10-Q 1 v359114_10q.htm FORM 10-Q
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, 2013
 
 
o
Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from               to                . 
 
Commission File No. 333-99393
 
Brownie’s Marine Group, Inc.
(Name of Small Business Issuer in Its Charter)
 
Nevada
90-0226181 
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
940 N.W. 1st Street, Fort Lauderdale, Florida
33311
(Address of Principal Executive Offices)
(Zip Code)
 
(954) 462-5570
(Issuer’s Telephone Number, Including Area Code)
 
(Former Name, if Changed Since Last Report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x  No  ¨
 
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 3,940,755 shares of common stock outstanding as of November 1, 2013.
 
 
 
PART I
 
Item 1.   Financial Statements
 
Financial Information
 
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash
 
$
109,552
 
$
69,292
 
Accounts receivable, net of $39,000 and $36,000 allowance
    for doubtful accounts, respectively
 
 
29,637
 
 
20,556
 
Accounts receivable - related parties
 
 
102,831
 
 
51,703
 
Inventory
 
 
682,158
 
 
603,867
 
Prepaid expenses and other current assets
 
 
138,650
 
 
148,851
 
Deferred tax asset, net - current
 
 
206
 
 
304
 
Total current assets
 
 
1,063,034
 
 
894,573
 
 
 
 
 
 
 
 
 
Furniture, fixtures and equipment, net
 
 
63,681
 
 
72,281
 
 
 
 
 
 
 
 
 
Deferred tax asset, net - non-current
 
 
5,589
 
 
9,781
 
Other assets
 
 
27,635
 
 
31,635
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,159,939
 
$
1,008,270
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
467,455
 
$
508,715
 
Customer deposits and unearned revenue
 
 
202,040
 
 
53,678
 
Royalties payable - related parties
 
 
139,712
 
 
137,563
 
Other liabilities
 
 
358,235
 
 
170,827
 
Other liabilities and accrued interest - related parties
 
 
73,017
 
 
80,517
 
Convertible debentures, net
 
 
540,699
 
 
638,667
 
Notes payable - current portion
 
 
12,616
 
 
12,152
 
Notes payable - related parties - current portion
 
 
66,508
 
 
168,384
 
Total current liabilities
 
 
1,860,282
 
 
1,770,503
 
 
 
 
 
 
 
 
 
Long-term liabilities
 
 
 
 
 
 
 
Notes payable - long-term portion
 
 
5,816
 
 
15,412
 
Notes payable - related parties - long-term portion
 
 
--
 
 
--
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
1,866,098
 
 
1,785,915
 
 
 
 
 
 
 
 
 
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; 4,845,925 and
    2,357,589 shares issued, respectively; 3,649,703 and 401,424 shares outstanding,
    respectively
 
 
365
 
 
40
 
Common stock payable; $0.0001 par value; 1,827,124 and 962,940 shares,
    respectively
 
 
182
 
 
96
 
Prepaid equity based compensation
 
 
--
 
 
(137,494)
 
Additional paid-in capital
 
 
8,459,222
 
 
7,648,732
 
Accumulated deficit
 
 
(9,166,353)
 
 
(8,289,444)
 
Total stockholders' deficit
 
 
(706,159)
 
 
(777,645)
 
 
 
 
 
 
 
 
 
Total liabilities and stockholders' deficit
 
$
1,159,939
 
$
1,008,270
 
 
See Accompanying Unaudited Notes to Consolidated Financial Statements
 
 
2

 
BROWNIE'S MARINE GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
662,680
 
$
791,343
 
$
1,423,307
 
$
1,783,199
 
Net revenues - related parties
 
 
228,692
 
 
199,045
 
 
649,363
 
 
565,805
 
Total net revenues
 
 
891,372
 
 
990,388
 
 
2,072,670
 
 
2,349,004
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
 
562,423
 
 
580,497
 
 
1,467,500
 
 
1,509,676
 
Royalties expense - related parties
 
 
22,385
 
 
21,071
 
 
36,668
 
 
53,735
 
Total cost of net revenues
 
 
584,808
 
 
601,568
 
 
1,504,168
 
 
1,563,411
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
 
306,564
 
 
388,820
 
 
568,502
 
 
785,593
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
416,113
 
 
481,306
 
 
1,327,894
 
 
1,406,937
 
Research and development costs
 
 
12,849
 
 
2,429
 
 
28,448
 
 
12,137
 
Total operating expenses
 
 
428,962
 
 
483,735
 
 
1,356,342
 
 
1,419,074
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from operations
 
 
(122,398)
 
