U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
þ Quarterly
Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934
For the quarterly period ended September
30, 2015
¨ Transition
report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to
_______.
Commission File No. 333-99393
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.) |
|
|
|
3001 NW 25th Avenue, Suite 1, Pompano Beach, Florida |
|
33069 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(954) 462-5570 |
(Issuer’s Telephone Number, Including Area Code) |
|
|
(Former Name, if Changed Since Last Report) |
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ¨
Indicate by check
mark whether the registrant has submitted electronically and posted on its Corporate Website, in any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes x
No ¨
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ¨ |
Accelerated filer ¨ |
|
|
|
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting
company x
|
Indicate by check mark
whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes ¨
No x
There were 84,763,702 shares of common stock outstanding as
of November 2, 2015.
PART I
Item 1. Financial Statements
Financial Information
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 148,373 | | |
$ | 19,188 | |
Accounts receivable, net of $28,000 and $47,000 allowance for doubtful accounts, respectively | |
| 114,548 | | |
| 55,450 | |
Accounts receivable - related parties | |
| 51,501 | | |
| 57,568 | |
Inventory | |
| 598,925 | | |
| 606,213 | |
Prepaid expenses and other current assets | |
| 105,320 | | |
| 30,195 | |
Other current assets - related parties | |
| 3,021 | | |
| 5,444 | |
Deferred tax asset, net - current | |
| 190 | | |
| 233 | |
Total current assets | |
| 1,021,878 | | |
| 774,291 | |
| |
| | | |
| | |
Property and equipment, net | |
| 94,692 | | |
| 108,506 | |
| |
| | | |
| | |
Deferred tax asset, net - non-current | |
| 2,330 | | |
| 2,330 | |
Other assets | |
| 6,648 | | |
| 31,049 | |
| |
| | | |
| | |
Total assets | |
$ | 1,125,548 | | |
$ | 916,176 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 401,480 | | |
$ | 462,776 | |
Customer deposits and unearned revenue | |
| 45,828 | | |
| 40,385 | |
Royalties payable - related parties | |
| 154,836 | | |
| 127,661 | |
Other liabilities | |
| 230,977 | | |
| 232,738 | |
Other liabilities and accrued interest - related parties | |
| 90,517 | | |
| 93,521 | |
Convertible debentures, net | |
| 371,965 | | |
| 376,645 | |
Notes payable - current portion | |
| 5,568 | | |
| 8,749 | |
Notes payable - related parties - current portion | |
| 17,848 | | |
| 14,167 | |
Total current liabilities | |
| 1,319,019 | | |
| 1,356,642 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
Notes payable - long-term portion | |
| 7,668 | | |
| 12,231 | |
| |
| | | |
| | |
Total liabilities | |
| 1,326,687 | | |
| 1,368,873 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' deficit | |
| | | |
| | |
Preferred stock; $0.001 par value: 10,000,000 shares authorized; 425,000 issued and outstanding | |
| 425 | | |
| 425 | |
Common stock; $0.0001 par value; 5,000,000,000
shares authorized; and 82,555,078 and 83,772,236 shares issued, respectively; 82,554,584 and 60,471,929 shares outstanding,
respectively | |
| 8,255 | | |
| 6,047 | |
Common stock payable; $0.0001 par value; 195,610 and 195,610 shares, respectively | |
| 20 | | |
| 20 | |
Additional paid-in capital | |
| 8,652,168 | | |
| 8,631,496 | |
Accumulated deficit | |
| (8,862,007 | ) | |
| (9,090,685 | ) |
Total stockholders' deficit | |
| (201,139 | ) | |
| (452,697 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 1,125,548 | | |
$ | 916,176 | |
See Accompanying Unaudited Notes to Consolidated
Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Net revenues | |
| | | |
| | | |
| | | |
| | |
Net revenues | |
$ | 823,868 | | |
$ | 585,922 | | |
$ | 1,585,863 | | |
$ | 1,373,508 | |
Net revenues - related parties | |
| 282,047 | | |
| 219,550 | | |
| 695,773 | | |
| 885,472 | |
Total net revenues | |
| 1,105,915 | | |
| 805,472 | | |
| 2,281,636 | | |
| 2,258,980 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of net revenues | |
| | | |
| | | |
| | | |
| | |
Cost of net revenues | |
| 632,896 | | |
| 530,014 | | |
| 1,438,669 | | |
| 1,515,716 | |
Royalties expense - related parties | |
| 27,718 | | |
| 9,652 | | |
| 56,138 | | |
| 53,905 | |
Total cost of net revenues | |
| 660,614 | | |
| 539,666 | | |
| 1,494,807 | | |
| 1,569,621 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 445,301 | | |
| 265,806 | | |
| 786,829 | | |
| 689,359 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 193,608 | | |
| 145,846 | | |
| 531,982 | | |
| 483,558 | |
Research and development costs | |
| 931 | | |
| — | | |
| 1,897 | | |
| 1,579 | |
Total operating expenses | |
| 194,539 | | |
| 145,846 | | |
| 533,879 | | |
| 485,137 | |
| |
| | | |
| | | |
| | | |
| | |
Income from operations | |
| 250,762 | | |
| 119,960 | | |
| 252,950 | | |
| 204,222 | |
| |
| | | |
| | | |
| | | |
| | |
Other (income) expense, net | |
| | | |
| | | |
| | | |
| | |
Other (income) expense, net | |
| (6,494 | ) | |
| (26,223 | ) | |
| (4,264 | ) | |
| (23,619 | ) |
Interest expense | |
| 9,269 | | |
| 10,312 | | |
| 27,800 | | |
| 35,564 | |
Interest expense - related parties | |
| 489 | | |
| 4,506 | | |
| 693 | | |
| 13,519 | |
Total other (income) expense, net | |
| 3,264 | | |
| (11,405 | ) | |
| 24,229 | | |
| 25,464 | |
| |
| | | |
| | | |
| | | |
| | |
Net income before provision for income taxes | |
| 247,498 | | |
| 131,365 | | |
| 228,721 | | |
| 178,758 | |
| |
| | | |
| | | |
| | | |
| | |
Provision for income tax expense | |
| — | | |
| — | | |
| 43 | | |
| 44 | |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
$ | 247,498 | | |
$ | 131,365 | | |
$ | 228,678 | | |
$ | 178,714 | |
| |
| | | |
| | | |
| | | |
| | |
Basic income per common share | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.01 | |
Diluted income per common share | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | | |
$ | 0.00 | |
| |
| | | |
| | | |
| | | |
| | |
Basic weighted average common shares outstanding | |
| 78,368,659 | | |
| 33,527,392 | | |
| 73,003,680 | | |
| 18,370,110 | |
Diluted weighted average common shares outstanding | |
| 127,334,088 | | |
| 195,462,329 | | |
| 120,329,067 | | |
| 180,305,048 | |
See Accompanying Unaudited Notes to Consolidated Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
| |
| | |
| | |
| | |
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common stock | | |
Preferred stock | | |
Common stock payable | | |
paid-in | | |
Accumulated | | |
stockholders' | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
capital | | |
deficit | | |
deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2014 | |
| 60,471,929 | | |
$ | 6,047 | | |
| 425,000 | | |
$ | 425 | | |
| 195,610 | | |
$ | 20 | | |
$ | 8,631,496 | | |
$ | (9,090,685 | ) | |
$ | (452,697 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of related
party employee compensation payable to stock | |
| 4,648,262 | | |
| 465 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13,035 | | |
| — | | |
| 13,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of convertible
debentures to stock | |
| 2,340,000 | | |
| 234 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,446 | | |
| — | | |
| 4,680 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of accrued
interest on convertible debentures to stock | |
| 4,200,000 | | |
| 420 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,860 | | |
| — | | |
| 6,280 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (79,628 | ) | |
| (79,628 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2015 (Unaudited) | |
| 71,660,191 | | |
$ | 7,166 | | |
| 425,000 | | |
$ | 425 | | |
| 195,610 | | |
$ | 20 | | |
$ | 8,654,837 | | |
$ | (9,170,313 | ) | |
$ | (507,865 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of related
party employee compensation payable to stock | |
| 4,534,439 | | |
| 453 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13,047 | | |
| — | | |
| 13,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Dissolution of joint
venture agreement | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (24,740 | ) | |
| — | | |
| (24,740 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock receivable underlying
Board of Direcctor fees rescinded | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,532 | ) | |
| — | | |
| (4,532 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of accrued
interest on note payable - Chief Executive Officer to stock | |
| 66,764 | | |
| 7 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 196 | | |
| — | | |
| 203 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
Income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 60,808 | | |
| 60,808 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2015 (Unaudited) | |
| 76,261,394 | | |
$ | 7,626 | | |
| 425,000 | | |
$ | 425 | | |
| 195,610 | | |
$ | 20 | | |
$ | 8,638,808 | | |
$ | (9,109,505 | ) | |
$ | (462,626 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of related
party employee compensation payable to stock | |
| 6,092,572 | | |
| 609 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 12,891 | | |
| — | | |
| 13,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cancellation of dissolved
joint vernture shares | |
| (3,394 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of accrued
interest on note payable - Chief Executive Officer to stock | |
| 204,012 | | |
| 20 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 469 | | |
| — | | |
| 489 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
Income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 247,498 | | |
| 247,498 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September
30, 2015 (Unaudited) | |
| 82,554,584 | | |
$ | 8,255 | | |
| 425,000 | | |
$ | 425 | | |
| 195,610 | | |
$ | 20 | | |
$ | 8,652,168 | | |
$ | (8,862,007 | ) | |
$ | (201,139 | ) |
See Accompanying Unaudited Notes to Consolidated
Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows provided by operating activities: | |
| | | |
| | |
Net income | |
$ | 228,678 | | |
$ | 178,714 | |
Adjustments to reconcile net incomes to net cash provided by operating activities: | |
| | | |
| | |
Loss on disposal of fixed assets | |
| — | | |
| 27,846 | |
Depreciation | |
| 16,200 | | |
| 14,537 | |
Amortization of leasehold improvements | |
| 9,819 | | |
| 453 | |
Change in deferred tax asset, net | |
| 43 | | |
| 44 | |
Accretion of convertible debenture discounts | |
| — | | |
| 3,334 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Change in accounts receivable, net | |
| (72,855 | ) | |
| (40,323 | ) |
Change in accounts receivable - related parties | |
| 19,824 | | |
| 57,460 | |
Change in inventory | |
| 7,288 | | |
| 1,825 | |
Change in prepaid expenses and other current assets | |
| (75,125 | ) | |
| (13,869 | ) |
Change in other current assets - related parties | |
| (2,109 | ) | |
| 567 | |
Change in other assets | |
| (339 | ) | |
| (6,021 | ) |
Change in accounts payable and accrued liabilities | |
| (55,016 | ) | |
| (25,237 | ) |
Change in customer deposits and unearned revenue | |
| 5,443 | | |
| (31,319 | ) |
Change in other liabilities | |
| (956 | ) | |
| (2,029 | ) |
Change in other liabilities and accrued interest - related parties | |
| 38,188 | | |
| 62,506 | |
Change in royalties payable - related parties | |
| 27,175 | | |
| (10,839 | ) |
Net cash provided by operating activities | |
| 146,258 | | |
| 217,649 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of fixed assets | |
| (12,205 | ) | |
| (49,915 | ) |
Net cash used in investing activities | |
| (12,205 | ) | |
| (49,915 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Principal payment on loan payable | |
| (805 | ) | |
| — | |
Principal payments on notes payable | |
| (7,744 | ) | |
| (9,108 | ) |
Proceeds from notes payable - related parties | |
| 27,000 | | |
| — | |
Principal payments on note payable - related parties | |
| (23,319 | ) | |
| (92,202 | ) |
Net cash used in financing activities | |
| (4,868 | ) | |
| (101,310 | ) |
| |
| | | |
| | |
Net change in cash | |
| 129,185 | | |
| 66,424 | |
| |
| | | |
| | |
Cash, beginning of period | |
| 19,188 | | |
| 70,084 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 148,373 | | |
$ | 136,508 | |
See Accompanying Unaudited Notes to Consolidated
Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 3,020 | | |
$ | 14,322 | |
| |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Supplemental disclosures of non-cash investing activities and future operating activities: | |
| | | |
| | |
| |
| | | |
| | |
Conversion of convertible debentures to stock | |
$ | 4,680 | | |
$ | 92,095 | |
| |
| | | |
| | |
Conversion of accrued payroll to stock - related party | |
$ | 40,500 | | |
$ | 40,500 | |
| |
| | | |
| | |
Conversion of accrued interest on note payable - related party to stock | |
$ | 692 | | |
$ | — | |
| |
| | | |
| | |
Conversion of accrued interest and fees on convertible debentures to stock | |
$ | 6,280 | | |
$ | 4,002 | |
| |
| | | |
| | |
Retirement of shares returned by non-employee Board of Director | |
$ | — | | |
$ | 1,383 | |
See Accompanying Unaudited Notes to Consolidated
Financial Statements
BROWNIE’S MARINE GROUP, INC.
