Item 1. Business
Overview
BlastGard International, Inc. is in the business of providing protection for individuals and property. We have developed and have been marketing BlastWrap products to protect people and property against explosive forces. The Company owns 98.2% of HighCom Security, Inc. ("HighCom") which provides a wide range of security and personal protective gear. Our protective gear includes shields, helmets, vests and plates which provide police and military with the protective gear they need to do their jobs.
Founded in 1997 and originally based in San Francisco, HighCom Security, Inc., a California corporation, is a global provider of security equipment. HighCom is a leader in advanced ballistic armor manufacturing. With a 32,865 square foot manufacturing and distribution facility located in Columbus, Ohio, HighCom is well positioned for large scale and time sensitive global supply needs. We design, manufacture and/or distribute a range of security products and personal protective gear. Our logistics network is now managed from our corporate headquarters in Clearwater, Florida. HighCom serves a wide range of customers throughout the world. Our North American customer base includes the Department of Defense and the Department of Homeland Security. We cater to local law enforcement agencies, correctional facilities and municipal authorities, as well as large corporations. We export our products throughout the world and have in the past sold products in Asia, Africa, Europe, Latin America and the Middle East. Many of our products are controlled for export purposes and we require end user details prior to all sales. Strict compliance with U.S. and International laws and regulations is mandatory.
HighCom Certifications
HighCom has already implemented an in-depth ethics and compliance management and monitoring program that is tied to our International Standard Organization ("ISO") certified quality processes. These policies and procedures outline each step within the compliance process and how they relate to, and should be acted upon, to ensure compliance with all local, state, federal, and international laws and regulations. Most importantly they address processes and policies that are related to compliance with the Federal Acquisition Regulation ("FAR"), Defense Federal Acquisition Regulation ("DFAR"), International Traffic in Arms Regulations ("ITAR"), Office of Foreign Assets Control ("OFAC"), Export Administration Regulations ("EAR"). Arms Export Control Act ("AECA"), Export Administration Act ("EAA"), Automated Export System ("AES"), and Office of Federal Activities ("OFA"). We also completed training internally and externally with regards to the Foreign Corrupt Practices Act ("FCPA") and other foreign business regulations that help our employees recognize red flags and potential risk situations.
In July 2014, HighCom Security became the first company in the world to achieve BA 9000 certification. Several years ago, the National Institute of Justice ("NIJ") assembled a collaborative team to address the issue of body armor safety and the needs of criminal justice agencies. NIJ decided to increase the amount of testing needed for body armor to meet their standards, including 1) more extensive and frequent testing; 2) environmental testing; and 3) implementation of BA 9000, a body armor quality management standard. BA 9000, released in January 2012, is an extension of ISO 9001. BA 9000 extends to manufacturers of body armor vests for federal, state, local, and tribal law enforcement and corrections bodies. Manufacturers who wish to become BA 9000 certified must comply with additional requirements beyond ISO 9001 that are specific to ballistics-resistant body armor manufacturing and testing, such as:
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Provide procedures for communicating with the Compliance Testing Program (CTP).
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Provide unique identification for each piece of the body armor to ensure accountability.
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Work areas must be managed in order to reduce negative effects on body armor.
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Product testing must be done at CTP approved labs, which need to be ISO 17025 compliant.
Given the equipment and ballistic protection solutions provided by HighCom, compliance with the U.S. Department of Commerce, U.S. Department of State, U.S. Department of the Treasury and all other governmental agencies' regulations is a high priority. In addition to this, the Company is also registered through the Directorate of Defense Trade Controls as well as the Bureau of Industry and Security ("BSI"). The purpose of these registrations is to allow the Company control over the export management and compliance program moving forward.
Management believes that we have an opportunity to combine the armor technology of HighCom with the blast mitigating technology of BlastGard and provide a combination of advancements in product technologies while focusing on USA made products for the United States Military and other governments and agencies worldwide. We have initiated numerous Research and Development projects according to National Institute of Justice's ("NIJ") body armor standards and testing. HighCom currently has 8 plates and vest solutions that qualify under the NIJ 0101.06 standard; and HighCom currently has 14 plates and vest solutions that qualify under the NIJ 0101.04 (Interim 2005) standard. We are currently marketing all of our NIJ 0101.04 and 0101.06 products to open market customers in law enforcement and military channels. We currently have several protective gear products under development.
Another investment in 2015 included the further expansion of our manufacturing facility for soft armor and helmets along with several pieces of manufacturing equipment to increase our production capabilities and efficiencies, along with the completion of our in-house ballistics and material science laboratory in 2013. The lab is a critical element for testing and evaluation as well as a major marketing point for many customers who in visiting the plant will also be invited to witness live ballistic testing of our products. The lab will also enable us to address another critical area of our quality controls - validating and verifying our raw materials for hardness tests, density, performance and yields. This way we can make sure the materials we purchase from our vendors conform to specifications and that we can improve the weight and cost of our finished product while maintaining complete control over the intellectual property of new products.
Also in late 2013, we created our new web site which provides valuable information for our agents, distributors and customers. We have also engaged current social media marketing tools to further promote the company. We are seeing more growth every day to our social media pages and product reviews on our website.
In addition to several new NIJ certifications secured in 2015, the National Tactical Officers Association (NTOA) tested several of our products. The mission of the NTOA is to enhance the performance and professional status of law enforcement personnel by providing a credible and proven training resource as well as a forum for the development of tactics and information exchange. Upon completion of testing in the 2nd half of 2014, HighCom had 9 vest and plate products that were "Member Tested and Approved" by NTOA. HighCom can now use the NTOA logo to attest that our products were tested and approved by NTOA. This further validates and highlights HighCom as the leader in quality, customer service and pricing.
Another recent development by the Company was increasing our product liability insurance from the industry standard $1,000,000 to $10,000,000. Our goal is focused on the safety of the military and law enforcement personnel who employ our products in the field. We also value the relationships we are establishing with our distributors, re-sellers, and partners. This increase in our coverage demonstrates our commitment and support to both our clients and their customers on a global basis.
We have recently entered into a number of agency agreements to market our product line in Mexico and the Middle East and North Africa ("MENA") region. We have also attended numerous tradeshows in an effort to re-establish HighCom's presence in the personal protection equipment market and we are currently participating in numerous bids exceeding 15 million dollars. Management believes that we will experience significant increase in our overall sales on a quarter by quarter basis as we develop these relationships, although no assurances can be given in this regard.
U.S. Department/U.S. Defense Department.
In March 2011, the Company had HighCom's export privileges reinstated by the U.S. State Department. HighCom also successfully applied to the US Defense Dept. to be removed from the Excluded Party List ("EPLS"). The successful reinstatement of HighCom's export authority and its removal from the EPLS has dramatically improved HighCom's ability to sell and market its products.
BlastGard has completed registration with both the Directorate of Defense Trade Controls as well as the Bureau of Industry and Security ("BSI"). The purpose of these registrations is to allow BlastGard control over the export management and compliance program moving forward. HighCom also completed their ISO certification which had been revoked under HighCom due to missed audits. BlastGard management has been able to complete an internal audit and management review, in addition to meeting with BSI for the external audit review and in March 2012 HighCom secured ISO certification. One of the most important aspects of our business philosophy is an unparalleled commitment to quality control. HighCom is BA 9000 and ISO 9001:2008 certified organization, providing only the highest quality products to protect the lives of the men and women who proudly serve our country both locally and across the world. HighCom actually became the first company in the world to achieve BA 9000 certification, a new National Institute of Justice (NIJ) body armor quality management standard. BA 9000 is a body armor quality management systems standard that is an extension of ISO 9001 which provides greater confidence that the armor is being produced consistently.
Product Description
HighCom provides a wide range of security products and personal protective gear (including tactical armor) that are tailored and offer protection solutions to specific customer requirements. HighCom caters to local law enforcement agencies, correctional facilities and municipal authorities. Given the equipment and ballistic protection solutions provided by HighCom, compliance with the U.S. Department of Commerce, U.S. Department of State, U.S. Department of the Treasury and all other governmental agencies' regulations is a high priority. HighCom has sold its products in the defense and law enforcement sectors and is known for innovative technology, exceptional customer service and superior quality performance.
Body armor is classified by the NIJ according to the level of protection it provides from various threats. The classifications are as follows:
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Type IIA body armor- minimal protection against smaller caliber handgun threats.
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Type II body armor - provides protection against many handgun threats, including many common smaller caliber pistols with standard pressure ammunition, and against many revolvers.
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Type IIIA body armor- provides a higher level of protection and will generally protect against most pistol calibers including many law enforcement ammunitions, and against many higher powered revolvers.
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Type III and IV body armor - provides protection against rifle rounds and are generally only used in tactical situations.
Our Security Products include the following:
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Striker ballistic helmets
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Guardian hard armor plates
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Ballistic soft armor vests
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Bellfire ballistic shields
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Civilian Armor System ballistic panels
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Stingray ballistic blankets
Manufactured products versus products supplied by third party vendors.
HighCom manufactures ballistic plates, soft armor vests, ballistic shields and constructs ballistic helmets. Our HighCom products carry our brand name or a private label. Since October 2015, our ballistic vests and ballistic blankets are no longer manufactured and private labeled by third party vendors for us.
PLATES
Level IV - NIJ 05
HighCom currently maintains some of the largest capability for manufacturing Level IV ceramic plates. An important strategic move we have employed is to partner with numerous companies to further leverage available equipment to increase production capacity. An example of this is utilizing press consolidation capacity to produce high pressure backings for plates.
The Level IV NIJ 05 plate has a very high margin of safety. Approximately 400 plates have been shot internally at HighCom's ballistic lab and shooting range as well as at independent and other commercial labs. During these tests, no penetration has occurred when tested in accordance with the NIJ standard. Another important performance feature of this plate is that when used in conjunction with a Level IIIA Vest, this plate has established the ability to defeat six rounds, in accordance with Level III NIJ 05.
HighCom has fourteen different certifications of its Level IV plate utilizing different suppliers of ceramics and backing materials. We have deferred risk of material supply by securing qualified vendors to provide the necessary materials.
Level III - NIJ 05
HighCom has a Level III NIJ Polyethylene based plate solution with a production capacity of 20,000 units per month.
SAPI
The SAPI Plate (Small Arms Protective Insert) is used as an insert in military carriers. Due to the rate of ballistic performance and success we have established in the tests conducted thus far, we were able to achieve SAPI level performance with a weight of 100g less than the specification. Further, the HighCom sample defeated six rounds of explosive materials in a single plate. We have conducted impact drop tests and x-rays after shoot tests. This product needs additional testing and evaluation to solidify the results. We have spent $300,000 on SAPI development thus far applying the many lessons garnered during the past several years of research and development.
NIJ 06 Specification &Compliant Products
HighCom currently has two certified Level IV, three Level III plates and one Level IIIA vest. One vest is approved and one has passed the Level II test criteria. Our current situation with vests is that we have several vest models in the development stage: 3 Level IIIA and 3 Level II. There are additional tests in the pipeline along with a considerable number of options, solutions and directions for continued development of hard armor plates for certification under NIJ 0101.06 standards. As of the 1st quarter of 2016, HighCom's Guardian Series Hard Armor™ product line now includes two new NIJ 0101.06 certified models, the Guardian 4S17™ and the Guardian 3S9™. Built to exceed industry standards at affordable prices, these inserts are designed according to the NIJ ratings for Level IV (4S17) and Level III (3S9), offering law enforcement and military personnel different options for up armor requirements whether concerned about armor piercing threats or high powered rifle threats. NIJ introduced the Ballistic Resistance of Body Armor NIJ Standard-0101.06 to more effectively defend against increased velocities of ammunition calibers and provide improved performance against the threats law enforcement faces in today's world.
SHIELDS
HighCom produces a Level IIIA ballistic shield that is among the most advanced in the market. This is due to the fact that the electrical connections are routed internally through the composite itself. Similar products offered in the marketplace will have external electrical connections. HighCom has a ballistic shield production capacity of approximately 800-1,000 units per month.
BLANKETS
We can produce ballistic blankets at any level to whatever size is needed by the end user. Production capability is approximately 500-800 units per month.
CIVILIAN ARMOR SYSTEMS
Newly launched in December 2013 after 18 months in development; HighCom is now offering a full line of Civilian Armor System (C.A.S.) products. Our civilian armor insert panels provide personal and professional defense against ballistic threats. HighCom inserts are designed, developed, and manufactured using state of the art processes and equipment to ensure high quality and high performance when deployed by operators throughout numerous tactical and urban situations. Our inserts are both internally and independently tested in accordance with the strictest criteria in adherence to the NIJ 0108.01 standard. We also perform additional testing against V50 and special threats.
SOFT ARMOR
HighCom has five certified soft armor products with a production capacity of 2,000 units per month. We were able to process a composite of proprietary material wherein ceramic materials are incorporated within the flexible composite. This alone increases ballistic stability, stab protection and provides further avenues towards lighter solutions. These lighter solutions in turn combine composite material into soft armor material. Research and testing at this stage is very preliminary with only basic testing conducted. However, results thus far strongly indicate to us that additional research in the vein has great potential for advantageous positioning in the soft armor sector of our industry. Additionally, we have cause to believe that analyzing bullet energy combining impact systems with both hard and soft ballistic systems will provide a superior product in this industry.
HELMETS
HighCom is working towards achieving a proprietary uni-directional material that a third party will lay up for us in tape form (100% Polyethylene). Based on previous research and testing conducted, management believes that we can produce a Level III helmet. We have yet to finish accomplishing the entire process. We will need to validate the date, produce an aluminum mold as well as the prototype once the material is completed by a third party. Management believes that this helmet will be an excellent "Made in USA" product that can be marketed internationally at a very competitive price point.
Research and Development
During fiscal 2015 and 2014, HighCom spent $43,189 and $21,923, respectively on research and development efforts. Future research and development expenses will depend upon our liquidity and capital resources.
MARKET DEFINITION
Industry Description and Outlook
There are over 17,000 law enforcement agencies in the U.S. with over 750,000 police officers. The law enforcement market is scattered across the country and is typically serviced by distributors which provide products such as body armor, uniforms, guns, and other items.
