●

●	ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017. ● ~~ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).~~ ● ~~ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.~~ ● ~~ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.~~

●	ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).

●	ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.

●	ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.

NOTE 3 – NEW ACCOUNTING GUIDANCE

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance to provide a single, comprehensive revenue recognition model for all contracts with customers. Under the new guidance, an entity will recognize revenue at an amount that the entity expects to be entitled to receive in exchange for the transfer of promised goods or services to customers. A five-step model has been introduced for an entity to apply when recognizing revenue. The new guidance also includes enhanced disclosure requirements (see Note 2). The guidance was effective January 1, 2018. It was applied on a modified retrospective basis to contracts that were not completed at the date of initial application through a cumulative effect adjustment to accumulated deficit as of January 1, 2018. The prior period comparative information has not been recast and continues to be reported under the accounting guidance in effect for that period.

On January 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. Novume has aggregated and reviewed all contracts at the date of initial application that are within the scope of Topic 606, excluding time-and-expense contracts at AOC Key Solutions and Global since Topic 606 does not have a material impact on time-and-expense contracts. Based on its evaluation, the adoption of Topic 606 did not have a material impact on the Company’s balance sheet or related consolidated statements of operations, equity or cash flows. Therefore, prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. The impact of adopting Topic 606 to the Company as of January 1, 2018 relate to: (1) a change to franchisee agreements recorded prior to 2017 of $22,000 which will be amortized over remaining term of the franchisee agreements; and (2) the timing of certain contractual agreements which amounted to $45,000 and subsequently recognized as revenue in six months ended June 30, 2018 resulting in (3) an increase in each of deferred revenue and accumulated deficit of $67,000. The impact of adopting Topic 606 on our consolidated balance sheet as of June 30, 2018 is a $50,500 reduction to deferred revenue. The impact of adopting Topic 606 on our consolidated income statement for the six months ended June 30, 2018 is a $50,500 increase in revenue. Revenue recognition related to the Company’s other revenue streams will remain substantially unchanged. As of June 30, 2018, approximately $16,500 of deferred revenue recognized upon adoption of Topic 606 is expected to be recognized from remaining performance obligations for a franchise contract over the next 18 months.

NOTE 4 – ACQUISITIONS

Secure Education Consultants Acquisition

On January 1, 2018, Novume completed its acquisition of certain assets of Secure Education. Secure Education’s security and safety experts provide customized emergency protocols and critical incident response training for schools and child care organizations, which will further augment the risk mitigation and crisis management services we provide to our clients through Firestorm. Consideration paid as part of this acquisition included: (a) $99,197 in cash, (b) 33,333 shares of Novume common stock valued at $163,332; (c) warrants to purchase 33,333 shares of Novume common stock, exercisable over a period of five years, at an exercise price of $5.44 per share, valued at $65,988 and (d) warrants to purchase 33,333 of Novume common stock, exercisable over a period of five years at an exercise price of $6.53 per share, valued at $57,484.

As the Secure Education acquisition has recently been completed, the Company is currently in the process of completing the preliminary purchase price allocation treating the Secure Education acquisition as a business combination. The final purchase price allocation for Secure Education will be included in the Company’s financial statements in future periods. The table below shows preliminary analysis for the Secure Education asset purchase:

Cash paid	$99,197
Common stock issued	163,332
Warrants issued, at $5.44	65,988
Warrants issued, at $6.53	57,484
Total consideration	386,001
Less intangible and intellectual property	(386,001)
Net goodwill recorded	$-

BC Management Acquisition

The preliminary purchase price has been allocated to the assets acquired based on fair values as of the acquisition date.

The Company is currently in the process of completing the preliminary purchase price allocation as an acquisition of certain assets. The final purchase price allocation for BC Management will be included in the Company’s financial statements in future periods. The table below shows preliminary analysis for the BC Management asset purchase:

Cash paid	$100,000
Common stock issued	163,332
Warrants issued, at $5.44	65,988
Warrants issued, at $6.53	57,484
Total consideration	386,804
Less intangible and intellectual property	(386,804)
Net goodwill recorded	$-

Global Acquisition

On October 1, 2017, Novume completed its ~~assessment~~acquisition of ~~any significant contract~~Global by purchasing Global Technical Services, Inc. (“GTS”) and ~~assessing the impact the adoption~~Global Contract Professionals, Inc. (“GCP”). Consideration paid as part of the ~~new revenue standard will have on its consolidated financial statements~~Global acquisition included: (a) $750,000 in cash, (b) 375,000 shares of Novume common stock valued at $566,288 and ~~related disclosures. The standard update, as amended, will be effective for annual periods beginning after December 15, 2017. The Company performed an initial assessment~~(c) 240,861 shares of Novume Series B Cumulative Convertible Preferred Stock (the “Novume Series B Preferred Stock”) valued at $2,408,610. In addition to the merger consideration, Novume paid $365,037 to satisfy in full all of the ~~impact~~outstanding debt of GTS and GCP at closing, except for certain intercompany debt and ordinary course debt, and amounts due under (a) the Secured Account Purchase Agreement dated August 22, 2012 by and between GTS and Wells Fargo Bank, National Association (the “GTS Wells Fargo Credit Facility”) and (b) the Secured Account Purchase Agreement dated August 22, 2012 by and between GCP and Wells Fargo Bank, National Association (the “GCP Wells Fargo Credit Facility” and together with the GTS Wells Fargo Credit Facility, the “Wells Fargo Credit Facilities”), which have remained in effect following the consummation of the ~~ASU~~Global Acquisition. In connection with the Wells Fargo Credit Facilities, Novume delivered general continuing guaranties, dated September 29, 2017 to Wells Fargo Bank, National Association, guaranteeing the Guaranteed Obligations of GTS and ~~is developing a transition plan, including necessary changes~~GCP (as defined in the Wells Fargo Guaranty Agreements) under the Wells Fargo Credit Facilities, and paid $175,000 in the aggregate to ~~policies, processes, and internal controls~~reduce the current borrowed amounts under the Wells Fargo Credit Facilities as ~~well as system enhancements to generate~~of October 1, 2017. Additionally, Novume assumed $2,462,276 of Global’s liabilities.

As part of the ~~information necessary for the new disclosures. The project is on schedule for adoption on January 1, 2018 and~~Global acquisition, the Company ~~will apply the modified retrospective method. The Company expects revenue recognition across its portfolio~~issued 240,861 shares of services to remain largely unchanged. However, the Company expects to recognize revenue earlier than it does under current guidance in a few areas, including accounting for variable fees and for certain consulting services, which will be recognized over time rather than$0.0001 par value Novume Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”). All Series B Preferred Stock was issued at a ~~point in time. While the Company has not finalized its assessment~~price of $10.00 per share as part of the ~~impact~~acquisition of ~~the ASU,~~Global. The Series B Preferred Stock is entitled to quarterly cash dividends of 1.12% (4.48% per annum) per share. The Series B Preferred Stock has a conversion price of $5.00 per share. Each Series B Preferred Stock has an automatic conversion feature based on the ~~analysis completed to date,~~share price of Novume (see Note 10). The Company measured the holdback consideration in April 2018 and determined that the contingent liability should be decreased by $94,657. In accordance with ASC 805-10-25, a contingent consideration classified as an asset or liability shall be recognized in earnings, and $94,657 was recognized as other income for the three months ended March 31, 2018. As of June 30, 2018 and December 31, 2017, the Company ~~does not currently anticipate that the ASU will have a material impact on its Consolidated Financial Statements.~~had $105,343 and $200,000, respectively, of holdback consideration included in accrued expenses.

~~There are currently no other accounting standards that have been issued, but not yet adopted, that will have a significant impact on~~The Company has completed its analysis of the ~~Company’s consolidated financial position, results of operations or cash flows upon adoption.~~purchase price allocation. The table below shows the final breakdown related to the Global acquisition:

~~Recently Adopted~~

Assets acquired	$4,384,668
Liabilities acquired	(4,384,417)
Net assets acquired	251
Less intangible assets	2,574,000
Consideration paid (see below)	4,264,934
Net goodwill recorded	$1,690,683

Cash consideration	$550,000
Cash paid towards acquired liabilities	540,037
Total cash paid	1,090,037
Holdback consideration	200,000
Common stock consideration	566,288
Series B Preferred Stock consideration	2,408,610
Total acquisition consideration	$4,264,934

~~In January 2017, the FASB issued ASU 2017-01~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all~~The determination of the fair value of the ~~gross~~ assets acquired ~~(or disposed of)~~and liabilities assumed, includes approximately $2.6 million of intangible and intellectual property and approximately $1.7 million of goodwill.

Brekford Acquisition

On August 28, 2017, the mergers by and among Novume, KeyStone, Brekford, Brekford Merger Sub, Inc., and KeyStone Merger Sub, LLC, were consummated (the “Brekford Merger”). As a result, Brekford became a wholly-owned subsidiary of Novume, and Brekford Merger Sub ceased to exist. KeyStone Merger Sub, LLC also became a wholly-owned subsidiary of Novume, and KeyStone Solutions, Inc. ceased to exist. When KeyStone Merger Sub, Inc. filed its certificate of merger with the Secretary of State of the State of Delaware, it immediately effectuated a name-change to KeyStone Solutions, LLC, the name by which it is ~~concentrated~~now known.

Upon completion of the Brekford Merger, the merger consideration was issued in accordance with the terms of the merger agreement. Immediately upon completion of the Brekford Merger, the pre-merger stockholders of KeyStone owned approximately 80% or 13,548,837 of the issued and outstanding capital stock of Novume on a ~~single asset~~fully-diluted basis, and the pre-merger stockholders of Brekford owned approximately 20% or 3,375,084 shares of the issued and outstanding capital stock of Novume on a ~~group~~fully-diluted basis.

The Company has completed its analysis of ~~similar~~the purchase price allocation. The table below shows the final breakdown related to the Brekford acquisition:

Common stock issued	$5,851,193
Total consideration	5,851,193
Less cash received	(1,943,778)
Less note receivable	(2,000,000)
Less other assets	(1,139,007)
Less intangible assets	(558,412)
Plus liabilities assumed	1,191,937
Net goodwill recorded	$1,401,933

The determination of the fair value of the assets acquired ~~(or disposed of)~~and liabilities assumed, includes approximately $0.6 million of intangible and intellectual property and approximately $1.4 million of goodwill.

Firestorm Acquisition

On January 25, 2017 (the “Firestorm Closing Date”), Novume acquired Firestorm Solutions, LLC and Firestorm Franchising, LLC (collectively, the “Firestorm Entities”).

Membership Interest Purchase Agreement

Pursuant to the terms of the Membership Interest Purchase Agreement (the “MIPA”), by and among Novume, the Firestorm Entities, the Members of the Firestorm Entities (described below), and a newly-created acquisition subsidiary of Novume, Firestorm Holdings, LLC, a Delaware limited liability company (“Firestorm Holdings”), Novume acquired all of the membership interests in each of the Firestorm Entities for the following consideration:

●	$500,000 in cash in the aggregate paid by Novume as of the Firestorm Closing Date to the three principals (Harry W. Rhulen, Suzanne Loughlin, and James W. Satterfield, collectively the “Firestorm Principals”) of Firestorm. Of that aggregate amount $250,000 was paid to Mr. Satterfield, and $125,000 was paid to each of Mr. Rhulen and Ms. Loughlin;

●	$1,000,000 in the aggregate in the form of four unsecured, subordinated promissory notes issued by Novume with interest payable over, and principal due after, five years after the Firestorm Closing Date, to all the Members of the Firestorm Entities (consisting of the Firestorm Principals and Lancer Financial Group, Inc. (“Lancer”)). The principal amount of the note payable to Lancer is $500,000 (the “Lancer Note”). The principal amount of the note payable to Mr. Rhulen is $166,666.66. The principal amount of the notes payable to each of Mr. Satterfield and Ms. Loughlin is $166,666.67. (The notes payable to Mr. Rhulen, Ms. Loughlin and Mr. Satterfield are individually referred to herein as a “Firestorm Principal Note” and collectively, as the “Firestorm Principal Notes”). The Firestorm Principal Notes are payable at an interest rate of 2% and the Lancer Note is payable at an interest rate of 7%. $907,407 was recorded to notes payable to reflect the net fair value of the notes issued due to the difference in interest rates. The Lancer Note also has a capped subordination of $7,000,000, subject to the consent of Lancer;

●	Each of the Firestorm Principals was issued 162,698 (315,625 post Brekford Merger) shares of Novume common stock, par value $0.0001 per share, for an aggregate issuance of 488,094 (946,875 post Brekford Merger) shares of Novume common stock;

●	Each of the Firestorm Principals received warrants to purchase 54,233 (105,209 post Brekford Merger) Novume Common Shares, exercisable over a period of five years after the Firestorm Closing Date, at an exercise price of $2.5744 per share; and

●	Each of the Firestorm Principals received warrants to purchase 54,233 (105,209 post Brekford Merger) Novume Common Shares, exercisable over a period of five years after the Firestorm Closing Date, at an exercise price of $3.6048 per share.

The Company has completed its analysis of the purchase price allocation. The table below shows the final breakdown related to the Firestorm acquisition:

Cash paid	$500,000
Notes payable issued	907,407
Common stock issued	976,286
Warrants issued, at $2.58	125,411
Warrants issued, at $3.61	102,289
Total consideration	2,611,393
Less cash received	(82,296)
Less other assets	(137,457)
Less intangible and intellectual property	(2,497,686)
Plus liabilities assumed	106,046
Net goodwill recorded	$-

The determination of the fair value of the assets acquired and liabilities assumed includes approximately $2.5 million of intangible and intellectual property. In connection with the acquisition, Novume has also entered into employment agreements with three of the founders of the Firestorm Entities as set forth below.

Harry W. Rhulen Employment Agreement

The Rhulen Employment Agreement provides that upon the Firestorm Closing Date his employment agreement will become effective for an initial five-year term as President of Novume Solutions, Inc. His base salary will be $275,000 per annum, and he will be eligible for a bonus as determined by Novume’s Compensation Committee. Mr. Rhulen will also be eligible to receive all such other benefits as are ~~not considered~~provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume. Mr. Rhulen has been granted options to purchase 155,195 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.55 per share.

Suzanne Loughlin Employment Agreement

The Loughlin Employment Agreement provides that upon the Firestorm Closing Date her employment agreement will become effective for an initial five-year term as General Counsel and Chief Administrative Officer of Novume Solutions, Inc. Her base salary will be $225,000 per annum, and she will be eligible for a ~~business. We adopted ASU 2017-01~~bonus as determined by Novume’s Compensation Committee. Ms. Loughlin will also be eligible to receive all such other benefits as are provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume. Ms. Loughlin has been granted options to purchase 155,195 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.55 per share.

James W. Satterfield Employment Agreement

The Satterfield Employment Agreement provides that upon the Firestorm Closing Date his employment agreement will become effective for an initial five-year term as President and Chief Executive Officer of each of the Firestorm Entities. His base salary will be $225,000 per annum, and he will be eligible for a bonus as determined by Novume’s Compensation Committee. Mr. Satterfield will also be eligible to receive all such other benefits as are provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume or its subsidiaries. Mr. Satterfield has been granted options to purchase 96,997 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.55 per share, in connection with the acquisition of Firestorm.

Operations of Combined Entities

The following unaudited pro-forma combined financial information gives effect to the acquisition of Firestorm, the merger with Brekford and the acquisition of Global as if they were consummated as of January 1, 2017. The pro-forma financial information for the three and six months ended June 30, 2017 does not include BC Management and Secure Education as it was deemed immaterial. This unaudited pro-forma financial information is presented for information purposes only and is not intended to present actual operating results that would have been attained had the acquisitions been completed as of January 1, 2017 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.

~~In March 2016, FASB issued ASU ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~. The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard and the impact of the adoption was not material to the consolidated financial statements.