UNAUDITED 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 Pompano Beach, 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 OTC Markets (pink) under the symbol “BWMG”.
Basis of Presentation
– The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted
in the United States of America (“GAAP”). In the opinion of management all normal recurring adjustments considered
necessary to give a fair presentation of operating results for the periods presented have been included.
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 2014 financial statement amounts and disclosures to conform to the
2015 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 net realizable value. 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.
Furniture, Fixtures, Equipment
and Leasehold Improvements– Furniture, Fixtures, Equipment and Leasehold Improvement is stated at cost less accumulated
depreciation and/or amortization. Depreciation and amortization is provided principally on the straight-line method over the estimated
useful lives of the assets or the lease, which are primarily 3 to 5 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.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 1. | Description of business and summary of significant accounting
policies (continued) |
Going Concern –The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period
following the date of these financial statements. Although profitable for the year ended December 31, 2014, and the three and
nine months ended September 30, 2015, we have otherwise incurred losses since 2009. We have predominantly had a working capital
deficit since 2009.
The Company is behind on payments
due for matured convertible debentures, accrued liabilities and interest – related parties, and certain vendor payables.
The Company is handling delinquencies on a case by case basis. However, there can be no assurance that cooperation the Company
has received thus far will continue. Payment delinquencies are further addressed in Note 7. RELATED PARTIES TRANSACTIONS,
Note 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES, Note 10. OTHER LIABILITIES, Note 11. NOTES PAYABLE, and
Note 12. CONVERTIBLE DEBENTURES.
Because the Company does not
expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial
doubt about BWMG’s ability to continue as a going concern within one year from date the financial statements are issued.
Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. BWMG has
issued a number of convertible debentures as an interim measure to finance working capital needs as discussed in Note 12. CONVERTIBLE
DEBENTURES and may continue to raise additional capital through sale of restricted common stock or other securities, and obtaining
some short term loans. The Company has paid for legal and consulting services with restricted stock to maximize working capital,
and intends to continue this practice when possible. In addition, the Company implemented some cost saving measures and will continue
to explore more to reduce operating expenses.
If BWMG fails to raise additional
funds when needed, or does not have sufficient cash flows from sales, it may be required to scale back or cease operations, liquidate
assets and possibly seek bankruptcy protection. The accompanying consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
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 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 September 30, 2015, and 2014, was $138 and $824 respectively. Advertising
and trade show expense incurred for the nine months ended September 30, 2015, and 2014, was $2,842 and $1,444, respectively.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 1. | Description of business and summary of significant accounting
policies (continued) |
Customer deposits and returns
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 is 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.
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 valuation model to calculate the fair value of options and warrants
issued to both employees and non-employees. Stock issued for compensation is valued on the effective date of the agreement in accordance
with generally accepted accounting principles, which includes determination of the fair value of the share-based transaction. The
fair value is determined through use of the quoted stock price. For the three and nine months ended September 30, 2015 and 2014,
the Company compensated and/or converted all accrued payroll to stock for one related party employee. For further discussion see
Note 7. RELATED PARTIES TRANSACTIONS.
Beneficial conversion features
on convertible debentures – The fair value of the stock upon which beneficial conversion feature (BCF) computations,
as applicable, was determined through use of the quoted stock price. See Note 12. CONVERTIBLE DEBENTURES for further discussion.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 1. | Description of business and summary of significant ACCOUNTING
policies (continued) |
Fair value of financial instruments
– Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. An entity is required to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active
markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 - Quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that
are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets.
Level 3 - Unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level
3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment
or estimation.
Inputs are used in applying
the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions,
including assumptions about risk. An investment’s level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. However, the determination of what constitutes “observable”
requires significant judgment by the Company. Management considers observable data to be market data which is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, provided by multiple, independent sources that are
actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency
of the investment and does not necessarily correspond to the Company’s perceived risk of that investment.
At September 30, 2015, and December
31, 2014, the carrying amount of cash, accounts receivable, accounts receivable – related parties, customer deposits and
unearned revenue, royalties payable – related parties, other liabilities, other liabilities and accrued interest –
related parties, notes payable, notes payable – related parties, and accounts payable and accrued liabilities approximate
fair value because of the short maturity of these instruments. The fair value of the Company’s convertible debentures was
the principal balance due at September 30, 2015, and December 31, 2014, as presented on the face of the balance sheet.
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 and equivalent
shares were included in the computation of dilutive earnings per share for the three and nine months ended September 30, 2015 and
2014.
New accounting pronouncements
– In July 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-11, Inventory
(Topic 330), Simplifying the Measurement of Inventory. ASU No. 2015-11 does not apply to inventory measurement using the last-in,
last-out (LIFO) or retail methods. ASU No. 2015-11 applies to all other inventory measurement methods, which includes first-in,
first-out (FIFO) or average cost. Previously, inventory valuation was at the lower of cost or fair market value. This ASU changes
the valuation to lower or cost of net realizable value. Net realizable value is defined as the estimated selling prices in the
ordinary course of the business, less reasonably predictable costs of completion, disposal, and transportation. ASU is effective
for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. ASU 2015-11 should be applied
prospectively with earlier application permitted.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 1. | Description of business and summary of significant ACCOUNTING
policies (continued) |
New accounting pronouncements
(continued) – The Company opted for early adoption of ASU 2015-11 this period with no impact to financial condition, results
of operations, or cash flows. The Company updated its consolidated financial statements to reflect inventory valuation at the lower
of cost or net realizable value.
The Company believes there was
no other new accounting guidance issued, but not yet effective that either has not already been disclosed in prior reporting periods
or is relevant to the readers of BWMG’s financial statements.
Inventory consists of the following
as of:
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Raw materials | |
$ | 346,908 | | |
$ | 331,879 | |
Work in process | |
| — | | |
| — | |
Finished goods | |
| 252,017 | | |
| 274,334 | |
| |
$ | 598,925 | | |
$ | 606,213 | |
| 3. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current
assets totaling $105,320 at September 30, 2015, consists of $71,497 prepaid inventory, $9,048 prepaid insurance, $7,200 legal settlement
receivable (see Note 16 COMMITMENTS AND CONTINGENCIES), $5,991 prepaid rent, $10,000 prepaid legal, $1,000 prepaid accounting,
and $584 other current assets and prepaid expenses.
Prepaid expenses and other current
assets totaling $30,195 at December 31, 2014, consists of $21,508 prepaid inventory, $8,112 prepaid insurance, and $575 other current
assets and prepaid expenses.
| 4. | PROPERTYAND EQUIPMENT, NET |
Property and equipment consists
of the following as of:
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Factory and office equipment | |
$ | 62,633 | | |
$ | 62,633 | |
Tooling | |
| 59,149 | | |
| 52,344 | |
Computer equipment and software | |
| 23,932 | | |
| 23,932 | |
Vehicles | |
| 44,160 | | |
| 44,160 | |
Leasehold improvements | |
| 43,779 | | |
| 38,379 | |
| |
| 233,653 | | |
| 221,448 | |
Less: accumulated depreciation and amortization | |
| (138,961 | ) | |
| (112,942 | ) |
| |
$ | 94,692 | | |
$ | 108,506 | |
Other assets of $6,648 at September
30, 2015, consists of refundable deposits. Other assets of $31,049 at December 31, 2014, consists of $24,740 investment in joint
venture, and $6,309 refundable deposits. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT for further information on
investment in joint venture and notice of dissolution received for 2015.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 6. | CUSTOMER CREDIT CONCENTRATIONS |
The Company sells to three entities
owned by the brother of Robert Carmichael, the Company’s Chief Executive officer, and three Company’s owned by the
Chief Executive Officer as further discussed in Note 7. RELATED PARTIES TRANSACTIONS. Combined sales to these six entities
for the three months ended September 30, 2015 and 2014, represented 25.50% and 27.48%, respectively, of total net revenues. Combined
sales to these six entities for the nine months ended September 30, 2015 and 2014, represented 30.49% and 39.55%, respectively,
of total net revenues. Sales to one non-related party represented 40.93% and 19.84% of net revenues for the three and nine months
ended September 30, 2015, respectively. Sales to no other customers for the three and nine months ended September 30, 2015, and
2014 represented greater than 10% of net revenues.
| 7. | RELATED PARTIES TRANSACTIONS |
Notes payable – related
parties
Notes payable – related
parties consists of the following at September 30, 2015:
Promissory note payable to the non-employee Board of Director, secured by up to $200,000 in and to all of the Company’s right, title and interest in its fixed assets, inventory, receivables, and all documents including its books, records, and files; bearing interest at 21.21% per annum, due in monthly principal and interest payments of $8,585, matured on November 1, 2014 | |
$ | — | |
| |
| | |
Promissory note payable to Chief Executive Officer, unsecured, payable in twelve monthly principal payment of $2,250 beginning June 15, 2015, with interest at 10% per annum with payments monthly in shares of stock based on the monthly weighted average price of the stock, maturing May 15, 2016. | |
| 17,848 | |
| |
| | |
Less amounts due within one year | |
| 17,848 | |
| |
| | |
Long-term portion of notes payable | |
$ | — | |
| |
| | |
| |
$ | 17,848 | |
As of September 30, 2015, principal
payments on the notes payable – related parties are as follows:
2015 | |
$ | 6,598 | |
2016 | |
| 11,250 | |
2017 | |
| — | |
2018 | |
| — | |
2019 | |
| — | |
Thereafter | |
| — | |
| |
$ | 17,848 | |
Effective April 22, 2015, the
Company issued Mr. Carmichael, Chief Executive Officer of the Company, an unsecured promissory note presented in the table above
in consideration for a $27,000 advance. For purposes of calculating the interest due monthly on the note, the weighted average
price per share during the monthly period from the historical data as quoted on www.quotemedia.com for BWMG shall be used. Interest
shall be calculated as the unpaid principal balance times the daily rate for the number of the days in the period times the average
weighted price per share for the monthly period. The Company borrowed and is using the proceeds for tooling and inventory of new
product it plans to offer during its local summer diving and boating season. For the three and nine months ended September 30,
2015, the Company converted $203 and $489 accrued interest on the note payable – related party to 66,764 and 204,012 shares
of restricted stock, respectively.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
On October 30, 2013, the Company
signed the above secured promissory note, with Mikkel Pitzner, the non-employee Board of Director (“BOD”) for $85,000.
