U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(mark one)
þ Quarterly
Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934
For the quarterly period ended September
30, 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.) |
|
|
3001 NW 25thAvenue, Suite 1, Pompano Beach, Florida |
33069 |
(Address of Principal Executive Offices) |
(Zip Code) |
(954) 462-5570
(Issuer’s Telephone Number, Including
Area Code)
(Former Name, if Changed Since Last Report)
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x
No ¨
Indicate by check
mark whether the registrant has submitted electronically and posted on its Corporate Website, in any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes x
No ¨
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
|
|
Non-accelerated filer ¨
(Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark
whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes ¨
No x
There were 57,233,978
shares of common stock outstanding as of November 9, 2014.
PART I
Item 1. Financial
Statements
Financial Information
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
Septemeber 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 136,508 | | |
$ | 70,084 | |
Accounts receivable, net of $48,000 and $39,000 allowance for doubtful accounts, respectively | |
| 56,864 | | |
| 30,298 | |
Accounts receivable - related parties | |
| 62,239 | | |
| 105,942 | |
Inventory | |
| 734,101 | | |
| 735,926 | |
Prepaid expenses and other current assets | |
| 50,009 | | |
| 109,523 | |
Other current assets - related parties | |
| 5,350 | | |
| 5,917 | |
Deferred tax asset, net - current | |
| 233 | | |
| 277 | |
Total current assets | |
| 1,045,304 | | |
| 1,057,967 | |
| |
| | | |
| | |
Property and equipment, net | |
| 83,344 | | |
| 76,265 | |
| |
| | | |
| | |
Deferred tax asset, net - non-current | |
| 2,330 | | |
| 2,330 | |
Other assets | |
| 33,656 | | |
| 27,635 | |
| |
| | | |
| | |
Total assets | |
$ | 1,164,634 | | |
$ | 1,164,197 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 481,307 | | |
$ | 517,058 | |
Customer deposits and unearned revenue | |
| 68,291 | | |
| 99,610 | |
Royalties payable - related parties | |
| 126,290 | | |
| 137,129 | |
Other liabilities | |
| 249,980 | | |
| 252,009 | |
Other liabilities and accrued interest - related parties | |
| 95,023 | | |
| 90,517 | |
Convertible debentures, net | |
| 386,815 | | |
| 523,576 | |
Notes payable - current portion | |
| 6,209 | | |
| 12,540 | |
Notes payable - related parties - current portion | |
| 35,417 | | |
| 127,619 | |
Total current liabilities | |
| 1,449,332 | | |
| 1,760,058 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
Notes payable - long-term portion | |
| — | | |
| 2,765 | |
| |
| | | |
| | |
Total liabilities | |
| 1,449,332 | | |
| 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; 78,757,651 and 10,049,140 shares issued, respectively; 48,674,473 and 5,672,051 shares outstanding, respectively | |
| 4,867 | | |
| 567 | |
Common stock payable; $0.0001 par value; 195,610 and 200,795 shares, respectively | |
| 20 | | |
| 20 | |
Additional paid-in capital | |
| 8,609,006 | | |
| 8,478,092 | |
Accumulated deficit | |
| (8,899,016 | ) | |
| (9,077,730 | ) |
Total stockholders' deficit | |
| (284,698 | ) | |
| (598,626 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 1,164,634 | | |
$ | 1,164,197 | |
See Accompanying Unaudited Notes to Consolidated Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Net revenues | |
| | | |
| | | |
| | | |
| | |
Net revenues | |
$ | 584,141 | | |
$ | 662,680 | | |
$ | 1,365,514 | | |
$ | 1,423,307 | |
Net revenues - related parties | |
| 221,331 | | |
| 228,692 | | |
| 893,466 | | |
| 649,363 | |
Total net revenues | |
| 805,472 | | |
| 891,372 | | |
| 2,258,980 | | |
| 2,072,670 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of net revenues | |
| | | |
| | | |
| | | |
| | |
Cost of net revenues | |
| 530,014 | | |
| 562,423 | | |
| 1,515,716 | | |
| 1,467,500 | |
Royalties expense - related parties | |
| 9,652 | | |
| 22,385 | | |
| 53,905 | | |
| 36,668 | |
Total cost of net revenues | |
| 539,666 | | |
| 584,808 | | |
| 1,569,621 | | |
| 1,504,168 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 265,806 | | |
| 306,564 | | |
| 689,359 | | |
| 568,502 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 145,846 | | |
| 416,113 | | |
| 483,558 | | |
| 1,327,894 | |
Research and development costs | |
| — | | |
| 12,849 | | |
| 1,579 | | |
| 28,448 | |
Total operating expenses | |
| 145,846 | | |
| 428,962 | | |
| 485,137 | | |
| 1,356,342 | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
| 119,960 | | |
| (122,398 | ) | |
| 204,222 | | |
| (787,840 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (income) expense, net | |
| | | |
| | | |
| | | |
| | |
Other (income) expense, net | |
| (26,223 | ) | |
| (68,110 | ) | |
| (23,619 | ) | |
| (96,734 | ) |
Interest expense | |
| 10,312 | | |
| 55,532 | | |
| 35,564 | | |
| 180,582 | |
Interest expense - related parties | |
| 4,506 | | |
| 3 | | |
| 13,519 | | |
| 931 | |
Total other (income) expense, net | |
| (11,405 | ) | |
| (12,575 | ) | |
| 25,464 | | |
| 84,779 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) before provision for income taxes | |
| 131,365 | | |
| (109,823 | ) | |
| 178,758 | | |
| (872,619 | ) |
| |
| | | |
| | | |
| | | |
| | |
Provision for income tax expense | |
| — | | |
| 963 | | |
| 44 | | |
| 4,290 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 131,365 | | |
$ | (110,786 | ) | |
$ | 178,714 | | |
$ | (876,909 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic income (loss) per common share | |
$ | 0.00 | | |
$ | (0.04 | ) | |
$ | 0.01 | | |
$ | (0.42 | ) |
Diluted income (loss) per common share | |
$ | 0.00 | | |
$ | (0.04 | ) | |
$ | 0.00 | | |
$ | (0.42 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic weighted average common shares outstanding | |
| 33,527,392 | | |
| 3,117,377 | | |
| 18,370,110 | | |
| 2,091,619 | |
Diluted weighted average common shares outstanding | |
