HighCom Global Security, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - HighCom Global Security, Inc.	Financial_Report.xls
EX-32.1 - CERTIFICATION PURSUANT TO - HighCom Global Security, Inc.	ex_32-1.htm
EX-31.1 - CERTIFICATION PURSUANT TO - HighCom Global Security, Inc.	ex_31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

———————

FORM 10-Q

———————

(March One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2014
OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

Commission file number: 333-47924

———————

BLASTGARD INTERNATIONAL, INC.

(Exact name of small business issuer as specified in it charter)

———————

Colorado	84-1506325
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2451 McMullen Booth Road, Suite 212, Clearwater, Florida 33759-1362

(Address of principal executive offices)

(727) 592-9400

(issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file. Yes þ No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large Accelerated Filer ¨		Accelerated Filer ¨
	Accelerated Filer ¨		Smaller Reporting Company þ

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 7, 2014 the issuer had 328,405,857 shares of $.001 par value common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes ¨ No þ

INDEX

	Page

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed consolidated balance sheets, September 30, 2014 (unaudited) and December 31, 2013	3

Condensed consolidated statements of operations, for the three and nine months ended September 30, 2014 and 2013 (unaudited)	4

Condensed consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 (unaudited)	5

Notes to condensed consolidated financial statements (unaudited)	7

Item 2. Management’s Plan of Operation.	19

Item 3. Quantitative and Qualitative Disclosures and MarketRisk	24

Item 4. Controls and Procedures	24

PART 2 – OTHER INFORMATION

Item 1. Legal Proceedings	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3. Defaults upon Senior Securities	25

Item 4. Mine Safety Disclosures	25

Item 5. Other Information	25

Item 6. Exhibits	25

Signatures	26

BlastGard International, Inc.
Consolidated Balance Sheets

	September 30,			December 31,
	2014			2013
	(unaudited)			(audited)
Assets
Current assets
Cash	$	49,968		$	43,253
Accounts receivable, (netof allowance for doubtful accts)		223,472			83,117
Inventory		879,035			715,430
Prepaid and other current assets		-			7,766
Net related party loans receivable from acquisition		-			122,316
Total current assets		1,152,475			971,882

Property & equipment, net of accumulated depreciation of ($396,922) and ($361,378), respectively		80,888			113,297
Intangible property, net of accumulated amortization of ($626,850) and ($599,282), respectively		169,428			196,996
Investments		45,000			112,832
Goodwill		2,061,649			2,061,649
Deposits		7,087			7,407
Total Assets	$	3,516,527		$	3,464,063

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,054,279		$	738,538
Accrued expenses		133,498			52,470
Customer deposits and deferred revenue		3,701			3,803
Current portion notes payable		1,152,988			1,241,972
Total current liabilities		2,344,466			2,036,783

Contingent liability		-			1,170,081
Derivative liability, net		57,843			2,065,134
Total liabilities		2,402,309			5,271,998

Stockholders' Equity
Preferred Stock, 1,000 shares authorized; $.001 par value; 0 and 0 issued and outstanding		-			-
Common Stock, $.001 par value, 500,000,000 shares authorized; 328,405,857 and 294,797,657 shares issued and outstanding, respectively		328,405			294,797
Additional paid-in capital		16,820,786			16,452,001
Minority interest		(24,701	)		(24,027	)
Accumulated deficit		(16,010,272	)		(18,530,706	)
Total stockholders' deficit		1,114,218			(1,807,935	)

Total Liabilities and Stockholders' Equity	$	3,516,527		$	3,464,063

The accompanying notes are an integral part of these financial statements.

BlastGard International Inc.

Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2014			2013			2014			2013

Revenues	$	1,264,420		$	220,097		$	2,283,475		$	1,442,118
Direct costs		911,498			155,386			1,568,839			809,369

Gross Profit		352,922			64,710			714,636			632,749

Operating expenses:
General and administrative		376,751			250,953			982,718			701,148
Research and Development		1,310			6,135			16,516			13,110
Stock based compensation		-			-			99,919			-
Amortization and depreciation		13,568			66,584			63,112			198,795
Total operating expenses		391,629			323,672			1,162,265			913,053

Operating income (loss)		(38,706	)		(258,962	)		(447,629	)		(280,304	)

Non-operating activity
Other income (expense)					(865	)		-			(865	)
Gains (losses) on settlement of debt		990,037			175,066			990,037			306,318
Gain (loss) on derivative liability		586,759			960,466			2,095,169			1,274,298
Interest expenses		(39,085	)		(824,591	)		(117,817	)		(1,069,902	)
Interest income		-			-			-			1
Total other income (expense)		1,537,711			310,076			2,967,389			509,850

Income(loss) before income taxes		1,499,005			51,114			2,519,760			229,546
Less minority interest income(loss)		(1,724	)		356			674			(4,791	)

Net Income(loss)	$	1,497,281		$	51,470		$	2,520,434		$	224,755

Earnings (loss) per share:
Basic	$	0.005		$	0.00		$	0.0085		$	0.001
Dilutive	$	0.0046		$	0.0001		$	0.0079		$	0.0009

Weighted average shares outstanding
Basic		300,277,222			275,952,182			296,644,250			197,781,473
Dilutive		326,718,659			358,719,247			317,697,147			241,287,238

The accompanying notes are an integral part of these financial statements.

