, 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 March 31, 2008 and 2007, was $257,900 and $352,060, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at March 31, 2008, was $0, $2,903, and $718, 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.

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.

12

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. 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 March 31, 2008 and 2007, was $23,620 and $23,438, 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 March 31, 2008, and 2007, respectively.

Other liabilities - related parties

At March 31, 2008, 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 9 - OTHER LIABILITIES - RELATED PARTIES, and an amount outstanding due to a shareholder of the Company for consulting services rendered as follows:

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		80,781
Management and strategic consulting service due Jeff Morris		20,000
Other liabilities - related parties	$	100,781

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

13

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities of $326,763 at March 31, 2008 consists of $178,004 accounts payable trade, $60,574 balance of legal expenses that were a Company expense prior to the reverse merger with Trebor Industries, Inc., $69,975 of accrued payroll and related fringe benefits, $9,806 of accrued interest, and $8,404 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.

9. 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. See Note 7. - RELATEDPARTIES for the balance due each related party at March 31, 2008 under the settlement agreement.

10.  OTHER LIABILITIES

Other liabilities of $6,296 at March 31, 2008 consists of $4,157 of on-line training liability, and $2,139 of deferred tooling expense. Other liabilities of $9,477 at December 31, 2007 consists 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. For the three months ended March 31, 2008, approximately 130 certificates with a liability balance of $2,271 expired unused. Accordingly, the related liability was reversed and the amount recognized as other income during the three months ended March 31, 2008.

14

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.   NOTES PAYABLE

Notes payable consists of the following as of March 31, 2008:

Promissory note payable secured by a vehicle of the Company having a
carrying value of $2,617 at March 31, 2008, bearing no interest,
due in monthly principal and interest payments of $349, maturing
on November 14, 2008.	$	2,791
Revolving Line of Credit secured by a third mortgage on the real
property of the Company with a carrying value $1,188,986 at March 31, 2008,
bearing interest at the lender’s base rate plus 1.00% per annum. Interest
payments are due monthly on the outstanding principal balance and the
Line of Credit matures on March 5, 2009.		--
Promissory note payable secured by a first mortgage on the real property
Of the Company having a carrying value of $1,188,986 at March 31, 2008, bearing
interest at 6.99% per annum, due in monthly principal and interest
payments of $9,038, maturing on January 22, 2022.		957,318
		960,109
Less amounts due within one year:		45,726
Long-term portion of notes payable	$	914,383

15

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11.   NOTES PAYABLE (continued)

As of March 31, 2008, principal payments on the notes payable are as follows:

2008	$	36,719
2009		45,239
2010		48,504
2011		52,006
2012		55,760
Thereafter		721,881
	$	960,109

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

12.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.

16

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. 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 the date of the reverse stock split, the outstanding warrants underwent a 1-for-100 split, and amounts in the footnote pre-split have been adjusted to reflect the share amounts post split.

14.   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 three months ended March 31, 2008.

17

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.INCOME TAXES

The components of the provision for income taxes for the three months ended March 31, 2008 are as follows:

Current Taxes:
Federal	$	--
State		(5,072	)
Current Taxes		(5,072	)
Change in deferred taxes		(698	)
Change in valuation allowance		174
Provision for income tax benefit	$	(5,596	)

The current tax federal statutory and state tax rate for the three months ended March 31, 2008 was 34% and 15%, respectively. The effective tax rate used for calculation of the deferred taxes as of March 31, 2008 was 34%.

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at March 31, 2008:

Deferred tax assets:
Stock warrants	$	33,769
Allowance for doubtful accounts		2,720
Depreciation and amortization timing differences		22,174
Net loss carry forward		52,936
On-line training certificate reserve		624
Total deferred tax assets		112,223
Valuation allowance		(28,056	)
Deferred tax assets net of valuation allowance		84,167
Less: deferred tax asset - non-current		43,595
Deferred tax asset - current	$	40,572

As of March 31, 2008, the Company has available a net operating loss carry forward that will expire in 2026. The Company has established a valuation allowance for 25% of the tax benefit due to the uncertainty regarding realization.

18

BROWNIE’S MARINE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15.   INCOME TAXES (continued)

The components of the provision for income taxes 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 carryforward		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 carryforward that will expire in 2026. The Company has established a valuation allowance for 25% of the tax benefit due to the uncertainty regarding realization.