| 195,462,329 | | |
| 3,117,377 | | |
| 180,305,048 | | |
| 2,091,619 | |
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 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of related
party employee compensation payable to stock | |
| 2,903,695 | | |
| 290 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13,210 | | |
| — | | |
| 13,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of convertible
debentures to stock | |
| 20,949,873 | | |
| 2,095 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 38,426 | | |
| — | | |
| 40,521 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion of accrued
interest on convertible debentures to stock | |
| 1,237,554 | | |
| 124 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,178 | | |
| — | | |
| 2,302 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 131,365 | | |
| 131,365 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September
30, 2014 (Unaudited) | |
| 48,674,473 | | |
$ | 4,867 | | |
| 425,000 | | |
$ | 425 | | |
| 195,610 | | |
$ | 20 | | |
$ | 8,609,006 | | |
$ | (8,899,016 | ) | |
$ | (284,698 | ) |
See Accompanying Unaudited Notes to Consolidated Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Cash flows provided by (used in) operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | 178,714 | | |
$ | (876,909 | ) |
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation | |
| 14,537 | | |
| 13,329 | |
Amortization of leasehold improvements | |
| 453 | | |
| 771 | |
Amortization of security purchase commitment fees | |
| — | | |
| 125,000 | |
Change in deferred tax asset, net | |
| 44 | | |
| 4,290 | |
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 | |
| — | | |
| 22,500 | |
Accretion of convertible debenture discounts | |
| 3,334 | | |
| 130,461 | |
Equity based Chief Executive Officer compensation and bonuses | |
| — | | |
| 243,787 | |
Amortization of prepaid equity based compensation to Chief Executive Officer | |
| — | | |
| 137,494 | |
Stock issued for supplies and other expensed items | |
| — | | |
| — | |
Loss on disposal of fixed assets | |
| 27,846 | | |
| — | |
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 | |
| (26,566 | ) | |
| (9,081 | ) |
Change in accounts receivable - related parties | |
| 43,703 | | |
| (51,128 | ) |
Change in inventory | |
| 1,825 | | |
| (78,291 | ) |
Change in prepaid expenses and other current assets | |
| (13,869 | ) | |
| 10,201 | |
Change in other current assets - related parties | |
| 567 | | |
| — | |
Change in other assets | |
| (6,021 | ) | |
| 4,000 | |
Change in accounts payable and accrued liabilities | |
| (25,237 | ) | |
| 20,479 | |
Change in customer deposits and unearned revenue | |
| (31,319 | ) | |
| 148,362 | |
Change in other liabilities | |
| (2,029 | ) | |
| (15,592 | ) |
Change in other liabilities and accrued interest - related parties | |
| 62,506 | | |
| — | |
Change in royalties payable - related parties | |
| (10,839 | ) | |
| 2,149 | |
Net cash provided by (used in) operating activities | |
| 217,649 | | |
| (43,286 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of fixed assets | |
| (49,915 | ) | |
| (5,500 | ) |
Net cash used in investing activities | |
| (49,915 | ) | |
| (5,500 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from borrowing on convertible debentures | |
| — | | |
| 176,750 | |
Proceeds from short-term loans payable | |
| — | | |
| 203,000 | |
Principal payment on convertible debentures | |
| — | | |
| (229,696 | ) |
Principal payments on note payable | |
| (9,108 | ) | |
| (9,132 | ) |
Principal payments on note payable - related parties | |
| (92,202 | ) | |
| (51,876 | ) |
Net cash (used in) provided by financing activities | |
| (101,310 | ) | |
| 89,046 | |
| |
| | | |
| | |
Net change in cash | |
| 66,424 | | |
| 40,260 | |
| |
| | | |
| | |
Cash, beginning of period | |
| 70,084 | | |
| 69,292 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 136,508 | | |
$ | 109,552 | |
See Accompanying Unaudited Notes to Consolidated Financial Statements
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 9,875 | | |
$ | 14,322 | |
| |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Supplemental disclosures of non-cash investing activities and future operating activities: | |
| | | |
| | |
Discounts on convertible debentures | |
$ | — | | |
$ | 72,053 | |
| |
| | | |
| | |
Conversion of convertible debentures to stock | |
$ | 92,095 | | |
$ | 156,679 | |
| |
| | | |
| | |
Conversion of accrued payroll to stock - related party | |
$ | 40,500 | | |
$ | 40,500 | |
| |
| | | |
| | |
Conversion of accrued interest and fees on convertible debentures to stock | |
$ | 4,002 | | |
$ | 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
| 1. | Description of business and summary of significant accounting
policies |
Description of business
–Brownie’s Marine Group, Inc., (hereinafter referred to as the “Company” or “BWMG”) designs,
tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems,
and scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc. The Company sells its products
both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Pompano Beach, Florida.
The Company does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc. The Company’s common
stock is quoted on the 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. Although profitable for the nine months ended September 30, 2014 we have incurred
losses since 2009, and potentially expect a loss in the fourth quarter of 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
| 1. | 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 fourth 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, Equipment
and Leasehold Improvements– Furniture, Fixtures, Equipment and Leasehold Improvement is stated at cost less accumulated
depreciation or amortization. Depreciation and amortization 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
| 1. | 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 September 30, 2014 and 2013, was $824 and $4,039, respectively.
