Quarterly Report (10-q)

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(mark one)

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

For the quarterly period ended June 30, 2014

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.)

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

(954) 462-5570

(Issuer’s Telephone Number, Including Area Code)

(Former Name, if Changed Since Last Report)

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

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 30,344,667 shares of common stock outstanding as of August 14, 2014.

PART I

Item 1. Financial Statements

Financial Information

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30,			December 31,
	2014			2013
ASSETS

Current assets
Cash	$	37,603		$	70,084
Accounts receivable, net of $38,000 and $39,000 allowance for doubtful accounts, respectively		28,139			30,298
Accounts receivable - related parties		96,048			105,942
Inventory		695,695			735,926
Prepaid expenses and other current assets		146,211			109,523
Other current assets - related parties		5,257			5,917
Deferred tax asset, net - current		233			277
Total current assets		1,009,186			1,057,967

Furniture, fixtures and equipment, net of accumulated depreciation of $111,393 and $128,631, respectively		60,535			76,265

Deferred tax asset, net - non-current		2,330			2,330
Other assets		27,635			27,635

Total assets	$	1,099,686		$	1,164,197

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Accounts payable and accrued liabilities	$	507,951		$	517,058
Customer deposits and unearned revenue		37,050			99,610
Royalties payable - related parties		131,429			137,129
Other liabilities		250,916			252,009
Other liabilities and accrued interest - related parties		96,526			90,517
Convertible debentures, net		475,336			523,576
Notes payable - current portion		9,114			12,540
Notes payable - related parties - current portion		63,750			127,619
Total current liabilities		1,572,072			1,760,058

Long-term liabilities
Notes payable - long-term portion		—			2,765

Total liabilities		1,572,072			1,762,823

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; 70,099,076 and 10,049,140 shares issued, respectively; 23,583,351 and 5,672,051 shares outstanding, respectively		2,358			567
Common stock payable; $0.0001 par value; 195,610 and 200,795 shares, respectively		20			20
Additional paid-in capital		8,555,192			8,478,092
Accumulated deficit		(9,030,381	)		(9,077,730	)
Total stockholders' deficit		(472,386	)		(598,626	)

Total liabilities and stockholders' deficit	$	1,099,686		$	1,164,197

See Accompanying Unaudited Notes to Consolidated Financial Statements

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013

Net revenues
Net revenues	$	549,054	$	337,346		$	781,373	$	760,627
Net revenues - related parties		316,070		255,289			672,135		420,671
Total net revenues		865,124		592,635			1,453,508		1,181,298

Cost of net revenues
Cost of net revenues		544,472		432,159			996,318		905,077
Royalties expense - related parties		20,411		14,662			33,637		14,283
Total cost of net revenues		564,883		446,821			1,029,955		919,360

Gross profit		300,241		145,814			423,553		261,938

Operating expenses
Selling, general and administrative		157,745		333,752			337,712		911,781
Research and development costs		1,200		16,355			1,579		15,599
Total operating expenses		158,945		350,107			339,291		927,380

Loss from operations		141,296		(204,293	)		84,262		(665,442	)

Other (income) expense, net
Other (income) expense, net		39,342		(120,402	)		2,604		(28,624	)
Change in derivative liability		—		(565,689	)		—		—
Interest expense		11,700		56,200			25,252		125,050
Interest expense - related parties		4,506		271			9,013		928
Total other (income) expense, net		55,548		(629,620	)		36,869		97,354

Net income (loss) before provision for income taxes		85,748		425,327			47,393		(762,796	)

Provision for income tax (benefit) expense		—		(456	)		44		3,327

Net income (loss)	$	85,748	$	425,783		$	47,349	$	(766,123	)

Basic income (loss) per common share	$	0.01	$	0.19		$	0.00	$	(0.49	)
Diluted income (loss) per common share	$	0.00	$	0.03		$	0.00	$	(0.49	)

Basic weighted average common shares outstanding		14,097,417		2,191,590			10,665,857		1,570,240
Diluted weighted average common shares outstanding		69,028,500		13,225,571			65,596,941		1,570,240

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, 2013		5,672,051		$	567			425,000	$	425		195,610	$	20	$	8,478,092		$	(9,077,730	)	$	(598,626	)

Conversion of related party employee compensation payable to stock		1,223,977			122			—		—		—		—		13,378			—			13,500

Conversion of accrued interest on convertible debentures to stock		307,224			31			—		—		—		—		1,669			—			1,700

Conversion of convertible debentures to stock		2,239,007			224			—		—		—		—		9,886			—			10,110

Retirement of shares returned by non-employee Board of Director		(14,406	)		(1	)		—		—		—		—		(1,382	)		—			(1,383	)

Net loss		—			—			—		—		—		—		—			(38,399	)		(38,399	)

Balance, March 31, 2014 (Unaudited)		9,427,853		$	943			425,000	$	425		195,610	$	20	$	8,501,643		$	(9,116,129	)	$	(613,098	)

Conversion of related party employee compensation payable to stock		1,696,872			169			—		—		—		—		13,331			—			13,500

Conversion of convertible debentures to stock		12,458,626			1,246			—		—		—		—		40,218			—			41,464

Net income		—			—			—		—		—		—		—			85,748			85,748

Balance, June 30, 2014 (Unaudited)		23,583,351		$	2,358			425,000	$	425		195,610	$	20	$	8,555,192		$	(9,030,381	)	$	(472,386	)

See Accompanying Unaudited Notes to Consolidated Financial Statements

BROWNIE'S MARINE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2014			2013

Cash flows provided by (used in) operating activities:
Net income (loss)	$	47,349		$	(766,123	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		10,656			9,371
Amortization of security purchase commitment fees		—			8,680
Change in deferred tax asset, net		44			3,327
Equity based compensation for consulting and legal services		—			51,800
Equity based compensation for product exclusivity		—			6,667
Equity based employee and consultant bonuses		—			20,100
Equity based non-employee Board of Director' fees		—			15,000
Accretion of convertible debenture discounts		3,334			88,999
Equity based Chief Executive Officer compensation and bonuses		—			172,358
Amortization of prepaid equity based compensation to Chief Executive Officer		—			137,494
Loss on disposal of fixed assets		24,486			—
Loss on extinguishment of convertible debentures		—			93,825
Retirement of certain 2012 year end consultant bonuses		—			(47,500	)
Changes in operating assets and liabilities:
Change in accounts receivable, net		2,159			17,215
Change in accounts receivable - related parties		9,894			(62,091	)
Change in inventory		40,231			(56,562	)
Change in prepaid expenses and other current assets		(38,071	)		8,422
Change in other current assets - related parties		660			—
Change in other assets		—			4,054
Change in accounts payable and accrued liabilities		(24,895	)		102,156
Change in customer deposits and unearned revenue		(62,560	)		79,449
Change in other liabilities		(1,093	)		(7,976	)
Change in other liabilities and accrued interest - related parties		50,509			—
Change in royalties payable - related parties		(5,700	)		7,886
Net cash provide by (used in) operating activities		57,003			(113,449	)

Cash flows from investing activities:
Purchase of fixed assets		(19,412	)		—
Net cash used in investing activities		(19,412	)		—

Cash flows from financing activities:
Proceeds from borrowing on convertible debentures		—			176,750
Proceeds from short-term loans payable		—			3,000
Principal payment on convertible debentures		—			(72,250	)
Principal payments on note payable		(6,203	)		(5,885	)
Principal payments on note payable - related parties		(63,869	)		(37,442	)
Net cash (used in) provided by financing activities		(70,072	)		64,173

Net change in cash		(32,481	)		(49,276	)

Cash, beginning of period		70,084			69,292

Cash, end of period	$	37,603		$	20,016

	Six Months Ended June 30,
	2014		2013


Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,301	$	1,547

Cash paid for income taxes	$	--	$	--

Supplemental disclosures of non-cash investing activities and future operating activities:
Discounts on convertible debentures	$	--	$	72,053

Stock issued for Non-Employee Board of Director Fees	$	--	$	15,000

Conversion of convertible debentures to stock	$	51,574	$	152,079

Conversion of accrued payroll to stock - related party	$	27,000	$	27,000

Conversion of accrued interest and fees on convertible debentures to stock	$	1,700	$	7,398

Conversion of accrued Non-employee Board of Directors fees to stock	$	--	$	15,000

Retirement of shares returned by non-employee Board of Director	$	1,383	$	--

Security purchase commitment fees payable in stock	$	--	$	125,000

See Accompanying Unaudited Notes to Consolidated Financial Statements

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of business and summary of significant accounting policies

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

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 2013 financial statement amounts to conform to the 2014 financial statement presentation. Effective July 15, 2013 the Company effectuated a reverse stock split (1 -for- 1,350). See Note 18. CHANGE IN CAPITAL STRUCTURE for more information. Accordingly, the transactional number of shares referenced throughout the Notes has been retroactively stated unless otherwise noted.

