NOTES
TO CONDENSED FINANCIAL STATEMENTS
SIX
MONTHS ENDED JUNE 30, 2016
(1)
Basis of Presentation
The
interim period financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities
and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant
to such SEC rules and regulations. This report should be read in conjunction with our Form 10-K for our fiscal year ended December
31, 2015.
In
the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of the financial
position at June 30, 2016 and the results of operations for the three and six months ended June 30, 2016 and 2015 and cash flows
for the six months ended June 30, 2016 and 2015 have been made.
These
consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as
of June 30, 2016 and December 31, 2015. All material intercompany transactions have been eliminated.
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.
Accounting
Policies
Principles
of Consolidation
These
consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as
of June 30, 2016 and December 31, 2015.
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 June 30, 2016.
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 $6,158 and $7,767 for the three months
ended June 30, 2016 and 2015, respectively. Research and development costs totaled $14,313 and $28,196 for the six months ended
June 30, 2016 and 2015, respectively.
Advertising
Advertising
costs for tradeshows and social media were expensed as incurred. Advertising costs of $26,552 and $41,766 were incurred during
the six months ended June 30, 2016 and 2015, 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 June 30, 2016, there were
38,000,000 vested common stock options outstanding, which were not included in the calculation of net income per share-diluted
because they were anti-dilutive. In addition, at June 30, 2016 the Company had 41,801,793 remaining warrants outstanding issued
in connection with convertible promissory notes that were also not included because they were anti-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.
|
|
June
30,
2016
|
|
|
December
31,
2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
644,161
|
|
|
$
|
489,303
|
|
Work
in process
|
|
|
136,459
|
|
|
|
7,303
|
|
Finished
Goods
|
|
|
774,596
|
|
|
|
709,616
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,555,216
|
|
|
$
|
1,206,222
|
|
(3)
Property and Equipment, Net
Property
and equipment are comprised of the following at June 30, 2016 and December 31, 2015
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Equipment
|
|
$
|
405,086
|
|
|
$
|
353,880
|
|
Furniture
|
|
|
103,839
|
|
|
|
102,564
|
|
Moulds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664,787
|
|
|
|
612,306
|
|
Less accumulated
depreciation
|
|
|
(470,410
|
)
|
|
|
(441,199
|
)
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
$
|
194,377
|
|
|
$
|
171,107
|
|
Depreciation
expense for the next five years ended June 30,
|
2017
|
|
|
$57,282
|
2018
|
|
|
45,292
|
2019
|
|
|
37,684
|
2020
|
|
|
30,037
|
2021
|
|
|
11,204
|
|
|
|
|
|
$181,499
|
|
|
Depreciation
expense for the six months ended June 30, 2016 and 2015 was $29,211 and $17,508.
|
(4)
Intangible Assets, Net
Intangible
Assets are comprised of the following at June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
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
|
|
|
(656,025
|
)
|
|
|
(647,899
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
140,253
|
|
|
$
|
148,379
|
|
Amortization
expense for the next five years ended June 30,
2017
|
|
$
|
16,252
|
|
2018
|
|
|
16,252
|
|
2019
|
|
|
16,252
|
|
2020
|
|
|
16,252
|
|
2021
|
|
|
15,335
|
|
|
|
|
|
|
|
|
$
|
80,343
|
|
Amortization
expense for the six months ended June 30, 2016 and 2015 was $8,126 and $7,392
(5)
Notes Payable
Notes
payable at June 30, 2016 and December 31, 2015 as detailed below, is summarized as follows:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory notes
– accrued expenses
|
|
|
-
|
|
|
|
391,025
|
|
Revolving credit
|
|
|
-
|
|
|
|
190,232
|
|
Acquisition debt
|
|
|
30,000
|
|
|
|
30,000
|
|
Notes payable – related party
|
|
|
201,391
|
|
|
|
-
|
|
Notes payable
– equipment
|
|
|
25,854
|
|
|
|
-
|
|
|
|
|
257,245
|
|
|
|
611,257
|
|
Less current
maturities
|
|
|
(257,245
|
)
|
|
|
(311,257
|
)
|
|
|
$
|
-
|
|
|
$
|
300,000
|
|
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.
These
notes were paid off in January 2016 through a conversion of $300,000 into 30,000,000 shares of Common Stock, and the balance being
paid in cash.
The
2011 convertible promissory notes consisted of the following at June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note,
$210,000, issued January 31, 2011, due on September 30, 2011, 6% interest rate
|
|
$
|
-
|
|
|
$
|
180,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $160,000,
issued January 31, 2011, due on January 31, 2012, 6% interest rate
|
|
|
-
|
|
|
|
144,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note, $67,025,
issued January 31, 2011, due on September 30, 2011, 6% interest rate
|
|
|
-
|
|
|
|
67,025
|
|
|
|
|
-
|
|
|
|
391,025
|
|
Less: current maturities
|
|
|
-
|
|
|
|
(91,025
|
)
|
|
|
$
|
-
|
|
|
$
|
300,000
|
|
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 June 30, 2016 the remaining 41,801,793 warrants were valued at approximately $313,190, with an unamortized debt discount of
$278,121, and a net value of $35,069. 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 June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
Line of credit from Regions
Bank, $100,000, interest only at 8% annually, due on demand
|
|
$
|
-
|
|
|
$
|
53,649
|
|
|
|
|
|
|
|
|
|
|
Revolving credit card facility with
Wells Fargo Bank, $150,000, interest only at 7.5% annually, due on demand, unsecured
|
|
|
-
|
|
|
|
136,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
190,232
|
|
Less: current maturities
|
|
|
-
|
|
|
|
(190,232
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 June 30, 2016 and December 31, 2015:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
payable – Related Party
During
the six months ended June 30, 2016, the Company’s CEO, Michael Gordon incurred expenses on behalf of, and made advances
to the Company in order to provide the Company with funds to carry on its operations. These advances are pursuant to Mr. Gordon
obtaining a personal demand promissory note at a rate of 5.54% per annum. As of June 30, 2016, the amount due for these expenses
and advances on behalf of the Company is $201,391.