According to a Vector Strategy report, they have defined five overall market trends that will affect global body armor demand between now and 2020. Body armor has a life cycle of five years. This combined with an average 10% attrition rate in law enforcement, means that approximately 30% of body armor purchases are turned over each year. These trends will affect both the military and the paramilitary, or law enforcement, markets in countries throughout the world.
Next Generation Military Body Armor Programs
Many countries are developing next generation body armor systems to replace the body armor systems and components currently worn by the military ground forces in their country. Specific examples include the US Army's Soldier Protection Systems (SPS), the UK's Future Infantry Soldier Technology (FIST) program, France's FELIN program, Germany's Future Soldier System, Russia's Future Soldier System, and the Israeli Advanced Soldier. As these programs move from development into Low Rate Initial Production (LRIP), and then into Full Rate Production (FRP), military body armor procurement in these countries will experience an uptick in demand. These next generation body armor programs are currently in development and will primarily affect demand in the 2015 to 2020 timeframe. It is vital that these development programs are successfully executed in the next one to two years and that funding is allocated to support procurement in their respective country of origin.
The Next Generation Ripple Effect
As the United States and other leading countries develop and procure next generation body armor systems, other countries who are not developing their own next generation systems will seek to spiral in next generation technology developed by other countries. These countries tend to adapt US or European body armor technology or import US or European body armor components. These countries may also have the opportunity to procure body armor that incorporates military body armor technology that is currently restricted from export, but may become excluded from export restrictions in the future.
Vector Strategy labels this trend "The Next Generation Ripple Effect". Our use of the word "ripple" denotes that this trend will occur 2 to 3 years after next generation systems are being procured in countries that organically developed those systems.
Warrior Cop
"Warrior Cop" refers to the increasing integration of tactical, SWAT, and special operations within the law enforcement environment. This has also been referred to as the trend towards "police militarization". This trend will increase demand for body armor with higher protection levels and lower areal densities, and designs that provide more mobility and comfort, including helmets. "Warrior Cop" will affect body armor procurement in the United States, and in European countries with significant law enforcement organizations. Countries with a more paramilitary style of civilian law enforcement will be less affected by this trend. The "Warrior Cop" trend will primarily affect demand in 2014 to 2017, with a lesser impact in 2018 to 2020.
Armored 1st Responders
In the United States and European countries, there is an increasing trend to provide body armor to first responders, such as EMS/EMT personnel and firefighters. This trend has been stimulated by the need to upgrade the capabilities of personnel who have to respond to casualties in the midst of a terrorist attack, mass shooting event, or other situation where the responder may encounter gunfire. Many body armor suppliers are offering specific ballistic vest designs as an upgrade to the normal vests that EMS/EMT and first responders typically wear. This demand driver will primarily affect body armor markets in the United States and western European countries. Vector Strategy believes that the global body armor market is just beginning to experience increased demand due to "Armored 1st Responders".
Material and Technology Improvements
The market is experiencing the release of several fiber and Uni-Directional (UD) products that offer performance improvements, as well as hard plate material technologies that optimize weight, price, and protection. Major body armor manufacturers and material suppliers are co-branding new body armor components that incorporate these improvements. In addition, the soft body armor and helmet markets are both trending towards the hybrid use of fibers in their material solutions. These, and other near-term material and technology improvements will drive demand in both the military and law enforcement market segments, as globally, end users will seek to replace older body armor components with new solutions that offer lighter weight, better protection, and more comfort.
According to the July 2014 IBISWorld Industry Report on Body Armor Manufacturing in the US, "the Body Armor Manufacturing industry is expected to continue to decline over the next five years. The industry is highly reliant on demand from the US federal government and its decision to deploy troops in hostile environments. However, US troops continue to withdraw from Iraq and Afghanistan, thereby weakening demand for body armor from the federal government. Furthermore, federal funding for defense is expected to decrease over the next five years, while government consumption and investment is put toward other security devices. Recovery is expected to begin in the middle of the next five-year period due to developments in body armor products and growth in law enforcement agency markets. The industry is also developing better fitting armor for women and more efficient protective equipment in general. In addition, law enforcement agencies are looking to reduce injuries to officers on the job by purchasing more body armor. Overall, the industry is expected to decline at an average annual rate of 1.6% over the five years through 2019, to $676.7 million. International trade is also expected to play a larger role for the industry. High-value added US manufactured goods will remain in demand in foreign markets such as Canada. Consequently, the value of exports is projected to rise an annualized 4.3% to $48.2 million over the five years to 2019. Additionally, imports are forecast to grow at an average annual rate of 3.5% to about $19.0 million over the five-year period, accounting for a mere 2.9% of domestic demand."
HIGHCOM'S MARKETING AND SALES STRATEGY
Strategy
Our objective is to be a global leader in the businesses of safety, security, and defense protection. We continually seek to enhance our existing products and to introduce new products to expand our market share or enter into new markets. Historically, the largest portion of our HighCom business resulted from the sale of ballistic plates, vests and helmets. We plan on expanding our business into multiple segments of the defense market. We are considering other products and services for other aspects of the safety, security and defense protection. We sell our products and services through a variety of distribution channels. Depending upon the product or service, our customers include distributors; federal, state, and municipal law enforcement agencies and officers; government and military agencies; businesses; retailers; and consumers. More specifically, the major customers of HighCom are:
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Independent Distributors
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Department of Homeland Security
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Other Federal Government Agencies
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Local Police Departments
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Foreign entities
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United Nations
The channels of distribution for HighCom are distributors, direct sales, and the Government Services Administration (GSA). Since HighCom is a GSA contract holder any federal government agency can buy from them without additional prior approval.
Target Market
The primary target markets are:
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U.S. Department of Defense
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Army
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Marines
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Air Force
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Navy
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Other government agencies
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Homeland Security
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State Dept.
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FBI
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DEA
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U.S. Marshalls
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Local law enforcement
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Police
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Highway patrol
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City police
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County Sheriffs
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Foreign governments
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Military
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Security
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Police
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United Nations peace keeping forces
How do we market ourselves
Armor products - personal armor plates, ballistic shields and soft armor vests - have been designed, developed and certified by HighCom. NIJ certification is the barrier to entry/foundation to the US armor industry since without NIJ certification marketability/sales opportunities to domestic law enforcement are limited. While export sales are possible without NIJ, NIJ certification is increasingly becoming required for export sales. All other HighCom products are distributed under non-exclusive supplier arrangements. Our HighCom marketing strategy includes the following:
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HighCom website
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Trade publications
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Defense industry news websites
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Trade Shows and Conferences
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GSA advantage and
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Bidding on federal government supply needs
Bidding on Governmental Projects
Bidding on governmental (federal, state, local) contracts normally requires you to apply for status as an approved vendor. Once your application is accepted - you are eligible to participate in bids. Vendor certifications have varied processes - some include/require submission of detailed financial data to qualify and be certified as a vendor. Our ISO certification is also a key factor in registration. Bids are submitted to a US agency - either through online sites, email or US Mail. For foreign sales - normally approached by agents (based in foreign companies) - who request quotes for supply of goods in their local markets. Agents generally operate on a non-exclusive basis, but HighCom has in the past granted limited exclusivity to certain agents either on project specific basis - or a specific country basis. On occasion, HighCom may contract directly with a foreign government to supply products on behalf of local agent. HighCom would then receive payment direct from government agency and pay a commission to local agent.
EXPORT COMPLIANCE POLICY
HighCom is required to comply with all laws and regulations surrounding U.S. export controls. Recent events have focused the U.S. government's attention on the need for increased enforcement of such laws. Although the government has always enforced export laws and regulations, the level of intensity has risen in the past several years as concerns regarding national security and international terrorism have grown.
The United States government has various objectives when controlling exports. For instance, the U.S. has placed controls on the export of certain goods and technologies to prevent them from being used by the Armed Forces of other nations and thus threatening U.S. national security. The U.S. also uses export controls for purposes of economic sanctions against certain nations and groups hostile to the United States.
The U.S. government not only possesses a national security interest through its export controls but also has additional objectives. Export controls help protect items that may be in short supply domestically such as oil or gas. Additionally, the U.S. collects trade data that allows the government to track the trade balance, evaluate the effect of foreign trade on the domestic economy, and/or develop foreign policy decisions. The end result of all the U.S. government's regulations and laws is that HighCom must be cognizant and comply with all export laws.
HighCom management is firmly committed to full and complete compliance with all U.S. export control laws, including among others, the Export Administration Regulations administered by the Bureau of Industry and Security of the U.S. Department of Commerce, the International Traffic in Arms Regulations administered by the Directorate of Defense Trade Controls at the U.S. Department of State, and the various sanctions and embargo regulations administered by the Office of Foreign Assets Controls (OFAC) at the U.S. Department of the Treasury. While HighCom has always been committed to compliance with all U.S. export control laws and regulations, our desire to ensure that no violations occur is heightened by the events of September 11, 2001. All HighCom employees associated with activities that are subject to U.S. export controls take extra precautions to ensure that no violations occur. It is HighCom management's policy that under no circumstances will exports made on behalf of its customers be made contrary to U.S. export laws and regulations. Special care is taken to prevent transactions with entities involved in the proliferation of weapons of mass destruction.
Violations of the Export Administration Regulations could result in significant penalties for HighCom and for those individuals involved in the violation. Civil penalties of up to $50,000 per violation may be imposed or up to $120,000 if the violation involves national security controls. Violations could also result in a denial of HighCom's export privileges meaning it could no longer forward products to international customers. Criminal penalties may also be imposed on HighCom and on the individuals involved. For willful violations of the export regulations, HighCom could be fined up to $1,000,000 per violation and individuals could be fined up to $250,000 per violation and imprisoned for up to 20 years.
Violations of the International Traffic in Arms Regulations can also result in serious civil and criminal penalties for HighCom and the individuals involved. Civil penalties can reach $500,000 per violation; criminal penalties can reach $1,000,000 per violation. HighCom and individuals can also be debarred from practicing before the Directorate of Defense Trade Controls, meaning the debarred party is ineligible to export defense articles from the U.S.
Violations of OFAC regulations can also be very expensive and even result in a denial of export privileges in addition to various civil and criminal penalties. The U.S. government takes export control violations very seriously and so does the management of HighCom.
HighCom has implemented an Export Compliance Program specifically designed to satisfy the requirements of the pertinent United States statutes, rules and regulations, such as the Export Administration Act, Trading with the Enemies Act, Arms Export Control Act, International Emergency Economic Powers Act, the Export Administration Regulations, the Foreign Assets Control Regulations, the International Traffic in Arms Regulations, the Foreign Trade Statistics Regulations, the Alcohol, the Customs Regulations, and all other applicable statutes, rules and regulations governing the export and transportation of commodities by HighCom. The Export Compliance Program includes training on compliance issues, the preparation and utilization of the U.S. Export Control Compliance Manual, and the establishment of a system of internal reviews designed to identify any risks of non-compliance by HighCom.
OVERVIEW OF U.S. EXPORT REGULATIONS
The principal government agencies that regulate U.S. exports are the Department of Commerce, which regulates the export of "dual-use" items, and the Department of State, which regulates the export of defense or "munitions" items. "Dual-use" items are commercial items (i.e., commodities, software and technology) that can also be used in military applications, while "defense articles," "defense services," and related technical data are items specifically designed, modified or adapted for military uses and that have limited or no commercial application. This information is based on regulations published by these two, as well as other relevant U.S. government agencies, and is subject to change. This information will be updated periodically to reflect changes made to the pertinent laws and regulations.
The Bureau of Industry and Security ("BIS") is the agency within the U.S. Department of Commerce that is responsible for administering export controls of "dual-use" items. BIS publishes and administers the Export Administration Regulations ("EAR") (15 C.F.R. Part 730 et seq.) which describe export controls and contain a list of the commodities, software, and technology that are controlled for export by the Department of Commerce. This list is called the Commerce Control List, or "CCL", and is contained in Supplement No.1 to Part 774 of the EAR.
The Directorate of Defense Trade Controls ("DDTC") is the agency within the U.S. Department of State that is responsible for administering controls on the temporary import, temporary export, and permanent export/re-export of "defense articles," "defense services," and related "technical data." The Department of State administers the International Traffic in Arms Regulations ("ITAR") which contain the United States Munitions List ("USML"). The USML details the commodities, software, and technical data that are controlled by the State Department.
Whether an export is controlled by the Commerce Department or the State Department depends on the proper classification of the product. All exports are controlled by only one agency though it may in some cases be difficult to determine the appropriate agency jurisdiction. In such cases, exporters may file a commodity jurisdiction ("CJ") request with DDTC to determine which agency has jurisdiction over the product, software, or technology. DDTC generally takes at least six months to respond to CJ requests, so their utility may be limited in a commercial context unless application is made sufficiently early.
Specific laws and regulations we are subject to include the following:
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Export Administration Act - 50 U.S.C. 2405
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Arms Export Control Act -22 USC 2778
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Export Administration Regulations - 15 CFR 730-774
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International Traffic in Arms Regulations - 22 CFR 120-130
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Foreign Corrupt Practices Act - 15 U.S.C. 78dd-1
Competition
We operate in intensely competitive markets that are characterized by competition from major domestic and international companies in our business and from a large number of competitive companies and alternative solutions in our security business. This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share. Any movement away from high-quality, domestic ballistic plates to lower priced or comparable foreign alternatives would adversely affect our business. Some of our competitors have greater financial, technical, marketing, distribution, and other resources and, in certain cases, may have lower cost structures than we possess and that may afford them competitive advantages. As a result, they may be able to devote greater resources to the promotion and sale of products, to negotiate lower prices on raw materials and components, to deliver competitive products at lower prices, and to introduce new products and respond to customer requirements more effectively and quickly than we can.
