UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year
ended December 31, 2016

or

☐TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition
period from ___________  to __________



Commission file number
000-26604



Allied Security
Innovations, Inc.

(Exact Name of Registrant as Specified in Its
Charter)







|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Delaware                                                       | 23-2770048                          
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)



224
Datura St.

West
Palm Beach, FL 33401

(Address
of Principal Executive Offices)



561-570-4301

(Issuer’s
telephone number)





Securities registered pursuant to Section 12(b) of the Act:





Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☐No ☒



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☒
No ☐



Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒ *



*
The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities
Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding
12 months had it been subject to such filing requirements during the entirety of such period.



Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☐No
☒



Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. ☐



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer☐  | Accelerated filer☐         
|------------------------- | ---------------------------
|Non-accelerated filer☐    | Smaller
reporting company ☒
|Emerging growth company ☐ |                            



If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐



Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes☐No ☒





As of December 31, 2018, 411,239,719 shares
of the issuer's Common Stock were outstanding.





The aggregate market value
of the voting Common Stock held by non-affiliates on 12/31/2018, was $ 82,248 using the closing price of $0.0002.



















PART I



ITEM 1.  Business



History



Allied Security Innovations, Inc. ("ADSV," the "Company,"
"us," "we," or "our"), a Delaware corporation incorporated in 1994, formerly known as Digital Descriptor
Systems, Inc. which was the successor to Compu-Color, Inc., an Iowa corporation. The operations of DDSI were started
as a division of ASI Computer Systems, Inc. of Waterloo, Iowa in 1986. Compu-Color, Inc. was formed in July 1989 and as of July
1, 1989 purchased the assets of the Compu-Color division of ASI Computer Systems, Inc.



Our Business



During 2005 the Company acquired CGM Security Solutions, Inc.
as a wholly owned subsidiary and changed its name to CGM Applied Security Technologies, Inc. In conjunction with the acquisition
the Company has changed its primary focus from the law enforcement market to the security market in general as it believes that
the potential for revenue is much greater.



Description of Business of CGM



CGM-AST is a manufacturer and distributor of indicative
and barrier security seals, security tapes and related packaging security systems, protective security products for
palletized cargo, physical security systems for tractors, trailers and containers as well as a number of highly specialized
authentication products. Focused primarily on “deterrent technologies,” CGM-AST designs and develops customized
tamper evident devices which when integrated into a security protocol; provide chain of custody and/or proof of tampering for
targeted assets.



The primary factors behind the need for CGM-AST’s products
are: (i) the escalation of cargo theft and tampering, (ii) the need for enhanced cargo security because of the fear of terrorism,
(iii) damage control of freight and cargo, (iv) the need for security products, (v) brand protection and authentication requirements
and (vi) governmental and regulatory requirements.



CGM-AST products are certified by the Customs-Trade Partnership
Against Terrorism ("C-TPAT"), a joint initiative between government and business designed to protect the security of
cargo entering the United States while improving the flow of trade. C-TPAT requires importers to take steps to assess, evolve
and communicate new practices that ensure tighter security of cargo and enhanced security throughout the entire supply chain.
In return, their goods and conveyances will receive expedited processing into the United States. Many of our products are also
ISO 17712 compliant, which is a standard for international shipping and container security.



Products



CGM-AST has Trade Secret protection on its Secure
T.R.A.C.® tape, Super Seals, Water Gum Tape, developed a Button Memory Seal and Sentry Sensor®. It also has
distribution rights on all NAVATECH products and seals, and owns the rights to the patented ToppClip® pallet security
device. In addition, CGM-AST provides authentication technology and products to clients to act as brand protection elements
to finished goods. This brand protection technology can help manufacturers reduce the incidences of "knock-offs"
that are common in the garment and accessory businesses. CGM-AST’s core products are: CGM-AST Tapes, Self-Wound
Security Tape, Void Labels and Void Tape for Bag Closure, SUPERSEALS®, Custom Coated Products, CGM-AST Conductive Inks and
Membrane Switch Components, EMAPS®, Locks, Sentry Sensor® and other representative items.



SUPERSEAL® and self-voiding carton sealing tape known as
SECURE T.R.A.C.(R) show a customized signature if attempts are made at removing them. If cut and resealed, SUPERSEAL® further
shows an "opened" legend on the seal's center surface. With self-wound void tape, any attempt at resealing is negated
by the surface coating on the tape. An "opened" legend is also left on the tape if removed. Since the products are manufactured
in-house, CGM-AST controls all features and has the ability to customize the products to the customer's needs. CGM-AST also offers
converted labels, seals, and money bags. CGM-AST manufactures a variety of adhesives, graphics and die cut label configurations
for companies whose logos always appear on the tape or label for security purposes. No generic product can be substituted for
this product since no one makes an identical product.