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.

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. We have incurred losses since 2009, and expect to have in 2014. We have had a working capital deficit since 2009.

The Company is behind on payments due for payroll taxes and withholding, matured convertible debentures, related parties notes payable, 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of business and summary of significant accounting policies (continued)

Going Concern (continued) – During the fourth quarter of 2011, the Company formed a joint venture with one dive entity, and in the first quarter of 2012, purchased the assets of another, with assumption of their retail location lease. The Company accomplished both transactions predominantly through issuance of restricted common stock in BWMG. The Company believed these transactions would help generate sufficient future working capital. Neither endeavor did or has generated profit or positive cash-flow. Therefore, effective May 31, 2013, the Company closed and ceased operations at its retail facility. The Company is still involved in the joint venture. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT and Note 8. ASSET PURCHASE for further discussion of these transactions. As a result, the Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations beyond the third quarter of 2014. This raises substantial doubt about BWMG’s ability to continue as a going concern. 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.

Inventory – Inventory is stated at the lower of cost or fair market 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, and Equipment – Furniture, Fixtures, and Equipment is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, 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.

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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of business and summary of significant accounting policies (continued)

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 (credit) expense incurred for the three months ended June 30, 2014 and 2013, was $292 and $5,889, respectively. Advertising and trade show expense incurred for the six months ended June 30, 2014, and 2013, was $620 and $33,161, respectively.

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 has been determined either through use of the quoted stock price.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of business and summary of significant ACCOUNTING policies (continued)

Stock-based compensation (continued) – For the three and six months ended June 30, 2014 and 2013, the Company compensated and/or converted all accrued payroll to stock for one related party employee. In addition, for the three and six months ended June 30, 2014 and 2013, the Company transacted stock-based compensation transactions as follows: amortized prepaid equity based compensation for personal guarantees of Chief Executive Officer on Company’s bank debt; additional compensation expense to the Chief Executive Officer; Board of Directors’ fees and bonuses; certain consulting, legal, and other professional fees; equity based incentive and/or retention bonuses for some employees, and consultants; and operating expense for exclusivity pursuant to strategic alliance agreement payable. These transactions, as applicable, are also further discussed in Note 7. RELATED PARTIES TRANSACTIONS, Note 13. EQUITY BASED COMPENSATION FOR CONSULTING, LEGAL, AND OTHER PROFESSIONAL SERVICES, Note 20. EQUITY BASED INCENTIVE/RETENTION BONUSES, and Note 21. STRATEGIC ALLIANCE AGREEMENT.

Beneficial conversion features on convertible debentures – The fair value of the stock upon which to base the beneficial conversion feature (BCF) computation has been determined either through use of the quoted stock price. See Note 12. CONVERTIBLE DEBENTURES for further discussion.

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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of business and summary of significant ACCOUNTING policies (continued)

Fair value of financial instruments (continued) – At June 30, 2014, and December 31, 2013, 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 June 30, 2014, and December 31, 2013, or $475,336, and $516,800, respectively, as presented in Note 12. CONVERTIBLE DEBENTURES. The principal balance due approximates fair value because of the short maturity of these instruments. On the face of the balance sheet the convertible debentures are presented net of discount, which is less than fair market value at period end dates when discount is not fully accreted.

Earnings per common share – Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Basic earnings per share is computed using the weighted-average number of outstanding common shares during the applicable period. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. Common stock equivalent shares are excluded from the computation if their effect is antidilutive. All common stock equivalent shares were excluded in the computation dilutive earnings per share for the six months ended June 30, 2014, and 2013, since their effect was antidilutive.

New accounting pronouncements – The Company believes there was no new accounting guidance adopted 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

Inventory consists of the following as of:

	June 30, 2014		December 31, 2013

Raw materials	$	287,879	$	317,187
Work in process		—		—
Finished goods		407,816		418,739
	$	695,695	$	735,926

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets totaling $146,211 at June 30, 2014, consists of $114,115 prepaid inventory, $17,741 prepaid insurance, $13,493 prepaid subcontract labor; and $862 other current assets and prepaid expenses.

Prepaid expenses and other current assets totaling $109,523 at December 31, 2013, consists of $94,990 prepaid inventory, $14,141 prepaid insurance, and $392 other current assets.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FURNITURE, FIXTURES, AND EQUIPMENT

Furniture, fixtures, and equipment consists of the following as of:

	June 30, 2014			December 31, 2013

Furniture, fixtures, vehicles and equipment	$	171,928		$	204,896
Less: accumulated depreciation and amortization		(111,393	)		(128,631	)
	$	60,535		$	76,265

5. OTHER ASSETS

		Other assets of $27,635 at June 30, 2014 and December 31, 2013, consists of $24,740 investment in joint venture, and $2,895 refundable deposits. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT for further information on investment in joint venture.

CUSTOMER CREDIT CONCENTRATIONS

The Company sells to three entities owned by the brother of Robert Carmichael, the Company’s Chief Executive officer, and two Company’s owned by the Chief Executive Officer as further discussed in Note 7. RELATED PARTIES TRANSACTIONS. Combined sales to these five entities for three months ended June 30, 2014 and 2013, represented 35.94% and 42.22%, respectively, of total net revenues. Combined sales to these five entities for six months ended June 30, 2014 and 2013, represented 45.81% and 35.09%, respectively, of total net revenues. Sales to no other customers represented greater than 10% of net revenues for three and six months ended June 30, 2014, and 2013.

RELATED PARTIES TRANSACTIONS

Notes payable – related parties

Notes payable – related parties consists of the following at June 30, 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, maturing on November 1, 2014	$	63,750

Less amounts due within one year		63,750

Long-term portion of notes payable	$	—

As of June 30, 2014, principal payments on the notes payable – related parties are as follows:

2014	$	63,750
2015		—
2016		—
2017		—
2018		—
Thereafter		—

	$	63,750

During the three months ended March 31, 2014, the Company fully satisfied the note payable due the Chief Executive Officer for $49,702, which had matured in September 2013.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTIES TRANSACTIONS (continued)

As of June 30, 2014, the Company was four months in arrears on payments due under the Note payable to the non-employee Board of Director. No notice of default has been received and the Company plans to make payments as able.

Notes payable – related parties consists of the following at December 31, 2013:

Promissory note payable to the Chief Executive Officer of the the Company, unsecured, bearing interest at 7.5% per annum, due in monthly principal and interest payments of $7,050, maturing on August 1, 2013.	$	49,702

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, maturing on November 1, 2014.		77,917

		127,619

Less amounts due within one year		127,619

Long-term portion of notes payable	$	—

As of December 31, 2013, the Company was approximately nine months in arrears on principal payments due under the Note payable to the Chief Executive Officer. On May 13, 2013, the Company granted the Chief Executive Officer 370,371 shares of common stock in satisfaction of $50,000 of note payable – related parties. The shares of stock were issued at the fair market value, or trading price, on the date of the transaction.

On October 30, 2013, the Company signed a 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.

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 June 30, 2014 and 2013, was $265,490 and $250,228, respectively. Combined net revenues from these entities for six months ended June 30, 2014 and 2013, was $487,231 and $414,473, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at June 30, 2014, was $53,414, $4,799, and $17,042, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2013, was $11,926, $6,116, and $3,047, respectively.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTIES TRANSACTIONS (continued)

Net revenues and accounts receivable – related parties (continued) - The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) And 940 Associates, Inc., fully owned by the Company’s Chief Executive Officer. Terms of sale are 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 to BGL approximate cost or include a nominal margin. These terms are consistent with those extended to Brownie’s strategic partners. Strategic partner terms 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 June 30, 2014 and 2013, was $45,447 and $0, respectively. Combined net revenues from these entities for six months ended June 30, 2014 and 2013, was $178,691 and $0, respectively. Accounts receivable from BGL at June 30, 2014, and December 30, 2013 was $607 and $70,823, respectively.

Sales to Pompano Dive Center for the three months ended June 30, 2014, and 2013, was $5,133 and $5,061, respectively. Sales to Pompano Dive Center for the six months ended June 30, 2014, and 2013, was $6,212 and $6,198, respectively. Terms of sale are no more favorable than those extended to any of the Company’s other customers. Accounts receivable from Pompano Dive Center at June 30, 2014 and December 31, 2013, was $20,187, and $14,029, respectively. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT for further discussion regarding Pompano Dive Center. .