 
(94,915)
 
 
(787,840)
 
 
(633,481)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense, net
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense, net
 
 
(68,110)
 
 
287,639
 
 
(96,734)
 
 
288,617
 
Interest expense
 
 
55,532
 
 
25,086
 
 
180,582
 
 
210,615
 
Interest expense - related parties
 
 
3
 
 
1,409
 
 
931
 
 
5,318
 
Total other (income) expense, net
 
 
(12,575)
 
 
314,134
 
 
84,779
 
 
504,550
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss before provision for income taxes
 
 
(109,823)
 
 
(409,049)
 
 
(872,619)
 
 
(1,138,031)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income tax expense
 
 
963
 
 
22,849
 
 
4,290
 
 
36,345
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(110,786)
 
$
(431,898)
 
$
(876,909)
 
$
(1,174,376)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per common share
 
$
(0.04)
 
$
(3.84)
 
$
(0.42)
 
$
(13.16)
 
Diluted income (loss) per common share
 
$
(0.04)
 
$
(3.84)
 
$
(0.42)
 
$
(13.16)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted average common shares
    outstanding
 
 
3,117,377
 
 
112,538
 
 
2,091,619
 
 
89,251
 
Diluted weighted average common shares
    outstanding
 
 
3,117,377
 
 
112,538
 
 
2,091,619
 
 
89,251
 
 
See Accompanying Unaudited Notes to Consolidated Financial Statements
 
 
3

 
BROWNIE'S MARINE GROUP, INC. 
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid
 
Additional
 
 
 
Total
 
 
 
Common stock
 
Preferred stock
 
Common stock payable
 
Equity based
 
paid-in
 
Accumulated
 
stockholders'
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
compensation
 
capital
 
deficit
 
deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
 
401,424
 
$
40
 
425,000
 
$
425
 
962,940
 
$
96
 
$
(137,494)
 
$
7,648,732
 
$
(8,289,444)
 
$
(777,645)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock payable from prior reporting periods
 
851,852
 
 
85
 
--
 
 
--
 
(851,852)
 
 
(85)
 
 
--
 
 
--
 
 
--
 
 
--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock granted for consulting, legal, and other professional
    services
 
69,828
 
 
7
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
44,593
 
 
--
 
 
44,600
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based incentive/retention bonuses to consultants
 
--
 
 
--
 
--
 
 
--
 
10,370
 
 
1
 
 
--
 
 
12,599
 
 
--
 
 
12,600
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discounts on convertible debentures
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
58,720
 
 
--
 
 
58,720
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based compensation and incentive/retention bonus to
    Chief Executive Officer
 
--
 
 
--
 
--
 
 
--
 
143,933
 
 
15
 
 
--
 
 
93,414
 
 
--
 
 
93,429
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of prepaid equity based compensation to Chief
    Executive Officer
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
125,001
 
 
--
 
 
--
 
 
125,001
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of Board of Directors' fees payable to stock
 
12,346
 
 
1
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
14,999
 
 
--
 
 
15,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based Board of Director's fee for first quarter of 2013
    plus April fee prepaid
 
8,230
 
 
1
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
9,999
 
 
--
 
 
10,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of employee compensation payable to stock
 
14,069
 
 
2
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
8,998
 
 
--
 
 
9,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based incentive/retention bonuses to employees
 
--
 
 
--
 
--
 
 
--
 
2,037
 
 
-
 
 
--
 
 
2,475
 
 
--
 
 
2,475
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of accrued interest and fees convertible debentures
    to stock
 
23,061
 
 
2
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
4,260
 
 
--
 
 
4,262
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of convertible debentures to stock
 
347,745
 
 
35
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
102,190
 
 
--
 
 
102,225
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Extinguishment of convertible debentures
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
46,913
 
 
--
 
 
46,913
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based compensation for exclusivity pursuant to
    agreement with Precision Paddleboards, Inc.
 