Competition is primarily based on quality of products, product innovation, price, consumer brand awareness, alternative solutions, and customer service and support. Pricing, product image, quality, and innovation are the dominant competitive factors in the industry. Our ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:
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our success in designing and introducing innovative new products and services;
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our ability to predict the evolving requirements and desires of our customers;
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the quality of our customer service;
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product and service introductions by our competitors; and
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foreign labor costs and currency fluctuations, which may cause a foreign competitor's products to be priced significantly lower than our products.
We can provide no assurances that we will be able to successfully compete with our competitors in the future.
Employees
As of December 31, 2015, the Company has eight full-time employees. The Company also relies on temporary workers for its manufacturing facility. Additional sales and marketing personnel may be hired in the future as our sales efforts require such additional personnel.
HighCom Sales
In 2015 and 2014, HighCom accounted for approximately 99% and 99%, respectively, of the Company's consolidated sales. It is anticipated that this trend will continue in the future as sales of BlastGard products described below are not expected to amount to a meaningful percentage of the Company's sales activities.
BlastGard International, Inc.
BlastGard - Overview
Through BlastGard® Technologies, Inc., our wholly-owned Florida corporation, we have developed and designed proprietary blast mitigation materials. Our Patented BlastWrap® has been designed to mitigate blasts and suppress flash fires resulting from explosions, regardless of the material or compound causing the explosion. We believe that this technology can be used to create new finished products or designed to retrofit existing products.
BlastWrap® is a concept for assemblies (not a chemical compound) from which blast protection products are built to save lives and reduce damage to valuable assets from explosions. BlastWrap® is designed to not only substantially reduce blast impulse and pressure (including reflected pressure and impulse), but quenches fireballs and suppresses post-blast fires. Lethal fragments may be captured by adding anti-ballistic armor layers on the product surface away from a blast.
Our BlastGard® technology is designed to mitigate blast and rapid combustion phenomena through numerous mechanisms. The relative contribution of each mechanism depends upon the intensity and nature of the impinging hazard. Shock wave attenuation, for example, is dominant in mitigating mechanical explosions. Our products attempt to emulate unconfined conditions and accelerate attenuating processes that occur in free air. Thus BlastWrap® does not try to resist blasts (which physically intensify blast phenomena); it mitigates them. BlastWrap® can be used as part of confining assemblies (containers and blast walls). In effect, BlastWrap® is a 'virtual vent'.
BlastWrap® Technology Components
Our BlastWrap® products are made from two flexible films arranged one over the other and joined by a plurality of seams filled with attenuating filler material (volcanic glass bead or other suitable two-phase materials), configurable (designed for each application) with an extinguishing coating. Together, this combination of materials is designed to mitigate a blast while at the same time eliminate fireballs or flame fronts produced by the blast.
We believe that this system is unique because it:
1. Works 24 hours a day
2. Quenches fireballs and post blast fires
3. Reduces blast impulse and pressure
4. Does not dispense chemical extinguishants
5. Uses neither alarms, sensors, nor an activation system
6. Is nontoxic and ecologically friendly
Our BlastGard® Technology extracts heat, decelerates both blast wind and shock waves, and quenches the hot gases in all blasts and fireballs. BlastWrap® does not interact with the explosive elements, and is therefore not altered by them. However, after a single intense detonation, BlastWrap® must be replaced.
• For blasts that produce fireballs or intense hot gases at higher pressures, BlastGard® Technology has the ability, through testing, to cool the blast zone rapidly, thereby reducing structural damage.
• In detonation of high explosives, where at least half of the energy released is in the shock wave, attenuation occurs even more rapidly, and in doing so substantially reduces explosion phenomena.
Key BlastWrap® Features
• Lightweight, flexible, durable and environment safe
• Requires no wires, electricity, detection devices and contains no sensors
• Customizable and easy to retrofit
• Materials are low in cost and are widely available
• Extremely adaptable, without losing effectiveness
• Compact structure
• Easily produced
• Can be constructed with additional environmental or specific blast conditions (e.g. weather or moisture barriers or dust free layers)
• Can be produced with armor (Kevlar, Spectra, etc.) for ballistic or fragment situations
• Irreversibly dissipates energy from blast
• Eliminates need for dispensing of agents in blast mitigation process
• Neither contains nor creates hazardous fragments
• Environmentally friendly, non-toxic core materials
Key BlastWrap® Benefits
BlastWrap® is light in weight. It can be used to protect against outdoor explosions. Because of the Montreal protocols banning production of Halon extinguishing agents, BlastWrap® technology offers a light weight and environmentally acceptable blast suppression means available for most applications; and, it can even be adapted to function underwater.
BlastWrap® products are inherent sound absorbers and thermal insulators, and are typically fire-tolerant. Any or all of these qualities are readily enhanced by bonding to common materials, thereby further extending the wide range of applications which BlastWrap® can fulfill through a single product.
The performance of BlastWrap® proprietary technology is independent of scenario and environment, which means that it does not matter where the physical location is, how the basic product form is used or the environment in which the event takes place. The basic product form can be used as a stand-alone material (as linings, curtain barriers, or as structural material), or can be laminated or otherwise affixed to a wide range of product forms such as insulation (thermal and acoustic), ballistic armor such as KEVLAR™ (a DuPont trademark), decorative stone, or packaging materials. BlastWrap® products can thus provide blast and fire protection in flooring, wall, and roof constructions, in packaging, in storage cabinets and other containment structures, and aboard all types of vehicles, ships, and aircraft.
Intellectual Property Rights
Explosive devices are increasingly being used in asymmetric warfare to cause destruction to property and loss of life. These explosive devices sometimes can be disrupted, but often there is insufficient warning of an attack. Our BlastWrap® products were created around this core concept. The BlastWrap® patent application was filed with the U.S. Patent and Trademark Office on July 31, 2003. A second patent application for "Blast mitigating container assemblies" was filed with the U.S. Patent and Trademark Office on April 29, 2004 and a new U.S. Continuation-In-Part patent application for "Blast mitigating container assemblies" on January 26, 2005. We also filed an application for this "Blast mitigating container assemblies" technology under the Patent Cooperation Treaty on January 26, 2006.
On November 27, 2012, BlastGard was notified by its patent counsel that its patent application for its BlastWrap material was issued as U.S. Patent No. 8,316,752 B2. On March 18, 2008, our patent-pending application (No. 11/042,318) for our explosive effect mitigated containers (i.e. BlastGard MTR and MBR") was issued as U.S. Patent No. 7,343,843.
BlastWrap® Testing
BlastWrap® prototypes have been evaluated in different test series, which have ranged from semi-quantitative screenings to third-party instrumented trials. We have consistently observed blast effect reductions of at least 50% in virtually every activity in which BlastWrap® has been involved. These tests have indicated that impulse (momentum transfer) and peak pressure are reduced by nearly 50%. Impulse is the most destructive explosive-related hazard for structures and vehicles. We have also conducted further development design and testing of a series of products for blast mitigation protection of rapid deployment barriers, walls, revetments and bunkers (including overhead protection from inbound mortars) for the United States military.
Significance of Test Results
No BlastWrap® tests have been in small-scale. Every test series has involved standard products or test facilities simulating service conditions-munitions containers, air cargo containers, steel vessels comparable in size to commercial aircraft fuel tanks and large secondary storage units, and vehicles, all with charge weights reflecting actual hazards. Management believes that the test results provide evidence that BlastWrap® can protect vehicles, structures, and ships against very intense blasts. Tests have also shown that certain design features (such as deflectors), combined with additional BlastWrap® material, can accomplish protection against larger blasts.
Government Awards
BlastWrap®, and its BlastGard® Mitigating Trash Receptacles were designated as Qualified Anti-Terrorism Technologies and placed on the "Approved Products List for Homeland Security." We were issued the "Designation" and "Certification" for our technology by the Department of Homeland Security under the Support Anti-Terrorism by Fostering Effective Technologies Act of 2002 (the SAFETY ACT) in July of 2006. In the 4th quarter of 2011, the designation and certification was extended for another five years to our BlastWrap product but excluded our BlastGard MTR receptacles until we provide new test data that conforms to new ASTM standards. No further testing has been planned at this time. The revisions allow the use of liners and lids which the original standards did not address. The lid and liner materials must be tested to certain ASTM plastic standards.
The SAFETY ACT "Designation" and "Certification" are intended to support effective technologies aimed at preventing, detecting, identifying, or deterring acts of terrorism, or limiting the harm that such acts might otherwise cause. The criteria technologies must meet to be awarded "Designation" and "Certification" status include: the availability of the technology for immediate deployment in public and private settings; the magnitude of risk exposure to the public if the technology is not deployed; the evaluation of scientific studies being feasibly conducted to assess the technology's capability to substantially reduce risks of harm; and the technology's effectiveness in facilitating the defense against acts of terrorism. BlastWrap is designed to mitigate the blast effects of an explosion by rapidly extinguishing the fireball, eliminating burns and post-blast fires, and reducing the subsequent overpressures by more than 50%, thus reducing damage to people and property.
The SAFETY ACT legislation was designed to encourage the development and rapid deployment of life-saving antiterrorism technologies by providing manufacturers or sellers with limited risk to legal liability. It was also designed to harness the nation's scientific and technological resources to provide federal, state, and local officials with the technology and capabilities to protect the United States from terrorist acts. One area of focus for the Department of Homeland Security is catastrophic terrorist threats to the nation's security that could result in large-scale loss of life and major economic impact. The SAFETY ACT fosters research of technologies to counter threats both by evolutionary improvements to current capabilities and development of revolutionary, new capabilities.
GSA Approved Product
General Services Administration enters into contracts with commercial firms to provide supplies and services at stated prices. This streamlined procurement vehicle is available to federal agencies and other organizations to obtain engineering and environmental services from pre-qualified vendors. GSA has completed federally mandated contracting requirements-competition, pricing, small business and other contracting evaluations-normally required prior to obtaining services. Some of BlastGard's finished products are in the GSA System.
Manufacturing and Product Line
We are currently manufacturing our core product, BlastWrap®, for sale in various forms. We have three distinct production types:
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Serial Production - items that can be produced in quantity in an efficient, high-speed assembly line fashion.
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Contract Manufacturing - items that require special design or custom features requiring separate and special manufacturing processes.
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OEM (Original Equipment Manufacturer) Production - items that are licensed to OEM manufacturers enabling greater control over design, quality and production requirements specific to their industry.
The primary application for BlastWrap® is as an intermediate good for numerous civilian and military applications and uses. Our technology can be customized for specific industries and applications. We have examined the various markets where explosions occur, selected targeted applications and focused on development of products for those businesses and agencies at risk. While designing finished products engineered with BlastWrap®, we have taken into account that some products must be portable, while others will remain at a fixed location. Some products have been designed to contain identified explosive agents, while others are designed to mitigate unidentified explosive threats. With these standards in mind, we have developed or are developing the following product lines to address the needs of customers and targeted markets:
· Mitigated Bomb Receptacles and MBR Gard Cart;
· Blast Mitigated Unit Load Device ("BMULD") - LD3 Container;
· Insensitive Munitions (IM) Weapons Container;
· Mitigated Trash Receptacle; and
· BlastGard Barrier System ("BBS").
Since our Company's acquisition of our subsidiary, HighCom, we have devoted substantially all of our resources toward the development of HighCom's business. For fiscal 2015, our BlastWrap® product sales totaled approximately $63,409.
Purchasing
We rely on various suppliers to furnish the raw materials and components used in the manufacturing of our products. Management believes that there are numerous alternative suppliers for all of the key raw material and virtually all component needs.
Governmental Regulation
We are not aware of any existing or probable governmental regulations that would affect our business, except to the extent that we voluntarily design products to meet various governmental guidelines. For example, our products can be designed to conform to the United States Bureau of Alcohol, Tobacco and Firearm's requirements for the containment of explosive materials.
Research and Development
In 2015 and 2014, we spent $2,843 and $0 respectively on research and development of BlastWrap® products.
SEC Reports Available on Website
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other SEC filings are available on the SEC's website as well as our company website at www.blastgardintl.com.
Item 1.A Risk Factors
An investment in our common stock involves major risks. Before you invest in our common stock, you should be aware that there are various risks, including those described below. You should carefully consider these risk factors together with all of the other information included in this Form 10-K before you decide to purchase shares of our common stock.
Purchase of our stock is a highly speculative and there can be no assurances that our operations will be profitable. We have been operating at a profit since 2014. Prior to 2014, we had been operating at a loss since inception and we have an accumulated deficit of approximately $15 million. At December 31, 2015, we have shareholder equity of approximately $3,114,000 as compared to shareholder equity of approximately $1,656,000 at December 31, 2014. While we had an operating income of approximately $936,000 for 2015 on sales of over $7.6 million, we can provide no assurances that our future operations will be profitable. Accordingly, investors who own shares of our Common Stock could lose their entire investment.
Although we had a working capital surplus of approximately $743,000 at December 31, 2015, there can be no assurances that we will be able to meet our obligations as they become due and payable. At December 31, 2015, we had a working capital surplus of approximately $743,000 in contrast to a working capital deficit of approximately $533,000 at December 31, 2014. While Management is projecting continuous increased sales in 2016 as compared to the comparable period of the prior year and the expectation is that we will be able to meet our obligations as they become due and payable, we can provide no assurances that we will be successful in this regard.
We are controlled by a Canadian corporation. As set forth in Item 12, a Canadian corporation beneficially owns 242,330,155 shares of the Company's Common Stock, equivalent to approximately 59% of the Company's outstanding shares. We cannot predict what changes will be instituted by our controlling stockholder in the Company's management and/or directors and in the direction of the Company.
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 generate the necessary cash flows with increased sales revenue over the next 12 months. However, should the Company's sales not provide sufficient cash flow; the Company has plans to raise additional working capital through debt and/or equity financings. There was no assurance the Company will be successful in producing increased sales revenues or obtaining additional funding through debt and equity financings.
Business and Operational Risks
The following are the major business and operational risks related to our new HighCom subsidiary:
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We must comply with all laws and regulations surrounding U.S. export controls.
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Continued turmoil in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity.
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Many of our customers have fluctuating budgets, which may cause fluctuations in our results of operations.