1









Uses for this product and technology include such items as:



|o | Aircraft and truck seals
|- | ------------------------

|o | Fiber and Steel drum seals
|- | --------------------------

|o | Motor Vehicle inspection seals
|- | ------------------------------

|o | Pharmaceutical Packaging
|- | ------------------------

|o | Box or container closure seals
|- | ------------------------------

|o | Cash bag components
|- | -------------------

|o | Computer seals
|- | --------------

|o | Validation devices
|- | ------------------

|o | General security products
|- | -------------------------

|o | Law Enforcement Agencies
|- | ------------------------



Once CGM-AST's products are applied to a particular surface,
any attempt at removal will leave a sign in the form of an indelible word or legend on the tape and a removable or permanent legend
on the enclosure. The EMAPS® or Electro-Magnetic Asset Protection System reflects entry by sending an electronic signals if cut.
EMAPS® products function without the need to identify a cut visually. Both products, the labels and the scanners, are unique
and only manufactured by CGM-AST.



Production Process



The CGM-AST manufacturing process can best be described as
one of "converting". CGM-AST takes highly processed materials, which are manufactured elsewhere, and converts them
into finished products. The Staten Island production facility has been designated as a secure facility for purposes of
certain clientele.



CGM-AST purchases processed materials from 6 to 8 key suppliers,
including DuPont, Luminite Corp, Adhesive Research, Sun Chemical, Houghton Chemical and Video Jet. For Video Jet, for OEM products,
CGM-AST purchases from approximately 15 different companies. CGM-AST has an exclusive distribution relationship in connection with
some of these products, while for other products CGM-AST is one of few or many resellers.



Markets & Customers



The primary factors behind the need for CGM-AST’s products
are: (i) the escalation of cargo theft and tampering, (ii) the need for enhanced cargo security because of the fear of terrorism,
(iii) damage control of freight and cargo, (iv) the need for security products, (v) brand protection and authentication requirements
and (vi) governmental and regulatory requirements.



CGM-AST products are certified by the Customs-Trade Partnership
Against Terrorism ("C-TPAT"), a joint initiative between government and business designed to protect the security of
cargo entering the United States while improving the flow of trade. C-TPAT requires importers to take steps to assess, evolve and
communicate new practices that ensure tighter security of cargo and enhanced security throughout the entire supply chain. In return,
their goods and conveyances will receive expedited processing into the United States. Many of our products are also
ISO 17712 compliant, which is a standard for international shipping and container security.



Principal Customers



CGM-AST’s current client base includes over 2000
national and international companies, including producers of high value items such as perfumes, computers, silicon chips,
jewelry, cash and negotiable documents. The market for tamper evidence includes flavors, fragrances, foodstuffs and
components. CGM-AST’s products are used by U.S. Government agencies (e.g.: DOD, TSA, DHS, CBP) and Foreign National
Governments, major airlines, pharmaceutical clients for packaging and clinical trials and multiple suppliers of high end
electronics. CGM-AST’s products have also been recommended by major insurance companies. All elements of the supply
chain, including growers, manufacturers, shippers and retailers are among our clientele.









2









Employees



ADSV develops, assembles, markets and installs computer systems
which capture video, digitally captured images and scanned images, digitize the image, link the digitized images to text/data and
store the image and text on a computer database which allows for transmitting the image and text by computer or telecommunication
links to remote locations.



Imaging technology enables computers to record, store and retrieve
both textual information and visual images. The common problem in imaging technology is how to record, store, process and retrieve
information and images within the same system. ADSV's software programs utilize technology to link the textual information with
the images so that customers can record and retrieve related text and images. ADSV originally developed the software to address
the information retrieval problems of tax assessors. ADSV subsequently adapted the software for use by law enforcement agencies
and management of jail facilities. ADSV's software also addresses different information retrieval needs such as reproducing line
ups and producing housing badges (jails), bar coded wristbands for identification which facilitates movement within jails and courts
and storing and retrieving hand written and computer generated document images within arrest records. The marketplace for this
technology has become more of a commodity item than the specialized software it was in the past and the Company has made a decision
not to actively pursue this market in the future as the cost of upgrading the software and competing in what we consider to be
a very small marketplace does not justify the investment that would be necessary. While we will still support and maintain
the existing customer base we will no longer actively solicit new customers.