Royalties expense – related parties – The Company has Non-Exclusive License Agreements with 940 Associates, Inc. (hereinafter referred to as “940A”), an entity owned by the Company’s Chief Executive Officer, to license product patents it owns. Under the terms of the license agreements effective January 1, 2005, the Company pays 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 six months ended June 30, 2014 and 2013, is disclosed on the face of the Company’s Consolidated Statements of Operations. As of June 30, 2014, and December 31, 2013, the Company was approximately twenty-five and twenty-six 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 for Chief Executive Officer – On November 2, 2012, the Board of Directors (BODs) approved a stock incentive bonus to certain key employees and consultants to vest and pay out on May 2, 2013, contingent upon continued employment or services. The stock bonus price per share was calculated based on last closing price per the OTCBB on the effective date of the transaction. Of the total stock incentive bonuses declared for the key employees and consultants of $75,150 or 61,852 shares of common stock, the Chief Executive was awarded $45,000 or 37,037 shares. The Company recorded compensation expense ratably over the vesting period, and for the three months ended June 30, 2013, compensation expense to the Chief Executive Officer related to this transaction was $22,500. See Note 20. EQUITY BASED INCENTIVE/RETENTION BONUSES for further discussion. In addition, on February 23, 2013, the Company declared a bonus payable for the years ended 2012 for certain employees, service providers, and consultants. As part of this bonus, the Chief Executive Officer was awarded $67,000 to be paid out in cash or stock based on later determination by the BODs. This amount is 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 BODs of the Company on June 11, 2012, clarifying a meeting held on May 31, 2012, the BOD 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. These shares are included in shares payable on the statement of stockholders’ deficit.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTIES TRANSACTIONS (continued)

Equity based compensation for Chief Executive Officer – (continued) Lastly, the Chief Executive Officer’s monthly salary was increased by $16,667 per month beginning in June 2012, payable in restricted stock calculated based on a monthly weighted average share factor of .70, or a 30% discount (“incremental salary”). The shares were to vest six months after the last day of each month, continued employment was requirement for vesting, and shares would not be issuable until vested. The Company recorded $23,801 operating expense each month related to the incremental salary, which was $16,667 plus $7,144 discount added back to record at full monthly weighted average price per market. On December 23, 2013, the Chief Executive Officer forgave all incremental salary shares payable to him by the Company from 2012 and through November 2013. As a result, the Company recorded $428,578 contribution to Additional Paid in Capital for the year ended December 31, 2013, for the cancellation of the $261,904, and $166,667 stock payable from 2013 and 2012, respectively.

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.

On February 23, 2013, the Company declared a bonus payable for the years ended 2012 for certain employees, service providers, and consultants. As part of this bonus, Mr. Pitzner was awarded restricted shares of common stock with $73,000 fair market value. The shares were issued to Mr. Pitzner during the three months ended June 30, 2013.

Equity based compensation to employee – During November 2013, Alexander F. Purdon, an employee of the Company, exceeded 10% ownership whereby he was reclassified to related party. The Company pays Mr. Purdon’s employment compensation 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 June 30, 2014 and 2013, stock based compensation to Mr. Purdon was $13,500 and $9,000, 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 Board of Directors, Mr. Purdon is due $17,500. Lastly, of 61,852 total shares of common stock attributable to incentive retention bonuses declared by the Board of Directors in 2012, which vested as of May 2013, Mr. Purdon received 1,852 shares of stock, which were valued at $2,250. These shares are included in shares payable on the statement of stockholders’ deficit. 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 September 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 is 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 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTIES TRANSACTIONS (continued)

Other liabilities and accrued interest– related parties

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

	June 30, 2014		December 31, 2013

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		6,009		—
Due to Principals of Carleigh Rae Corp., net		6,017		6,017
	$	96,526	$	90,517

Restricted common stock issued for personal guarantee – On April 21, 2011, the Company granted Robert Carmichael, the Chief Executive Officer, 14,815 shares of restricted common stock in consideration of personal guarantees he provided to secure restatement and consolidation of the first and second mortgages of the Company. The restrictions on the common stock expired 50% on April 20, 2012, and 50% on April 20, 2013, since Mr. Carmichael continued his full time employment with the Company. The company valued the stock at determined fair market value per share on the date of the transaction and has recorded $1,000,000 of compensation expense to Mr. Carmichael ratably over the two-year term in which the restrictions expired. The unearned balance of the compensation was recorded as prepaid compensation as a component of shareholders’ deficit. For the years ended December 31, 2013 and 2012, the Company recognized $137,494 and $500,004, respectively, as amortization of prepaid compensation under this agreement. Prepaid compensation remaining under this agreement as of December 31, 2013, and December 31, 2012, was $0 and $137,494, respectively, and is reflected as a component of Stockholders’ Deficit.

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 Intellectual Property (“IP), the Company issued Mr. Carmichael 234 stock options (adjusted for 1 –for– 1,350 reverse stock split) at a $1,350 exercise price per share with expiration ten years from the effective date of grant, or March 2, 2019. None of the options have been exercised to-date.

ASSET PURCHASE

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 (“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. In addition, the Company assumed a commercial lease obligation for a retail dive store in Boca Raton, Florida beginning in April 1, 2012. The lease was automatically renewable on an annual basis through May 31, 2014, with 90 days written notice assuming the Lessee was in compliance with all terms of the lease. On May 31, 2013, the Company closed the dive store and vacated the premises. The $3,200 lease deposit was returned during the year ended December 31, 2013. As of June 30, 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities of $507,951 at June 30, 2014, consists of $209,048 accounts payable trade, $42,512 accrued payroll and related fringe benefits, $45,000 accrued year-end bonuses, $43,249 accrued payroll taxes and withholding, $14,850 accrued loss for debenture settlement in July 2014, and $153,292 accrued interest. Accrued payroll taxes and withholding were approximately six months in arrears at June 30, 2014. 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.

Accounts payable and accrued liabilities of $517,058 at December 31, 2013, consists of $245,672 accounts payable trade, $50,910 accrued payroll and related fringe benefits, $45,000 accrued year-end bonuses, $42,093 accrued payroll taxes and withholding, and $133,383 accrued interest. Accrued payroll taxes and withholding were approximately six months in arrears at December 31, 2013. Balances due certain vendors are also due in arrears to varying degrees.

10.

OTHER LIABILITIES

Other liabilities of $250,916 at June 30, 2014, consists of $235,000 short-term loans, $12,857 payable for assets purchased pursuant to Asset Purchase Agreement (Note 8. ASSET PURCHASE), and $3,059 on-line training liability. Other liabilities of $252,009 at December 31, 2013, consists of $235,000 short-term loans, $12,857 payable for assets purchased pursuant to Asset Purchase Agreement, $3,169 on-line training liability, and $983 other liabilities. The $235,000 short-term loans is comprised of three 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 convertible debentures referenced in (13) of Note 12. CONVERTIBLE DEBENTURES.

On-line training certificates with all hookah units sold. The training certificates entitle the holder to an on-line interactive course at no additional charge to the holder. The number of on-line training certificates issued per unit is the same as the number of divers the unit as sold is designed to accommodate (i.e., a three diver unit configuration comes with three on-line training certificates). The certificates have 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

NOTES PAYABLE

Notes payable consists of the following as of June 30, 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.	$	9,114

Less amounts due within one year		9,114

Long-term portion of notes payable	$	—

As of June 30, 2014, principal payments on the notes payable are as follows:

2014	$	6,349
2015		2,765
2016		—
2017		—
2018		—
Thereafter		—

	$	9,114

The unsecured note payable in the table above and as reflected table below in the December 31, 2013, note payable balance 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, 2013:

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.	$	15,305

Less amounts due within one year		12,540

Long-term portion of notes payable	$	2,765

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES

Convertible debentures consist of the following at June 30, 2014:

Origination Date	Maturity Date	Interest Rate			Origination Principal Balance		Origination Discount Balance			Period End Principal Balance		Period End Discount Balance		Period End Balance, Net		Accrued Interest Balance		Ref.
11/27/2010	5/27/2011		10	%		125,000		(53,571	)	$	58,750		-	$	58,750	$	25,889		(2	)
1/7/2011	11/11/2011		5	%		76,000		(32,571	)		48,000		-		48,000		9,150		(3	)
8/8/2012	5/2/2013		8	%		42,500		(27,172	)		-		-		-		-		(4	)
10/31/2012	8/2/2013		8	%		78,500		(50,189	)		47,860		-		47,860		10,255		(4	)
5/3/2011	5/5/2012		5	%		300,000		(206,832	)		300,000		-		300,000		95,000		(6	)
8/31/2011	8/31/2013		5	%		10,000		(4,286	)		10,000		-		10,000		1,427		(7	)
2/2/2012			10	%		See ref (9) for Discussion							-		-		379		(9	)
3/14/2012	2/10/2014		10	%		5,500		-			472		-		472		144		(10	)
2/10/2012	2/10/2014		10	%		39,724		-			2,743		-		2,743		3,365		(11	)
4/8/2013	4/14/2013		9.90	%		20,000		(13,333	)		7,511		-		7,511		2,357		(14	)

										$	475,336			$	475,336	$	147,966

Reference numbers in right hand column of table entitled Ref. refer to paragraphs with corresponding number that immediately follow the next paragraph. The referenced paragraphs also support the December 31, 2013 table, which appears at the end of this Note. Therefore, it is appropriate that some of the number references do not appear in the table above (i.e. Ref. 1).