	For the three months ended June 30,		Six Months ended June 30,
	2018	2017	2018	2017
Revenues	$12,338,164	$10,180,122	$23,556,933	$20,803,944
Net income (loss)	$(921,288)	$(985,136)	$(3,115,134)	$(2,216,915)
Basic earnings (loss) per share	$(0.07)	$(0.19)	$(0.23)	$(0.45)
Diluted earnings (loss) per share	$(0.07)	$(0.19)	$(0.23)	$(0.45)

Basic Number of Shares	14,533,030	5,488,094	14,514,864	5,284,722
Diluted Number of Shares	14,533,030	5,488,094	14,514,864	5,284,722

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes~~. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The Company early adopted and applied the new standard retrospectively to the prior period presented in the consolidated balance sheets and it did not have a material impact.

~~In April 2015, the FASB issued ASU 2015-03,~~ ~~Interest~~ – ~~Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs~~. The update requires that deferred debt issuance costs be reported as a reduction to long-term debt (previously reported in other noncurrent assets). The Company adopted ASU 2015-03 in 2016 and for all retrospective periods, as required, and the impact of the adoption was not material to the consolidated financial statements.

~~In August 2014, the FASB issued ASU 2014-15,~~ ~~Presentation of Financial Statements – Going Concern~~, which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. This accounting standard update applies to all entities and was effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company adopted this standard during fiscal year 2016.

~~The Company does not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on its consolidated financial statements.~~

NOTE 45 – INVESTMENT AT COST AND ~~NOTES~~NOTE RECEIVABLE

On February 6, 2017, prior to the Brekford Merger, ~~the Company~~Brekford entered into a Contribution and Unit Purchase Agreement (the “CUP Agreement”) with LB&B Associates Inc. (“LB&B”) and Global Public Safety, LLC (“GPS”)~~, a 100%-owned subsidiary of Brekford.~~.

The closing for the transaction set forth in the CUP Agreement occurred on February 28, 2017 (the “GPS Closing”) and on such date the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business to GPS. On the GPS Closing, the Company sold units representing 80.1% of the units of GPS to ~~the~~ LB&B for $6,048,394, after certain purchase price adjustments of prepaid expenses and unbilled customer deposits. $4,048,394 was paid in cash, including a $250,000 deposit that was paid on February 6, 2017, and $2,000,000 was paid by LB&B issuing the Company a promissory note receivable (the “GPS Promissory Note”). After the GPS Closing, the Company continues to own 19.9% of the units of GPS after the transaction. The Company is accounting for this as an investment at cost.

The GPS Promissory Note ($2,000,000) is subordinated to the LB&B’s senior lender and accrues interest at a rate of 3% per annum. The maturity date of the GPS Promissory Note is March 31, 2022. The GPS Promissory Note is to be repaid as follows: (a) $75,000 plus all accrued interest on each of September 30, 2017; December 31, 2017; March 31, 2018, June 30, 2018 and September 30, 2018 (or, in the event any such date is not a business day, the first business day after such date), (b) $100,000 plus all accrued interest on each of December 31, 2018; March 31, 2019; June 30, 2019 and September 30, 2019 (or, in the event any such date is not a business day, the first business day after such date) (c) $125,000 plus all accrued interest on each of December 31, 2019; March 31, 2020; June 30, 2020; September 30, 2020, December 31, 2020; March 31, 2021, June 31, 2021; September 30, 2021; and December 31, 2021 (or, in the event any such date is not a business day, the first business day after such date), and (d) $100,000 on March 31, 2022. The GPS Promissory Note iswas secured pursuant to the terms of a Pledge Agreement (the “LB&B Pledge Agreement”) between the Company and LB&B. Pursuant to the LB&B Pledge Agreement LB&B, granted the Company a continuing second priority lien and security interest in the LB&B’s units of GPS subject to liens of the LB&B’s senior lender. In December 2017, the Company reclassified the note receivable balance to a current asset and wrote down $450,000 based on the decision to sell the note receivable to an unrelated third party. The current portion of ~~notes~~note receivable was ~~$300,000~~$0 and ~~zero~~ $1,475,000 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The ~~long-term portion~~sale was consummated on February 13, 2018 and the Company received proceeds of $1,475,000 in the six months ended June 30, 2018. In connection with the sale of the ~~notes receivable was $1,649,000~~GPS Promissory Note, the Company has indemnified the unrelated third-party buyer for any amounts of principal and ~~zero as of September 30, 2017 and December 31, 2016, respectively.~~interest not paid by LB&B.

NOTE 6 – IDENTIFIABLE INTANGIBLE ASSETS

The following provides a breakdown of identifiable intangible assets as of June 30, 2018:

	Customer Relationships	Marketing Related	Technology Based	Total
Identifiable intangible assets, gross	$5,588,677	$730,000	$83,412	$6,402,089
Accumulated amortization	(913,534)	(143,464)	-	(1,056,998)
Identifiable intangible assets, net	$4,675,143	$586,536	$83,412	$5,345,091

In connection with the acquisition of Firestorm, Global and Brekford, the Company identified intangible assets of $2,497,686, $2,574,000 and $558,412, respectively, representing trade names, customer relationships and technology. In addition, as of December 31, 2017, intangibles attributable to the asset acquisition of BC Management totaled $386,804, and as of January 1, 2018, intangibles attributable to the asset acquisition of Secure Education totaled $386,001. These assets are being amortized on a straight-line basis over their weighted average estimated useful life of 7.8 years. Amortization expense for the three months ended June 30, 2018 and 2017 was $255,294 and $0, respectively, and for the six months ended June 30, 2018 and 2017 was $510,588 and $0, respectively.

As of June 30, 2018, the estimated annual amortization expense for each of the next five fiscal years is as follows:

2018 (remainder of year)	$524,490
2019	1,048,980
2020	1,048,980
2021	982,876
2022	238,155
Thereafter	1,501,610
Total	$5,345,091

NOTE ~~5 —~~7 – SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 was as follows:

	For the Nine Months Ended		For the Six Months Ended
	September 30, 2017	September 30, 2016	2018	2017
Cash paid for interest	$33,429	$29,083	$154,857	$41,250
Cash paid for taxes	$-	$-	$-

Warrants issued in connection with note payable	$-	$58,520
Common stock issued in connection with note payable			$126,000	$-
Warrants issued in connection with issuance of Series A Preferred Stock	$67,491	$-	$-	$67,491

Business Combinations:
Business Combinations/Asset Acquisitions:
Current Assets	$1,044,893	$-	$-	$136,406
Property and equipment, net	$268,398	$-
Intangible assets	$2,498,737	$-	$386,801	$2,498,737
Goodwill	$1,960,328	$-
Other non-current assets	$1,962,140	$-
Assumed liabilities	$(1,258,905)	$-	$-	$(66,968)
Deferred revenue	$(22,493)	$-	$-	$(22,493)
Other non-current liabilities	$(16,584)	$-	$-	$(16,584)
Issuance of common stock	$(7,055,179)	$-	$(163,332)	$(1,203,986)
Notes payable	$(907,407)	$-	$-	$(907,407)
Issuance of common stock warrants			$(123,472)	$-

●Key Trends, Developments and Challenges — a discussion of items and trends that may impact our business in the upcoming year.

Results of Operations — an analysis of our results of operations in our condensed consolidated financial statements.

Lease Obligations — a summary of current and future lease obligations.

●

Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations and quantitative and qualitative disclosures about market risk.

Critical Accounting Policies and Estimates — a discussion of critical accounting policies requiring critical judgments and estimates.

Executive Summary

Our Company

~~Novume Solutions, Inc. (the “Company” or “Novume”) was~~We were formed in February 2017 and began operations upon the merger of KeyStone Solutions, Inc. (“KeyStone”) and Brekford Traffic Safety, Inc. (“Brekford”) in August 2017. ~~For narrative purposes, Company and Novume references include the Brekford, KeyStone and Firestorm entities.~~ KeyStone was formed in March 2016 as a holding company for its wholly-owned subsidiary AOC Key Solutions, Inc. (“~~KSI”~~AOC Key Solutions”) and on January 25, 2017, acquired Firestorm Solutions, LLC and Firestorm Franchising, LLC (collectively referred to as “Firestorm”). ~~KSI~~On October 1, 2017, we completed our acquisition of Global Technical Services, Inc. (“GTS”) and Global Contract Professionals, Inc. (“GCP) (collectively referred to as “Global”). For narrative purposes, references to the Company and Novume include AOC Key Solutions, Firestorm, Brekford and Global.

AOC Key Solutions is based in Chantilly, Virginia and provides consulting and technical support services to assist clients seeking U.S. federal government contracts in the technology, telecommunications, defense, and aerospace industries. AOC Key Solutions provides consulting and technical support services to assist clients seeking U.S. Federal government contracts in the technology, telecommunications, defense, and aerospace industries. ~~On January 25, 2017, Novume (KeyStone) acquired~~

Firestorm is headquartered in Roswell, Georgia and is a nationally recognized leader in crisis management, crisis communications, emergency response, and business continuity, including workplace violence prevention, cyber-breach response, communicable illness/pandemic planning, predictive intelligence, and other emergency, crisis and disaster preparedness initiatives. For example, its behavioral risk and threat assessment program, BERTHA®, positions schools, businesses and other organizations to prevent violence from occurring. This program helps our clients to identify early warning signs that may be exhibited by an individual before they are on a path to violence. BERTHA® is an integral part of an innovative school violence prevention program launched by Firestorm in partnership with the University of Alabama in November of 2017. On December 31, 2017 and January 1, 2018, Firestorm completed the acquisition of all assets of BC Management, Inc. ("BC Management") and Secure Education Consultants, LLC ("Secure Education"), respectively. BC Management is ~~headquartered~~internationally recognized as a leading executive search firm for business continuity, disaster recovery, crisis management and risk management professionals. Coupled with its staffing expertise, BC Management is a recognized leader in ~~Roswell, Georgia.~~ business continuity research with annual studies covering compensation assessments, program maturity effectiveness, event impact management reviews, IT resiliency and critical supply analyses. Secure Education is comprised of an expert team of highly trained, former U.S. Secret Service Agents and assists clients by designing customized plans, conducting security assessments, delivering training, and responding to critical incidents.

Brekford, headquartered in Hanover, Maryland, is a leading public safety technology service provider of fully integrated automated traffic safety enforcement, ~~(“ATSE”)~~or ATSE, solutions, including speed, red light, and distracted driving ~~cameras.~~cameras, as well as citation management software and secure electronic evidence storage. Brekford is also in the final stages of development of a new traffic safety product, Argos Guardian, which is currently undergoing field testing, and is expected to be piloted in several jurisdictions later in 2018. The patent pending system will combine leading edge camera and radar technology with an advanced triggering mechanism to detect, capture, and record "move over" law violations. It will also include built-in artificial intelligence-based automated license plate reader, or ALPR, capability. When combined with Brekford’s comprehensive citation management software suite, iP360, Argos Guardian will provide an innovative technology solution that can assist law enforcement agencies in improving the safety of officers and emergency response personnel.

~~Novume~~Global is headquartered in ~~Chantilly, Virginia~~Fort Worth, Texas, and asprovides the U.S. Department of ~~December 31, 2016 had~~Defense and the aerospace industry with experienced maintenance and modification specialists. Global provides specialized contract personnel, temp-to-hire professionals, direct hires, and temporary or seasonal hires to a ~~satellite office in New Orleans, Louisiana. As~~diverse group of December 31, 2016, Novume had 29 employees and access to approximately 350 consultants. Through the acquisition of Firestorm, the Company added a satellite office in Roswell, Georgia. Through the merger with Brekford, Novume added an office in Hanover, Maryland. As of September 30, 2017, Novume had 77 employees and access to approximately 400 consultants.companies.

AsIn an effort to create specific awareness about ~~Novume~~us in the Government Contracting, or GovCon, industry, ~~Novume through its recently-formed subsididary~~we formed a subsidiary in 2017, Novume Media, ~~developed~~to develop a television show called The Bridge -- a weekly 30-minute program featuring panel discussions and interviews with leaders from the government, business, academia and associations. The show premiered on April 2, 2017 in the Washington, DC ~~market.~~market and the first season is available on line. We have deferred development of a second season in order to further evaluate the benefit to the Company.

In selective situations, ~~Novume~~we will also seek to serve as a partner or incubator for ~~emerging~~ businesses ~~like Brekford’s automated traffic safety enforcement business,~~ where an understanding of government contracting ~~procedures~~ and contacts with ~~other~~ seasoned providers of government services or products can be ~~critical~~instrumental to success. In making arrangements for the merger with Brekford, Novume assisted it in arranging the sale Brekford’s legacy vehicle unfitting business to LB&B Associates Inc., a long-term client of AOC Key Solutions, retaining a 19.9% interest. We expect to continue our efforts to find low-risk, high-reward opportunities by using our knowledge base and strategic position to facilitate transactions that can provide financial returns without significant operating or balance sheet exposure.

General

The information provided in this discussion and analysis of Novume’s financial condition and results of operations covers the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017. In 2017, ~~and 2016. During fiscal year 2017, the Company~~we completed the acquisition of Firestorm, ~~(described below) and~~ the Brekford Merger, the acquisition of Global and the purchase of certain assets of BC Management (described below). As of the date of hereof, Novume has not completed the detailed valuation study necessary to arrive at the required final estimates of the fair value of the Brekford assets to be acquired and the liabilities to be assumed and the related allocations of purchase price. It has not identified all adjustments necessary to conform Novume’s and Brekford’s accounting policies to Novume’s accounting policies.~~As of the date of hereof, Novume has completed the detailed valuation study necessary to arrive at the required final estimates of the fair value of the Firestormassets acquired and the liabilities assumed and the related allocations of purchase price.~~ Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the Novume’s consolidated balance sheet and/or statements of operations, which will include operations of Novume, KSI, Firestorm, Brekford and Novume Media.

In connection with the audit of its consolidated financial statements for the years ended December 31, 2016 and 2015, Novume’s management concluded that it had material weaknesses in its internal controls because Novume does not currently have adequately designed internal controls to ensure the timely preparation and review of the accounting for certain complex, non-routine transactions by those with appropriate technical expertise, which was necessary to provide reasonable assurance that the Company’s consolidated financial statements and related disclosures would be prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In addition, Novume did not have adequately designed and documented financial close and management review controls to properly detect and prevent certain accounting errors and omitted disclosures in the footnotes to the consolidated financial statements. As defined in the Standards of the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Novume’s management is developing a plan to remediate the material weaknesses although there can be no assurance that such plans, when enacted, will be successful.

While Novume has no direct current business operations, its significant assets as of September 30, 2017 are its cash and equity interest in its principal operating subsidiaries, KSI, Brekford and Firestorm. Thus, the financial information in this section for periods prior to March 15, 2016 is for KSI prior to the recapitalization into KeyStone. The financial information in this section for all periods ~~subsequent to March 15, 2016 and~~ prior to the January 25, 2017 acquisition of Firestorm is prepared on a consolidated basis for KeyStone and ~~KSI.~~AOC Key Solutions. The financial information for periods subsequent to January 25, 2017 is prepared on a consolidated basis for KeyStone, ~~KSI~~AOC Key Solutions and Firestorm. For periods subsequent to the Brekford Merger on August 28, 2017, the financial information is prepared on a consolidated basis for Novume, ~~KSI,~~AOC Key Solutions, Firestorm and Brekford. For periods subsequent to the Global acquisition on October 1, 2017, the financial information is prepared on a consolidated basis for Novume, AOC Key Solutions, Firestorm, Brekford and ~~Firestorm.~~Global. For periods subsequent to January 1, 2018, the financial information is prepared on a consolidated basis for Novume, AOC Key Solutions, Firestorm (which includes BC Management and Secure Education), Brekford and Global.

~~Historically,~~The statements of operations and other information provided in this discussion and analysis of the ~~primary focus~~financial condition and results of ~~our businesses has been on~~operations of Novume should be read in conjunction with the ~~federal government contracting~~Novume audited consolidated financial statements and ~~aerospace industries. We~~the historical financial statements of Brekford, KeyStone, Firestorm and Global, and the related notes thereto.

