NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NINE
MONTHS ENDED SEPTEMBER 30, 2017
(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, 2016.
In
the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of the financial
position at September 30, 2017 and the results of operations for the three and nine months ended September 30, 2017 and 2016 and
cash flows for the nine months ended September 30, 2017 and September 30, 2016 have been made.
These
consolidated financial statements include the assets and liabilities of HighCom Global Security, Inc. and its subsidiaries as
of September 30, 2017 and December 31, 2016. All material intercompany transactions have been eliminated.
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 Securities, Inc. and subsidiaries. On June 28, 2017, the Company changed
its name to HighCom Global Security, Inc. The income of HighCom Armor Solutions, Inc. and subsidiaries is included from January
25, 2011, the date of the binding letter of intent. These consolidated financial statements include the assets, liabilities and
activity 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. (“BTI”). BTI was incorporated on September 26, 2003 in the State of Florida, to design and market
proprietary blast mitigation materials. The Company created, designs, develops and markets proprietary blast mitigation materials.
BTI’s patented BlastWrap
®
technology effectively mitigates blast effects and suppresses post-blast fires.
BTI sub-contracts the manufacturing of products to licensed and qualified production facilities.
HighCom
Armor Solutions, Inc.
HighCom Armor Solutions, Inc. (HighCom Armor), which is a 98.2% owned subsidiary of the Company, originally
located in San Francisco, California is a global provider of security equipment and a leader in advanced ballistic armor manufacturing.
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, 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. The next three largest suppliers provided approximately 5%
to 7% of purchases each.
For
the nine months ended September 30, 2016, approximately 49% of the Company’s revenue was provided by two customers, one
representing approximately 29% and the other approximately 20%.
For
the nine months ended September 30, 2016, approximately 65% of cost of sales was provided by five vendors, with the largest supplier
representing approximately 27% of cost of sales. The next largest supplier provided approximately 15% of cost of sales, with the
last three making up this customer group being at 9%, 8% and 6%.
Principles
of Consolidation
These
consolidated financial statements include the assets and liabilities of HighCom Global Security, Inc. and its subsidiaries as
of September 30, 2017 and December 31, 2016, and its results of operations and cash flows for the periods presented.
All
material intercompany 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. 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, 2017.
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 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.
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 $22,205 and $43,386 for the three months
ended September 30, 2017 and 2016 respectively. Research and development costs totaled $77,784 and $57,699 for the nine months
ended September 30, 2017 and 2016, respectively.
Advertising
Advertising
costs for trade shows and social media were expensed as incurred. Advertising costs of $31,673 and $48,615 were incurred during
the nine months ended September 30, 2017 and 2016, respectively.
Shipping
and Freight Costs
The
Company includes shipping costs in cost of goods sold
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 form 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.
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, 2017, and
2016, there were 49,250,000 and 38,000,000 vested common stock options outstanding, which were not included in the calculation
of net loss per share-diluted because they were anti-dilutive. In addition, at September 30, 2017 and 2016 the Company had 41,801,793
remaining warrants outstanding issued in connection with convertible promissory notes and stock sales that were also not included
because they were anti-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 will be evaluated as to impact
and implemented accordingly.
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, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
648,060
|
|
|
$
|
648,702
|
|
Work in process
|
|
|
323,666
|
|
|
|
240,849
|
|
Finished Goods
|
|
|
855,892
|
|
|
|
1,041,532
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
1,827,618
|
|
|
$
|
1,931,083
|
|
(3)
Property and Equipment, Net
Property
and equipment are comprised of the following at September 30, 2017 and December 31, 2016
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Equipment
|
|
$
|
450,197
|
|
|
$
|
429,417
|
|
Furniture
|
|
|
106,326
|
|
|
|
104,802
|
|
Moulds
|
|
|
45,060
|
|
|
|
45,060
|
|
Test Range
|
|
|
110,802
|
|
|
|
110,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712,385
|
|
|
|
690,081
|
|
Less accumulated
depreciation
|
|
|
(548,611
|
)
|
|
|
(501,079
|
)
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
$
|
163,774
|
|
|
$
|
189,002
|
|
Depreciation
expense for the next five years ended September 30,
2018
|
|
$
|
54,512
|
|
2019
|
|
|
46,845
|
|
2020
|
|
|
38,068
|
|
2021
|
|
|
17,510
|
|
2022
|
|
|
6,207
|
|
|
|
|
|
|
|
|
$
|
163,142
|
|
Depreciation
expense for the nine months ended September 30, 2017 and 2016 was $47,532 and $43,907, respectively.
