Notes to Consolidated Financial Statements
(1)
Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization and Basis of Presentation
BlastGard International, Inc. (the "Company") was incorporated on September 26, 2003 as BlastGard Technologies, Inc. ("BTI") in the State of Florida, to design and market proprietary blast mitigation materials. The Company created, designs, develops and markets proprietary blast mitigation materials. The Company's patented BlastWrap
®
technology effectively mitigates blast effects and suppresses post-blast fires. The Company sub-contracts the manufacturing of products to licensed and qualified production facilities.
The Company went public through a shell merger on January 31, 2004. On March 21, 2004, the Company changed its name to BlastGard International, Inc. On March 4, 2011, the Company completed the acquisition of HighCom Securities, Inc. and subsidiaries. The income of HighCom and subsidiaries is included from January 25, 2011, the date of the binding letter of intent. These financial statements include the assets, liabilities and activity of the following:
BlastGard International, Inc.
BlastGard
®
International, Inc. is a Colorado corporation that has developed and designed proprietary blast mitigation materials. The Company operates from offices in Clearwater, Florida and uses contract manufacturers in various locations for production.
BlastGard Technologies Inc. is a dormant Florida corporation.
HighCom Securities, Inc.
HighCom Securities, Inc. (HighCom), originally located in San Francisco California, is a global provider of security equipment and a leader in advanced ballistic armor manufacturing. The Company has a manufacturing facility in Columbus, Ohio for production and has moved the corporate offices to Clearwater, Florida as of May 1, 2011.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern was dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to continue to generate necessary cash flows through operations. However, should the Company's sales not provide sufficient cash flow; the Company can raise additional working capital through debt and/or equity financings. There is no assurance the Company will be successful in producing sufficient sales revenues or obtaining additional funding through debt and equity financings.
Business Segments
Although the Company accounts for its operations in two separate corporations, all of its business operations are associated with Security for Individuals and Property. Blastgard International, Inc. primarily provides for corporate administration, and only has incidental sales of an immaterial amount. HighCom sales represent in excess of 99% of total sales. Therefore the Company has determined that all business operations should be aggregated together and not reported as separate operating segments.
Principles of Consolidation
These consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as of December 31, 2015 and 2014.
All material intercompany transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considered all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents.
Financial Instruments
The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.
Fair Value Measurement
All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value.
Level 1: Quotes market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.
Level 3: Unobservable inputs that were not corroborated by market data.
Accounts Receivable
Accounts receivable consisted of amounts due from customers based in the United States and abroad. The Company considered accounts more than 30 days old to be past due. The Company used the allowance method for recognizing bad debts. When an account was deemed uncollectible, it was written off against the allowance. The Company generally does not require collateral for its accounts receivable. Management deems all accounts receivable to be collectable at December 31, 2015.
Inventory
Inventory was stated at the lower of cost (first-in, first-out) or market. Market was generally considered to be net realizable value. Inventory consisted of materials used to manufacture the Company's product and finished goods ready for sale.
Property and Equipment
Property and equipment were stated at cost. Depreciation was calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Expenditures for additions and improvements were capitalized, while repairs and maintenance costs were expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of were removed from the accounts and any gain or loss was recorded in the year of disposal.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets' carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.
Debt Issue Costs
The costs related to the issuance of debt were capitalized and amortized to interest expense using the straight-line method over the lives of the related debt. The straight-line method results in amortization that was not materially different from that calculated under the effective interest
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
(i)
persuasive evidence of an arrangement exists,
(ii)
the product has been shipped or the services have been rendered to the customer,
(iii)
the sales price is fixed or determinable, and
(iv)
collectability is reasonably assured.
The Company
's product and return policy allows for merchandise purchased directly from the Company to be returned after obtaining a Return Authorization Number during the 30 day period following date of shipment by the Company for a refund of the purchase price.
Research and Development
Research and development costs were expensed as incurred. Research and development costs totaled $43,189 and $21,923 as of December 31, 2015 and 2014.
Advertising
Advertising costs were expensed as incurred. Advertising costs of $0 and $35,002 were incurred during the years ended December 31, 2015 and 2014, respectively.
Shipping and Freight Costs
The Company includes shipping costs in cost of goods sold.
Income Taxes
Income taxes were provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled. Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The company use guidance provided by ASC-740-10, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.