During the first quarter of 2013, the Company determined based on closing market price of $.0005 (pre-reverse stock split), and based on terms of convertible debt, its convertible and/or committed shares were in excess of its authorized common stock of 5,000,000,000. Most of the Company’s convertible debentures have conversion rates at substantial discount to market price; therefore, a decline in market price impacts the number of shares convertible. As a result, the Company recorded a derivative liability of $565,689, which represented the amount of shares convertible or committed in excess of the shares authorized at $.0005 per share, the closing market price at March 30, 2013, and as valued according to the Black-Scholes valuation model. On July 15, 2013, the Company effectuated a reverse stock split (1 -for- 1,350), which was applied retroactively. See Note 19. CHANGE IN CAPITAL STRUCTURE. Accordingly, this transaction resulted in significant shares authorized in excess of those committed, and the full derivative liability of $565,689 was reversed.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

(1)

The Company converted an accounts payable for legal services to a convertible debenture. At the option of the lender, the principal amount of the note plus any accrued interest may be converted in whole or in part into Common Stock at the conversion price per share of $.001 by written notice. 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. The Company valued the beneficial conversion feature (BCF) of the convertible debenture at $20,635, the “ceiling” of its intrinsic value. The Company accreted the discount to the convertible debenture and recognized interest expense through its maturity. On the maturity date of the debenture, the lender sold and assigned the debenture to an unrelated third party for the face value of the debenture. Because the original lender asserted default against this party, the original lender re-assigned the debenture to another party. See Ref. (12) for assignment of the debenture as well as accounting treatment of the assignment.

(2)

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 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 has been purchased/assigned. See Ref. (9) for discussion of new terms on the assigned portions of the debenture.

(3)

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 will recognize interest expense through paid in full or converted. 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

(4)

In 2011, the Company borrowed $42,500, $37,500, and $37,500, respectively, in exchange for three convertible debentures from a lender. The Company valued the related beneficial conversion features (BCF) at $42,500, 37,500 and 37,500, respectively. On February 7, 2012, the lender sold/assigned all rights and interest on the first debenture having net book value of $11,000 plus accrued interest of $3,328. On March 9, 2012, the lender sold/assigned all rights and interest in the second debenture having a net book value of $24,500, plus $1,448 of accrued interest. See reference (11) which discusses the terms and conditions surrounding the new debentures issued upon extinguishment of the two originals as well as accounting treatment of the transactions. During the third quarter of 2012, the lender converted to stock the third convertible debenture with $37,500 principal and $1,500 accrued interest outstanding in full satisfaction of the convertible debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On July 2, 2012, the Company borrowed $78,500 from this same lender in exchange for a convertible debenture maturing on April 5, 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. In addition, if the Company granted a lower price for common stock purchase or conversion to anyone else during the term of the agreement, the lender’s conversion price would be adjusted downward to the same. The lender could not convert an amount greater than 4.99% of the outstanding common stock at any one time. The Company could have prepaid the debenture at any time before maturity at graduated amounts depending on the date of prepayment ranging from 130% to 150% of the debenture balance plus accrued and unpaid interest. There was a $2,000 per day penalty for not timely delivering shares upon conversion notice. The Company was also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debenture. The Company valued the BCF of the convertible debenture at $35,268. Accordingly, the $78,500 debenture was discounted by the amount of the BCF and accreted to the convertible debenture through its maturity, and interest was recognized until converted. By December 31, 2013, the lender had converted $78,500 principal plus accrued interest on the convertible debenture in full satisfaction of the debt. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On August 8, 2012, the Company borrowed $42,500 from this same lender in exchange for a convertible debenture maturing on May 10, 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 preceding paragraph. 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 will recognize interest expense until paid in full or converted. During the year ended December 31, 2013, the lender converted $34,055 principal on the convertible debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six 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 two paragraphs preceding this one. The Company valued the BCF of the convertible debenture at $50,189. Accordingly, the $78,500 debenture was discounted by the amount of the BCF. The Company is accreting the discount to the convertible debenture through its maturity and will recognize interest expense until paid in full or converted. During the three and six months ended June 30, 2014, the lender converted $28,975 and $30,640, respectively, of the convertible debenture to shares of common stock. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

(5)

On March 9, 2011, the Company borrowed $50,000 in exchange for a convertible debenture. The lender could 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 could have prepaid 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 50,000 and 100,000 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 $34,472, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through its maturity and recognized interest expense until both the debenture and accrued interest were converted to stock in full satisfaction of amounts due, in the first and second quarter of 2012, respectively. Before discount, the Company determined the FMV of the warrants as $7,500 using the Black-Scholes valuation model.

(6)

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 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 recognize 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.

(7)

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.

(8)

The Company converted a note payable and related accrued interest of $39,724 into 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 $17,025. Because the debenture was issued and matured in the third quarter of 2011, the full amount of the discount, $17,025 was accreted and recognized as interest expense during the period.

On February 10, 2012, the lender sold/assigned all rights and interest on the debenture having a net book value of $39,724, plus $1,552 of accrued interest. See reference (11) which discusses the terms and conditions surrounding the new debenture issued upon extinguishment of the original as well as accounting treatment of the transaction.

(9)

The Company entered a new debenture agreement upon sale/assignment of the original lender under the debenture as discussed in reference (2) 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

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 (adjusted for 1-for-1,350 reverse stock split), 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 June 30, 2014 and December 31, 2013, the lender had assigned a cumulative $5,500 under the debenture to four separate parties, and $23,500 to another party. See reference (10) and (12), respectively, related to the assignments.

(10)

This line is comprised of the assignment of $5,500 of the convertible debenture from reference (9) 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.

(11)

The Company entered into three new debenture agreements upon sale/assignment of the original lenders under the debentures as discussed in references (4) and (8) above. 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 transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. As a result of these three transactions, the Company recognized a combined loss on extinguishment of $71,577 in the year ended December 31, 2012.

The new debentures were issued with the same following terms and conditions: The Company may prepay at any time in an amount equal to 150% of the principal and accrued interest. The conversion price under the debentures is $.37125 (adjusted for 1-for-1,350 reverse stock split), 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. During the years ended December 31, 2013, the lender converted $3,211 of the debenture with original principal balance of $39,724 to stock. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On January 18, 2013, the lender sold/assigned all rights and interest on one of its three debentures having net book value of $16,000 plus accrued interest of $1,512. On the same day, the lender sold/assigned all rights and interest on another of its three debentures having a net book value of $56,250, plus $4,825 of accrued interest. See reference (13) which discusses the terms and conditions surrounding the new debentures issued upon extinguishment of the two originals as well as accounting treatment of the transactions. As of June 30, 2014, the lender still held the third debenture with original principal balance of $39,724 with net book value of $2,743.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

(12)

On April, 19, 2012, the original lender discussed in ref (1) above re-assigned the debenture to this party asserting default against the first assignee. The amount of assignment was the balance remaining per the original lender’s records, or $16,347. The Company recognized a $3,700 loss on this transaction. Terms of the assigned debenture are the same as the original debenture as stated in ref (1). During the year ended December 31, 2012, the new holder converted $16,347 of the debenture principal plus $162 of accrued interest in full satisfaction.

