UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(March One)

 

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

 

For the quarterly period ended: September 30, 2016

 

OR

 

[  ]	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 [X] 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 [X] 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 [X]

 

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 [X]

 

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 1, 2016 the issuer had 366,976,178 shares of $.001 par value common stock outstanding.

 

Transitional Small Business Disclosure Format (Check one): Yes [  ] No [X]

 

 

 

INDEX

 

		Page
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 2016 (unaudited) and December 31, 2015 (audited)		3
Consolidated Statements of Operations, for the three and nine months ended September 30, 2016 and 2015 (unaudited)		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)		5
Consolidated Statements of Equity for the year ended December 31, 2015 and for the nine months ended September 30, 2016 (unaudited)		6
Notes to consolidated financial statements (unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4. Controls and Procedures		21
PART 2 – OTHER INFORMATION
Item 1. Legal Proceedings		22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3. Defaults upon Senior Securities		22
Item 4. Mine Safety Disclosures		22
Item 5. Other Information		22
Item 6. Exhibits		22
Signatures		23

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BLASTGARD INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 

		September 30, 2016				December 31, 2015
		(unaudited)				(audited)
Assets
Current assets
Cash		$	133,223			$	109,251
Accounts receivable			1,412,904				980,972
Inventory			1,921,291				1,206,222
Prepaid and other current assets			23,750				20,000
Total current assets			3,491,168				2,316,445
Property & equipment, net			176,594				171,107
Intangible property, net			136,190				148,379
Goodwill			2,061,649				2,061,649
Deposits			10,254				10,254
Total Assets		$	5,875,855			$	4,707,834
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable		$	1,132,435			$	755,879
Accrued expenses			107,021				124,966
Customer deposits and deferred revenue			6,589				80,919
Current portion notes payable			701,617				311,257
Total current liabilities			1,947,662				1,273,021
Contingent liability			-				-
Notes payable, net of current portion			-				300,000
Derivative liability, net			172,304				20,742
Total liabilities			2,119,966				1,593,763
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; 366,976,178 and 336,976,178 shares issued and outstanding respectively			366,976				336,976
Additional paid-in capital			18,100,382				17,791,640
Minority interest			23,685				13,264
Accumulated deficit			(14,735,154	)			(15,027,809	)
Total stockholders’ equity			3,755,889				3,114,071
Total Liabilities and Stockholders’ Equity		$	5,875,855			$	4,707,834

 

See accompanying notes to consolidated financial statements

 

 

BLASTGARD INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2016				2015				2016				2015
Revenues		$	2,812,357			$	532,891			$	4,757,632			$	4,461,761
Direct costs			1,854,910				320,722				3,157,034				2,557,352
Gross Profit			957,447				212,169				1,600,598				1,904,409
Operating expenses:
General and administrative			515,635				263,289				1,284,593				1,020,018
Research and Development			43,386				7,564				57,699				35,760
Stock based compensation			38,742				173,131				38,742				257,989
Amortization and depreciation			18,759				13,380				56,096				38,280
Total operating expenses			616,522				457,364				1,437,130				1,352,047
Operating income (loss)			340,925				(245,195	)			163,468				552,362
Non-operating activity
Other income (expense)			-				(45,000	)			-				(45,000	)
Gains (losses) on settlement of debt			-				-				300,200				-
Gain (loss) on derivative liability			(107,620	)			439,762				(63,361	)			112,518
Interest expenses			(34,282	)			(37,542	)			(97,231	)			(112,075	)
Total other income (expense)			(141,902	)			357,220				139,608				(44,557	)
Income(loss) before income taxes			199,023				112,025				303,076				507,805
Less minority interest income(loss)			(6,982	)			1,786				(10,421	)			(14,918	)
Net Income(loss)		$	192,041			$	113,811			$	292,655			$	492,887
Earnings (loss) per share:
Basic		$	-			$	-			$	-			$	-
Dilutive		$	-			$	-			$	-			$	-
Weighted average shares outstanding
Basic			366,976,178				328,960,205				364,238,952				328,592,670
Dilutive			366,976,178				349,136,788				364,238,952				359,102,302

 

See accompanying notes to consolidated financial statements

 

 