ADSV does offer maintenance and support for their products.



Maintenance and Support



ADSV offers its customers' ongoing maintenance and support plus
updates of the software, for an annual fee.



Marketing



Law Enforcement Applications



ADSV markets its Law Enforcement products through vendors of
compatible software applications.



Customers



ADSV maintains a continuing relationship with its customers
based upon support services and periodic upgrades of the Compu-Capture(R) line and Compu-Sketch(R) software. The major revenue-generating
event is presently the support and maintenance of our existing customer base.





Product Liability Insurance



Although ADSV believes its products are safe, it may be subject
to product liability claims from persons injured through the use of ADSV's marketed products or services. ADSV carries no direct
product liability insurance, relying instead on the coverage maintained by its distributors and manufacturing sources from which
it obtains product. There is no assurance that this insurance will adequately cover any liability claims brought against ADSV.
There also can be no assurance that ADSV will be able to obtain its own liability insurance (should it seek to do so) on economically
feasible terms. ADSV's failure to maintain its own liability insurance could materially adversely affect its ability to sell its
products in the future. Although no product liability claims have been brought against ADSV to date, if there were any such claims
brought against ADSV, the cost of defending against such claims and any damages paid by ADSV in connection with such claims could
have a materially adverse impact upon ADSV, including its financial position, results of operations and cash flows.



Patents, Trademarks and Licenses



ADSV owns the proprietary rights to the software used in the
Compu-Capture(R) programs. In addition, ADSV owns the rights to the trademarks "Compu-Capture(R)," "Compu-Color(R)"
and "Compu-Scan(R)," all trademarks have been registered with the United States Patent and Trademark Office.









3









ITEM 2. Properties





The Company operates The Company operates at 224
Datura Street, West Palm Beach, Florida, 33401, USA.



ITEM 3. Legal Proceedings



None.



ITEM 4. Submission of Matters to a Vote of Security Holders



None.















4







PART II



ITEM 8.
Financial Statements and Supplementary Data.



See the
financial statements annexed to this annual report immediately before  the signature page and beginning as page
“F-1” of this Form 10-K.



ITEM 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure.



None



ITEM 9A. Controls and Procedures



Evaluation of disclosure controls and procedures.



Management of the Company has evaluated,
with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered
by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company
had concluded that the Company's disclosure controls and procedures as of the period covered by this Annual Report on Form 10-K
were not effective for the following reasons:



a)           The
deficiency was identified as the Company's limited segregation of duties among the Company's employees with respect to the Company's
control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's
ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating
the cost-benefit relationship of possible changes in our disclosure controls and procedures.



b)           The
deficiency was identified in respect to the Company's Board of Directors. This deficiency is the result of the Company's limited
number of external board members. This deficiency may give the impression to the investors that the board is not independent from
management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship
of possible changes in the organization of the Board of Directors.





Management’s Report on Internal Control Over Financial
Reporting



Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management conducted
an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2017. In making
this assessment, management used the framework set forth in the report entitled "Internal Control-Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of
the components of a Company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and (v) monitoring. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer of the Company have concluded, as of the end of the fiscal year covered by this Annual Report on Form 10-K, due
to a lack of segregation of duties, that our internal control over financial reporting has not been effective. However, at this
time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation
of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees
and reallocating duties, including responsibilities for financial reporting, among the Company's employees as soon as the Company
has the financial resources to do so. Management is required to apply judgment in evaluating the cost-benefit relationship of possible
changes in our disclosure controls and procedures.





This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not
subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission
that permit us to provide only management's report in this annual report.









5







Changes in Internal Controls.



Management of the Company has evaluated, with the participation
of the Chief Executive Officer of the Company, any change in the Company's internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year covered by this Annual Report on
Form 10-K. There was no change in the Company's internal control over financial reporting identified in that evaluation that occurred
during the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting, other than what has been reported above



ITEM 9B. OTHER INFORMATION



None.

































6







PART III



Item 15.    Exhibits
and Financial Statement Schedules



Financial Statements



The financial statements are attached
immediately after the signature page of this Annual Report on Form 10-K.



Exhibit



|Exhibit
                                         No. |  | Description                                                                                                                                      
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|                                                     |  |                                                                                                                                                  
|31.1                                                 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|31.2                                                 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.1                                                 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2                                                 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002











7













Allied Security Innovations, Inc.