During the years ended December 31, 2012, the lender accepted assignment of $23,500, of a convertible debenture from the lender discussed in (9) above. See reference (2) for terms surrounding the original convertible debenture. In addition, the Company converted $2,125 of the assignments to stock during the year ended December 31, 2013, plus $202 of accrued interest in full satisfaction of the amount due this lender under the assignments. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired the convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

(13)

On January 18, 2013, the Company entered into three new convertible debenture agreements: one new lending and two upon sale/assignment of two debentures as discussed in reference (11). Because the stated terms of the new debenture agreements and principal amounts are significantly different from the original debentures that were sold/assigned, including analysis of value of the beneficial conversion feature at the assignment/purchase date, the sale/assignment transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. As a result of the sale/assignment transactions, the Company recognized a combined loss on extinguishment of $93,826. Principal balance on these two new convertible debentures was $30,500 and $95,000, respectively. The Company was also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debentures.

The Company borrowed $84,500, the third debenture referred to above with this lender. The interest rate on the debenture was 10% per annum, and the conversion price was 59% of the lowest closing bid price per share in the ten trading days prior to the conversion notice. Per terms of the debenture agreement, the lender was not to convert an amount that would cause it or any of its affiliates to beneficially own in excess of 4.99% of the Company. The Company could prepay the debenture within 90 days after the effective date at 140% multiplied by outstanding principal and accrued interest. The Company was also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debenture. The Company valued the BCF of the convertible debenture at $58,720, its intrinsic value. Accordingly, the $84,500 debenture was discounted by the amount of the BCF. The Company accreted discount to the convertible debenture and interest expense through its settlement on August 12, 2013 as discussed below. Further, the debenture agreement provided for post-closing expenses, which the lender noted was $1,000 per conversion and approximately $700 in other fees per each debenture. The Company accrued these fees on each debenture and per conversion.

The $95,000 and $30,500 debentures contained the same terms and conditions as the $84,500 debenture except there were no prepayment clause, and the conversion price was 44% of the lowest closing bid price per share in the ten trading days prior to the conversion notice. During the years ended December 31, 2013, the Company converted $30,500 plus $191 of accrued interest in full satisfaction of the $30,500 debenture, and $22,500 toward the $95,000 debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On August 12, 2013, the Company fully settled the two debentures outstanding with $157,446 principal and $8,794 accrued interest totaling $166,240 with this lender for $170,000. All pre-payment penalties were waived and the Company recognized the difference between the $166,240 and $170,000, or $3,760, as other expense for the year ended December 31, 2013.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

CONVERTIBLE DEBENTURES (continued)

(14)

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 three and six months ended June 30, 2014, the lender converted $12,489 and $12,489, respectively, of the convertible debenture to shares of common stock. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

Convertible debentures consist of the following at December 31, 2013:

Origination Date	Maturity Date	Interest Rate			Origination Principal Balance			Origination Discount Balance			Period End Principal Balance		Period End Discount Balance			Period End Balance, Net		Accrued Interest Balance		Ref.
10/4/2010	4/4/2011		5	%		20,635			(20,635	)	$	-		-		$	-	$	-		(1	)
11/27/2010	5/27/2011		10	%		125,000			(53,571	)		58,750		-			58,750		22,949		(2	)
1/7/2011	11/11/2011		5	%		76,000			(32,571	)		48,000		-			48,000		7,950		(3	)
2/10/2011	1/14/2012		8	%		42,500			(42,500	)		-		-			-		-		(4	)
9/12/2011	6/14/2012		8	%		37,500			(37,500	)		-		-			-		-		(4	)
12/19/2011	9/21/2012		8	%		37,500			(37,500	)		-		-			-		-		(4	)
8/8/2012	5/2/2013		8	%		42,500			(27,172	)		8,445		-			8,445		3,949		(4	)
10/31/2012	8/2/2013		8	%		78,500			(50,189	)		78,500		-			78,500		7,325		(4	)
7/2/2012	4/5/2013		8	%		78,500			(35,268	)		-		-			-		-		(4	)
3/9/2011	3/9/2012		10	%		50,000			(34,472	)		-		-			-		-		(5	)
5/3/2011	5/5/2012		5	%		300,000			(206,832	)		300,000		-			300,000		80,000		(6	)
8/31/2011	8/31/2013		5	%		10,000			(4,286	)		10,000		-			10,000		1,175		(7	)
9/8/2011	9/20/2011		10	%		39,724			(17,016	)		-		-			-		-		(8	)
2/10, 5/18, 7/17, 11/8/2012	2/10, 5/18, 7/17, 11/8/2014		10	%		42,750			-			-		-			-		379		(9	)
3/14/2012	2/10/2014		10	%		5,500			-			472		-			472		120		(10	)
2/10/2012	2/10/2014		10	%		39,724			-			2,743		-			2,743		3,227		(11	)
3/9/2012	3/9/2014		10	%		56,250			-			-		-			-		-		(11	)
4/19, 8/17, 11/7/2012	4/4/2011, 2/10, 4/14/2014		5%, 10%			39,847			-			-		-			-		-		(12	)
1/18/2014	10%		84,500			(58,720	)		-			-		-			-		-		(13	)
1/18/2014	10%		30,500			-			-			-		-			-		-		(13	)
1/18/2014	10%		95,000			-			-			-		-			-		-		(13	)
4/8/2013	4/14/2013		9.90	%		20,000			(13,333	)		20,000		(3,334	)		16,666		1,440		(14	)

											$	526,910				$	523,576	$	128,514

Reference numbers in right hand column of table entitled Ref. refer to paragraphs above the table.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.

EQUITY BASED COMPENSATION FOR CONSULTING, LEGAL, AND OTHER PROFESSIONAL SERVICES

Equity based compensation is presented on the face of the Statement of Stockholders’ Deficit for the three and six months ended June 30, 2014. More information on the significant components of the amounts presented for the three and six months ended June 30, 2014 and 2013 follows:

For the three and six months ended June 30, 2014 and 2013, the Company converted $13,500, and $27,000, respectively, employee compensation payable. This amounted to 2,920,849 and 88,243 shares of restricted common stock for the six months ended June 30, 2014 and 2013, respectively. For additional information see Note 7. RELATED PARTIES - Equity based compensation to employee

Pursuant to a consulting agreement for business advisory services for the three and six months ended June 30, 2013, the Company issued 35,236 and 68,032 shares of restricted stock, respectively, for $7,200 and $68,032 services, respectively. The stock conversion price under the agreement was calculated as a weighted average for the month the services were granted at a 30% discount. Operating expense was recorded based on full weighted average share price of the market for the period in which the services were rendered.

On March 27, 2013, the Company entered into a consulting agreement for financial strategic advice for a term of twelve months from the date of the agreement and may be terminated by either party within 30 days written notice and any monies owed are due upon termination. As initial fee, the Company paid the consultant $25,000 in restricted stock during the three months ended March 30, 2013. Further, upon obtaining $5,000,000 new capital into the Company, the consultant will be due $500,000, upon successfully obtaining a second $500,000 commitment of new capital, $50,000 will be due to the consultant, upon successfully obtaining a third $500,000 commitment of new capital, and the same arrangement through eleven additional commitment of new capital. Amounts due shall be paid in cash and any brokerage commissions, private placement fees or other fees in connection with obtaining the new capital shall be reduced from the fees due the consultant on a dollar per dollar basis.

14.

INCOME TAXES

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

	June 30, 2014		June 30, 2013
Current taxes
Federal	$	—	$	—
State		—		—
Current taxes		—		—
Change in deferred taxes		—		(29,725	)
Change in valuation allowance		—		29,269

Provision for income tax expense	$	—	$	(456	)

The components of the provision for income tax expense are as follows for the six months ended:

	June 30, 2014			June 30, 2013
Current taxes
Federal	$	—		$	—
State		—			—
Current taxes		—			—
Change in deferred taxes		(39,550	)		(35,292	)
Change in valuation allowance		39,594			38,619

Provision for income tax expense	$	44		$	3,327

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 June 30, 2014:

Deferred tax assets:
Equity based compensation	$	97,276
Allowance for doubtful accounts		12,920
Net operating loss carryforward		1,094.012
On-line training certificate reserve		1,071
Total deferred tax assets		1,205,278
Valuation allowance		(1,202,715	)

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

The effective tax rate used for calculation of the deferred taxes as of June 30, 2014 was 34%. The Company has established a valuation allowance against deferred tax assets of $1,205,278 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 Company for the six months ended are as follows:

	June 30, 2014			June 30, 2013
Statutory tax rate		—	%		—	%
Increase (decrease) in rates resulting from:
Net operating loss carryforward or carryback		(35	)%		(12	)%
Equity based compensation and loss		—	%		7	%
Book/tax depreciation and amortization differences		—	%		—	%
Change in valuation allowance		36	%		5	%
Other		—	%		—	%
Effective tax rate		1	%		—	%

