RELATED PARTIES TRANSACTIONS

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

6. RELATED PARTIES TRANSACTIONS

Notes payable – related parties

Notes payable – related parties – consists of the following as of September 30, 2011:

Promissory note payable to the Chief Executive Officer of 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.	$	249,434
Less amounts due within one year		187,465
Long-term portion of notes payable – related parties	$	61,969

As of September 30, 2011, principal payments on the notes payable – related parties are as follows:

2011	$	129,104
2012		78,246
2013		42,083
2014		—
2015		—
Thereafter		—
	$	249,434

As of September 30, 2011, the Company was approximately twenty-two months in arrears on payments due under the Note payable to the Chief Executive Officer.  No default notice has been received and the Company plans to make payments as able.  See Other liabilities and accrued interest– related parties within this Note for the related accrued interest in arrears.   

On April 21, 2011, the Company issued 425,000 shares of preferred stock, designated as Series “A” Convertible Preferred Stock, to Robert Carmichael in consideration for forgiveness of $42,500 due under the Note payable to Chief Executive Officer.  The Series “A” Convertible Preferred Stock may be converted to common stock at a rate of $.01 per share, or 42,500,000 shares of common stock.  The fair market value per common share upon which the transaction was based was $.05.  Accordingly, the Company recognized $2,082,500 as interest expense – related party as part of the transaction.

On March 18, 2011, the Company's Chief Executive Officer transferred all financial interest in GKR Associates, LLC (GKR). Accordingly, all transactions of the Company with GKR subsequent to March 18, 2011, are not classified with those of related parties. On September 18, 2011, the Company and GKR converted GKR's note payable to a convertible debenture. See Note 10. CONVERTIBLE DEBENTURES for further discussion.

Notes payable – related parties consists of the following as of December 31, 2010:

Promissory note payable to the Chief Executive Officer of 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.	$	291,934
Promissory note payable due an entity in which the Company’s Chief Executive Officer has a financial interest, GKR Associates, LLC., secured by third mortgage on real property, having a carrying value of $1,120,994 at December 31, 2010, bearing 6.99% interest per annum, due in monthly principal and interest payments of $1,980, maturing on February 22, 2012.		37,260
		329,194
Less amounts due within one year		205,180
Long-term portion of notes payable – related parties	$	124,014

Net revenues and accounts receivable  – related parties – The Company sells products to three entities, 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, 2011, and 2010, was $181,249 and $171,682, respectively. Combined net revenues from these entities for nine months ended September 30, 2011, and 2010, was $459,648 and $529,719, respectively.   Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at September 30, 2011, was $30,191, $3,184, and $9,362, respectively.  Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2010, was $13,777, $4,753, and $5,468, respectively.

Royalties expense – related parties  –   The Company has Non-Exclusive License Agreements with 940 Associates, Inc. (hereinafter referred to as “940A”), an entity owned by the Company’s Chief Executive Officer, to license product patents it owns.  Under the terms of the license agreements effective January 1, 2005, the Company pays 940A $2.00 per licensed product sold, rates increasing 5% annually.  Also with 940A, the Company has an Exclusive License Agreement to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement.  Based on this license agreement, the Company pays 940A 2.5% of gross revenues per quarter.  Total royalty expense for the above agreements for three months ended September 30, 2011, and 2010, is disclosed on the face of the balance sheet. As of September 30, 2011, the Company was approximately twenty-three months in arrears on royalty payments due. No default notice has been received and the Company plans to make payments as able.

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 371,250 shares of the Company’s common stock.   In addition, the CRC is 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.  For financial reporting purposes the Company valued the group of patents at $0 which is the lower of CRC’s historical cost as compared to the fair market value of the stock.  Accordingly, the Company realized a $182,250 loss on the transaction comprised of $148,500 fair market value of the stock on the September, 30, 2010 grant date less the $0 historical cost, plus the $25,500 cash, plus the $8,250 liability.  See Other liabilities and accrued interest– related parties below for inclusion of the $8,250. 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. In addition, see Note 15. PATENT INFRINGEMENT SETTLEMENT for further discussion on income earned in the third quarter of 2010, from the Company’s successful settlement of several lawsuits for infringement of one of these patents.

Other liabilities and accrued interest– related parties

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

	September 30, 2011		December 31, 2010
Accrued interest on Notes payable – related parties	$	15,570	$	23,530
Due to Principals of Carleigh Rae Corp., net		8,222		8,222
Other liabilities – related parties	$	23,792	$	31,752

As of September 30, 2011, the Company was approximately twelve months in arrears on accrued interest due under the Note payable to the Chief Executive Officer.  No default notice has been received and the Company plans to make payments as able.  The $8,222 due the Principals of the Carleigh Rae Corp. resulted as part of the patent infringement settlements received by the Company and further discussed in Note 15. PATENT INFRINGEMENT SETTLEMENTS.

Restricted common stock issued for personal guarantee – On April 21, 2011, the Company granted Robert Carmichael, the Chief Executive Officer, 20,000,000 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 will expire 50% on April 20, 2012, and 50% on April 20, 2013, if Mr. Carmichael continues his full time employment with the Company.  The company valued the stock at $.05 per share and will record $1,000,000 of compensation expense to Mr. Carmichael ratably over the two-year term in which the restrictions expire.     The unearned balance of the compensation is recorded as prepaid compensation as a component of shareholders’ deficit.  As of the three and nine months ended September 30, 2011, the Company recognized $125,001, and $237,501, respectively, as amortization of prepaid compensation under this agreement.  Prepaid compensation remaining under this agreement as of September 30, 2011 is $762,499.