Item
8. Financial Statements
The
information required by Item 8 and an index thereto commences on page 15, which pages follow this page.
INDEX
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and the Board of Directors of HighCom Global Security, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of HighCom Global Security, Inc. (the Company) as of December 31, 2018,
the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended December
31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December
31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S. generally
accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provide a reasonable basis for our opinion.
/s/
Turner, Stone and Company L.L.P.
We
have served as the Company’s auditor since 2018.
Dallas,
Texas 75251
March
22, 2019
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders and the Board of Directors of HighCom Global Security, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheet of HighCom Global Security, Inc. (the Company) as of December 31, 2017,
the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended December
31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December
31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally
accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provide a reasonable basis for our opinion.
/s/
Green & Company CPAs
We
have served as the Company’s auditor since 2015.
Tampa,
Florida 33618
March
30, 2018
HighCom
Global Security, Inc.
Consolidated
Balance Sheets
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
130,771
|
|
|
$
|
525,871
|
|
Accounts receivable, net
|
|
|
1,360,835
|
|
|
|
751,258
|
|
Inventory (Note 2)
|
|
|
2,057,917
|
|
|
|
1,699,770
|
|
Prepaid and other current assets
|
|
|
125,000
|
|
|
|
27,339
|
|
Total current assets
|
|
|
3,674,523
|
|
|
|
3,004,238
|
|
|
|
|
|
|
|
|
|
|
Property & equipment, net (Note
3)
|
|
|
98,788
|
|
|
|
152,441
|
|
Deferred tax asset — net (Note
6)
|
|
|
3,406,850
|
|
|
|
3,475,805
|
|
Intangible property, net (Note 4)
|
|
|
81,643
|
|
|
|
91,360
|
|
Goodwill
|
|
|
2,061,649
|
|
|
|
2,061,649
|
|
Deposits
|
|
|
10,254
|
|
|
|
10,254
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
9,333,708
|
|
|
$
|
8,795,747
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,139,139
|
|
|
$
|
940,395
|
|
Accrued expenses
|
|
|
77,245
|
|
|
|
164,235
|
|
Customer deposits
and deferred revenue
|
|
|
5,769
|
|
|
|
4,658
|
|
|
|
|
-
|
|
|
|
-
|
|
Total current liabilities
|
|
|
1,222,153
|
|
|
|
1,109,288
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,222,153
|
|
|
|
1,109,288
|
|
Commitments and Contingencies (Note
9)
|
|
|
|
|
|
|
|
|
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; 386,014,460 and 377,154,748 shares issued and
outstanding at December 31, 2018 and 2017, respectively
|
|
|
386,015
|
|
|
|
377,155
|
|
Additional paid-in capital
|
|
|
18,644,907
|
|
|
|
18,349,683
|
|
Accumulated deficit
|
|
|
(10,964,632
|
)
|
|
|
(11,075,726
|
)
|
Total HighCom Global Security Equity
|
|
|
8,066,290
|
|
|
|
7,651,112
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
45,265
|
|
|
|
35,347
|
|
Total stockholders’ equity
|
|
|
8,111,555
|
|
|
|
7,686,459
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’
Equity
|
|
$
|
9,333,708
|
|
|
$
|
8,795,747
|
|
The
accompanying notes are an Integral part of these consolidated financial statements.
HighCom
Global Security, Inc.