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at December 31, 2013:

Deferred tax assets:
Equity based compensation	$	97,276
Allowance for doubtful accounts		13,260
Depreciation and amortization timing differences		—
Net operating loss carryforward		1,124,299
On-line training certificate reserve		1,109
Total deferred tax assets		1,235,944
Valuation allowance		(1,233,337	)

Deferred tax assets net of valuation allowance		2,607

Less deferred tax assets – non-current, net of valuation allowance		2,330

Deferred tax assets – current, net of valuation allowance	$	277

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, 2013 was 34%. The Company has established a valuation allowance against deferred tax assets of $1,235,879 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 June 30, 2014, and December 31, 2013, 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, Mr. Carmichael will have approximately 93% 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

On August 16, 2012, the Company’s real estate foreclosed upon by Branch Banking and Trust (“BBT”) was sold through a court ordered auction. At the foreclosure sale, BBT was highest bidder with a bid of $1,300. On July 17, 2012, the Court entered a Final Judgment of Foreclosure against the Company for $1,123,269, plus post-judgment interest. On December 14, 2012, BBT served the Company with Notice of Final Judgment of Foreclosure. During November 2013, the Company settled the Final Judgment with BBT for $85,000. Accordingly, BWMG recorded $18,026 to other income for the period, which was the excess of the estimated settlement amount less the actual settlement. The 17th Judicial Circuit of the Circuit Court of Broward County recorded Satisfaction of Final Judgment on November 20, 2013.

On November 1, 2012, the Company entered into a one year lease on the foreclosed real estate, which the Company continues to occupy as it manufacturing facility and headquarters. The terms of the lease were base rent of $3,750 plus sales tax. Either party could cancel the lease with 90 days written notice. Effective on the date of expiration, the lease was renewed with the same terms and conditions.

On June 28, 2013 the Company received notice of claim for damages in excess of $15,000 claiming personal injury due to product defect. The Company believes the case is without merit and will aggressively defend. The claim is being handled by the Company’s product liability insurance carrier. In the less than probable chance that any liability will be assigned the Company, insurance coverage is deemed adequate to address.

On January 12, 2013, the Company received notice of claim for damages in excess of $15,000 claiming personal injury due to product defect. The Company believes the case is without merit and will aggressively defend. The claim is being handled by the Company’s product liability insurance carrier. In the less than probable chance that any liability is assigned Company, insurance coverage is deemed adequate to address.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.

COMMITMENTS AND CONTINGENCIES (continued)

On December 18, 2012, Undersea Breathing Systems, Inc. (“UBS”) filed an amended complaint against the Company compelling purchase of Medal Model No. 4241 membranes or equivalent pursuant to pricing agreement in 2011. UBS is the holder of the convertible debenture referenced in Note 12. CONVERTIBLE DEBENTURES Ref (3). Under the complaint, UBS asserts 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 has 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 currently has $24,000 worth of stock and a $48,000 convertible debenture for which the Company took no membrane deliveries. See Note 23. SUBSEQUENT EVENTS for settlement of this case, and as a result of knowledge of settlement amount, the Company recorded a $14,850 settlement loss reflected as a component of accounts payable and accrued liabilities as of June 30, 2014.

On or about May 3, 2012, the Company received notice of filing of an action for breach of contract, conspiracy to commit securities fraud and injunctive relief against the Company and the first party named in Note 12. CONVERTIBLE DEBENTURES Ref (1). The Plaintiff, Eventus Capital, Inc., is the second party referenced in Note 12. CONVERTIBLE DEBENTURES, Ref (1) who purchased the original debenture from the first party. The net book value, excluding interest, on the debenture as of December 31, 2012 was approximately $12,700. The amount named in the original lawsuit was “damages in excess of $15,000”, plus other fees. On July 16, 2012, the Palm Beach County Court issued an Order on the Company’s Motion to dismiss this complaint. The motion was granted without prejudice to allow the plaintiff 15 days to file an amended complaint with substantiating documentation. The plaintiff amended its complaint as required, asserted it incurred a loss of $735,616 in damages. The other Defendant in the action has asserted counter and third party claims against the plaintiff. On June 23, 2014, this case was dismissed with prejudice as to all claims, counterclaims, and third party claims with all parties to bear their own respective attorneys’ fees and costs.

17.

JOINT VENTURE EQUITY EXCHANGE AGREEMENT

On November 7, 2011, the Company entered into a Joint Venture Equity Exchange Agreement (“Agreement”) with Pompano Dive Center, LLC. (“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. 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 on sales to PDC for the three and six months ended June 30, 2014 and 2013, and Accounts Receivable balances at June 30, 2014, and December 31, 2013. Terms of sale to PDC are no more favorable than those granted other dealers of the Company’s products.

In addition, the Agreement provides 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 provides 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.

JOINT VENTURE EQUITY EXCHANGE AGREEMENT (continued)

If BWMG purchases PDC, the stock issued by BWMG will be credited to the purchase price. Further, PDC is 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 are required for distribution under the Agreement, and BWMG is not required to share in losses. If PDC decides to sell any inventory provided by the Company, the purchase price will be the same as that offered to other dealers of the Company’s products.

If this Agreement is terminated by either party and/or a written purchase and sales agreement is not entered into by the parties, then the parties’ respective interests in each other’s business will revert back to the original party. Accordingly, if this should happen, PDC will relinquish the interest acquired in BWMG through this Agreement and BWMG will do the same. All property at PDC owned by BWMG would be returned to BWMG at that time as well. Because the joint venture is cancellable at any time by either party with return of respective interest transferred to each as per the joint venture agreement, possible acquisition of PDC is in the form of a non-binding letter of intent, each entities assets and liabilities remain their own, BWMG will not share in any of PDC losses or additional expenses unless otherwise approved, and the management and operation of PDC remains with PDC, the Company accounted for the investment in PDC under the Cost basis. Since inception of the Agreement PDC has reported pre-tax net losses. Therefore, to-date there has been no profit sharing due the Company under the agreement.

18.

CHANGE IN CAPITAL STRUCTURE

Effective July 15, 2013, the Company effectuated a reverse split of all outstanding shares of Common Stock by a factor of one-for-one thousand three hundred fifty (1 -for- 1,350). Fractional shares were rounded up to the nearest whole share. The reverse split became effective as of July 15, 2013. In accordance with Securities and Exchange Commissions’ Staff Accounting Bulletin Topic 4C, when a change in capital structure occurs after the period reporting date, but before release of the financial statements the Company must apply retroactive treatment to the financial statements to reflect the change. Accordingly, the Company restated the financial statements for three and six months ended June 30, 2013 to reflect the change in the number of shares, as well as throughout the Note disclosures, as applicable.

Effective February 22, 2012, also with retroactive restatement, the Company increased the number of authorized shares of common stock from 250,000,000 to 5,000,000,000, and decreased the par value per share of Common Stock from $.001 to $.0001.

19.

EQUITY INCENTIVE PLAN

On August 22, 2007, the Company adopted an Equity Incentive Plan (the “Plan”). Under the Plan, Stock Options may be granted to Employees, Directors, and Consultants in the form of Incentive Stock Options or Nonstatutory Stock Options. Stock Purchase Rights, time vested and/performance invested Restricted Stock, and Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan. The initial maximum number of shares that may be issued under the Plan shall be 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.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.

EQUITY BASED INCENTIVE/RETENTION 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 shares, only 5,185 have been issued to-date. The rest are reflected in shares payable balance on the Statement of Stockholders’ Deficit and the Balance Sheet.

21.

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. For the three and six months ended June 30, 2013, the Company recognized $667 and $6667, respectively, as operating expense under the agreement. As of June 30, 2014, none of the 494 shares have been paid out and are reflected in shares payable balance on the Statement of Stockholders’ Deficit and the Balance Sheet.

22. INTEREST EXPENSE NON-RELATED PARTIES AND OTHER EXPENSE (INCOME), NET

For the three months ended June 30, 2014, non-related parties interest expense of $11,700 is comprised of $11,565 interest on convertible debentures and $135 other interest. For the three months ended June 30, 2013, non-related parties interest expense of $56,200 is comprised of $55,200 interest on convertible debentures and approximately $290 other interest.

For the six months ended June 30, 2014, non-related parties interest expense of $25,252 is comprised of $24,486 interest on convertible debentures and $766 other interest. For the six months ended June 30, 2013, non-related parties interest expense of $125,050 is comprised of $123,620 interest on convertible debentures and $1,430 other interest.