BlastGard International Inc.
Consolidated Statements of Cash Flows
(unaudited)

		For the Nine Months Ended September 30,
		2014		2013

Cash Flows from Operating Activities:
Net (loss) income	$	2,520,434	$	224,755
Adjustment to reconcile Net Income to net cash provided by operations:
Minority interest (gain) loss		(674)		4,791
Stock based compensation		99,919		-
Depreciation and amortization		63,112		198,795
Amortization of debt discount		87,878		22,380
Gain on settlement of debt		(990,037)		(306,318)
Gainon derivative		(2,095,169)		(339,874)
Changes in assets and liabilities:
Accounts receivable		(140,355)		(10,075)
Inventory		(163,605)		(363,261)
Other operating assets		8,086		(1,740)
Accounts payable and accruals		396,769		130,133
Customer deposits		(102)		(37,960)
Net Cash (Used) Provided by Operating Activities		(213,744)		(478,374)

Cash Flows from Investing Activities:
Purchase of property and equipment		(3,135)		(2,139)
Net Cash Used by Investing Activities		(3,135)		(2,139)

Cash Flows from Financing Activities:
Proceeds from warrant exercise		-		260,310
Proceeds from issuance of note payable		242,746		421,667
Repayments of notes payable		(19,152)		(510,245)
Net Cash Provided by Financing Activities		223,594		171,732

Net increase/decrease in Cash		6,715		(308,781)

Cash at beginning of period		43,253		356,426

Cash at end of period	$	49,968	$	47,645

Supplemental cash flow information:
Interest paid	$	27,003	$	37,027
Taxes paid	$	-	$	-

Supplemental Schedule of Noncash Investing and Financing Activities

Debt converted to stock	$	302,474	$	1,561,394

The accompanying notes are an integral part of these financial statements.

BLASTGARD INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR

THE YEAR ENDED DECEMBER 31, 2013 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2014

					Additional								Stock-
	Common				Paid in		Minority			Accumulated			Holders'
	Shares		Par		Capital		Interest			Deficit			Deficit

Balance at December 31, 2012		90,386,036	$	90,386	$	14,694,710	$	(29,961	)	$	(16,495,550	)	$	(1,740,415	)

Stock issued for conversion of debt		173,488,279		173,488		1,387,906								1,561,394

Stock issued for exercise of Warrants		28,923,342		28,923		231,387								260,310

Stock issued for services		2,000,000		2,000		38,000								40,000

Options issued for services						99,998								99,998

Net Income (Loss)								5,934			(2,035,156	)		(2,029,222	)

Balances at December 31, 2013		294,797,657	$	294,797	$	16,452,001	$	(24,027	)	$	(18,530,706	)	$	(1,807,935	)

Options issued for services						99,919								99,919

Stock issued for exercise of Warrants		33,608,200		33,608		268,866								302,474

Net Income (Loss)								(674	)		2,520,434			2,519,760

Balances at September 30, 2014		328,405,857	$	328,405	$	16,820,786	$	(24,701	)	$	(16,010,272	)	$	1,114,218

BLASTGARD INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)	Basis of Presentation

The consolidatedbalance sheet as of September 30, 2014, the consolidatedstatements of operations for the three and nine months ended September 30, 2014 and 2013, and consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 have been prepared by us without audit. In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly in all material respects our financial position as of September 30, 2014 and results of operations for the three and nine months ended September 30, 2014 and 2013, and cash flows for the nine months ended September 30, 2014 and 2013. The results of operations and cash flows for the periods indicated above are not necessarily indicative of the results to be expected for the full year.

This report should be read in conjunction with our Form 10-K for our fiscal year ended December 31, 2013.All material intercompany transactions have been eliminated.

BlastGard International, Inc. (the “Company”) was incorporated on September 26, 2003 as BlastGard Technologies, Inc. (“BTI”) in the State of Florida, to design and market proprietary blast mitigation materials. The Company created, designs, develops and markets proprietary blast mitigation materials. The Company’s patent-pending 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 31, 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. There is a 1.8% minority interest in HighCom.