Consolidated
Statements of Operations
|
|
For
the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
7,483,418
|
|
|
$
|
6,217,072
|
|
Direct costs
|
|
|
4,467,499
|
|
|
|
4,052,132
|
|
Gross Profit
|
|
|
3,015,919
|
|
|
|
2,164,940
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,532,780
|
|
|
|
2,500,150
|
|
Research and Development
|
|
|
76,363
|
|
|
|
97,476
|
|
Stock based compensation
|
|
|
183,584
|
|
|
|
138,740
|
|
Amortization and
depreciation
|
|
|
63,370
|
|
|
|
103,031
|
|
Total operating
expenses
|
|
|
2,856,097
|
|
|
|
2,839,397
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
159,822
|
|
|
|
(674,457
|
)
|
|
|
|
|
|
|
|
|
|
Non-operating activity
|
|
|
|
|
|
|
|
|
Gains on settlement
of debt (Note 11)
|
|
|
|
|
|
|
224,402
|
|
Interest expense
|
|
|
|
|
|
|
|
|
Miscellaneous income
|
|
|
30,144
|
|
|
|
(5,874
|
)
|
Total other income
(expense)
|
|
|
30,144
|
|
|
|
218,528
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before noncontrolling
interest and income taxes
|
|
|
189,966
|
|
|
|
(455,929
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
|
(68,955
|
)
|
|
|
(1,662,882
|
)
|
Net income (loss)
|
|
|
121,011
|
|
|
|
(2,118,811
|
)
|
Income attributable to noncontrolling
interest
|
|
|
(9,918
|
)
|
|
|
(328
|
)
|
Net income (loss) attributed to HighCom
Global Security, Inc.
|
|
$
|
111,093
|
|
|
$
|
(2,119,139
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
Dilutive
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
382,349,209
|
|
|
|
367,004,064
|
|
Dilutive
|
|
|
386,014,460
|
|
|
|
367,004,064
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
HighCom
Global Security, Inc.
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2018 and 2017
|
|
Common
|
|
|
Additional
Paid in
|
|
|
Noncontrolling
|
|
|
Accumulated
|
|
|
Stock
Holder’s
|
|
|
|
Shares
|
|
|
Par
|
|
|
Capital
|
|
|
Interest
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
336,976,178
|
|
|
$
|
366,976
|
|
|
$
|
18,221,122
|
|
|
$
|
35,019
|
|
|
$
|
(8,956,587
|
)
|
|
$
|
9,666,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued as
satisfaction of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued for
services
|
|
|
|
|
|
|
|
|
|
|
138,740
|
|
|
|
|
|
|
|
|
|
|
|
138,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options
|
|
|
10,178,570
|
|
|
|
10,179
|
|
|
|
(10,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
(2,119,139
|
)
|
|
|
(2,118,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017
|
|
|
377,154,748
|
|
|
$
|
377,155
|
|
|
$
|
18,349,683
|
|
|
$
|
35,347
|
|
|
$
|
(11,075,726
|
)
|
|
$
|
7,686,459
|
|
Options issued for
services
|
|
|
|
|
|
|
|
|
|
|
183,584
|
|
|
|
|
|
|
|
|
|
|
|
183,584
|
|
Shares issued for
services
|
|
|
8,859,712
|
|
|
|
8,860
|
|
|
|
111,640
|
|
|
|
|
|
|
|
|
|
|
|
120,500
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,918
|
|
|
|
111,093
|
|
|
|
121,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
|
386,014,460
|
|
|
$
|
386,015
|
|
|
$
|
18,644,907
|
|
|
$
|
45,265
|
|
|
$
|
(10,964,632
|
)
|
|
$
|
8,111,555
|
|
The
accompanying notes are an Integral part of these consolidated financial statements.
HighCom
Global Security, Inc.