Recent Acquisitions

Secure Education Consultants Acquisition

On January 1, 2018, Novume completed its acquisition of certain assets of Secure Education. Secure Education’s security and safety experts provide ~~consulting, technical support, staffing~~customized emergency protocols and ~~systems that help~~critical incident response training for schools and child care organizations and will further augment the risk mitigation and crisis management services we provide to our clients ~~exploit opportunities~~through Firestorm. Consideration paid as part of this acquisition included: (a) $99,197 in cash, (b) 33,333 shares of Novume common stock valued at $163,332; (c) warrants to purchase 33,333 shares of Novume common stock, exercisable over a period of five years, at an exercise price of $5.44 per share valued at $65,988 and ~~meet challenges more efficiently and effectively than they can by relying on in-house resources alone. Our clients~~(d) warrants to purchase 33,333 of Novume common stock, exercisable over a period of five years at an exercise price of $6.53 per share valued at $57,484. As the Secure Education acquisition has recently been completed, we are ~~typically well-established, financially-stable businesses. According to USASpending.gov, between fiscal years 2013 and 2017, the federal government~~currently in the ~~United States spent an average~~process of ~~over $450 billion annually~~completing the preliminary purchase price allocation treating the Secure Education acquisition as a business combination. The preliminary purchase price allocation for ~~goods~~Secure Education is included in our consolidated financial statements for the three and ~~services, creating one~~six months ended June 30, 2018. As of June 30, 2018, there are 66,666 Secure Education warrants outstanding.

BC Management Acquisition

On December 31, 2017, Novume completed its acquisition of certain assets of BC Management through Firestorm. Consideration paid as part of this acquisition included: (a) $100,000 in cash, (b) 33,333 shares of Novume common stock valued at $163,332 and (c) 66,666 warrants to purchase Novume common stock valued at $123,472. As the ~~largest and most stable markets~~BC Management acquisition has recently been completed, we are currently in the ~~world, and there are thousands~~process of ~~government contractors providing these goods and services. These contractors range from small privately-owned lifestyle companies to~~completing the ~~Fortune 100. Through~~preliminary purchase price allocation treating the ~~years, Novume’s subsidiaries have served thousands of these entities, including 87 of the Top 100 federal contractors.~~

~~A unique characteristic of the industry~~BC Management acquisition as a business combination. The preliminary purchase price allocation for BC Management is that many of these companies are concentrated in a geographic territory that stretches from Southern Maryland to Northern Virginia, wrapping the nation’s Capital in what is known as the Beltway. Because of the geographic concentration of these clients, there is also a large, but fragmented, concentration of service providers for these companies. Although the businesses that provide resources to the government contracting sector are diverse and highly fragmented, their clients have many common needs resulting from the basic qualifications and standard requirements inherentincluded in the ~~government procurement process. Novume believes that there is a unique opportunity for consolidation~~Company’s consolidated financial statements at June 30, 2018 and December 31, 2017. BC Management results are included in ~~this sector. While~~ our immediate goal is to improve our ability to serve this sector by pooling our existing subsidiaries’ resources and client contacts, our ultimate objective is to expand our ability to meet its unique needs by assembling, through organic growth and strategic acquisitions, a complimentary suitestatement of service and systems providers with demonstrated ability to satisfy the needs of this sector for high value talent and support services. In addition to the benefits of shared costs and pooled resources, we expect to benefit from the increased client involvement that targeted expansion of our market segments can provide. We would like Novume to be recognized as the best place to go for outside help when a company has to meet an unusual need, whether it involves an unusual opportunity or an unusual threat.

Novume intends to fund organic growth and add both vertical and horizontal capabilities by acquiring service providers through a market-focused and disciplined strategy. Novume’s efforts to identify prospective target businesses will look for opportunities where the combination of resources will be additive to the existing capabilities of the Company and will not be limited to any geographic region or any particular sector of the support or services industries. A primary consideration will be to improve the level of support Novume and its subsidiaries provides to its existing customers as well as carefully considered expansions of the customer base.

Novume is an established provider of outsourced services to the GovCon market that generates revenues from fees and reimbursable expenses for professional services primarily billed on an hourly rate, time-and-materials basis. Clients are typically invoiced on a monthly basis, with revenue recognized as the services are provided. In a few cases, a fixed-fee engagement for our services may be entered into. Fixed-fee engagements can be invoiced onceoperations for the entire job, or there could be several “progress” invoices for accomplishing various phases or reaching contractual milestones. Time-and-materials contracts represent a majority of our client engagements and do not provide us with a high degree of predictability of future period ~~performance.~~

~~Novume’s financial results are impacted principally by the:~~

~~demand by clients for Novume’s services;~~

~~the degree to which full-time staff can be kept occupied in revenue-generating activities;~~

~~success of the sales team in generating client engagements; and~~

~~number of business days in each quarter.~~

beginning after December 31, 2017.

The number of business days on which revenue is generated by our staff and consultants is affected by the number of vacation days taken, as well as the number of holidays in each quarter. There are typically fewer business work days available in the fourth quarter of the year, which can impact revenues during that period. The staff utilization rate can also be affected by seasonal variations in the demand for services from clients. Since earnings may be affected by these seasonal variations, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Unexpected changes in the demand for our services can result in significant variations in revenues, and present a challenge to optimal hiring, staffing and use of consultants. The volume of work performed can vary from period to period.

While we anticipate an increasing demand for Novume’s services in 2017 based upon an expected increase in the volume of federal government spending and as our clients elect to outsource their bid and proposal activities, it is still not clear how government spending will be impacted in 2018 and beyond. The federal government fiscal year starts on October 1 and ends on September 30. Thus, the bulk of our revenues for 2017 should be based on budget authorizations made in 2016, however, the new administration does have some discretion to delay spending on programs previously authorized and will establish the budgets for the new fiscal year beginning October 1, 2017.
Global Acquisition

~~Although~~On October 1, 2017, we completed our acquisition of Global Technical Services, Inc. (“GTS”) and Global Contract Professionals, Inc. (“GCP) (collectively, the ~~new administration~~“Global Entities”) (the “Global Merger”). Consideration paid as part Global Merger included: (a) $750,000 in cash, (b) 375,000 shares of Novume common stock and (c) 240,861 shares of Novume Series B Cumulative Convertible Preferred Stock (the “Novume Series B Preferred Stock”). In addition to the merger consideration, Novume paid $365,037 to satisfy in full all of the outstanding debt of GTS and GCP at closing, except for certain intercompany debt and ordinary course debt, and amounts due under (a) the Secured Account Purchase Agreement dated August 22, 2012 by and between GTS and Wells Fargo Bank, National Association (the “GTS Wells Fargo Credit Facility”) and (b) the Secured Account Purchase Agreement dated August 22, 2012 by and between GCP and Wells Fargo Bank, National Association (the “GCP Wells Fargo Credit Facility” and together with the GTS Wells Fargo Credit Facility, the “Wells Fargo Credit Facilities”), which will remain in effect following the consummation of the Global Merger. In connection with the Wells Fargo Credit Facilities, Novume has ~~expressed a desire~~delivered to Wells Fargo Bank, National Association, general continuing guaranties (the “Wells Fargo Guaranty Agreements”), effective upon the closing of the Global Merger guaranteeing the Guaranteed Obligations of GTS and GCP under the Wells Fargo Credit Facilities, and paid $175,000 in the aggregate to reduce the ~~federal government bureaucracy, we cannot assume that this will reduce~~current borrowed amounts under the ~~demand for Novume’s services. A short-term result~~Wells Fargo Credit Facilities as of a program to reduce bureaucracy may be to increase privatization initiatives. Moreover, the new administration’s emphasis on renewing the nation’s infrastructure, which appears to enjoy broad-based support, may result in a significant long-term increase in federal procurements.October 1, 2017.

~~Thus, while changes and adjustments can undoubtedly be anticipated, Novume believes the overall outlook for the GovCon sector remains promising. This is in~~As part ~~due to the changing nature~~ of the ~~contracting process.~~Global Merger, we created 240,861 shares of $0.0001 par value Novume Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”). All Series B Preferred Stock was issued at a price of $10.00 per share as part of the acquisition of the Global Merger. The ~~volume and frequency~~Series B Preferred Stock is entitled to quarterly cash dividends of ~~requests for proposals~~1.121% (4.484% per annum) per share. The Series B Preferred Stock has ~~been increasing during recent years as outdated and ill-conceived programs have been eliminated in favor~~a conversion price of ~~higher priority programs. Moreover, Low Price Technically Acceptable (LPTA) contracts have increasingly fallen into disfavor as~~$5.00 per share. Each Series B Preferred Stock has an automatic conversion feature based on the ~~true long-term costs~~share price of ~~these contracts have become apparent, and a more rigorous approach to government contracting has gained favor.~~Novume.

Brekford Acquisition

On August 28, 2017, the mergers by and among Novume, KeyStone, Brekford, Brekford Merger Sub, Inc. ~~("Brekford Merger Sub")~~, and KeyStone Merger Sub, LLC, ~~("KeyStone Merger Sub"),~~ were consummated (the “Brekford Merger”~~) as a result of a merger agreement (the “Brekford Merger Agreement”~~). As a result, Brekford became a ~~wholly-owned~~wholly owned subsidiary of ~~the~~ Novume, and Brekford Merger Sub, Inc. ceased to exist. KeyStone Merger Sub, LLC also became a ~~wholly-owned~~wholly owned subsidiary of ~~the~~ Novume, and KeyStone Solutions, Inc. ceased to exist. When KeyStone Merger Sub filed its certificate of merger with the Secretary of State of the State of Delaware, it immediately effectuated a name-change to KeyStone Solutions, LLC, the name by which it is now known.
For the purpose of this document any references to KeyStone are to KeyStone Solutions, Inc. prior to August 28, 2017 and to KeyStone Solutions, LLC on and after August 28, 2017.

Upon completion of the Brekford Merger, the merger consideration was issued in accordance with the terms of the Merger Agreement. Immediately upon completion of the Brekford Merger, the pre-merger stockholders of KeyStone owned approximately 80% of the issued and outstanding capital stock of ~~the~~ Novume on a fully-diluted basis, and the pre-merger stockholders of Brekford owned approximately 20% of the issued and outstanding capital stock of ~~the~~ Novume on a fully-diluted basis.

Firestorm Acquisition

Pursuant to the terms of the Membership Interest Purchase Agreement (the “MIPA”), by and among Novume, each of the Firestorm Entities, each of the Members of the Firestorm Entities (described below), and a newly-created acquisition subsidiary of Novume, Firestorm Holdings, LLC, a Delaware limited liability company (“Firestorm Holdings”), Novume acquired all of the membership interests in each of the Firestorm Entities for the following consideration:

●

$500,000 in cash in the aggregate paid by Novume as of the Firestorm Closing Date to the three principals (Harry W. Rhulen, Suzanne Loughlin, and James W. Satterfield, collectively the “Firestorm Principals”) of Firestorm. Of that aggregate amount $250,000 was paid to Mr. Satterfield, and $125,000 was paid to each of Mr. Rhulen and Ms. Loughlin;

●

$1,000,000 in the aggregate in the form of four unsecured, subordinated promissory notes issued by Novume payable over five years after the Firestorm Closing Date, to all the Members of the Firestorm Entities (consisting of the Firestorm Principals and Lancer Financial Group, Inc. (“Lancer”)). The principal amount of the note payable to Lancer is $500,000 (the “Lancer Note”). The principal amount of the note payable to Mr. Rhulen is $166,666.66. The principal amount of the notes payable to each of Mr. Satterfield and Ms. Loughlin is $166,666.67. (The notes payable to Mr. Rhulen, Ms. Loughlin and Mr. Satterfield are individually referred to herein as a “Firestorm Principal Note” and collectively, as the “Firestorm Principal Notes”). The Firestorm Principal Notes are payable at an interest rate of 2% and the Lancer Note is payable at an interest rate of 7%. $907,407 was recorded to notes payable to reflect the net fair value of the notes issued due to the difference in interest rates. The Lancer Note also has a capped subordination of $7,000,000, subject to the consent of Lancer;

●

~~Each of the Firestorm Principals was issued 162,698 shares of the common stock, par value $0.0001 per share, of Novume (“Novume Common Shares”), for an aggregate issuance of 946,875(946,875 post Brekford Merger)~~ ~~Novume Common Shares;~~

●

Each of the Firestorm Principals received warrants to purchase 105,209 Novume Common Shares, exercisable over a period of five years after the Firestorm Closing Date, at an exercise price of $2.58 per share; and

●

●	$1,000,000 in the aggregate in the form of four unsecured, subordinated promissory notes issued by Novume with interest payable over, and principal due after, five years after the Firestorm Closing Date, to all the Members of the Firestorm Entities (consisting of the Firestorm Principals and Lancer Financial Group, Inc. (“Lancer”)). The principal amount of the note payable to Lancer is $500,000 (the “Lancer Note”). The principal amount of the note payable to Mr. Rhulen is $166,666.66. The principal amount of the notes payable to each of Mr. Satterfield and Ms. Loughlin is $166,666.67. (The notes payable to Mr. Rhulen, Ms. Loughlin and Mr. Satterfield are individually referred to herein as a “Firestorm Principal Note” and collectively, as the “Firestorm Principal Notes”). The Firestorm Principal Notes are payable at an interest rate of 2% and the Lancer Note is payable at an interest rate of 7%. $907,407 was recorded to notes payable to reflect the net fair value of the notes issued due to the difference in interest rates. The Lancer Note also has a capped subordination of $7,000,000, subject to the consent of Lancer;

●	Each of the Firestorm Principals was issued 162,698 (315,625 post Brekford Merger) shares of Novume common stock, par value $0.0001 per share, for an aggregate issuance of 488,094 (946,875 post Brekford Merger) shares of Novume common stock;

●	Each of the Firestorm Principals received warrants to purchase 54,233 (105,209 post Brekford Merger) Novume Common Shares, exercisable over a period of five years after the Firestorm Closing Date, at an exercise price of $2.58 per share; and

●	Each of the Firestorm Principals received warrants to purchase 54,233 (105,209 post Brekford Merger) Novume Common Shares, exercisable over a period of five years after the Firestorm Closing Date, at an exercise price of $3.60 per share.

Key Trends, Developments and Challenges

U.S. Government Spending and the Government Contractor Industry Generally

On March 23, 2018, the Consolidated Appropriations Act (the “2018 Act”) was signed into law. It provides $1.3 trillion in funding through September 2018. It also anticipates $500 billion in new federal spending for defense and domestic programs over two years. The 2018 Act provides more than $2.3 billion in new funding for threat identification, mental health, training, and school safety programs at the Departments of Justice, Education, and Health and Human Services. The legislation also lifts statutory budget caps and increases funding for emergency disaster aid funding, lifts the debt ceiling and extends certain health care and tax authorizations. We believe that these increases in federal funding will increase demand for our services.

While we anticipate an increasing demand for our services based upon an expected increase in the volume of federal government spending and as our clients elect to outsource their bid and proposal activities, it is still not clear how government spending will be impacted beyond 2018. The administration does have some discretion to delay spending on programs previously authorized.

Impact of Current Federal Budget on Defense Spending

The 2018 Act represents the largest investment in national defense in 15 years. Although the 2018 Act included a 2.4% pay raise for military personnel, it also provides for significant increases in military procurements. We believe that increased defense spending will flow down to government contractor and provide them with new opportunities to offer national defense product and services to the federal government.

The Department of Defense is experimenting with a type of simplified acquisition process known as Other Transactional Authority (OTA). A purpose of OTA is to encourage nontraditional defense contractors to develop innovative technologies, though more traditional defense contractors can also participate. Furthermore, the 2018 Act seeks to maximize the participation of small and socio-economically diverse companies, which may increase the number of contractors offering goods and services to the federal government. We believe that these increases in federal funding will increase demand for our services.