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. As shown in the accompanying financial statements, the Company has incurred recurring losses and has used significant cash in support of its operating activities. These factors, among others, may indicate that the Company will be unable to continue as a going concern.

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.

Accounting Policies

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 September 30, 2014.

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 method.

Revenue Recognition

Sales revenue was recognized upon the shipment of product to customers. Allowances for sales returns, rebates and discounts were recorded as a component of net sales in the period the allowances were recognized.

Research and Development

Research and development costs were expensed as incurred.

Advertising

Advertising costs were expensed as incurred. Advertising costs of $35,002and $4,401 were incurred during the nine months ended September 30, 2014 and 2013, 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 September 30, 2014, there were 13,550,000vested common stock options outstanding, which were includedin the calculation of net loss per share-diluted because they were dilutive. In addition, September 30, 2014 the Company had 41,801,793remaining 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

The Company’s manufacturing is sub-contracted to licensed and qualified production facilities. Our inventory is made up of raw materials, work in progress and finished goods. Our inventory is maintained at

our manufacturing facilities.

	September 30,		December 31,
	2014		2013
	(unaudited)

Raw materials	$	286,301	$	90,060
Work in process		773		34,701
Finished Goods		591,961		590,669

TOTAL	$	879,035	$	715,430

(3)	Property and Equipment, Net

Property and equipment are comprised of the following at September 30, 2014 and December 31, 2013:

	September 30,			December 31,
	2014			2013
Equipment	$	226,707		$	226,707
Furniture		95,241			92,106
Moulds		45,060			45,060
Test Range		110,802			110,802

		477,810			474,675
Less accumulated depreciation		(396,922	)		(361,378	)

Property and equipment, net	$	80,888		$	113,297

Depreciation expense for the nine months ended September 30, 2014 was $35,544.

(4)	Intangible Assets, Net

Intangible Assets are comprised of the following at September 30, 2014 and December 31, 2013:

	September 30,			December 31,
	2014			2013
Patents and Trademarks	$	161,278		$	161,278
Websites		80,000			80,000
Lists		500,000			500,000
Research and Development		55,000			55,000

		796,278			796,278
Less accumulated amortization		(626,850	)		(599,282	)

Intangible assets, net	$	169,428		$	196,996

Amortization expense for the nine months ended September 30, 2014 was $27,568.

(5)	Notes Payable

Notes payable at September 30, 2014 and December 31, 2013 as detailed below, is summarized as follows:

	September 30, 2014 (unaudited)			December 31, 2013

Convertible promissory notes	$	32,566		$	32,566
Loans payable to principal stockholder		-			162,475
Convertible promissory notes		437,025			437,025
Revolving credit		233,315			252,466
Acquisition debt		30,000			30,000
Line of credit		420,082			327,440
		1,152,988			1,241,972
Less current maturities		(1,152,988	)		(1,241,972	)
	$	-		$	-

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 September 30, 2014 andDecember 31, 2013:

	September 30, 2014 (unaudited)			December 31, 2013

Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% annual interest rate		17,325			17,325

Convertible promissory note, $50,000, issued December 2, 2004, due on November 30, 2009, 8% interest rate		15,241			15,241

		32,566			32,566
Less: current maturities		(32,566	)		(32,566	)
	$	-		$	-

At September 30, 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 $302,474that was converted into 33,608,200 shares of BlastGard International’s Common Stock. The balance of loans payable to the principal stockholder as of September 30, 2014 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 $67,025.30 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 for $.05 per share to $.01 per share on these notes.

The 2011 convertible promissory notes consisted of the following at September 30, 2014 and December 31, 2013:

	September 30, 2014 (unaudited)			December 31, 2013


Convertible promissory note, $210,000, issued January 31, 2011, due on September 30, 2011, 6% interest rate	$	210,000		$	210,000

Convertible promissory note, $160,000, issued January 31, 2011, due on January 31, 2012, 6% interest rate		160,000			160,000

Convertible promissory note, $67,025, issued January 31, 2011, due on September 30, 2011, 6% interest rate		67,025			67,025
		437,025			437,025
Less: current maturities		(437,025	)		(437,025	)
	$	-		$	-

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 September 30, 2014 the remaining 41,801,793warrants were valued at approximately $541,658, with an unamortized debt discount of $483,815, and a net value of $57,843. 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. Two of these loans are not transferable and all have been called by the lenders. The revolving credit facilities consist of the following at September 30, 2014 and December 31, 2013:

	September 30, 2014 (unaudited)			December 31, 2013

Line of credit from Regions Bank, $100,000,interest only at 8% annually, due on demand	$	66,265		$	73,067