Advertising and trade show expense incurred for the nine months ended September 30, 2014, and 2013, was $1,444 and $37,198, 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
| 1. | Description of business and summary of significant ACCOUNTING
policies (continued) |
Stock-based compensation
(continued) – For the three and nine months ended September 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 nine months ended September 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 12. 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
| 1. | Description of business and summary of significant ACCOUNTING
policies (continued) |
Fair
value of financial instruments (continued) – At September 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 September 30, 2014, and December 31, 2013, or $386,815, and $523,576, 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 included in the computation dilutive earnings per share for the three and nine months ended September 30, 2014, since their
effect was dilutive. All common stock equivalent shares were excluded in the computation dilutive earnings per share for the three
and nine months ended September 30, 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 consists of the following
as of:
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Raw materials | |
$ | 309,892 | | |
$ | 317,187 | |
Work in process | |
| — | | |
| — | |
Finished goods | |
| 424,209 | | |
| 418,739 | |
| |
$ | 734,101 | | |
$ | 735,926 | |
| 3. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current
assets totaling $50,009 at September 30, 2014, consists of $18,526 prepaid inventory, $13,200 prepaid insurance, $12,343 prepaid
subcontract labor, $5,367 prepaid rent, and $573 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
| 4. | PROPERTY AND EQUIPMENT, NET |
Property and equipment
consists of the following as of:
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Factory and office equipment | |
$ | 64,287 | | |
$ | 89,357 | |
Tooling | |
| 52,344 | | |
| 51,144 | |
Computer equipment and software | |
| 19.882 | | |
| 10,308 | |
Vehicle | |
| 25,945 | | |
| 25,945 | |
Leasehold improvements | |
| 26,453 | | |
| 5,242 | |
Furniture and fixtures | |
| — | | |
| 22,900 | |
| |
| 188,911 | | |
| 204,896 | |
Less: accumulated depreciation and amortization | |
| (105,567 | ) | |
| (128,631 | ) |
| |
$ | 83,344 | | |
$ | 76,265 | |
Other assets of $33,656 at September 30, 2014, consists of $24,740
investment in joint venture, and $8,916 refundable deposits. Other assets of $27,635 at 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.
| 6. | 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 September 30, 2014 and 2013, represented 27.48% and 23.40%, respectively, of total net revenues. Combined sales
to these five entities for nine months ended September 30, 2014 and 2013, represented 39.55% and 30.06%, respectively, of total
net revenues. Sales to one non-related customer for the three months ended September 30, 2014, represented 19.86%. Sales to no
other customers for the three and nine months ended September 30, 2014, or 2013 represented greater than 10% of net revenues for
the respective periods.
| 7. | RELATED PARTIES TRANSACTIONS |
Notes payable – related
parties
Notes payable – related parties
consists of the following at September 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 | |
$ | 35,417 | |
| |
| | |
Less amounts due within one year | |
| 35,417 | |
| |
| | |
Long-term portion of notes payable | |
$ | — | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
As of September 30, 2014, principal
payments on the notes payable – related parties are as follows:
2014 | |
$ | 35,417 | |
2015 | |
| — | |
2016 | |
| — | |
2017 | |
| — | |
2018 | |
| — | |
Thereafter | |
| — | |
| |
| | |
| |
$ | 35,417 | |
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.
As of September 30, 2014, the
Company was three 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.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
Net revenues and accounts
receivable – related parties – The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s
Palm Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive Officer. Terms of
sale are no more favorable than those extended to any of the Company’s other customers. Combined net revenues from these
entities for three months ended September 30, 2014 and 2013, was $218,874 and $208,543, respectively. Combined net revenues from
these entities for nine months ended September 30, 2014 and 2013, was $706,105 and $623,015, respectively. Accounts receivable
from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at September
30, 2014, was $17,095, $26,034, and $13,361, 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.
The Company sells products to
Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940A”), entities 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 BGL and 940 Associates,
Inc. for three months ended September 30, 2014 and 2013, was $676 and $3,026, respectively. Combined net revenues from these entities
for nine months ended September 30, 2014, and 2013, was $179,367 and $3,026, respectively. Accounts receivable from BGL at September
30, 2014, and December 30, 2013 was $607 and $70,823, respectively. 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, only on product or services not offered for resale, and 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.
Sales to Pompano Dive Center
for the three months ended September 30, 2014, and 2013, was $1,781 and $17,124, respectively. Sales to Pompano Dive Center for
the nine months ended September 30, 2014, and 2013, was $7,994 and $23,322, 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 September 30, 2014
and December 31, 2013, was $13,361, 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 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 nine months ended September 30, 2014
and 2013, is disclosed on the face of the Company’s Consolidated Statements of Operations. As of September 30, 2014, and
December 31, 2013, the Company was approximately twenty-four and twenty-nine months in arrears, respectively, on royalty payments
due. No default notice has been received and the Company plans to make payments as able.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
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 and nine months ended September 30, 2013, compensation
expense to the Chief Executive Officer related to this transaction was $0 and $30,000, respectively. 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. 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 nine 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 September 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 September 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 September 30, 2014 and 2013, stock based compensation to Mr. Purdon was $13,500 and $13,500, respectively.
For the nine months ended September 30, 2014 and 2013, stock based compensation to Mr. Purdon was $40,500 and $40,500, 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 is payable 1,852 shares of
stock, which were valued at $2,250. These shares are included in shares payable on the statement of stockholders’ deficit.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 7. | RELATED PARTIES TRANSACTIONS (continued) |
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.
Other liabilities and accrued
interest– related parties
Other liabilities and accrued
interest– related parties consists of the following at:
| |
September 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 | |
| 4,506 | | |
| — | |
Due to Principals of Carleigh Rae Corp., net | |
| 6,017 | | |
| 6,017 | |
| |
$ | 95,023 | | |
$ | 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 nine months
ended September 30, 2013, the Company recognized $137,494, as amortization of prepaid compensation under this agreement.
Prepaid compensation remaining under this agreement as of December 31, 2013, was $0.
