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Related Parties Transactions

6 Months Ended

Jun. 30, 2019

7.	RELATED PARTIES TRANSACTIONS

Net revenues and accounts receivable – related parties – The Company sells products to Brownie’s Southport Divers, Inc., Brownie’s Palm Beach Divers, Inc., and Brownie’s Yacht Toys, Inc., 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 with similar sales volumes. Combined net revenues from these entities for the three and six months ended June 30, 2019 and 2018, totaled $212,782, $351,446, $138,581 and $299,413, respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Brownie’s Palm Beach Divers and Brownie’s Yacht Toys, at June 30, 2019, was $53,684, $24,147 and $10,288 respectively. Accounts receivable from Brownie’s SouthPort Diver’s, Brownie’s Palm Beach Divers, and Brownie’s Yacht Toys at December 31, 2018, was $49,443, $7,731, and $8,646, respectively.

The Company sells products to Brownie’s Global Logistics, LLC. (“BGL”) and 940 Associates, Inc. (“940A”), entities wholly owned by the Company’s Chief Executive Officer. Terms of sale are more favorable than those extended to the Company’s regular customers, but no more favorable than those extended to the Company’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 on a per order basis include promotion of the Company’s technologies and “Brownie’s” brand, offered only on products or services not offered for resale, and must provide for reciprocal terms or arrangements to the Company on strategic partners’ product or services. BGL is fulfilling the strategic partner terms by providing exposure for the Company’s technologies and “Brownie’s” brand in the yachting and exploration community world-wide through its operations. Combined net revenues from these two entities for three and six months ended June 30, 2019 and 2018, were $16,000, $16,810 $0 and $0, respectively. Accounts receivable from BGL and 940A totaled $21,491 and $12,603 at June 30, 2019 and December 31, 2018, respectively.

Accounts payable – related parties – The Company had accounts payable to related parties of $153,458 and $125,243 at June 30, 2019 and December 31, 2018, respectively. The balance payable at June 30, 2019 and December 31, 2018 was due to BLG and 940A.

Royalties expense – related parties – The Company has Exclusive License Agreements with 940A, an entity owned by the Company’s Chief Executive Officer, to license the trademark “Brownies Third Lung”, “Tankfill”, “Brownies Public Safety” and various other related trademarks as listed in the agreement. This license agreement requires the Company to pay 940A 2.5% of gross revenues per quarter. Total royalty expense for the above agreements for the three and six months ended June 30, 2019 and 2018 as disclosed on the face of the Company’s Consolidated Statements of Operations totaled $13,894, $24,117, $13,468 and $23,395, respectively.

In December 2018, the Company issued 20,000,000 shares of common stock to its Chief Executive Officer as an incentive bonus. As the shares are subject to continued employment by the CEO through January 2, 2020, the Company has treated the shares as issued but not as yet outstanding. Expense for the issuance is being recognized over the full vesting period, and accordingly, the Company recognized stock compensation expense of $10,576 as of December 31, 2018. During the three and six months ended June 30, 2019 the Company recognized additional stock compensation expense of $46,907 and $92,783, respectively. The Total amount of expense recorded as of June 30, 2019 is $103,360.

On August 1, 2017, Mr. Mikkel Pitzner was appointed by the Company’s board of directors to serve on the Company’s board of directors, filling a vacancy on the board. Mr. Pitzner shall serve on the board of directors and shall hold office until the next election of directors by stockholders and until his successor is elected and qualified or until his earlier resignation or removal. The Company has agreed to pay Mr. Pitzner an annual fee of $6,000 and has issued Mr. Pitzner 3,333,333 shares of restricted common stock valued at $31,250 under a consulting agreement expiring in January 2019. In December 2018, Mr. Pitzner was issued 708,287 common shares in payment of accrued director fees through December 31, 2018. The shares were valued at $0.0195 per share, totaling $13,812, the fair value on the date of grant. During the six months ended June 30, 2019 the Company recorded $31,250 of stock compensation pursuant to this agreement.

In January 2018, the Company issued 2,000,000 shares of common stock to Mr. Dana Allan for his services for serving on our board of directors. The grant date fair value of the shares issued was $50,200 and were expensed during the year ended December 31, 2018. Mr. Allan also received 552,742 shares for his services on our board of directors with a grant date fair value of $10,778 and were expensed during the year ended December 31, 2018. Mr. Allen resigned as a director effective March 31, 2019.

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, the Company issued Mr. Carmichael 297 stock options at a $1,350 exercise price expiring ten years from the effective date of grant. The options expired on March 2, 2019 without being exercised.

Commencing in February 2019, the Company began paying Mr. Pitzner $9,300 per month, inclusive of a $1,300 auto allowance, for consulting services. These payments are not covered by a written agreement.