For the three months ended June 30, 2014, $39,342 other expense, net is comprised primarily of $24,486 loss on disposal of fixed assets, $14,850 loss on convertible debenture settlement, and $6 other expense, net of individually insignificant items. For the three months ended June 30, 2013, $120,402 other income, net is comprised primarily of approximately $50,000 sales commission, $47,500 return and retirement of year end 2012 stock bonuses granted to certain consultants, and approximately $22,000 royalty income on licensed patents.

For the six months ended June 30, 2014, $2,604 other expense, net is comprised primarily of $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, $24,486 loss on disposal of fixed assets, $14,850 loss on convertible debenture settlement, and $125 other income, net of individually insignificant items. For the six months ended June 30, 2013, $28,624 other income, net is comprised primarily of $93,826 loss on extinguishment of convertible debenture, and offset by approximately $72,000 royalty income on licensed patents, $47,500 return and retirement of year end 2012 stock bonuses granted to certain consultants, and approximately $3,000 other income, net of individually insignificant items.

BROWNIE’S MARINE GROUP, INC.

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23.

SUBSEQUENT EVENTS

On July 1, 2014, the court granted dismissal of the final remaining complaint asserted by UBS as referenced in Note 16. COMMITMENTS AND CONTINGENCIES. Associated with the dismissal, the Company reversed in the third quarter of 2014, related prepaid inventory and convertible debenture (ref 3) resulting in a loss on settlement of $14,850, which was accrued as of June 30, 2014.

On July 31, 2014, Mr. Alexander F. Purdon, was issued 834,061 shares of restricted common stock in lieu of cash for $4,500 employee compensation for the month of July 2014. The number of shares issued was based on the weighted average share price during the month.

Conversions of debentures to shares of common stock occurred subsequent to June 30, 2014. The stock was issued upon partial conversion of a convertible note without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares. Conversions were as follows (ref. number corresponds to lender reference number in Note 12. CONVERTIBLE DEBENTURES):

Ref (4) lender –

On July 2, 2014, the lender converted $1,705 of its debenture to 897,368 shares.

On August 12, 2014, the lender converted $2,580 of its debenture to 1,172,727 shares.

Ref (14) lender –

On July 3, 2014, the lender converted $3,142 of its debenture to 2,276,812 shares.

On July 25, 2014, the lender converted $3,327 of its debenture to 1,680,348 shares.

On July 15, 2014, the Company was provided a 90 Day Lease Termination notice from its Landlord as allowed and in accordance with terms of its lease agreement whereby either party can provide 90-day notice terminating lease. Accordingly, the Company must vacate the premises by October 15, 2014, and does not anticipate any issues in vacating. The Company is currently in process of locating a suitable facility for relocation of its headquarters and operations.

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 Fort Lauderdale, Florida. The Company’s common stock is quoted on the OTCBB under the symbol “BWMG”. The Company’s website is www.browniesmarinegroup.com. Information contained on the website is not part of this report.

Mr. Carmichael has operated Trebor as its President since 1986. Since April 16, 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 June 30, 2014, as Compared to the Three Months Ended June 30, 2013

Net revenues. For the three months ended June 30, 2014, we had net revenues of $865,124 as compared to net revenues of $592,635 for the three months ended June 30, 2013, an increase of $272,489, or 45.98%. Sales of tankfill systems and related was up by approximately $156,000, hookah systems and related was up by approximately $116,000, public safety was up by approximately $3,000, and increases were partially offset by approximately $3,000 decline in scuba for the three months ended June 30, 2014, as compared to same period in 2013. The Company attributes the overall increase in sales to increased overall consumer spending, and to an “early buy” program implemented by the Company in May/June by to preload dealers for the high season for boating and diving.

Cost of net revenues. For the three months ended June 30, 2014, we had cost of net revenues of $564,883 as compared with cost of net revenues of $446,821 for the three months ended June 30, 2013, an increase of $118,062 or 26.42%. The increase is primarily attributable to the increase in material cost due to increase in net revenues, and partially offset by decrease in payroll due to streamlining of workforce and 1% reduction in material costs primarily due to sales mix.

Gross profit. For the three months ended June 30, 2014, we had a gross profit of $300,241 as compared to gross profit of $145,814 for the three months ended June 30, 2013, an increase of $154,427, or 105.91%. The increase in gross profit is primarily attributable to increase in sales for the three months ended June 30, 2014, as compared to same period in 2013.

Operating expenses. For the three months ended June 30, 2014, we had operating expenses of $158,945 as compared to operating expenses of $350,107 for the three months ended June 30, 2013, a decrease of $191,162, or 54.60%. The $191,162 decrease is comprised of $176,007 decrease in selling, general and administrative expenses, and $15,155 decrease in research and development costs as compared to the same period in 2013. The decrease in selling, general and administrative costs of $176,007 is primarily attributable to decrease in Chief Executive Officer’s compensation of approximately $94,000 (non-cash), approximately $40,000 decrease in consulting and other professional fees (primarily non-cash), $7,500 decrease in Board of Director Fees (non-cash), approximately $10,000 decrease in bad debts, approximately $9,000 less in employee paid time off fringe benefit, and $16,000 net decrease of individually insignificant increases and decreases in other operating account balances during the three months ended June 30, 2014 as compared to the same period in 2013. In the fourth quarter of 2013, the Chief Executive Officer reduced his salary, and the non-employee Board of Director compensation agreement was cancelled resulting in the decrease from second quarter of 2014 compared to the same period in 2013. The primary reason for decline in consulting and other professional fees in the second quarter of 2014 is consultants who accepted equity based compensation arrangements during the three months ended June 30, 2013, had ceased providing services before the second quarter of 2014. The approximate $9,000 decrease in employee earned paid time off was due to more employees using their time off fringe benefits (a credit to the related expense account), and less accrual of paid time off during second quarter of 2014 as compared to same period in 2013 due to streamline/reduction in workforce. The $15,155 decrease in research and development resulted due to the reduction in Chief Executive Officers salary since a percentage of his salary is allocated to research and development.

Other (income) expense, net. For the three months ended June 30, 2014, we had other expense, net of $55,548, as compared to other income, net of $629,620 for the three months ended June 30, 2013, an increase of $685,168 other expense, net, or 108.82%. This account is comprised of other (income) expense, net; change in derivative liability and interest expense. Other (income) expense, net, increased by $159,744 expense, net for the period and is comprised of transactions that are generally of a non-recurring nature; change in derivative liability income decreased by $565,689; and interest expense decreased by $40,265 for the period. The $159,744 increase in other expense, net is primarily attributable to transactions which occurred in either the second quarter of 2014 or 2013, without comparable transactions in both periods. Primarily, the increase is comprised of second quarter 2013 income, net items not recurring in 2014, including approximately $50,000 sales commission income, $47,500 return and retirement of 2012 year bonuses granted to certain consultants, and approximately $22,000 royalty income on licensed patents, in addition to second quarter 2014 other expense, net items primarily including $24,486 loss on disposal of fixed assets and $14,850 loss on convertible debenture settlement; The $565,689 reduction in derivative liability income is the result of reversal of 100% of the liability in May 2013 as a result of the reverse stock split during that time period, which cured the shortfall of shares available for conversion that resulted in derivative liability. The $40,265 decrease in interest expense for the second quarter of 2014 as compared to the second quarter of 2013, is primarily due to approximately $55,000 less in convertible debenture interest due to fully accreted discounts by second quarter of 2014, as well as lower convertible debenture balance outstanding during the second quarter of 2014 as compared to the same period in 2013.

Provision for income tax expense. For the three months ended June 30, 2014, we had a provision for income tax expense of $0 as compared to a provision for income tax benefit of $456 for the three months ended June 30, 2013, a decrease of $456, or 100%.

Net income. For the three months ended June 30, 2014, we had net income of $85,748 as compared to net income of $425,783 for the three months ended June 30, 2013, a decrease of $340,035, or 79.86%. The $340,035 decrease in net income is primarily attributable to the decrease in other income, net of $685,168, decrease in income tax benefit of $456 and partially offset by increase in gross profit of $154,427 decrease in operating expenses of $191,162 and decrease in provision for income tax expense of $456 for the three months ended June 30, 2014 as compared to the three months ended June 30, 2013.

Results of Operations for the Six Months Ended June 30, 2014, as Compared to the Six Months Ended June 30, 2013

Net revenues. For the six months ended June 30, 2014, we had net revenues of $1,453,508 as compared to net revenues of $1,181,298 for the six months ended June 30, 2013, an increase of $272,210 or 23.04%. Sales of tankfill systems and related was up by approximately $149,000, hookah systems and related was up by approximately $140,000, public safety was up by approximately $3,000, and these increases were partially offset by approximately $20,000 decline in scuba for the six months ended June 30, 2014, as compared to same period in 2013. The Company attributes the overall increase in sales to increased overall consumer spending, and to an “early buy” program implemented by the Company in May/June by to preload dealers for the high season for boating and diving. The Company attributes the decline in Scuba sales to closing its dive store in 2013.

