NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NINE
MONTHS ENDED SEPTEMBER 30, 2018
(1)
Basis of Presentation
The
interim period financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities
and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant
to such SEC rules and regulations. This report should be read in conjunction with our Form 10-K for our fiscal year ended December
31, 2017.
In
the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of the financial
position at September 30, 2018 and the results of operations for the three and Nine months ended September 30, 2018 and 2017 and
cash flows for the nine months ended September 30, 2018 and 2017 have been made.
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
is a leader in advanced ballistic armor manufacturing. With a 32,865 square foot manufacturing and distribution facility located
in Columbus, Ohio, HighCom Armor 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. HighCom Armor serves a wide range of customers throughout
the world. Our North American customer base includes the Department of Defense and the Department of Homeland Security. We cater
to local law enforcement agencies, correctional facilities and municipal authorities, as well as large corporations. We export
our products throughout the world and have in the past sold products in Asia, Africa, Europe, Latin America and the Middle East.
Many of our products are controlled for export purposes and we require end user details prior to all sales. Strict compliance
with U.S. and International laws and regulations is mandatory. HighCom Armor’s corporate office and manufacturing facility
are located in Columbus, Ohio.
Business
Segments
Although
the Company accounts for its operations in three 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 BTI has incidental sales of an immaterial amount. 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 nine months ended September 30, 2018, approximately 50% of the Company’s revenue was provided by three customers with
the largest representing approximately 28%. The next two largest customers represented approximately 13% and 9 %.
For
the nine months ended September 30, 2018, approximately 54% of inventory purchases was provided by three vendors, with the largest
supplier representing approximately 30%, and the next two approximately 17% and 8% respectively.
For
the nine months ended September 30, 2017, approximately 51% of the Company’s revenue was provided by three customers with
the largest representing approximately 28%. The next two largest customers represented approximately 13% and 9 %.
For
the nine months ended September 30, 2017, approximately 54% of inventory purchases was provided by five vendors, with the two
largest suppliers representing approximately 36% each of purchases.
Foreign
Sales
For
the nine months ended September 30, 2018, the Company generated sales from foreign customers in the amount of $218,523, representing
approximately 4.4% of total sales. Sales to one customer in Canada represented less than 1%, with the balance coming from two
customers in Mexico.
For
the nine months ended September 30, 2017, the Company generated sales from foreign customers in the amount of $116,794, representing
approximately 4% of total sales. Sales to one customer in Mexico represented approximately 2% of total sales, and sales to one
customer in New Zealand approximately 1%. Sales to three customers in Canada and small transactions with customers in United Arab
Emirates and Colombia represent the balance
Principles
of Consolidation
These
consolidated financial statements include the assets and liabilities of HighCom Global Security, Inc. and its subsidiaries as
of September 30, 2018 and December 31, 2017, and its results of operations and cash flows for the periods presented.
All
material intercompany balances and transactions have been eliminated for periods presented.
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. Major estimates
made by management include depreciation, amortization, allowance for bad debts, reserves for inventory obsolescence and deferred
taxes. 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, 2018.
Inventory
Inventory
was stated at the lower of cost (first-in, first-out) and 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 are 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.
Revenue
Recognition
In
January 2014 the Company adopted ASC 606, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 supersedes
the current revenue recognition guidance, including industry-specific guidance.
The
guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of
goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services.
The
five-step model requires that we;
|
(i)
|
identify the contract with
the customer,
|
|
(ii)
|
identify the performance obligations in the
contract,
|
|
(iii)
|
determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur,
|
|
(iv)
|
allocate the transaction price to the respective
performance obligations in the contract, and
|
|
(v)
|
recognize revenue when (or as) we satisfy the
performance obligation.
|
The
Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the
consideration we expect to receive in exchange for those products or services. Taxes collected from customers, which are subsequently
remitted to governmental authorities, are excluded from revenue. The majority of our contracts have a single performance obligation
as we provide various products that are substantially the same and are transferred with the same pattern to the customer. For
contracts with multiple performance obligations, we allocate the total transaction price to each performance obligation using
our best estimate of the standalone selling price of each distinct good or service in the contract. We use an observable price
to determine the stand-alone selling price for separate performance obligations or a cost-plus margin approach when one is not
available. 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 $63,829 and $77,784 for the nine months
ended September 30, 2018 and 2017 respectively.