Stock-based Compensation
We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant, using assumptions for volatility, expected term, risk-free interest rate and dividend yield. We have used one grouping for the assumptions as our option grants were primarily basic with similar characteristics. The expected term of options granted has been derived based upon our history of actual exercise behavior and represents the period of time that options granted were expected to be outstanding. Historical data was also used to estimate option exercises and employee terminations. Estimated volatility was based upon our historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant and the dividend yield was based on the historical dividend yield. Compensation expense for stock based compensation is recognized over the vesting period.
Income (Loss) per Common Share
Basic net loss per share excludes the impact of common stock equivalents. Diluted net income (loss) per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of December 31, 2015, there were 66,750,000 vested common stock options outstanding, which were included in the calculation of net loss per share-diluted because they were dilutive. In addition, at December 31, 2015 the Company had 41,801,793 remaining warrants outstanding issued in connection with convertible promissory notes and stock sales that were also included because they were dilutive.
Recent Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update ("ASU") accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation's reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.
(2)
Inventory
Our inventory is made up of raw materials, work in progress and finished goods. Our inventory is maintained at our manufacturing facilities.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
489,303
|
|
|
$
|
268,894
|
|
Work in process
|
|
|
7,303
|
|
|
|
10,600
|
|
Finished Goods
|
|
|
709,616
|
|
|
|
1,069,333
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,206,222
|
|
|
$
|
1,348,827
|
|
(3)
|
Property and Equipment, Net
|
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 3 to 7 years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's balance sheet and the net gain or loss is included in the determination of operating income. Property and equipment acquired as part of a business acquisition are valued at fair value.
Property and equipment are comprised of the following at December 31, 2015 and December 31, 2014:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Equipment
|
|
$
|
353,880
|
|
|
$
|
233,688
|
|
Furniture
|
|
|
102,564
|
|
|
|
95,242
|
|
Moulds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612,306
|
|
|
|
484,792
|
|
Less accumulated depreciation
|
|
|
(441,199
|
)
|
|
|
(404,353
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
171,107
|
|
|
$
|
80,439
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2015 and 2014
|
|
$
|
36,846
|
|
|
$
|
42,975
|
|
|
|
|
|
Depreciation expense for the next five years ended December 31,
|
|
|
|
2016
|
|
$
|
49,557
|
|
2017
|
|
|
43,239
|
|
2018
|
|
|
32,404
|
|
2019
|
|
|
25,234
|
|
2020
|
|
|
13,397
|
|
|
|
|
|
|
|
|
$
|
163,831
|
|
(4)
Intangible Assets, Net
Intangible Assets are comprised of the following at December 31, 2015 and December 31, 2014:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Patents and Trademarks
|
|
$
|
161,278
|
|
|
$
|
161,278
|
|
Websites
|
|
|
80,000
|
|
|
|
80,000
|
|
Lists
|
|
|
500,000
|
|
|
|
500,000
|
|
Research and Development
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
796,278
|
|
|
|
796,278
|
|
Less accumulated amortization
|
|
|
(647,899
|
)
|
|
|
(631,647
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
148,379
|
|
|
$
|
164,631
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2015 and 2014
|
|
$
|
16,252
|
|
|
$
|
27,568
|
|
|
|
|
|
Amortization expense for the next five years ended December 31,
|
|
|
|
2016
|
|
$
|
16,252
|
|
2017
|
|
|
16,252
|
|
2018
|
|
|
16,252
|
|
2019
|
|
|
16,252
|
|
2020
|
|
|
16,252
|
|
|
|
|
|
|
|
|
$
|
81,260
|
|
(5)
Notes Payable
Notes payable at December 31, 2015 and December 31, 2014 as detailed below, is summarized as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
$
|
-
|
|
|
$
|
32,566
|
|
Convertible promissory notes – accrued expenses
|
|
|
391,025
|
|
|
|
437,025
|
|
Revolving credit
|
|
|
190,232
|
|
|
|
226,789
|
|
Acquisition debt
|
|
|
30,000
|
|
|
|
30,000
|
|
Line of credit
|
|
|
-
|
|
|
|
230,138
|
|
|
|
|
611,257
|
|
|
|
956,518
|
|
Less current maturities
|
|
|
(611,257
|
)
|
|
|
(956,518
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Convertible Promissory Notes
On December 2, 2004, the Company entered into agreements to borrow an aggregate principal amount of $1,420,000 and to issue to the investors secured convertible notes and common stock purchase warrants. The Company's convertible promissory notes payable consist of the following at December 31, 2015 and December 31, 2014:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% annual interest rate
|
|
|
-
|
|
|
|
17,325
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% interest rate
|
|
|
-
|
|
|
|
15,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
32,566
|
|
Less: current maturities
|
|
|
-
|
|
|
|
(32,566
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014, there were no warrants outstanding and exercisable associated with the 2004 debt.
