NOTES
TO CONDENSED FINANCIAL STATEMENTS
QUARTER
ENDED MARCH 31, 2017
(UNAUDITED)
(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, 2016.
In
the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of the financial
position at March 31, 2017 and the results of operations and cash flows for the three months ended March 31, 2017 and 2016 have
been made.
These
consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as
of March 31, 2017 and December 31, 2016. 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 consolidated 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.
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.
Concentrations
– Major Customers and Major Vendors
For
the three months ended March 31, 2017, approximately 40% of the Company’s revenue was provided by three customers with the
largest representing approximately 16%. The next two largest customers represented approximately 13% and 11%.
For
the three months ended March 31, 2017, approximately 70% of inventory purchases was provided by five vendors, with the largest
supplier representing approximately 34% of purchases. The next three largest suppliers provided approximately 10% of purchases
each, with the last one representing approximately 6% of purchases.
Principles
of Consolidation
These
consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as
of March 31, 2017 and December 31, 2016.
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 March 31, 2017.
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 $11,532 and $8,156 for the three months
ended March 31, 2017 and 2016 respectively.
Advertising
Advertising
costs were expensed as incurred. Advertising costs of $8,002 and $13,059 were incurred during the three months ended March 31,
2017 and 2016, respectively.
Shipping
and Freight Costs
The
Company includes shipping costs in cost of goods sold.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated
financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences
are expected to reverse.
The
Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.
In making such a determination, we consider all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If
we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The
Company reports uncertain tax positions in accordance with guidance provided by ASC-740-10, Accounting for Uncertainty in Income
Taxes.
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 March 31, 2017, there were
46,125,000 vested common stock options outstanding, which were not included in the calculation of net loss per share-diluted because
they were anti-dilutive. In addition, at March, 2017 the Company had 41,801,793 remaining warrants outstanding issued in connection
with convertible promissory notes and stock sales that were also not included because they were anti-dilutive.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
ASU
Update 2014-09
Revenue from Contracts with Customers
(Topic 606) issued May 28, 2014 by FASB and IASB converged guidance
on recognizing revenue in contracts with customers on an effective date after December 31, 2017 will be evaluated as to impact
and implemented accordingly.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases,
to improve financial reporting about leasing transactions. This
ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset
on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee's obligation to make
lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee's right to
use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and
leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting
for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for targeted improvements
to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The
amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)
must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial
Statements.
(2)
Inventory
Our
inventory is made up of raw materials, work in progress and finished goods. Our inventory is maintained at
our
manufacturing facilities.
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
524,774
|
|
|
$
|
648,702
|
|
Work in process
|
|
|
306,763
|
|
|
|
240,849
|
|
Finished Goods
|
|
|
1,079,259
|
|
|
|
1,041,532
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,910,796
|
|
|
$
|
1,931,083
|
|
(3)
|
Property
and Equipment, Net
|
Property
and equipment are comprised of the following at March 31, 2017 and December 31, 2016
|
|
March 31,2017
|
|
|
December 31, 2016
|
|
Equipment
|
|
$
|
436,959
|
|
|
$
|
429,417
|
|
Furniture
|
|
|
101,739
|
|
|
|
104,802
|
|
Moulds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
694,560
|
|
|
|
690,081
|
|
Less accumulated depreciation
|
|
|
(517,209
|
)
|
|
|
(501,079
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
177,351
|
|
|
$
|
189,002
|
|
Depreciation expense for the next five years ended March 31,
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
56,000
|
|
|
|
|
|
2019
|
|
|
46,956
|
|
|
|
|
|
2020
|
|
|
40,393
|
|
|
|
|
|
2021
|
|
|
23,403
|
|
|
|
|
|
2022
|
|
|
8,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,821
|
|
|
|
|
|
Depreciation
expense for the three months ended March 31, 2017 was $16,129.