--
 
 
--
 
--
 
 
--
 
111
 
 
--
 
 
--
 
 
6,000
 
 
--
 
 
6,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
--
 
 
(1,191,906)
 
 
(1,191,906)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2013 (Unaudited)
 
1,728,554
 
$
173
 
425,000
 
$
425
 
267,540
 
$
27
 
$
(12,493)
 
$
8,053,892
 
$
(9,481,350)
 
$
(1,439,326)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock payable from prior reporting periods
 
5,185
 
 
1
 
--
 
 
--
 
(5,185)
 
 
(1)
 
 
--
 
 
--
 
 
--
 
 
--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock granted for consulting, legal, and other professional
    services
 
35,236
 
 
4
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
7,196
 
 
--
 
 
7,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based incentive/retention bonuses to consultants
 
--
 
 
--
 
--
 
 
--
 
3,457
 
 
--
 
 
--
 
 
4,200
 
 
--
 
 
4,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discounts on convertible debentures
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
13,333
 
 
--
 
 
13,333
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based compensation and incentive/ retention bonus to
    Chief Executive Officer
 
--
 
 
--
 
--
 
 
--
 
347,648
 
 
35
 
 
--
 
 
78,894
 
 
--
 
 
78,929
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of prepaid equity based compensation to Chief
    Executive Officer
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
12,493
 
 
--
 
 
--
 
 
12,493
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based Board of Director's fee
 
4,115
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
5,000
 
 
--
 
 
5,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of employee compensation payable to stock
 
74,174
 
 
7
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
17,993
 
 
--
 
 
18,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retirement of certain 2012 year end equity bonuses returned by
    consultants
 
(117,284)
 
 
(12)
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
(47,488)
 
 
--
 
 
(47,500)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based incentive/retention bonuses to employees
 
--
 
 
--
 
--
 
 
--
 
679
 
 
--
 
 
--
 
 
825
 
 
--
 
 
825
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of accrued interest and fees on convertible
    debentures to stock
 
19,383
 
 
2
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
3,138
 
 
--
 
 
3,140
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of convertible debentures to stock
 
416,169
 
 
42
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
49,812
 
 
--
 
 
49,854
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of note payable - related party
    (Chief Executive Officer) to stock
 
370,370
 
 
37
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
49,963
 
 
--
 
 
50,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized security purchase commitment fee
 
--
 
 
--
 
--
 
 
--
 
462,963
 
 
46
 
 
--
 
 
124,954
 
 
--
 
 
125,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based compensation for exclusivity pursuant to
    agreement with Precision Paddleboards, Inc.
 
--
 
 
--
 
--
 
 
--
 
26
 
 
--
 
 
--
 
 
667
 
 
--
 
 
667
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
--
 
 
425,783
 
 
425,783
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2013 (Unaudited)
 
2,535,903
 
$
254
 
425,000
 
$
425
 
1,077,128
 
$
107
 
$
-
 
$
8,362,379
 
$
(9,055,567)
 
$
(692,402)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock payable from prior reporting periods
 
462,963
 
 
46
 
--
 
 
--
 
(462,963)
 
 
(46)
 
 
--
 
 
--
 
 
--
 
 
--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustment for shares rounded upward as a result of reverse
    split
 
543
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
--
 
 
--
 
 
--
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based compensation to Chief Executive Officer
 
--
 
 
--
 
--
 
 
--
 
1,212,959
 
 
121
 
 
--
 
 
71,308
 
 
--
 
 
71,429
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity based Board of Director's fee
 
6,174
 
 
1
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
7,499
 
 
--
 
 
7,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of employee compensation payable to stock
 
209,565
 
 
21
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
13,479
 
 
--
 
 
13,500
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of convertible debentures to stock
 
434,555
 
 
43
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
4,557
 
 
--
 
 
4,600
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
--
 
 
--
 
--
 
 
--
 
--
 
 
--
 
 
--
 
 
--
 
 
(110,786)
 
 
(110,786)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2013 (Unaudited)
 
3,649,703
 
$
365
 
425,000
 
$
425
 
1,827,124
 
$
182
 
$
-
 
$
8,459,222
 
$
(9,166,353)
 
$
(706,159)
 
 
See Accompanying Unaudited Notes to Consolidated Financial Statements
 
 
4


 
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
Nine Months Ended September 30,
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Cash flows used in operating activities:
 
 
 
 
 
 
 
Net loss
 
$
(876,909)
 