NeoSystems Merger

We filed a Form S-1 with the SEC on January 25, 2018. A portion of the proceeds from the proposed offering was to be used for the planned acquisition of NeoSystems LLC (“NeoSystems”) through a forward merger under an agreement entered into on November 16, 2017. The proposed offering was for $12.5 million Units, with each Unit consisting of one share of our common stock and a warrant to purchase one share of our common stock. A significant portion of the proceeds of the offering were expected to be used in connection with the contemplated acquisition of NeoSystems. The consummation of the merger was subject to, among other things, the completion of the Qualifying Offering by February 28, 2018. We have not yet completed this offering.

On March 7, 2018, we received notice of termination of the Agreement and Plan of Merger (the “NeoSystems Merger Agreement”). The stated basis of termination by NeoSystems was due to our failure to complete a Qualifying Offering, as defined in the NeoSystems Merger Agreement, by February 28, 2018. The terms of the NeoSystems Merger Agreement provide that upon termination, we are required to pay certain fees and expenses of legal counsel, financial advisors, investment bankers and accountants, which shall not exceed in the aggregate $450,000. We reserve all rights under applicable law with respect to the NeoSystems Merger Agreement, including such notice.

Sale of Note

On February 13, 2018, Brekford sold a note receivable from Global Public Safety, LLC (“Global Public Safety”), which it had received as part of the purchase price consideration in connection with the sale of its legacy upfitting business prior to its acquisition by Novume as a result of the merger with KeyStone in 2017. On December 31, 2017, based on the decision to sell the note receivable to an unrelated third party, we reclassified the note receivable balance to a current asset and wrote down $450,000 as other expense, thus reducing the balance to $1,475,000. Brekford continues to retain a 19.9% interest in Global Public Safety.

Promissory Note

On April 3, 2018, Novume and Brekford entered into a transaction pursuant to which an institutional investor (the “Lender”) loaned $2,000,000 to Novume and Brekford (the “April 2018 Promissory Note”). The loan is due and payable on May 1, 2019 and bears interest at 15% per annum, with a minimum of 15% interest payable regardless of when the loan is repaid. The loan is secured by a security interest in all of the assets of Brekford. In addition, Novume agreed to issue 35,000 shares of common stock to the Lender, which shares contain piggy-back registration rights. If the shares are not so registered on the next selling shareholder registration statement, Novume shall be obligated to issue an additional 15,000 shares to the Lender. Upon any sale of Brekford or its assets, the Lender will be entitled to receive 7% of any proceeds received by Novume or Brekford in excess of $5 million (the “Lender’s Participation”). In addition, commencing January 1, 2020, the Lender shall be paid 7% of Brekford’s earnings before interest, taxes, depreciation and amortization, less any capital expenditures, which amount would be credited for any payments that might ultimately be paid to the Lender as its Lender’s Participation, if any. At April 3, 2018, the fair value of shares issued was $126,000 and designated as financing cost and the amortized financing cost for the three months ended June 30, 2018 was determined to be $29,076. The April 2018 Promissory note has an effective interest rate of 20.8%.

Other than as discussed above and elsewhere in this Quarterly Report on Form 10-Q, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

Results of Operations – Comparison of the Three ~~and Nine~~ Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

The unaudited results for the periods shown below should be reviewed in conjunction with Novume’s unaudited consolidated financial statements and notes as of and for the three and nine months ended September 30, 2017 and 2016, respectively, included elsewhere in this Form 10-Q. Consolidated operating results for ~~the~~ three ~~and nine~~ months ended ~~September~~June 30, 2017 include AOC Key Solutions and Firestorm, but do not include operations from Brekford or Global. Consolidated operating results for ~~the period from January 25, 2017 through September~~three months ended June 30, ~~2017~~2018 include AOC Key Solutions, Firestorm, Brekford and ~~Brekford operations for the period from August 28, 2017 through September 30, 2017.~~

Global.

Novume Solutions, Inc.

Consolidated Statements of Operations

~~for the Three and Nine Months Ended September 30, 2017 and 2016 (Unaudited)~~

Three Months ended September 30,

Nine Months ended September 30,

2017

2016

2017

2016

REVENUE
$4,421,574
$2,405,529
$11,131,825
$9,582,874
Cost of revenue
  2,457,806
  1,334,436
  6,017,982
  5,496,588
Gross Profit
  1,963,768
  1,071,093
  5,113,843
  4,086,286





OPERATING EXPENSES




Selling, general, and administrative expenses
  2,997,566
  1,151,514
  8,036,339
  3,624,005
Income (loss) from operations
  (1,033,798)
  (80,421)
  (2,922,496)
  462,281
OTHER (EXPENSE) INCOME




Interest expense
  (33,720)
  (15,656)
  (97,624)
  (28,693)
Other Income
  51,016
  -
  142,283
  -
Total other income
  17,296
  (15,656)
  44,659
  (28,693)
Income (loss) before taxes
  (1,016,502)
  (96,077)
  (2,877,837)
  433,588
Income tax benefit (expense)
225,142
  40,535
964,377
  (13,380)
Net (loss) income
$(791,360)
$(55,542)
$(1,913,460)
$420,208

~~Comparison of~~For the Three Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017

	For the Three Months ended June 30,
	2018	2017
Revenue	$12,338,164	$3,470,553
Cost of revenue	8,865,374	1,850,059
Gross profit	3,472,790	1,620,494

Operating expenses
Selling, general, and administrative expenses	4,328,625	2,454,812
Loss from operations	(855,835)	(834,318)
Other expense
Interest expense	(170,856)	(28,800)
Other income	105,403	-
Total other (expense) income	(65,453)	(28,800)
Loss before income taxes	(921,288)	(863,118)
Benefit from income taxes	-	318,801
Net loss	$(921,288)	$(544,317)

Revenue

~~Consolidated revenue~~Revenue increased by $8,867,611, or 256%, to $12,338,164 for the three months ended ~~September~~June 30, ~~2016 is mostly attributable~~2018, compared to ~~the Novume’s wholly-owned subsidiary, KSI. Consolidated revenue~~$3,470,553 for the three months ended ~~September~~June 30, ~~2017 includes~~2017. Aggregate revenue ~~from Firestorm,~~attributable to Brekford and ~~from Brekford after the August 28, 2017 Brekford Merger. Revenue increased by $2,016,045, or 83.8%, to $4,421,574~~Global for the three months ended ~~September~~June 30, ~~2017 compared to $2,405,529 in the comparable period in 2016. Revenue~~2018 was $8,305,546. Aggregate revenue attributable to ~~Firestorm was $466,580~~legacy Novume (AOC Key Solutions and Firestorm) for the three months ended ~~September~~June 30, ~~2017. Revenue attributable~~2018 was $4,032,618, an increase of 16.2% compared to ~~Brekford was $224,783 for~~ the prior year period ~~from August 28, 2017 through September 30, 2017. The $1,324,682 increase in revenue attributable to legacy Novume was~~ due to ~~an increase in~~ the ~~number~~integration of BC Management and ~~dollar volume of contracts in KSI.~~Secure Education into Firestorm and increased contract activity within AOC Key Solutions.

Cost of Revenue

Total cost of revenue for the three months ended ~~September~~June 30, ~~2017~~2018 increased ~~by $1,123,370,~~$7,015,315, or ~~84.2%~~379%, to ~~$2,457,806~~$8,865,374 compared to ~~$1,334,436 in the comparable period in 2016. Cost of revenue attributable to Firestorm was $183,803~~$1,850,059 for the three months ended ~~September~~June 30, 2017. ~~Cost~~Aggregate cost of revenue attributable to Brekford ~~was $88,963~~and Global for the ~~period from August 28, 2017 through September~~three months ended June 30, ~~2017. The $850,604 increase in the~~2018 was $6,816,112. Aggregate cost of revenue ~~of the~~attributable to legacy Novume for the three months ended June 30, 2018 was ~~mostly~~$2,049,263, or 50.8% of revenue which is a decrease from the prior year legacy period of 53.1% of revenue and is primarily attributable to ~~revenue increase for KSI noted above.~~

a decrease in costs of contract labor.

Gross Profit

Gross profit for three months ended June 30, 2018 increased by $1,852,295, or 114%, to $3,472,790 compared to $1,620,494 for the three months ended ~~September~~June 30, ~~2017 increased by $892,675, or 83.3%, to $1,963,768 compared to $1,071,093 for the comparable period in 2016. Gross~~2017. Aggregate gross profit attributable to ~~Firestorm was $282,776~~Brekford and Global for the three months ended ~~September~~June 30, ~~2017. Gross~~2018 was $1,489,435. Aggregate gross profit attributable to ~~Brekford was $135,820~~legacy Novume for the ~~period from August 28, 2017 through September~~three months ended June 30, ~~2017. The $474,079~~2018 was $1,983,355, an increase ~~in the gross profit~~ of ~~the legacy Novume was mostly attributable~~22.4% compared to the ~~increased revenue offset by the use of consultants and non-billable expenses.~~prior year period.

The gross profit margin was ~~44.4%~~28.1% for the three months ended ~~September~~June 30, ~~2017~~2018, compared to ~~44.5% in~~46.7% for the ~~comparable period in 2016.~~three months ended June 30, 2017. Excluding the17.6% gross profit margin for ~~Firestorm~~Brekford and ~~Brekford,~~Global, the gross profit margin for legacy Novume for the three months ended ~~September~~June 30, ~~2017 and 2016~~2018 was ~~41.4% and 44.5%, respectively. The decrease in margin was~~49.2% compared to the ~~result~~prior year period of 46.2%. Because staffing companies, such as Global, have greater costs of services as compared to professional services support providers such as AOC Key Solutions, the ~~increase use~~addition of ~~consultants, which are more expensive than employees, and increased non-billable expenses for KSI.~~Global has had an impact of lowering the consolidated gross profit.

~~Operating Costs~~Selling, General and Administrative Expenses

~~Operating costs~~Selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2017~~2018, increased by ~~$1,846,052,~~$1,873,813, or ~~160.3%~~76%, to $ ~~2,997,566~~4,328,625 compared to ~~$1,151,514 in the comparable period in 2016. Operating cost and expenses attributable to Firestorm was $646,995~~$2,454,812 for the three months ended ~~September~~June 30, 2017. ~~Operating costs~~Aggregate selling, general and administrative expenses attributable to Brekford ~~was $173,466~~and Global for the three months ended ~~September~~June 30, ~~2017.~~2018 was $1,402,101. Aggregate selling, general and administrative expenses attributable to legacy Novume for the three months ended June 30, 2018 was $2,926,524, an increase of 33.9% ~~The Company also launched a new television show in~~compared to the ~~second quarter which increased operating costs and expenses by approximately $192,200.~~prior year period.

The increase ~~of $833,341~~ in ~~operating costs~~selling, general and administrative expenses of legacy Novume was primarily due to ~~an increase~~increases in ~~holding company salaries,~~ professional, legal fees, board and ~~legal services related to organization and financial structuring, ramp up of operations~~corporate expenses, and expenses related to ~~initiating and~~ maintaining compliance with applicable listing rules and SEC ~~requirements that were not incurred during the three months ended September 30, 2016.~~requirements. As percentage of revenue, ~~Novume operating costs~~our selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2017 increased~~2018 decreased to ~~67.8% of revenue~~35.1% compared to ~~47.9% in~~70.7% for the ~~comparable period in 2016 due to the items noted above.~~three months ended June 30, 2017.

~~Novume anticipates~~We anticipate that ~~its~~our general and administrative expenses ~~will~~may continue to increase, however at a ~~lower rate,~~reduced pace, in future periods. These increases ~~will~~may include costs related to hiring of personnel and fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with applicable listing rules and SEC requirements, insurance, and investor relations activities.

Other ~~Income (Expense)~~Expense

Other ~~income~~expense, net, for the three months ended ~~September~~June 30, ~~2017~~2018 was $ ~~17,296~~65,453 compared to other expense of ~~($15,656) in the comparable period in 2016. This change was related primarily to rental income.~~

~~Income Taxes~~

KSI initially elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay federal corporate income tax, and in most instances state income tax, on its taxable income. KSI revoked its S Corporation election upon the March 15, 2016 merger with KeyStone, and Novume and is now subject to corporate income taxes. Firestorm is a single-member LLC with KeyStone as the sole member.

~~The benefit from income tax~~$28,800 for the three months ended ~~September~~June 30, ~~2017~~2017. This increase was ~~$225,142 and is~~ primarily related to ~~the recognition~~an increase of $142,056 of interest expense offset by approximately $100,000 reversal of a ~~deferred tax benefit. There was $40,535 of benefit from~~prior year accrued expense.

Income Tax Expense

Our income tax ~~recorded~~provision for the three months ended ~~September~~June 30, ~~2016.~~2018 was $0 compared to a benefit of $0.3 million for the three months ended June 30, 2017. The decrease in the tax benefit recorded is due to the full valuation allowance on our deferred tax assets.

Our income tax provision for the six months ended June 30, 2018 was $0, compared to a benefit of $0.7 million for the six months ended June 30, 2017. The decrease in the tax benefit recorded is due to the full valuation allowance on our deferred tax assets. The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance through the six months ended June 30, 2018; therefore, there was no tax benefit recognized for the losses incurred for the six months ended June 30, 2018.

Net Loss

Net loss for the three months ended ~~September~~June 30, ~~2017~~2018, was ~~$791,360~~$921,288 compared to a net loss of ~~$55,542~~$544,317 for the ~~comparable period in 2016.~~three months ended June 30, 2017. The net loss margin was ~~17.9%~~7.5% for the three months ended ~~September~~June 30, ~~2017~~2018, compared to a net loss margin of ~~2.3%~~15.7% for the ~~comparable period~~three months ended June 30, 2017. The increase in ~~2016, due~~selling, general and administrative expenses in the current quarter compared to the ~~factors noted above.~~prior period increased the net loss.

Results of Operations – Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~

~~Revenue~~2017

Consolidated ~~revenue~~operating results for ~~the nine~~six months ended September 30, includes revenue from Firestorm after the January 25, 2017 acquisition by the Company and from Brekford after the August 28, 2017 Brekford Merger. Revenue increased by $1,548,951, or 16.2%, to $11,131,825 for the nine months ended SeptemberJune 30, 2017 ~~compared to $9,582,874 in the comparable period in 2016. Revenue attributable to~~include AOC Key Solutions, and include Firestorm ~~was $1,248,334~~operations only for the period from January 25, 2017 through ~~September~~June 30, 2017, but do not include operations from Brekford or Global. Consolidated operating results for six months ended June 30, 2018 include AOC Key Solutions, Firestorm, Brekford and Global.

Novume Solutions, Inc.

Consolidated Statements of Operations

For the Six Months Ended June 30, 2018 and 2017

	For the Six Months ended June 30,
	2018	2017
Revenue	$23,556,933	$6,710,250
Cost of revenue	16,999,410	3,560,176
Gross profit	6,557,523	3,150,074

Operating expenses
Selling, general, and administrative expenses	9,609,575	4,942,104
Loss from operations	(3,052,052)	(1,792,030)
Other expense
Interest expense	(263,806)	(63,905)
Other income	200,724	-
Total other (expense) income	(63,082)	(63,905)
Loss before income taxes	(3,115,134)	(1,855,935)
Benefit from income taxes		739,235
Net loss	$(3,115,134)	$(1,116,700)

Revenue

Revenue increased by $16,846,683, or 251%, to $23,556,933 for the six months ended June 30, 2018, compared to $6,710,250 for the six months ended June 30, 2017. ~~Revenue~~Aggregate revenue attributable to Brekford ~~was $224,783~~and Global for the six months ended June 30, 2018 was $15,939,261. Aggregate revenue attributable to legacy Novume for the six months ended June 30, 2018 was $7,617,672, an increase of 13.5% compared to the prior year period ~~from August 28, 2017 through September 30, 2017. The $75,834~~due to an increase in revenue attributable to ~~legacy Novume was due to a small increase in~~ the ~~number~~integration of BC Management and ~~dollar volume of contracts in KSI.~~Secure Education into Firestorm and increased contract activity within AOC Key Solutions.