Balance Sheet

As at December 31, 2016 (Unaudited)







|                                                                               |       |  | As at December 31, 2016 |            
|------------------------------------------------------------------------------ | ----- |  | ----------------------- | -----------
|                                                                               | Notes |  | (Unaudited)             |            
|                                                                               |       |  | ($)                     |            
|ASSETS                                                                         |       |  |                         |            
|Current Assets                                                                 |       |  |                         |            
|Cash and cash equivalents                                                      | 4     |  |                         | 323,651    
|Accounts receivable, net                                                       | 5     |  |                         | 359,593    
|Inventory                                                                      | 6     |  |                         | 73,942     
|                                                                               |       |  |                         |            
|Total Current Assets                                                           |       |  |                         | 757,186    
|                                                                               |       |  |                         |            
|Intangible assets, net                                                         | 7     |  |                         | 38,428     
|Property, plant and equipment, net                                             | 8     |  |                         | 106,774    
|Deposits                                                                       | 9     |  |                         | 18,419     
|                                                                               |       |  |                         |            
|Total Assets                                                                   |       |  |                         | 920,807    
|                                                                               |       |  |                         |            
|EQUITY & LIABILITIES                                                           |       |  |                         |            
|                                                                               |       |  |                         |            
|Current Liabilities                                                            |       |  |                         |            
|Accounts payables and accrued expense                                          | 10    |  |                         | 3,056,068  
|Deferred income                                                                | 11    |  |                         | 130,284    
|Convertible debentures - current portion                                       | 12    |  |                         | 6,570,623  
|Notes payable                                                                  | 13    |  |                         | 5,121,333  
|Derivative liabilities                                                         | 14    |  |                         | 8,711,696  
|                                                                               |       |  |                         |            
|Total Current Liabilities                                                      |       |  |                         | 23,590,004 
|                                                                               |       |  |                         |            
|Convertible Loan                                                               |       |  |                         | 340,000    
|Long term loan                                                                 |       |  |                         | 40,000     
|                                                                               |       |  |                         |            
|Total Liabilities                                                              |       |  |                         | 23,970,004 
|                                                                               |       |  |                         |            
|SHAREHOLDER'S EQUITY                                                           |       |  |                         |            
|                                                                               |       |  |                         |            
|Preferred stock; authorized 250,000,000 shares, par value US$0.01; none issued |       |  |                         | –          
|Common stock; authorized 750,000,000 shares, par value US$0.01;                |       |  |                         | 411,241    
|Additional paid in capital                                                     |       |  |                         | 19,684,697 
|Accumulated deficit                                                            |       |  |                         | (43,145,134
|                                                                               |       |  |                         |            
|Total Shareholders’ Deficit                                                    |       |  |                         | (23,049,196
|                                                                               |       |  |                         |            
|Total Liabilities and Shareholders’ Equity                                     |       |  |                         | 920,807    





See accompanying notes to financial statements.







8








Allied Security Innovations, Inc.

Statement of Profit and loss

For the year ended December 31, 2016







|                                             |  | For the year ended December 31, 2016 |         
|-------------------------------------------- |  | ------------------------------------ | --------
|                                             |  |                                      |         
|                                             |  | (Amount in $)                        |         
|                                             |  |                                      |         
|Revenue                                      |  |                                      | 441,221 
|Cost of sales                                |  |                                      | (138,223
|Gross profit                                 |  |                                      | 302,999 
|                                             |  |                                      |         
|Operating expenses                           |  |                                      |         
|General and administrative                   |  |                                      | (181,042
|Sales and marketing                          |  |                                      | (24,548 
|Research and development                     |  |                                      | (12,153 
|                                             |  |                                      |         
|Income / (Loss) from operations              |  |                                      | 85,256  
|                                             |  |                                      |         
|Other Income / (expense)                     |  |                                      |         
|Amortization of debt discount                |  |                                      | (2,650  
|Change in fair value of derivative liability |  |                                      | 36,119  
|Interest expense                             |  |                                      | (134,780
|                                             |  |                                      |         
|Loss from continuing operations before tax   |  |                                      | (16,056 
|                                             |  |                                      |         
|Income tax                                   |  |                                      | –       
|                                             |  |                                      |         
|Net Loss                                     |  |                                      | (16,056 
|                                             |  |                                      |         
|Other Comprehensive income / (loss):         |  |                                      | –       
|                                             |  |                                      |         
|Total Comprehensive income / (loss)          |  |                                      | (16,056 









See accompanying notes to financial statements.





9












Allied Security Innovations, Inc.

