Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

12. COMMITMENTS AND CONTINGENCIES

From time to time the Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business, including matters relating to product liability claims. Such product liability claims sometimes involving wrongful death or injury have historically been covered by product liability insurance, which provided coverage for each claim up to $1,000,000. During the third quarter of 2014, the Company did not renew its product liability insurance since the renewal policy amount was cost prohibitive. As of August 15, 2017, the Company has obtained Product Liability Insurance, although prior claims are not covered under the new policy. The initial term of the policy was through August 14, 2018 and was renewed through August 14, 2020.

The Company, Trebor and other third parties, are each named as a co-defendants under actions initially filed in March 2015 in the Circuit Court of Broward County under Case No. CACE-15-03238 and CACE -16-0000242 by the Estate of Ernesto Rodriguez, claiming wrongful death and products liability resulting in the decedent’s drowning death while using a Brownie’s Third Lung product. Plaintiff claimed damages exceeding $1,000,000. The Company has recorded $50,000 of accrued legal settlement as of December 31, 2019. This amount is included in other liabilities (See Note 9). This claim was settled in May 2020. See note 15.

In April 2019, the Company reached a settlement agreement with a customer regarding returned merchandise agreeing to refund $65,000. The Company determined the returned merchandise had little or no value and the adjustment was charged to cost of revenues at December 31, 2018. In addition, the Company recognized $1,500 in related legal fees in this matter as of December 31, 2018. As of December 31, 2019, the balance owed is $23,176.

On August 14, 2014, the Company entered into a new lease commitment. Terms of the new lease include a 37-month term commencing on September 1, 2014; payment of $5,367 security deposit; base rent of approximately $4,000 per month over the term of the lease plus sales tax; and payment of 10.76% of annual operating expenses (i.e. common areas maintenance), which is approximately $2,000 per month subject to periodic adjustment. On December 1, 2016, we entered into an amendment to the initial lease agreement, commencing on October 1, 2017, extending the term for an additional eighty-four months, expiring September 30, 2024. The base rent was increased to $4,626 per month with a 3% annual escalation throughout the amended term.

On November 11, 2018, the Company entered a new lease agreement for approximately 8,025 square feet adjoining its existing facility in Pompano Beach, Florida. Terms of the new lease include a 69-month term commencing on January 1, 2019, or the date the Company takes possession of the premises, if earlier; a $6,527 security deposit; initial base rent of approximately $4,848 per month escalating at 3% per year during the term of the lease plus Florida state sales tax and payment of 10.11% of the buildings annual operating expenses (i.e. common area maintenance) which is approximately $1,679 per month subject to adjustment as provided in the lease.

The Company believes that the facilities are suitable for their intended purpose, are being efficiently utilized and provide adequate capacity to meet demand for the foreseeable future.

Supplemental balance sheet information related to leases was as follows:

Operating Leases	Classification	December 31, 2019
Right-of-use assets	Operating right of use assets	$	545,035
Current lease liabilities	Current operating lease liabilities	$	98,060
Non-current lease liabilities	Long-term operating lease liabilities		446,975
Total lease liabilities		$	545,035

Lease term and discount rate were as follows:

	December 31, 2019
Weighted average remaining lease term (years)		4.68
Weighted average discount rate		5.91	%

The components of lease costs were as follows:

	December 31, 2019
Operating lease cost	$	131,340
Variable lease cost		4,160
Total lease costs	$	135,500

Supplemental disclosures of cash flow information related to leases were as follows:

	December 31, 2019
Cash paid for operating lease liabilities	$	151,567
Operating right of use assets obtained in exchange for operating lease liabilities	$	635,613

Maturities of lease liabilities were as follows as of December 31, 2019:

	Trebor Industries Office Lease			BMG Office Lease			Copier			Total lease payments
2020		59,339			59,927			8,388			127,654
2021		61,119			61,725			8,388			131,232
2022		62,953			63,576			8,388			134,917
2023		64,842			65,484			2,796			133,122
2024 and thereafter		49,717			50,586			—			100,303
Total		297,970			301,298			27,960			627,228
Less: Imputed interest		(39,432	)		(39,995	)		(2,766	)		(82,193	)
Present value of lease liabilities	$	258,538		$	261,303		$	25,194		$	545,035

On August 7, 2017 the Company entered into an Exclusive Distribution Agreement with Lenhardt & Wagner GmbH (“L&W”), a German-based company engaged in the development, manufacturing and sales of high pressure air and industrial gas compressor packages. Under the terms of the Exclusive Distribution Agreement, the Company was appointed the exclusive distributor of L&W’s complete product line in North America and South America, including the Caribbean (the “Territory”). Pursuant to an intercompany assignment, BHP is party to the agreement. Under the terms of the agreement, the Company was granted a non-exclusive, non-transferrable and irrevocable right to use certain of L&W’s trademarks in connection with the marketing, use, sale and service of the products in the Territory. The agreement is for an initial term of five years, and will automatically renew for one additional five year term unless terminated by either party upon one year written notice prior to the expiration of the then current term. Either party may terminate the agreement without cause upon one year prior written notice to the other party. In addition, L&W may terminate the agreement for cause upon 120 days prior notice to us, subject to certain cure periods.

In May 2018 the Company entered into an agreement with an employee to pay him $28 an hour in cash and $10 per hour in common stock not to exceed 40 hours a week. The stock price is determined at the end of each month using the 10-day weighted average of the stock price. During the year ended December 31, 2018, the Company issued 449,550 shares of common stock valued at $8,950 with an average fair value of $0.02 per share for services. During the year ended December 31, 2019, the Company issued 1,332,885 shares of common stock valued at $19,391 an average fair value of $0.0145 per share for services. On March 29, 2019 the Company reviewed the agreement with the employee and agreed to increase the hourly rate to $30 per hour in cash and continue to pay $10 per hour in common stock not to exceed 40 hours a week. It was also agreed by employee that the stock price will be the closing price of the stock at end of each month. As of December 31, 2019, the Company has not issued common stock for the month of December 2019 and has a recorded liability of $1,200.

In April 2018 the Company entered into a Patent License Agreement (the “STS Agreement”) with Setaysha Technical Solutions, LLC (“STS”) pursuant to which the Company licensed certain intellectual property, including patent rights, non-patent rights and knowhow from STS. Under the STS Agreement, the Company paid an initial license fee in April 2018 through the issuance of 759,422 shares of common stock with a fair value of $30,000 which is being amortized on a straight line basis over its five year term. The STS Agreement further provides for royalties to be paid based on annual net revenues achieved. Effective December 31, 2019, the Company entered into Addendum No. 1 to the Patent License Agreement (“Addendum No. 1”) to amend the payment due upon the first commercial sale of NEMO. In accordance with Addendum No. 1, $8,250 was paid in cash and $8,250 was accrued as of December 31, 2019.The Company issued 828,221 shares of common stock in satisfaction of $13,500 for the first commercial sale of NEMO with a fair value of $19,635. The Company accrued $13,828 as of December 31, 2019 as royalty payments for the fourth quarter commercial sales of NEMO.