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 options to purchase 234 shares of common stock at a $1,350
exercise price with expiration ten years from the effective date of grant, or March 2, 2019. None of the options have been exercised
to-date.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On February 3, 2012, the Company
entered into an asset purchase agreement with Florida Dive Industries, Inc. (“Seller”). On March 5, 2012, the same
parties executed an amendment (“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 September
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.
| 9. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable and accrued
liabilities of $481,307 at September 30, 2014, consists of $201,759 accounts payable trade, $41,935 accrued payroll and fringe
benefits, $45,000 accrued year-end bonuses, $40,556 accrued payroll taxes and withholding, and $152,057 accrued interest. Accrued
payroll taxes and withholding were approximately nine months in arrears at September 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 fringe benefits,
$45,000 accrued year-end bonuses, $40,556 accrued payroll taxes and withholding, and $152,057 accrued interest. Accrued payroll
taxes and withholding were approximately nine months in arrears at December 31, 2013. Balances due certain vendors are also due
in arrears to varying degrees.
Other liabilities of $249,980
at September 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 $2,123 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.
The Company includes 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
Notes payable consists of the
following as of September 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. | |
$ | 6,209 | |
| |
| | |
Less amounts due within one year | |
| 6,209 | |
| |
| | |
Long-term portion of notes payable | |
$ | — | |
As of September 30, 2014, principal
payments on the notes payable are as follows:
2014 | |
$ | 3,444 | |
2015 | |
| 2,765 | |
2016 | |
| — | |
2017 | |
| — | |
2018 | |
| — | |
Thereafter | |
| — | |
| |
| | |
| |
$ | 6,209 | |
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 September 30, 2014:
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. | |
5/27/2011 | |
| 10 | % | |
| 125,000 | | |
| (53,571 | ) | |
$ | 58,750 | | |
| - | | |
$ | 58,750 | | |
$ | 27,359 | | |
| (2 | ) |
11/11/2011 | |
| 5 | % | |
| 76,000 | | |
| (32,571 | ) | |
| 48,000 | | |
| - | | |
| - | | |
| - | | |
| (3 | ) |
5/2/2013 | |
| 8 | % | |
| 42,500 | | |
| (27,172 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4 | ) |
8/2/2013 | |
| 8 | % | |
| 78,500 | | |
| (50,189 | ) | |
| 47,860 | | |
| - | | |
| 14,850 | | |
| 11,350 | | |
| (4 | ) |
5/5/2012 | |
| 5 | % | |
| 300,000 | | |
| (206,832 | ) | |
| 300,000 | | |
| - | | |
| 300,000 | | |
| 102,500 | | |
| (6 | ) |
8/31/2013 | |
| 5 | % | |
| 10,000 | | |
| (4,286 | ) | |
| 10,000 | | |
| - | | |
| 10,000 | | |
| 1,553 | | |
| (7 | ) |
| |
| 10 | % | |
| See
ref (9) for Discussion | | |
| | | |
| - | | |
| - | | |
| 379 | | |
| (9 | ) |
2/10/2014 | |
| 10 | % | |
| 5,500 | | |
| - | | |
| 472 | | |
| - | | |
| 472 | | |
| 155 | | |
| (10 | ) |
2/10/2014 | |
| 10 | % | |
| 39,724 | | |
| - | | |
| 2,743 | | |
| - | | |
| 2,743 | | |
| 3,434 | | |
| (11 | ) |
4/14/2013 | |
| 9.90 | % | |
| 20,000 | | |
| (13,333 | ) | |
| 7,511 | | |
| - | | |
| - | | |
| - | | |
| (14 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
$ | 475,336 | | |
| | | |
$ | 386,815 | | |
$ | 146,730 | | |
| | |
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 is 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 that was settled in the third quarter of 2014. 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 resulting in a loss on settlement of $14,850, which was accrued as of June 30, 2014. |
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.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
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 nine months
ended September 30, 2014, the lender converted $33,010 and $72,095, respectively, of the convertible debenture to shares of common
stock. In addition, the lender converted $1,700 of accrued interest to common stock in full satisfaction of one of debentures leaving
only one debenture remaining outstanding with this lender. 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.
| (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, 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, 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. |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
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. |
On February 10, 2012, the new
holder (lender) purchased $7,500 of the original $125,000 principal balance, and based on this transaction, the Company recorded
a $4,286 loss on extinguishment. On May 18, 2012, the lender purchased another $11,750, and the Company recorded a $6,714 loss
on extinguishment related to this transaction. On July 17, 2012, the lender purchased another $11,750, and the Company recorded
a $6,714 loss on extinguishment related to this transaction. On November 8, 2012, the lender purchased another $11,750, and the
Company recorded a $6,714 loss on the extinguishment related to this transaction. Since that date the lender has not purchased
or converted any shares pursuant to the sale/assignment agreement.
The Company may prepay at any
time in an amount equal to 150% of the principal and accrued interest. The conversion price under the debenture is $.37125, and
the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties
apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99%
of the outstanding Common Stock of the Company at any one time. The debenture and the shares referenced within the debenture may
be assignable in whole or in part to a third party at any time during the term.
As of September 30, 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. |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
| | 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 September 30, 2014, the lender still held the third debenture with original principal balance
of $39,724 with net book value of $2,743. |
| (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. |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 12. | CONVERTIBLE DEBENTURES (continued) |
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.
| (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 nine months ended September 30, 2014, the lender converted
$7,511 and $20,000, respectively, of the convertible debenture to shares of common stock in full satisfaction of the debenture.
In addition, during the third quarter of 2014, the Company converted all the accrued interest on the debenture, or $2,302, to shares
of common stock. The debenture and interest conversion stock was issued without restrictive legend pursuant to Rule 144, 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
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 nine months ended September 30, 2014. More
information on the significant components of the amounts presented for the three and nine months ended September 30, 2014 and 2013
follows:
For the three and nine months
ended September 30, 2014, the Company converted $13,500, and $40,500, respectively, of accrued compensation to 2,903,695 and 5,824,544
restricted stock, respectively, based upon the weighted average stock price per share during the months the services were rendered.