In addition to the terms of the Note Payable disclosed in the table above, the Company was to use its best efforts to settle the
Branch Banking and Trust (“BBT”) Judgment and terminate all Uniform Commercial Code filings in favor of Mr. Pitzner
within 10 business days of the date of the agreement. As further inducement to make the loan, Mr. Pitzner was granted an option
to purchase 1,802,565 shares of the Company’s common stock for $.01 per share. The option is exercisable immediately and
will continue for a period ending two years from the agreement date with an option for cashless exercise based on a formula within
the agreement. The closing price per share of the Company’s stock closing on the OTCBB on the date of the agreement was $.025
per share. As a result of the option granted, the Company recorded $44,610 stock option expense using the Black-Scholes valuation
model on date of the agreement. During the third quarter ended September 30, 2015, the Company paid off the remaining balance due
under the note payable – related party.
Notes payable – related
parties
Notes payable – related
parties consists of the following at December 31, 2014:
Promissory note payable to the non-employee Board of Director, secured by up to $200,000 in and to all of the Company’s right, title and interest in its fixed assets, inventory, receivables, and all documents including its books, records, and files; bearing interest at 21.21% per annum, due in monthly principal and interest payments of $8,585, matured on November 1, 2014 | |
$ | 14,167 | |
| |
| | |
Less amounts due within one year | |
| 14,167 | |
| |
| | |
Long-term portion of notes payable | |
$ | — | |
| |
| | |
| |
$ | 14,167 | |
Net revenues and accounts
receivable – related parties – The Company sells products to 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 September 30, 2015 and 2014, was $280,786 and $218,874, respectively. Combined net revenues from
these entities for nine months ended September 30, 2015 and 2014, was $652,124 and $706,105, respectively. Accounts receivable
from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at September
30, 2015, was $28,976, $9,410, and $7,573, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc.,
Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2014, was $42,882, $4,128, and $8,451, respectively.
The Company sells products to
Brownie’s Global Logistics, LLC. (“BGL”), 940 Associates, Inc. (“940A), and 3D Buoy, entities wholly owned
by the Company’s Chief Executive Officer. Terms of sales may be more favorable than those extended to BWMG’s regular
customers, but no more favorable than those extended to Brownie’s strategic partners. Terms of sale approximate cost or include
a nominal margin if Strategic partner terms are met. Strategic partner terms on a per order basis include promotion of BWMG’s
technologies and “Brownie’s” brand, offered only on product or services not offered for resale, and must provide
for reciprocal terms or arrangements to BWMG on strategic partners’ product or services. BGL is fulfilling the strategic
partner terms by providing exposure for BWMG’s technologies and “Brownie’s” brand in the yachting and exploration
community word-wide through its operations. Combined net revenues from these entities for three months ended September 30, 2015,
and 2014, were $1,261 and $676, respectively. Combined net revenues from these entities for nine months ended September 30, 2015,
and 2014 were $43,649 and $179,367, respectively Accounts receivable from BGL at September 30, 2015, and December 31, 2014 was
$3,593 and $2,107, respectively. Accounts receivable from 3D Buoy was $1,948 at September 30, 2015.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
Beginning in 2015, the joint
venture agreement with Pompano Dive Center “PDC” was in process of dissolution. See Note 17. JOINT VENTURE EQUITY
EXCHANGE AGREEMENT for further discussion regarding PDC. PDC provided notice of intent to dissolve effective January 1, 2015,
and BWMG awaited the return of the stock PDC held in BWMG to fulfil terms of dissolution. PDC returned the stock at the end of
the second quarter of 2015 and the Company cancelled it at the beginning of third quarter of 2015. The cancellation is reflected
on the face of the statement of stockholders’ equity. Market value of the 3,394 shares of stock PDC held that were returned
was $0. The Company had recorded the decline in value of the stock in the second quarter of 2014 by reversing the $24,740 long
term asset (purchase option) tied to the stock provided PDC discussed below, with corresponding reduction in additional paid in
capital to write the asset down to fair market value.
Therefore, PDC is not being
presented or disclosed as a related party in 2014 or 2015, with this presentation prospectively applied. Accordingly, sales to
PDC for the three and nine months ended September 30, 2014 of $1,781 and $7,994, respectively, have been reclassified in the financial
statements to non-related party revenues. In addition, accounts receivable of $13,757 from Pompano Dive Center at December 31,
2014, has been prospectively reclassified to non-related party accounts receivable.
Royalties expense –
related parties – The Company has Non-Exclusive License Agreements with 940A to license product patents it owns. Under
the terms of the license agreements effective January 1, 2005, the Company pays 940A $2.00 per licensed product sold, rates increasing
5% annually. Also with 940A, 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 940A 2.5% of gross revenues per quarter. Total royalty expense for the above agreements
for the three and nine months ended September 30, 2015 and 2014, is disclosed on the face of the Company’s Consolidated Statements
of Operations. As of September 30, 2015, and December 31, 2014, the Company was approximately thirty and twenty-nine months in
arrears, respectively, on royalty payments due. No default notice has been received and the Company plans to make payments as able.
Equity based compensation
and bonus for Chief Executive Officer – On February 23, 2013, the Company declared a bonus of $129,500 of which the
Chief Executive Officer was awarded $67,000 to be paid out in cash or stock based on later determination by the BOD. This amount
was included in operating expense for the year ended December 31, 2012. See table below for inclusion in Other liabilities
and accrued interest – related parties. Further, pursuant to a Written Consent of the BOD of the Company on June 11,
2012, clarifying a meeting held on May 31, 2012, the BODs declared an $83,333 bonus due the Chief Executive Officer payable in
shares of restricted stock. The shares vested as of January 2, 2013. The grant price per share was based on the closing price
of the stock on May 31, 2012. For accounting purposes, the Company recognized $83,333 operating expense ratably over the seven
months the shares vested. These shares are included in shares payable on the statement of stockholders’ deficit.
Non-employee Board
of Director fees and bonus – Effective December 23, 2013, the Board of Directors cancelled the $2,500 per
month non-employee Board of Director fee agreement under which Mikkel Pitzner was being compensated. In addition, Mr.
Pitzner forgave the $27,500 BOD fees due in shares payable and/or paid him monthly through November 2013. Related to the
forgiveness of the BOD fees for 2013, the Company cancelled related stock payable to him, recorded $5,917 receivable for the
stock due back from him, and recorded the $27,500 as contribution to Additional Paid in Capital. During the three months
ended June 30, 2014, Mr. Pitzner returned 14,406 shares, or $1,383 of $5,917, leaving a $4,534 receivable. During the second
quarter of 2015, the Company deemed the receivable fair market value as $1, which is the par value of 8,372 shares pending
return from Mr. Pitzner. Accordingly, the Company reduced the value of the receivable, and reduced additional paid in
capital, which is the account that would have been adjusted upon return of the shares
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
Equity based
compensation to employee –The Company pays the employment compensation of Alexander F. Purdon, an employee and a
more than 10% shareholder of the Company, in restricted shares of stock in lieu of cash. The number of shares paid is based
on the weighted average price per share during the months the services were rendered. For the three months ended September
30, 2015 and 2014, stock based compensation to Mr. Purdon was $13,500 and $13,500, respectively. For the nine months ended
September 30, 2015 and 2014, stock based compensation to Mr. Purdon was $40,500 and $40,500, respectively, or 4,833,157
shares and 2,321,978, respectively. In addition, of the $129,500 employee bonuses declared payable for 2012 year end, which
is payable in stock or cash to be determined by the BOD, Mr. Purdon is due $17,500 reflected in the table below of Other
liabilities and accrued interest– related parties. Lastly, of 61,852 total shares of common stock attributable to
incentive retention bonuses declared by the BOD in 2012, which vested as of May 2013, Mr. Purdon is payable 1,852 shares of
stock, which were valued at $2,250. These shares are included in shares payable on the statement of stockholders’
deficit.
Patent purchase
agreements – In the first quarter of 2010, the Carleigh Rae Corporation (herein referred to as “CRC”),
an entity that the Company’s Chief Executive Officer has an ownership interest, transferred ownership rights to the
Company of patents previously subject to Non-Exclusive License Agreements. Effective December 24, 2010, the Company finalized
and executed terms of the purchase from CRC for payment of $25,500 and nominal shares of the Company’s common stock. In
addition, the principals of CRC were entitled to a percentage of future sales amounting to $8,250 of products the Company was
to receive in conjunction with two patent infringement lawsuits settled in the third quarter of 2010. See Other
liabilities and accrued interest– related parties below for inclusion of $6,017 remaining from the original $8,250
liability due the Principals of CRC. By acquiring the Intellectual Property (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.
Other liabilities and accrued
interest– related parties
Other liabilities and accrued
interest– related parties consists of the following at:
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
Year-end 2012 bonus payable to Chief Executive Officer | |
$ | 67,000 | | |
$ | 67,000 | |
Year-end 2012 bonus payable to employee | |
| 17,500 | | |
| 17,500 | |
Accrued interest on note payable non-employee
Board of Director | |
| — | | |
| 3,004 | |
Due to Principals of Carleigh Rae Corp., net | |
| 6,017 | | |
| 6,017 | |
| |
$ | 90,517 | | |
$ | 93,521 | |
Stock options outstanding
from patent purchase - 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 IP, the Company issued Mr. Carmichael 234 stock options at a $1,350 exercise
price with expiration ten years from the effective date of grant, or March 2, 2019. None of the options have been exercised to-date.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On February 3, 2012, the Company
entered into an asset purchase agreement with Florida Dive Industries, Inc. (“Seller”). On March 5, 2012, the same
parties executed an amendment to the agreement (collectively, the “Agreement”). Under the terms of the Agreement, the
Company acquired certain diving and related inventory, and Seller provided a three year non-compete agreement within a 10-mile
wide radius. On May 31, 2013, the Company closed the dive store and vacated the premises. As of December 31, 2014, the Company
had paid Seller $9,643 toward the $22,500 cash purchase price leaving a balance of $12,857 included in other liabilities at September
30, 2015 and December 31, 2014.
| 9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued
liabilities of $401,480 at September 30, 2015, consists of $116,649 accounts payable trade, $28,130 accrued payroll and fringe
benefits, $45,000 accrued year-end bonuses, $39,612 accrued payroll taxes and withholding, and $172,089 accrued interest. Balances
due certain vendors are in arrears to varying degrees. The Company is handling all delinquent accounts on a case by case basis.
Accounts payable and accrued
liabilities of $462,776 at December 31, 2014, consists of $196,027 accounts payable trade, $31,669 accrued payroll and fringe benefits,
$45,000 accrued year-end bonuses, $39,242 accrued payroll taxes and withholding, and $150,838 accrued interest. Balances due certain
vendors are also due in arrears to varying degrees. The Company is handling all delinquent accounts on a case by case basis.