Cost of Revenue

Total cost of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased ~~by $521,394,~~$13,439,234, or ~~84.2%~~377%, to ~~$6,017,982~~$16,999,410 compared to $ ~~5,496,588 in the comparable period in 2016. Cost of revenue attributable to Firestorm was $412,714~~3,560,176 for the ~~period from January 25, 2017 through September~~six months ended June 30, 2017. ~~Cost~~Aggregate cost of revenue attributable to Brekford ~~was $88,963~~and Global for the ~~period from August 28, 2017 through September~~six months ended June 30, ~~2017. The $19,717 increase in the~~2018 was $13,127,870. Aggregate cost of revenue ~~of the~~attributable to legacy Novume for the six months ended June 30, 2018 was ~~mostly attributable to increased~~$3,871,540, or 50.8% of revenue ~~for KSI noted above.~~ which is consistent with the prior year legacy period of 50.8% of revenue.

Gross Profit

Gross profit for ~~the nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased by ~~$1,027,557,~~$3,407,449, or ~~83.3%~~108%, to ~~$5,113,843~~$6,557,523 compared to $ ~~4,086,286~~3,150,074 for the ~~comparable period in 2016. Gross profit attributable to Firestorm was $835,619 for the period from January 25, 2017 through September~~six months ended June 30, 2017. ~~Gross~~Aggregate gross profit attributable to Brekford ~~was $135,820~~and Global for the ~~period from August 28, 2017 through September~~six months ended June 30, ~~2017. The $56,118 increase in the~~2018 was $2,811,391. Aggregate gross profit ~~of the~~attributable to legacy Novume for the six months ended June 30, 2018 was ~~generally consistent with~~$3,746,132, an increase of 18.9% compared to the ~~increased revenue and costs of revenues at KSI noted above.~~prior year period.

The gross profit margin was ~~45.9%~~27.8% for the ~~nine~~six months ended ~~September~~June 30, 2018, compared to ~~42.6% in~~46.9% for the ~~comparable period in 2016.~~six months ended June 30, 2017. Excluding the17.6% gross profit margin for ~~Firestorm~~Brekford and ~~Brekford,~~Global, the gross profit margin for legacy Novume for the ~~nine~~six months ended ~~September~~June 30, 2018 and ~~2016~~2017 was relatively consistent at ~~42.9%~~49.2% and ~~42.6%~~49.2%, respectively. Because staffing companies, such as Global, have greater costs of services as compared to professional services support providers such as AOC Key Solutions, the addition of Global has had an impact of lowering the consolidated gross profit.

~~Operating Costs~~Selling, General and Administrative Expenses

~~Operating costs~~Selling, general and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, 2018, increased by ~~$4,412,334,~~$4,667,471, or ~~121.8%~~94.4%, to ~~$8,036,339~~$9,609,575 compared to ~~$3,624,005 in the comparable period in 2016. Operating cost and expenses attributable to Firestorm was $1,161,075~~$4,942,104 for the ~~period from January 25, 2017 through September~~six months ended June 30, 2017. ~~Operating cost~~Aggregate selling, general and administrative expenses attributable to Brekford ~~was $173,466~~and Global for the ~~period from August 28, 2017 through September~~six months ended June 30, ~~2017. The Company also launched a new television show in~~2018 was $2,990,164. Aggregate selling, general and administrative expenses attributable to legacy Novume for the ~~second quarter which increased operating costs and expenses by approximately $465,533. This television show airs locally in~~six months ended June 30, 2018 was $6,619,411, an increase of 33.9% compared to the ~~Washington DC market.~~ prior year period.

The increase ~~of $2,612,260 operating costs~~in selling, general and administrative expenses of legacy Novume was primarily due to ~~an increase~~increases in ~~holding company salaries,~~ professional, legal fees, board and ~~legal services, ramp up of operations~~corporate expenses, and expenses related to maintaining compliance with applicable listing rules and SEC ~~requirements that were lower during the nine months ended September 30, 2016 because the Company was formed in mid-March 2016 and spending increased during the nine months ended September 30, 2017.~~requirements. As percentage of revenue, ~~Novume operating costs and expenses for the nine months ended September 30, increased to 72.2% compared to 37.8% in the comparable period in 2016.~~

~~Novume anticipates that its~~our selling, general and administrative expenses ~~will~~for the six months ended June 30, 2018 decreased to 40.8% compared to 73.7% for the six months ended June 30, 2017.

We anticipate that our general and administrative expenses may continue to increase, however at a ~~lower~~reduced pace, in future periods. These increases ~~will~~may include costs related to hiring of personnel and fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with applicable listing rules and SEC requirements, insurance, and investor relations activities.

Other ~~Income (Expense)~~
Expense

Other ~~income~~expense, net, for the ~~nine~~six months ended ~~September~~June 30, 2018 was ~~$44,659~~$63,082 compared to other expense of ~~$(28,693) in~~$63,905 for the ~~comparable period in 2016.~~six months ended June 30, 2017. This ~~change~~decrease was related ~~primarily~~ to ~~rental income.~~an increase of $199,901 of interest expense offset by a $200,000 adjustment to holdback consideration and the reversal of a prior year accrued expense.

Income ~~Taxes~~Tax Expense

~~KSI initially elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay federal corporate~~Our income tax and in most instances state income tax, on its taxable income. KSI revoked its S Corporation election upon the March 15, 2016 merger with KeyStone and Novume and is now subject to corporate income taxes. Firestorm is a single-member LLC with KeyStone as the sole member.

~~The benefit from income tax~~provision for the ~~nine~~six months ended ~~September~~June 30, 2018 was ~~$964,377 and~~$0, compared to a benefit of $0.3 million for the six months ended June 30, 2017. The decrease in the tax benefit recorded is ~~primarily comprised of a~~due to the full valuation allowance on our deferred tax ~~benefit. There~~assets. The Company established a valuation allowance against deferred tax assets during 2017 and has continued to maintain a full valuation allowance through the six months ended June 30, 2018; therefore, there was ~~$13,380 of income~~no tax ~~expense recorded~~benefit recognized for the ~~nine~~losses incurred for the six months ended ~~September~~June 30, ~~2016.~~

2018.

Net ~~(Loss) Income~~Loss

Net loss for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, was ~~$(1,913,460)~~$3,115,134 compared to a net ~~income~~loss of ~~$420,208~~$1,116,700 for the ~~comparable period in 2016.~~six months ended June 30, 2017. The net loss margin was ~~17.2%~~13.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to a net ~~income~~loss margin of ~~4.4%~~16.6% for the ~~comparable~~six months ended June 30, 2017. The increase in selling, general and administrative expenses in the six months ended June 30, 2018 compared to the prior period ~~in 2016.~~increased the net loss.

Cash Flow

Novume expects to finance its operations over the next twelve months from the date of this Form 10-Q primarily through existing cash flow, ~~and from the net proceeds of the Reg 1A Offering,~~ supplemented as necessary by funds available through access to credit and through access to additional ~~capital. The Reg 1A Offering is further described below in~~capital, to the ~~Novume management discussion under Liquidity and Capital Resources.~~extent available to the Company.

The net cash flows from operating, investing and financing activities for the periods below were as follows:

	Nine Months ended September 30,		Six months ended June 30,
	2017	2016	2018	2017
Net cash provided by (used for):
Net cash provided by (used in):
Operating activities	$(2,204,152)	$559,535	$(1,809,427)	$(1,082,664)
Investing activities	(52,985)	(35,377)	971,735	(38,188)
Financing activities	3,230,815	(333,991)	980,942	1,248,119
Net increase (decrease) in cash and cash equivalents:	$973,678	$190,167
Net increase in cash and cash equivalents:			$143,250	$127,267

Cash ~~(Used for) Provided by~~Used in Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, net cash used ~~for~~in operating activities was ~~$(2,204,152)~~$1,809,427. Cash was used primarily to fund our loss from operations of $3,115,134and ~~working capital needs. Novume~~was affected by the increase in current liabilities of $594,712, offset by a decrease in current assets of $130,034. We also incurred non-cash expenses of $841,029including depreciation and amortization, ~~bad debt expense, deferred taxes,~~amortization of intangibles, share-based compensation, deferred rent, financing related costs and changes in fair value of derivative liability.

For the six months ended June 30, 2017, net cash used in operating activities was $1,082,664. Cash was used primarily to fund our loss from operations of $1,116,700 and was affected by the increase in current liabilities of $788,422, offset by a decrease in current assets of $231,625. We also incurred non-cash expenses of $485,761 including depreciation and amortization, provision for losses on accounts receivable, deferred tax effect, share-based compensation, deferred rent, warrant expense, and financing related costs.

~~For the nine months ended September 30, 2016, net cash provided~~Cash Provided by ~~operating activities was $559,535. Cash was provided primarily by net income, increases~~and Used in ~~accounts payable and accrued expenses, offset by increases in accounts receivable and other assets. The Company also incurred non-cash expenses including depreciation and amortization.~~ Investing Activities

~~Cash (Used for) Investing Activities~~For the six months ended June 30, 2018, net cash provided by investing activities of $971,735 was primarily as a result of $1,475,000 of proceeds from the sale of a note receivable offset by the development of new products including the allocation of certain labor costs and the purchase of computer hardware and equipment.

For the ~~nine~~six months ended ~~September~~June 30, 2017, net cash used ~~for~~in investing activities of ~~($52,985)~~$38,188 related to the purchase of computer hardware and equipment.

Cash Provided by Financing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, net cash ~~used for investing~~provided by financing activities of ~~($35,377)~~$980,942 related to the ~~purchase~~proceeds from notes payable of ~~computer hardware~~$2,000,000 and ~~equipment.~~the exercise of options of $6,697 offset by the net short-term repayments of $850,739 and the payment of Series A and Series B Preferred Stock dividends of $229,816.

~~Cash Provided by (Used for) Financing Activities~~

For the ~~nine~~six months ended ~~September~~June 30, 2017, net cash provided by financing activities of ~~$3,230,815~~$1,248,119 related to ~~the net~~ proceeds from the issuance of preferred stock ~~and cash acquired by the acquisition~~ of ~~Brekford,~~$1,809,964, net of fees, offset by ~~the acquisition of Firestorm, net of cash acquired, and~~ the payment of Series A Preferred Stock ~~dividends.~~

~~For~~dividends of $144,141 and the ~~nine months ended September 30, 2016,~~acquisition of Firestorm of $417,704, net of cash ~~used for financing activities of $(333,991) related to proceeds from a note payable offset by KSI stockholders’ distributions.~~acquired.

Non-Cash Financing Activities

In March 2016, the KSI’s stockholders exchanged 100% of their outstanding shares of common stock in KSI for proportionate shares of KeyStone’s outstanding common stock and $1,192,844 of undistributed earnings were contributed to KeyStone.

In January 2017, KeyStone acquired Firestorm as described above. The non-cash consideration for this acquisition included notes payable of $907,407 and the issuance of 946,875 shares (post merger exchange) of ~~Novume~~our common stock and 631,254 warrants valued at $1,203,986.

In ~~August 2017,~~January 2018, we acquired the ~~Company merged with Brekford as described above.~~assets of Secure Education. The non-cash consideration for ~~the Brekford Merger~~this acquisition included the issuance of ~~3,287,187~~33,333 shares of ~~Novume~~our common stock valued at ~~$5,851,193.~~$163,332 and the issuance of 66,666 Novume common stock warrants valued at $123,472.

Lease Obligations

~~The Company leases~~We lease office space in Chantilly, Virginia under the terms of a ten-year lease expiring October 31, 2019. The lease contains one five-year renewal option. The lease terms include an annual increase in base rent and expenses of 2.75%~~. The Company~~, which have been amortized ratably over the lease term.

We also ~~leases~~lease office space inin: New Orleans, Louisiana under the terms of a three-year lease ~~expiring~~which expired on May 31, 2018, and inlease payments are currently on a month-to-month basis; Roswell, Georgia under a lease expiring ~~October~~January 31, ~~2017.~~2022; Hanover, Maryland under a lease expiring December 31, 2018; and Fort Worth, Texas under a lease expiring January 31, 2022. In addition, ~~the Company leases~~we lease office space from Global Public Safety on a month-to-month basis ~~and it leases space~~ under an operating lease with a 90-day termination notice by either party. Furthermore, we lease office space in Grand Rapids, Michigan under a seven-year lease expiring ~~on December 31, 2017.~~in October 2023.

Rent expense for the ~~three~~six months ended ~~September~~June 30, 2018 and 2017 was $398,795and ~~2016 was $193,985 and $178,946,~~$275,467, respectively, and ~~for the nine months ended September 30,~~is included in selling, general and ~~2016 was $575,181 and $533,168, respectively.~~administrative expenses.

As of ~~September~~June 30, ~~2017,~~2018, the future obligations over the primary terms of the long-term leases expiring ~~between 2017 and 2020~~through 2023 are as follows:

2017	$188,854
2018	697,153
2018 (remainder of year)		$400,307
2019	624,024	624,228
2020	64,475	190,599
2021		101,386
2022		38,873
Thereafter		30,393
Total	$1,574,506	$1,385,786

~~The Company is~~We are the lessor in an agreement to sublease office space in Chantilly, Virginia with an initial term of two years with eight one-year options to renew the lease through October 31, 2019. The lease provides for an annual increase in base rent and expenses of 2.90%. The initial term ended October 31, 2011 and ~~the Company~~we exercised the renewal options through 2014. On April 7, 2015, the lease was amended to sublease more space to the subtenant and change the rental calculation. ~~Rent income~~The sublease agreement provided for an offset of $91,267 to rent expense for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016 was $46,957 and $45,634, respectively, and for the nine months ended September 30, and 2016 was $140,871 and $136,901, respectively.~~2017.

Liquidity and Capital Resources

~~The Company has~~During 2017 and 2018, we have funded ~~its~~our operations primarily through cash from operating activities from our subsidiaries, revolving lines of ~~KSI, Firestorm,~~credit, issuance of debt, the ~~$500,000 Avon Note (see below)~~completed Reg A offering and the ~~Reg 1A offering.~~sale of assets. As of ~~September~~June 30, ~~2017, Novume~~2018, we had unrestricted cash and cash equivalents of ~~$3,762,265~~$2,100,462 and working capital deficit of ~~$4,423,001,~~$618,511, as compared to unrestricted cash and cash equivalents ~~$2,788,587~~of $1,957,212 and working capital of ~~$3,714,958~~$2,750,578 as of December 31, ~~2016.~~

Operating assets and liabilities consist primarily of receivables from billed and unbilled services, accounts payable, accrued expenses, and accrued payroll and related benefits. The volume of billings and timing of collections and payments affect these account balances.
2017.

In the Fall of 2016, ~~the Company~~we commenced ~~its Reg 1A~~our Regulation A Offering (the "Reg A Offering") of up to 3,000,000 Units. At the initial closing of the Reg 1AA Offering, on December 23, 2016, ~~the Company~~we sold 301,570 Units and received aggregate gross proceeds of $3,015,700. At the second closing of the Reg 1AA Offering, on January 23, 2017, ~~the Company~~we sold 119,757 Units and received aggregate gross proceeds of $1,197,570. At the third and final closing of the Reg 1AA Offering, on March 21, 2017, ~~the Company~~we sold 81,000 Units and received aggregate gross proceeds of $810,000. As reported ~~by KeyStone in its~~our Current Report on Form I-U, as filed with the SEC on March 22, 2017, the Reg 1AA Offering is now closed, effective as of the third closing.

Following the Brekford Merger, all outstanding shares of KeyStone Series A Preferred Stock were exchanged for the right to receive one share of Novume Series A Preferred Stock. Novume Series A Preferred Stock will be entitled to quarterly dividends in the amount of $0.175 (7% per annum) per share, being an identical per annum percentage per share dividend as received by holders of KeyStone Series A Preferred Stock prior to the Brekford Merger. We anticipate that ~~Novume~~we will pay the quarterly cash dividends through cash flow from ~~Novume,~~operations, potential business growth from other acquired entities and access to additional credit or capital. The quarterly dividend payments are due within five ~~(5)~~ business days following the end of a quarter.