BLASTGARD INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		For the Nine Months Ended
		September 30,
		2016				2015
Cash Flows from Operating Activities:
Net (loss) income		$	292,655			$	492,887
Adjustment to reconcile Net Income to net cash (used) provided by operations:
Minority interest (gain) loss			10,421				14,918
Impairment loss on investment			-				45,000
Stock based compensation			38,742				257,989
Depreciation and amortization			56,096				38,280
Amortization of debt discount			88,201				87,878
Gain on settlement of debt			(300,200	)			-
(Gain) loss on derivative			63,361				(112,518	)
Changes in assets and liabilities:
Accounts receivable			(431,932	)			(133,569	)
Inventory			(715,069	)			(399,098	)
Other operating assets			(3,750	)			(8,000	)
Accounts payable and accruals			658,811				(52,039	)
Customer deposits			(74,330	)			(179,998	)
Net Cash (Used) Provided by Operating Activities			(316,994	)			51,731
Cash Flows from Investing Activities:
Purchase of property and equipment			(7,087	)			(52,799	)
Net Cash Used by Investing Activities			(7,087	)			(52,799	)
Cash Flows from Financing Activities:
Proceeds from issuance of note payable			655,190				226,610
Repayments of notes payable			(307,137	)			(173,922	)
Net Cash Provided by Financing Activities			348,053				52,688
Net increase/decrease in Cash			23,972				51,620
Cash at beginning of period			109,251				15,187
Cash at end of period		$	133,223			$	66,807
Supplemental cash flow information:
Interest paid		$	6,860			$	20,508
Taxes paid		$	-			$	-

 

Supplemental Schedule of Noncash Investing and Financing Activities

 

January 2016, the Company issued 30,000,000 common shares in satisfaction of $300,000 of convertible debt

January 2016, the Company financed the acquisition of certain equipment through a promissory note in the amount of $42,307.

  

See accompanying notes to consolidated financial statements

 

 

BLASTGARD INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2015 AND THE NINE MONTHS ENDED

SEPTEMBER 30, 2016

(UNAUDITED)

 

		Common								Paid Additional in				Minority				Accumulated				Stock- Holders’
		Shares				Par				Capital				Interest				Deficit				Equity
Balances at December 31, 2014			328,405,857			$	328,405			$	17,356,271			$	(11,282	)		$	(16,016,905	)		$	1,656,489
Stock issued as satisfaction of debt			8,570,321				8,571				77,382												85,953
Options issued for services											357,987												357,987
Net Income															24,546				989,096				1,013,642
Balances at December 31, 2015			336,976,178			$	336,976			$	17,791,640			$	13,264			$	(15,027,809	)		$	3,114,071
Stock issued as satisfaction of debt			30,000,000				30,000				270,000												300,000
Options issued for services											38,742												38,742
Net Income															10,421				292,655				303,076
Balances at September 30, 2016			366,976,178			$	366,976			$	18,100,382			$	23,685			$	(14,735,154	)		$	3,755,889

 

See accompanying notes to consolidated financial statements

 

 

BLASTGARD INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(1) Basis of Presentation

 

The consolidated balance sheet as of September 30, 2016, the consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, and consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015 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, 2016 and results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. 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, 2015. All material intercompany transactions have been eliminated.

 

BlastGard International, Inc. (the “Company”) was incorporated on September 26, 2003 as BlastGard Technologies, Inc. (“BTI”) in the State of Florida, to design and market proprietary blast mitigation materials. The Company created, designs, develops and markets proprietary blast mitigation materials. The Company’s 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. 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), is a global provider of security equipment and a leader in advanced ballistic armor manufacturing. The Company has a manufacturing facility in Columbus, Ohio for production and has moved the corporate offices to Clearwater, Florida as of May 1, 2011.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern was dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to continue to generate necessary cash flows through operations. However, should the Company’s sales not provide sufficient cash flow; the Company can raise additional working capital through debt and/or equity financings. There is no assurance the Company will be successful in producing sufficient sales revenues or obtaining additional funding through debt and equity financings.

 

Business Segments

 

Although the Company accounts for its operations in two separate corporations, all of its business operations are associated with Security for Individuals and Property. BlastGard International, Inc. primarily provides for corporate administration, and only has incidental sales of an immaterial amount. HighCom sales represent in excess of 99% of total sales. Therefore the Company has determined that all business operations should be aggregated together and not reported as separate operating segments.

 

 

Accounting Policies

 

Principles of Consolidation

 

These consolidated financial statements include the assets and liabilities of BlastGard International, Inc. and its subsidiaries as of September 30, 2016 and December 31, 2015.