Loan payable principal stockholder
In the first quarter of 2014, the Company's principal (Canadian) stockholder advanced the Company $140,000 in anticipation of converting warrants to purchase additional shares at $.009 per share. On September 2, 2014, an exercise of warrants was executed and the $140,000 was included in the total amount due to the principal (Canadian) stockholder of $302,474 that was converted into 33,608,200 shares of BlastGard International's Common Stock. The balance of loans payable to the principal stockholder as of December 31, 2015 is $0.
Conversion of Accrued Expenses.
On March 8, 2011, BlastGard's Board of Directors ratified, adopted and approved that James F. Gordon's accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); Michael J. Gordon's accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); and Morse & Morse, PLLC's accrued legal bill of $67,025 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion. On May 3, 2011, BlastGard's Board of Directors ratified, adopted and approved $100,000 in additional compensation to Michael J. Gordon as CEO, of which $50,000 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion and $50,000 issued in Common Stock at $.05 per share. On November 11, 2013, the Board of Directors approved the lowering the conversion price for $.05 per share to $.01 per share on these notes.
The 2011 convertible promissory notes consisted of the following at December 31, 2015 and December 31, 2014:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $210,000, issued January 31, 2011, due on September 30, 2011, 6% interest rate
|
|
$
|
180,000
|
|
|
$
|
210,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $160,000, issued January 31, 2011, due on January 31, 2012, 6% interest rate
|
|
|
144,000
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $67,025, issued January 31, 2011, due on September 30, 2011, 6% interest rate
|
|
|
67,025
|
|
|
|
67,025
|
|
|
|
|
391,025
|
|
|
|
437,025
|
|
Less: current maturities
|
|
|
(391,025
|
)
|
|
|
(437,025
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See "Note 11" regarding the conversion of $300,000 of the aforementioned Notes into 30,000,000 shares of Common Stock in January 2016. This $300,000 is accounted for as a non-current liability due to being satisfied through the issuance of equity.
The Company had issued 104,333,335 warrants with the convertible debt. The 41,801,793 warrants which remain outstanding are currently exercisable at $0.009 and expire in 2018. Due to changes in the terms, the warrants are re-valued, using the Black-Scholes method each quarter. On August 23, 2013, 28,923,342 warrants were exercised and on September 2, 2014, 33,608,200 warrants were exercised. At December 31, 2015 the remaining 41,801,793 warrants were valued at approximately $357,449, with an unamortized debt discount of $336,707, and a net value of $20,742. These amounts are presented as a derivative liability, net on the balance sheet.
Revolving Credit Facilities
The Company also acquired various revolving credit facilities in the acquisition of HighCom Security, Inc. HighCom had been paying interest only on the loans. The revolving credit facilities consist of the following at December 31, 2015 and December 31, 2014:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Line of credit from Regions Bank, $100,000, interest only at 8% annually, due on demand
|
|
$
|
53,649
|
|
|
$
|
63,940
|
|
|
|
|
|
|
|
|
|
|
Revolving credit card facility with Wells Fargo Bank, $150,000, interest only at 7.5% annually, due on demand
|
|
|
136,583
|
|
|
|
142,582
|
|
|
|
|
|
|
|
|
|
|
Three credit card accounts with major financial institutions varying monthly minimum payments including interest, due on demand
|
|
|
0
|
|
|
|
20,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,232
|
|
|
|
226,789
|
|
Less: current maturities
|
|
|
(190,232
|
)
|
|
|
(226,789
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Acquisition Debt
On March 4, 2011, the Company issued a note payable in association with the purchase of HighCom Security Inc. and on March 31, 2011, the Company issued a note payable in association with the purchase of Acer product designs. These acquisition notes have the following balances at December 31, 2015 and December 31, 2014:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Acquisition note for the purchase of Acer product designs, original amount $30,000, no interest
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
30,000
|
|
Less: current maturities
|
|
|
(30,000
|
)
|
|
|
(30,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Line of Credit
The Company has a $100,000 credit line, which was secured by a personal guarantee of its Chief Executive Officer and a $220,000 credit line secured by a personal guarantee of its Chief Executive Officer. As of December 31, 2015 and December 31, 2014, $0 and $230,138 was borrowed and advanced to the Company. These loans are included in the current portion of notes payable.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Canadian corporation has the right to nominate and appoint at least 50% of the Board Members.