$
(1,174,376)
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation
 
 
14,100
 
 
30,839
 
Amortization of security purchase commitment fees
 
 
125,000
 
 
--
 
Change in deferred tax asset, net
 
 
4,290
 
 
36,345
 
Equity based compensation for consulting and legal services
 
 
51,800
 
 
204,795
 
Equity based compensation for product exclusivity
 
 
6,667
 
 
11,333
 
Equity based employee and consultant bonuses
 
 
20,100
 
 
--
 
Equity based non-employee Board of Directors' fees
 
 
22,500
 
 
--
 
Loss on foreclosure of real estate
 
 
--
 
 
307,108
 
Accretion of convertible debenture discounts
 
 
130,461
 
 
143,067
 
Equity based compensation and bonuses payable to Chief Executive Officer
 
 
243,787
 
 
142,857
 
Amortization of prepaid equity based compensation to Chief Executive Officer
 
 
137,494
 
 
375,003
 
Stock issued for supplies and other expensed items
 
 
--
 
 
9,360
 
Loss on extinguishment of convertible debentures
 
 
93,825
 
 
92,993
 
Retirement of certain 2012 year end consultant bonuses
 
 
(47,500)
 
 
--
 
Gain on forgiveness of legal accrual
 
 
--
 
 
(95,054)
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Change in accounts receivable, net
 
 
(9,081)
 
 
(64,665)
 
Change in accounts receivable - related parties
 
 
(51,128)
 
 
(13,075)
 
Change in inventory
 
 
(78,291)
 
 
30,989
 
Change in prepaid expenses and other current assets
 
 
10,201
 
 
(46,716)
 
Change in other assets
 
 
4,000
 
 
(4,000)
 
Change in accounts payable and accrued liabilities
 
 
20,479
 
 
(72,735)
 
Change in customer deposits and unearned revenue
 
 
148,362
 
 
(63,100)
 
Change in other liabilities
 
 
(15,592)
 
 
19,237
 
Change in other liabilities and accrued interest - related parties
 
 
--
 
 
28,877
 
Change in royalties payable - related parties
 
 
2,149
 
 
15,860
 
Net cash used in operating activities
 
 
(43,286)
 
 
(85,058)
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchase of fixed assets
 
 
(5,500)
 
 
(19,116)
 
Net cash used in investing activities
 
 
(5,500)
 
 
(19,116)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from borrowing on convertible debentures
 
 
176,750
 
 
277,724
 
Proceeds from short-term loans payable
 
 
203,000
 
 
47,000
 
Repayment against short-term loans
 
 
--
 
 
--
 
Proceeds from equity investment
 
 
--
 
 
5,000
 
Principal payment on convertible debentures
 
 
(229,696)
 
 
(119,224)
 
Proceeds from notes payable
 
 
--
 
 
2,002
 
Principal payments on note payable
 
 
(9,132)
 
 
(5,009)
 
Principal payments on note payable - related party
 
 
(51,876)
 
 
(44,329)
 
Net cash provided by financing activities
 
 
89,046
 
 
163,164
 
 
 
 
 
 
 
 
 
Net change in cash
 
 
40,260
 
 
58,990
 
 
 
 
 
 
 
 
 
Cash, beginning of period
 
 
69,292
 
 
27,182
 
 
 
 
 
 
 
 
 
Cash, end of period
 
$
109,552
 
$
86,172
 
 
See Accompanying Unaudited Notes to Consolidated Financial Statements
 
 
5

 
BROWNIE'S MARINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
Nine Months Ended September 30,
 
 
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
 
$
14,322
 
$
45,556
 
 
 
 
 
 
 
 
 
Cash paid for income taxes
 
$
--
 
$
--
 
 
 
 
 
 
 
 
 
Supplemental disclosures of non-cash investing activities and future operating
    activities:
 
 
 
 
 
 
 
Discounts on convertible debentures
 
$
72,053
 
$
99,940
 
 
 
 
 
 
 
 
 
Stock and additional paid-in capital for assets purchased from Florida Dive
    Industries, Inc.
 
$
--
 
$
50,040
 
 
 
 
 
 
 
 
 
Conversion of convertible debentures to stock
 
$
156,679
 
$
137,830
 
 
 
 
 
 
 
 
 
Conversion of accrued payroll to stock
 
$
40,500
 
$
45,000
 
 
 
 
 
 
 
 
 
Conversion of accrued interest and fees on convertible debentures to stock
 
$
7,398
 
$
13,354
 
 
 
 
 
 
 
 
 
Conversion of accrued Non-employee Board of Directors fees to stock
 
$
15,000
 
$
--
 
 
 
 
 
 
 
 
 
Conversion of short-term loan to stock
 
$
--
 
$
20,000
 
 
 
 
 
 
 
 
 
Security purchase commitment fees payable in stock
 
$
125,000
 
$
--
 
 
 