Statement of Shareholders' Equity

As at December 31, 2016 (Unaudited)









|                                    |  | Series A - Preferred
    Stock |   |  | Common Stock |  |   | Additional Paid in |  |  | Accumulated Profit/ |  |  | Total Stockholders’ |        
|----------------------------------- |  | ------------------------------ | - |  | ------------ |  | - | ------------------ |  |  | ------------------- |  |  | ------------------- | -------
|                                    |  | Shares                         |   |  | Amount       |  |   | Shares             |  |  | Par                 |  |  | capital             |        
|                                    |  | Amount in $                    |  
|                                    |  |                                |   |  |              |  |   |                    |  |  |                     |  |  |                     |        
|As at December 31, 2015 (Unaudited) |  |                                | – |  |              |  | – |                    |  |  | 411,240,719         |  |  |                     | 411,241
|                                    |  |                                |   |  |              |  |   |                    |  |  |                     |  |  |                     |        
|Profit / (loss) for the period      |  |                                |   |  |              |  |   |                    |  |  |                     |  |  |                     |        
|                                    |  |                                |   |  |              |  |   |                    |  |  |                     |  |  |                     |        
|As at December 31, 2016 (Unaudited) |  |                                | – |  |              |  | – |                    |  |  | 411,240,719         |  |  |                     | 411,241





















See accompanying notes to financial statements.















10








Allied Security Innovations, Inc.

Statement of Cash Flows

As at December 31, 2016 (Unaudited)







|                                                             |  |   |         |  
|------------------------------------------------------------ |  | - | ------- | -
|Cash flow from operating activities                          |  |   |         |  
|                                                             |  |   |         |  
|(Loss) / profit before income tax                            |  |   | (16,056 | )
|                                                             |  |   |         |  
|Adjustment for non cash charges and other items:             |  |   |         |  
|                                                             |  |   |         |  
|Amortization of discount on convertible notes                |  |   | 2,650   |  
|Change in fair value of derivative liability                 |  |   | (36,119 | )
|                                                             |  |   |         |  
|                                                             |  |   | (49,524 | )
|Changes in working capital                                   |  |   |         |  
|                                                             |  |   |         |  
|Decrease / (increase) in accounts receivables                |  |   | (10,261 | )
|Decrease / (increase) in inventory                           |  |   | (8,093  | )
|(Decrease) / increase in Other payables and accrued expenses |  |   | (38,064 | )
|(Decrease) / increase in deferred income                     |  |   | 9,922   |  
|                                                             |  |   | (46,496 | )
|                                                             |  |   |         |  
|Cash flow from operating activities                          |  |   | (96,020 | )
|                                                             |  |   |         |  
|Cash flow from investing activities                          |  |   |         |  
|                                                             |  |   |         |  
|Additions in intangible assets                               |  |   | –       |  
|Additions in property, plant and equipment                   |  |   | –       |  
|                                                             |  |   |         |  
|Cash flow from / (used) in investing activities              |  |   | –       |  
|                                                             |  |   |         |  
|Cash flow from financing activities                          |  |   |         |  
|                                                             |  |   |         |  
|Proceeds from convertible notes issued                       |  |   | –       |  
|Proceeds from issuance of common stock                       |  |   | –       |  
|Proceeds from / (payments for) note payable - other          |  |   | 99,658  |  
|                                                             |  |   |         |  
|Cash flow from financing activities                          |  |   | 99,658  |  
|                                                             |  |   |         |  
|Increase/(decrease) in cash and cash equivalents             |  |   | 3,638   |  
|                                                             |  |   |         |  
|Cash and cash equivalents at beginning of the period         |  |   | 320,013 |  
|                                                             |  |   |         |  
|Cash and cash equivalents at end of the year                 |  | $ | 323,651 |  







See accompanying notes to financial statements.





11








Allied
Security Innovations, Inc.

Notes
to the Financial Statements

For
the year ended December 31, 2016



1.	LEGAL
STATUS AND OPERATIONS



Allied Security Innovations, Inc.
(the Company), formerly known as Digital Descriptor Systems, Inc., was incorporated in 1994 as Delaware corporation. The Company
was the successor to Compu-Color, Inc., an Iowa corporation. The Company started its operations as a division of ASI Computer
Systems, Inc. of Waterloo, Iowa in 1986. During 2005 the Company acquired CGM Security Solutions, Inc. as a wholly owned subsidiary
and changed its name to CGM Applied Security Technologies, Inc. In conjunction with the acquisition the Company has changed its
primary focus from the law enforcement market to the security market in general as it believes that the potential for revenue
is much greater.