Revolving credit card facility with Wells Fargo Bank, $150,000, interest only at 7.5% annually, due on demand		144,082			147,382

Three credit card accounts with major financial institutions varying monthly minimum payments including interest, due on demand		22,968			32,017

		233,315			252,466
Less: current maturities		(233,315	)		(252,466	)
	$	-		$	-

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 September 30, 2014 and December 31, 2013;

	June 30, 2014 (unaudited)			December 31, 2013

Acquisition note for the purchase of Acerproduct designs, original amount $30,000, interest at 8%		30,000			30,000

		30,000			30,000
Less: current maturities		(30,000	)		(30,000	)
	$	-		$	-

Line of Credit

The Company has a $100,000 credit line, which was secured by a personal guarantee of its Chief Executive Officer and a $220,000 credit line secured by a personal guarantee of its Chief Executive Officer. As of September 30, 2014 and December 31, 2013, $420,082 and $327,440 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.

Background of Secured Financings of BlastGard and Conversion into Common Stock

Alpha Capital Anstalt, a secured debt holder which first loaned us money in December 2004, loaned us $160,000 in February 2011, an additional $300,000 in March 2011, an additional $300,000 in September 2011 and an additional $500,000 in November 2011 pursuant to secured convertible promissory notes. At December 31, 2012, the Company owed $1,210,000 in principal (exclusive of accrued interest of $206,314.71) to Alpha Capital Anstalt after reduction of principal of approximately $50,000 which was converted into Common Stock in 2012.

As of March 21, 2013, the Company had outstanding $1,267,707.07 in principal debt, including accrued interest thereon owed to Alpha Capital Anstalt, pursuant to secured promissory notes (collectively the “Company Debt”). Pursuant to an amendment and consent, all of the debt owed to Alpha Capital, which was previously past due and were the subject of security agreements, guarantee and other transaction documents, to the extent outstanding, have had their maturity date extended through June 14, 2013 and their conversion price lowered from $0.010 per share to $0.009 per share.

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 $0.009 per share). The agreements required that within three (3) months of March 21, 2013, that the Purchaser shall convert all the notes acquired by it at the current conversion price of $0.009 per share. Alpha Capital Anstalt (the “Seller”) has also committed to convert the $182,000 of principal retained by it into shares of the Company’s Common Stock at the same conversion price. Also, the agreement required the Purchaser to offer to purchase the other December 2004 Debt for a purchase price equal to the total amount of principal and interest due on each note with a 10% premium.

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.

At December 31, 2012, the Company had outstanding other secured indebtedness borrowed in December 2004 in the amount of $125,663. At September 30, 2013, this other secured indebtedness was reduced to $32,566 as a result of the conversion of principal and accrued interest into 12,218,869 shares of Common Stock at a conversion price of $.009 per share. As part of Alpha Capital Anstalt’s agreement with 8464081 Canada, 8464081 Canada is reportedly in the process of purchasing this other secured indebtedness which approximates $45,000, including accrued interest thereon, and, upon the completion of said purchase, such indebtedness will be converted into Common Stock at $.009 per share.

Liquidated damages calculated that have been paid or accrued for the ten day period prior to the actual receipt of the Mandatory Redemption Payment by such Secured Debt Holder shall be credited against the Mandatory Redemption Payment provided the balance of the Mandatory Redemption Payment is timely paid. “Change in Control” is defined as (i) the Company becoming a Subsidiary of another entity (other than a corporation formed by the Company for purposes of reincorporation in another U.S. jurisdiction), (ii) the sale, lease or transfer of substantially all the assets of the Company or any Subsidiary, (iii) a majority of the members of the Company’s board of directors as of the Closing Date no longer serving as directors of the Company, except as a result of natural causes or as a result of hiring additional outside directors in order to meet appropriate stock exchange requirements, or (iv) Michael Gordon, the Chief Executive Officer of the Company is no longer serving as Chief Executive Officer unless prior written consent of the Secured Debt Holder had been obtained by the Company. The foregoing notwithstanding, the Secured Debt Holder may demand and receive from the Company the amount stated above or any other greater amount which the Secured Debt Holder is entitled to receive or demand pursuant to the Transaction Documents.

In connection with the aforementioned loan transactions, we also issued to Alpha Capital Anstalt warrants to purchase 104,333,335 shares of the Company’s Common Stock, which warrants are currently exercisable at a reduced exercise price of $.009 per share, which exercise price is subject to adjustment pursuant to the provisions of the warrant. In the event a fundamental transaction occurs as defined in the warrants, which includes without limitation any person or group acquiring 50% of the aggregate Common Stock of the Company, then the holder of the warrants may have the right to have the warrants redeemed at a price equal to the Black-Scholes value of said warrants. These warrants were sold by Alpha Capital to 8464081 Canada.