 

All material intercompany transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in accordance with generally accepted accounting principles required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considered all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents.

 

Financial Instruments

 

The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.

 

Fair Value Measurement

 

All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value.

 

Level 1: Quotes market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.

 

Level 3: Unobservable inputs that were not corroborated by market data.

 

Accounts Receivable

 

Accounts receivable consisted of amounts due from customers based in the United States and abroad. The Company considered accounts more than 30 days old to be past due. The Company used the allowance method for recognizing bad debts. When an account was deemed uncollectible, it was written off against the allowance. The Company generally does not require collateral for its accounts receivable. Management deems all accounts receivable to be collectable at September 30, 2016.

 

Inventory

 

Inventory was stated at the lower of cost (first-in, first-out) or market. Market was generally considered to be net realizable value. Inventory consisted of materials used to manufacture the Company’s product and finished goods ready for sale.

 

Property and Equipment

 

Property and equipment were stated at cost. Depreciation was calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Expenditures for additions and improvements were capitalized, while repairs and maintenance costs were expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of were removed from the accounts and any gain or loss was recorded in the year of disposal.

 

 

Impairment of Long-Lived Assets

 

The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets’ carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.

 

Debt Issue Costs

 

The costs related to the issuance of debt were capitalized and amortized to interest expense using the straight-line method over the lives of the related debt. The straight-line method results in amortization that was not materially different from that calculated under the effective interest

 

Revenue Recognition

 

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:

 

(i)	persuasive evidence of an arrangement exists,
(ii)	the product has been shipped or the services have been rendered to the customer,
(iii)	the sales price is fixed or determinable, and
(iv)	collectability is reasonably assured.

 

The Company’s product and return policy allows for merchandise purchased directly from the Company to be returned after obtaining a Return Authorization Number during the 30 day period following date of shipment by the Company for a refund of the purchase price.

 

Research and Development

 

Research and development costs were expensed as incurred. Research and development costs totaled $43,386 and $7,564 for the three months ended September 30, 2016 and 2015, respectively. Research and development costs totaled $57,699 and $35,760 for the nine months ended September 30, 2016 and 2015, respectively.

 

Advertising

 

Advertising costs for tradeshows and social media were expensed as incurred. Advertising costs of $48,615 and $48,960 were incurred during the nine months ended September 30, 2016 and 2015, respectively.

 

Shipping and Freight Costs

 

The Company includes shipping costs in cost of goods sold.

 

Income Taxes

 

Income taxes were provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled. Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The company use guidance provided by ASC-740-10, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.

 

Stock-based Compensation

 

We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant, using assumptions for volatility, expected term, risk-free interest rate and dividend yield. We have used one grouping for the assumptions as our option grants were primarily basic with similar characteristics. The expected term of options granted has been derived based upon our history of actual exercise behavior and represents the period of time that options granted were expected to be outstanding. Historical data was also used to estimate option exercises and employee terminations. Estimated volatility was based upon our historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant and the dividend yield was based on the historical dividend yield. Compensation expense for stock based compensation is recognized over the vesting period.

 

 

Income (Loss) per Common Share

 

Basic net loss per share excludes the impact of common stock equivalents. Diluted net income (loss) per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of September 30, 2016, there were 38,000,000 vested common stock options outstanding, which were not included in the calculation of net income per share-diluted because they were anti-dilutive. In addition, at September 30, 2016 the Company had 41,801,793 remaining warrants outstanding issued in connection with convertible promissory notes that were also not included because they were anti-dilutive.

 

Recent Accounting Pronouncements

 

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.

 

(2) Inventory

 

Our inventory is made up of raw materials, work in progress and finished goods. Our inventory is maintained at

 

our manufacturing facilities.

 

		September 30,				December 31,
		2016				2015
		(unaudited)
Raw materials		$	960,350			$	489,303
Work in process			42,985				7,303
Finished Goods			917,956				709,616
TOTAL		$	1,921,291			$	1,206,222

 

 

(3) Property and Equipment, Net

 

Property and equipment are comprised of the following at September 30, 2016 and December 31, 2015

 

		September 30, 2016				December 31, 2015
Equipment		$	401,036			$	353,880
Furniture			104,802				102,564
Moulds			45,060				45,060
Test Range			110,802				110,802
			661,700				612,306
Less accumulated depreciation			(485,106	)			(441,199	)
Property and equipment, net		$	176,594			$	171,107
Depreciation expense for the next five years ended September 30,
2017		$	55,779
2018			44,375
2019			36,708
2020			27,931
2021			7,373
		$	172,166

 

 

Depreciation expense for the nine months ended September 30, 2016 and 2015 was $29,263 and $17,508.