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Our business is subject to various laws and regulations favoring the U.S. government's contractual position, and our failure to comply with such laws and regulations could harm operating results and prospects.
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We rely on certain vendors to supply us with ballistics materials, composites materials, and other key materials that if we were unable to obtain could adversely affect our business.
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Growth of operations may strain resources and if we fail to manage growth successfully, our business could be adversely affected.
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Increases in the prices paid for raw materials or labor costs may adversely affect profit margins.
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Our products are used in situations that are inherently risky. Accordingly, we may face product liability and exposure to other claims for which we may not be able to obtain adequate insurance.
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We are engaged in a highly competitive marketplace, which demands that producers continue to develop new products. Our business will be adversely affected if we are not able to continue to develop new and competitive products.
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We face continuous pricing pressure from our customers and our competitors. This will affect our margins and therefore our profitability and cash flow unless we can efficiently manage our manufacturing costs and market our products based on superior quality.
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We may have difficulty protecting our proprietary technology.
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If we are unable to successfully retain executive leadership and other key personnel, our ability to successfully develop and market our products and operate our business may be harmed.
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We have launched and expect to continue to launch strategic and operational initiatives which if not successful could adversely affect our business.
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We may incur additional costs or material shortages due to new NIJ certification and testing standards.
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If internal control over financial reporting becomes ineffective, our business and future prospects may suffer.
HighCom faces intense competition that could result in our losing or failing to gain market share and suffering reduced revenue.
HighCom operates in intensely competitive markets that are characterized by competition from major domestic and international companies in our business and from a large number of competitive companies and alternative solutions in our security business. This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share. Any movement away from high-quality, domestic ballistic plates to lower priced or comparable foreign alternatives would adversely affect our business. Some of HighCom's competitors have greater financial, technical, marketing, distribution, and other resources and, in certain cases, may have lower cost structures than we possess and that may afford them competitive advantages. As a result, they may be able to devote greater resources to the promotion and sale of products, to negotiate lower prices on raw materials and components, to deliver competitive products at lower prices, and to introduce new products and respond to customer requirements more effectively and quickly than HighCom can.
Competition is primarily based on quality of products, product innovation, price, consumer brand awareness, alternative solutions, and customer service and support. Pricing, product image, quality, and innovation are the dominant competitive factors in the industry. Our ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:
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our success in designing and introducing innovative new products and services;
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our ability to predict the evolving requirements and desires of our customers;
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the quality of our customer service;
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product and service introductions by our competitors; and
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foreign labor costs and currency fluctuations, which may cause a foreign competitor's products to be priced significantly lower than our products.
We can provide no assurances that we will be able to successfully compete with our competitors in the future.
If we are unable to compete effectively with our competitors, we will not be successful generating revenues or attaining profits. The blast mitigation industry is highly competitive. BlastGard's ability to generate revenues and profitability is directly related to our ability to compete with our competitors. Currently, we believe that we have a competitive advantage because of our unique technology, our product performance, product mix and price. Our beliefs are based only on our research and development testing and we currently have only four completed and finished products. We face competition in our markets from competing technologies and direct competition from additional companies that may enter this market with greater financial resources than we have. If we are unable to compete effectively, we will not be successful in generating revenues or attaining profits.
Loss of key personnel could cause a major disruption in our day-to-day operations and we could lose our relationships with third-parties with whom we do business. Our future success depends in a significant part upon the continued service of our executive officers as key management personnel. Competition for such personnel may be intense, and to be successful we must retain our key managerial personnel. The loss of key personnel or the inability to hire or retain qualified replacement personnel could have cause a major disruption in our day-to-day operations and we could lose our relationships with third-parties with whom we do business, which could adversely affect our financial condition and results of operations.
We are primarily dependent upon the sales activities of HighCom. Currently, the Company is devoting primarily all of its manpower and capital resources to the operations of HighCom, which accounts for substantially all of our sales activities. If our parent corporation, BlastGard, chooses to devote resources toward the development of sales in its traditional BlastWrap business, these sales activities may not be successful. We can provide no assurances that our operations will be able to operate profitably in the future.
Dependence on outside manufacturers and suppliers could disrupt our business if they fail to meet our expectations. Currently, we rely on outside manufacturers and suppliers for some of our products. In the event that any of our suppliers or manufacturers should become too expensive or suffer from quality control problems or financial difficulties, we would have to find alternative sources.
Possible technological obsolescence of our products. Our products may be subject to technological obsolescence, which would adversely affect our business by increasing our research and development costs and reducing our ability to generate sales. Discovery of another new technology by third parties could replace or result in lower than anticipated demand for our products and could materially adversely affect our operations.
We may not be able to successfully use or defend our intellectual property rights, which would prevent us from developing an advantage over our competitors. We rely on a combination of patent applications, trademarks, copyright and trade secret laws, and confidentiality procedures to protect our intellectual property rights, which we believe will give us a competitive advantage over our competitors. However, we have not been granted any patents and we may never be granted any patents if our applications are denied. Even if a patent is issued, use of our technology may infringe upon patents issued to third-parties, which would subject us to the cost of defending the patent and possibly requiring us to stop using the technology or to license it from a third party. If a third party infringes on a patent issued to us, we will bear the cost of enforcing the patent. If we are not able to successfully use or defend our intellectual property rights, we may not be able to develop an advantage over our competitors.
We do not expect to be able to pay cash dividends in the foreseeable future, so you should not make an investment in our stock if you require dividend income. The payment of cash dividends, if any, in the future rests within the discretion of its Board of Directors and will depend, among other things, upon our earnings, our capital requirements and our financial condition, as well as other relevant factors. We have not paid or declared any cash dividends upon our Common Stock since our inception and by reason of our present financial status and our contemplated future financial requirements does not contemplate or anticipate making any cash distributions upon our Common Stock in the foreseeable future.
We have a limited market for our common stock which causes the market price to be volatile and to usually decline when there is more selling than buying on any given day. Our common stock currently trades on the OTC Pink® marketplace under the symbol "BLGA." However, at most times in the past, our common stock has been thinly traded and as a result the market price usually declines when there is more selling than buying on any given day. As a result, the market price has been volatile, and the market price may decline immediately if you decide to place an order to sell your shares.
The market price of our common stock is highly volatile and several factors that are beyond our control, including our common stock being historically thinly traded, could adversely affect its market price. Our common stock has been historically thinly traded and the market price has been highly volatile. For these and other reasons, our stock price is subject to significant volatility and will likely be adversely affected if our revenues or earnings in any quarter fail to meet the investment community's expectations. Additionally, the market price of our common stock could be subject to significant fluctuations in response to:
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announcements of new products or sales offered by BlastGard® or its competitors;
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actual or anticipated variations in quarterly operating results;
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changes in financial estimates by securities analysts;
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changes in the market's perception of us or the nature of our business; and
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sales of our common stock.
Future sales of common stock into the public market place will increase the public float and may adversely affect the market price. As of February 29, 2016, we had outstanding 366,976,178 shares of common stock, including an estimated 150,222,523 outstanding shares held by non-affiliated persons. Holders of restrictive securities may also sell their restrictive shares pursuant to Rule 144. In general, under Rule 144 of the Securities Act of 1933, as amended, shares of our common stock beneficially owned by a person for at least six months (as defined in Rule 144) are eligible for resale under Rule 144, subject to the availability of current public information about us and, in the case of affiliated persons, subject to certain additional volume limitations, manner of sale provisions and notice provisions. Pursuant to Rule 144, non-affiliates may sell or otherwise transfer their restricted shares without compliance with current public information where the restricted securities have been held for at least one year pursuant to Rule 144(a). Future sales of common stock or the availability of common stock for sale may have an adverse effect on the market price of our thinly traded common stock, which in turn could adversely affect our ability to obtain future funding as well as create a potential market overhang.
"Penny Stock" regulations may adversely affect your ability to resell your stock in market transactions. The SEC has adopted penny stock regulations which apply to securities traded over-the-counter. These regulations generally define penny stock to be any equity security that has a market price of less than $5.00 per share or an equity security of an issuer with net tangible assets of less than $5,000,000 as indicated in audited financial statements, if the corporation has been in continuous operations for less than three years. Subject to certain limited exceptions, the rules for any transaction involving a penny stock require the delivery, prior to the transaction, of a risk disclosure document prepared by the SEC that contains certain information describing the nature and level of risk associated with investments in the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly account statements must be sent by the broker-dealer disclosing the estimated market value of each penny stock held in the account or indicating that the estimated market value cannot be determined because of the unavailability of firm quotes. In addition, the rules impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors (generally institutions with assets in excess of $5,000,000). These practices require that, prior to the purchase, the broker-dealer determined that transactions in penny stocks were suitable for the purchaser and obtained the purchaser's written consent to the transaction.
Our common stock is currently subject to the penny stock regulations. Compliance with the penny stock regulations by broker-dealers will likely result in price fluctuations and the lack of a liquid market for the common stock, and may make it difficult for you to resell your stock in market transactions.
Item 1.B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Description of Property
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 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.
Item 3.
Item 3. Legal Proceedings
We are currently not subject to any threatened or pending legal proceedings. Nevertheless, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Common Stock and Related Shareholder Matters
There is a limited public market for our Common Stock. Our common stock has been quoted on the OTCQB under the symbol "BLGA." But was downgraded from OTCQB to the OTC Pink marketplace for failing to meet the minimum closing bid price of $0.01 on at least one of the past 30 days. The following table sets forth the range of high and low sales prices for our Common Stock (rounded to the nearest penny) for each quarterly period indicated, in the last two fiscal years.
The quotations reflect inter-dealer prices, without retail markup, markdown or commission.
Holders
As of February 15, 2016, there were 289 holders of record of our common stock (this number does not include beneficial owners who hold shares at broker/dealers in "street-name").
Dividends
To date, we have not paid any dividends on its common stock and do not expect to declare or pay any dividends on such common stock in the foreseeable future. Payment of any dividends will be dependent upon future earnings, if any, our financial condition, and other factors as deemed relevant by our Board of Directors.
Repurchases of equity securities
During the past three years, we did not repurchase any of our outstanding equity securities.
Sales of Unregistered Securities
From January 1, 2015 to December 31, 2015, we had no sales or issuances of unregistered common stock, except as follows:
During 2015, the Company issued to officers, directors, consultants and employees, options to purchase 29,500,000 shares at exercise prices ranging from $0.009 per share to $0.01 per share. The options varied in the terms from 3 years to 10 years. Exemption from registration is claimed under Section 4(2) of the Securities Act of 1933, as amended. No commissions were paid in connection with the issuance of these options.
In September 2015, BlastGard issued 3,000,000 shares of common stock for the exercise of convertible debentures valued at $30,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
In November 2015, BlastGard issued 5,570,321 shares of common stock as a conversion of debt in the amount of $55,953. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
In January 2016, BlastGard issued 30,000,000 shares of common stock as a conversion of debt in the amount of $300,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management's Discussion and Analysis or Plan of Operation
Statements contained herein that are not historical facts are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. We caution investors that any forward-looking statements made by us are not guarantees of future performance and actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well-established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-K. Except for the historical information contained in this Form 10-K, the discussion in this Form 10-K contains certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-K should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. Our actual results could differ materially from those discussed here.
Overview
Substantially all our sales are from the operations of our subsidiary, HighCom. HighCom provides a wide range of security products and personal protective gear (including tactical armor) that are tailored and offer protection solutions to specific customer requirements. HighCom caters to local law enforcement agencies, correctional facilities and municipal authorities. Given the equipment and ballistic protection solutions provided by HighCom, compliance with the U.S. Department of Commerce, U.S. Department of State, U.S. Department of the Treasury and all other governmental agencies' regulations is a high priority. HighCom has sold its products in the defense and law enforcement sectors and is known for innovative technology, exceptional customer service and superior quality performance. We export our products throughout the world and have in the past sold products in Asia, Africa, Europe, Latin America and the Middle East. Many of our products are controlled for export purposes and we require end user details prior to all sales. Strict compliance with U.S. and International laws and regulations is mandatory.
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 generate the necessary cash flows with increased sales revenue over the next 12 months. However, should the Company's sales not provide sufficient cash flow; the Company has plans to raise additional working capital through debt and/or equity financings. There was no assurance the Company will be successful in producing increased sales revenues or obtaining additional funding through debt and equity financings.
Critical Accounting Policies
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
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Use Of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
·
Long-lived Assets. Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
·
Goodwill. Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets we have acquired in our business combinations. We perform a goodwill impairment test on at least an annual basis. Application of the goodwill impairment test requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. We will conduct our annual goodwill impairment test as of December 31 of each year or more frequently if indicators of impairment exist. We periodically analyze whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained significant decline in our sham price and market capitalization, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, adverse actions or assessments by a regulator, among others. We compare the fair value of its reporting unit to its respective carrying value, including related goodwill. Future changes in the industry could impact the results of future annual impairment tests. There can be no assurance that future tests of goodwill impairment will not result in impairment charges.
·
Derivative Financial Instruments. 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.
Results of Operations
Year Ended December 31, 2015 vs. 2014
For fiscal 2015, we achieved revenues of $7,678,245 as compared to $5,048,190 for the comparable period of the prior year, an increase of $2,630,055. Our gross profit for fiscal 2015 was $2,942,208 as compared to $1,747,216 for the comparable period of the prior year, an increase of $1,194,992. Management believes that the improved operations for 2015 are a result of governments and local police budgets permitting them to purchase the necessary protective gear, including, without limitation, shields, helmets vests and plates to protect their police officers and military. Management is anticipating increased sales and gross profits for 2016 as we have a backlog or firm orders for the first quarter of approximately $1,500,000. Our gross profit percentage for 2015 was approximately 38.3% as compared to approximately 34.6% for the comparable period of the prior year. The increase in margins was primarily due to better pricing and controlled costs.
For 2015, our operating expenses were $2,005,994 as compared to $1,673,163 for the comparable period of the prior year, an increase of approximately $332,831. The increased operating expenses for 2015 were primarily attributable to personnel costs needed to deliver goods to our customers as well as stock based compensation.