(4)
Intangible Assets, Net
Intangible
Assets are comprised of the following at September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Patents and Trademarks
|
|
$
|
145,749
|
|
|
$
|
161,278
|
|
Websites
|
|
|
80,000
|
|
|
|
80,000
|
|
Lists
|
|
|
500,000
|
|
|
|
500,000
|
|
Research and
Development
|
|
|
-
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725,749
|
|
|
|
796,278
|
|
Less accumulated
amortization
|
|
|
(631,960
|
)
|
|
|
(664,151
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets,
net
|
|
$
|
93,789
|
|
|
$
|
132,127
|
|
Amortization
expense for the next five years ended September 30,
2018
|
|
$
|
9,717
|
|
2019
|
|
|
9,717
|
|
2020
|
|
|
9,717
|
|
2021
|
|
|
9,717
|
|
2022
|
|
|
9,717
|
|
|
|
|
|
|
|
|
$
|
48,585
|
|
During
the quarter ended September 30, 2017, the Company changed its estimate for the useful life of certain intangible assets accounted
for as patents, trademarks and research and development costs. The net effect of these changes has been accounted for through
amortization expense. Amortization expense for the nine months ended September 30, 2017 and 2016 was $38,338 and $12,189, respectively.
(5)
Notes Payable
Notes
payable at September 30, 2017 and December 31, 2016 as detailed below, is summarized as follows:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Acquisition debt
|
|
|
-
|
|
|
|
30,000
|
|
Notes payable - equipment
|
|
|
-
|
|
|
|
11,752
|
|
Note payable
- individual
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
-
|
|
|
|
241,752
|
|
Less current
maturities
|
|
|
-
|
|
|
|
(241,752
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Acquisition
Debt and Gain on Settlement
On
March 31, 2011, the Company issued a note payable in association with the purchase of Acer product designs. The Company has determined
that this entity no longer exists, and the statute of limitations pertaining to this debt, has expired. As a result, the Company
has reported in other income, a gain on settlement of this debt in the amount of $30,000 for the nine months ended September 30,
2017. These acquisition notes have the following balances at September 30, 2017 and December 31, 2016:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Acquisition
note for the purchase of Acer product designs, original amount $30,000, no interest
|
|
|
-
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
30,000
|
|
Less:
current maturities
|
|
|
-
|
|
|
|
(30,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
payable - Equipment
The
Company financed the acquisition of certain equipment through a promissory note. The note was payable in monthly installments
of $2,350, is non-interest bearing, and had a maturity date of May 17, 2017. The note was secured by equipment. As of September
30, 2017, the balance of this note was paid in full. Interest has not been imputed on this balance as management has deemed it
to be immaterial.
Notes
payable – Individuals
On
November 4, 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 were payable no sooner than 60 days and no later than 90 days from issuance. This note was
paid in full on January 7, 2017.
Line
of Credit
On
May 9, 2017, the Company secured a line of credit with Huntington National Bank in the amount of $500,000. This line of credit
has no stipulated maturity date, and is payable on demand by the lender. If no demand is made, payments of all accrued and unpaid
interest is payable monthly on the 15
th
of each month. Interest rate is variable, and to be determined at the time
of advances on this line of credit. As of September 30, 2017, the Company has not used this facility, and there is no balance
outstanding.
Off
Balance Sheet Arrangements
We
currently have no off-balance sheet arrangements.
(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 preferred stock
are outstanding.
Common
stock issuances
In
January 2016, the Company issued 30,000,000 common shares in a debt conversion in the amount of $300,000, bringing the total number
of issued and outstanding shares at September 30, 2017 to 366,976,178 shares.