 

(4) Intangible Assets, Net

 

Intangible Assets are comprised of the following at September 30, 2016 and December 31, 2015:

 

		June 30, 2016				December 31, 2016
			2016				2015
Patents and Trademarks		$	161,278			$	161,278
Websites			80,000				80,000
Lists			500,000				500,000
Research and Development			55,000				55,000
			796,278				796,278
Less accumulated amortization			(660,088	)			(647,899	)
Intangible assets, net		$	136,190			$	148,379
Amortization expense for the next five years ended June 30,
2017		$	16,252
2018			16,252
2019			16,252
2020			16,252
2021			13,960
		$	78,968

 

Amortization expense for the nine months ended September 30, 2016 and 2015 was $12,189 and $7,392.

 

 

(5) Notes Payable

 

Notes payable at September 30, 2016 and December 31, 2015 as detailed below, is summarized as follows:

 

		September 30, 2016 (unaudited)				December 31, 2015
Convertible promissory notes – accrued expenses			-				391,025
Revolving credit			-				190,232
Acquisition debt			30,000				30,000
Note payable – related party			427,617				-
Note payable – equipment			18,803				-
Note payable - individual			200,000				-
Credit card payable – American express			25,197				-
			701,617				611,257
Less current maturities			(701,617	)			(311,257	)
		$	-			$	300,000

 

Conversion of Accrued Expenses.

 

On March 8, 2011, BlastGard’s Board of Directors ratified, adopted and approved that James F. Gordon’s accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); Michael J. Gordon’s accrued salary of $160,000 (20 months at $8,000 per month covering May-December 2009, January-October 2010 and January-February 2011); and Morse & Morse, PLLC’s accrued legal bill of $67,025 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion. On May 3, 2011, BlastGard’s Board of Directors ratified, adopted and approved $100,000 in additional compensation to Michael J. Gordon as CEO, of which $50,000 be converted into a Convertible Non-Interest Bearing Demand Note, convertible into Common Shares of BlastGard at $.05 per share at the noteholder(s) discretion and $50,000 issued in Common Stock at $.05 per share. On November 11, 2013, the Board of Directors approved the lowering the conversion price for $.05 per share to $.01 per share on these notes.

 

These notes were paid off in January 2016 through a conversion of $300,000 into 30,000,000 shares of Common Stock, and the balance being paid in cash.

 

The 2011 convertible promissory notes consisted of the following at September 30, 2016 and December 31, 2015:

 

		September 30, 2016				December 31, 2015
Convertible promissory note, $210,000, issued January 31, 2011, due on September 30, 2011, 6% interest rate		$	-			$	180,000
Convertible promissory note, $160,000, issued January 31, 2011, due on January 31, 2012, 6% interest rate			-				144,000
Convertible promissory note, $67,025, issued January 31, 2011, due on September 30, 2011, 6% interest rate			-				67,025
			-				391,025
Less: current maturities			-				(91,025	)
		$	-			$	300,000

 

 

The Company had issued 104,333,335 warrants with the convertible debt. The 41,801,793 warrants which remain outstanding are currently exercisable at $0.009 and expire in 2018. Due to changes in the terms, the warrants are re-valued, using the Black-Scholes method each quarter. On August 23, 2013, 28,923,342 warrants were exercised and on September 2, 2014, 33,608,200 warrants were exercised. At September 30, 2016 the remaining 41,801,793 warrants were valued at approximately $420,810, with an unamortized debt discount of $248,506, and a net value of $172,304. 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 September 30, 2016 and December 31, 2015:

 

		September 30, 2016				December 31, 2015
Line of credit from Regions Bank, $100,000, interest only at 8% annually, due on demand		$	-			$	53,649
Revolving credit card facility with Wells Fargo Bank, $150,000, interest only at 7.5% annually, due on demand, unsecured			-				136,583
			-				190,232
Less: current maturities			-				(190,232	)
		$	-			$	-

 

Acquisition Debt

 