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;

	●	Purchaser has a right of first refusal to participate in future financings up to its pro rata share of Common Stock of the Company.

	●	Purchaser undertakes to provide the Company with sufficient capital to allow the Company to conduct its business and remain a going concern until December 31, 2013, subject to further agreements between the Company and Purchaser. All such funding will be provided through equity transactions and will not be funded via debt.

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 exercisable at $.009 per share (which exercise price was later lowered to $.009 per share) 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, including giving Seller a promissory note in the amount of $400,000, which note was due on August 31, 2013 and has been paid.

(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

328,405,857 shares were issued and outstanding at September 30, 2014.

Stock Compensation

The Company periodically offered options to purchase stock in the company to vendors and employees. No options were granted during the 3rd quarter of 2014 ending September 30, 2014.

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 2012there 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 $0.02 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 ninemonths ended September 30, 2014. At September 30, 2014 and December 31, 2013, 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 ninemonths ended September 30, 2014:

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Options Outstanding - January 1, 2014	35,550,000	$	0.	1.0years		-
Granted / Vested	2,000,000	$	0.03
Exercised	-		-
Forfeited/expired/cancelled	-
Options Outstanding – June 30, 2014	37,550,000	$	0.05	4.8 years	$	0
Outstanding Exercisable – January 1, 2014	11,550,000	$	0.03	4.8 years	$
Outstanding Exercisable – September 30, 2014	13,550,000	$	0.03	3.7 years	$	0

The total grant date fair value of options vested during the nine months ended September 30, 2014 was $99,919.

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 bifurcatedout and recorded separately. The initial value wasthe fair value less the fair value of the debt discount. The difference between the amortizedfair 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 September 31, 2014 and December 31, 2013.

	September 30,			December 31,
	2014			2013

Expected Life in Years		2.56			2.93
Risk-free Interest Rates		1.78	%		1.47	%
Volatility		359.91	%		361.53	%
Dividend Yield		0	%		0	%

The Derivative Liability consists of the following as of September 31, 2014 and December 31, 2013:

	September 30,			December 31,
	2014			2013
	(unaudited )			(audited )

Fair Value of embedded warrants	$	541,658		$	2,636,827
Unamortized discount		(483,815	)		(571,693	)
	$	57,843		$	2,065,134

(7)

Income Taxes

The Company incurred a net operating loss in the current quarter but has realizednet income in various prior periods presented. Due to the deferred tax attributes of the derivatives and a deferred tax asset from prior periods, which was fully allowed for, no income tax benefit or expense has been presented. Any tax liability associated with the gain was offset by the deferred tax assets and changing in the valuation allowance on those tax assets.

(8)

Commitments and Contingencies

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 on a month to month basis. We believe that our HighCom facility is adequate for present requirements and suitable for the operations involved.

HighCom rented approximately 900 square feet of office space in Aurora, CO on a short-term lease that expired on May 31, 2014 at a rental of $518 per month. This office space was not renewed.

Rent expense for the nine months ended September 30, 2014 was approximately $70,789.

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 September 30, 2014 and December 31, 2013 was $0 and $1,170,081, respectively.

(9)

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, 2014, the Company was in arrears on the final twelve monthly payments on the settlement.

(10)

Subsequent Events

On October 29, 2014, the Company’s principal stockholder provided a short term loan of $450,000, which loan is repayable on December 31, 2014 with accrued interest thereon. The note holder may convert the principal and accrued interest at a conversion price of $.009 per share.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes 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. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and those 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 should be read in conjunction with the Company's financial statements and notes thereto included elsewhere in this Form 10-Q and in our Form 10-K for the fiscal year ended December 31, 2013. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear herein. The Company's actual results could differ materially from those discussed here.

The financial information furnished herein has not been audited by an independent accountant; however, in the opinion of management, all adjustments (only consisting of normal recurring accruals) necessary for a fair presentation of the results of operations for the period ended September 30, 2014, have been included.

Summary.

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. A description of each company can be located in our form 10-K for the fiscal year ended December 31, 2013. We believe that the products of the two companies have a certain synergy and that BlastGard International is poised to be a full service provider for defensive and protective product needs. The term "the Company" shall include BlastGard and HighCom unless the context indicates otherwise. For a description of certain background on HighCom, reference is made to our Form 10-K for the fiscal year ended December 31, 2013.

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.

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 24,160 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.