In 2013, in connection with 8464091 Canada Inc. acquiring over majority control of the Company's Common Stock from a former affiliated third party, the Company agreed that the Canadian corporation has the right to nominate and appoint to the Board at least 50% of the Board members. Also, the Canadian corporation has the right to participate in future financings up to its pro rata share of Common Stock of the Company.
Preferred stock
The Company was authorized to issue 1,000 shares of $.001 par value preferred stock. The Company may divide and issue the Preferred Shares in series. Each Series, when issued, shall be designated to distinguish them from the shares of all other series. The relative rights and preferences of these series include preference of dividends, redemption terms and conditions, amount payable upon shares of voluntary or involuntary liquidation, terms and condition of conversion as well as voting powers.
Common stock issuances
In September 2014, the Company issued 33,608,200 common shares associated with a debt conversion in the amount of $302,474 and the exercise of warrants valued at $435,487.
In September 2015, the Company issued 3,000,000 common shares in a debt conversion in the amount of $30,000.
In November 2015, the Company issued 5,570,321 common shares in a debt conversion in the amount of $55,953.
336,976,178 shares were issued and outstanding at December 31, 2015.
Stock Compensation
The Company periodically offered options to purchase stock in the company to vendors and employees. There were 25,000,000 options granted during the 3rd quarter of 2015 to three key employees and 1,500,000 options granted during the 3
rd
quarter of 2015 to a board member for consultant services.
The Board's policy with respect to options is to grant options at the fair market value of the stock on the date of grant. Options generally become fully vested after one year from the date of grant and expire five years from the date of grant. During the years ended December 31, 2013 and 2012 there were 0 and 0 options granted, respectively and 0 and 1,450,000 expired un-exercised, respectively. On March 25, 2014, the Board of Directors approved granting all four directors 500,000 shares exercisable at $.02 per share. The options are for 5 years and are fully-vested, non-statutory stock options. The options to purchase 500,000 shares of the Corporation's Common Stock, effective March 25, 2014, at an exercise price of $0.01 per share were granted to the following persons: Michael J. Gordon, Paul W. Henry, Solomon Mayer and Keith Brill. The options to purchase 750,000 shares of the Corporation's Common Stock, effective March 10, 2015, at an exercise price of $0.01 per share were granted to the following persons: Michael J. Gordon, Paul W. Henry, Solomon Mayer and Keith Brill.
There were no net cash proceeds from the exercise of stock options during the year ended December 31, 2015. At December 31, 2015 and December 31, 2014, there was no unrecognized compensation cost related to share-based payments which was expected to be recognized in the future
The following table represents stock option activity as of and for the twelve months ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding - January 1, 2015
|
|
|
37,550,000
|
|
|
$
|
0.01.
|
|
8.9 years
|
|
|
-
|
|
Granted
|
|
|
29,500,000
|
|
|
$
|
0.01
|
|
5.0 years
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding – December 31, 2015
|
|
|
66,750,000
|
|
|
$
|
0.01
|
|
6.3 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable – January 1, 2015
|
|
|
20,550,000
|
|
|
$
|
0.02
|
|
7.9 years
|
|
$
|
-
|
|
Outstanding Exercisable – December 31, 2015
|
|
|
44,250,000
|
|
|
$
|
0.01
|
|
6.4 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of options vested during the twelve months ended December 31, 2015 and 2014 was $357,987 and $199,917 respectively.
The following table represents stock warrant activity as of and for the twelve months ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding - January 1, 2015
|
|
|
41,801,793
|
|
|
$
|
0.009.
|
|
3.9years
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding – December 31, 2015
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
3.9 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable – January 1, 2015
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
3.9 years
|
|
$
|
-
|
|
Outstanding Exercisable – December 31, 2015
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
3.9 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability
We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
During 2011, the Company entered into certain convertible debt agreements with warrants attached. Because the warrant values exceeded the note values after the beneficial conversion feature discount, the warrants have been bifurcated out and recorded separately. The initial value was the fair value less the fair value of the debt discount. The difference between the amortized fair value and the revalued fair value at each reporting period is recorded as a derivative liability. This derivative liability will change every reporting period based on the current market conditions.
The Company used the following Black-Scholes assumptions in arriving at the fair value of the warrants as of December 31, 2015 and 2014.