On March 4, 2011, the Company issued a note payable in association with the purchase of HighCom Security Inc. and on March 31, 2011, the Company issued a note payable in association with the purchase of Acer product designs. These acquisition notes have the following balances at September 30, 2016 and December 31, 2015:

 

		September 30, 2016				December 31, 2015
Acquisition note for the purchase of Acer product designs, original amount $30,000, no interest			30,000				30,000
			30,000				30,000
Less: current maturities			(30,000	)			(30,000	)
		$	-			$	-

 

Note payable – Related Party

 

During the nine months ended September 30, 2016, the Company’s CEO, Michael Gordon incurred expenses on behalf of, and made advances to the Company in order to provide the Company with funds to carry on its operations. These advances are pursuant to Mr. Gordon obtaining a personal demand promissory note at a rate of 5.54% per annum. As of September 30, 2016, the amount due for these expenses and advances on behalf of the Company is $427,617.

 

 

Note payable - Equipment

 

The Company financed the acquisition of certain equipment through a promissory note. The note is payable in monthly installments of $2,350, is non-interest bearing, and has a maturity date of May 17, 2017. The note is secured by equipment. As of September 30, 2016 the balance of this note was $18,803.

 

Note payable – Individual

 

On September 8, 2016, the Company issued a demand promissory note to an individual in the amount of $200,000 at a rate of 18% per annum. Principal and accrued interest is payable no sooner than 90 days and no later than 120 days from issuance.

 

Credit card payable – American Express

 

The Company utilizes an American Express credit card to facilitate short term cash flow demands.

 

Off Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

Canadian corporation has the right to nominate and appoint at least 50% of the Board Members.

 

In 2013, in connection with 8464091 Canada Inc. acquiring over majority control of the Company’s Common Stock from a former affiliated third party, the Company agreed that the Canadian corporation has the right to nominate and appoint to the Board at least 50% of the Board members. Pursuant to this right, 8464091 Canada has nominated and the Board has appointed to the Board four members, which include, Paul Sparkes, Craig Campbell, Andrew Griffith and David Frum. Subsequently in September 2016, Craig Campbell, for personal reasons, resigned from the board. Also, the Canadian corporation has the right to participate in future financings up to its pro rata share of Common Stock of the Company.

 

(6) Shareholders’ Equity

 

Preferred stock

 

The Company was authorized to issue 1,000 shares of $.001 par value preferred stock. The Company may divide and issue the Preferred Shares in series. Each Series, when issued, shall be designated to distinguish them from the shares of all other series. The relative rights and preferences of these series include preference of dividends, redemption terms and conditions, amount payable upon shares of voluntary or involuntary liquidation, terms and condition of conversion as well as voting powers. None of our shares of preferred stock are outstanding.

 

Common stock issuances

 

The Company has issued various shares of common stock as described below pursuant to debt conversions. No commissions were paid in connection with these conversions and exemption from registration is claimed under Section 3(a)(9) of the Securities Act of 1933, as amended.

 

In September 2015, the Company issued 3,000,000 common shares in a debt conversion in the amount of $30,000.

 

In November 2015, the Company issued 5,570,321 common shares in a debt conversion in the amount of $55,953.

 

In January 2016, the Company issued 30,000,000 common shares in a debt conversion in the amount of $300,000.

 

366,976,178 shares were issued and outstanding at September 30, 2016.

 

 

Stock Compensation

 

The Company periodically offered options to purchase stock in the Company to vendors and employees. There were 25,000,000 options granted during the 3rd quarter of 2015 to three key employees and 1,500,000 options granted during the 3^rd quarter of 2015 to a board member for consultant services.

 

The Board’s policy with respect to options is to grant options at the fair market value of the stock on the date of grant. Options generally become fully vested after one year from the date of grant and expire five years from the date of grant. During the years ended December 31, 2013 and 2012 there were 0 and 0 options granted, respectively and 0 and 1,450,000 expired un-exercised, respectively. On March 25, 2014, the Board of Directors approved granting all four directors 500,000 shares exercisable at $.02 per share. The options are for 5 years and are fully-vested, non-statutory stock options. The options to purchase 500,000 shares of the Company’s Common Stock, effective March 25, 2014, at an exercise price of $0.01 per share were granted to the following persons: Michael J. Gordon, Paul W. Henry, Solomon Mayer and Keith Brill. The options to purchase 750,000 shares of the Corporation’s Common Stock, effective March 10, 2015, at an exercise price of $0.01 per share were granted to the following persons: Michael J. Gordon, Paul W. Henry, Solomon Mayer and Keith Brill.