The Company is primarily engaged in manufacturing and distribution of indicative and barrier security seals, security
tapes and related packaging security systems, protective security products for palletized cargo, physical security systems for
tractors, trailers and containers as well as a number of highly specialized authentication products.



2.	BASIS
OF PREPARATION



2.1	Statement
of compliance



The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America and pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") on a going concern.



2.2	Accounting
Convention



These financial statements have
been prepared on the basis of 'historical cost convention using accrual basis of accounting except as otherwise stated in the respective
accounting policies notes.



Going
concern



The accompanying unaudited financial
statements have been prepared on the assumption that the Company will continue as a going concern. The Company historically has
experienced significant losses and negative cash flows from operations. Further, the Company does not have a revolving credit facility
with any financial institution. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.



The ability of the Company to continue as a going concern is dependent on raising additional capital, negotiating adequate financing
arrangements and on achieving sufficiently profitable operations. The financial statements do not include any adjustments relating
to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.



2.3	Critical
accounting estimates and judgements



The preparation of financial statements
in conformity with the approved accounting standards require management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.











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The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised
if the revision affects only that period, or in the period of the revision and future periods.



The areas involving higher degree
of judgment and complexity, or areas where assumptions and estimates made by the management are significant to the financial statements
are as follows:



i)	Equipment - estimated useful
life of property, plant and equipment (note - 3.8)

ii)	Provision for doubtful debts
(note - 3.4)

iii)	Provision for income tax
(note - 3.1)



3
	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



3.1
	Income tax



The tax expense for the year comprises
of income tax, and is recognized in the statement of earnings. The income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate
on the basis of amounts expected to be paid to the tax authorities.



Deferred income tax is accounted for using the balance sheet
liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred income tax liabilities
are recognised for all taxable temporary differences and deferred income tax assets are recognised to the extent that it is probable
that taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilized.
Deferred income tax is calculated at the rates that are expected to apply to the period when the differences are expected to be
reversed.



3.2	Trade
and other payables



Liabilities for trade and other
amounts payable are carried at cost, which is the fair value of the consideration to be paid in future for goods and services received,
whether or not billed to the Company.



3.3	Provisions



A provision is recognized in
the financial statements when the Company has a legal or constructive obligation as a result of past events and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of obligation.



3.4	Accounts
Receivable



Accounts receivable are non-interest
bearing obligations due under normal course of business. The management reviews accounts receivable on a monthly basis to determine
if any receivables will be potentially uncollectible. Historical bad debts and current economic trends are used in evaluating the
allowance for doubtful accounts. The Company includes any accounts receivable balances that are determined to be uncollectible
in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written
off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of period
ended is adequate.











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3.5
	Contingent liabilities



A contingent liability is disclosed
when the Company has a possible obligation as a result of past events, the existence of which will be confirmed only by the occurrence
or non-occurrence, of one or more uncertain future events, not wholly within the control of the Company; or when the Company has
a present legal or constructive obligation, that arises from past events, but it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient
reliability.



3.6
	Financial liabilities



Financial liabilities are recognized
when the Company becomes party to the contractual provision of the instruments and the Company loses control of the contractual
right that comprise the financial liability when the obligation specified in the contract is discharged, cancelled or expired.
The Company classifies its financial liabilities in two categories: at fair value through profit or loss and financial liabilities
measured at amortized cost. The classification depends on the purpose for which the financial liabilities were incurred. Management
determines the classification of its financial liabilities at initial recognition.



(a)	Financial
liabilities at fair value through profit or loss



Financial liabilities at fair
value through profit or loss are financial liabilities held for trading. A financial liability is classified in this category if
incurred principally for the purpose of trading or payment in the short-term. Derivatives (if any) are also categorized as held
for trading unless they are designated as hedges.



(b)	Financial
liabilities measured at amortized cost



These are non-derivative financial
liabilities with fixed or determinable payments that are not quoted in an active market. These are recognized initially at fair
value, net of transaction costs incurred and are subsequently stated at amortized cost; any difference between the proceeds (net
of transaction costs) and the redemption value is recognized in the profit and loss account.



3.6.1	Derivative
financial instruments and hedge accounting



Derivatives are recognised initially
at fair value, any directly attributable transaction costs are recognised in profit or loss as they are incurred. Subsequent to
initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit and loss account.



The Company also holds derivative financial instruments to hedge its foreign currency exposures. Embedded derivatives are separated
from the host contract and accounted for separately if certain criteria are met.