For the three and nine months ended September 30 2013, the Company converted $13,500, and $40,500, respectively, of accrued compensation
to 209,565 and 297,808 restricted stock, respectively, based upon the weighted average stock price per share during the months
the services were rendered. For additional information see Note 7. RELATED PARTIES - Equity based compensation to employee
Pursuant to a consulting agreement
for business advisory services, the company issued 68,032 restricted shares for $26,800 in services during nine months ended based
on the weighted average price per share for the month the services were rendered discounted 30%.. 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 advisory services for a term of twelve months from the date of the
agreement, which could be terminated by either party within 30 days written notice and any monies owed 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.
The components of the provision
for income tax expense are as follows for the three months ended:
| |
September 30, 2014 | | |
September 30, 2013 | |
Current taxes | |
| | | |
| | |
Federal | |
$ | — | | |
$ | — | |
State | |
| — | | |
| — | |
Current taxes | |
| — | | |
| — | |
Change in deferred taxes | |
| | | |
| (46,799 | ) |
Change in valuation allowance | |
| — | | |
| 47,762 | |
| |
| | | |
| | |
Provision for income tax expense | |
$ | — | | |
$ | 963 | |
The components of the provision
for income tax expense are as follows for the nine months ended:
| |
September 30, 2014 | | |
September 30, 2013 | |
Current taxes | |
| | | |
| | |
Federal | |
$ | — | | |
$ | — | |
State | |
| — | | |
| — | |
Current taxes | |
| — | | |
| — | |
Change in deferred taxes | |
| 47,311 | | |
| (82,091 | ) |
Change in valuation allowance | |
| (47,267 | ) | |
| 86,381 | |
| |
| | | |
| | |
Provision for income tax expense | |
$ | 44 | | |
$ | 4,290 | |
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 14. | INCOME TAXES (continued) |
The following is a summary of
the significant components of the Company’s deferred tax assets and liabilities at September 30, 2014:
Deferred tax assets: | |
| | |
Equity based compensation | |
$ | 97,276 | |
Allowance for doubtful accounts | |
| 16,320 | |
Net operating loss carryforward | |
| 1,062,387 | |
On-line training certificate reserve | |
| 743 | |
Total deferred tax assets | |
| 1,176,726 | |
Valuation allowance | |
| (1,174,163 | ) |
| |
| | |
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 September 30, 2014 was 34%. The Company has established a valuation allowance against
deferred tax assets of $1,174,163 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 nine months ended are as follows:
| |
September 30, 2014 | | |
September 30, 2013 | |
Statutory tax rate | |
| — | % | |
| — | % |
Increase (decrease) in rates resulting from: | |
| | | |
| | |
Net operating loss carryforward or carryback | |
| (35 | )% | |
| (13 | )% |
Equity based compensation and loss | |
| — | % | |
| 3 | % |
Change in valuation allowance | |
| 33 | % | |
| 10 | % |
Change in allowance for doubtful accounts | |
| 2 | % | |
| — | % |
Effective tax rate | |
| — | % | |
| — | % |
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 September 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 July 15, 2014, the Company was provided a
90 day lease termination notice from its Landlord in accordance with terms of its lease agreement whereby either party could
provide 90-day notice terminating lease. As a result, the Company had to vacate the premises by October 15, 2014.
Accordingly, the Company entered into a new lease commitment on August 14, 2014. The Company began relocating its
headquarters and manufacturing facility to its new location at 3001 NW 25th Avenue, Suite 1, Pompano Beach, FL
33069 during September 2014. The Company was in full occupancy conducting business as usual beginning October 2014. Terms of
the new lease include the following: thirty-seven month term commencing on September 1, 2014; payment of $5,367 security
deposit; base rent of approximately $4,000 per month over the term of the lease plus sales tax; plus payment of 10.76% of
annual operating expenses (i.e. common areas maintenance), which is approximately $1,500 per month subject to
periodic adjustment.
During the third quarter of 2014, the Company did
not renew its product liability insurance since the renewal policy was cost prohibitive. The Company is currently aggressively
seeking a new insurance carrier or alternative means to satisfy this potential liability exposure, as well as to fulfil the sales
terms of some of our customers, which require the insurance coverage.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 16. | COMMITMENTS AND CONTINGENCIES (continued) |
On July 1, 2014 the following
complaint was settled in full: 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 asserted the Company was to purchase no less than 24 membranes from the company per year for $2,000 and $1,000, cash and Company
stock, respectively, per membrane. The Company took delivery, paid cash, and issued stock for 14 Medal Model No 4241 membranes
pursuant to the stated pricing in 2011, plus issued an additional $24,000 stock toward future purchases of 24 membranes. However,
the Company 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. On July 1, 2014, the court granted dismissal of the final remaining complaint asserted by UBS. 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 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.
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 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
nine months ended September 30, 2014 and 2013, and Accounts Receivable balances at September 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.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
| 17. | JOINT VENTURE EQUITY EXCHANGE AGREEMENT (continued) |
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.
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 nine months ended September 30, 2013 to reflect the change in the number of shares, as well as throughout the Note disclosures,
as applicable.
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 nine months ended September 30, 2013, the Company recognized
$0 and $6667, respectively, as operating expense under the agreement. As of September 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 September
30, 2014, non-related parties interest expense of $10,312 is comprised of $10,216 interest on convertible debentures and $96 other
interest. For the three months ended September 30, 2013, non-related parties interest expense of $55,532 is comprised of $55,239
interest on convertible debentures and $293 other interest.
For the three months ended September
30, 2014, $26,223 other income, net is comprised primarily of $49,812 sales commissions, partially offset by $20,406 headquarters
and manufacturing facility relocation expense, and $3,183 other expense, net of individually insignificant items. For the three
months ended September 30, 2013, $68,110 other income, net is comprised primarily of approximately $56,000 in sales commissions;
approximately $7,000 adjustment downward of estimated foreclosure liability resulting from Final Judgment; approximately $3,200
recovery of security deposit written off in prior period, approximately $5,700 individually insignificant, net other income transactions,
and partially offset by approximately $4,000 loss on extinguishment of debentures [See Note 12. CONVERTIBLE DEBENTURES. Ref. (3)].