Other liabilities of $230,977
at September 30, 2015, consists of $215,782 short-term loans, $12,857 payable for assets purchased pursuant to Asset Purchase Agreement
(Note 8. ASSET PURCHASE), and $2,338 on-line training liability. Other liabilities of $232,738 at December 31, 2014, consists
of $216,586 short-term loans, $12,857 payable for assets purchased pursuant to Asset Purchase Agreement and $3,295 on-line training
liability. The short-term loans are comprised of four loans due on demand from unrelated parties. The loans have no other stated
terms except one for $200,000 indicated it was for settlement of debenture debt. Therefore, the Company used the proceeds from
that loan toward settlement of some convertible debentures.
On-line training certificates
accompany 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 eighteen-month redemption from the time customer purchases the unit before expiration. The Company owes the on-line
training vendor an agreed upon negotiated rate for on-line certificates redeemed prior to expiration, and payment is due upon redemption.
The Company estimates the on-line training liability based on the historical redemption rate of approximately 10%. The Company
continues to monitor and maintain a reserve for certificate redemption that approximates the historical redemption rate.
Notes payable consists of the
following as of September 30, 2015:
Promissory note payable, secured by vehicle underlying loan having carrying value of $15,028 at September 30, 2015, bearing interest at 1.9% per annum, due in monthly principal and interest payments of $523, maturing on December 5, 2017. | |
$ | 13,236 | |
| |
| | |
Less amounts due within one year | |
| 5,568 | |
| |
| | |
Long-term portion of notes payable | |
$ | 7,668 | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 11. | NOTES PAYABLE (continued) |
As of September 30, 2015, principal
payments on the notes payable are as follows:
2015 | |
$ | 1,004 | |
2016 | |
| 6,099 | |
2017 | |
| 6,133 | |
2018 | |
| — | |
2019 | |
| — | |
Thereafter | |
| — | |
| |
| | |
| |
$ | 13,236 | |
The unsecured note payable presented
in the table below, which matured in March 2015, was paid in full in accordance with its terms. The note payable had resulted from
conversion of a vendor payable dating back to February 2011. The note payable was restructured once in June 2012 to reduce the
monthly payments and to extend the maturity.
Notes payable consists of the
following as of December 31, 2014:
Promissory note payable, unsecured, bearing interest at 5% simple interest per annum, due in weekly principal and interest payments of $250, maturing on March 10, 2015. | |
$ | 2,764 | |
| |
| | |
Promissory note payable, secured by vehicle underlying loan having carrying value of $17,760 at December 31, 2014, bearing interest at 1.9% per annum, due in monthly principal and interest payments of $523, maturing on December 5, 2017. | |
| 18,216 | |
| |
| 20,980 | |
| |
| | |
Less amounts due within one year | |
| 8,749 | |
| |
| | |
Long-term portion of notes payable | |
$ | 12,231 | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES |
Convertible debentures
consist of the following at September 30, 2015 and December 31, 2014:
| |
| | |
| | |
| | |
September | | |
September | | |
December | | |
December | | |
|
| |
| | |
| | |
| | |
30, 2015 | | |
30, 2015 | | |
31, 2014 | | |
31, 2014 | | |
|
Maturity | |
Interest | | |
Origination | | |
Origination | | |
Debenture | | |
Accrued | | |
Debenture | | |
Accrued | | |
|
Date | |
Rate | | |
Principal | | |
Discount | | |
Balance | | |
Interest | | |
Balance | | |
Interest | | |
Ref. |
5/27/2011 | |
| 10 | % | |
| 125,000 | | |
| (53,571 | ) | |
$ | 58,750 | | |
$ | 33,239 | | |
$ | 58,750 | | |
$ | 28,829 | | |
(1) |
11/11/2011 | |
| 5 | % | |
| 76,000 | | |
| (32,571 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
(2) |
5/2/2013 | |
| 8 | % | |
| 42,500 | | |
| (27,172 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
(3) |
8/2/2013 | |
| 8 | % | |
| 78,500 | | |
| (50,189 | ) | |
| - | | |
| - | | |
| 4,680 | | |
| 6,280 | | |
(3) |
5/5/2012 | |
| 5 | % | |
| 300,000 | | |
| (206,832 | ) | |
| 300,000 | | |
| 132,500 | | |
| 300,000 | | |
| 110,000 | | |
(4) |
8/31/2013 | |
| 5 | % | |
| 10,000 | | |
| (4,286 | ) | |
| 10,000 | | |
| 2,057 | | |
| 10,000 | | |
| 1,679 | | |
(5) |
| |
| 10 | % | |
| See
ref (6) for Discussion | | |
| - | | |
| 379 | | |
| - | | |
| 379 | | |
(6) |
2/10/2014 | |
| 10 | % | |
| 5,500 | | |
| - | | |
| 472 | | |
| 204 | | |
| 472 | | |
| 155 | | |
(7) |
2/10/2014 | |
| 10 | % | |
| 39,724 | | |
| - | | |
| 2,743 | | |
| 3,710 | | |
| 2,743 | | |
| 3,503 | | |
(8) |
4/14/2013 | |
| 9.90 | % | |
| 20,000 | | |
| (13,333 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
(9) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
| | | |
| | | |
| | | |
$ | 371,965 | | |
$ | 172,089 | | |
$ | 376,645 | | |
$ | 150,825 | | |
|
Reference numbers in right hand
column of table entitled Ref. refer to paragraphs with corresponding numbers that immediately follow this paragraph.
| (1) | The Company purchased in exchange for convertible debenture exclusive rights for license of certain
intellectual property from an unrelated party. The parties agreed to a royalty of 2.5% of net revenues generated from the sale,
sub-license or use of the technology or a reasonable negotiated rate based on similar invention. The debenture was convertible
to common shares of the Company at May 27, 2011, along with accrued interest at the option of the lender. Conversion price per
share is 30% discount as determined from the weighted average of the preceding 12 trading days’ closing market price. The |
Company valued the beneficial
conversion feature (BCF) of the convertible debenture at $53,517, its intrinsic value. The Company accreted the discount to the
convertible debenture and will recognize interest expense through repayment in full or conversion. Because there was no assurance
of success and the invention was still in design and pre-prototype phase, the Company recorded the initial net value of the debenture,
$71,483, as research and development expense during the year ended 2010. Both parties agreed to confidentiality regarding the invention
during the pre-prototype stage. In addition, the Company agreed to provide the licensor with design services, as well as assist
in completing the prototype and initial production at the Company’s prevailing wholesale rate for comparable services.
On February 10, 2012, the holder
of this debenture entered into an agreement with a third party to sell/assign the $125,000 principal balance, plus accrued interest.
The purchase was to be in installments with transfer/assignment of the debenture upon payment, referred to as “Closings”.
The first Closing was on or about February 15, 2012 for $7,500, with that amount assigned/transferred. The second Closing, occurred
90 days after the first closing for $11,750 paid/assigned. All subsequent Closings were to be for $11,750 and occur in 30 day increments
after the second Closing. This was to continue until the full principal balance of $125,000, plus accrued interest is purchased/assigned.
See Ref. (6) for discussion of new terms on the assigned portions of the debenture.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
| (2) | The Company ratified a technology and license agreement with commitment for purchase of
inventory related to an agreement signed in 2010, which set pricing for products if minimum quantity purchases were met.
Since the Company did not purchase the minimum quantities, but desired to maintain the technology and licensing rights along
with the pricing, it agreed to purchase the 2010 balance shortage in 2011, as well as the 2011 minimum quantities. The
agreement required the Company issue a convertible debenture for $76,000, and 38,000 shares of restricted common stock. The
lender at their option could convert all or part of the note plus accrued interest into common stock at a price of thirty
percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5)
trading days. The Company valued the BCF of the convertible
debenture at $32,571. The Company accreted the discount to the
convertible debenture and recognized interest expense through settlement. The Company repaid $28,000 of this debenture in
2011. See Note 16. COMMITMENTS AND CONTINGENCIES for discussion of litigation involving the technology and license
agreement that was partially settled/dismissed on July 1, 2014, and fully settled on September 24, 2015. Associated with the
partial dismissal, the Company
reversed in the
second quarter of 2014, related prepaid inventory and
convertible debenture resulting in a loss on settlement of
$14,850. |
| (3) | On August 8, 2012, the Company borrowed $42,500 from lender in exchange for a convertible debenture
maturing on May 10, 2013. Beginning 180 days after the date of the debenture, lender could convert the note to common shares at
a 39% discount of the “Market Price” of the stock based on the average of the lowest three (3) closing bid prices on
the date prior to the notice of conversion. The Company valued the BCF of the convertible debenture at $27,172. Accordingly, the
$42,500 debenture was discounted by the amount of the BCF. The Company accreted the discount to the convertible debenture through
its maturity and recognized interest expense until full conversion. The lender fully converted this debenture to shares of common
stock with $34,055 converted during the year ended December 31, 2013, and $8,445 converted during the year ended December 31, 2014.
In addition, $1,700 accrued interest on the convertible debenture was converted to stock in the first quarter of 2014. The stock
was issued without restrictive legend pursuant to Rule 144, since the holder acquired convertible note issued by the Company more
than nine months prior to the date of conversion and did not pay any additional consideration for the shares. |
On October 31, 2012, the Company
borrowed $78,500 from this same lender in exchange for a convertible debenture maturing on August 2, 2013. Beginning 180 days after
the date of the debenture, lender could have converted the note to common shares at a 39% discount pursuant to the same terms and
conditions discussed in the paragraph above. The Company valued the BCF of the convertible debenture at $50,189, and accordingly,
discounted the $78,500 debenture by this amount. The Company accreted the discount to the convertible debenture through its maturity
and recognized interest expense until full conversion. During the year ended December 31, 2014, the lender converted $73,820 of
the convertible debenture to shares of common stock, and during the first quarter of 2015 converted the remaining $4,680 balance
to shares of common stock. In addition, the lender converted $6,820 accrued interest on the convertible debenture to stock in the
first quarter of 2015 in full satisfaction of the balance due. The stock was issued without restrictive legend pursuant to Rule
144, as the holder acquired convertible note issued by the Company more than nine months prior to the date of conversion and did
not pay any additional consideration for the shares.
| (4) | On May 3, 2011, the Company borrowed $300,000 in exchange for a convertible debenture. The Debenture
bears 10% interest per annum. The lender may at any time convert any portion of the debenture to common shares at a 30% discount
of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices
on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity.
In addition, as further inducement for loaning the Company the funds, the Company granted the lender 300,000 and |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
600,000 warrants at $337.50 and
$472.50 per share (after restatement for 1 for -1,350- reverse stock split), respectively. As a result, the Company allocated fair
market value (“FMV”) to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the
debenture. The Company accreted the discount to the convertible debenture through maturity and will accrue interest expense until
paid in full or
converted. Before discount, the
Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.
| (5) | The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option
may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined
from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the
convertible debenture at $4,286. The Company accreted the discount to the convertible debenture and will recognize interest expense
until paid in full or converted. |
| (6) | The Company entered a new debenture agreement upon sale/assignment of the original lender under
the debenture as discussed in reference (1) above. Because the stated terms of the new debenture agreement were significantly different
from the original debenture, including analysis of value of the beneficial conversion feature at the assignment/purchase date,
the transaction was treated as extinguishment of the old debenture and recording of the new for accounting purposes. Because the
debenture is being assigned/sold in installments, the Company is calculating and recognizing gain or loss on the extinguishment
as it occurs. |
On February 10, 2012, the new
holder (lender) purchased $7,500 of the original $125,000 principal balance, and based on this transaction, the Company recorded
a $4,286 loss on extinguishment. On May 18, 2012, the lender purchased another $11,750, and the Company recorded a $6,714 loss
on extinguishment related to this transaction. On July 17, 2012, the lender purchased another $11,750, and the Company recorded
a $6,714 loss on extinguishment related to this transaction. On November 8, 2012, the lender purchased another $11,750, and the
Company recorded a $6,714 loss on the extinguishment related to this transaction. Since that date the lender has not purchased
or converted any shares pursuant to the sale/assignment agreement.