 

There were no net cash proceeds from the exercise of stock options during the year ended December 31, 2015. At September 30, 2016 and December 31, 2015, there was no unrecognized compensation cost related to share-based payments which was expected to be recognized in the future

 

The following table represents stock option activity as of and for the nine months ended September 30, 2016:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life				Aggregate Intrinsic Value
Options Outstanding - January 1, 2016			66,750,000			$	0.01				5.9 years				-
Granted			-												-
Exercised			-				-
Forfeited/expired/cancelled			(6,250,000	)
Options Outstanding – September 30, 2016			60,500,000			$	0.01				5.1 years			$	-
Outstanding Exercisable – January 1, 2016			38,000,000			$	0.01				5.9 years			$	-
Outstanding Exercisable – September 30, 2016			41,125,000			$	0.01				5.1 years			$	-

 

The total grant date fair value of options vested during the nine months ended September 30, 2016 and 2015 was $38,742 and $84,858 respectively.

 

The following table represents stock warrant activity as of and for the nine months ended September 30, 2016:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life				Aggregate Intrinsic Value
Warrants Outstanding - January 1, 2016			41,801,793				$ 0.009.				2.8 years			$	-
Granted			-
Exercised			-				-
Forfeited/expired/cancelled			-
Warrants Outstanding – September 30, 2016			41,801,793			$	0.009				2.1 years			$	-
Outstanding Exercisable – January 1, 2016			41,801,793			$	0.009				2.8 years			$	-
Outstanding Exercisable – September 30, 2016			41,801,793			$	0.009				2.1 years			$	-

 

 

Derivative Liability

 

We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument

 

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.

 

During 2011, the Company entered into certain convertible debt agreements with warrants attached. Because the warrant values exceeded the note values after the beneficial conversion feature discount, the warrants have been bifurcated out and recorded separately. The initial value was the fair value less the fair value of the debt discount. The difference between the amortized fair value and the revalued fair value at each reporting period is recorded as a derivative liability. This derivative liability will change every reporting period based on the current market conditions.

 

The Company used the following Black-Scholes assumptions in arriving at the fair value of the warrants as of September 30, 2016 and December 31, 2015.

 

		September 30, 2016				December 31, 2015
Expected Life in Years			2.1				2.9
Risk-free Interest Rates			1.14	%			1.76	%
Volatility			267.87	%			281.15	%
Dividend Yield			0	%			0	%

 

The Derivative Liability consists of the following as of September 30, 2016 and December 31, 2015:

 

		September 30,				December 31,
		2016				2015
Fair Value of embedded warrants		$	420,810			$	357,449
Unamortized discount			(248,506	)			(336,707	)
		$	172,304			$	20,742

 

(7) Income Taxes

 

The Company incurred a net operating profit for the nine months ended September 30, 2016, and has realized net income in various prior periods presented. Due to the deferred tax attributes of the derivatives and a deferred tax asset from prior periods, which was fully allowed for, no income tax benefit or expense has been presented. Any tax liability associated with any profits was offset by the deferred tax assets and changing in the valuation allowance on those tax assets.

 

(8) Concentration of Credit Risk for Cash

 

The Company has concentrated its credit risk for cash by maintaining deposits in a financial institution, which may at times exceed the amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). At September 30, 2016, the Company had no funds in excess of the FDIC insurance limits.

 

 

(9) Commitments and Contingencies

 

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

 

Office Lease

 

We do not own any real estate properties. BlastGard entered into a lease agreement in January 1, 2009 for office space in Clearwater Florida, which was expanded to two offices in 2011 to accommodate HighCom Security. In 2012, BlastGard moved into a larger office space. Rental payment under the new lease is $373 per month on a month to month basis.

 

HighCom leases office and manufacturing space in Columbus, Ohio. In February 2011, the Company entered into a nine-month lease agreement for approximately 11,200 square feet of office and warehouse space in Columbus, OH. In June 2012, the Company entered into a one-year lease agreement for approximately 16,200 square feet of office and warehouse space in Columbus, OH. In June 2013, the Company entered into a three-year lease agreement for approximately 24,160 square feet of office and warehouse space in Columbus, OH. Rental payment under the new lease is $6,967 per month through August 2016. In October 2015, the Company entered into a three-year lease agreement for approximately 38,000 square feet of office and warehouse space in Columbus, OH. Rental payment under the new lease is $9,627 per month on a month to month basis until June 2016 and then $8,901 through October 2018.