Cost of net revenues. For the six months ended June 30, 2014, we had cost of net revenues of $1,029,955 as compared with cost of net revenues of $919,360 for the six months ended June 30, 2013, an increase of $110,595, or 12.03%. The increase is primarily attributable to the increase in material costs due to increase in net revenues, decrease in payroll due to streamlining of workforce, and partially offset by 1% increase in material costs primarily due to sales mix.

Gross profit. For the six months ended June 30, 2014, we had a gross profit of $423,553 as compared to gross profit of $261,938 for the six months ended June 30, 2013, an increase of $161,615, or 61.70%. The increase in gross profit is primarily attributable to increase in net revenues for the six months ended June 30, 2014, as compared to same period in 2013.

Operating expenses. For the six months ended June 30, 2014, we had operating expenses of $339,291 as compared to operating expenses of $927,380 for the six months ended June 30, 2013, a decrease of $588,089, or 63.41%. The $588,089 decrease is comprised of $574,069 decrease in selling, general and administrative expenses, and $14,020 decrease in research and development costs as compared to the same period in 2013. The decrease in selling, general and administrative costs of $574,069 is primarily attributable to decrease in Chief Executive Officer’s compensation of approximately $314,000 (non-cash), approximately $50,000 decrease in legal expense, approximately $124,000 less consulting and other professional fees (primarily non-cash), $15,000 decrease in Board of Director Fees (non-cash),approximately $33,000 less trade show and advertising expenses, approximately $17,000 less bad debts, and approximately $15,000 less in health insurance costs during the six months ended June 30, 2014 as compared to the same period in 2013. In the fourth quarter of 2013, the Chief Executive Officer reduced his salary, and the non-employee Board of Director compensation agreement was cancelled resulting in the decrease for the six months ended June 30, 2014 compared to the same period in 2013. The primary reason for decline in consulting and other professional fees is consultants who accepted equity based compensation arrangements during the six months ended June 30, 2013, had ceased providing services before the six months ended June 30, 2014. The primary reason for decline in health insurance expense from six months ended June 30, 2014 compared to six months ended June 30, 2013 is result of a lower cost policy and less employees on in the plan during the current period. The decline in bad debts and advertising expenses is further streamlining of expenses and tighter monitoring of accounts receivable balances and collections. The $14,020 decrease in research and development resulted due to the reduction in Chief Executive Officers salary since a percentage of his salary is allocated to research and development.

Other (income) expense, net. For the six months ended June 30, 2014, we had other expense, net of $36,869, as compared to other expense, net of $97,354 for the six months ended June 30, 2013, a decrease of $60,485 other expense, net, or 62.13%. This account is comprised of other (income) expense, net, and interest expense. Other (income) expense, net, increased by $31,228 income, net for the period and is comprised of transactions that are generally of a non-recurring nature, and interest expense decreased by $91,713 for the period. The $31,228 increase in other expense, net is primarily attributable to $67,000 decrease in royalty income on licensed patents from first half of 2013 to first half of 2014; $47,500 return and retirement of year end 2012 stock bonuses granted to certain consultants during the first half of 2013 without comparable transaction in 2013, $24,486 loss on disposal of fixed assets during the first half of 2014, and offset almost in entirety by $31,463 write off during first half of 2014 of accrued legal expense from prior years resulting from resolution of overbilling as identified by Company, and approximately $79,000 decrease in loss on convertible debenture extinguishment/settlement from six months ended June 30, 2013 to 2014; The $91,713 decrease in interest expense for the second quarter of 2014 as compared to the second quarter of 2013, is primarily due to approximately $100.000 less in convertible debenture interest due to fully accreted discounts by second half of 2014, as well as lower convertible debenture balance outstanding during the first half of 2014 as compared to the same period in 2013; and is partially offset by approximate $8,000 increase in related party interest for loan provided by non-employee Board of Director in the fourth quarter of 2013.

Provision for income tax expense. For the six months ended June 30, 2014, we had a provision for income tax expense of $44 as compared to a provision for income tax expense of $3,327 for the six months ended June 30, 2013, a decrease of $3,283 or 96.68%.

Net income. For the six months ended June 30, 2014, we had net income of $47,349 as compared to net loss of $766,123 for the six months ended June 30, 2013, an increase in net income of $813,472, or 106.18%. The $813,472 increase in net income is primarily attributable to increase in gross profit of $161,615, decrease in operating expenses of $588,089 and decrease in other expense, net of $60,485, and decrease in provision for income tax expense of $3,283 for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.

Liquidity and Capital Resources

As of June 30, 2014, the Company had cash and current assets (primarily consisting of inventory) of $1,009,686 and current liabilities of $1,572,072, or a current ratio of .64 to 1. This represents a working capital deficit of $562,886. As of December 31, 2013, the Company had cash and current assets of $1,057,967 and current liabilities of $1,760,058, or a current ratio of .60 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 three and six months ended June 30, 2014, have incurred losses since 2009, and reasonably expect to have more losses through 2014. We have had a working capital deficit since 2009.

The Company is behind on payments due for payroll taxes and withholding, matured convertible debentures, related party notes payable, 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.

During the fourth quarter of 2011, the Company formed a joint venture with one dive entity, and in the first quarter of 2012, purchased the assets of another, with assumption of their retail location lease in Boca Raton, Florida. The Company accomplished both transactions predominantly through issuance of restricted common stock in BWMG. The Company believed these transactions would help generate sufficient future working capital. Neither endeavor did or has generated profit or positive cash-flow. Therefore, effective May 31, 2013, the Company closed and ceased operations at its retail facility. As a result, the Company does not expect that existing cash flow will be sufficient to fund presently anticipated operations beyond the third quarter of 2014. This raises substantial doubt about BWMG’s ability to continue as a going concern. 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.

While we incurred net income of approximately $47,000 for the six months ended June 30, 2014, we incurred net losses of $788,286 and $2,013,349 for the years ended December 31, 2013 and 2012, respectively. We anticipate these 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 payroll taxes and withholding, matured convertible debentures, related party notes payable, accrued liabilities and interest –related parties, a note payable due an unrelated party, 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 through the end of the year, 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 June 30, 2014 the outstanding principal balance of these debentures was $475,336. 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 Over-the-Counter Bulletin Board. There is a limited public market for our common stock and there can be no assurance that an active trading market for our common stock will develop. As a result, this could adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Thinly traded common stock can be more volatile than common stock traded in an active public market. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.

Our 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.

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

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

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

We May Be Unable To Manage Growth

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

Reliance on Vendors and Manufacturers

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

Dependence on Consumer Spending

The success of the our business depends largely upon a number of factors related to consumer spending, including current and future economic conditions affecting disposable consumer income such as employment, business conditions, tax rates, and interest rates. In times of economic uncertainty, consumers tend to defer expenditures for discretionary items, which 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 Impact Us

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

Bad Weather Conditions Could Have an Adverse Effect on Operating Results

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

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

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

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

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

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 described in more detail below. Our management concluded that a significant deficiency exists regarding timely disclosure controls and procedures 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 significant debenture conversions during the period, and conversion of related party employee compensation payable to restricted stock 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

Item 1. Legal Proceedings

None.

Item 1a. Risk Factors

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. The securities were issued with a legend restricting their transferability absent registration of applicable exemption.

During the three months ended June 30, 2014, two lenders converted $41,464 of their convertible debentures to 12,458,626 shares of stock. The stock was issued without restrictive legend because the Rule 144 holding period had been met at time of issuance. Terms of conversion as per the debenture were 61% of weighted average stock price five trading days prior to conversion notice per share consistent with terms of the debenture.

During the three months ended June 30, 2014, $13,500 related party employee compensation payable was converted to 1,696,872 shares of restricted stock.

Item 3. Defaults Upon Senior Securities

None

Item 4. MINE SAFETY DISCLOSURE

None.

Item 5. Other Information

None.

Item 6. Exhibits

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 June 30, 2014, 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. The XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed "filed" or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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: August 18, 2014	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 June 30, 2014, 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: August 18, 2014	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 June 30, 2014, of Brownie’s Marine Group, Inc.;

(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: August 18, 2014	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 June 30, 2014 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: August 18, 2014	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

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.