Consolidated
Statement of Cash Flows
|
|
For
the Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
111,093
|
|
|
$
|
(2,119,139
|
)
|
Adjustment to reconcile
Net Income(Loss) to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
Noncontrolling interest
gain (loss)
|
|
|
9,919
|
|
|
|
328
|
|
Deferred tax asset
|
|
|
68,955
|
|
|
|
1,662,882
|
|
Depreciation and
amortization
|
|
|
63,369
|
|
|
|
103,031
|
|
Stock based compensation
|
|
|
183,584
|
|
|
|
138,740
|
|
Inventory reserve
|
|
|
|
|
|
|
100,000
|
|
Gain on settlement
of debt
|
|
|
|
|
|
|
(224,402
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(609,578
|
)
|
|
|
191,815
|
|
Inventory
|
|
|
(358,147
|
)
|
|
|
131,313
|
|
Prepaid Expenses
and other current assets
|
|
|
(97,661
|
)
|
|
|
|
|
Accounts payable
and accrued expenses
|
|
|
232,254
|
|
|
|
534,225
|
|
Customer deposits
and deferred revenue
|
|
|
1,111
|
|
|
|
(7,209
|
)
|
Net Cash Provided
by /(Used) in Operating Activities
|
|
|
(395,100
|
)
|
|
|
492,995
|
|
|
|
|
|
|
|
|
|
|
Casts Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property
and equipment
|
|
|
|
|
|
|
(25,703
|
)
|
Net Cash Used by
Investing Activities
|
|
|
|
|
|
|
(25,703
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Repayments of notes
payable
|
|
|
|
|
|
|
(211,752
|
)
|
Net Cash Used by
Financing Activities
|
|
|
|
|
|
|
(211,752
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(Decrease) in Cash
|
|
|
(395,100
|
)
|
|
|
255,540
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
525,871
|
|
|
|
270,331
|
|
Cash at end of period
|
|
$
|
130,771
|
|
|
$
|
525,871
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
5,874
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Supplemental
Schedule of Noncash Investing and Financing Activities
December
2017, the Company issued 10,178,570 common shares upon the cashless exercise of 18,750,000 stock options.
December
2017, the Company determined to record a reserve against the value of inventory of $100,000.
The
accompanying notes are an integral part of these consolidated financial statements.
HighCom
Global Security, Inc. Notes to
Consolidated
Financial Statements
(1)
Organization, Basis of Presentation, and Summary of Significant Accounting Policies
Organization
and Basis of Presentation
HighCom
Global Security. Inc.
(the “Company”) went public through a shell merger on January 31, 2004, in which the Company
acquired BlastGard Technologies, Inc. On March 21, 2004, the Company changed its name to BlastGard International, Inc. On March
4, 2011, the Company completed the acquisition of HighCom Armor Solutions, Inc. and subsidiaries. On June 28, 2017, the Company
changed its name to HighCom Global Security, Inc. These consolidated financial statements include the assets, liabilities and
activities of the following:
BlastGard
Technologies Inc.
, a 100% wholly-owned subsidiary of the Company, was a dormant Florida corporation from 2005 through June
2017 when the Company’s tangible and intangible assets relating to BlastWrap technology were transferred back into BlastGard
Technologies, Inc. (“BlastGard” or “BTI”). BTI was incorporated on September 26, 2003 in the State of
Florida, to design and market proprietary blast mitigation materials
HighCom
Armor Solutions. Inc.
(HighCom Armor) is a 98.2% owned subsidiary of the Company. Founded in 1997 and originally based in
San Francisco, HighCom Armor Solutions, Inc., a California corporation, is a global provider of security equipment. HighCom Armor
believes it is a leader in advanced ballistic armor manufacturing. With a 32,865 square foot manufacturing and distribution facility
located in Columbus, OH.
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. HighCom Global Security, Inc. primarily provides for corporate administration. HighCom Armor sales
represent in excess of 99% of total sales and BlastGard Technologies, Inc. has only incidental sales of an immaterial amount.
Therefore, the Company has determined that all business operations should be aggregated together and not reported as separate
operating segments.
Concentrations
— Major Customers and Major Vendors
For
the year ended December 31, 2018, approximately 45% of the Company’s revenue was provided by two customers, one representing
approximately 35% and the other approximately 10%.
For
the year ended December 31, 2018, approximately 69% of our accounts receivable was made up of two customers. One representing
51% and the second 18%.
Foreign
Sales
For
the year ended December 31, 2018, the Company generated sales from foreign customers in the amount of $771,890 representing approximately
10% of total sales. Sales to Uganda were 6%, Canada and Mexico represented approximately 4%,
Principles
of Consolidation
These
consolidated financial statements include the assets and liabilities of HighCom Global Security, Inc. and its subsidiaries as
of December 31, 2018 and 2017.
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.
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 to recognize bad debts. When an account was deemed uncollectible,
it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. Management
deems all accounts receivable to be collectable at December 31, 2018.