(a)	Fair
value hedge



Derivatives which are designated
and qualify as fair value hedge, changes in the fair value of such derivatives are recorded in the profit and loss account, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.











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(b)	Cash
flow hedges



When a derivative is designated
as cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive
income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised
immediately in profit or loss.



The amount accumulated in equity is retained in other comprehensive income and reclassified to profit
or loss in the same period or periods during which the hedged item affects profit or loss.



If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected
to occur, then the amount accumulated in equity is reclassified to profit or loss.



3.7
	Property, plant and equipment



All equipments are stated at
cost less accumulated depreciation and impairment loss. The cost of fixed assets includes its purchase price, import duties
and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and
location for its intended use.



Depreciation on additions to property,
plant and equipment is charged, using straight line method, on pro rata basis from the month in which the relevant asset is acquired
or capitalized, upto the month in which the asset is disposed off. Impairment loss, if any, or its reversal, is also charged to
income for the year. Where an impairment loss is recognized, the depreciation charge is adjusted in future periods to allocate
the asset’s revised carrying amount, less its residual value, over its estimated useful life.



Maintenance and normal repair costs
are expensed out as and when incurred. Major renewals and improvements are capitalized and assets so replaced, if any are retired.



Gains
and losses on disposal of fixed assets, if any, are recognized in statement of profit and loss.



3.8
	Cash and cash equivalents



Cash and cash equivalents include
cash in hand and deposits held at call with banks. For the purpose of the statement of cash flows, cash and cash equivalents bank
balances and short term highly liquid investments subject to an insignificant risk of changes in value and with maturities of less
than three months.



3.9
	Revenue recognition



The Company derives revenue
from the sale of hardware, software, post customer support, and other related services. Post customer support includes telephone
support, virus fixes, and rights to upgrades. Other related services include basic training. CGM derives its revenue from the sale
of its tapes, labels and other security devices.



The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price
is fixed or determinable, and collectability is reasonably assured.









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3.10	Functional
and presentation currency



Items included in the financial
statements are measured using the currency of the primary economic environment in which the Company operates. The financial statements
are presented in US (Dollars) which is the Company's presentation currency. All financial information presented in US Dollars has
been rounded to the nearest dollar unless otherwise stated.



3.11	Foreign
currency transactions



Foreign currency transactions
are translated into the functional currency using the exchange rate prevailing on the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated into functional currency using the exchange rate prevailing at
the statement of financial position date. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates are recognized in the profit and loss account.



3.12	Contingencies



The assessment of the contingencies
inherently involves the exercise of significant judgment as the outcome of the future events cannot be predicted with certainty.
The Company, based on the availability of the latest information, estimates the value of contingent assets and liabilities, which
may differ on the occurrence / non-occurrence of the uncertain future event(s).



3.13
	Stock based compensation



The Company recognizes compensation
expense for stock-based compensation in accordance with generally accepted accounting principles. For employee stock-based awards,
fair value of the award on the date of grant is calculated using the Black-Scholes method and the quoted price of the Company's
common stock for stock options and unrestricted shares respectively;



The Company recognizes expense over the service period for awards expected to vest.



In case of non-employee stock-based awards, fair value of the award on the date of grant is calculated in the same manner as employee
awards. However, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted
accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals
the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s
performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period
estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class,
and historical experience.



The Black-Scholes option valuation model is used to estimate the fair value of the warrants or options granted. The model includes
subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating
the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of
time equal to the weighted average life of the warrants or options granted.



3.14
	Software Development cost



The Company accounts for software
development cost in accordance with ASC 985-20 whereby cost of developing software All cost incurred to establish technological
feasibility of a software product to be sold, leased or otherwise marketed are research and development cost. These cost are charged
to expense when incurred. The technological feasibility of a software product is established when the entity has completed all
planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its
design specifications including functions, features, and technical performance requirements. Cost of producing product masters
incurred subsequent to establishing technological feasibility shall be capitalized. Those cost include coding and testing performed
subsequent to establishing technological feasibility. Capitalization of software cost shall cease when the product is available
for general release to customers.



Once a project reaches the development stage, the Company allocates a portion of salaries to be capitalized based on estimated
hours spent developing the software.









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3.15
	Inventories



Inventories, except for stock
in transit, are stated at lower of cost and net realizable value. Stock in transit is valued at cost comprising invoice value plus
other charges thereon. Net realizable value is the estimated selling price in ordinary course of business less estimated costs
of completion and selling expenses.