 

HighCom rented approximately 900 square feet of office space in Aurora, CO on a short-term lease which expired on May 31, 2014 at a rental of $518 per month. On January 1, 2015, HighCom secured similar office space in Centennial, CO for one year at a rental of $525 per month, which was renewed January 2016 for one year.

 

Rent expense for the nine months ended September 30, 2016 and 2015 was approximately $96,882 and $111,287.

 

Prior Litigation Matter

 

Verde Partners Family Limited Partnership

 

On April 2, 2009, the Company entered into a Settlement Agreement to settle our outstanding civil litigation. The Company will pay the sum of $125,000 over 18 months. The first monthly payment was paid within 30 days after the Defendants deliver to the Company’s counsel an original executed version of the Agreement and a promissory note in the amount of the remaining principal balance to bear interest in the amount of 6% per annum. Upon Verde’s receipt of the payment and promissory note, the parties shall jointly dismiss with prejudice all litigation between them, including the Pinellas County action and the Federal action. The company and Verde also entered into a license agreement whereby BlastGard obtains a fully paid up non-exclusive license for the 2 Verde patents for the remaining life of those patents in exchange for the Company paying Verde a 2% royalty for the life of the patents (which expired in the 2^nd quarter of 2012), on the sales price received by BlastGard for BlastGard’s portion of all blast mitigation products sold by the company (the royalty was not on any third-party’s portion of any product containing blast mitigation products sold by BlastGard). The parties also agreed not to file any complaints with any state, federal or international agency or disciplinary body regarding any of the other parties or any person affiliated with any of the other parties or otherwise makes negative statements about them (in other words, a broad non-disparagement clause). The company and Verde also signed mutual general releases (excepting the obligations above) and a covenant not to sue. At September 30, 2016, the Company was in arrears on the final twelve monthly payments on the settlement.

 

(10) Material Agreements and Transactions

 

On November 11, 2013, the Board of Directors approved the following transactions: (i) the issuance of 2,000,000 shares to corporate counsel; and pursuant to his position as chairman of the Company’s advisory board an option to purchase 2,000,000 shares of Common Stock which vested on January 1, 2014 and an option to purchase 2,000,000 shares which will vest on January 1, 2015, exercisable at $.009 per share so long as Mr. Keifner is still serving as chairman of the Company’s advisory board on the vesting date. In his capacity, Mr. Kiefner will serve as a lasison between the Company and its principal shareholder, to attend meetings of the Company’s board of directors, to meet with the Company’s officers on a regular basis and provide corporate counsel; (ii) lowering the conversion price from $.05 per share to $.01 per share of certain notes described in Note 5 in the Notes to Financial Statements; and (iii) granting options to purchase an aggregate of 25,000,000 shares of Common Stock to Michael J. Gordon, Michael L. Bundy and Chad Wright with options exercisable at $.01 per share from the vesting date through the expiration date of said options. These options have cliff vesting where they are exercisable over a period of time, but they can become immediately vested in the event certain revenue goals are achieved. In the event the Company achieves $10 million in sales in a calendar year, 25% of the total options will automatically vest. An additional 25% will vest when the Company achieves $20 million in sales in a calendar year and 50% of the total options granted will automatically vest when the Company achieves $30 million in sales in a calendar year.

 

(11) Gain on settlement of debt

 

During the quarter ended March 31, 2016, the Company negotiated the settlement of an account payable to a single vendor for invoices from 2010 that were on the books of HighCom when acquired in March 2011. The vendor has conceded the full amount as settled, resulting in a gain on settlement of debt in the amount of $300,200.

 

(12) Subsequent Events

 

The Company has evaluated all subsequent events through the filing date of this form 10Q for appropriate accounting and disclosures, and there are no subsequent event disclosures required.

 

 

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, 2015. 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, 2016, 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, 2015. 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, 2015.

 

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 38,000 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, 2016:

 

For the three months ended September 30, 2016 and 2015, we recognized sales of $2,812,357 and $532,891 and a gross profit of $957,447 and $212,169, respectively. For the nine months ended September 30, 2016 and 2015, we recognized sales of $4,757,632 and $4,461,761 and a gross profit of $1,600,598 and $1,904,409, respectively.