Our operating income for fiscal 2015 was $936,214 as compared to $74,053 for the comparable period of the prior year. Management believes that the improved operations for 2015 are a result of governments and local police budgets permitting them to purchase the necessary protective gear to protect their police officers and military.
For fiscal 2015, the Company had a gain on non-operating activity of $77,428 as compared to a gain of non-operating activity of the comparable period of the prior year of $2,452,493. The differences between 2015 and 2014 relate to gains on the settlement of debt and on derivative liabilities of $266,381 for 2015 as compared to gains on the settlement of debt and on derivative liabilities of $2,611,267 for 2014 and a decrease in interest expense from of $158,774 for 2014 to $147,191 for 2015.
Our net income for 2015 was $989,096 as compared to a net income of $2,513,801 for the comparable period of the prior year. Substantially all of our net income for 2015 was a result of operations, whereas the net income for 2014 was primarily derived from the gain on derivative liability and gain on debt settlement described in the preceding paragraph.
Liquidity and Capital Resources
At December 31, 2015, we had current assets of $2,316,445 as compared to current liabilities of $1,273,021, resulting in a working capital surplus of $1,043,424. During fiscal 2015, net cash provided by operating activities was $501,035. This was a direct result of increased sales and profitability. Our 2015 net income of $989,096 included a derivative gain of $266,381. Amortization and depreciation expense was $53,098. During 2015, net cash used by financing activities was $282,695. During 2015, net cash used in investing activities was $124,276.
At December 31, 2015, the Company had a working capital surplus of $1,043,424. Management is anticipating increases in sales and gross profits for 2016 as we have a backlog or firm orders for the first quarter of approximately $1,500,000. Management believes that cash flow from operations will enable the Company to meet its operating expenses as they become due and payable during 2016, although no assurances can be given in this regard. See "Risk Factors."
During fiscal 2015, we benefited from financial resources being provided from operations rather than from additional borrowings. During fiscal 2014 and years prior to that, we relied on borrowings from our Chief Executive Officer/Chief Financial Officer and from a financial institution with a personal guaranty of our Chief Executive Officer/Chief Financial Officer. On October 29, 2014, we borrowed $450,000 from our principal stockholder, which monies were repaid in December 2014. We anticipate that our future liquidity requirements will arise from the need to finance our operations, accounts receivable and inventories, and from the need to fund our growth from operations, current debt obligations and capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional capital through equity and debt financing as needed. We can provide no assurances that cash generated from operations will occur or additional financing will be obtained on terms satisfactory to us, if at all, or that additional debt conversions will occur.
We have no known demands or commitments and are not aware of any events or uncertainties as of December 31, 2015 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
Capital Resources
We had no material commitments for capital expenditures as of December 31, 2015 and 2014.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Exercise of Warrants/Reduction of Debt
In September 2015, BlastGard issued 3,000,000 shares of common stock for the exercise of convertible debentures valued at $30,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
In November 2015, BlastGard issued 5,570,321 shares of common stock as a conversion of debt in the amount of $55,953. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
In January 2016, BlastGard issued 30,000,000 shares of common stock as a conversion of debt in the amount of $300,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The information required by Item 7A is not required to be provided by issuers that satisfy the definition of "smaller reporting company" under SEC rules.
Item 8.
Item 8. Financial Statements
The information required by Item 8 and an index thereto commences on page, which pages follow this page.
INDEX
Green & Company, CPAs
A PCAOB Registered Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
BlastGard International Inc.
We have audited the accompanying balance sheet of Blastgard International Inc. as of December 31, 2015, and 2014 and the related statement of operations, stockholders' deficiency, and cash flows for the year ended December 31, 2015 and 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blastgard International Inc. as of December 31, 2015 and December 31, 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations in the past and had a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
\s\ Green & Company, CPAs
Green & Company, CPAs
Temple Terrace, Florida
April 5, 2016
BlastGard International, Inc.
Consolidated Balance Sheets
BlastGard International Inc.
Consolidated Statements of Operations
The accompanying notes are an integral part of these consolidated financial statements.
BlastGard International Inc.
Consolidated Statements of Stockholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
BlastGard International Inc.
Consolidated Statement of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
Blastgard International, Inc.
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.
(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:
(4) Intangible Assets, Net
Intangible Assets are comprised of the following at December 31, 2015 and December 31, 2014:
(5) Notes Payable
Notes payable at December 31, 2015 and December 31, 2014 as detailed below, is summarized as follows:
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:
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:
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:
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:
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.
(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.
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 3rd 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:
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:
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.
The Derivative Liability consists of the following as of December 31, 2014 and December 31, 2013:
(7) Income Taxes
A reconciliation of U.S. statutory federal income tax rate to the effective rate follows:
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. 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 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 2nd 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
Item 9A.
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 management 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.
Item 9B.
Item 9B. Other Information.
Not Applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The Company has a Board of Directors which is currently comprised of eight members. Each director holds office until the next annual meeting of shareholders or until a successor is elected or appointed. The members of our Board of Directors and our executive officers and their respective age and position are as follows:
(1)
Mr. Sparkes is not an executive officer of the Company.
(2)
Messrs. Sparkes, Campbell, and Frum were born in Canada.
(3)
Mr. Griffith was born in Ireland.
Indemnification of Executive Officers
Michael J. Gordon is Chief Executive Officer and Chief Financial Officer. Michael Bundy serves as President and Chief Operating Officer of HighCom. The biographies of our directors and executive officers are provided below.
Michael J. Gordon - Executive Officer and Board member since January 2004. From January 2003 to January 2004, Mr. Gordon devoted a majority of his time in the development and marketing of BlastGard, Inc. (an entity not related to our company, that had a license to a different blast mitigation technology that was different that the technology owned by our company). From April 1998 through December 2002, Mr. Gordon was Vice President and a Board member of BBJ Environmental Solutions, which conducts research on the causes of, and develops solutions to, biologically related indoor air quality problems, including research in bio-defense and emerging infectious diseases, such as Anthrax. From August 1987 through December 1997, Mr. Gordon was employed by Phoenix Information Systems Corp., where he was responsible for overseeing administrative operations, the filing of all SEC reports and documents, company news releases and public relations. Before joining Phoenix, Mr. Gordon served as Director of Legacies and Planned Giving for the American Cancer Society. Mr. Gordon received his Bachelor of Science degree from the State University of New York in 1980. Mr. Gordon's extensive business, financial, management and leadership experience in a variety of industries and development stage enterprises particularly qualifies him for service on the Company's Board.
Michael L. Bundy - In March 2011, Michael L. Bundy was retained as the Chief Operating Officer for BlastGard International, and is currently President and Chief Operating Officer of HighCom Security. Mr. Bundy has served as both a Director of Operations and Vice President for HighCom Security of San Francisco from January 2006 through October 2010, where he was responsible for the daily management of operations and logistics. Mr. Bundy will be tasked with overseeing the operational and compliance processes for the combined companies. From March 2000 through January 2005, Mr. Bundy was the President and Managing Member of Castle Logistics, LLC. Castle provided full service transportation intermediary and freight brokerage services for both small and large businesses. Through Castle, Mr. Bundy played a strategic role in helping to develop and implement supply chain management processes and policies to help support the delivery of both raw/finished goods for a number of large publicly traded companies such as; Wal-Mart, Home Depot, Target, K-Mart, Lowes, Sears, Coors Brewing, Pepsi Bottling Group, and several others. Mr. Bundy is currently in the process of earning his BS in Business Management and looks forward to completing his MBA in Organizational leadership, both through Colorado State University. Mr. Bundy also holds several unique and critical certifications with regards to his new position with our company, these include; "TIA Certified Transportation Broker", "Certified RABQSA Quality Lead Auditor", and most importantly, he has been recognized by the International Import Export Institute as a "Certified U.S. Export Compliance Officer as 2010".
Chad Aaron Wright - On September 1, 2015, the Board of Directors elected Chad Wright as Vice President of Manufacturing and Distribution. Mr. Wright oversees our manufacturing and distribution operations in Columbus Ohio as well as our research and development programs. Mr. Wright has earned a tremendous reputation in the industry over the past decade working for some of the most successful armor guru's and companies in business today. From 2002 to 2008, Mr. Wright worked for Composix Company located in Newark OH, producing specialized vehicle parts and fuel tanks for military equipment. In 2004, Mr. Wright became the General Production Manager, overseeing day to day operations in production areas, in addition to setting up internal QMS, inventory, ISO implementation, shipping & receiving, logistics of freight and machinery, inventory management, etc. as well as overseeing all testing and evaluation of contracted equipment at off-site testing facilities. Mr. Wright's R&D team designed, developed, and tested multiple armor applications for vehicle, body armor and various other armor applications. In 2008 and 2009, Mr. Wright worked for Tencate Advanced Armor. As their ballistics lab manager, Mr. Wright's duties were working with the QC, testing various lot samples from in house production of ballistic fabrics, in addition to R&D projects to develop armor systems and test plans. In 2009, Mr. Wright joined HighCom Security, where Mr. Wright performed similar R&D and Ballistic Lab duties. Mr. Wright specifically helped establish an R&D area to effectively carry out corporate tasks that would comply to the ISO 9001 standards. In 2011, Mr. Wright took over as General Plant/Production Manager where he established HighCom's Columbus Production Facility and is currently Vice President of Manufacturing. Mr. Wright oversees all operations within the Columbus facility, including but not limited to: production, shipping & receiving, order fulfilment, R&D, ballistic lab, quality control, employees, purchasing, NIJ documentation, third party lab testing, FIT Audits, ballistic data reports, compliant model build sheets, cost control on materials and facility, effective lean production methods, and maintaining our ISO/BA9000 certification as a manufacturer of high quality, cost effective protective armor that meets and exceeds industry standards.
Keith Brill - In October 2011, Keith Brill was appointed to fill a vacancy on the board of directors. Mr. Brill is a financial executive and management consultant with comprehensive experience in financial management and analysis, operational effectiveness, and IT finance. He is the Managing Director of The Brill Group, LLC, a strategy and management consulting firm established in 2011, that provides corporate finance and operations advisory services. Mr. Brill is also a member of the Board of Directors of Liberty Star Uranium & Metals Corp. (OTCBB: LBSR) and Ironwood Gold Corp. (OTCBB: IROG), positions he has held since December, 2009 and August, 2011, respectively. In 2010, he was the CFO / CIO of AmTrust Realty Corp., a New York-based commercial real estate firm. From 2006 to 2009, Mr. Brill was a financial and IT consultant with PA Consulting Group, Inc., a leading global consulting firm, working in both its Financial Services and Information Technology Practices. He has provided multinational Fortune 500 companies with consulting advice on topics including cost reduction, IT outsourcing, regulatory compliance, and performance benchmarking. Mr. Brill received an International Master of Business Administration (IMBA) from the Moore School of Business, University of South Carolina in May 2005. He graduated from the South Carolina Honors College, University of South Carolina in May 2003 with a Bachelor of Science, magna cum laude, major in Economics and Finance, minor in Spanish. Mr. Brill's extensive business, financial, management and leadership experience in a variety of industries and development stage enterprises particularly qualifies him for service on the Company's Board.
Paul W. Henry - In January 2004, Mr. Paul Henry joined the board of directors. Since 1987, Mr. Henry has served as an investment banker, business advisor, officer and/or director of several start-up and emerging companies, including the following: Caithness Energy, an independent power producer based in New York City; Essex Investment Management Company, an investment advisory firm based in Boston, Massachusetts; Phoenix Information Systems, an information technology and services company based in St. Petersburg, Florida; DragonHorse International, a China business development company based in Florida; Colchis Capital Management of San Francisco, California (and formerly, also in Greenwich, Connecticut), an alternative investment firm that specialized in residential mortgage-backed securities; and Fybrinet, Inc., a start-up materials science company based in Indianapolis, Indiana. From 1983 to 1987, Mr. Henry was employed by Connecticut Financial Management Company, a wealth management firm based in Boston, Massachusetts and Hartford, Connecticut. Mr. Henry has a BA in economics from Yale University and an MBA from Northeastern University Graduate School of Business. Mr. Henry's extensive business, financial, management and leadership experience in a variety of industries and development stage enterprises particularly qualifies him for service on the Company's Board.
Solomon Mayer - In October 2011, Solomon Mayer was appointed to fill a vacancy on the board of directors. Mr. Mayer has been President and CEO of Mooney Aviation Company since 1999, which was founded in 1929 and has delivered more than 11,000 aircraft worldwide. Mr. Mayer has held various executive level positions, and has successfully overseen several businesses from conception through profitability. He is a senior business executive with expertise in business relations, sales and marketing , corporate management and enterprise financial path growth and operation, purchasing and negations for multi-million dollar businesses and organizations in diverse industries both nationally and internationality. He brings extensive experience in international connections with governments and private industry. He has founded and established Overseas Trading, Incorporated and Far East Electronics Import/Export Corporation; corporations designed to import and export baked goods and electronics. His 35 year career in production sales and management in various different capacities in management and consulting will bring a lot of opportunities to our company. As the Chief Executive Officer of Overseas Trading, Incorporated, Mr. Mayer played an integral part in marketing baking products to Wal-Mart, Shoprite, Pathmark and Pamida. His business strategies at Far East Electronics Import/Export Corporation led to the generation of $200 million in revenues within the span of five years.
Mr. Mayer created an international call center in India, successfully establishing and implementing a licensed international call service center in conjunction with government agencies in India, servicing the international world-wide market, while maintaining competitive prices and quality control services included: collections, surveys, marketing and sales and served as the Director of Sales and Marketing for Sportswear, Inc. There, he was responsible for launching a hip-hop fashion line, creating sales strategies, and strategically placing factories to support the supply chain throughout the South-Alabama, Georgia, and Louisiana. His Vast experience in China, India, Brazil going back over 30 years was the pioneer in many new ventures that became very popular later on developing import export processes. He was responsible for development and expansion of new territories in Brazil and Argentina, by creating an assembly factory in a tax free zone working on a joint venture with the government in China thus generating 200 Million dollars in revenue within 5 years and also established a successful Import/Export business in a highly competitive industry.