For the nine months ended September
30, 2014, non-related parties interest expense of $35,564 is comprised of $34,702 interest on convertible debentures and $862 other
interest. For the nine months ended September 30, 2013, non-related parties interest expense of $180,582 is comprised of approximately
$178,000 interest on convertible debentures and $3,000 other interest.
For the nine months ended September
30, 2014, $23,619 other income, net is comprised primarily of $49,812 sales commissions, $31,463 write off of accrued legal expense
from prior years resulting from resolution of overbilling as identified by Company, $5,144 royalty income on licensed patents,
and partially offset by $20,406 headquarters and manufacturing facility relocation expense, $27,846 loss on disposal of fixed assets,
$14,850 loss on convertible debenture settlement. For the nine months ended September 30, 2013, $96,734 other income, net is comprised
primarily $106,000 in sales commissions, approximately $22,000 royalty income on licensed patents, $47,500 return and retirement
of year end 2012 stock bonuses granted to certain consultants, approximately $7,000 adjustment downward of foreclosure liability
resulting from Final Judgment, approximately $12,000 other income, net of individually insignificant items, and partially offset
by approximately $98,000 loss on extinguishment of convertible debentures.
BROWNIE’S MARINE GROUP, INC.
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
On October 31, 2014, Mr. Alexander
F. Purdon, was issued 1,779,634 shares of restricted common stock in lieu of cash for $4,500 employee compensation for the month
of October 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 September 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 October 2, 2014, the lender converted $4,520 of its
debenture to 2,260,000 shares.
On November 5, 2014, the lender converted $2,940 of
its debenture to 2,261,538 shares.
On November 6, 2014, the lender converted $2,710 of
its debenture to 2,258,333 shares.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Introductory Statements
Information included
or incorporated by reference in this filing may contain forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different
from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements,
which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the
words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project” or the negative of these words or other variations on these
words or comparable terminology.
This filing contains
forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability,
(b) our Company’s growth strategies, (c) our Company’s future financing plans and (d) our Company’s
anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including,
without limitation, the risks outlined under “Risk Factors” and matters described in this filing generally. In light
of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will
in fact occur.
Overview
Brownie’s Marine
Group, Inc., a Nevada corporation (referred to herein as “BWMG”, “the Company”, “we” or “Brownie’s”),
does business through its wholly owned subsidiary, Trebor Industries, Inc., d/b/a Brownie’s Third Lung, a Florida corporation.
The Company designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox
generation systems, and scuba and water safety products. BWMG sells its products both on a wholesale and retail basis, and does
so from its headquarters and manufacturing facility in Pompano Beach, Florida. The Company’s common stock is quoted on the
OTCBB under the symbol “BWMG”. The Company’s website is www.browniesmarinegroup.com.
Mr. Carmichael has
operated Trebor as its President since 1986. Since April 16, 2004, Mr. Carmichael has served as President, Principal Accounting
Officer and Chief Financial Officer of the Company. From March 23, 2004 to April 26, 2004, Mr. Carmichael served as the Company’s
Executive Vice-President and Chief Operating Officer. He is the holder or co-holder of some patents that are used by Trebor and
several other large original equipment manufacturers in the diving industry. Mr. Carmichael is also the holder of trademarks and
tradenames used by the Company.
The Company’s
diving and marine based products are generally marketed under the Brownie’s Third Lung, Brownie’s Tankfill,
and Brownie’s Public Safety trade names.
Results of Operations for the Three
Months Ended September 30, 2014, as Compared to the Three Months Ended September 30, 2013
Net
revenues. For the three months ended September 30, 2014, we had net revenues of $805,472 as compared to net revenues of
$891,372 for the three months ended September 30, 2013, a decrease of $85,900, or 9.64%. Sales were down in tankfill systems
and related sales by approximately $99.000, public safety by approximately $11,000, SCUBA and related sales by approximately
$21,000, and this decline was partially offset by approximately $46,000 increase in hookah systems and related sales for the
three months ended September 30, 2014, as compared to same period in 2013. The Company attributes the overall decrease in
sales to an overall “early buy” program implemented by the Company in second quarter to preload dealers for the
high season for boating and diving, which shifted some sales to second quarter of 2014 that would have otherwise occurred in
the third quarter of 2014. In addition, the Company relocated its headquarters and manufacturing facility during September
2014, negatively impacting sales during the relocation period. However, despite the overall sales decrease, the Company is
encouraged by the increase in hookah system and related sales. The Company attributes this to recovery in consumer spending
as consumers adapt to current economic conditions and/or uncertainties.
Cost of net revenues.
For the three months ended
September 30, 2014, we had cost of net revenues of $539,666, as compared with cost of net revenues of $584,808 for the three months
ended September 30, 2013, a decrease of $45,142, or 7.72%. The decrease is primarily attributable to the decrease in material
costs of approximately $36,000 due to decrease in net revenues, and approximately $9,000, net decrease in individually insignificant
account changes.
Gross profit.
For the three months ended September 30, 2014, we had a gross profit of $265.806 as compared to gross profit of $306,564 for the
three months ended September 30, 2013, a decrease of $40,758, or 13.30%. The decrease in gross profit is primarily attributable
to decrease in sales for the three months ended September 30, 2014, as compared to same period in 2013.
Operating expenses.