Note
payable - Equipment
The
Company financed the acquisition of certain equipment through a promissory note. The note is payable in monthly installments of
$2,350, is non-interest bearing, and has a maturity date of May 17, 2017. The note is secured by equipment. As of June 30, 2016
the balance of this note was $25,854.
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. Pursuant to this right, 8464091 Canada has nominated and the Board has appointed to the Board
four members, which include, Paul Sparkes, Craig Campbell, Andrew Griffith and David Frum. Also, the Canadian corporation has
the right to participate in future financings up to its pro rata share of Common Stock of the Company.
(6)
Shareholders’ Equity
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. None of our shares of preferred
stock are outstanding.
Common
stock issuances
The
Company has issued various shares of common stock as described below pursuant to debt conversions. No commissions were paid in
connection with these conversions and exemption from registration is claimed under Section 3(a)(9) of the Securities Act of 1933,
as amended.
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.
In
January 2016, the Company issued 30,000,000 common shares in a debt conversion in the amount of $300,000.
366,976,178
shares were issued and outstanding at June 30, 2016.
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 Company’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 June 30, 2016 and December 31, 2015, 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 six months ended June 30, 2016:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options
Outstanding - January 1, 2016
|
|
|
|
66,750,000
|
|
|
$
|
0.01
|
|
|
|
8.9
years
|
|
|
|
-
|
|
Granted
|
|
|
|
-
|
|
|
$
|
0.01
|
|
|
|
5.0
years
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
|
(6,250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
– June 30, 2016
|
|
|
|
60,500,000
|
|
|
$
|
0.01
|
|
|
|
6.3
years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable
– January 1, 2016
|
|
|
|
38,000,000
|
|
|
$
|
0.01
|
|
|
|
7.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable
– June 30, 2016
|
|
|
|
38,000,000
|
|
|
$
|
0.01
|
|
|
|
6.4
years
|
|
|
$
|
-
|
|
The
total grant date fair value of options vested during the six months ended June 30, 2016 and 2015 was $0 and $84,858 respectively.
The
following table represents stock warrant activity as of and for the six months ended June 30, 2016:
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
Warrants Outstanding - January
1, 2016
|
|
|
|
41,801,793
|
|
|
|
$
0.009.
|
|
|
|
3.9
years
|
|
|
$
|
-
|
|
Granted
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding
– June 30, 2016
|
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
3.9
years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable
– January 1, 2016
|
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
3.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable
– June 30, 2016
|
|
|
|
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 June 30, 2016 and December
31, 2015.
|
|
|
|
June
30,
2016
|
|
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
|
|
Expected Life in Years
|
|
|
2.4
|
|
|
|
2.9
|
|
Risk-free Interest Rates
|
|
|
1.01
|
%
|
|
|
1.76
|
%
|
Volatility
|
|
|
267.23
|
%
|
|
|
281.15
|
%
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The
Derivative Liability consists of the following as of June 30, 2016 and December 31, 2015:
|
|
|
June
30,
2016
|
|
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
|
|
Fair Value of embedded warrants
|
|
$
|
313,190
|
|
|
$
|
357,449
|
|
Unamortized
discount
|
|
|
(278,121
|
)
|
|
|
(336,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,069
|
|
|
$
|
20,742
|
|
(7)
Income Taxes
The
Company incurred a net operating profit for the six months ended June 30, 2016, and has realized net income in various prior periods
presented. Due to the deferred tax attributes of the derivatives and a deferred tax asset from prior periods, which was fully
allowed for, no income tax benefit or expense has been presented. Any tax liability associated with any profits was offset by
the deferred tax assets and changing in the valuation allowance on those tax assets.
(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
June 30, 2016, 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. In 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 38,000 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
per month, which was renewed January 2016 for one year.
Rent
expense for the six months ended June 30, 2016 and 2015 was approximately $63,133 and $53,038.
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 June 30, 2016, 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.
(11)
Gain on settlement of debt
During
the quarter ended March 31, 2016, the Company negotiated the settlement of an account payable to a single vendor for invoices
from 2010 that were on the books of HighCom when acquired in March 2011. The vendor has conceded the full amount as settled, resulting
in a gain on settlement of debt in the amount of $300,200.
(12)
Subsequent Events
The
Company has evaluated all subsequent events through the filing date of this form 10Q for appropriate accounting and disclosures,
and there are no subsequent event disclosures required.