 

For the three months ended September 30, 2016, our operating expenses were $616,522 as compared to $457,364 for the three months ended September 30, 2015. For the nine months ended September 30, 2016, our operating expenses were $1,437,130 as compared to $1,352,047 for the nine months ended September 30, 2015. 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 2016.

 

For the three months ended September 30, 2016, total other income (expense) was $(141,902). This included a loss on derivative liability in the amount of $107,620, and interest expense of $34,282. For the nine months ended September 30, 2016, total other income (expense) was $139,608. This included a gain on settlement of debt of $300,200, offset by a loss on derivative liability of $63,361 and interest expense of $97,231.

 

Our net income for the three months ended September 30, 2016 and 2015 was $192,041 as compared to $113,811, respectively. Our net income for the nine months ended September 30, 2016 and 2015 was $ 292,655 as compared to $492,887, respectively. Other income (expense) as shown in our statement of operations have a substantial impact on our net income for each reported period.

 

Backlog of Sales

 

As of the filing date of this Form 10-Q, the Company is working on fulfilling booked sales of approximately $2.1 million that is expected to be shipped in the 4th quarter of 2016. 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 2016, although no assurances can be given in this regard.

 

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

 

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:

 

 

	●	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
	●	Ballistic soft body armor vests
	●	Ballistic hard armor plates
	●	Ballistic shields
	●	Ballistic blankets

 

In 2015, HighCom completed several new NIJ 0101.06 certifications. Our new hard armor products include: our new 4S17M economical Level IV stand alone in multi curve shapes; our new 3S11 lightweight all PE plate; our new 3S11M lightweight all PE multi curve plate; and our new AR1000 lightweight steel advanced plate. We also have products pending certification such as our Rifle Special Threat Plate for special operators in SWAT and high risk task forces; and our new Multi threat Level III and Level IV solution when Level IV is required with special threat and Level III performance. In development, we expect to launch in 2^nd half of 2016 a new lightweight Level IV plate; a new multi-hit Level IV plate; a new series of ultra-lightweight helmet solutions; as well as several new soft armor solutions

 

Manufactured products versus products supplied by third party vendors.

 

HighCom manufactures ballistic plates, ballistic shields, ballistic vests, ballistic helmets and blankets. HighCom’s hard and soft armor products are made under our brand name or a private label. Our ballistic helmets are assembled at the HighCom plant. On occasion, HighCom distributes 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. For a complete description of the HighCom product line, reference is made to our Form 10-K for the fiscal year ended December 31, 2015.

 

Liquidity and Capital Resources.

 

At September 30, 2016, we had cash of $133,223, working capital of $1,543,506, an accumulated deficit of $(14,735,154) and shareholder equity of $3,755,889.

 

For the nine months ended September 30, 2016, net cash used by operating activities was $316,994. During the nine months ended September 30, 2016, we used cash in investing activities for purchase of assets of $7,087 and we generated cash from financing activities of $348,053.

 

For the nine months ending September 30, 2015, net cash provided by operating activities was $51,731. During the nine months ended September 30, 2015, we used cash in investing activities for purchase of assets of $52,799 and we generated cash from financing activities of $52,688.

 

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 through the sale of equity, debt borrowing and/or through the receipt of product licensing fees. 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. Further, we can provide no assurances that a mutually acceptable licensing agreement will be entered into on terms satisfactory to us, if at all. 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. We estimate that we will require between $1.0 million and $1.5 million in additional financing and cash flow from operations 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.

 

Application of critical accounting policies

 

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and corresponding disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we continue to evaluate our estimates which in large part are based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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 ineffective 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)	In January 2016, the Company issued 16,000,000 common shares to its CEO as a conversion of $160,000 of his $180,000 convertible debenture. 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, 2016, 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
3.1		Articles of Incorporation (Incorporated by reference to Company’s Form 10-QSB for the quarter ended March 31, 2004.)
3.2		Amendment to Articles of Incorporation (Incorporated by reference to Form 8-K dated August 2, 2011.)
3.3		By-Laws (Incorporated by reference to Company’s Form 10-QSB for the quarter ended March 31, 2004.)
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, 2016	By:	/s/ Michael J. Gordon
		Michael J. Gordon, Chief Executive and Chief Financial Officer