Results of Operations

The following information represents our results of operations for the three and nine months ended September 30, 2014;

For the three months ended September 30, 2014 and 2013, we recognized sales of $1,264,420 and $220,097 and a gross profit of $352,922 and $64,710, respectively. For the nine months ended September 30, 2014 and 2013, we recognized sales of $2,283,475 and $1,442,118 and a gross profit of $714,636 and $632,749, respectively. Management believes that the 2014increase in sales for the reporting period is primarily the result of expanded customer base placing orders in the 2nd half of 2014.

For the three months ended September 30, 2014, our operating expenses were $391,629 as compared to $323,672 for the three months ended September 30, 2013. For the nine months ended September 30, 2014, our operating expenses were $1,162,265 as compared to $913,053 for the nine months ended September 30, 2013. The increased operating expenses were due to additional temporary personnel necessary to keep up with the demand for increased sales and the recording of stock based compensation associated with the vesting of certain warrants during 2014.

For the quarter ended September 30, 2014, total other income (expense) was $1,537,711. This included a gain on derivative liability in the amount of $586,759, a gain of $990,037 from the negotiated settlement of a contingent liability associated with the acquisition of HighCom, offset by interest expense of $39,085. During the nine months ended September 30, 2014, total other income (expense) was $2,967,389. This included a gain on derivative liability of $2,095,169, a gain of $990,037 from the negotiated settlement of a contingent liability associated with the acquisition of HighCom, offset by interest expense of $117,817.

Our net income (loss) for the three months ended September 30, 2014 and 2013 was $1,497,281 as compared to $51,470, respectively. Our net income (loss) for the nine months ended September 30, 2014 and 2013 was $2,520,434 as compared to $224,755, respectively.

Sales Backlog

As of the filing date of this Form 10-Q, the Company was working on fulfilling anticipated sales orders of $3.0 million that are expected to ship in the 4th quarter of 2014. The Company has hired temporary personnel to complete these orders and this will substantially increase our operating expenses in the fourth quarter. Management is optimistic that additional sales will occur in the fourth quarter of 2014, although no assurances can be given in this regard.

Background of Secured Financings of BlastGard and Conversion into Common Stock

Alpha Capital Anstalt, a secured debt holder which first loaned us money in December 2004, loaned us $160,000 in February 2011, an additional $300,000 in March 2011, an additional $300,000 in June 2011 and an additional $500,000 in November 2011 pursuant to secured convertible promissory notes. At December 31, 2012, the Company owed $1,210,000 in principal (exclusive of accrued interest of $206,314.71) to Alpha Capital Anstalt after reduction of principal of approximately $50,000 which was converted into Common Stock in 2012.

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). The agreements required that within three (3) months of March 21, 2013, that the Purchaser shall convert all the notes acquired by it at the current conversion price of $0.009 per share. Alpha Capital Anstalt(the “Seller”) has also committed to convert the $182,000 of principal retained by it into shares of the Company’s Common Stock at the same conversion price. Also, the agreement required the Purchaser to offer to purchase the other December 2004 Debt for a purchase price equal to the total amount of principal and interest due on each note with a 10% premium.

At December 31, 2012, the Company had outstanding other secured indebtedness borrowed in December 2004 in the amount of $125,663. At September 30, 2013, this other secured indebtedness was reduced to $32,566 as a result of the conversion of principal and accrued interest into 12,218,269 shares of Common Stock at a conversion price of $.009 per share. As part of Alpha Capital Anstalt’s agreement with 8464081 Canada, 8464081 Canada is reportedly in the process of purchasing this other secured indebtedness which approximates $45,000, including accrued interest thereon, and, upon the completion of said purchase, such indebtedness will be converted into Common Stock at $.009 per share.