On ~~April 7,~~December 31, 2017, Novume paid cash dividends of $75,695 to holders of record of Novume Series A Preferred Stock as of March 30, 2017. On July 8, 2017, the Company paid cash dividends of $87,907 to shareholders of record as of June 30, 2017. On September 30, 2017, the Companywe declared and accrued dividends of $87,907 payable to Series A shareholders of record as of ~~September~~December 31, 2017. On January 5, 2018, we paid cash dividends of $87,907 to Series A shareholders of record as of December 31, 2017. On April 6, 2018, we paid cash dividends of $87,907 to Series A shareholders of record as of March 31, 2018. On June 30, ~~2017.~~2018, we declared and accrued dividends of $87,907 payable to Series A shareholders of record as of June 30, 2018. On July 9, 2018, we paid cash dividends of $87,907 to Series A shareholders of record as of June 30, 2018.

As part of the Global Merger, we issued 240,861 shares of $0.0001 par value Series B Preferred Stock. All Series B Preferred Stock was issued at a price of $10.00 per share as part of the acquisition of the Global Merger. The Series B Preferred Stock has a conversion price of $5.00 per share. Each Series B Preferred Stock has an automatic conversion feature based on the share price of Novume. The Series B Preferred Stock is entitled to quarterly cash dividends of 1.121% (4.484% per annum) per share. On December 31, 2017, we declared and accrued dividends of $27,001 payable to Series B shareholders of record on December 31, 2017. On January 5, 2018, we paid cash dividends of $27,001 to Series B shareholders of record as December 31, 2017. On April 6, 2018, we paid cash dividends of $27,001 to Series B shareholders of record as of March 31, 2018. On June 30, 2018, we declared and accrued dividends of $27,001 payable to Series B shareholders of record as of June 30, 2018. On July 9, 2018, we paid cash dividends of $27,001 to Series B shareholders of record as of June 30, 2018.

~~KSI was a party to a business loan agreement (the “2015 Loan Agreement”) with Sandy Spring Bank (“SSB”) dated as~~Operating assets and liabilities consist primarily of ~~September 25, 2015. The primary credit facility was an asset based revolving line~~receivables from billed and unbilled services, accounts payable, accrued expenses, current portion of long-term debt and lines of credit, up to $1,000,000 which was due to mature on September 30, 2016. To secure its obligations under the 2015 Loan Agreement, KSI had granted to SSB a security interest in its accounts receivable. SSB was required to advance funds to KSI up to the lesserand accrued payroll and related benefits. The volume of ~~(1) $1,000,000 or (2) eighty percent (80%)~~billings and timing of ~~the aggregate amount of all of its accounts receivable aged 90-days or less which contained selling terms~~collections and conditions acceptable to SSB. KSI’s obligations under the 2015 Loan Agreement were guaranteed by James McCarthy, the Chairman of Novume (and former chairman of KSI), and his wife. KSI did not draw any funds from this credit facility in 2015. Pursuant to First Amendment to Business Loan Agreement (Asset Based), dated May 9, 2016, SSB had waived the restrictions in the 2015 Loan Agreement on KSI’s ability to make dividends to the Company. There was no outstanding balance on the 2015 Loan Agreement at December 31, 2016.payments affect these account balances.

On August 11, 2016, ~~Novume~~we entered into a Loan and Security Agreement (the “2016 Line of Credit”) with ~~SSB that replaced the 2015 Loan Agreement.~~Sandy Spring Bank (“SSB”). The 2016 Line of Credit was comprised of: 1) an asset-based revolving line of credit up to $1,000,000 for short-term working capital needs and general corporate purposes which ~~is due to mature~~matured on July 31, 2017, bore interest at the Wall Street Journal Prime Rate, floating, plus 0.50% and ~~wass~~was secured by a first lien on all of ~~Novume’s~~our business assets; and 2) an optional term loan of $100,000, which ~~must be drawn by July 31, 2017,~~ was for permanent working capital, bore interest at the Wall Street Journal Prime Rate, floating, plus 0.75%, ~~requires~~required monthly payments of principal plus interest to fully amortize the loan over four ~~(4)~~ years, ~~and~~ was secured by a first lien on all of ~~Novume’s~~our business assets, cross-collateralized and cross-defaulted with the revolving line of ~~credit. The 2016 Line of Credit had a final maturity date of~~credit, and was to mature on February 15, ~~2019 and did not require any personal guarantees.~~2019.

The borrowing base for the 2016 Line of Credit was up to the lesser of (1) $1,000,000 or (2) eighty percent (80%) of the aggregate amount of all ~~of Novume’s~~ eligible accounts receivable as defined by SSB. The borrowing base for the $100,000 term loan was fully reserved under the borrowing base for the revolving line of credit. The 2016 Line of Credit ~~hadd~~had periodic reporting requirements and balance sheet covenants, as well as affirmative and negative operational and ownership covenants. Novume was in compliance with all 2016 Line of Credit ~~covenents~~covenants at December 31, ~~2016.~~2016 and March 31, 2017. In August 2017, ~~the Company~~we terminated the 2016 Line of Credit with SSB. ~~As such, there was no outstanding balance on the 2016 Line of Credit at September 30, 2017.~~

As such, as of ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, Novume had no balances due ~~respectively,~~ for the 2016 Line of Credit and the 2015 Loan Agreement. When Novume replaced the 2015 Loan Agreement with the 2016 Line of Credit on August 11, 2016, neither line of credit had a balance due. The Company terminated the 2016 Line of Credit in August 2017 and consequently there ~~are~~were no amounts outstanding as of the date of this ~~Report~~Form 10-Q.

Global has revolving lines of credit with Wells Fargo Bank, National Association (“WFB”) (“the Global Wells Agreements”). WFB agreed to advance to Global, 90% of all eligible accounts with a maximum facility amount of $5,000,000. Interest is payable under the Global Wells Agreements at a monthly rate equal to the Three-Month LIBOR in effect from time to time plus 3% plus the Margin. The Margin is 3%. Payment of the revolving lines of credit is secured by the accounts receivable of Global. The current terms of the Global Wells Agreements run through December 31, 2018, with automatic renewal terms of 12 months. WFB or Global may terminate the Global Wells Agreements upon at least 60 days’ written notice prior to the last day of the current term. The principal balance at June 30, 2018 and December 31, 2017 was $2,012,997 and $2,057,259, respectively. As part of the lines of credit agreements, Global must maintain certain financial covenants. Global met all financial covenant requirements for the three months ended March 31, 2018.

On November 12, 2017, AOC Key Solutions entered into an Account Purchase Agreement and related agreements (the “AOC Wells Agreement”) with WFB. Pursuant to the AOC Wells Agreement, AOC Key Solutions agreed to sell and assign to WFB all of its Accounts (as such term is defined in Article 9 of the Uniform Commercial Code), constituting accounts arising out of sales of Goods (as such term is defined in Article 9 of the Uniform Commercial Code) or rendition of services that WFB deems to be eligible for borrowing under the AOC Wells Agreement. WFB agreed to advance to AOC Key Solutions, 90% of all eligible accounts with a maximum facility amount of $3,000,000. Interest is payable under the AOC Wells Agreement at a monthly rate equal to the Daily One Month LIBOR in effect from time to time plus 5%. The AOC Wells Agreement also provides for a deficit interest rate equal to the then applicable interest rate plus 50% and a default interest rate equal to the then applicable interest rate or deficit interest rate, plus 50%. The initial term of the AOC Wells Agreement runs through December 31, 2018 (the “Initial Term”), with automatic renewal terms of 12 months (the “Renewal Term”), commencing on ~~Form 10-Q.~~the first day after the last day of the Initial Term. AOC Key Solutions may terminate the AOC Wells Agreement upon at least 60 days’ prior written notice, but no more than 120 days’ written notice, prior to and effective as of the last day of the Initial Term or the Renewal Term, as the case may be. WFB may terminate the AOC Wells Agreement at any time and for any reason upon 30 days’ written notice or without notice upon the occurrence of an Event of Default (as such term is defined in the Agreement) after the expiration of any grace or cure period. The principal balance at June 30, 2018 and December 31, 2017 was $854,650 and $1,606,327, respectively. As part of the line of credit agreement, AOC Key Solutions must maintain certain financial covenants. AOC Key Solutions met all financial covenant requirements for the three months ended June 30, 2018.

On March 16, 2016, Novume entered into a Subordinated Note and Warrant Purchase Agreement (the “Avon Road Note Purchase Agreement”) pursuant to which Novume agreed to issue up to $1,000,000 in subordinated debt (the "Avon Road Note") and warrants to purchase up to 242,493 shares of Novume’s common stock (“Avon Road Subordinated Note Warrants”). The exercise price for the Avon Road Subordinated Note Warrants is equal to ~~$1.03~~$1.031 per share of common stock. Subordinated notes with a face amount of $500,000 and Avon Road Subordinated Note Warrants to purchase 121,247 shares of Novume’s common stock have been issued pursuant to the Avon Road Note Purchase Agreement to Avon Road Partners, L.P. (“Avon Road”), an affiliate of Robert Berman, Novume’s CEO and a member of Novume’s Board of Directors. The Avon Road Subordinated Note Warrants ~~has~~had an expiration date of March 16, 2019 and qualified for equity accounting as the ~~warrant~~warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. ~~The fair value was determined to be $58,520 and was recorded as a debt discount and additional paid-in capital in the accompanying consolidated balance sheet as of December 31, 2016.~~ The debt discount is being amortized as interest expense on a straight-line basis, which approximates the effective interest method, through the maturity date of the note payable. ~~The balance as of September 30, 2017 for the debt discount was $42,711.~~

The ~~note is subordinated to the 2016 Line of Credit with SSB and any successor financing facility. Simple~~Avon Road Note accrues simple interest ~~accrues~~ on the unpaid principal of the note at a rate equal to the lower of (a) 9% per annum, or (b) the highest rate permitted by applicable law. Interest is payable monthly, and the note matures on March 16, 2019. ~~The Company terminated the 2016 Loan Agreement in August 2017.~~

~~Pursuant~~On April 3, 2018, Novume and Brekford entered into a transaction pursuant to which an institutional investor (the “Lender”) loaned $2,000,000 to Novume and Brekford (the “April 2018 Promissory Note”). The loan is due and payable on May 1, 2019 and bears interest at 15% per annum, with a minimum of 15% interest payable regardless of when the loan is repaid. The loan is secured by a security interest in all of the assets of Brekford. In addition, Novume agreed to issue 35,000 shares of common stock to the ~~terms~~Lender, which shares contain piggy-back registration rights. If the shares are not so registered on the next selling shareholder registration statement, Novume shall be obligated to issue an additional 15,000 shares to the Lender. Upon any sale of Brekford or its assets, the ~~acquisition~~Lender will be entitled to receive 7% of ~~the membership interests in the Firestorm Entities, the Company issued $1,000,000 in the aggregate in the form of four unsecured, subordinated promissory notes, issued~~any proceeds received by Novume or Brekford in excess of $5 million (the “Lender’s Participation”). In addition, commencing January 1, 2020, the Lender shall be paid 7% of Brekford’s earnings before interest, taxes, depreciation and ~~payable over five years after~~amortization, less any capital expenditures, which amount would be credited for any payments that might ultimately be paid to the ~~Firestorm Closing Date,~~Lender as its Lender’s Participation, if any. At April 3, 2018, the fair value of shares issued was $126,000 and designated as financing cost and the amortized financing cost for the three months ended June 30, 2018 was determined to ~~all the Members of the Firestorm Entities.~~be $29,076. The ~~principal amount of the~~April 2018 Promissory note payable to Lancer is $500,000. The principal amount of the note payable to Mr. Rhulen is $166,666.66. The principal amount of the notes payable to each of Mr. Satterfield and Ms. Loughlin is $166,666.67. The Firestorm Principal Notes are payable athas an effective interest rate of 2%20.8%.

The Company has generated losses since its inception in August 2017 and has relied on cash on hand, external bank lines of credit, issuance of debt and the ~~Lancer Note is payable at an interest rate~~sale of ~~7%.~~a note to provide cash for operations. The ~~balance~~Company attributes losses to merger costs, public company corporate overhead, lower than expected revenue and lower gross profit of ~~these notes payable~~some of our subsidiaries. As of and for the six months ended June 30, 2018, the Company incurred a net loss from continuing operations of approximately $3.1 million and used approximately $1.8 million in net cash from operating activities from continuing operations. The Company had total cash and cash equivalents of approximately $2.1 million as of ~~September~~June 30, ~~2017was $919,753~~2018 and a negative net working capital of $0.6 million.

No additional sources of capital have been obtained or committed through the date these consolidated financial statements were available to be issued. Although certain of our subsidiaries are profitable, due to the operating costs associated with being a public company and expenses related to product development and commercialization costs at other subsidiaries, we anticipate that we will operate at a loss for the foreseeable future.

We continue to seek additional funding. However, no assurance can be given that we will be successful in raising adequate funds needed. If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue the development or commercialization of one of our products, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. The Company will implement its plans to reduce or defer expenses and cash outlays unless operations improve in the look-forward period.

Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional funding in the near future and thereafter, and no assurances can be given that such funding will be available at all or will be available in sufficient amounts or on reasonable terms. Without additional funds from debt or equity financing, sales of assets or other transactions yielding funds, we may exhaust our resources and may be unable to continue operations. Absent additional funding, we believe that our cash and cash equivalents will not be sufficient to fund our operations for a period of one year or more after the date that these consolidated financial statements are available to be issued based on the timing and amount of our projected net loss from continuing operations and cash to be used in operating activities during that period of time.

As a result, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are available to be issued. The accompanying consolidated financial statements do not include any adjustments to reflect the ~~amortized fair value~~possible future effects on the recoverability and classification of recorded assets, or the ~~notes issued due~~amounts and classification of liabilities that might be different should the Company be unable to continue as a going concern based on the ~~difference in interest rates.~~outcome of these uncertainties described above.

As of ~~September~~June 30, ~~2017,~~2018, Novume did not have any material commitments for capital expenditures.

Recent Events

None.

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

As of the date of this Quarterly Report on Form 10-Q, ~~Novume~~we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Critical Accounting Policies and Estimates

The discussion and analysis of ~~Novume’s~~our financial condition and results of operations is based upon Novume’s consolidated financial statements which have been prepared in accordance with ~~“GAAP”~~accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires the management of Novume to make estimates and judgments that affect the reported amounts in our consolidated financial statements.

~~Novume believes~~We believe the application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Novume bases its estimates on historical experience and on various other assumptions that management of Novume believes to be reasonable under the circumstances, the results of which form management’s basis for making judgments about the carrying values of assets and liabilities that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates.

Novume’s accounting policies are further described in its historical audited consolidated financial statements and the accompanying notes included elsewhere in this ~~Report on~~ Form 10-Q. Novume has identified the following critical accounting policies:

Revenue Recognition

~~Novume recognizes~~On January 1, 2018, the Company adopted Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers.

The Company generates substantially all revenues from providing professional services to clients. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its ~~revenues for the provision of services~~relative standalone selling price, which is determined based on our overall pricing objectives, taking into consideration market conditions and other factors.

Revenue is recognized when ~~persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable, and the collectability~~control of the goods and services provided are transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract; 2) identify the performance obligations; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue as or when the Company satisfies the performance obligations. The Company typically satisfies performance obligations for professional services over time as the related ~~revenue is reasonably assured. Novume principally derives~~services are provided.

The Company generates revenues ~~from fees for services generated on a project by project basis. Revenues for time-and-materials contracts are recognized~~under three types of billing arrangements: time-and-expense; fixed-fee; and franchise fees.