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Expected Life in Years
|
|
|
2.9
|
|
|
|
2.43
|
|
Risk-free Interest Rates
|
|
|
1.76
|
%
|
|
|
1.65
|
%
|
Volatility
|
|
|
281.15
|
%
|
|
|
347.49
|
%
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The Derivative Liability consists of the following as of December 31, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Fair Value of embedded warrants
|
|
$
|
357,449
|
|
|
$
|
623,830
|
|
Unamortized discount
|
|
|
(336,707
|
)
|
|
|
(454,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,742
|
|
|
$
|
169,630
|
|
(7)
Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate follows:
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
U.S. statutory federal rate, graduated
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State income tax rate, net of Federal
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
Permanent book-tax differences
|
|
|
0
|
%
|
|
|
0.
|
%
|
Net operating loss (NOL) for which no tax benefit was available.
|
|
|
-37.6
|
%
|
|
|
-37.6
|
%
|
|
|
|
|
|
|
|
|
|
Net tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
At December 31, 2015, deferred tax assets consisted of a net tax asset of approximately $5,489,600, due to operating loss carry forwards of approximately $14,600,000 and $15,600,000 for December 31, 2015 and 2014, which was fully allowed for, in the valuation allowances of $5,489,600 and $5,865,600 respectively. The valuation allowance offsets the net deferred tax asset for which it was more likely than not that the deferred tax assets will not be realized. The change in the valuation allowance for the years ended December 31, 2015 and 2014 totaled approximately $(376,000) and $(945,200) respectively. The current tax benefit also totaled approximately $376,000 and $945,200 for the years ended December 31, 2015 and 2014, respectively. The net operating loss carry forwards expire through the year 2033.
The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the deferred tax asset will be realized. At that time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if positive evidence indicates that the value of the deferred tax assets was no longer impaired and the allowance was no longer required.
Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company's tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses. The tax years for 2011 through 2014 are still open for inspection by the individual taxing authorities.
(8)
Concentration of Credit Risk for Cash
The Company has concentrated its credit risk for cash by maintaining deposits in a financial institution, which may at times exceed the amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation ("FDIC"). At December 31, 2015, the Company had no funds in excess of the FDIC insurance limits.
(9)
Commitments and Contingencies
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations.
Office Lease
We do not own any real estate properties. BlastGard entered into a lease agreement in January 1, 2009 for office space in Clearwater Florida, which was expanded to two offices in 2011 to accommodate HighCom Security. In 2012, BlastGard moved into a larger office space. Rental payment under the new lease is $373 per month on a month to month basis.
HighCom leases office and manufacturing space in Columbus, Ohio. I
n February 2011, the Company entered into a six month lease agreement for approximately 11,200 square feet of office and warehouse space in Columbus, OH. In June 2012, the Company entered into a one year lease agreement for approximately 16,200 square feet of office and warehouse space in Columbus, OH. In June 2013, the Company entered into a three year lease agreement for approximately 24,160 square feet of office and warehouse space in Columbus, OH.
Rental payment under the new lease is $6,967 per month through August 2016.
In October 2015, the Company entered into a three year lease agreement for approximately 32,865 square feet of office and warehouse space in Columbus, OH.
Rental payment under the new lease is $9,627 per month on a month to month basis until June 2016 and then $8,901 through October 2018.
HighCom rented approximately 900 square feet of office space in Aurora, CO on a short-term lease which expired on May 31, 2014 at a rental of $518 per month. On January 1, 2015, HighCom secured similar office space in Centennial, CO for one year at a rental of $525.00 per month, which was renewed January 2016 for one year.
Rent expense for 2015 and 2014 was approximately $99,258 and $88,912, respectively
.
Contingent Liability
In March of 2011, the Company accomplished the acquisition of 100% of HighCom Security, Inc. As part of the consideration given, the Company agreed to an earn-out consisting of up to $100,000 in cash and up to 35,000,000 shares of common stock based on a pro-rata basis if revenue were to reach certain goals. BlastGard management believed that a portion of the revenue goals were very achievable and valued the contingent consideration at 68% of the market price at the time of the agreement. During the quarter ended September 30, 2014, the Company negotiated a mutual release and settlement agreement with all parties related to the original acquisition. As a result of these negotiations the balance of this contingent liability has been settled, and the amount accrued as a contingent liability pursuant to this transaction as of December 31, 2015 and December 31, 2014 was $0 and $0, respectively.