The Company may prepay at any
time in an amount equal to 150% of the principal and accrued interest. The conversion price under the debenture is $.37125, and
the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties
apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99%
of the outstanding Common Stock of the Company at any one time. The debenture and the shares referenced within the debenture may
be assignable in whole or in part to a third party at any time during the term.
As of September 30, 2015 and
December 31, 2014, the lender had assigned an aggregate of $5,500 under the debenture to four separate parties, and $23,500 to
another party. See reference (7) and (8), respectively, related to the assignments.
| (7) | This line is comprised of the assignment of $5,500 of the convertible debenture from reference
(6) above with the same stated terms and conditions equally to four separate parties. Due to the smaller transaction amounts, these
four debenture holders have been combined for presentation purposes. |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
| (8) | On February 12, 2014 the Company entered into new debenture agreement for $39,724 upon sale/assignment
of the original lender. Because the stated terms of the new debenture agreement and principal amounts were significantly different
from the original debenture, including analysis of value of the beneficial conversion feature at the assignment/purchase date,
the transaction was treated as extinguishment of the old debenture with recording of the new for accounting purposes. |
Conversion price under the debenture
is $.37125, and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees
and penalties apply if payments or conversions are not done timely by the Company. The lender is limited to maximum conversion
of 4.99% of the outstanding Common Stock of the Company at any one time. During the year ended December 31, 2013, the lender converted
$3,211 of the debenture to stock. The stock was issued without restrictive legend pursuant to Rule 144, since the holder acquired
convertible note issued by the Company more than nine months prior to the date of conversion and did not pay any additional consideration
for the shares.
| (9) | On April 8, 2013, the Company borrowed $20,000 in exchange for a convertible debenture. The lender
at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (40%)
discount as determined from the lowest trading price for the 5 trading days prior to the conversion notice. The Company valued
the BCF of the convertible debenture at $13,333 and is accreting the discount to the convertible debenture, and will recognize
interest expense until paid in full or converted. During the year ended December 31, 2014, the lender converted $20,000 in full
satisfaction of the convertible debenture to shares of common stock. In addition, during the year ended 2014, the Company converted
all the accrued interest on the debenture, or $2,302, to shares of common stock. The debenture and interest conversion stock was
issued without restrictive legend pursuant to Rule 144, since the holder acquired convertible note issued by the Company more than
nine months prior to the date of conversion and did not pay any additional consideration for the shares. |
On March 9, 2011, the Company
borrowed $50,000 in exchange for a convertible debenture, which was converted in full with accrued interest in the second quarter
of 2012. As further inducement for loaning the Company the funds, the Company granted the lender 50,000 and 100,000 warrants at
$337.50 and $472.50 per share, respectively. Before discount, the Company determined and recorded the fair market value of the
warrants as $7,500 using the Black-Scholes valuation model. See Note 12. CONVERTIBLE DEBENTURES,
reference (4) for similar warrant arrangement made with another lender.
The components of the provision
for income tax expense are as follows for the nine months ended:
| |
September 30, 2015 | | |
September 30, 2014, | |
Current taxes | |
| | |
| |
Federal | |
$ | — | | |
$ | — | |
State | |
| — | | |
| — | |
Current taxes | |
| — | | |
| — | |
Change in deferred taxes | |
| 182,401 | | |
| 47,311 | |
Change in valuation allowance | |
| (182,358 | ) | |
| (47,267 | ) |
| |
| | | |
| | |
Provision for income tax expense | |
$ | 43 | | |
$ | 44 | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 14. | INCOME TAXES (continued) |
The following is a summary of
the significant components of the Company’s deferred tax assets and liabilities at September 30, 2015:
Deferred tax assets: | |
| | |
Equity based compensation | |
$ | 97,276 | |
Allowance for doubtful accounts | |
| 9,520 | |
Net operating loss carryforward | |
| 1,015,748 | |
On-line training certificate reserve | |
| 819 | |
Total deferred tax assets | |
| 1,123,363 | |
Valuation allowance | |
| (1,120,843 | ) |
| |
| | |
Deferred tax assets net of valuation allowance | |
| 2,520 | |
| |
| | |
Less deferred tax assets – non-current, net of valuation allowance | |
| 2,330 | |
| |
| | |
Deferred tax assets – current, net of valuation allowance | |
$ | 190 | |
The effective tax rate used
for calculation of the deferred taxes as of September 30, 2015 was 34%. The Company has established a valuation allowance against
deferred tax assets of $1,120,843 or 99.8%, due to the uncertainty regarding realization, comprised primarily of a 100% reserve
against the net operating carryforward, 100% reserve against the allowance for doubtful accounts, and 97% reserve against the deferred
tax assets attributable to the equity based compensation.
The significant differences
between the statutory tax rate and the effective tax rates for the nine months ended are as follows:
| |
September 30, 2015 | | |
September 30, 2014, | |
Statutory tax rate | |
| — | % | |
| — | % |
Increase (decrease) in rates resulting from: | |
| | | |
| | |
Net operating loss carryforward or carryback | |
| (34 | )% | |
| (13 | )% |
Equity based compensation and loss | |
| — | % | |
| 3 | % |
Change in valuation allowance | |
| 37 | % | |
| 10 | % |
Change in allowance for doubtful accounts | |
| (3 | )% | |
| — | % |
Effective tax rate | |
| — | % | |
| — | % |
The following is a summary of
the significant components of the Company’s deferred tax assets and liabilities at December 31, 2014:
Deferred tax assets: | |
| | |
Equity based compensation | |
$ | 97,276 | |
Allowance for doubtful accounts | |
| 15,980 | |
Net operating loss carryforward | |
| 1,091,064 | |
On-line training certificate reserve | |
| 1,154 | |
Total deferred tax assets | |
| 1,205,474 | |
Valuation allowance | |
| (1,202,911 | ) |
| |
| | |
Deferred tax assets net of valuation allowance | |
| 2,563 | |
| |
| | |
Less deferred tax assets – non-current, net of valuation allowance | |
| 2,330 | |
| |
| | |
Deferred tax assets – current, net of valuation allowance | |
$ | 233 | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 14. | INCOME TAXES (continued) |
The effective tax rate used
for calculation of the deferred taxes as of December 31, 2014 was 34%. The Company has established a valuation allowance against
deferred tax assets of $1,202,911 or 99.8%, due to the uncertainty regarding realization, comprised primarily of a 100% reserve
against the net operating carryforward, 100% reserve against the allowance for doubtful accounts, and 97% reserve against the deferred
tax assets attributable to the equity based compensation.
| 15. | AUTHORIZATION OF PREFERRED STOCK |
During the second quarter of
2010, the holder of the majority of the Company’s outstanding shares of common stock approved an amendment to the Company’s
Articles of Incorporation authorizing the issuance of 10,000,000 shares of preferred stock. The preferred stock as authorized has
such voting powers, designations, preferences, limitations, restrictions and relative rights as may be determined by our Board
of Directors of the Company from time to time in accordance with the provisions of Chapter 78 of the Nevada Revised Statutes. Before
modification, the existing Articles of Incorporation did not authorize the issuance of shares of preferred stock. The Company authorized
the preferred stock for the purpose of added flexibility in seeking capital and potential acquisition targets. The amendment
authorizing the issuance of shares of preferred stock grants the Board authority, without further action by our stockholders, to
designate and issue preferred stock in one or more series and to designate certain rights, preferences and restrictions of each
series, any or all of which may be greater than the rights of the common stock. As of September 30, 2015, and December 31, 2014,
the 425,000 shares of preferred stock are owned by the Company’s Chief Executive Officer. The preferred shares have 250 to
1 voting rights over the common stock, and are convertible into 31,481 shares of common stock. The preferred stock votes with the
Company’s common stock, except as otherwise required under Nevada law. Accordingly, at September 30, 2015, Mr. Carmichael
has approximately 61% of the combined voting power of the Common Stock and Series A Convertible Preferred Stock, voting as a single
class and will control the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change
in control.
| 16. | COMMITMENTS AND CONTINGENCIES |
From time to time the Company is subject to legal
proceedings, claims and litigation arising in the ordinary course of business, including matters relating to product liability
claims. Such product liability claims sometimes involving wrongful death or injury have historically been covered by product liability
insurance, which provided coverage for each claim up to $1,000,000. During the third quarter of 2014, the Company did not renew
its product liability insurance since the renewal policy amount was cost prohibitive. The Company is currently seeking a new insurance
carrier or alternative means to satisfy this potential liability exposure, as well as to fulfil the sales terms of some of our
customers, which require the insurance coverage.
As previously disclosed, we
are co-defendants under an action filed by an individual in June 2013 in the Circuit Court of Broward County claiming personal
injury resulting from use of a Brownie’s Third Lung. Plaintiff has claimed damages in excess of $1,000,000. The insurance
carrier’s legal counsel indicates unfavorable outcome is possible, but not probable. We believe such claim is without merit
and intend to continue to aggressively defend such action. In addition, as previously disclosed, we are also co-defendant under
an action filed March 2015, in the Circuit Court of Broward County claiming personal injury resulting from the use of a Brownie’s
Third Lung product. This claim falls outside the Company’s period of insurance coverage. The Company believes the claim to
be a Workers Compensation claim relating exclusively against other defendant and without merit, and has retained counsel to aggressively
defend this action.
The Company is co-defendant
in an action filed by and individual in the Circuit Court of Broward County in March 2015, claiming personal injury resulting from
use of the Brownie’s Third Lung. The claim is also for damages in excess of $1,000,000. The claim falls outside the Company’s
insurance coverage period. The Company has retained legal counsel, believes the claim is completely without basis in fact or merit,
and intends to aggressively defend.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 16. | COMMITMENTS AND CONTINGENCIES (continued) |
On August 14, 2014, the Company entered into a new
lease commitment. Terms of the new lease include thirty-seven month term commencing on September 1, 2014; payment of $5,367 security
deposit; base rent of approximately $4,000 per month over the term of the lease plus sales tax; and payment of 10.76% of annual
operating expenses (i.e. common areas maintenance), which is approximately $1,500 per month subject to periodic adjustment.
On September 24, 2015 all
claims and counterclaims by and between Undersea Breathing Systems, Inc. (“UBS”) and the Company were settled in
full in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, FL, in the third quarter of
2015. The settlement included the Company owing UBS nothing, UBS owing the Company certain tangible property within 14 days,
mutual execution of general release, and stipulation for dismissal with prejudice with all parties to bear their own
attorneys’ fees and costs. The Company’s legal expenses and fees during the third quarter 2015 related to this
action were approximately $60,000, and the fair value estimate of the tangible property (inventory items) receivable was
approximately $7,200. The Company recorded these amounts during the third quarter of 2015 as legal expense, and other income,
respectively. See Note 22. SUBSEQUENT EVENTS regarding delivery of the aforementioned tangible property.
