RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

6. RELATED PARTY TRANSACTIONS

Notes payable – related parties

Notes payable – related parties – consists of the following as of December 31, 2012:

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.	$	168,384
Less amounts due within one year		168,384
Long-term portion of notes payable – related parties	$	—

As of December 31, 2012, principal payments on the notes payable – related parties are as follows:

2013	$	168,384
2014		—
2015		—
2016		—
2017		—
Thereafter		—
	$	168,384

As of December 31, 2012, the Company was approximately twenty months in arrears on principal payments due under the Note payable to the Chief Executive Officer. No default notice has been received and the Company makes interest payments until such time as it is able to address the past due principal payments. 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 February 12, 2010, as part of the requirements for conversion of its non-related party, revolving line of credit to a term loan, the Company converted GKR Associates, LLC’s (GKR) second mortgage to a third mortgage. See Note 10. NOTES PAYABLE for further discussion. The Company was fifteen months in arrears on mortgage payments due GKR when on March 18, 2011, the Chief Executive Officer disposed of all his financial interest in 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 converted GKR’s note payable to a convertible debenture. See Note 11. CONVERTIBLE DEBENTURES for further discussion.

Notes payable – related parties – consists of the following as of December 31, 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.	$	249,433
Less amounts due within one year		41,854
Long-term portion of notes payable – related parties	$	207,579

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 years ended December 31, 2012, and 2011, was $804,381 and $638,502, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2012, was $24,471, $2,593, and $18,776, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2011, was $27,247, $12,348, and $8,457, respectively. Sales to Pompano Dive Center for the years ended December 31, 2012, and 2011, was $11,531 and $9,492, respectively. Accounts Receivable from Pompano Dive Center was $5,863 and $0 at December 31, 2012, and December 31, 2011, respectively. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT for further discussion regarding Pompano Dive Center. Sales to the Company’s Chief Executive Officer for the years ended December 31, 2012 and December 31, 2011, was $50 and $4,114, respectively. Accounts receivable from the Company’s Chief Executive Officer was $0 at December 31, 2012 and December 31, 2011.

Royalties expense – related parties – The Company has Non-Exclusive License Agreements with 940 Associates, Inc. (hereinafter referred to as “940A”), an entity owned by the Company’s Chief Executive Officer, to license product patents it owns. Under the terms of the license agreements effective January 1, 2005, the Company pays 940A $2.00 per licensed product sold, rates increasing 5% annually. Also with 940A, the Company has an Exclusive License Agreement to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. Based on this license agreement, the Company pays 940A 2.5% of gross revenues per quarter. Total royalty expense for the above agreements for the years ended December 31, 2012, and 2011, is disclosed on the face of the Company’s Consolidated Statements of Operations. As of December 31, 2012, the Company was approximately twenty-six months in arrears on royalty payments due. No default notice has been received and the Company plans to make payments as able.

Non-employee Board of Director – Non-employee Board of Director (BOD) compensation is $2,500 per month. Non-Employee BOD fees for the years ended December 31, 2012 and 2011, was $37,500 and $45,000, respectively. One of the two non-employee Board of Directors (“BOD”), Wesley Armstrong, of the three person BOD, which included the Chief Executive Officer, resigned his position on April 18, 2012. As of December 31, 2012, $22,500 of the accrued BOD fees had been converted to stock, leaving $15,000 still due and unpaid, $7,500 due to Wesley Armstrong from first quarter of 2012, and $7,500 due Mikkel Pitzner from fourth quarter of 2012. Because the remaining non-employee BOD, Mikkel Pitzner, now accounts for 50% of the BOD, the Company reclassified him to related party as of April 2012. See Other liabilities and accrued interest - related parties below for inclusion of the $7,500 payable to him as of December 31, 2102. Prior to April 2012, the two non-employee BOD were not classified as related parties. The $7,500 payable to the non-employee director that resigned is included in other liabilities at December 31, 2012. On June 20, 2012, Mr. Pitzner converted a $20,000 short-term loan to 2,666,667 restricted shares payable per BOD consent. Conversion price per share was $.0075, which was the same price granted to another unrelated equity investor. In addition, on February 23, 2013 the Company declared a bonus payable for the year ended 2012 for certain employees, service providers, and consultants. As part of this bonus, Mikkel Pitzner was awarded 243,333,333 shares of restricted stock valued at $.0003 per share price on the date of the transaction, or $73,000. This amount is included in operating expenses and on the statement of stockholders’ deficit as shares payable as of and for the year ended December 31, 2012.