Advertising
Advertising,
marketing and promotion costs were expensed as incurred. Advertising costs of $17,862 and $31,363 were incurred during the nine
months ended September 30, 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.
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, 2018, and
2017, there were 45,375,000 and 49,250,000 vested common stock options outstanding, which were included in the calculation of
net income/loss per share-diluted because they were dilutive. In addition, at September 30, 2018 and 2017 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.
ASU
Update 2014-09
Revenue from Contracts with Customers
(Topic 606) issued May 28, 2014 by FASB and IASB converged guidance
on recognizing revenue in contracts with customers on an effective date after December 31, 2017. The ASU outlines a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers which supersedes current revenue recognition
guidance, including most industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing, and
uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments,
and assets recognized from costs incurred to obtain or fulfill a contract. We adopted Topic 606 as of January 1, 2018 using the
modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative
effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however,
we did not have any material adjustments as of the date of the adoption. The comparative periods have not been restated and continue
to be reported under the accounting standards in effect for those periods.
ASU
Update 2014-15
Presentation of Financial Statements-Going Concern
(Sub Topic 205-40) issued August 27, 2014 by FASB defines
managements responsibility to evaluate whether there is a substantial doubt about an organizations ability to continue as a going
concern. The additional disclosure required became effective after December 31, 2016 and has been evaluated accordingly. This
did not have a material impact on our Consolidated Financial Statements.
In
July 2015, the FASB issued ASU 2015-11,
Inventory,
which simplifies the measurement principle of inventories valued under
the First-In, First-Out (“FIFO”) or weighted average methods from the lower of cost or market to the lower of cost
and net realizable value. ASU 2015-1 1 is effective for reporting periods beginning after December 15, 2016 including interim
periods within those annual periods. This did not have a material impact on our Consolidated Financial Statements.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes,
which requires that deferred
tax assets and liabilities be classified as non-current on the consolidated balance sheet. ASU 2015-17 is effective for annual
periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted
as of the beginning of an interim or annual reporting period. Upon adoption, ASU 2015-17 may be applied either prospectively or
retrospectively. This did not have a material impact on our Consolidated 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.
(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, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
744,603
|
|
|
$
|
805,029
|
|
Work in process
|
|
|
227,866
|
|
|
|
222,336
|
|
Finished Goods
|
|
|
763,177
|
|
|
|
672,405
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,735,646
|
|
|
$
|
1,669,770
|
|
(3)
Property and Equipment, Net
Property
and equipment are comprised of the following at September 30, 2018 and December 31, 2017
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
453,397
|
|
|
$
|
453,397
|
|
Furniture
|
|
|
106,525
|
|
|
|
106,525
|
|
Moulds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715,784
|
|
|
|
715,784
|
|
Less accumulated depreciation
|
|
|
(603,681
|
)
|
|
|
(563,343
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
112,103
|
|
|
$
|
152,441
|
|
Depreciation
expense for the next five years ended September 30,
2019
|
|
$
|
49,012
|
|
2020
|
|
|
37,995
|
|
2021
|
|
|
17,586
|
|
2022
|
|
|
6,708
|
|
2023
|
|
|
802
|
|
|
|
|
|
|
|
|
$
|
112,103
|
|
Depreciation
expense for the nine months ended September 30, 2018 and 2017 was $40,338 and $47,626, respectively.
(4)
Intangible Assets, Net
Intangible
Assets are comprised of the following at September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Patents and Trademarks
|
|
$
|
145,749
|
|
|
$
|
145,749
|
|
Websites
|
|
|
80,000
|
|
|
|
80,000
|
|
Lists
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725,749
|
|
|
|
725,749
|
|
Less accumulated amortization
|
|
|
(641,676
|
)
|
|
|
(634,389
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
84,073
|
|
|
$
|
91,360
|
|
Amortization
expense for the next five years ended September 30,
2019
|
|
$
|
9,717
|
|
2020
|
|
|
9,717
|
|
2021
|
|
|
9,717
|
|
2022
|
|
|
9,717
|
|
2023 and thereafter
|
|
|
45,205
|
|
|
|
|
|
|
|
|
$
|
84,073
|
|
Amortization
expense for the nine months ended September 30, 2018 and 2017 was $7,287 and $38,338 respectively.