Prior to the above settlement
in full on July 1, 2014, the amended complaint for damages in excess of $15,000 filed by UBS on December 10, 2013 in the Circuit
Court of the 15th Judicial Circuit in and for Palm Beach County, FL was partially dismissed as to Count IV, Default
on Promissory Note Against BWMG. The complaint against the Company sought to compel purchase of Medal Model No. 4241 membranes
or equivalent pursuant to pricing agreement in 2011. UBS was the holder of the convertible debenture referenced in Note 12. CONVERTIBLE
DEBENTURES Ref (2). Under the complaint, UBS asserted the Company was to purchase no less than 24 membranes from the company
per year for $2,000 and $1,000, cash and Company stock, respectively, per membrane. The Company took delivery, paid cash, and issued
stock for 14 Medal Model No 4241 membranes pursuant to the stated pricing in 2011, plus issued an additional $24,000 stock toward
future purchases of 24 membranes. However, the Company had not purchased or taken delivery of additional membranes. At the same
time the stock was issued the Company granted UBS a convertible debenture of $76,000 and reduced its balance to $48,000 when the
Company paid $28,000 cash and took delivery of the 14 membranes. Therefore, UBS had $24,000 worth of stock and a $48,000 convertible
debenture for which the Company took no membrane deliveries. Associated with the dismissal of Count IV, the Company reversed in
the third quarter of 2014, related prepaid inventory and convertible debenture resulting in a loss on settlement of $14,850, which
was accrued as of June 30, 2014.
| 17. | JOINT VENTURE EQUITY EXCHANGE AGREEMENT |
In December 2014, the Company
received notice from Pompano Dive Center, LLC. (“PDC”) of intent to cancel the Joint Venture Equity Exchange Agreement
described below effective January 1, 2015, in accordance with the terms of the agreement. After notice, BWMG awaited the return
of the stock PDC held in BWMG to fulfil terms of dissolution. PDC returned the stock at the end of the second quarter of 2015 and
the Company cancelled it at the beginning of third quarter of 2015. The cancellation is reflected on the face of the statement
of stockholders’ equity. Market value of the 3,394 shares of stock PDC held that were returned was $0. The Company had recorded
the decline in value of the stock in the second quarter of 2014 by reversing the $24,740 long term asset (purchase option) tied
to the stock provided PDC discussed below, with corresponding reduction in additional paid in capital to write the asset down to
fair market value.
On November 7, 2011, the Company
entered into a Joint Venture Equity Exchange Agreement (“Agreement”) with PDC. PDC owns a retail store, several dive
boats, and has a classroom for training divers. Under the terms of the Agreement, the Company will provide PDC with an assortment
of Brownie’s Third Lung products on consignment, and PDC will act as a training and demonstration site for Brownie’s
Third Lung products.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 17. | JOINT VENTURE EQUITY EXCHANGE AGREEMENT (continued) |
Beginning in 2012, both parties
ceased operating under the consignment inventory arrangement. Inventory not
sold was returned, and
inventory was purchased for sale. See Note: 7 RELATED PARTIES TRANSACTIONS - Net revenues and accounts receivable
– related parties for further information related to pre-2015 related party information. Terms of sale to PDC were
no more favorable than those granted other dealers of the Company’s products.
In addition, the Agreement provided
for a non-binding letter of intent for the possible acquisition of PDC in exchange for BWMG’s stock for the yet to be agreed
upon value of PDC. In anticipation of a possible purchase, the Agreement provided BWMG with a 33% interest in PDC. As part of the
transaction, BWMG issued 3,394 restricted shares of its common stock with fair market value on the date of the transaction of $24,740
to PDC, reflected in other assets in the long-term portion of the Company’s balance sheet.
If BWMG purchased PDC, the
stock issued by BWMG would have been credited to the purchase price. Further, PDC was required to remit no later than 45 days
from the end of each quarter, a 33% share in pre-tax net profits. At least 50% of the total pre-tax profits were required for
distribution under the Agreement, and BWMG was not required to share in losses.
Terms of the above included
upon termination of this Agreement by either party and/or a written purchase and sales agreement not consummated by the parties,
then the parties’ respective interests in each other’s business would revert back to the original party. Accordingly,
when this happened, PDC would relinquish the interest acquired in BWMG through this Agreement and BWMG wouldl do the same. All
property at PDC owned by BWMG would be returned to BWMG at that time as well. The Company accounted for the investment in PDC under
the Cost basis because the joint venture was cancellable at any time by either party with return of respective interest transferred
to each as per the joint venture agreement; the possible acquisition of PDC was in the form of a non-binding letter of intent;
each entities assets and liabilities remained their owned; and BWMG was not to share in any of PDC losses or additional expenses
unless otherwise approved; and the management and operation of PDC remained with PDC. Since inception of the Agreement and through
termination PDC reported pre-tax net losses, there was no profit sharing due the Company in accordance with the Agreement.
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 297 shares, and no more than 75 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. All
297 options were issued under the plan prior to January 1, 2010, and to-date all remain outstanding.
| 19. | EQUITY BASED INCENTIVE/RETENTION BONUSES AND OTHER BONUSES |
On November 2, 2012, the Board
of Directors consented to grant equity based bonuses to certain key employees and consultants as an incentive to retain their services.
Stock incentive bonuses were to vest, and be paid out on May 2, 2013, contingent upon continued employment or service. The stock
bonus price per share was calculated based on last closing price as reported on per the OTCBB prior to the grant date for a total
of $75,100. Shares were set aside and reserved for this transaction. As disclosed in Note 7. RELATED PARTIES TRANSACTIONS,
$45,000 and $2,250 of the $75,100 bonuses, or 37,038 and 1,854 shares, were awarded to the Chief Executive Officer and the related
party employee, respectively. The Company accrued operating expense ratably from the time of the awards through May 2, 2013, when
vested. Of the 61,852 vested, only 5,185 have been issued to-date. The rest are included in shares payable as reflected on the
Statement of Stockholders’ Deficit and the Balance Sheet. In addition, at the end of 2012, the BOD declared $129,500 bonuses
payable in stock or cash to be determined by the BOD at a later date. Of this amount $67,000 was declared payable to the Chief
Executive Officer of the Company and $17,500 declared payable to the related party employee as disclosed in Note 7. RELATED
PARTIES. The combined $84,500 payable to the related parties is reflected on the Balance Sheet in Other liabilities and accrued
interest – related parties.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 20. | STRATEGIC ALLIANCE AGREEMENT |
On April 10, 2012, the Company
entered into a strategic alliance agreement with Precision Paddleboards, Inc. The agreement provides for 12 month exclusivity granted
for $24,000 in one year restricted stock, or 494 shares. Price per share was calculated as the weighted average per share for 30
days preceding the agreement or $.036 per share. The Company recognized the operating expense ratably over the twelve month vesting
term with corresponding entry to shares payable. As of September 30, 2015, none of the 494 shares had been paid out and are reflected
in shares payable balance on the Statement of Stockholders’ Deficit and the Balance Sheet.
| 21. | INTEREST EXPENSE NON-RELATED PARTIES AND OTHER EXPENSE (INCOME), NET |
For the three months ended September
30, 2015, non-related parties interest expense of $9,254 is comprised of $9,177 interest on convertible debentures and $77 other
interest. For the three months ended September 30, 2014, non-related parties interest expense of $10,312 is comprised of $10,216
interest on convertible debentures and $96 other interest.
For the nine months ended
September 30, 2015, non-related parties interest expense of $27,800 is comprised of $27,531 interest on convertible
debentures and $269 other interest. For the nine months ended September 30, 2014, non-related parties interest expense of
$35,564 is comprised of $34,702 interest on convertible debentures and $862 other interest.
For the three months ended September
30, 2015, $6,494 other income, net is comprised of $7,200 legal settlement receivable and no other individually significant items.
For the three months ended September 30, 2014, $26,223 other income, net is comprised primarily of $49,812 sales commissions, partially
offset by $20,406 headquarters and manufacturing facility relocation expense, and $3,183 other expense, net of individually insignificant
items
For the nine months ended September
30, 2015, $4,264 other income, net is comprised primarily of $7,200 legal settlement (see Note 16. COMMITMENTS AND CONTINGENCIES),
$3,471 royalty income on licensed patents, $1,800 sale of fixed assets, $2,930 other income, net of individually insignificant
items and is partially offset by $11,137 insurance expense audit adjustments. For the nine months ended September 30, 2014, $23,619
other income, net is comprised primarily of $49,812 sales commissions, $31,463 write off of accrued legal expense from prior years
resulting from resolution of overbilling as identified by Company, $5,144 royalty income on licensed patents, and partially offset
by $20,406 headquarters and manufacturing facility relocation expense, $27,846 loss on disposal of fixed assets, and $14,850 loss
on convertible debenture settlement.
Effective October 31,
2015, the Company issued Mr. Purdon, related party employee, 2,154,569 shares of restricted common stock in lieu of cash for
$4,500 employee compensation for the month ended October 31, 2015. The number of shares issued was based on the weighted
average share price during the month.
Effective October 22, 2015, the Company reincorporated to the
State of Florida from the State of Nevada (the “Reincorporation”) pursuant to a plan of conversion, effective October
22, 2015 (the “Plan of Conversion”). On September 9, 2015, stockholders of the Company holding approximately 71% of
the combined voting power of the Company’s outstanding Common Stock and Series A Convertible Preferred Stock, voting as a
single class, as of September 9, 2015, approved by written consent in lieu of a special stockholders’ meeting the Reincorporation.
The Reincorporation did not affect any of the Company’s material contracts with any third parties, and the Company’s
rights and obligations under such material contractual arrangements continue to be rights and obligations of the Company after
the Reincorporation. The Reincorporation did not result in any change in headquarters, business, jobs, management, location of
any of the offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident
to the Reincorporation) of the Company. The Reincorporation reduces the Company’s corporate costs and expenses and
aligns the Company’s domicile with its executive offices.
Pursuant to the Plan of Conversion, the Reincorporation was
effected by the Company filing (i) articles of conversion (the “Nevada Articles of Conversion”) with the Secretary
of State of the State of Nevada, (ii) a certificate of conversion (the “Florida Certificate of Conversion”) with
the Secretary of State of the State of Florida and (iii) an articles of incorporation (the “Florida Articles of Incorporation”)
with the Secretary of State of the State of Florida. Pursuant to the Plan of Conversion, the Company also adopted new bylaws (the
“Florida Bylaws”). As a result of the Reincorporation: (1) the affairs of the Company ceased to be governed
by the Nevada Revised Statutes, the Company’s existing Articles of Incorporation and the Company’s existing Bylaws,
and the affairs of the Company became subject to the Business Corporation Act of the State of Florida, the Florida Articles of
Incorporation and the Florida Bylaws; (2) the Company as a Florida corporation is deemed to be the same entity as the Company was
as a Nevada corporation for all purposes under the laws of Florida, with the Company’s existence as a Florida corporation
deemed to have commenced when it was initially formed in Nevada; (3) each outstanding share of common stock of the Company as a
Nevada corporation automatically converted into an outstanding share of common stock of the Company as a Florida corporation; (4)
each outstanding option, warrant or other convertible right to acquire shares of common stock of the Company as a Nevada corporation
converted into an equivalent option, warrant or other convertible right to acquire, upon the same terms and conditions (including
the vesting schedule and exercise or conversion price per share applicable to each such option, warrant or other convertible right),
the same number of shares of common stock of the Company as a Florida corporation; and (5) each director and officer of the Company
as a Nevada corporation continues to hold his respective position with the Company as a Florida corporation. The Reincorporation
does not affect the trading of the Company’s shares of common stock on the OTC Markets in any respect. The Company, as a
Florida corporation, will continue to file periodic reports and other documents as and when required by the rules and regulations
of the SEC.