Prior Litigation Matter
Verde Partners Family Limited Partnership
On April 2, 2009, the Company entered into a Settlement Agreement to settle our outstanding civil litigation. The Company will pay the sum of $125,000 over 18 months. The first monthly payment was paid within 30 days after the Defendants deliver to the Company's counsel an original executed version of the Agreement and a promissory note in the amount of the remaining principal balance to bear interest in the amount of 6% per annum. Upon Verde's receipt of the payment and promissory note, the parties shall jointly dismiss with prejudice all litigation between them, including the Pinellas County action and the Federal action. The company and Verde also entered into a license agreement whereby BlastGard obtains a fully paid up non-exclusive license for the 2 Verde patents for the remaining life of those patents in exchange for the Company paying Verde a 2% royalty for the life of the patents (which expired in the 2
nd
quarter of 2012), on the sales price received by BlastGard for BlastGard's portion of all blast mitigation products sold by the company (the royalty was not on any third-party's portion of any product containing blast mitigation products sold by BlastGard). The parties also agreed not to file any complaints with any state, federal or international agency or disciplinary body regarding any of the other parties or any person affiliated with any of the other parties or otherwise makes negative statements about them (in other words, a broad non-disparagement clause). The company and Verde also signed mutual general releases (excepting the obligations above) and a covenant not to sue. At September 30, 2015, the Company was in arrears on the final twelve monthly payments on the settlement.
(10)
Material Agreements and Transactions
On November 11, 2013, the Board of Directors approved the following transactions: (i) the issuance of 2,000,000 shares to corporate counsel; and pursuant to his position as chairman of the Company's advisory board an option to purchase 2,000,000 shares of Common Stock which vested on January 1, 2014 and an option to purchase 2,000,000 shares which will vest on January 1, 2015, exercisable at $.009 per share so long as Mr. Keifner is still serving as chairman of the Company's advisory board on the vesting date. In his capacity, Mr. Kiefner will serve as a lasison between the Company and its principal shareholder, to attend meetings of the Company's board of directors, to meet with the Company's officers on a regular basis and provide corporate counsel; (ii) lowering the conversion price from $.05 per share to $.01 per share of certain notes described in Note 5 in the Notes to Financial Statements; and (iii) granting options to purchase an aggregate of 25,000,000 shares of Common Stock to Michael J. Gordon, Michael L. Bundy and Chad Wright with options exercisable at $.01 per share from the vesting date through the expiration date of said options. These options have cliff vesting where they are exercisable over a period of time, but they can become immediately vested in the event certain revenue goals are achieved. In the event the Company achieves $10 million in sales in a calendar year, 25% of the total options will automatically vest. An additional 25% will vest when the Company achieves $20 million in sales in a calendar year and 50% of the total options granted will automatically vest when the Company achieves $30 million in sales in a calendar year.
The Company owed approximately $435,376 to Fifth Third Bank which was personally guaranteed by the former CEO of HighCom. In 2013, 8464081 Canada Inc. purchased the Company's note from Fifth Third Bank and took an assignment of the civil judgment on the note entered into against both HighCom and its former CEO. The indebtedness has been reduced to a civil judgment by the bank in the Ohio state court system. The net proceeds of the warrant exercise described in the preceding paragraph were utilized to release the Company from its obligations under the note.
(11)
Subsequent Events
Management has reviewed events subsequent to December 31, 2015 and through March 29, 2016, and has determined that there are no subsequent event disclosures required, except the following:
In January 2016, the Company issued 30,000,000 common shares in a debt conversion in the amount of $300,000.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
Item 9A
.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation was carried out by the Registrant's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Registrant's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of December 31, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Registrant's management concluded, as of the end of the period covered by this report, that the Registrant's disclosure controls and procedures were ineffective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission's rules and forms, and that such information was not accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: inadequate segregation of duties consistent with control objectives and ma
nagement is dominated by a single individual/small group without adequate compensating controls.
Management's Report on Internal Control over Financial Reporting
Management believes that the material weaknesses set forth above did not have an effect on our financial results. The management of the Registrant is responsible for establishing and maintaining adequate internal control over financial reporting. The Registrant's internal control over financial reporting is a process, under the supervision of the principal executive officer and the principal financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Registrant's financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:
*
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Registrant's assets;
*
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; and
*
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Registrant's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The Registrant's management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company's internal control over financial reporting was ineffective as of December 31, 2015.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of the fiscal year ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.