Mr. Mayer serves on the board of directors and is President of Chai Lifeline, and is a board member of Mishkon and Laniado Hospital, organizations dedicated to assisting profoundly ill children. He is Vice President of International Medical Search Co., a non-profit medical referral organization. He also serves on the board of directors of Mooney Airplane Corporation, Premier Store Fixtures and Supreme Construction and Development. He has excellent ability to hire, train and supervise a loyal and productive force in a high volume environment. He is a creative, entrepreneurial business leader with many skills and much knowledge. Mr. Henry's extensive business, financial, management and leadership experience in a variety of industries and development stage enterprises particularly qualifies him for service on the Company's Board.
Paul Sparkes - In September 2015, Paul Sparkes was appointed to fill a vacancy on the board of directors and agreed to serve as the Company's non-executive chairman of the board of directors. Mr. Paul Sparkes is an accomplished Canadian business leader with over twenty years' experience in media, finance, capital markets and Canada's political arena, which diversified experience particularly qualifies him for service on the Company's board. Most recently Sparkes was Executive Vice Chair, Director and co-founder of Difference Capital Financial, a TSX-listed specialty finance company that invests in media, technology, health care and U.S. real estate. He is currently a corporate director, advisor and deal maker for growth companies in the media, technology and entertainment sectors. Previously, Sparkes was Executive Vice President, Corporate Affairs for CTVglobemedia (now Bellmedia), where he had oversight for corporate matters including strategy, regulatory, public and government affairs, communications, corporate social responsibility, as well as all sponsorship for CTVglobemedia Inc., and its divisions, including 27 conventional TV stations, 29 specialty and pay TV channels, 34 radio stations, The Globe and Mail, and Canada's Olympic Broadcast Media Consortium. Over the course of his decade long tenure at CTVglobemedia, Sparkes led the development and implementation of successful public affairs strategies and major campaigns in support of corporate, board and regulatory priorities over transitions including changes in shareholders, ownership structure as well as corporate acquisitions and divestitures.
Mr. Sparkes served as the chief spokesperson for the company appearing before federal parliamentary committees, hearings before the Canadian Radio-Television and Telecommunications Commission, press conferences and media interviews with national and international television, radio and print outlets including CTV, CBC, The Globe and Mail, National Post, The New York Times, Marketing Magazine and Variety. He was successful in promoting the most trusted and most recognized media brands in Canada, including CTV News. While administering large budgets and managing diverse creative teams of people, Sparkes led the successful initiative to secure retransmission consent rights for private broadcasters, a regulatory change that generated significant returns for shareholders and changed the media industry landscape in Canada. He has been recognized as among the 100 Top Lobbyists in Canada.
Prior to joining Bell Globemedia in 2001 as Group Vice-President, Public Affairs, Mr. Sparkes held senior positions in the public service, including with the Government of Canada and the Government of Newfoundland and Labrador. From 1996 to 2001, he served in the Office of the Prime Minister as Director of Operations, and Special Assistant for Atlantic Canada. Mr. Sparkes also served as Executive Assistant to two Premiers of Newfoundland and Labrador.
Mr. Sparkes sits on several public and private boards, including Thunderbird Films and Bluedrop Performance Learning Inc., Sparkes is the Chair of the Board and Founding Member of the Smiling Land Foundation. As a past member of the OneXOne board, Mr. Sparkes led the implementation of the First Nations School Breakfast Program providing healthy food for Aboriginal children in remote communities. He also served eight years on the board of the Animal Planet Digital Channel and four years as President of the CHUM Charitable Foundation and is a past board member of the Canadian Venture Capital & Private Equity Association and the National Arts Center Foundation. Educated in Quebec and Newfoundland, Sparkes holds a Bachelor of Arts in Political Science from Memorial University.
Craig Campbell - In November 2015, Craig Campbell was appointed to fill a vacancy on the board of directors. Since 2013, Mr. Campbell has served as Chief Executive Officer of Resilience Capital of Ontario, Canada. Resilience is a private investment company which offers trade knowledge, expertise and networking in addition to capital. Previously, Mr. Campbell founded and launched Total Security Management Services Inc. ("TSM"). TSM was organized to bundle the most sought after security services and provide major corporations with a "single point of contact" for their security needs, enabling them to save time and money while increasing the quality of service. This business grew to almost 3,000 employees from coast to coast in Canada and in the United States. TSM was sold to Garda World Security in 2013. Mr. Campbell currently serves as a board member of the Young Presidents' Organization. He serves the Board of Pathways to Education, and works on the capital committee for the Markham Stouffville Hospital. Mr. Campbell was a recipient of the Ernst & Young, Ontario Young Entrepreneur of the Year Award in 2004. He received a Community Member Award from the Toronto Police (2008) and received 2010 Canada's Top 40 Under 40 Award. Mr. Campbell was awarded the Queen Elizabeth II Diamond Jubilee Medal for his service to the community in 2012. Mr. Campbell's diversified business experience particularly qualifies him for service on the Company's board.
David Frum - In December 2015, David Frum was appointed to fill a vacancy on the board of directors. David Frum is a senior editor at the Atlantic and chairman of the board of trustees of the United Kingdom think tank, Policy Exchange. In 2001-2002, he served as speechwriter and special assistant to President George W. Bush; in 2007-2008, as senior adviser to the Rudy Giuliani presidential campaigns. David Frum is the author of eight books, including the #1 New York Times bestseller: THE RIGHT MAN, a memoir of his time in the Bush administration. David Frum also works as President of a family corporation, Frum Global Assets, which invests in real estate development projects across Canada. Mr. Frum's diversified business experience particularly qualifies him for service on the Company's board.
Andrew Griffith - In December 2015, Andrew Griffith was appointed to fill a vacancy on the board of directors. Andrew Griffith is Executive Chairman of EMAOIFROB LTD, an investment and project management company that has private equity and institutional clients. This company sources investments for clients and also resolves asset based issues for large institutional clients. Since 2012, he is also the Chairperson of Dundalk Institute of Technology and since 2014, served as Chair of the Institute of Technology Chair's Group. From 2001 through 2006, Mr. Griffith served as a Director at Bennett Construction Group. From 2007 through 2014, he served as a Director at Parma Group, which is the investment arm of the Goodman Family Trust. Mr.Griffith's diversified business experience particularly qualifies him for service on the Company's board.
Corporate Governance
Our business, property and affairs are managed by, or under the direction of, our Board, in accordance with the General Corporation Law of the State of Colorado and our By-Laws. Members of the Board are kept informed of our business through discussions with the Chief Executive Officer and other key members of management, by reviewing materials provided to them by management.
We continue to review our corporate governance policies and practices by comparing our policies and practices with those suggested by various groups or authorities active in evaluating or setting best practices for corporate governance of public companies. Based on this review, we have adopted, and will continue to adopt, changes that the Board believes are the appropriate corporate governance policies and practices for our Company. We have adopted changes and will continue to adopt changes, as appropriate, to comply with the Sarbanes-Oxley Act of 2002 and subsequent rule changes made by the SEC and any applicable securities exchange.
Director Qualifications and Diversity
The board seeks independent directors who represent a diversity of backgrounds and experiences that will enhance the quality of the board's deliberations and decisions. Candidates shall have substantial experience with one or more publicly traded companies or shall have achieved a high level of distinction in their chosen fields. The board is particularly interested in maintaining a mix that includes individuals who are active or retired executive officers and senior executives, particularly those with experience in the defense, sales and marketing and capital market industries.
In evaluating nominations to the Board of Directors, our Board also looks for certain personal attributes, such as integrity, ability and willingness to apply sound and independent business judgment, comprehensive understanding of a director's role in corporate governance, availability for meetings and consultation on Company matters, and the willingness to assume and carry out fiduciary responsibilities. Qualified candidates for membership on the Board will be considered without regard to race, color, religion, sex, ancestry, national origin or disability.
Risk Oversight
Enterprise risks are identified and prioritized by management and each prioritized risk is assigned to a board committee or the full board for oversight as follows:
·
Full Board - Risks and exposures associated with corporate governance, and management and director succession planning, strategic, financial and execution risks and other current matters that may present material risk to our operations, plans, prospects or reputation.
·
Audit Committee - Risks and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies, investment guidelines and credit and liquidity matters.
·
Compensation Committee - Risks and exposures associated with leadership assessment, and compensation programs and arrangements, including incentive plans.
Board Leadership Structure
The Chairman of the Board presides at all meetings of the Board. The Chairman is appointed on an annual basis by at least a majority vote of the remaining directors. Currently, the office of Chairman of the Board is vacant. The Company has no fixed policy with respect to the separation of the offices of the Chairman of the Board and Chief Executive Officer. The Board believes that the separation of the offices of the Chairman of the Board and Chief Executive Officer is part of the succession planning process and that it is in the best interests of the company to make this determination from time to time.
Review of Risks Arising from Compensation Policies and Practices
We have reviewed our compensation policies and practices for all employees and concluded that any risks arising from our policies and practices are not reasonably likely to have a material adverse effect on the Company.
Code of Ethics
On August 4, 2004, the Board of Directors established a written code of ethics that applies to our senior executive and financial officers. A copy of the code of ethics is posted on our website at www.blastgardintl.com and or may be obtained by any person, without charge, who sends a written request to BlastGard® International. Inc., c/o Investor Relations, 2451 McMullen Booth Road, Suite 212, Clearwater, FL 33759.
COMMITTEES
We have no nominating committee of the Board of Directors or committees performing similar functions. In February 2006, we established a Compensation Committee and Audit Committee and in March 2007, we established a Management Committee.
Compensation Committee
In March 2007, our Board of Directors established a Compensation Committee and adopted a written charter. Our Compensation Committee currently consists of Paul Sparkes as Chairman, along with Solomon Mayer and Craig Campbell. Our Compensation Committee has such powers and functions as may be assigned to it by the Board of Directors from time to time; however, such functions shall, at a minimum, include the following:
• to review and approve corporate goals and objectives relevant to senior executive compensation, evaluate senior executive performance in light of those goals and objectives, and to set the senior executive compensation levels based on this evaluation;
• to approve employment contracts of its officers and employees and consulting contracts of other persons;
• to make recommendations to the Board with respect to incentive compensation plans and equity-based plans, including, without limitation, the Company's stock options plans; and
• to administer the Company's stock option plans and grant stock options or other awards pursuant to such plans.
During fiscal 2015 and 2014, the Compensation Committee had no meetings.
Management Committee
In March 2007, our Board of Directors established a Management Committee and adopted a written charter. The current members of our Management Committee consist of Paul W. Henry, Paul Sparkes and Craig Campbell. The charter includes, among other things, the following responsibilities of the Management Committee:
·
Administer the business of the Corporation and generally supervise its day-to-day activities.
·
Control and manage the funds and other property of the Corporation and have general oversight of business matters affecting the Corporation, consistent with the strategic directions established by the Board of Directors.
·
Designate banks to be used as depositories of Corporation funds, upon the recommendation of the auditors and approval by the Board.
·
Review the budget as submitted by the CFO and submit its recommendations to the Board for approval.
·
Make recommendations concerning the Corporation's fiscal structure, resource allocations and other financial matters to the Board.
·
Make recommendations to the Board on the appointment of Corporate Executives.
·
Undertake any other duties as may be assigned from time to time by the Board.
During fiscal 2015 and 2014, the Management Committee had no meetings.
Audit Committee
The current members of the Company's audit committee are Craig Campbell as Chairman along with Keith Brill and Paul W. Henry, each of whom Management believes is an independent director and may be deemed to be a "Financial Expert" within the meaning of Sarbanes Oxley Act of 2002, as amended. Under the National Association of Securities Dealers Automated Quotations ("NASDAQ") definition, an "independent director means a person other than an officer or employee of the Company or its subsidiaries or any other individuals having a relationship that, in the opinion of the Company' board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director. The board's discretion in determining director independence is not completely unfettered." Further, under the NASDAQ definition, an independent director is a person who (1) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years), employed by the company; (2) has not (or whose immediate family members have not) been paid more than $60,000 during the current or past three fiscal years; (3) has not (or whose immediately family has not) been a partner in or controlling shareholder or executive officer of an organization which the company made, or from which the company received, payments in excess of the greater of $200,000 or 5% of that organizations consolidated gross revenues, in any of the most recent three fiscal years; (4) has not (or whose immediate family members have not), over the past three years been employed as an executive officer of a company in which an executive officer of BlastGard has served on that company's compensation committee; or (5) is not currently (or whose immediate family members are not currently), and has not been over the past three years (or whose immediate family members have not been over the past three years) a partner of BlastGard's outside auditor. The term "Financial Expert" is defined as a person who has the following attributes: an understanding of generally accepted accounting principles and financial statements; has the ability to assess the general application of such principals in connection with the accounting for estimates, accruals and reserves; experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company's financial statements, or experience actively supervising one or more persons engaged in such activities; an understanding of internal controls and procedures for financial reporting; and an understanding of audit committee functions.
Effective February 16, 2006, the Board adopted a written charter for an Audit Committee. The charter includes, among other things:
§
annually reviewing and reassessing the adequacy of the committee's formal charter;
§
reviewing the annual audited financial statements with the Company's management and its independent auditors and the adequacy of its internal accounting controls;
§
reviewing analyses prepared by the Company's management and independent auditors concerning significant financial reporting issues and judgments made in connection with the preparation of its financial statements;
§
being directly responsible for the appointment, compensation and oversight of the independent auditor, which shall report directly to the Audit Committee, including resolution of disagreements between management and the auditors regarding financial reporting for the purpose of preparing or issuing an audit report or related work;
§
reviewing the independence of the independent auditors;
§
reviewing the Company's auditing and accounting principles and practices with the independent auditors and reviewing major changes to its auditing and accounting principles and practices as suggested by the independent auditor or its management;
§
reviewing all related party transactions on an ongoing basis for potential conflict of interest situations; and
§
all responsibilities given to the Audit Committee by virtue of the Sarbanes-Oxley Act of 2002 (which was signed into law by President George W. Bush on July 30, 2002) and all amendments thereto.