For the three months ended September 30, 2014, we had operating expenses of $145,846 as compared to operating expenses of $428,962
for the three months ended September 30, 2013, a decrease of $283,116, or 66.00%. The $283,116 decrease is comprised of $270,267
decrease in selling, general and administrative expenses, and $12,849 decrease in research and development costs as compared to
the same period in 2013. The decrease in selling, general and administrative costs of $270,267 is primarily attributable to decrease
in Chief Executive Officer’s compensation of approximately $81,582 (non-cash), and approximately $116,713 decrease in depreciation/amortization
primarily due to acceleration of approximately $100,000 amortization of the security purchase commitment fee due to write-off
of underlying asset in the third quarter of 2013, without comparable transactions in the third quarter of 2014. The $12,849 decrease
in research and development was a result of 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 September 30, 2014, we had other income, net of $11,405, as compared to other income,
net of $12,575 for the three months ended September 30, 2013, a decrease of $1,170 other income, net, or 9.30%. This account is
comprised of other (income) expense, net; and interest expense. Other (income) expense, net, decreased by $41,887 income, net
for the period and is comprised of transactions that are generally of a non-recurring nature; and interest expense decreased by
$40,717 for the period. The $41,887 decrease in other income, net is primarily attributable to transactions which occurred in
either the third quarter of 2014 or 2013, without comparable transactions in both periods. Primarily, the $41,887 decrease is
comprised of $20,406 headquarters and factory relocation expense in third quarter of 2014, approximately $10,000 of liability
reversals/recoveries in third quarter of 2013, not occurring in 2014; approximately $18.000 less in sales commission income during
the third quarter of 2014 as compared to third quarter of 2014; and approximately $7,000 income, net of individually insignificant
increases and decreases during the third quarter of 2014 as compared to the same period in 2013. The $40,717 decrease in interest
expense for the third quarter of 2014 as compared to the third quarter of 2013, is primarily attributable to approximately $45,000
less in convertible debenture interest due to fully accreted discounts by third quarter of 2014, as well as lower convertible
debenture balance outstanding during the third quarter of 2014 as compared to the same period in 2013; and partially offset by
approximately $4,500 increase in interest-expense related party due to new note payable established during the fourth quarter
of 2013.
Provision for income
tax expense. For the three months ended September 30, 2014, we had a provision for income tax expense of $0 as compared to
a provision for income tax benefit of $963 for the three months ended September 30, 2013, a decrease of $963, or 100%.
Net loss. For
the three months ended September 30, 2014, we had net income of $131,365 as compared to net loss of $110,786 for the three months
ended September 30, 2013, an increase in net income of $242,151, or 218.58%. The $242,151 increase in net income is attributable to the decrease in operating expenses of $283,116; decrease in income tax expense of $963; and partially offset by
decrease in gross profit of $40,758, and decrease in other income, net of $1,170 for the three months ended September 30, 2014
as compared to the three months ended September 30, 2013.
Results of Operations for the Nine
months ended September 30, 2014, as Compared to the Nine months ended September 30, 2013
Net
revenues. For the nine months ended September 30, 2014, we had net revenues of $2,258,980 as compared to net revenues
of $2,072,670 for the nine months ended September 30, 2013, an increase of $186,310, or 8.99%. Sales of tankfill systems
and related sales was up by approximately $51,000, hookah systems and related sales was up by approximately $185,000; and was
partially offset by approximately $42,000 in SCUBA and related sales, and approximately $7,800 decline in public safety sales
for the nine months ended September 30, 2014, as compared to same period in 2013. The Company attributes the overall increase
in sales to recovery in consumer spending as consumers adapt to current economic conditions and/or uncertainties. The
Company attributes the decline in SCUBA sales to closing its retail store in the second quarter of 2013.
Cost of net revenues.
For the nine months ended
September 30, 2014, we had cost of net revenues of $1,569,621 as compared with cost of net revenues of $1,504,168 for the nine
months ended September 30, 2013, an increase of $65,453 or 4.35%. The increase is primarily attributable to the increase in material
costs of approximately $82,000 due to increase in net revenues; approximately $19,000, or 1%, increase in material costs primarily
due to sales mix; and partially offset by approximately $35,000 decrease in payroll due to streamlining of workforce.
Gross profit.
For the nine months ended September 30, 2014, we had a gross profit of $689,359 as compared to gross profit of $568,502 for the
nine months ended September 30, 2013, an increase of $120,857, or 21.26%. The increase in gross profit is primarily attributable
to increase in net revenues for the nine months ended September 30, 2014, as compared to same period in 2013.
Operating
expenses. For the nine months ended September 30, 2014, we had operating expenses of $485,137 as compared to operating
expenses of $1,356,342 for the nine months ended September 30, 2013, a decrease of $871,205, or 64.23%. The $871,205 decrease
is comprised of $844,336 decrease in selling, general and administrative expenses, and $26,869 decrease in research and
development costs as compared to the same period in 2013. The decrease in selling, general and administrative costs of
$844,336 is primarily attributable to decrease in Chief Executive Officer’s compensation of approximately $395,000
(non-cash); approximately $103,000 decrease in legal expense (partially non-cash); approximately $124,000 less consulting and
other professional fees (primarily non-cash); approximately $124,000 decrease in depreciation/amortization primarily due to
acceleration of approximately $125,000 amortization of the security purchase commitment fee due to write-off of underlying asset; $22,500 decrease in Board of Director Fees (non-cash); approximately $36,000 less trade show and
advertising expenses; approximately $23,000 less in health insurance costs; approximately $19,000 decrease in dive shop
payroll due to closure of retail store in 2013; and approximately $25,000 net decrease in other individually insignificant
account increases and decreases during the nine months ended September 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 significant decreases for the nine months ended September 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 nine months ended September 30, 2013, had ceased providing
services before the nine months ended September 30, 2014. The primary reason for decline in health insurance expense from
nine months ended September 30, 2014 compared to nine months ended September 30, 2013 is result of a lower cost policy and
less employees on in the plan during the current period. The decline in advertising expenses and other individually
insignificant account balances is result of further streamlining of expenses and cash flows overall. The $26,869 decrease in
research and development was a result of reduction in Chief Executive Officers salary since a percentage of his salary is
allocated to research and development.