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 principals of CRC are 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 $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 $6,017 remaining on the 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:

	December 31, 2012		December 31, 2011
Accrued interest on Notes payable – related parties	$	—	$	2,973
BOD fee payable to non-employee – related party		7,500		—
Year-end bonus payable to Chief Executive Officer		67,000		—
Due to Principals of Carleigh Rae Corp., net		6,017		6,017
Other liabilities – related parties	$	80,517	$	8,990

The $6,017 due to the Principals of the Carleigh Rae Corp. resulted as part of the patent infringement settlements received by the Company and is discussed above as is the non-employee BOD Fee.

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 years ended December 31, 2012, and 2011, the Company recognized $500,004 and $404,088, respectively, as amortization of prepaid compensation under this agreement. Prepaid compensation remaining under this agreement as of December 31, 2012 and, 2011, was $137,494 and $637,498, respectively, and is reflected as a component of Stockholders’ Deficit.

Equity based compensation for Chief Executive Officer and non-employee Board of Directors Bonuses and fees – On March 6, 2012, the Board of Directors authorized an aggregate of $215,000 in bonuses for payment in stock to employees, consultants, and Board of Directors for the year ended December 31, 2011, for service in 2011. Of this amount the Chief Executive Officer and the non-employee Board of Directors were awarded, $36,000 and $53,000, respectively. In addition, an incremental $45,000 due the non-employee Board of Directors for service on the Board from April to December 2011, was converted to stock payable in lieu of cash settlement. See Note 20. EQUITY BASED INCENTIVE/RETENTION/YEAR END BONUSES AND CONVERSION OF BOARD OF DIRECTORS’ LIABILITY for further discussion.

Equity Based Compensation for Chief Executive Officer – Pursuant to a Written Consent of the Board of Directors (BOD) of the Company on June 11, 2012, clarifying a meeting held on May 31, 2012, the BOD declared a $83,333 bonus due the Chief Executive Officer payable in 6,944,444 shares of restricted stock. The shares will not vest until January 2, 2013, are subject to continued employment with the Company through then, and will not be released until vested. The grant price per share of $.012 was based on the closing price of the stock on May 31, 2012. For accounting purposes, the Company will recognize $83,333 operating expense ratably over the seven months the share vest. Further, 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. The shares will not vest until six months after the last day of each month, continued employment is also a requirement for vesting, and shares will not be issued until vested. The Company will record $23,801 operating expense each month related to the salary increase, which is $16,667 with the discount added back to record at full monthly weighted average price per market.

On November 2, 2012 the Board of Directors 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 pershare was calculated as $.0009 based on last closing price per the OCBB for a total of $75,100. The number of shares that will be set aside and reserved forthis transaction is 80,500,000. Of the 80,500,000 shares, 50,000,000 shares were awarded to the Chief Executive Officer, or $45,000 of the $75,100 of the fair market value of the bonuses. The Company will record compensation expense ratably over the vesting period. All equity based compensation to the Chief Executive Officer is reflected on the face of the Statement of Stockholders’ Deficit. In addition, on February 23, 2013 the Company declared a bonus payable for the year ended 2012 for certain employees, service providers, and consultants. As part of this bonus, Mikkel Pitzner was awarded 243,333,333 shares of restricted stock valued at $.0003 per share price on the date of the transaction, or $73,000. This amount is included in operating expenses and on the face of the statement of stockholders’ deficit as shares payable as of and for the year ended December 31, 2012. In addition, on February 23, 2013 the Company declared a bonus payable for the year 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 BOD. This amount is included in operating for the year ended December 31, 2012. See table above for inclusion in other liabilities and accrued interest – related parties.