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. During the years ended December 31, 2018
and 2017, management identified no such impairments.
Revenue
Recognition
Based
on management’s assessment of the revenue recognition criteria, we usually recognize revenue from sales of our products
to customers upon shipment. Recognition is not contingent upon resale of the products by a distributor to their customer if in
fact our customer was a distributor.
Revenue
is recognized net of any distributor discount. Discounts usually involve special pricing arrangements and incentives used to stimulate
distributor growth.
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 $76,363 and $97,476 for the years ended
December 31, 2018 and 2017 respectively.
Advertising
Advertising,
marketing and promotion costs were expensed as incurred. Advertising costs of $61,742 and $97,622 were incurred during the years
ended December 31, 2018 and 2017, respectively.
Shipping
and Freight Costs
The
Company includes shipping costs in cost of goods sold.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated
financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences
are expected to reverse.
The
Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.
In making such a determination, we consider all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If
we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The
Company reports uncertain tax positions in accordance with guidance provided by ASC-740-10, Accounting for Uncertainty in Income
Taxes. As of December 31, 2018 and 2017 the Company had no uncertain tax positions.
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. Inputs used in 2018 were Volatility
155%, Risk Free Interest rate 2.91 %, Expected Dividend 0%, Expected Term 10 Years.
Income
(Loss) per Common Share
Basic
net loss per share excludes the impact of common stock equivalents. Diluted net income (loss) per share utilizes the average market
price per share when applying the treasury stock method in determining common stock equivalents. As of December 31, 2018, there
were 54,500,000 vested common stock options outstanding, which were included in the calculation of net income (loss) per share-diluted.
In addition, at December 31, 2018 the Company had 41,801,793 remaining warrants outstanding issued in connection with convertible
promissory notes and stock sales that were also included because they were dilutive.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact
of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive
new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer
at an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. The guidance also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts. We have adopted this update. The guidance’s adoption had no impact on our source of revenue from the sale of
armor and related products or have a material impact on our financial statements
.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, to improve financial reporting about leasing transactions. This
ASU will require organizations that lease assets (“lessees”) to recognize a lease liability and a right-of-use asset
on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee’s obligation to
make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee’s
right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for
sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the
accounting for the organizations that own the assets leased to the lessee (“lessor”) largely unchanged except for
targeted improvements to align it with the lessee accounting model and Topic 606,
Revenue from Contracts with Customers
.
The
amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases)
must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full
retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial
Statements. The Company is planning to enter a lease in 2019 , therefore ASU 2016-02 will impact us in future years.
(2)
Inventory
Our
inventory is made up of raw materials, work in progress and finished goods. The Company’s inventory is maintained at our
manufacturing facilities.
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
1,272,154
|
|
|
$
|
805,029
|
|
Work in process
|
|
|
145,862
|
|
|
|
222,336
|
|
Finished Goods
|
|
|
639,901
|
|
|
|
672,405
|
|
TOTAL
|
|
$
|
2,057,917
|
|
|
$
|
1,699,770
|
|
(3)
Property and Equipment, Net
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line
method to the estimated useful lives of the related assets. Useful lives range from 3 to 7 years for equipment, furniture, molds
and the test range. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed
from the Company’s balance sheet and the net gain or loss is included in the determination of operating income. Property
and equipment acquired as part of a business acquisition are valued at fair value.