19

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

Introductory Statements

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

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

Overview

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

Since April 16, 2004, Mr. Carmichael has served as President, Acting Principal Accounting Officer and Acting Chief Financial Officer of the Company. From March 23, 2004 to April 26, 2004, Mr. Carmichael served as the Company’s Executive Vice-President and Chief Operating Officer. Mr. Carmichael has operated Trebor as its President since 1986. He is the holder or co-holder of numerous patents that are used by Trebor and several other original equipment manufacturers in the diving industry.

Results of Operations for the Three Months Ended March 31, 2008, As Compared To the Three Months Ended March 31, 2007

Net revenues. For the three months ended March 31, 2008, we had net revenues of $1,194,801 as compared to net revenues of $879,257 for the three months ended March 31, 2007, an increase of $315,544, or 35.89%. The increase is primarily a result of three large custom tankfill projects in process at March 31, 2008 that contributed approximately $439,000 to revenue for the period. This increase was partially offset by a slight decline in low pressure hookah system sales of approximately $10,000, and a decrease in other high pressure tankfill sales of approximately $100,000.

Cost of net revenues. For the three months ended March 31, 2008, we had cost of net revenues of $829,652 as compared with cost of net revenues of $585,851 for the three months ended March 31, 2007, an increase of $243,801, or 41.61%. The increase was primarily to support the increase in sales volume for the three months ended March 31, 2008 as compared to same period in 2007. As a percentage of net revenues, cost of net revenues was up 3%, and this was primarily attributable to the sales mix that included the large custom tankfill sales in progress during the first quarter of 2008 without comparable sales contributing to the mix in the first quarter of 2007.

Gross profit. For the three months ended March 31, 2008, we had a gross profit of $365,149 as compared to gross profit of $293,406 for the three months ended March 31, 2007, an increase of $71,743, or 24.45%. This increase is primarily attributable to the increase in net revenues for the three months ended March 31, 2008 as compared to the same period in 2007.

20

Operating expenses. For the three months ended March 31, 2008, we had total operating expenses of $232,821 as compared to total operating expenses of $251,571 for the three months ended March 31, 2007, a decrease of $18,750, or 7.45%. No individual significant items made up this variance, but rather numerous net changes.

Other (income) expenses, net. For the three months ended March 31, 2008, we had other expense of $29,655 as compared to other expense of $11,456 for the three months ended March 31, 2007, an increase in other expense of $18,199, or 158.86%. The largest components of the increase in other expense are an increase in interest expense of $10,660 resulting from three months of interest during the first quarter of 2008 on mortgages on the real estate acquired in late February 2007 compared to approximately one month of interest on the mortgages during the same period in 2007, and $7,539 decrease in other income primarily from less training liability certificates expiring unused during the first quarter of 2008 as compared to the first quarter of 2007.

Provision for income tax expense. For the three months ended March 31, 2008, we had a provision for income tax expense of $5,596, as compared to $7,357 for the three months ended March 31, 2007, a decrease of $1,761, or 23.94%.

Net income. For the three months ended March 31, 2008, we had net income of $97,077, as compared to net income of $23,022 for the three months ended March 31, 2007, an increase of $74,055, or 321.67%. The net increase is attributable to an increase in gross profit of $71,743, a decrease in operating expenses of $18,750, an increase in other expenses of $18,199, and a decrease in the provision for income tax expense of $1,761.

Liquidity and Capital Resources

As of March 31, 2008, we had cash and other current assets of $1,129,373 and current liabilities of $1,032,099, or a current ratio of 1.09%.

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 March 31, 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.

21

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.

22

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 future 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 March 31, 2008 under the facility was $0. 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.

23

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

24

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1a.Risk Factors

Not Applicable to Smaller Reporting Company.

Item 2.Unregistered sales of equity securities

Not Applicable.

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.

25

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 June 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 June 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 June 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 June 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 June 30, 2005 filed August 15, 2005.

26

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 June 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 June 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 June 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.
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

27

Exhibit No.	Description	Location
32.1	Certification Pursuant to Section 1350	Provided herewith
32.2	Certification Pursuant to Section 1350	Provided herewith

28

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 14, 2008	Brownie’s Marine Group, Inc.
	By: /s/    Robert M. Carmichael
	Robert M. Carmichael
	President, Chief Executive Officer,
	Chief Financial Officer/
	Principal Accounting Officer

29