 
 
 
 
 
 
Write off of real estate due to foreclosure and sale
 
$
--
 
$
1,075,165
 
 
 
 
 
 
 
 
 
Write off of mortgage due to foreclosure and sale of real estate
 
$
--
 
$
1,053,994
 
 
 
 
 
 
 
 
 
Real estate foreclosure difference between court judgement and sale amount
    recorded as estimated libiiliaty (adjusted to $103,026 in subsequent
    period)
 
$
--
 
$
300,569
 
 
See Accompanying Unaudited Notes to Consolidated Financial Statements
 
 
6

 
 
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”, “We”,  or “BWMG”) designs, tests, manufactures and distributes recreational hookah diving, yacht based scuba air compressor and nitrox generation systems, and scuba and water safety products through its wholly owned subsidiary Trebor Industries, Inc.  The Company sells its products both on a wholesale and retail basis, and does so from its headquarters and manufacturing facility in Fort Lauderdale, Florida.  The Company does business as (dba) Brownie’s Third Lung, the dba name of Trebor Industries, Inc.  The Company’s common stock is quoted on the OTCBB under the symbol “BWMG”.
 
Basis of Presentation – The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).  In the opinion of management all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included.
 
Definition of fiscal year – The Company’s fiscal year end is December 31.
 
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Reclassifications – Certain reclassifications have been made to the 2012 financial statement amounts to conform to the 2013 financial statement presentation.  Effective July 15, 2013, the Company effectuated a reverse stock split (1 -for- 1,350). See Note 19. CHANGE IN CAPITAL STRUCTURE for more information.  Accordingly, the transactional number of shares referenced throughout the Notes has been retroactively stated unless otherwise noted.
 
Cash and equivalents – Only highly liquid investments with original maturities of 90 days or less are classified as cash and equivalents.  These investments are stated at cost, which approximates market value.
 
Going Concern –The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements.   We have incurred losses since 2009, and expect to have through 2013.  We have had a working capital deficit since 2009. The Company defaulted on its first mortgage in the third quarter of 2010, which resulted in an automatic default on its second mortgage, and was restructured with a forbearance agreement with a maturity date of May 22, 2012.  The Company was notified of default under the forbearance agreement on or around April 27, 2012, and the real estate was foreclosed upon and purchased at auction by lender on August 16, 2012. See Note 17. COMMITMENTS AND CONTINGENCIES and Note 25.  SUBSEQUENT EVENTS for further discussion related to the mortgage, forbearance agreement, and foreclosure. 
 
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.  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. 
 
 
7

    
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 working capital in the future.  However, to-date neither generated profit or cash-flow.  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 18. 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 cash flow will be sufficient to fund presently anticipated operations beyond the fourth quarter of 2013.  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 as discussed in Note 12.  CONVERTIBLE DEBENTURES and may continue to raise additional capital through sale of restricted common stock or other securities, and obtained some short term loans.  We have paid for legal and consulting services with restricted stock to maximize working capital. We intend to continue this practice 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.
 
Inventory – Inventory is stated at the lower of cost or fair market value.  Cost is principally determined by using the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory.  Inventory consists of raw materials as well as finished goods held for sale.  The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required.
 
Furniture, Fixtures, and Equipment – Furniture, Fixtures, and Equipment is stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are primarily 3 to 5 years.  The cost of repairs and maintenance is charged to expense as incurred.  Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
 
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment.  The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
 
Revenue recognition – Revenues from product sales are recognized when the Company’s products are shipped or when service is rendered.  Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost of each contract.  This method is used because management considers the percentage of cost incurred to date to estimated total cost to be the best available measure of progress on the contracts.
 
Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs.  General and administrative costs are charged to expense as incurred.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Change in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
 
Revenue and costs incurred for time and material projects are recognized as the work is performed.
 
 
8

 
  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 expense was $4,039 and $2,636 for the three months ended September 30, 2013 and 2012, respectively.  Advertising and trade show expense was $37,198 and $15,799 for the nine months ended September 30, 2013, and 2012, 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 unless the trading activity is nominal, which may indicate it does not represent the fair value. Under these circumstances, the Company determines fair value through an analysis of its fair value of net assets and comparable publicly traded companies that have higher trading volumes with similar results of operations and industries.   Subsequent to the first quarter of 2012, the Company’s trading volume has not been nominal.
 
 
9

 
 
BROWNIE’S MARINE G