Property
and equipment are comprised of the following at December 31, 2018 and December 31, 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
453,397
|
|
|
$
|
453,397
|
|
Furniture
|
|
|
106,525
|
|
|
|
106,525
|
|
Molds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715,784
|
|
|
|
715,784
|
|
Less accumulated
depreciation
|
|
|
(616,996
|
)
|
|
|
(563,343
|
)
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
$
|
98,788
|
|
|
$
|
152,441
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017
|
|
$
|
53,653
|
|
|
$
|
62,264
|
|
(4)
Intangible Assets, Net
Intangible
Assets are comprised of the following at December 31, 2018 and December 31, 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Patents and Trademarks
|
|
$
|
145,749
|
|
|
$
|
145,749
|
|
Websites
|
|
|
80,000
|
|
|
|
80,000
|
|
Lists
|
|
|
500,000
|
|
|
|
500,000
|
|
Research and
Development
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725,749
|
|
|
|
725,749
|
|
Less accumulated
amortization
|
|
|
(644,105
|
)
|
|
|
(634,389
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets,
net
|
|
$
|
81,643
|
|
|
$
|
91,360
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for the years ended December, 31 2018 and 2017
|
|
$
|
9,716
|
|
|
$
|
40,767
|
|
Amortization expense for the next five
years ended December 31,
|
|
|
|
2019
|
|
$
|
9,716
|
|
2020
|
|
|
9,716
|
|
2021
|
|
|
9,716
|
|
2022
|
|
|
9,716
|
|
2023
|
|
|
9,716
|
|
Thereafter
|
|
|
33,063
|
|
|
|
|
|
|
|
|
$
|
81,643
|
|
(5)
Notes Payable
Notes
payable at December 31, 2018 and 2017 there was no outstanding debt.
Line
of Credit
The
Company has a $250,000 line of credit with a bank. At December 31, 2018 there was no outstanding balance. No draws were taken
during 2018. In 2019 this line of credit was increased to $500,000. As of March 22, 2019, the Company has drawn $250,000
from its line of credit to address short term cash flow needs.
(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
At
December 31, 2018, 386,014,460 shares were issued and outstanding. During 2018 8,859,712 shares were issued to board members and
executives of the company. 377,154,748 shares were issued and outstanding at December 31, 2017. In December 2017, the Company
issued 10,178,570 common shares in a cashless exercise of 18,750,000 options. On February 26, 2019, the Company filed Articles
of Amendment to increase the number of authorized Common Shares to 600,000,000.
Stock
Compensation
The
Company periodically offers options to purchase stock in the company to vendors and employees and board members. There were 25,500,000
options granted during 2018 to board members for various 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.
There
were no net cash proceeds from the exercise of stock options during the year ended December 31, 2018. At December 31, 2018 and
December 31, 2017, there was no unrecognized compensation cost related to share-based payments which was expected to be recognized
in the future.
The
following table represents stock option activity as of and for the twelve months ended December 31, 2018:
|
|
Numbers
of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding - January 1, 2018
|
|
|
39,250,000
|
|
|
$
|
0.01
|
|
|
|
5.4
years
|
|
|
|
|
|
Granted
|
|
|
25,500,000
|
|
|
$
|
0.01
|
|
|
|
4.0
years
|
|
|
|
-
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Forfeited/expired/cancelled
|
|
|
(1,500,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options Outstanding - December
31, 2018
|
|
|
63,250,000
|
|
|
$
|
0.01
|
|
|
|
5.3
years
|
|
|
$
|
-
|
|
Outstanding Exercisable - January
1, 2018
|
|
|
35,500,000
|
|
|
$
|
0.02
|
|
|
|
6.9
years
|
|
|
|
-
|
|
Outstanding Exercisable - December
31, 2018
|
|
|
54,500,000
|
|
|
$
|
0.01
|
|
|
|
5.4
years
|
|
|
$
|
-
|
|
The
total grant date fair value of options vested during the twelve months ended December 31, 2018 and 2017 was $183,584 and $138,740
respectively.
The
following table represents stock warrant activity as of and for the twelve months ended December 31, 2018:
|
|
Numbers
of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding - January 1, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding
—December 31, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable —
January 1, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable
-December 31, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
(7)
Income Taxes
The
Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, the Company determines deferred tax assets and liabilities based on the differences between the consolidated
financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences
are expected to reverse.
The
Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.
In making such a determination, it considers all available positive and negative evidence, including future reversals of existing
taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If
it determines that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded
amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
In
assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion,
or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s
ability to generate taxable income. The valuation allowance is then adjusted accordingly.