§
reviewing required PCAOB auditor communications.
During fiscal 2015 and 2014, the audit committee, which consisted solely of Paul Henry and Keith Brill, reviewed the annual audit and quarterly information before filings were made and issued such filings with management and the external auditors.
Nominating Committee
The Board does not currently have a nominating committee.
The policy of the Board is to consider properly submitted stockholder nominations for candidates for membership on the Board as described below in the section entitled "Identifying and Evaluating Nominees for Directors" and in our Bylaws. In evaluating such nominations, the Board will address the membership criteria set forth below in the section entitled "Director Qualifications". Any stockholder nominations proposed for consideration by the Board should include the nominee's name and qualifications for membership on the Board and other information in accordance with the Company's Bylaws and should be addressed to:
BlastGard International, Inc.
2451 McMullen Booth Road, Suite 212,
Clearwater, FL 33759
Attn: Michael J. Gordon, Chief Executive Officer
Director Qualifications
New members of the Board should possess certain core competencies, some of which may include broad experience in business, finance or administration, familiarity with national and international business matters, and familiarity with the defense and law enforcement industries. In addition to having one or more of these core competencies, members of the Board are identified and considered on the basis of knowledge, experience, integrity, diversity, leadership, reputation, and ability to understand our business.
Identifying and Evaluating Nominees for the Board
The Board utilizes a variety of methods for identifying and evaluating nominees for the Board. However, there are no specific minimum qualifications that the Board requires to be met by a director nominee recommended for a position on the Board, nor are there any specific qualities or skills that are necessary for one or more of our Board to possess, other than as are necessary to meet any requirements under rules and regulations applicable to us. Although the Board does not have a specific policy with respect to the diversity, the Board considers the extent to which potential candidates possess sufficiently diverse skill sets and diversity characteristics that would contribute to the Board's overall effectiveness. The Board has the duty of regularly assessing the composition of the Board, including the size of the Board, diversity, age, skills and experience in the context of the needs of the Board. In addition, the Board also has the duty of identifying individuals qualified to become members of the Board. Candidates may come to the attention of the Board through current members of the Board, professional search firms, stockholders or other persons. These candidates will be evaluated by the Board and may be considered at any point during the year. As described above, the Board will consider properly submitted stockholder nominations for candidates for the Board. Following verification of the stockholder status of persons proposing candidates, recommendations will be aggregated and considered by the Board. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials will be forwarded to the Board. We have previously, and we may in the future, review materials provided by professional search firms or other parties to identify, evaluate and recruit potential director nominees who are not proposed by a stockholder. In addition, a professional search firm may be used to make initial contact with potential candidates to assess, among other things, their availability, fit and major strengths.
Communications with the Board
Stockholders may communicate with the Company by writing to: BlastGard International, Inc., Attention: Michael J. Gordon, 2451 McMullen Booth Road, Suite 212, Clearwater, FL 33759. Communications received from stockholders are forwarded directly to the Board, or to any individual member or members, as appropriate, depending on the facts and circumstances outlined in the communication. The Board has authorized the Chief Executive Officer of the Company to exclude communications that are patently unrelated to the duties and responsibilities of the Board, such as spam, junk mail and mass mailings. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any communication that is filtered out by the Secretary pursuant to the policy will be made available to any non-management director upon request.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish us with copies of all Section 16(a) forms they file. During fiscal 2015, Keith Brill, Solomon Mayer, Craig Campbell, Andrew Griffith, David Frum and Michael Gordon, executive officers and/or directors of the Company and 8464081 Canada Inc. each filed one or more Form 3's, Form 4's or Form 5's late with the SEC.
Item 11.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the overall compensation earned over the fiscal year ended December 31, 2015 and 2014 by (1) each person who served as the principal executive officer of the Company during fiscal year 2015; and (2) the Company's most highly compensated (up to a maximum of two) executive officers as of December 31, 2015 with compensation during fiscal year 2015 of $100,000 or more.
___________
(1) The options and restricted stock awards presented in this table reflect the full fair value as of the date of grant. However, the accompanying financial statements reflect the dollar amount expensed by the company during applicable fiscal year for financial statement reporting purposes pursuant to guidance issued by the FASB. Such guidance requires the company to determine the overall value of the stock awards and options as of the date of grant. The stock awards are valued based on the fair market value of such shares on the date of grant and are charged to compensation expense over the related vesting period. The options are valued at the date of grant based upon the Black-Scholes method of valuation, which is expensed over the service period over which the options become vested. As a general rule, for time-in-service-based options, the company will immediately expense any option or portion thereof which is vested upon grant, while expensing the balance on a pro rata basis over the remaining vesting term of the option. For a description of the guidance issued by the FASB and the assumptions used in determining the value of the options under the Black-Scholes model of valuation, see the notes to the consolidated financial statements included with this Form 10-K.
(2) Includes all other compensation not reported in the preceding columns, including (i) perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is less than $10,000; (ii) any "gross-ups" or other amounts reimbursed during the fiscal year for the payment of taxes; (iii) discounts from market price with respect to securities purchased from the company except to the extent available generally to all security holders or to all salaried employees; (iv) any amounts paid or accrued in connection with any termination (including without limitation through retirement, resignation, severance or constructive termination, including change of responsibilities) or change in control; (v) contributions to vested and unvested defined contribution plans; (vi) any insurance premiums paid by, or on behalf of, the company relating to life insurance for the benefit of the named executive officer; and (vii) any dividends or other earnings paid on stock or option awards that are not factored into the grant date fair value required to be reported in a preceding column.
(3) Includes compensation for service as a director described under Director Compensation, below.
(4) Salary includes commissions and accrued cash compensation. The salary paid to all key employees in 2014 and 2015 included commissions based on total quarterly sales.
Conversion of certain outstanding notes.
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 $67,025.30 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 from $.05 per share to $.01 per share on these Notes. In January 2016, James F. Gordon converted $80,000 of his accrued salary into the Company's Common Stock at a conversion price of $.01 per share. In January 2016, Michael J. Gordon converted his accrued salary of $160,000 into the Company's Common Stock at a conversion price of $.01 per share. In January 2016, persons associated with Morse & Morse, PLLC converted an aggregate of $160,000 of the outstanding convertible notes at a conversion price of $.01 per share.
For a description of the material terms of each named executive officers' employment agreement, including, without limitation, the terms of any common share purchase option grants, any agreement, plan or other arrangement that provides for any payment to a named executive officer in connection with his or her resignation, retirement or other termination, or a change in control of the company see "Employment Agreements".
None of the outstanding common share purchase options or other equity-based awards granted to or held by any named executive officer in 2015 (except for the convertible notes described above) were re-priced or otherwise materially modified, including extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination of applicable performance criteria, or the change of the bases upon which returns are determined, nor was there any waiver or modification of any specified performance target, goal or condition to payout.
Executive Officer Outstanding Equity Awards At Fiscal Year-End
The following table provides certain information concerning any common share purchase options, stock awards or equity incentive plan awards held by each of our named executive officers that were outstanding as of December 31, 2015.
Employment Agreements
Effective May 1, 2011, the Company entered into an employment agreement with Michael Bundy with base monthly salary of $7,500 which increased to $9,583.33 per month in December 2011 and to $10,416.67 per month in January 2013. Mr. Bundy's agreement terminated on December 31, 2015 and said agreement automatically renews for an additional one year period, unless either party terminates the renewal on or before November 1st of each year. Mr. Gordon has convertible notes outstanding in the principal amount of $180,000 which are convertible at $.01 per share. These notes represent accrued salaries and unpaid bonuses from prior years' unpaid compensation. See "Item 13."
On September 1, 2015, the Company entered into one-year employment agreements with Michael Gordon, its Chief Executive Officer, and Michael Bundy, its President and Chief Operating Officer. Each agreement automatically renews after the expiration of the initial term (and yearly thereafter) for a period of one year unless either party gives the other party written notice, at least 90 days prior to the end of the then existing term that the employment is to terminate. Messrs. Gordon and Bundy receive an annual salary of $125,000 plus a 1.2% quarterly bonus on HighCom sales. Each officer also received options to purchase 10 million shares of the Company's Common Stock exercisable at $.009 per share from the date of vesting over a period of up to ten years. Of the 10 million options, 5 million are immediately vested and the balance of the options vest over a period of four additional years. Messrs. Gordon's and Bundy's employment agreements can be terminated without cause only by giving 90 days prior notice as described above. If terminated without cause, employee is entitled to full compensation during the instant, pending term. In the event employee is terminated for cause as defined in the agreement or due to the death of the employee, such employee will be paid his compensation through the termination date of his employment. Messrs. Gordon and Bundy are bound by an agreement not to compete during the term of their employment agreement and for a period of one year after the expiration of their respective employment agreements.
On September 1, 2015, the Company entered into an employment agreement with Chad Wright to serve as the Company's Vice President of Manufacturing and Distribution. Mr. Wright's agreement is for a term of one year and automatically renews after the expiration of the initial term (and yearly thereafter) for a period of one year unless either party gives the other party written notice, at least 90 days prior to the end of the then existing term that the employment is to terminate. Mr. Wright receives an annual salary of $63,000 plus a .06% quarterly bonus on HighCom sales. Mr. Wright received options to purchase 5 million shares of the Company's Stock exercisable at $.009 per share from the date of vesting over a period of up to ten years. Of the 5 million options, 2.5 million are immediately vested and the balance of the options vest over a period of four additional years. Mr. Wright's employment agreement can be terminated without cause only by giving 90 days prior notice as described above. If terminated without cause, employee is entitled to full compensation during the instant, pending term. In the event employee is terminated for cause as defined in the agreement or due to the death of the employee, such employee will be paid his compensation through the termination date of his employment. Mr. Wright is bound by an agreement not to compete during the term of his employment agreement and for a period of one year after the expiration of his employment agreement.
Review of Risks Arising from Compensation Policies and Practices
We have reviewed our compensation policies and practices for all employees and concluded that any risks arising from our policies and practices are not reasonably likely to have a material adverse effect on the Company.
DIRECTOR COMPENSATION
Consulting Agreement with Paul Sparkes
On September 1, 2015, the Company entered into a consulting agreement with Paul Sparkes who agreed to serve as the Company's non-executive Chairman of the Board of the Company. Mr. Sparkes shall receive compensation at a pre-determined hourly rate. Such compensation shall be paid in common stock, warrants, options or other securities as the parties may agree in writing. The term of the consulting agreement is for a term of one year and shall automatically renew on an annual basis unless either party provides written notice of intent to terminate the agreement no less than 30 days prior to the anniversary date of the execution of the agreement. Mr. Sparkes received options to purchase 1,500,000 shares of the Company's Common Stock, all of which are immediately vested and are exercisable at $.009 per share over a term of up to three years. Mr. Sparke's consulting agreement provides for indemnification and an agreement not to compete during the term of the consulting agreement and for a period of three years after the expiration of the consulting agreement.
Compensation
In fiscal 2014 and 2015, no cash compensation was paid to directors of the Company. Mr. Sparkes entered into a consulting agreement as described above. Options of the Company were granted to various board members in connection with their services to the Company. As of February 29, 2016, the Company has outstanding options to purchase 60,500,000 shares at prices ranging from $.01 per share to $.05 per share, of which 10,500,000 are outside the 2005 Plan. Michael Bundy owns options to purchase 20,000,000 shares. Michael J. Gordon owns options to purchase 20,500,000 shares, of which 10,500,000 our outside the 2005 Plan. Our independent directors: Paul Henry, Keith Brill and Solomon Mayer, each own options to purchase 1,250,000 shares; and Paul Sparkes has an option to purchase 1,500,000 shares. All other options outstanding were granted to persons who are not existing officers and directors of the Company.
Summary of Director Compensation for 2015
The following table shows the overall compensation earned for the 2015 fiscal year with respect to each non-employee and non-executive director as of December 31, 2015.
(1)
On March 10, 2015, an option for 750,000 shares of Common Stock was granted to Messrs. Henry, Brill and Meyer for serving on the board in 2015. On September 1, 2015, Mr. Sparkes became a non-executive Chairman of the Board of the Company and a consultant and received options to purchase 1,500,000 shares.
(2)
No options and restricted stock awards were presented in this table. However, the accompanying financial statements reflect the dollar amount expensed by the company during applicable fiscal years for financial statement reporting purposes pursuant to guidance issued by the FASB. Such guidance requires the company to determine the overall value of the stock awards and options as of the date of grant. The stock awards are valued based on the fair market value of such shares on the date of grant and are charged to compensation expense over the related vesting period. The options are valued at the date of grant based upon the Black-Scholes method of valuation, which is expensed over the service period over which the options become vested. As a general rule, for time-in-service-based options, the company will immediately expense any option or portion thereof which is vested upon grant, while expensing the balance on a pro rata basis over the remaining vesting term of the option. For a description of the guidance issued by the FASB and the assumptions used in determining the value of the options under the Black-Scholes model of valuation, see the notes to the consolidated financial statements included with this Form 10-K.
2005 Employee and Consulting Compensation Plan
On November 30, 2005, we established an Employee Benefit and Consulting Compensation Plan (the "2005 Plan") covering 5,000,000 shares. Since stockholder approval of the 2005 Plan will not be obtained by November 30, 2006, then no Incentive Stock Options may be granted after that date under the 2005 Plan. On January 28, 2011, the board approved a resolution to increase the 2005 Plan from 5,000,000 shares to 10,000,000 shares and again on March 12, 2015, the board approved a resolution to increase the 2005 Plan from 10,000,000 shares to 50,000,000 shares.
Administration
Our Board of Directors, Compensation Committee or both, in the sole discretion of our Board, administer the 2005 Plan. The Board, subject to the provisions of the 2005 Plan, has the authority to determine and designate officers, employees, directors and consultants to whom awards shall be made and the terms, conditions and restrictions applicable to each award (including, but not limited to, the option price, any restriction or limitation, any vesting schedule or acceleration thereof, and any forfeiture restrictions). The Board may, in its sole discretion, accelerate the vesting of awards. The Board of Directors must approve all grants of Options and Stock Awards issued to our officers or directors.
