7. RELATED PARTIES TRANSACTIONS

Notes payable – related parties

Notes payable – related parties consists of the following at June 30, 2015:

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, matured on November 1, 2014	$	7,083

Promissory note payable to Chief Executive Officer, unsecured, payable in twelve monthly principal payment of $2,250 beginning June 15, 2015, with interest at 10% per annum with payments monthly in shares of stock based on the monthly weighted average price of the stock, maturing May 15, 2016.		24,599

Less amounts due within one year		31,682

Long-term portion of notes payable	$	—

	$	31,682

As of June 30, 2015, principal payments on the notes payable – related parties are as follows:

2015	$	20,432
2016		11,250
2017		—
2018		—
2019		—
Thereafter		—
	$	31,682

Effective April 22, 2015, the Company issued Mr. Carmichael, Chief Executive Officer of the Company, an unsecured promissory note presented in the table above in consideration for a $27,000 advance. For purposes of calculating the interest due monthly on the note, the weighted average price per share during the monthly period from the historical data as quoted on www.quotemedia.com for BWMG shall be used. Interest shall be calculated as the unpaid principal balance times the daily rate for the number of the days in the period times the average weighted price per share for the monthly period. The Company borrowed and is using the proceeds for tooling and inventory of new product it plans to offer during its local summer diving and boating season. For the three months ended June 30, 2015, the Company converted $203 accrued interest on the note payable – related party to 66,764 shares of restricted stock.

On October 30, 2013, the Company signed the above 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.

As of June 30, 2015, the Company was approximately one payment 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

Notes payable – related parties consists of the following at December 31, 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, matured on November 1, 2014	$	14,167

Less amounts due within one year		14,167

Long-term portion of notes payable	$	—

	$	14,167

Net revenues and accounts receivable – related parties – The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys, owned by the brother of the Company’s Chief Executive Officer. Terms of sale are no more favorable than those extended to any of the Company’s other customers. Combined net revenues from these entities for three months ended June 30, 2015 and 2014, was $214,701 and $265,490, respectively. Combined net revenues from these entities for six months ended June 30, 2015 and 2014, was $371,338 and $487,231, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at June 30, 2015, was $36,012, $5,370, and $8,461, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Inc., Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2014, was $42,882, $4,128, and $8,451, respectively.

The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc., and 3D Buoy, fully owned by the Company’s Chief Executive Officer. Terms of sale are more favorable than those extended to BWMG’s regular customers, but no more favorable than those extended to Brownie’s strategic partners. Terms of sale approximate cost or include a nominal margin. These terms are consistent with those extended to Brownie’s strategic partners. Strategic partner terms on a per order basis include promotion of BWMG’s technologies and “Brownie’s” brand, offered only on product or services not offered for resale, and must provide for reciprocal terms or arrangements to BWMG on strategic partners’ product or services. BGL is fulfilling the strategic partner terms by providing exposure for BWMG’s technologies and “Brownie’s” brand in the yachting and exploration community word-wide through its operations. Combined net revenues from these entities for three months ended June 30, 2015, and 2014, were $28,582 and $45,447, respectively. Combined net revenues from these entities for six months ended June 30, 2015, and 2014 were $42,388 and $178,691, respectively Accounts receivable from BGL at June 30, 2015, and December 31, 2014 was $11,142 and $2,107, respectively. Accounts receivable from 3D Buoy was $3,066 at June 30, 2015.

Beginning in 2015, the joint venture agreement with Pompano Dive Center “PDC” was in process of dissolution. PDC provided notice of intent to dissolve effective January 1, 2015. During the second quarter of 2015, PDC returned the stock it held in BWMG, fulfiling the terms of dissolution. Therefore, during the second quarter of 2015, the Company reversed the $24,740 long term asset (purchase option) tied to the stock provided PDC discussed below, with corresponding reduction in additional paid in capital.

As a result, PDC is not being presented or disclosed as a related party in 2015. The Company opted to not reclassify 2014 presentation and disclosure due to immateriality of impact on financial statement and disclosure comparability. Therefore, the notes and financial statements include PDC as a related party in 2014. Accordingly, sales to PDC for the three and six months ended June 30, 2014 was $5,133 and $6,212, respectively. Terms of sale were no more favorable than those extended to any of the Company’s other customers. Accounts receivable from Pompano Dive Center at December 31, 2014, was $1,080. See Note 17. JOINT VENTURE EQUITY EXCHANGE AGREEMENT for further discussion regarding PDC.

Royalties expense – related parties – The Company has Non-Exclusive License Agreements with 940 Associates, Inc. (hereinafter referred to as “940A”), an entity owned by the Company’s Chief Executive Officer, to license product patents it owns. Under the terms of the license agreements effective January 1, 2005, the Company pays 940A $2.00 per licensed product sold, rates increasing 5% annually. Also with 940A, the Company has an Exclusive License Agreement to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. Based on this license agreement, the Company pays 940A 2.5% of gross revenues per quarter. Total royalty expense for the above agreements for the three and six months ended June 30, 2015 and 2014, is disclosed on the face of the Company’s Consolidated Statements of Operations. As of June 30, 2015, and December 31, 2014, the Company was approximately thirty 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.

Equity based compensation for Chief Executive Officer – 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 was 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 BODs 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.

Non-employee Board of Director fees and bonus – Effective December 23, 2013, the Board of Directors cancelled the $2,500 per month non-employee Board of Director fee agreement under which Mikkel Pitzner was being compensated. In addition, Mr. Pitzner forgave the $27,500 BOD fees due in shares payable and/or paid him monthly through November 2013. Related to the forgiveness of the BOD fees for 2013, the Company cancelled related stock payable to him, recorded $5,917 receivable for the stock due back from him, and recorded the $27,500 as contribution to Additional Paid in Capital. During the three months ended June 30, 2014, Mr. Pitzner returned 14,406 shares, or $1,383 of $5,917, leaving a $4.534 receivable. As of June 30, 2015, the Company deemed the receivable fair market value as $1, which is the par value of 8,372 shares pending return from Mr. Pitzner. Therefore, the Company reduced the value of the receivable to $1, and reduced additional paid in capital, which is the account that would otherwise be adjusted upon return of the shares

Equity based compensation to employee –The Company pays the employment compensation of Alexander F. Purdon, an employee and a more than 10% shareholder of the Company, in restricted shares of stock in lieu of cash. The number of shares paid is based on the weighted average price per share during the months the services were rendered. For the three months ended June 30, 2015 and June 30, 2014, stock based compensation to Mr. Purdon was $13,500 and $13,500, respectively. For the six months ended June 30, 2015 and June 30, 2014, stock based compensation to Mr. Purdon was $27,000 and $27,000, respectively, or 9,182,701 shares and 2,930,849, 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.

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 December 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 was 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 Intellectual Property (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:

	June 30, 2015		December 31, 2014

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		1,502		3,004
Due to Principals of Carleigh Rae Corp., net		6,017		6,017
	$	92,019	$	93,521

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 IP, the Company issued Mr. Carmichael 234 stock options 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.