On October 14, 2015, Mr. Robert
Carmichael, Chief Executive Officer, was issued 54,055 shares of restricted common stock for $124 accrued interest on notes payable
– related party.
On October 14, 2015, the tangible
personal property referred to legal settlement in Note 16. COMMITMENTS AND CONTINGENCIES was delivered by UBS to the Company
in full satisfaction of the last remaining term under settlement agreement. Accordingly, the Company reversed and received as inventory
the $7,200 settlement receivable recorded at September 30, 2015.
| 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. 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”, “we” 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 Pompano Beach, Florida. The Company’s common stock is quoted on the
OTC Markets (pink) under the symbol “BWMG”. The Company’s website is www.browniesmarinegroup.com.
Mr. Carmichael has
operated Trebor as its President since 1986. Since 2004, Mr. Carmichael has served as President, Principal Accounting Officer and
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 some patents that are used by Trebor and several other
large original equipment manufacturers in the diving industry. Mr. Carmichael is also the holder of trademarks and tradenames used
by the Company.
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 September 30, 2015, as Compared to the Three Months Ended September 30, 2014
Net
revenues. For the three months ended September 30, 2015, we had net revenues of $1,105,915 as compared to net revenues of
$805,472 for the three months ended September 30, 2014, an increase of $300,443, or 37.30%. Sales of tankfill systems and
related sales were up approximately $400,000 for the third quarter of 2015 compared to the third quarter of 2014, and this
increase was partially offset by an approximately $100,000 decline in hookah systems and related sales during the same
period. Discontinuance of the Company’s product liability insurance has had negative impact on hookah sales to some of
the Company’s dealers, but the Company believes sales of these products will rebound over time. The increase in
tankfill system and related sales was primarily attributable to one very large sale in addition to the other individual,
lesser dollar value sales during the period.
Cost of net revenues.
For the
three months ended September 30, 2015, we had cost of net revenues of $660,614 as compared with cost of net revenues of $539,666
for the three months ended September 30, 2014, an increase of $120,948, or 22.41%. Cost of material, the largest component of
cost of net revenues, was constant as a percentage of net revenues for the three months ended September 30, 2015, as compared
to the three months ended September 30, 2015. Therefore, the $120,948 increase in cost of net revenues is primarily attributable
to the increase in net revenues during the third quarter of 2015 compared to the same period in 2014.
Gross profit.
For the three months ended September 30, 2015, we had a gross profit of $445,301 as compared to gross profit of $265,806 for the
three months ended September 30, 2014, an increase of $179,495, or 67.53%. The increase in gross profit is primarily attributable
to increase in net revenues for the three months ended September 30, 2015, as compared to same period in 2014.
Operating expenses.
For the three months ended September 30, 2015, we had operating expenses of $194,539 as compared to operating expenses of $145,846
for the three months ended September 30, 2014, an increase of $48,693, or 33.39%. The increase is primarily attributable to approximate
$70,000 increase in legal expense for the three months ended September 30, 2015 compared to the same period in 2014. The majority
of the legal increase or, approximately $60,000, was for the settlement and dismissal of the Undersea Breathing Systems, Inc. (“UBS”)
legal proceeding discussed below during the third quarter of 2015 including defense and counterclaim settlement. This increase was partially offset by
net decrease in individually insignificant increases and decreases in account other balances.
Other (income)
expense, net. For the three months ended September 30, 2015, we had other (income) expense, net of $3,264, as compared to
other (income) expense, net of $(11,405) for the three months ended September 30, 2014, a change of $14,669 other (income)
expense, net, or 72.24%. This account is comprised of other (income) expense, net with $19,729 change during the
third quarter of 2015, compared to the third quarter of 2014; and interest expense, which decreased $5,060 during the three
months ended September 30, 2015 compared to same period in 2014. Other (income) expense, net is comprised of transactions
that are generally of a non-recurring nature. The $19,729 other income, net decrease is primarily due to transactions
occurring in the third quarter of 2014 without comparable transactions in the third quarter of 2015 including a $49,812 sales
commission partially offset by $20,406 headquarters and manufacturing facility relocation expense. During the third quarter
of 2015, the primary activity in this account was for $7,200 other income for legal settlement with no other individually
significant activity. The $5,060 decrease in interest expense during the third quarter of 2015, as compared to the third
quarter of 2014, is primarily attributable to approximately $1,000 less in convertible debenture interest due lower
convertible debenture balance outstanding during the third quarter of 2015, as compared to the same period in 2014; and
approximately $4,000 decrease in interest expense related party due to decline in note payable – related parties
balance during the three months ended September 30, 2015, as compared to same period in 2014.
Provision for income
tax expense. For the three months ended September 30, 2015 as compared to September 30, 2014 we had no change in the $0 provision
for income tax expense.
Net income. For
the three months ended September 30, 2015, we had net income of $247,498 as compared to net income of $131,365 for the three months
ended September 30, 2014, an increase of $116,133, or 88.40%. The $116,133 increase in net income is attributable to $179,495 increase
in gross profit, and partially offset by $48,693 increase in operating expenses, and $14,669 decrease in other income, net.
Results of Operations for the Nine
Months Ended September 30, 2015, as Compared to the Nine Months Ended September 30, 2014
Net revenues.
For the nine months ended September 30, 2015, we had net revenues of $2,281,636 as compared to net revenues of $2,258,980 for the
nine months ended September 30, 2014, an increase of $22,656, or 1%. Sales of tankfill systems and related sales were up approximately
$200,000 for the nine months ended September 30, 2015 compared to the same period in 2014, and this increase was partially offset
by an approximate $175,000 decline in hookah systems and related sales during the same period. Discontinuance of the Company’s
product liability insurance has had negative impact on hookah sales to some of the Company’s dealers, but the Company believes
sales of these products will rebound over time. The increase in tankfill system and related sales was primarily attributable to
one very large sale in addition to the other individual, lesser dollar value sales during the period.
Cost of net revenues.
For the
nine months ended September 30, 2015, we had cost of net revenues of $1,494,807 as compared with cost of net revenues of $1,569,621
for the nine months ended September 30, 2014, a decrease of $74,814, or 4.77%. The decrease during the nine months ended September
30, 2015 compared to nine months ended September 30, 2014, is primarily attributable approximately $24,000 decrease in overhead
allocation primarily due to discontinuance of product liability insurance in the third quarter of 2014, which was an expense allocable
as overhead; approximately $13,000 decrease in direct labor; approximately $18,000 decrease in subcontract labor; approximately
$6,000 decrease in non-sales freight; and approximately $15,000 net decrease of primarily individually insignificant decreases
in the majority of cost of net revenue accounts due to continuance of cost cutting measures by the Company to maximize working
capital without sacrificing quality. In addition, although material costs increased due to quantity increase in sales, the increase
was offset by an approximately 1% overall decline in material cost as a percentage of net revenues.
Gross profit.
For the nine months ended September 30, 2015, we had a gross profit of $786,829 as compared to gross profit of $689,359 for the
nine months ended September 30, 2014, an increase of $97,470, or 14.14%. The increase in gross profit is attributable to increase
in net revenues of $22,656 and decrease in cost of net revenues of $74,814 for the nine months ended September 30, 2015, as compared
to same period in 2014.
Operating
expenses. For the nine months ended September 30, 2015, we had operating expenses of $533,879 as compared to operating
expenses of $485,137 for the nine months ended September 30, 2014, an increase of $48,728, or 10.05%. The increase is
primarily attributable to increase in legal expense of approximately $118,000, approximately $17,000 increase in rent, and
partially offset by approximately $41,000 decrease in insurance expense related to discontinuance of product liability
insurance, and decrease in indirect labor of approximately $43,000. There were many other net increases and decreases in
account balances not deemed individually insignificant. The majority of the legal expense increase, or approximately $60,000,
was for the UBS legal proceeding during the third quarter of 2015 including legal defense and counterclaim settlement. The
balance of the increase in legal is primarily a result of a credit to legal expense for overbilled amount during the nine months ended September 30, 2014 without comparable transaction during the nine months ended
September 30, 2015. The decrease in direct labor for the nine months ended September 30, 2015 as compared to the same period
in 2014 is a result of reduction in head count not replaced when the Company’s factory and headquarters relocated in
October 2014.
Other (income)
expense, net. For the nine months ended September 30, 2015, we had other (income) expense, net of $24,229, as compared to
other (income) expense, net of $25,464 for the nine months ended September 30, 2014, a change in other (income) expense, net
of $1,235, or 4.85%. This account is comprised of other (income) expense, net that had $19,355 change during the nine months
ended September 30, 2015, compared to same period in 2014; and interest expense that decreased $20,590 during the nine months
ended September 30, 2015 compared to the nine months ended September 30, 2014. Other (income) expense net is comprised of
transactions that are generally of a non-recurring nature. The decrease in other income net of $19,235 is primarily due to
transactions occurring during the nine months ended September 30, 2014, without comparable transactions during the same
period in 2015 with the most significant being $49,812 sales commissions, $31,463 credit to accrued legal
expense, and partially offset by $20,406 headquarters and manufacturing facility relocation expense, $27,846 loss on disposal
of fixed assets, and $14,850 loss on convertible debenture settlement. During the nine months ended September 30,
2015, the most significant activity in this account included $7,200 other income for legal settlement, approximately $5,000
other net individually insignificant income items, and partially offset by $11,137 insurance expense audit adjustments, and
approximately $2,000 less royalty income during this period as compared to the same period in 2014. The $20,590 decrease in
interest expense is primarily attributable to approximately $7,000 less in convertible debenture interest due to lower
convertible debenture balance outstanding during the nine months ended September 30, 2015, as compared to the same period in
2015; and approximately $13,000 decrease in interest expense related party due to decline in note payable balance during the
nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014.
Provision for income
tax expense. For the nine months ended September 30, 2015, we had a provision for income tax expense of $43 as compared to
$44 for the nine months ended September 30, 2014, an insignificant decrease of $1, or 2.27%.
Net income.
For the nine months ended September 30, 2015, we had net income of $228,678
as compared to net income of $178,714 for the nine months ended September 30, 2014, an increase of $49,964, or 27.96%. The $49,964
increase in net income is primarily attributable to $97,470 increase in gross profit, and partially offset by increase in operating
expenses of $48,728.
Liquidity and Capital Resources
As of September 30,
2015, the Company had cash and current assets (primarily consisting of inventory) of $1,021,878 and current liabilities of $1,319,019
or a current ratio of .77 to 1. This represents a working capital deficit of $297,141. As of December 31, 2014, the Company had
cash and current assets of $774,291 and current liabilities of $1,356,642, or a current ratio of .57 to 1. As of December 31, 2013,
the Company had cash and current assets of $950,643 and current liabilities of $1,760,058, or a current ratio of .54 to 1.
The consolidated financial
statements included herein have been prepared assuming the Company will continue as a going concern, which contemplates realization
of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of
these financial statements. Although we had net income for the year ended December 31, 2014, and had net income for the nine months
ended September 30, 2015, we have otherwise incurred annual losses since 2009, and expect we may have more in future periods. We
have had a working capital deficit since 2009.