Time-and-expense billing arrangements require the client to pay based on the number of hours worked by ~~our employees or consultants~~revenue-generating staff at an agreed upon ~~rate per hour~~rates. The Company recognize revenues under time-and-expense arrangements as the related services are provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount that the Company has a right to invoice, based on the number of hours worked and the agreed upon hourly rates.

In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a predetermined set ~~forth in~~of professional services or deliverables. The Company sets the fees based on our ~~standard rate sheet or as written from time~~estimates of the costs and timing for completing the engagements. The Company generally recognizes revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on the cost of the work completed to-date versus our estimates of the total cost of the services to ~~time in~~be provided under the engagement. Estimates of total engagement revenues and cost of services are monitored regularly during the term of the engagement. If our ~~contracts or purchase orders. These costs are~~estimates indicate a potential loss, such loss is recognized in the period in which ~~services are performed.~~the loss first becomes probable and can be reasonably estimated.

~~Revenues related~~The Company collects initial franchise fees when franchise agreements are signed. The Company recognizes franchise fee revenue over the estimated life of the franchise, beginning with the opening of the franchise, which is when the Company has performed substantially all initial services required by the franchise agreement and the franchisee benefits from the rights afforded by the franchise agreement. Royalties from individual franchises are earned based upon the terms in the franchising agreement which are generally the greater of $1,000 or 8% of the franchisee’s monthly gross sales.

Expense reimbursements that are billable to ~~firm-fixed-price~~clients are included in total revenues and cost of revenue.

The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue are recognized ~~upon~~as either unbilled services or deferred revenues in the accompanying consolidated balance sheets. Revenues recognized for services performed, but not yet billed to clients, are recorded as unbilled services. Revenues recognized, but for which the Company has not yet been entitled to bill because certain events must occur, such as the completion of the ~~project~~measurement period or client approval, are recorded as ~~these projects~~contract assets and included within unbilled services. Client prepayments and retainers are ~~typically short-term~~classified as deferred revenues and recognized over future periods, as earned, in ~~nature.~~

~~The agreements entered into in connection~~accordance with ~~a project, whether on a time-and-materials basis or firm-fixed-price basis, typically allow our clients to terminate early due to breach or for convenience with 30-days’ notice. In~~ the ~~event~~applicable engagement agreement. As of ~~termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination.~~

~~For automated traffic safety enforcement revenue,~~December 31, 2017, the Company ~~recognizes~~had $117,636 of deferred revenue, of which $19,063 and $30,303, was recognized for the ~~revenue when the required collection efforts, from citizens, are completed~~three and posted to the municipality’s account. The respective municipality is then billed depending on the terms of the respective contract, typically 15 days after the preceding month while collections are reconciled. For contracts where the Company receives a percentage of collected fines, revenue is calculated based upon the posted payments from citizens multiplied by the Company’s contractual percentage. For contracts where Company receives a specific fixed monthly fee regardless of citations issued or collected, revenue is recorded once the amount collected from citizens exceeds the monthly fee per camera. The Company’s fixed fee contracts typically have a revenue neutral provision whereby the municipality’s payment to Brekford cannot exceed amounts collected from citizens within a given month.six months ended June 30, 2018, respectively.

Accounts Receivable

Accounts receivable are customer obligations due under normal trade terms. ~~Novume performs~~We perform continuing credit evaluations of ~~its~~our clients’ financial condition, and Novume generally does not require collateral.

Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, client historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.

~~Novume records~~We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. ~~Novume~~We also ~~records~~record as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and ~~Novume’s~~our assessment of the general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. The balance in the allowance for doubtful accounts was ~~$24,000 and $0~~$24,000 as of ~~September~~June 30, ~~2017~~2018 and ~~2016, respectively. Based on the information available, Novume determined that no allowance for doubtful accounts was necessary as of~~ December 31, ~~2016 and 2015.~~2017. However, actual write-offs might exceed the recorded allowance.

Income Taxes

~~Through March 15, 2016, KSI had elected to be taxed under~~We use the ~~provisions~~liability method of ~~Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay U.S. federal corporate~~accounting for income taxes ~~and~~as set forth in ~~most instances state income tax, on its taxable income. Instead,~~ the ~~stockholders of KSI were liable~~authoritative guidance for individual income taxes on their respective shares of KSI’s net income. KSI effectively revoked its S Corporation election upon the March 15, 2016 merger with Novume. As a result, Novume is now subject to corporateaccounting for income taxes. ~~Firestorm is a single-member LLC with Novume as~~This method requires an asset and liability approach for the ~~sole member.~~

recognition of deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

~~Novume’s~~

Management has evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, we fully reserved for its net deferred tax assets because management believes that it is more likely than not that their benefits will not be realized in future periods. We will continue to evaluate its net deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of our net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly.

The tax effects of uncertain tax positions are recognized in the consolidated financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized. It is our accounting policy to account for ASC 740-10-related penalties and interest as a component of the income tax provision in the consolidated statements of operations and comprehensive loss.

As of June 30, 2018, our evaluation ~~as of September 30, 2017 and December 31, 2016~~ revealed no uncertain tax positions that would have a material impact on the financial statements. The ~~2013~~2014 through ~~2015~~2017 tax years remain subject to examination by the ~~IRS. Management~~IRS, as of ~~Novume~~June 30, 2018. Our management does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the financial statements.

Going Concern and Management’s Plan

Beginning with the year ended December 31, 2017 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections and estimates, and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.

The Company has generated losses since its inception in August 2017 and has relied on cash on hand, external bank lines of credit, issuance of debt and the sale of a note to provide cash for operations. The Company attributes losses to merger costs, public company corporate overhead and lower than expected revenue and lower gross profit of some of our subsidiaries. As of and for the six months ended June 30, 2018, the Company incurred a net loss from continuing operations of approximately $3.1 million and used approximately $1.8 million in net cash from operating activities from continuing operations. The Company had total cash and cash equivalents of approximately $2.1 million as of June 30, 2018 and a negative net working capital of $0.6 million.

No additional sources of capital have been obtained or committed through the date these consolidated financial statements were available to be issued. While certain of our subsidiaries are profitable and due to the operating costs associated with being a public company and expenses related to product development and commercialization, we anticipate that we will operate at a loss for the foreseeable future.

We continue to seek additional funding. However, no assurance can be given that we will be successful in raising adequate funds needed. If we are unable to raise additional capital when required or on acceptable terms, we may have to delay, scale back or discontinue the development or commercialization of one of our products, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. The Company will implement its contingency plans to reduce or defer expenses and cash outlays unless operations improve in the look-forward period.

As a result, substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are available to be issued. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be different should the Company be unable to continue as a going concern based on the outcome of these uncertainties described above.

New Accounting Pronouncements

Recently Issued Accounting Pronouncements

Not Yet Adopted

In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. ~~The Company is~~We are currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems.

In May 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. The update is effective for fiscal year 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. ~~The Company is~~We are currently evaluating the effect of this update but ~~does~~do not believe it will have a material impact on its financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill ~~Impairment~~Impairment.. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company will test goodwill for impairment within one year of the acquisition or annually as of December 1, and whenever indicators of impairment exist.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, as part of its simplification initiatives. The update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than deferring the recognition until the asset has been sold to an outside party as is required under current GAAP. The update is effective for fiscal year 2019. The new standard will require adoption on a modified retrospective basis through a cumulative-effect adjustment to retained earnings, and early adoption is permitted. ~~The Company is~~We are currently evaluating the effect that this update will have on ~~its~~our financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. ~~The Company is~~We are currently evaluating the impact of the adoption of this guidance on ~~its~~our consolidated financial condition, results of operations and cash flows.

There are currently no other accounting standards that have been issued but not yet adopted that will have a significant impact on our consolidated financial position, results of operations or cash flows upon adoption.

Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, ~~Accounting Standards Codification ("ASC")~~ASC Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:

●

●	ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of the new guidance such that the new provisions will now be required for fiscal years, and interim periods within those years, beginning after December 15, 2017.

●	ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).

●	ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.

●	ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.

●

~~ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations (reporting revenue gross versus net).~~

●

~~ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations and classifying licensing arrangements.~~

●

~~ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which clarifies the implementation guidance in a number of other areas.~~

The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. ~~The Company is currently in the process of completing its assessment of any significant contract~~ASU 2014-09 and ~~assessing the impact the adoption of the new revenue standard will have on its consolidated financial statements and related disclosures. The standard update, as amended, will be~~ASU 2016-12 are effective for annual reporting periods beginning after December 15, 2017. The Company performed an initial assessment of the impact of the ASU and is developing a transition plan, including necessary changes to policies, processes, and internal controls as well as system enhancements to generate the information necessary for the new disclosures. The project is on schedule for adoption on

On January 1, 2018, ~~and~~ the Company ~~will apply~~adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective method. ~~The Company expects revenue recognition across its portfolio~~Novume has aggregated and reviewed all contracts at the date of ~~services to remain largely unchanged. However,~~initial application that are within the ~~Company expects to recognize revenue earlier than it~~scope of Topic 606, excluding time-and-expense contracts at AOC Key Solutions and Global since Topic 606 does under current guidance in a few areas, including accounting for variable fees and for certain consulting services, which will be recognized over time rather than at a point in time. While the Company has not ~~finalized its assessment of the impact of the ASU, based on the analysis completed to date, the Company does not currently anticipate that the ASU will~~ have a material impact on time-and-expense contracts. Based on its ~~Consolidated Financial Statements.~~

There are currently no other accounting standards that have been issued but not yet adopted that will have a significant impact on Novume’s consolidated financial position, results of operations or cash flows upon adoption.

~~Recently Adopted~~

~~In January 2017, the FASB issued ASU 2017-01~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. We adopted ASU 2017-01 as of January 1, 2017.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~. The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard and the impact ofevaluation, the adoption ~~was not material to the consolidated financial statements.~~

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Balance Sheet Classification~~ of ~~Deferred Taxes~~. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. KeyStone early adopted and applied the new standard retrospectively to the prior period presented in the accompanying consolidated balance sheets and it did not have a material impact.

~~In April 2015, the FASB issued ASU 2015-03,~~ ~~Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs~~. The update requires that deferred debt issuance costs be reported as a reduction to long-term debt (previously reported in other noncurrent assets). The Company adopted ASU 2015-03 in 2016 and for all retrospective periods, as required, and the impact of the adoption was not material to our consolidated financial statements.

~~In August 2014, the FASB issued ASU 2014-15,~~ ~~Presentation of Financial Statements – Going Concern,~~ which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. This accounting standard update applies to all entities and was effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company adopted this standard during fiscal year 2016 and itTopic 606 did not have a material impact on the Company’s balance sheet or related consolidated ~~results~~statements of operations, ~~financial position~~equity or cash flows.

~~In March 2016,~~ Therefore, prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605. The impact of adopting Topic 606 to the ~~FASB issued ASU 2016-09,~~ ~~Improvements~~Company as of January 1, 2018 relate to: (1) a change to ~~Employee Share-Based Payment Accounting. The standard reduces complexity in several aspects~~franchisee agreements recorded prior to 2017 of $22,000 which will be amortized over remaining term of the ~~accounting for employee share-based compensation, including~~franchisee agreements; and (2) the ~~income tax consequences, classification~~timing of ~~awards~~certain contractual agreements which amounted to $45,000 and subsequently recognized as ~~either equity or liabilities,~~revenue in six months ended June 30, 2018 resulting in (3) an increase in each of deferred revenue and ~~classification on the statement~~accumulated deficit of ~~cash flows.~~ $67,000. The ~~ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard and the~~ impact of adopting Topic 606 on our consolidated balance sheet as of June 30, 2018 is a $50,500 reduction to deferred revenue. The impact of adopting Topic 606 on our consolidated income statement for the ~~adoption was not material~~six months ended June 30, 2018 is a $50,500 increase in revenue. Revenue recognition related to the ~~consolidated financial statements.~~Company’s other revenue streams will remain substantially unchanged. As of June 30, 2018, approximately $16,500 of deferred revenue recognized upon adoption of Topic 606 is expected to be recognized from remaining performance obligations for a franchise contract over the next 18 months.

~~The Company does~~We do not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on ~~its~~our consolidated financial statements.

Item 3.

Quantitative and Qualitative Disclosures ~~About~~about Market ~~Risk.~~Risk

~~Not applicable.~~As a “smaller reporting company” as defined by Item 10 of Regulation SK, we are not required to provide information required by this Item.

Item 4.

Controls and ~~Procedures.~~Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(f) of the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ~~Chief~~Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

We carried out an evaluation, required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act, under the supervision and with the participation of management, including our Chief Executive Officer and ~~Chief~~Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this review, our Chief Executive Officer and ~~Chief~~Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were not effective as of ~~September~~June 30, ~~2017. The Company is in the process of executing a plan to address this lack of effectiveness.~~
2018.

Changes to Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Part ~~II. Other Information~~II

OTHER INFORMATION

Item 1.Legal ~~Proceedings.~~Proceedings

None.

Item 1A.Risk ~~Factors.~~Factors

There have been no material changes to the risk factors disclosed in “Risk Factors” in our ~~S-4~~Annual Report on Form 10-K as filed with the SEC on ~~August 2, 2017.~~April 12, 2018.

Item 2.Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds

None.

Item 3.Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4.Mine Safety ~~Disclosures.~~Disclosures

Not applicable.

Item 5.Other ~~Information.~~Information

None.

Item 6.Exhibits

(a) Exhibits.

Number		Description

31.1		Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1		Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2		Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
101-INS		XBRL Instance Document
101-SCH		XBRL Taxonomy Extension Schema Document
101-CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101-LAB		XBRL Taxonomy Extension Label Linkbase Document
101-PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101-DEF		XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Novume Solutions, Inc.