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.
At
September 30, 2017 and December 31, 2016, there was no unrecognized compensation cost related to share-based payments which was
expected to be recognized in the future.
Historically
Directors of the Company have not received any compensation. The Board on June 29, 2017, approved the following compensation as
an annual retainer and per-meeting fee schedule regarding Directors: $20,000 annually for serving on the Board; $5,000 additional
for serving on the Audit Committee; the Chairman of the Board to receive $30,000 as total compensation annually for said services;
for telephonic meetings an additional $500; and for in-person meeting another $2,000. Each Director can elect Company stock in
lieu of monetary compensation for the services as set forth above, however, no “strike price” has been established
for the acceptance of stock in lieu of monetary compensation.
The
following table represents stock option activity as of and for the nine months ended September 30, 2017:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding - January 1, 2017
|
|
|
60,500,000
|
|
|
$
|
0.01.
|
|
|
|
8.9
years
|
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options Outstanding – September
30, 2017
|
|
|
60,500,000
|
|
|
$
|
0.01
|
|
|
|
6.3
years
|
|
|
$
|
-
|
|
Outstanding Exercisable – January 1, 2017
|
|
|
46,125,000
|
|
|
$
|
0.01
|
|
|
|
7.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable –
September 30, 2017
|
|
|
49,250,000
|
|
|
$
|
0.01
|
|
|
|
6.4
years
|
|
|
$
|
-
|
|
The
total grant date fair value of options vested during the nine months ended September 30, 2017 and 2016 was $38,742 and $38,742
respectively.
The
following table represents stock warrant activity as of and for the nine months ended September 30, 2017:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding - January 1, 2017
|
|
|
41,801,793
|
|
|
$
|
0.009.
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding – September
30, 2017
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable –
January 1, 2017
|
|
|
41,801,793
|
|
|
$
|
0.009
|
|
|
|
2.9
years
|
|
|
$
|
-
|
|
Outstanding Exercisable –
September 30, 2017
|
|
|
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 and $5,138,687 was recognized as
a deferred tax asset at December 31, 2016 with a corresponding income tax benefit also being recognized for the year ended December
31, 2016. During the nine months ended September 30, 2017, the Company incurred a net loss, which created an increase in its deferred
tax asset with and a corresponding income tax benefit in the amount of $97,726.
(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, 2017, 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 February 2011, HighCom Armor entered
into a six-month lease agreement for approximately 11,200 square feet of office and warehouse space in Columbus, OH. In June 2012,
HighCom Armor entered into a one-year lease agreement for approximately 16,200 square feet of office and warehouse space in Columbus,
OH. In June 2013, HighCom Armor 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 was $6,967 per month through August 2016. 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. Two satellite offices are maintained in Florida and Colorado for additional sales support.
Rent
expense for the nine months ended September 30, 2017 and 2016 was approximately $97,443 and $96,882, respectively.
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 HighCom Global (f/k/a BlastGard International, Inc.) 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
HighCom Global for HighCom Global’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 HighCom Global). 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, 2017, 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 vested on January 1, 2015, exercisable
at $.009 per share. Mr. Kiefner serves as the Company’s 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)
Change in Directors and Management/Compensation paid to Resilience Capital, Inc.
An
Annual Meeting of Shareholders was held on June 28, 2017 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
continues to serve as Chairman of the Board. 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 will continue to receive
an annual fee of $250,000 payable in equal monthly installments. As for the other executive officers named above, none of them
currently have employment agreements and are considered employees at will.
Michael
Gordon, former CEO and a director of the Company, is now serving as Chief Executive Officer of the Company’s wholly-owned
subsidiary, BTI. Likewise, Michael Bundy and Chad Aaron Wright, former President/Chief Operating Officer and Vice President of
the Company, respectively, are also now serving in identical positions in HighCom Armor. Each of these officers will continue
to receive their compensation pursuant to their existing employment agreements through December 31, 2017.
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 lncorporation 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 lncorporation (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 to l00,000,000 and with such
Reverse split and change in 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 (1)(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 Armor 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.
(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.