4 	Cash



This represents cash in hand
and cash deposited in bank accounts (current) by the Company.





5 	Accounts Receivables





|Opening balance                |  | $ | 349,333 | 
|------------------------------ |  | - | ------- | 
|Net movement during the period |  |   | 10,261  | 
|                               |  |   | 359,593 | 
|Less: Provision                |  |   | –       | 
|Account Receivable - Net       |  | $ | 359,593 | 



6 	Inventory







|Opening balance                |  | $ | 65,849 | 
|------------------------------ |  | - | ------ | 
|Net movement during the period |  |   | 8,093  | 
|                               |  | $ | 73,942 | 



7 	 Intangible assets







|Cost - License                 |  |   |         | 
|------------------------------ |  | - | ------- | 
|Opening balance                |  | $ | 105,841 | 
|Net movement during the period |  |   | –       | 
|                               |  |   | 105,841 | 









|Accumulated Amortization       |  |   |         |  
|------------------------------ |  | - | ------- | -
|Opening balance                |  |   | (67,413 | )
|Net movement during the period |  |   | –       |  
|                               |  |   | (67,413 | )
|                               |  |   |         |  
|Closing Book Value             |  | $ | 38,428  |  











17








8 	 Property, plant and equipment







|Cost                           |  |   |           | 
|------------------------------ |  | - | --------- | 
|Opening balance                |  | $ | 1,217,508 | 
|Net movement during the period |  |   | –         | 
|                               |  |   | 1,217,508 | 









|Accumulated Depreciation       |  |   |            |  
|------------------------------ |  | - | ---------- | -
|Opening balance                |  |   | (1,110,734 | )
|Net movement during the period |  |   | –          |  
|                               |  |   | (1,110,734 | )
|                               |  |   |            |  
|Closing Book Value             |  | $ | 106,774    |  





8.1 	 Property, plant and
equipment, as the reporting date, comprises of:









|Furniture and fixtures         |  | $ | 75,613     |  
|------------------------------ |  | - | ---------- | -
|Leasehold improvements         |  |   | 159,607    |  
|Computers                      |  |   | 219,301    |  
|Machinery and equipment        |  |   | 762,987    |  
|                               |  |   | 1,217,508  |  
|Less: Accumulated depreciation |  |   | (1,110,734 | )
|Closing balance                |  | $ | 106,774    |  





9 	 Deposits









|Opening balance                |  | $ | 18,419 | 
|------------------------------ |  | - | ------ | 
|Net movement during the period |  |   | –      | 
|                               |  | $ | 18,419 | 



10 	Accounts payables and
accrued expenses









|Opening balance                |  | $ | 3,094,132 |  
|------------------------------ |  | - | --------- | -
|Net movement during the period |  |   | (38,064   | )
|                               |  | $ | 3,056,068 |  







11 	 Deferred Income









|Opening balance                |  | $ | 120,362 | 
|------------------------------ |  | - | ------- | 
|Net movement during the period |  |   | 9,922   | 
|                               |  | $ | 130,284 | 













18










12 	 Convertible Debentures









|Opening balance                |  | $ | 6,567,972 | 
|------------------------------ |  | - | --------- | 
|Net movement during the period |  |   | 2,650     | 
|                               |  | $ | 6,570,623 | 







13 	 Notes payable









|Opening balance                |  | $ | 5,021,676 | 
|------------------------------ |  | - | --------- | 
|Net movement during the period |  |   | 99,658    | 
|                               |  | $ | 5,121,333 | 







14 	 Derivative Liabilities









|Opening balance                |  | $ | 8,747,815 |  
|------------------------------ |  | - | --------- | -
|Net movement during the period |  |   | (36,119   | )
|                               |  | $ | 8,711,696 |  







15 	 Revenue









|Product revenue |  | $ | 420,046 | 
|--------------- |  | - | ------- | 
|Service revenue |  |   | 21,176  | 
|Net revenue     |  | $ | 441,221 | 





16 	Contingencies and Commitments







From time to time, the Company may be involved in
litigation relating to claims arising out of operations in the normal course of business. As at the end of current reporting period,
there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations
and there are no proceedings in which any directors, officers or affiliates, or any registered or beneficial stockholder, is an
adverse party or has a material interest adverse to the Company’s interest.











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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) 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.



| | Allied Security Innovations, Inc.
| | ---------------------------------
| |                                  
| | By:                              
| |                                  



Date:  January 10, 2019









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