Date: August 14, 2018		/s/ Robert A. Berman
	Name:	Robert A. Berman
	Title:	Chief Executive Officer
		Principal Executive Officer


Date: August 14, 2018		/s/ ~~Carl Kumpf~~ Riaz Latifullah
	Name:	~~Carl Kumpf~~ Riaz Latifullah
	Title:	~~Chief Financial Officer, Principal Accounting Officer~~EVP Corporate Development
		Principal Financial and Accounting Officer
		Authorized Signatory

~~Date: November 13, 2017~~

4158

Delaware	8742	81-5266334
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐	(Do not check if a smaller reporting company)	Smaller reporting company ☒ Emerging growth company ☐

Part I	FINANCIAL INFORMATION	~~Page~~
		~~Number~~

~~PART I.~~	~~Financial Information~~	3
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2636
Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk	3956
Item 4.	Controls and Procedures	39 56

~~PART II.~~ Part II	~~Other Information~~OTHER INFORMATION	57
Item 1.	Legal Proceedings	4057
Item 1A.	Risk Factors	4057
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4057
Item 3.	Defaults Upon Senior Securities	4057
Item 4.	Mine Safety Disclosures	4057
Item 5.	Other Information	4057
Item 6.	Exhibits	4057

~~Signatures~~ SIGNATURES	41	58

	September 30, 2017	December 31, 2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$3,762,265	$2,788,587
Accounts receivable, net of $24,000 and $0 of allowance for doubtful accounts	3,300,742	1,997,831
Inventory	169,232	-
Notes receivable - current portion	300,000	-
Other current assets	253,607	81,011
Total current assets	7,785,846	4,867,429
PROPERTY AND EQUIPMENT:
Furniture and fixtures	160,749	137,784
Office equipment	976,835	463,937
Camera systems	969,003	-
Vehicles	151,224	-
Leasehold improvements	59,051	33,259
	2,316,862	634,980
Less: accumulated depreciation	(1,951,826)	(515,911)
Net property and equipment	365,036	119,069
Goodwill	1,960,345	-
Intangibles, net	2,168,941	-
OTHER ASSETS
Notes receivable - net of current portion	1,649,000	-
Deferred offering and financing costs	-	236,963
Deferred tax asset	1,184,359	219,982
Investment at cost	262,140	-
Deposits	39,387	39,282
Total other assets	3,134,886	496,227
Total Assets	$15,415,054	$5,482,725
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$1,385,852	$577,268
Accrued expenses and other current liabilities	1,904,493	575,203
Deferred revenue	72,500	-
Total current liabilities	3,362,845	1,152,471
LONG-TERM LIABILITIES
Note payable	1,419,753	457,289
Deferred rent	54,705	56,709
Total long-term liabilities	1,474,458	513,998
Total liabilities	4,837,303	1,666,469

Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value, 505,000 and 500,000 shares authorized, 502,327 and 301,570 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	3,845,925	2,269,602

STOCKHOLDERS’ EQUITY
Common stock, $0.0001 par value, 25,000,000 shares authorized, 13,933,784 and 5,000,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	1,394	500
Preferred stock, $0.0001 par value, 7,500,000 and zero shares authorized, 505,000 and 500,000 shares designated as Series A as of September 30, 2017 and December 31, 2016, respectively	-	-
Additional paid-in capital	9,325,795	1,976,549
(Accumulated deficit) retained earnings	(2,595,363)	(430,395)
Other comprehensive income	-	-
Total Stockholders’ Equity	6,731,826	1,546,654
Total Liabilities and Stockholders’ Equity	$15,415,054	$5,482,725

	June 30, 2018	December 31, 2017
Assets
Current Assets
Cash and cash equivalents	$2,100,462	$1,957,212
Accounts receivable, net	7,043,990	6,707,294
Inventory	129,979	155,716
Note receivable	-	1,475,000
Other current assets	507,040	687,966
Total current assets	9,781,471	10,983,188
Property and Equipment
Furniture and fixtures	232,013	211,885
Office equipment	531,188	524,131
Camera systems	912,479	462,399
Vehicles	36,020	10,020
Leasehold improvements	72,918	72,918
Total fixed assets	1,784,618	1,281,353
Less: accumulated depreciation	(806,560)	(633,014)
Net property and equipment	978,058	648,339
Goodwill	3,092,616	3,092,616
Intangibles, net	5,345,091	5,468,874
Other Assets
Investment at cost	262,140	262,140
Deposits and other long-term assets	44,386	143,583
Total other assets	306,526	405,723
Total assets	$19,503,762	$20,598,740
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$1,887,644	$1,390,877
Accrued expenses	3,020,514	3,060,512
Lines of credit	2,867,647	3,663,586
Notes payable, current portion	2,389,844	-
Deferred revenue	234,333	117,636
Total current liabilities	10,399,982	8,232,611
Long-Term Liabilities
Notes payable	933,642	1,405,994
Deferred rent	46,863	53,217
Total long-term liabilities	980,505	1,459,211
Total liabilities	11,380,487	9,691,822

Series A Cumulative Convertible Redeemable Preferred stock, $0.0001 par value, 505,000 shares authorized and 502,327 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	4,712,757	4,396,580

Stockholders' Equity
Common stock, $0.0001 par value, 30,000,000 shares authorized, 14,535,695 and 14,463,364 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	1,454	1,447
Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000 shares designated as Series A and 240,861 shares designated as Series B as of June 30, 2018 and December 31, 2017, respectively.	-	-
Series B Cumulative Convertible Preferred stock, $0.0001 par value, 240,861 shares authorized, issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	2,408,610	2,408,610
Additional paid-in capital	10,246,064	9,933,941
Accumulated deficit	(9,245,610)	(5,833,660)
Total stockholders’ equity	3,410,518	6,510,338
Total liabilities and stockholders’ equity	$19,503,762	$20,598,740

	Three Months ended September 30,		Nine Months ended September 30,
	2017	2016	2017	2016
REVENUE	$4,421,574	$2,405,529	$11,131,825	$9,582,874
Cost of revenue	2,457,806	1,334,436	6,017,982	5,496,588
Gross profit	1,963,768	1,071,093	5,113,843	4,086,286

OPERATING EXPENSES
Selling, general, and administrative expenses	2,997,566	1,151,514	8,036,339	3,624,005
(Loss) income from operations	(1,033,798)	(80,421)	(2,922,496)	462,281
OTHER INCOME (EXPENSE)
Interest expense	(33,720)	(15,656)	(97,624)	(28,693)
Other income	51,016	-	142,283	-
Total other income (expense)	17,296	(15,656)	44,659	(28,693)
(Loss) income before taxes	(1,016,502)	(96,077)	(2,877,837)	433,588
Income tax benefit (expense)	225,142	40,535	964,377	(13,380)
Net (loss) income	$(791,360)	$(55,542)	$(1,913,460)	$420,208

(Loss) earnings per common share - basic	$(0.07)	$(0.01)	$(0.20)	$0.06
(Loss) earnings per common share - diluted	$(0.07)	$(0.01)	$(0.20)	$0.06

Weighted average shares outstanding
Basic	11,756,560	9,713,956	10,920,866	7,016,373
Diluted	11,756,560	9,713,956	10,920,866	7,123,160

	Shares of Common Stock	Common Stock	Additional Paid-In Capital	Retained Earnings	Total Stockholders’ Equity (Accumulated Deficit)
Balance as of December 31, 2016	5,000,000	$500	$1,976,549	$(430,395)	$1,546,654
Net common stock issued in Firestorm acquisition	488,094	49	976,237	-	976,286
Effect of stock split and contribution to Novume Solutions, Inc. on August 28, 2017	5,158,503	516	(516)	-	-
Net common stock issued in Brekford acquisition	3,287,187	329	5,850,864		5,851,193
Stock-based compensation	-	-	227,470	-	227,470
Issuance of warrants	-	-	295,191	-	295,191
Preferred stock dividends	-	-	-	(251,508)	(251,508)
Net loss	-	-	-	(1,913,460)	(1,913,460)
Balance as of September 30, 2017	13,933,784	$1,394	$9,325,795	$(2,595,363)	$6,731,826

	Shares of Common Stock	Common Stock	Shares of Series B Preferred Stock	Series B Preferred Stock	Additional Paid-In Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance as of December 31, 2017	14,463,364	$1,447	240,861	$2,408,610	$9,933,941	$(5,833,660)	$6,510,338
Adjustment to adopt new accounting guidance revenue recognition (1)	-	-	-	-	-	(67,000)	(67,000)
Balance as of January 1, 2018	14,463,364	$1,447	240,861	$2,408,610	$9,933,941	$(5,900,660)	$6,443,338
Stock-based compensation	-	-	-	-	208,805	-	208,805
Issuance of warrants	-	-	-	-	123,472	-	123,472
Net common stock issued in Secure Education Consultants acquisition	33,333	3	-	-	163,329	-	163,332
Issuance related to note payable	35,000	4	-	-	125,997	-	126,001
Issuance upon exercise of stock options	3,998	-	-	-	6,697	-	6,697
Preferred stock dividends	-	-	-	-	-	(229,816)	(229,816)
Accretion of Series A preferred stock	-	-	-	-	(316,177)	-	(316,177)
Net loss	-	-	-	-	-	(3,115,134)	(3,115,134)
Balance as of June 30, 2018	14,535,695	$1,454	240,861	$2,408,610	$10,246,064	$(9,245,610)	$3,410,518

	For the Nine Months ended September 30,		For the Six Months Ended June 30,
	2017	2016	2018	2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$(1,913,460)	$420,208
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Cash Flows from Operating Activities
Net loss			$(3,115,134)	$(1,116,700)
Adjustments to reconcile net loss to net cash used in operating activities:			Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	404,143	39,498	173,547	51,229
Bad debt expense	24,000	-
Provision for losses on accounts receivable			-	24,000
Deferred taxes	(964,377)	-	-	(739,235)
Share-based compensation	227,470	-	208,805	120,149
Amortization of financing costs			29,076	7,716
Deferred rent	(18,588)	-	(6,354)	(17,111)
Warrant expense	67,491	-	-	67,491
Change in fair value of derivative liability			(74,633)	-
Amortization of intangibles			510,588	-
Changes in operating assets and liabilities
Accounts receivable	(870,426)	(453,985)	(336,697)	(285,098)
Inventory	(1,460)	-	25,737	-
Deposits	(105)	-	-	4,137
Notes receivable	51,000	(24,000)
Prepaid expenses and other current assets	(50,909)	20,932	180,926	12,336
Other assets	-	(124,919)
Accounts payable	(196,460)	542,077	496,770	349,337
Accrued expenses and other current liabiltities	987,522	139,724
Accrued expenses and other current liabilities			48,245	419,628
Deferred revenue	50,007	-	49,697	19,457
Net cash used in operating activities	(2,204,152)	559,535	(1,809,427)	(1,082,664)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Flows from Investing Activities
Proceeds from sale of note receivable			1,475,000	-
Capital expenditures	(52,985)	(35,377)	(503,265)	(38,188)
Net cash used in investing activities	(52,985)	(35,377)
CASH FLOWS FROM FINANCING ACTIVITIES
Stockholders' distributions	-	(125,615)
Deferred stock offering costs	75,655	(670,091)
Net cash provided by (used in) investing activities			971,735	(38,188)
Cash Flows from Financing Activities
Repayments of short-term borrowings			(795,939)	-
Proceeds from notes payable	47,341	500,000	2,000,000	-
Loan origination costs	-	(38,285)
Acquisition of Firestorm - net of cash acquired	(417,704)	-	-	(417,704)
Acquisition of Brekford - net of cash acquired	1,943,777	-
Net proceeds from exercise of options			6,697	-
Net proceeds from issuance of preferred stock	1,745,347	-	-	1,809,964
Payment of preferred dividends	(163,601)	-	(229,816)	(144,141)
Net cash provided by financing activities	3,230,815	(333,991)	980,942	1,248,119
Net increase in cash and cash equivalents	973,678	190,167	143,250	127,267
Cash and cash equivalents at beginning of year	2,788,587	567,866
Cash and cash equivalents at beginning of period			1,957,212	2,788,587
Cash and cash equivalents at end of period	$3,762,265	$758,033	$2,100,462	$2,915,854

~~Common stock issued~~	$~~5,851,193~~
~~Total consideration~~	~~5,851,193~~
~~Less cash received~~	~~(1,943,778~~)
~~Less other assets~~	~~(3,139,007~~)
~~Plus liabilities assumed~~	~~1,191,937~~
~~Net goodwill/intangible recorded~~	$~~1,960,345~~

~~Cash paid~~	$~~500,000~~
~~Notes payable issued~~	~~907,407~~
~~Common stock issued~~	~~976,286~~
~~Warrants issued, at $2.58~~	~~125,411~~
~~Warrants issued, at $3.61~~	~~102,289~~
~~Total consideration~~	~~2,611,393~~
~~Less cash received~~	~~(82,296~~)
~~Less other assets~~	~~(137,457~~)
~~Less intangible and intellectual property~~	~~(2,497,686~~)
~~Plus liabilities assumed~~	~~106,046~~
~~Net goodwill recorded~~	$-

	For the three months ended September 30,		For the nine months ended September 30,
	2017	2016	2017	2016
Revenues	$4,906,343	$3,345,473	$13,353,752	$12,194,573
Net income (loss)	$(1,065,371)	$(394,760)	$(2,815,977)	$(591,347)
Basic earnings (loss) per share	$(0.09)	$(0.04)	$(0.26)	$(0.08)
Diluted earnings (loss) per share	$(0.09)	$(0.04)	$(0.26)	$(0.08)

Basic Number of Shares	11,756,560	9,713,956	10,920,866	7,016,373
Diluted Number of Shares	11,756,560	9,713,956	10,920,866	7,016,373

Furniture and fixtures	2 - 10 years
Office equipment	2 - 5 years
Leasehold improvements	3 - 1015 years
Automobiles	3 - 5 years
Camera systems	3 years

Acquired Intangible Asset	Amortization Basis	Expected Life (years)
Customer-Related	Straight-line basis	5-15
Marketing-Related	Straight-line basis	4
Technology-Based	In line with underlying cash flows or straight-line basis	3

	~~Nine months ended September~~Six Months Ended June 30, 2017
Risk-free interest rate	1.00% - ~~1.99%~~2.17%
Expected term	~~..3~~0.3 – 66.1 years
Volatility	70%
Dividend yield	0%
Estimated annual forfeiture rate at time of grant	0% - 30%

~~Deferred tax assets:~~
~~Amortizable start-up costs~~	$~~110,729~~
~~Amortizable intangibles~~	~~81,034~~
~~Accrued bonuses~~	~~53,998~~
~~Net operating loss carryforward~~	~~1,166,042~~
	~~1,411,803~~
~~Deferred tax liabilities:~~
~~Permanent differences~~	~~(137,205)~~
~~Fixed assets~~	~~(90,239~~)
~~Total deferred tax assets, net~~	$~~1,184,359~~

			Weighted
	Number	Weighted	Average
	of Share	Average	Remaining	Aggregate
	Subject to	Exercise	Contractual	Intrinsic
	Option	Price	Term	Value
Balance at December 31, 2016	58,499	$1.68	9.29
Granted	1,161,313	1.56	9.30
Exercised	-	-	-
Canceled	-	-	-
Balance at September 30, 2017	1,219,812	$1.56	9.26	$430,190

Exercisable at September 30, 2017	262,645	$1.57	8.72	$102,397

Vested and expected to vest at September 30, 2017	1,131,991	$1.56	9.26	$399,140

	Number of Shares Subject to Option	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding Balance at December 31, 2017	1,695,375	$2.19	9.26	$4,590,714
Granted	-	-	-
Exercised	(3,998)	1.68	9.42
Canceled	(174,237)	1.98	9.44
Outstanding Balance at June 30, 2018	1,517,140	$2.22	8.00	$116,076
Exercisable at June 30, 2018	544,448	$1.72	6.96	$61,956
Vested and expected to vest at June 30, 2018	1,337,756	$2.22	7.82	$111,208

2018	$-
2019	2,500,000
2020	-
2021	-
2022	1,000,000
Thereafter	-
Total	3,500,000

Less unamortized interest	(66,358)
Less unamortized financing costs	(110,156)
	3,323,486
Current portion of long-term debt	(2,389,844)
Long-term debt	$933,642

	Three Months ended September 30, 2017	Nine Months ended September 30, 2017
Deferred:
Federal	$(168,767)	$(812,223)
State	(56,375)	(152,154)
Benefit from income taxes	$(225,142)	$(964,377)

	Three Months ended September 30, 2017	Nine Months ended September 30, 2017
U.S. statutory federal rate	34.00%	34.00%
(Decrease) increase in taxes resulting from:
State income tax rate, net of U.S. Federal benefit	3.97%	3.96%
Net effect of permanent and temporary reconciling items	-4.44%	-4.44%
Effective tax rate	33.52%	33.52%

	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016	2018	2017	2018	2017
Basic and diluted (loss) earnings per share
Net (loss) earnings from continuing operations	$(791,360)	$(55,542)	$(1,913,460)	$420,208	$(921,288)	$(544,317)	$(3,115,134)	$(1,116,700)
Less: preferred stock dividends	(87,907)	-	(251,508)	-	(114,908)	(73,732)	(229,816)	(144,141)
Net income (loss) attributable to shareholders	(879,267)	(55,542)	(2,164,968)	420,208	(1,036,196)	(618,049)	(3,344,950)	(1,260,841)
Weighted average common shares outstanding - basic	11,756,560	9,713,956	10,920,866	7,016,373	14,533,030	5,488,094	14,514,864	5,284,722
Basic (loss) earnings per share	$(0.07)	$(0.01)	$(0.20)	$0.06	$(0.07)	$(0.11)	$(0.23)	$(0.24)

Weighted average common shares outstanding - diluted	11,756,560	9,713,956	10,920,866	7,123,160	14,533,030	5,488,094	14,514,864	5,284,722
Diluted (loss) earnings per share	$(0.07)	$(0.01)	$(0.20)	$0.06	$(0.07)	$(0.11)	$(0.23)	$(0.24)

Common stock equivalents excluded due to anti-dilutive effect	2,105,295	121,247	1,960,282	-	2,754,268	690,409	2,779,975	625,291