During
the year ended December 31, 2018, the Company incurred income, which created a decrease in its deferred tax asset with a corresponding
income tax expense of $68,955.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the Act”) was signed into law making significant changes to
the Internal Revenue Code. Changes include, but are not limited to, a reduction of the corporate tax rate from a top marginal
rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for
certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination
of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated,
immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing
many business deductions and credits. We have calculated our best estimate of the impact of the Act in our year end income tax
provision in accordance with our understanding of the Act and guidance available as of the date of this filing and as a result
have recorded $1,834,571 as additional income tax provision in the fourth quarter of 2017, the period in which the legislation
was enacted. The amount related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which
they are expected to reverse in the future, was a provision of $1,834,571.
On
December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on
accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from
the Tax Act enactment date for companies to complete the accounting under ASC 740,
Income Taxes
. In accordance with SAB
118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.
To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it can determine
a reasonable estimate, it must record a provisional estimate in the financial statements.
In
connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional income tax provision of $1,834,571
for the revaluation of our net deferred tax asset.
The
income tax benefit (provision) consists of the following for the years ending December 31, 2018 and 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(52,273
|
)
|
|
$
|
159,786
|
|
State
|
|
|
(9,036
|
)
|
|
|
17,060
|
|
|
|
|
(61,309
|
)
|
|
|
176,846
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(6,519
|
)
|
|
|
(4,659
|
)
|
State
|
|
|
(1,127
|
)
|
|
|
(498
|
)
|
|
|
|
(68,955
|
)
|
|
|
171,689
|
|
|
|
|
|
|
|
|
|
|
Tax Cuts and
Jobs Act of 2017 effect
|
|
|
-
|
|
|
|
(1,834,571
|
)
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
(68,955
|
)
|
|
$
|
(1,662,882
|
)
|
As
of December 31, 2018, the Company had net operating loss early forwards of approximately $13,500,000. The federal net operating
loss carry forwards will not expire as a result of the Tax Act legislation, and state net operating loss early forwards that will
expire in 2026 through 2037.
The
components of deferred tax assets and liabilities as of December 31, 2018, and 2017 is as follows:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL and contribution carry
forwards
|
|
$
|
3,258,113
|
|
|
$
|
3,340,868
|
|
Meals and entertainment
|
|
|
3,350
|
|
|
|
870
|
|
Share based compensation
|
|
|
519,085
|
|
|
|
474,588
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
3,780,548
|
|
|
|
3,816,326
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(106,369
|
)
|
|
|
(106,369
|
)
|
Goodwill
|
|
|
(267,328
|
)
|
|
|
(234,152
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred
tax liabilities
|
|
|
(373,698
|
)
|
|
|
(340,521
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset - net before valuation
allowance
|
|
|
3,406,850
|
|
|
|
3,475,805
|
|
Less valuation
allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
asset - net
|
|
$
|
3,406,850
|
|
|
$
|
3,475,805
|
|
A
reconciliation of the federal and state statutory income tax rates to the Company’s effective income tax rate applicable
to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2018 and 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Expected
provision at US statutory rate
|
|
|
21.00
|
%
|
|
|
(34.00
|
)%
|
State income tax
net of federal benefit
|
|
|
3.63
|
%
|
|
|
(3.63
|
)%
|
Other items effecting
timing differences
|
|
|
|
%
|
|
|
1.17
|
%
|
Tax cut and jobs
act of 2017 effect
|
|
|
0.00
|
%
|
|
|
400.93
|
%
|
Valuation
allowance
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
Effective income
tax rate
|
|
|
24.63
|
%
|
|
|
364.47
|
%
|
The
Company files income tax returns on a consolidated basis in the United States federal jurisdiction and the State of Florida. As
of December 31, 2018, the tax returns for the Company for the years ending 2014 through 2017 remain open to examination by the
Internal Revenue Service and Florida Department of Revenue. The Company and its subsidiaries are not currently under examination
for any period.
Should
the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company’s tax net operating
loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer
the utilization of these losses.