The Company is behind
on payments due matured convertible debentures; accrued liabilities and interest – related parties; and certain vendor payables.
The Company is handling delinquencies on a case by case basis. However, there can be no assurance that cooperation the Company
has received thus far will continue.
The Company does not
expect that existing cash flow will be sufficient to fund presently anticipated operations. This raises substantial doubt about
the Company’s ability to continue as a going concern during the twelve- month period following the date of the financial
statements included herein. The Company will need to raise additional funds and is currently exploring alternative sources of financing.
We have issued a number of convertible debentures as an interim measure to finance our working capital needs. We have historically
paid for many legal and consulting services with restricted stock to maximize working capital. We intend to continue this practice
in the future when possible. We have implemented some cost saving measures and will continue to explore more to reduce operating
expenses.
If we fail to raise
additional funds when needed, or do not have sufficient cash flows from sales, we may be required to scale back or cease operations,
liquidate our assets and possibly seek bankruptcy protection. The accompanying consolidated financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
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 ability to continue as a going
concern is in substantial doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
Although we incurred
net income of approximately $94,000 and $229,000 for the year ended December 31, 2014, and the nine months ended September 30,
2015, respectively, we had a net loss of approximately $896,000, for the year ended December 31, 2013. We anticipate some losses
will continue for the foreseeable future. Additionally, the Company has negative cash flows from operations, negative working capital,
is behind on payments due for matured convertible debentures, related party notes payable, accrued liabilities and interest –related
parties, and certain vendor payables. The Company is working out all matters of delinquency on a case by case basis. However, there
can be no assurance that cooperation the Company has received thus far will continue. This raises a substantial doubt about our
ability to continue as a going concern. Our continued existence is dependent upon generating working capital and obtaining adequate
new debt or equity financing. Because of our continuing losses, we may not have working capital to permit us to remain in business
during the twelve- month period following the date of the financial statements included herein, without improvements in our cash
flow from operations or new financing. Working capital limitations continue to impinge on our day-to-day operations, thus contributing
to continued operating losses.
The optional conversion features of
a series of convertible debentures issued by the Company could require the Company to issue a substantial number of shares of common
stock, which will cause dilution to the Company’s stockholders and a potentially negative effect on our stock price.
Since October 4, 2010
the Company has issued convertible debentures to several lenders and other third parties. At September 30, 2015, the outstanding
principal balance of these debentures was $371,965. The debentures convert under various conversion formulas, all of which are
at a significant discount to market price of our common stock. The conversion of any of the debentures will result in the issuance
of a significant number of shares of our common stock which will cause dilution to our existing shareholders. Furthermore, the
conversion at a significant discount to the market price of our common stock may have a negative effect on our stock price.
Our common stock
may be affected by limited trading volume and may fluctuate significantly.
Our common stock is
traded on the OTC Markets (pinks). 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 company is
a voluntary filer with the Securities and Exchange Commission and in the event that we cease reporting under the Exchange Act,
investors would have limited information available to them about the company.
While we are subject
to Section 15(d) of the Exchange Act, we do not have a class of securities registered under Section 12(g) of the Exchange Act.
To the extent that our duty to file Exchange Act reports has automatically suspended under Section 15(d) of the Exchange Act, as
a voluntary filer, we may elect to cease reporting under the Exchange Act at such time which would limit the information available
to investors and shareholders about the company.
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. Note: Services of one of the aforementioned consultants
will in essence 2015 cease after the filing of the third quarter Form 10-Q. A suitable replacement has been retained and the Company
expects a smooth transition with the assistance of the exiting consultant as needed.
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.
We rely on vendors
and manufacturers without long-term contracts.
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.
We depend on
consumer spending on discretionary items.
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 affect 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 negatively 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.
The manufacture
and distribution of recreational diving equipment could result in product liability claims and we currently lack product liability
insurance.
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. We currently do not have any product liability
insurance. 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. |
Not Applicable to Smaller
Reporting Company.
| Item 4. | Controls
and Procedures |
Evaluation of
Disclosure Controls and Procedures
Our management carried
out an evaluation with the participation of our Chief Executive Officer who serves as our principal executive officer and principal
financial and accounting officer, required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)
of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.
Based on this evaluation,
our Chief Executive Officer and principal financial and accounting officer concluded that as of the end of the period covered by
this report, our disclosure controls and procedures were not effective such that the information relating to our company required
to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC
rules and forms and (ii) is accumulated and communicated to our management to allow timely decisions regarding required disclosures.
Our management concluded that our disclosure controls and procedures were not effective as of September 30, 2015, as described
in more detail below. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight
of the registrant’s financial reporting.
The specific weakness
identified by our management was a lack of personnel with an appropriate level of SEC reporting and accounting experience and training
in the application of U.S. Generally Accepted Accounting Principles (“GAAP”) commensurate with our financial reporting
requirements and business environment. The weakness is principally due to lack of working capital to retain qualified employees,
which are integral to the Company’s process for timely disclosure and financial reporting. Furthermore, our chief executive
officer and chief financial officer, Mr. Robert Carmichael, lacks experience in U.S. GAAP and financial accounting. We rely extensively
on outside service providers to comply with our financial reporting requirements. Since our inception we have relied on an outside
consultant with experience in this area to assist us prepare our financial statements and disclosures in accordance with U.S. GAAP.
Until such time as we have a chief executive officer and/or chief financial officer with the requisite expertise in U.S. GAAP,
there are no assurances that the significant deficiency in our internal control over financial reporting will not result in errors
in our financial statements which could lead to a restatement of those financial statements. This deficiency resulted in the failure
of the Company to timely file Form 8-K current reports relating to conversions of related party employee compensation payable to
restricted stock, and payment in restricted stock of accrued interest on notes payable during the period covered by this report.
These transactions are disclosed in the notes to the Company’s Financial Statements for the period covered by this report
included herein.
To mitigate the chance
for reoccurrence of this noted deficiency, as disclosed in the Liquidity and Capital Resources section of this Form 10-Q
Quarterly Report, the Company is currently in the process of addressing its working capital shortfall whereby this would provide
the needed funds to retain the legal, accounting, and external services required for timely disclosure and financial reporting.
Changes in Internal
Controls over Financial Reporting
There were no changes
in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during
the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II – OTHER INFORMATION
On September 24, 2015,
all claims and counterclaims by and between Undersea Breathing Systems, Inc. (“UBS”) and the Company were settled in
full. The settlement included the Company owing UBS nothing and UBS owing the Company certain tangible property within 14 days,
mutual execution of general release, and stipulation for dismissal with prejudice with all parties to bear their own attorneys’
fees and costs. The Company’s legal expenses and fees during the third quarter 2015 related to this action were approximately
$60,000, and the fair value estimate of the tangible property (inventory items) receivable was approximately $7,200. The Company
recorded the $60,000 during the third quarter of 2015 as legal expense, and $7,200 as other income. On July 1, 2014, the amended
complaint for damages in excess of $15,000 filed by UBS on December 10, 2013 in the Circuit Court of the 15th Judicial
Circuit in and for Palm Beach County, FL was partially dismissed as to Count IV, Default on Promissory Note Against BWMG.
Not Applicable to Smaller
Reporting Company.
| Item 2. | Unregistered
sales of equity securities and use of proceeds |
During the period covered
by this report, the Company sold securities without registration under the Securities Act of 1933 (the “Securities Act”)
in reliance upon the exemption provided in Section 4(a)(2) as described below or as otherwise previously disclosed on Form 8-K.
During the three months
ended September 30, 2015, $13,500 compensation payable to a related party was converted to 6,092,572 shares of restricted stock,
which were issued the employee and affiliate of the Company.
During the three months
ended September 30, 2015, $489 accrued interest on note-payable – related parties was converted to 204,012 shares of restricted
common stock, which were issued to the Company’s Chief Executive Officer.
| Item 3. | Defaults
Upon Senior Securities |
None
| Item 4. | MINE SAFETY DISCLOSURE |
None
None
Exhibit
No. |
|
Description |
|
Location |
|
|
|
|
|
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. |
|
|
|
|
|
101 |
|
XBRL Interactive Data File * |
|
|
*
Attached as Exhibit 101 to this report are the following financial statements from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Deficit (iv) the Consolidated
Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text.
SIGNATURES
In accordance with
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: |
November 2, 2015 |
|
Brownie’s Marine Group, Inc. |
|
|
|
|
|
|
|
|
|
|
By: |
/s/ Robert M. Carmichael |
|
|
|
|
|
Robert M. Carmichael |
|
|
|
|
|
President, Chief Executive Officer, |
|
|
|
|
|
Chief Financial Officer/ |
|
|
|
|
|
Principal Accounting Officer |
|
EXHIBIT
31.1
OFFICER’S
CERTIFICATE
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, Robert Carmichael,
Chief Executive Officer, certify that:
1. I
have reviewed this Form 10-Q for the quarter ended September 30, 2015, of Brownie’s Marine Group, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods
presented in this report;
4. I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15 (e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed
in this report any change in the small business issuer’s internal control over financial reporting that occurred during the
small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s
internal control over financial reporting; and
5. I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer’s
auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent
functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial
information; and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s
internal control over financial reporting.
Date: |
November 2, 2015 |
|
By: |
/s/ Robert M. Carmichael |
|
|
|
Name: |
Robert M. Carmichael |
|
|
|
Title: |
Chief Executive Officer |
|
EXHIBIT
31.2
OFFICER’S
CERTIFICATE
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, Robert Carmichael,
Chief Financial Officer, certify that:
1. I
have reviewed this Form 10-Q for the quarter ended September 30, 2015, of Brownie’s Marine Group, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods
presented in this report;
4. I
am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15 (e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant issuer and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed
in this report any change in the small business issuer’s internal control over financial reporting that occurred during the
small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s
internal control over financial reporting; and
5. I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer’s
auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent
functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial
information; and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s
internal control over financial reporting.
Date: |
November 2, 2015 |
|
By: |
/s/ Robert M. Carmichael |
|
|
|
Name: |
Robert M. Carmichael |
|
|
|
Title: |
Chief Financial Officer |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT
TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection
with the Quarterly Report of Brownie’s Marine Group, Inc. (the “Company”) on Form 10-Q for the
quarter ended September 30, 2015 as filed with the United States Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Date: |
November 2, 2015 |
|
By: |
/s/ Robert M. Carmichael |
|
|
|
Name: |
Robert M. Carmichael |
|
|
|
Title: |
Chief Executive Officer |
|
A signed original of this written statement
required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in
typed form within the electronic version of this written statement required by Section 906, has been provided to Brownie’s
Marine Group, Inc. and will be retained by Brownie’s Marine Group, Inc. and furnished to the United States Securities and
Exchange Commission or its staff upon request.
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection
with the Quarterly Report of Brownie’s Marine Group, Inc. (the “Company”) on Form 10-Q for the
quarter ended September 30, 2015 as filed with the United States Securities and Exchange Commission on the date hereof (the
“Report”), the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operation
of the Company.
Date: |
November 2, 2015 |
|
By: |
/s/ Robert M. Carmichael |
|
|
|
Name: |
Robert M. Carmichael |
|
|
|
Title: |
Chief Financial Officer |
|
A
signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906,
has been provided to Brownie’s Marine Group, Inc. and will be retained by Brownie’s Marine Group, Inc. and furnished
to the United States Securities and Exchange Commission or its staff upon request.
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