(5)
Notes Payable
The
Company does not have any notes payable at September 30, 2018 and December 31, 2017.
Credit
card payable - VISA
The
Company utilizes a MasterCard credit card to facilitate short term cash flow demands
Off
Balance Sheet Arrangements
We
currently have no off-balance sheet arrangements.
(6)
Stockholders’ 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 preferred stock
are outstanding.
Common
stock issuances
In
June 2018, the Company issued 8,859,712 common shares in satisfaction of accrued compensation payable to the directors and officers
based on the fair market value of $0.136 per share. in the total amount of $120,500.
386,014,460
and 377,154,748 shares were issued and outstanding at September 30, 2018 and December 31, 2017 respectively.
Stock
Compensation
The
Company periodically offered options to purchase stock in the company to vendors, board members and employees. 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.
In
April of 2018 the Company granted 15,500,000 options to purchase common stock to board members, of which 8,000,000 options vested
immediately. The Company used the following Black – Scholes assumptions in arriving at the fair value of the options to
record stock-based compensation expenses of $93,584 for the nine months ended September 30, 2018
Expected life in years
|
|
|
5.0 to 9.75
|
|
Risk Free Interest Rates
|
|
|
2.72
|
%
|
Volatility
|
|
|
257.89
|
%
|
Dividend Yield
|
|
|
0
|
%
|
The
following table represents stock option activity as of and for the nine months ended September 30, 2018:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding –
December 31, 2017
|
|
|
39,250,000
|
|
|
$
|
0.01
|
|
|
|
6.1
years
|
|
|
$
|
-
|
|
Granted
|
|
|
15,500,000
|
|
|
|
0.01
|
|
|
|
7.9
years
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options Outstanding
– September 30, 2018
|
|
|
54,750,000
|
|
|
$
|
0.01
|
|
|
|
6.3
years
|
|
|
$
|
-
|
|
Outstanding Exercisable – January 1, 2018
|
|
|
35,500,000
|
|
|
$
|
0.01
|
|
|
|
6.1
years
|
|
|
$
|
-
|
|
Outstanding Exercisable
– September 30, 2018
|
|
|
45,375,000
|
|
|
$
|
0.01
|
|
|
|
6.4
years
|
|
|
$
|
-
|
|
The
following table represents stock warrant activity as of and for the nine months ended September 30, 2018:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding – December 31, 2017
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
.5 years
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding – September 30, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
.5 years
|
|
|
$
|
-
|
|
Outstanding Exercisable – January 1, 2018
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9 years
|
|
|
$
|
-
|
|
Outstanding Exercisable – September 30, 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 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.
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.
As
of December 31, 2016, based on all the available evidence, management determined that it is more likely than not its deferred
tax assets will be fully realized. Accordingly, the valuation allowance was reversed in full. As of December 31 2017, the Company
had a deferred tax asset of $3,475,805. During the nine months ended September 30, 2018, the Company had income, which created
a decrease in its deferred tax asset with and a corresponding income tax expense in the amount of $24,049.
(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, 2018, 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. The corporate location for both HighCom Global and HighCom Armor is Columbus, OH. HighCom
Armor secured the lease for both the office and the manufacturing plant in Columbus, Ohio. In October 2015, HighCom Armor entered
into a three-year lease agreement for approximately 32,155 square feet of office and warehouse space in Columbus, OH. Rental payment
under the new lease was $9,863 per month on a month to month basis through June 2016 and is now $9,734 per month through October
2018. A satellite office is maintained in Colorado for additional sales support.
Rent
expense for the nine months ended September 30, 2018 and 2017 was approximately $98,663 and $97,443, respectively.
(10)
Change in Directors and Management
On
January 16, 2018, Craig Campbell, an executive officer and director of the Company, submitted his resignation to the board. Francis
Michaud, who was serving as Chief Financial Officer of the Company, was elected to the board of directors to fill the vacancy
left by Mr. Campbell and was appointed to serve as Chief Executive Officer. On October 23, 2018, Paul Sparkes Chairman submitted
his resignation to the board.
(11)
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.