Our outstanding secured debt has mandatory redemption provisions. A large portion of the secured debt provides that in the event (i) the Company is prohibited from issuing Conversion Shares, (ii) upon the occurrence of any other Event of Default (as defined in the Transaction Documents), that continues beyond any applicable cure period, (iii) a Change in Control (as defined below) occurs, or (iv) upon the liquidation, dissolution or winding up of the Company or any Subsidiary, then at the Secured Debt Holder’s election, the Company must pay to the Secured Debt Holder not later than ten (10) days after request by such Secured Debt Holder, a sum of money determined by multiplying up to the outstanding principal amount of the Note designated by the Secured Debt Holder, at the Secured Debt Holder’s election, the greater of (i) 120%, or (ii) a fraction the numerator of which is the highest closing price of the Common Stock for the thirty days preceding the date demand is made by Secured Debt Holder and the denominator of which is the lowest applicable conversion price during such thirty (30) day period, plus accrued but unpaid interest and any other amounts due under the Transaction Documents ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by the Secured Debt Holder on the same date as the Conversion Shares otherwise deliverable or within ten (10) days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note principal, interest and other amounts will be deemed paid and no longer outstanding. The Secured Debt Holder may rescind the election to receive a Mandatory Redemption Payment at any time until such payment is actually received. Liquidated damages calculated that have been paid or accrued for the ten day period prior to the actual receipt of the Mandatory Redemption Payment by such Secured Debt Holder shall be credited against the Mandatory Redemption Payment provided the balance of the Mandatory Redemption Payment is timely paid. “Change in Control” is defined as (i) the Company becoming a Subsidiary of another entity (other than a corporation formed by the Company for purposes of reincorporation in another U.S. jurisdiction), (ii) the sale, lease or transfer of substantially all the assets of the Company or any Subsidiary, (iii) a majority of the members of the Company’s board of directors as of the Closing Date no longer serving as directors of the Company, except as a result of natural causes or as a result of hiring additional outside directors in order to meet appropriate stock exchange requirements, or (iv) Michael Gordon, the Chief Executive Officer of the Company is no longer serving as Chief Executive Officer unless prior written consent of the Secured Debt Holder had been obtained by the Company. The foregoing notwithstanding, the Secured Debt Holder may demand and receive from the Company the amount stated above or any other greater amount which the Secured Debt Holder is entitled to receive or demand pursuant to the Transaction Documents.

In connection with the aforementioned loan transactions, we also issued to Alpha Capital Anstaltwarrants to purchase 104,333,335 shares of the Company’s Common Stock, which warrants are currently exercisable at an exercise price of $.009 per share, which exercise price is subject to adjustment pursuant to the provisions of the warrant. In the event a fundamental transaction occurs as defined in the warrants, which includes without limitation any person or group acquiring 50% of the aggregate Common Stock of the Company, then the holder of the warrants may have the right to have the warrants redeemed at a price equal to the Black-Scholes value of said warrants. These warrants were sold by Alpha Capital to 8464081 Canada.

Also, pursuant to the Purchase and Exchange Agreement by and among Alpha Capital Amstalt (the “Seller”), 8464081 Canada (the “Purchaser”) and the Company, the Purchaser and the Company agreed to the following:

·	Purchaser has the right to nominate and appoint to the Board at least 50% of the Board members;

·	Purchaser has a right of first refusal to participate in future financings up to its pro rata share of Common Stock of the Company.

Purchaser undertakes to provide the Company with sufficient capital to allow the Company to conduct its business and remain a going concern until December 31, 2013, subject to further agreements between the Company and Purchaser. All such funding will be provided through equity transactions and will not be funded via debt.

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 exercisable at $.009 per share 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, including giving Seller a promissory note in the amount of $400,000, which note was due on August 31, 2013, and has been paid.

Various Product Lines Identified For BlastWrap® - We have Several Completed and Finished Products

Body armor is classified by the NIJ according to the level of protection it provides from various threats. The classifications are as follows:

●	Type IIA body armor- minimal protection against smaller caliber handgun threats.

●	Type II body armor – provides protection against many handgun threats, including many common smaller caliber pistols with standard pressure ammunition, and against many revolvers.

●	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 poared revolvers.

●	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:

§	Ballistic helmets

§	Body armor and hard armor plates

§	Riot helmets and shields

§	Mounted patrol, vehicular crew, and general duty helmets

§	Metal detectors: walk-through and handheld

Manufactured products versus products supplied by third party vendors.

HighCom manufactures ballistic plates, ballistic shields and blankets. Hard armor plates are HighCom manufactured products which either carry our brand name or a private label. Our ballistic vests, ballistic helmets and EOD bomb suits and gear are currently manufactured and private labeled by third party vendors for us. Our soft arm vests are manufactured by one of two major suppliers and they either carry the supplier brand name or the HighCom brand name. Our UN soft armor vest is co-manufactured by us with a third party vendor. Our ballistic packs are also manufactured by one of two manufacturers. We distribute the following products made by other manufacturers: metal detectors, x-ray machines, EOD kits and detection devices. In the future, we intend to manufacture PASGT (personal armored systems for ground troops) and ACH (advanced combat helmets) ballistic helmets as well as EOD suits. For a complete description of the HighCom product line, reference is made to our Form 10-K for the fiscal year ended December 31, 2013.

Liquidity and Capital Resources.

At September 30, 2014, we had cash of $49,968, working capital of $(1,191,991), an accumulated deficit of $(16,010,272) and shareholder equity of $1,114,218.