(8)
Concentration of Credit Risk for Cash
The
Company has concentrated its credit risk for cash by maintaining deposits in a financial institution, which may at times exceed
the amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). At
December 31, 2018, the Company had no funds in excess of the FDIC insurance limits.
(
9)
Commitments and Contingencies
In
July 2018 we committed to purchase software and consulting services from a vendor for a new ERP system. This requires payments
of $13,161 quarterly beginning in January 2019 through April 2021. As of December 31, 2018, no liability was recorded.
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. The corporate location for both HighCom Global and HighCom Armor is Columbus, OH. Warehouse
space is in Columbus, OH. Rental payment under the lease is $9,863 per month on a month to month basis. A satellite office is
maintained in Colorado for additional sales support.
Rent
expense for 2018 and 2017 was approximately $131,570 and $129,783 respectively.
(10)
Material Agreements and Transactions
On
November 14, 2016, the Company entered into a Consulting Agreement with Resilience Capital Inc. (“Resilience”) for
Resilience to provide strategic advice as to the business of HighCom Global and its subsidiaries.
Resilience
agreed to provide the services of Craig Campbell, a former director of the Company, to serve as the engagement manager and, in
such capacity, supervise the services provided to the Company. Mr. Campbell is the President and principal owner of Resilience.
Pursuant
to the Agreement, the Company agreed to pay Resilience an annual fee of $250,000, payable in equal monthly installments. The initial
term of the Agreement was one year, automatically renewed for successive one-year periods until either party provides at least
60 days’ prior written notice of termination to the other party.
On
January 16, 2018, the Company and Resilience agreed to terminate the Consulting Agreement.
On
April 5, 2018, the Company entered into an Employment Contract with Francis Michaud to continue as CEO/CFO through the end of
2018. Pursuant to the contract, Mr. Michaud received remuneration of $160,000 annually.
On
January 31, 2019, the Company and Mr. Michaud agreed to terminate the Employment Contract
(
11)
Gain on settlement of debt
The
Company has recorded in other income, a gain on settlement of debt for the nine months ended September 30, 2017 in the amount
of $102,325. This amount includes $30,000 recorded as Acquisition Note Payable from a transaction originating in 2010, $67,593
recorded in Accounts Payable from a transaction originating in 2011, and $4,732 representing a 50% negotiated settlement of an
amount included in Accounts Payable. The Company evaluated the two transactions from 2010 and 2011 pursuant to the Florida Statute
of Limitations applicable to the circumstances of each and has concluded that these amounts are time-barred in Florida and should
be taken into income.
The
Company has recorded in other income, a gain on settlement of debt for the twelve months ended December 31, 2017 in the amount
of $122,077. This amount includes $20,157 in accrued interest recorded as Prior Litigation Matter from a transaction originating
in 2009. The Company evaluated the transaction from 2011 pursuant to the Florida Statute of Limitations applicable to the circumstances
and has concluded that this amount is time-barred in Florida and should be taken into income.
(
12)
Change in Directors and Management
On
June 28, 2017, an Annual Meeting of Shareholders was held as described under Item 5.07 of the Form 8-K and in a definitive Proxy
Statement which was filed with the Securities and Exchange Commission. Paul Sparkes was re-elected to the Board of Directors and
continued to serve as Chairman of the Board until his resignation in October, 2018. Craig Campbell, Curt Cronin, Andrew Blott
and Bill Buckley were also elected to the Board as anticipated by the Proxy Statement.
On
June 29, 2017, the Board of Directors elected Craig Campbell as Chief Executive Officer, Francis Michaud as Chief Financial Officer,
and Greg Sullivan as Chief Commercial Officer. Their biographical information is set forth in the definitive Proxy Statement filed
with the Securities and Exchange Commission on May 31, 2017 and incorporated by reference herein. The Proxy Statement also describes
the compensation that is paid to an affiliate of Mr. Campbell, namely, Resilience Capital, Inc. Resilience was to receive an annual
fee of $250,000 payable in equal monthly installments. The agreement was terminated on January 16, 2018. The other executive officers
named above were compensated by Resilience as well.