Types of Awards
The 2005 Plan is designed to enable us to offer certain officers, employees, directors and consultants of us and our subsidiaries equity interests in us and other incentive awards in order to attract, retain and reward such individuals and to strengthen the mutuality of interests between such individuals and our stockholders. In furtherance of this purpose, the 2005 Plan contains provisions for granting non-statutory stock options (and originally incentive stock options which have now become non-statutory stock options) and Common Stock Awards.
Stock Options
A "stock option" is a contractual right to purchase a number of shares of Common Stock at a price determined on the date the option is granted. The option price per share of Common Stock purchasable upon exercise of a stock option and the time or times at which such options shall be exercisable shall be determined by the Board at the time of grant. Such option price shall not be less than 100% of the fair market value of the Common Stock on the date of grant. The option price must be paid in cash, money order, check or Common Stock of the Company. The Options may also contain at the time of grant, at the discretion of the Board, certain other cashless exercise provisions.
Options shall be exercisable at the times and subject to the conditions determined by the Board at the date of grant, but no option may be exercisable more than ten years after the date it is granted. If the Optionee ceases to be an employee of our company for any reason other than death, any option granted as an incentive stock option exercisable on the date of the termination of employment may be exercised for a period of thirty days or until the expiration of the stated term of the option, whichever period is shorter. In the event of the Optionee's death, any option originally granted as an incentive stock option exercisable at the date of death may be exercised by the legal heirs of the Optionee from the date of death until the expiration of the stated term of the option or six months from the date of death, whichever event first occurs. In the event of disability of the Optionee, any Options granted as an incentive stock option shall expire on the stated date that the Option would otherwise have expired or 12 months from the date of disability, whichever event first occurs. The termination and other provisions of a non-statutory stock option shall be fixed by the Board of Directors at the date of grant of each respective option.
Common Stock Award
"Common Stock Award" are shares of Common Stock that will be issued to a recipient at the end of a restriction period, if any, specified by the Board if he or she continues to be an employee, director or consultant of us. If the recipient remains an employee, director or consultant at the end of the restriction period, the applicable restrictions will lapse and we will issue a stock certificate representing such shares of Common Stock to the participant. If the recipient ceases to be an employee, director or consultant of us for any reason (including death, disability or retirement) before the end of the restriction period unless otherwise determined by the Board, the restricted stock award will be terminated.
Eligibility
Our officers, employees, directors and consultants of BlastGard® International and our subsidiaries are eligible to be granted stock options, and Common Stock Awards. Eligibility shall be determined by the Board; however, all Options and Stock Awards granted to officers and directors must be approved by the Board.
Termination or Amendment of the 2005 Plan
The Board may at any time amend, discontinue, or terminate all or any part of the 2005 Plan, provided, however, that unless otherwise required by law, the rights of a participant may not be impaired without his or her consent, and provided that we will seek the approval of our stockholders for any amendment if such approval is necessary to comply with any applicable federal or state securities laws or rules or regulations.
Awards
To date, no options to purchase common shares have been exercised under the 2005 Plan. The 2005 Plan expired on November 30, 2015 and no awards may be granted after that date. No further individuals will receive future awards under the 2005 Plan. As of February 29, 2016, the Company has outstanding options to purchase 60,500,000 shares at prices ranging from $.01 per share to $.05 per share, of which 10,500,000 are outside the 2005 Plan. Michael Bundy owns options to purchase 20,000,000 shares. Michael J. Gordon owns options to purchase 20,500,000 shares, of which 10,500,000 our outside the 2005 Plan. Our independent directors: Paul Henry, Keith Brill and Solomon Mayer, each own options to purchase 1,250,000 shares; and Paul Sparkes has an option to purchase 1,500,000 shares. All other options outstanding were granted to persons who are not existing officers and directors of the Company. As of December 31, 2015, the Company's Common Stock had a closing sales price of $.01 per share. Accordingly, none of the Company's outstanding options were in the money.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 29, 2016 by our executive officers and directors, both individually and as a group. Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named.
_____________
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named. The address of each person is c/o BlastGard® International, Inc. at 2451 McMullen Booth Road, Ste., 212, Clearwater, FL 33759.
(2) Based upon 366,976,178 shares of Common Stock outstanding as of February 29, 2016, plus the amount of shares each person or group has the right to acquire under options, warrants, rights, conversion privileges, or similar obligations.
(3) Includes options to purchase 20,000,000 shares of common stock.
(4) Includes options to purchase 20,500,000 shares of common stock.
(5) Includes options to purchase 10,000,000 shares
(6) Includes options to purchase 1,250,000 shares.
(7) Includes options to purchase 1,500,000 shares
(8) Includes 280,000 shares owned by Mr. Henry, 143,500 shares owned by his wife and options to purchase 1,250,000 shares.
(9) Includes options to purchase 57,750,000 shares.
(10) 8464081 Canada owns 200,528,362 shares and warrants to purchase 41,801,793 shares.
We do not know of any arrangement or pledge of its securities by persons now considered in control of us that might result in a further change of control of us.
Equity Compensation Plan Information
The following summary information is as of February 29, 2016 and relates to our 2005 Stock Option Plan pursuant to which we have granted options to purchase our common stock:
(1)
Our Plan has not been approved by stockholders.
(2)
Exercise prices of options range from $.01 per share to $.05 per share.
Item 13.
Item 13. Certain Relationships, Related Transactions and Director Independence
During the last two fiscal years ended December 31, 2015, we entered into the following transactions in which our current officers and directors had a material interest, exclusive of employment contacts and compensation described under Item 11 of this Form 10-K.
(i) During the year ended December 31, 2015, the Company relied on a $100,000 credit line for operations during 2015, which was secured by a personal guarantee of its Chief Financial Officer. As of December 31, 2015, the line of credit was paid off in full.
(ii) 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 November 11, 2013, the Board of Directors approved the lowering the conversion price from $.05 per share to $.01 per share on these Notes. In January 2016, $300,000 of the aforementioned convertible debentures were converted in 30,000,000 shares of the Company's common stock and the balance paid out in cash.
Background of Secured Financings of BlastGard and Conversion into Common Stock
On April 4, 2013, Alpha Capital Anstalt, closed on an agreement dated March 21, 2013 (the "Purchase and Exchange Agreement") with 8464081 Canada Inc. (the "Purchaser") to sell to the Purchaser and its assignees the Company's Debt in the principal amount, including accrued interest thereon, of $1,267,770.07 (which excludes $182,000 of the principal due on this note that was maintained by Alpha Capital) owned by it plus warrants to purchase 104,333,335 shares (exercisable at $0.01 per share). On April 23, 2013, the aforementioned secured note holders converted their debt in the principal amount of approximately $1.451 million including accrued interest thereon into 161,269,410 shares of common stock at a conversion price of $.009 per share. Of the 161,269,410 shares, 132,426,499 shares were issued to 8464081 Canada Inc., 20,222,222 shares were issued to Alpha Capital Anstalt and 8,620,689 shares were issued to Laurentian Bank Securities ITF Robocheyne Consulting Ltd. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act of 1933, as amended.
Also, pursuant to the Purchase and Exchange Agreement by and among Alpha Capital Amstalt (the "Seller"), 8464081 Canada (the "Purchaser") and the Company, the parties agreed to the following:
·
Purchaser has the right to nominate and appoint to the Board at least 50% of the Board members and;
·
Purchaser has a right of first refusal to participate in future financings up to its pro rata share of Common Stock of the Company.
This transaction resulted in the Purchaser, namely, 8464081 Canada Inc., acquiring control of the Company through its acquisition of Warrants to purchase 104,333,335 shares of Common Stock and its acquisition of secured debt in the principal amount of $1,267,770.07, which together with accrued interest thereon, was convertible at $.009 per share. The Purchaser paid Seller approximately $1.82 million to acquire control of the Company.
Exercise of Warrants/Reduction of Debt
In September 2014, BlastGard issued to 8464081 Canada Inc. 33,608,200 shares of common stock for exercise of warrants valued at $302,479. Exemption from registration is claimed under Section 4(2) of the Securities Act.
The Company owed approximately $435,376.00 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 was reduced to a civil judgment by the bank in the Ohio state court system. The net proceeds of the September 2014 warrant exercise described in the preceding paragraph were utilized to release the Company from its obligations under the note.
On September 14, 2015, BlastGard issued 3,000,000 shares of common stock for the exercise of convertible debentures valued at $30,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
On November 11, 2015, BlastGard issued 5,570,321 shares of common stock as a conversion of debt in the amount of $50,133. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
On January 25, 2016, BlastGard issued 30,000,000 shares of common stock as a conversion of debt in the amount of $300,000. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act as an exchange of securities of the same issuer with no commissions being paid.
Purchase of HighCom Security Inc.
As previously reported, on January 25, 2011, BlastGard International, Inc. ("BlastGard") entered into a binding Letter of Intent ("LOI") with HighCom Security, Inc. ("HighCom") under which BlastGard will acquire 100% of the common stock of HighCom from the stockholders of HighCom, none of whom are affiliates of BlastGard. HighCom is a worldwide security equipment provider based in San Francisco, California. HighCom designs, manufactures and distributes a unique range of security products and personal protective gear. BlastGard and HighCom have agreed to consummate a Stock Purchase Agreement, subject to the approval of all necessary parties, agencies or regulatory organizations. As of the signing of the agreement, BlastGard immediately assumed the operations of HighCom and started to provide financing for the operations while a definitive agreement is drawn up over the next 90 days.
As stated above, the LOI contemplated several closing conditions and the closing in escrow with a possible of rescission if the State Department does not reinstate HighCom's export license. On March 4, 2011, among other changes the LOI was amended as follows: 1) the LOI constitutes the definitive stock purchase agreement; 2) BlastGard issued 9,820,666 shares of its Common Stock and promissory notes totaling $196,400 to Robert Rimberg as trustee for an Irrevocable Trust FBO and Yochi Cohen and his wife, Yocheved Cohen-Charash (the "Trust") in exchange for 1,150 shares of the outstanding 1,171 shares of HighCom Common Stock, equivalent to 98.2% of the outstanding shares; 3) the parties agree to waive all closing conditions, escrow provisions and right of rescission; and 4) BGI agreed for a period of 30 days to offer to purchase Ron Peled 21 shares of HighCom from him or his transferee at a cost of 179,934 shares of BGI Common Stock and in exchange for promissory notes totaling $3,600, with terms identical to those received by the Trust plus 1.8% of the Earn-out provisions contained in the LOI.
BlastGard also 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.
In June 2014, we entered into an agreement with Mr. Cohen to release us from any obligation to issue additional monies or stock to Mr. Cohen. We agreed to pay $174,000 of credit cards and loans for which Mr. Cohen was responsible and to indemnify him against any loss. In the same agreement, our principal stockholder 8464081 Canada, which had purchased a revolving note from Fifth Third Bank, which loan arrangement was guaranteed by Mr. Cohen, agreed to release Mr. Cohen from his liability under such loan. The principal of such loan amounted to approximately $435,376. See "Exercise of Warrants/Reduction of Debt" described above.
Board Members Who Are Deemed Independent
Our board of directors has determined that Paul Sparkes, Craig Campbell, David Frum, Andrew Griffith, Paul Henry, Keith Brill, and Solomon Mayer are each an "independent director." See "Audit Committee" under" Item 10" regarding the definition of an "independent director."
Item 14.
Item 14. Principal Accountant Fees and Services
On December 26, 2014, the Company changed its registered independent public accountant from the firm of DKM Certified Public Accountants to Green & Company CPAs.
(1) Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
(2) Audit-Related Fees
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:
(3) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
(4) All Other Fees
None.
(5) The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full time, permanent employees was 0%.
Item 15.
Item 15. Exhibits
Exhibit No.
Description
2.1
Agreement and Plan of Reorganization dated January 31, 2004, by and among the Registrant, BlastGard Technologies, Inc., ("BTI") and the shareholders of BTI. (Incorporated by reference to Exhibit 2.4 to the Company's current report on Form 8-K dated January 31, 2004.)
3.1
The Company's Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.7 to the Company's quarterly report on Form 10-QSB dated March 21, 2004).
3.1(A)
Amendment to Articles of Incorporation (Incorporated by reference to Form 8-K dated August 2, 2011).
3.2
The Company's Bylaws, as amended and currently in effect. (Incorporated by reference to Exhibit 3.8 to the Company's quarterly report on Form 10-QSB dated March 21, 2004).
10.1
Form of Purchase and Exchange Agreement dated March 21, 2013. (Incorporated by reference to Form 8-K dated April 4, 2013.)
10.2
Employment Agreement dated September 1, 2015 - Michael J. Gordon. (Incorporated by reference to Form 8-K dated September 1, 2015.)
10.3
Employment Agreement dated September 1, 2015 - Michael L. Bundy. (Incorporated by reference to Form 8-K dated September 1, 2015.)
10.4 Employment Agreement dated September 1, 2015 - Chad Wright. (Incorporated by reference to Form 8-K dated September 1, 2015.)
* Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLASTGARD® INTERNATIONAL, INC.
Dated: April 5, 2016
By: /s/ Michael J. Gordon
Michael J. Gordon
Principal Executive and Principal Financial and Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: April 5, 2016
By: /s/ Solomon Mayer
Solomon Mayer
Director
Dated: April 5, 2016
By: /s/ Michael J. Gordon
Michael J. Gordon
Director, Principal Executive and Principal Financial and Accounting Officer
Dated: April 5, 2016
By: /s/ Paul Henry
Paul Henry
Director
Dated: April 5, 2016
By: /s/ Keith Brill Keith Brill
Director
Dated: April 5, 2016
By: /s/ Paul Sparkes
Paul Sparkes
Chairman of the Board
Dated: April 5, 2016
By: /s/ Craig Campbell Craig Campbell
Director
Dated: April 5, 2016
By: /s/ David Frum
David Frum
Director
Dated: April 5, 2016
By: /s/ Andrew Griffith Andrew Griffith
Director