|
(4)
|
Intangible
Assets, Net
|
Intangible
Assets are comprised of the following at March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
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
|
|
|
(680,403
|
)
|
|
|
(664,151
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
115,875
|
|
|
$
|
132,127
|
|
Amortization expense for the next five years ended March 31,
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
16,252
|
|
|
|
|
|
2019
|
|
|
16,252
|
|
|
|
|
|
2020
|
|
|
16,252
|
|
|
|
|
|
2021
|
|
|
12,585
|
|
|
|
|
|
2022
|
|
|
10,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,093
|
|
|
|
|
|
Amortization expense for the three months ended
March 31, 2017 was $16,252
(5)
Notes Payable
Notes
payable at March 31, 2017 and December 31, 2016 as detailed below, is summarized as follows:
|
|
March 31, 2017 (unaudited)
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Acquisition debt
|
|
|
30,000
|
|
|
|
30,000
|
|
Notes payable - equipment
|
|
|
4,701
|
|
|
|
11,752
|
|
Note payable - individual
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
34,701
|
|
|
|
241,752
|
|
Less current maturities
|
|
|
(34,701
|
)
|
|
|
(241,752
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 March 31, 2017 and December 31, 2016:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
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 – 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 March 31, 2017,
the balance of this note was $4,701. Interest has not been imputed on this balance as management has deemed it to be immaterial.
Notes
payable – Individuals
On
November 4, 2016, the Company issued a demand promissory note to an individual in the amount of $200,000 at a rate of 18% per
annum. Principal and accrued interest are payable no sooner than 60 days and no later than 90 days from issuance. This note was
paid in full on January 7, 2017.
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. Mr. Campbell resigned from
the Board in November 2016.
(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 preferred stock
are outstanding.
Common
stock issuances
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 March 31, 2017.
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.
At
March 31, 2017 and December 31, 2016, 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 three months ended March 31, 2017:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding - January 1, 2017
|
|
|
|
60,500,000
|
|
|
|
$ 0.01.
|
|
|
|
8.9 years
|
|
|
|
-
|
|
Granted
|
|
|
|
-
|
|
|
$
|
0.01
|
|
|
|
5.0 years
|
|
|
|
-
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding – March 31, 2016
|
|
|
|
60,500,000
|
|
|
$
|
0.01
|
|
|
|
6.3 years
|
|
|
$
|
-
|
|
Outstanding Exercisable – January 1, 2017
|
|
|
|
46,125,000
|
|
|
$
|
0.01
|
|
|
|
7.9 years
|
|
|
$
|
-
|
|
Outstanding Exercisable – March 31, 2017
|
|
|
|
46,125,000
|
|
|
$
|
0.01
|
|
|
|
6.4 years
|
|
|
$
|
-
|
|
The
total grant date fair value of options vested during the three months ended March 31, 2017 and 2016 was $0 and $84,858 respectively.
The
following table represents stock warrant activity as of and for the three months ended March 31, 2017:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding - January 1, 2017
|
|
|
|
41,801,793
|
|
|
|
$ 0.009.
|
|
|
|
2.9 years
|
|
|
$
|
-
|
|
Granted
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding – March 31, 2017
|
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable – January 1, 2017
|
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9 years
|
|
|
$
|
-
|
|
Outstanding Exercisable – March 31, 2017
|
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9 years
|
|
|
$
|
-
|
|
(7)
Income Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated
financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences
are expected to reverse.
The
Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.
In making such a determination, we consider all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If
we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In
assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion,
or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s
ability to generate taxable income. The valuation allowance is then adjusted accordingly.
As
of December 31, 2016, based on all the available evidence, management determined that it is more likely than not its deferred
tax assets will be fully realized. Accordingly, the valuation allowance was reversed in full and $5,138,687 was recognized as
a deferred tax asset at December 31, 2016 with a corresponding income tax benefit also being recognized for the year ended December
31, 2016. During the quarter ended March 31, 2017, the Company incurred a net loss, which created an increase in its deferred
tax asset with and a corresponding income tax benefit in the amount of $30,094.
(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
March 31, 2017, 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 $398 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 was $6,967 per month through August 2016. In October 2015, the Company entered into a three-year
lease agreement for approximately 32,155 square feet of office and warehouse space in Columbus, OH. Rental payment under the new
lease was $9,863 per month on a month to month basis through June 2016 and is now $9,734 per month 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. Rental payment under the new lease is at $525 per month on a month to month basis.
Rent
expense for the three months ended March 31, 2017 and 2016 was approximately $30,791 and $32,746, 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 March 31, 2017, 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 Note6 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)
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.