On
December 29, 2017, the Company announced that Michael J. Gordon, formerly a director and Chief Executive Officer of the Company
and currently the Chief Executive Officer of the Company’s subsidiaries, namely HighCom Armor Solutions, Inc. and BlastGard
Technologies, Inc. retired effective December 31, 2017. Michael Bundy, who was acting as the President and Chief Operating Officer
of HighCom Armor has since transitioned into the Chief Executive Officer role. In December, 2017, Greg Sullivan, Chief Commercial
Officer of the Company, resigned his position with HighCom Global.
On
January 16, 2018, the Company announced that Craig Campbell, an executive officer and director of the Company, submitted his resignation
to the board effective Tuesday, January 16, 2018. Francis Michaud, who is presently serving as Chief Financial Officer of the
Company, was elected to the board of directors to fill the vacancy left by Mr. Campbell and he was appointed to serve as Chief
Executive Officer. Mr. Michaud was paid $160,000 annually in equal monthly installments.
Francis
Michaud resigned on December 31, 2018 as CEO and was replaced by Daniel Colson, Interim-Chief Executive Officer. On January 31,
2019 Francis Michaud also resigned as CFO and has been replaced by James Black on an interim basis. The Company is currently searching
for a permanent Chief Financial Officer and expects to name one shortly. Additionally, The Company added or retained four Directors
Curt Cronin, Tim Foley, James Black and Michael Bundy. Beginning with the year 2019, Directors will be compensated at the rate
of $5,000 annually. This compensation can be made in cash or stock at the Individual directors’ request.
(13)
2017 Annual Meeting
The
Annual Meeting of Shareholders held on June 28, 2017 also approved of the following amendments: 1) to file an amendment to the
Company’s Articles of Incorporation to change the name of the corporation from BlastGard International, Inc. to “HighCom
Global Security, Inc.”; 2) approval to grant the Board of Directors discretionary authority to amend the Company’s
Articles of Incorporation (the ‘RS Amendment”) to effectuate a Reverse Stock split of the Company’s Common Stock,
$.001 par value, by a ratio of no more than one-for-100 with such ratio to be determined by the sole discretion of the Board (the
‘Reverse Split’), with a decrease in the number of authorized shares of Common Stock to100,000,000 and with such Reverse
split and change authorized number of common shares to be effective at such time and date, if at all, as determined by the Board
in its sole discretion (the “Reverse Split Proposal”); 3) to file an Amendment to the Articles of Incorporation to
permit the Company to hold meetings by action without a meeting in accordance with Section 7-107-104 (I)(b) of Title 7 of the
Colorado Revised Statutes in order to permit the shareholders holding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which all of the shares entitled to vote thereon were
present and voted consent to such action in writing; 4) approval to transfer all the Company’s tangible and intangible assets,
which exclude any HighCom assets, from HighCom Global Security, Inc. to its wholly-owned Florida subsidiary, BlastGard Technologies,
Inc.; 5) approval to file an amendment to its Articles of Incorporation in the State of California to change HighCom Security,
Inc’s name to “HighCom Armor Solutions, Inc.”; and 6) approval to ratify, adopt and approve a 2017 Employee
Benefit and Consulting Services Compensation Plan covering a maximum of up to 10,000,000 post-split shares of Common Stock, which
Plan will not be established until the discretionary stock split is approved by the Board. We had no Annual Meeting in 2018.
(14)
Related Party Transactions
On
January 1, 2019, the Company entered into a two-year Board-approved consulting agreement for 2019 and 2020 with 2428555 Ontario,
Inc. a related party. (the “Consultant”), a Canadian Company with annual compensation of $175,000 per year payable
in $43,750 quarterly installments in advance. This fee is adjustable quarterly and increased or decreased based on an Earnings
before interest depreciation and amortization calculation. An advance payment of $100,000 was paid during 2018 to CB Capital Corporation
in its capacity as a party in the consulting agreement with 2428555 Ontario, Inc. Pursuant to this agreement, the Consultant agrees
to provide general business advisory and consulting services and provide personnel as needed.