For the nine months ended September 30, 2014, net cash used by operating activities was $(213,744) primarily due to our net income of $2,520,434, offset by a large gain on derivative liability, a large gain on the negotiated settlement for the contingent liability that was settled, stock based compensation, amortization and depreciation, and a large increase in accounts payable. During the nine months ended September 30, 2014, we used cash in investing activities for purchase of assets of $(3,135) and we generated cash from financing activities of $223,594 from loans from related parties.

For the nine months ending September 30, 2013, net cash used by operating activities was $(478,374) primarily due to our net income of $224,755, offset by a gain on derivative liability, a gain on the negotiated settlement of accounts payable, amortization and an increase in inventory. During the nine months ended September 30, 2013, we used cash in investing activities for purchase of assets of $(2,139) and we generated cash from financing activities of including loans from related parties and proceeds from the exercise of warrants.

At September 30, 2014, we had cash of $49,968 and we owed approximately $1.1 million in principal (without discounts) and approximately $1.2 million in payables and accruals.We anticipate that our future liquidity requirements will arise from the need to finance our 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 from the sale of equity and/or debt securities. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. The Company is attempting to obtain cash to finance its operations. We can provide no assurances that financing will be available to us on terms satisfactory to us, if at all, or that we will be able to continue as a going concern. In this respect, see “Note 1 – Going Concern” in our financial statements for additional information as to the possibility that we may not be able to continue as a “going concern.”

To date, we have relied on management’s ability to raise capital through equity private placement financings to fund our operations. On October 29, 2014, the Company’s principal stockholder provided a short term loan of $450,000, which loan is repayable on December 31, 2014 with accrued interest thereon. The note holder may convert the principal and accrued interest at a conversion price of $.009 per share. We estimate that we may require between $1.0 million and $1.5 million in additional financing to support our operations and to meet our debt obligations as they become due and payable over the next 15 months of operations. 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.

Exercise of Warrants/Reduction of Debt

On August 23, 2013, 8464081 Canada Inc. exercised warrants to purchase 28,923,342 shares of the Company’s underlying Common Stock at a reduced exercise price of $0.009 per share due to anti-dilution provisions of said warrants. On September 2, 2014, 8464081 Canada Inc. exercised warrants to purchase 33,608,200 shares of the Company’s underlying Common Stock at a reduced exercise price of $0.009 per share due to anti-dilution provisions of said warrants. After this transaction, the Purchaser has warrants remaining to purchase 41,801,793 shares (exercisable at $0.009 per share).

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.

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 September 30, 2014 and December 31, 2013 was $0 and $1,170,081, respectively. See Notes to Financial Statements.

Recent Accounting Pronouncements

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.

Item 4.

Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level at the end of our most recent quarter. There have been no changes in the Company's disclosure controls and procedures or in other factors that could affect the disclosure controls subsequent to the date the Company completed its evaluation. Therefore, no corrective actions were taken.

PART II – OTHER INFORMATION

Item 1.

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 1A.

Risk Factors

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 1A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	For the nine months ended September 30, 2014, we had no sales or issuances of unregistered securities, except as described under Notes Payable – Background of Secured Financings of BlastGard and Conversion into Common Stock and under Note 13 in the Notes to Consolidated Financial Statements.The conversion of debt into Common Stock is exempt under Section 3(a)(9) of the Securities Act as an exchange of securities without the payment of commissions. The exercise of Warrants is exempt under Section 4(2) of the Securities Act of 1933, as amended.

(b)	Rule 463 of the Securities Act is not applicable to the Company.

(c)	In the nine months ended September 30, 2014, there were no repurchases by the Company of its Common Stock.

Item 3. Defaults upon Senior Securities

N/A

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information.

N/A

Item 6.

Exhibits

Except for the exhibits listed below, other required exhibits have been previously filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

Exhibit
Number		Description

10.1		Mutual Release and Settlement Agreement with Yochanan Cohen.*
11.1		Statement re: computation of earnings per share. See condensed consolidated statement of operations and notes thereto.
31.1		Rule 13a-14(a) Certification – Chief Executive Officer and Chief Financial Officer *
32.1		Section 1350 Certification – Chief Executive Officer and Chief Financial Officer *
101.SCH		Document, XBRL Taxonomy Extension (*)
101.CAL		Calculation Linkbase, XBRL Taxonomy Extension Definition (*)
101.DEF		Linkbase, XBRL Taxonomy Extension Labels (*)
101.LAB		Linkbase, XBRL Taxonomy Extension (*)
101.PRE		Presentation Linkbase (*)

———————

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BLASTGARD INTERNATIONAL, INC.


Dated: November 14, 2014	By:	/s/ Michael J. Gordon
		Michael J. Gordon, Chief Executive and Chief Financial Officer

Attached files

Stock widget

Investing forum

HighCom Global Security, Inc. Reports

Also read