Other
(income) expense, net. For the nine months ended September 30, 2014, we had other expense, net of $25,464, as compared to
other expense, net of $84,779 for the nine months ended September 30, 2013, a decrease of $59,315 other expense, net, or
69.96%. This account is comprised of other (income) expense, net, and interest expense. Other (income) expense, net,
decreased by $73,115 income, net for the period and is comprised of transactions that are generally of a non-recurring
nature. Interest expense decreased by $132,430 for the period. The $73,115 decrease in other income, net is primarily
attributable to the following: decreases during the nine months ended September 30, 2014, compared to the same period in
2013, of approximately $17,000 decrease in royalty income on licensed patents, and approximately $55,000 decrease in sales
commissions; $47,500 return and retirement of year end 2012 stock bonuses granted to certain consultants during the first
half of 2013; $27,846 loss on disposal of fixed assets during 2014; $20,406 headquarters and manufacturing facility
relocation expense in 2014; $14,850 loss on convertible debenture settlement in 2014; approximately $7,000 downward
adjustment of estimated foreclosure liability during 2013; approximately $13,000 decline in other income, net of individually
significant transactions; and partially offset by $31,463 write-off of accrued legal expense in 2014 due to resolution of
prior years’ overbilling, and approximately $98,000 loss on extinguishment of convertible debentures in 2013
without comparable transaction in 2014. The $132,430 decrease in interest expense for the nine months ended September 30,
2014 as compared to the same period in 2013, is primarily due to approximately $143.000 less in convertible debenture
interest due to fully accreted discounts before the nine months ended September 30, 2014, as well as lower convertible
debenture balance outstanding during the period; and is partially offset by $12,500 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 nine months ended September 30, 2014, we had a provision for income tax expense of $44 as compared to
a provision for income tax expense of $4,290 for the nine months ended September 30, 2013, a decrease of $4,246 or 98.97%.
Net loss. For
the nine months ended September 30, 2014, we had net income of $178,714 as compared to net loss of $876,909 for the nine months
ended September 30, 2013, an increase in net income of $1,055,623, or 120.38%. The $1,055,623 increase in net income is attributable to increase in gross profit of $120,857, decrease in operating expenses of $871,205 and decrease in other expense,
net of $59,315, and decrease in provision for income tax expense of $4,246 for the nine months ended September 30, 2014 as compared
to the nine months ended September 30, 2013.
Liquidity and Capital Resources
As of September 30,
2014, the Company had cash and current assets (primarily consisting of inventory) of $1,045,304 and current liabilities of $1,449,332,
or a current ratio of .72 to 1. This represents a working capital deficit of $404,028. 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 nine months ended September 30, 2014, prior to this
period we have incurred losses since 2009, and expect we may have more in future periods. We have had a working capital deficit
since 2009.
The Company is behind
on payments due 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 fourth 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 $178,714 for the nine months ended September 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 beyond 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 September 30, 2014, the outstanding
principal balance of these debentures was $386,815. 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 and we currently lack product liability
insurance
We, like any other
retailer, distributor and manufacturer of products that are designed for recreational sporting purposes, face an inherent risk
of exposure to product liability claims in the event that the use of our products results in injury. Such claims may include,
among other things, that our products are designed and/or manufactured improperly or fail to include adequate instructions as
to proper use and/or side effects, if any. We do not anticipate obtaining contractual indemnification from parties-supplying
raw materials, manufacturing our products or marketing our products. In any event, any such indemnification if obtained
will be limited by our terms and, as a practical matter, to the creditworthiness of the indemnifying party. We currently do not
have any product liability insurance. In the event that we do not have adequate insurance or contractual indemnification, product
liabilities relating to defective products could have a material adverse effect on our operations and financial conditions, which
could force us to curtail or cease our business operations.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk.
Not Applicable to
Smaller Reporting Company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
Our management carried
out an evaluation with the participation of our Chief Executive Officer who serves as our principal executive officer and principal
financial and accounting officer, required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)
of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.
Based on this evaluation, our Chief Executive
Officer and principal financial and accounting officer concluded that as of the end of the period covered by this report, our
disclosure controls and procedures were not effective such that the information relating to our company required to be disclosed
in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms
and (ii) is accumulated and communicated to our management to allow timely decisions regarding required disclosures. Our management
concluded that our disclosure controls and procedures were not effective as 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 September 30, 2014, one lender converted $7,511 of their convertible debentures to 4.517,326 shares of stock. In addition,
the same lenders converted $2,302 in accrued interest to 1,237,554 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 60% of lowest
closing market price per share for five trading days prior to conversion notice.
During the three months
ended September 30, 2014, one lender converted $33,010 of their convertible debenture to 16,432,547 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 market price of lowest three trading stock prices per share for ten days
prior to conversion notice.
During the three months
ended September 30, 2014, $13,500 related party employee compensation payable was converted to 2,903,695 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 |
|
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|
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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. |
|
|
|
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|
101 |
|
XBRL Interactive Data File * |
|
|
*
Attached as Exhibit 101 to this report are the following financial statements from the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 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.
SIGNATURES
In accordance with
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 14, 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 September 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: November 14, 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 September 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 issuer and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed
in this report any change in the small business issuer’s internal control over financial reporting that occurred during the
small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s
internal control over financial reporting; and
5. I
have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer’s
auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent
functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial
information; and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s
internal control over financial reporting.
Date: November 14, 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
September 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: November 14, 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
In connection with
the Quarterly Report of Brownie’s Marine Group, Inc. (the “Company”) on Form 10-Q for the quarter ended
September 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: November 14, 2014 |
By: |
/s/ Robert M. Carmichael |
|
Name: |
Robert M. Carmichael |
|
Title: |
Chief Financial Officer |
A
signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906,
has been provided to Brownie’s Marine Group, Inc. and will be retained by Brownie’s Marine Group, Inc. and furnished
to the United States Securities and Exchange Commission or its staff upon request.
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