Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Oct. 21, 2013 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'Brekford Corp. | ' |
Entity Central Index Key | '0001357115 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 44,273,569 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2013 | ' |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheet (Unaudited) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
CURRENT ASSETS | ' | ' |
Cash | $2,167,701 | $1,415,252 |
Accounts receivable, net of allowance $36,653 and $95,976 at September 30, 2013 and December 31, 2012, respectively | 3,504,906 | 4,236,018 |
Unbilled receivables | 176,359 | 208,051 |
Prepaid expenses | 44,623 | 61,278 |
Inventory | 656,565 | 672,874 |
Total current assets | 6,550,154 | 6,593,473 |
Property and equipment, net | 1,894,383 | 2,477,642 |
Other non-current assets | 353,382 | 274,998 |
TOTAL ASSETS | 8,797,919 | 9,346,113 |
CURRENT LIABILITIES | ' | ' |
Accounts payable and accrued expenses | 2,220,253 | 4,093,356 |
Accrued payroll and related expenses | 83,596 | 78,303 |
Line of credit | 2,500,000 | 0 |
Income taxes payable | 49,922 | 50,076 |
Deferred revenue | 744,541 | 483,784 |
Customer deposits | 37,882 | 71,199 |
Obligations under capital leases - current portion | 605,335 | 583,976 |
Notes payable - stockholders | 500,000 | 0 |
Obligations under notes payable auto - current portion | 34,282 | 23,454 |
Deferred rent - current portion | 46,564 | 41,975 |
Total current liabilities | 6,822,375 | 5,426,123 |
LONG - TERM LIABILITIES | ' | ' |
Notes payable - stockholders | 0 | 500,000 |
Obligations under capital leases, net of current portion | 335,984 | 813,945 |
Notes payable auto, net of current portion | 85,664 | 49,468 |
Deferred rent, net of current portion | 27,657 | 79,557 |
Total long-term liabilities | 449,305 | 1,442,970 |
TOTAL LIABILITIES | 7,271,680 | 6,869,093 |
STOCKHOLDERS' EQUITY | ' | ' |
Preferred stock, par value $0.0001 per share; 20,000,000 shares authorized; none issued and outstanding | 0 | 0 |
Common stock, par value $0.0001 per share; 150,000,000 shares authorized; 44,273,569 issued and outstanding, at September 30, 2013 and 44,248,569 issued and outstanding at December 31, 2012 | 4,428 | 4,425 |
Additional paid-in capital | 10,145,208 | 10,127,461 |
Treasury Stock, at cost 10,600 shares at June 30, 2013 and December 31, 2012 | -5,890 | -5,890 |
Accumulated deficit | -8,617,507 | -7,648,976 |
TOTAL STOCKHOLDERS' EQUITY | 1,526,239 | 2,477,020 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $8,797,919 | $9,346,113 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Assets | ' | ' |
Allowance for Receivables | $36,653 | $95,976 |
Stockholders Equity | ' | ' |
Preferred Stock par value | $0.00 | $0.00 |
Preferred Stock Authorized | 20,000,000 | 20,000,000 |
Preferred Stock Issued | 0 | 0 |
Preferred Stock Outstanding | 0 | 0 |
Common Stock par value | $0.00 | $0.00 |
Common Stock Authorized | 150,000,000 | 150,000,000 |
Common Stock Issued | 44,273,569 | 44,248,569 |
Common Stock Outstanding | 44,273,569 | 44,248,569 |
Condensed_Consolidated_Stateme
Condensed Consolidated Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Income Statement [Abstract] | ' | ' | ' | ' |
NET REVENUE | $3,697,372 | $3,933,528 | $11,759,809 | $12,169,891 |
COST OF REVENUE | 3,018,873 | 3,147,527 | 9,152,810 | 9,228,905 |
GROSS PROFIT | 678,499 | 786,001 | 2,606,999 | 2,940,986 |
OPERATING EXPENSES | ' | ' | ' | ' |
Salaries and related expenses | 513,474 | 375,864 | 1,418,759 | 1,159,193 |
Selling, general and administrative expenses | 683,899 | 425,415 | 2,022,214 | 1,472,885 |
TOTAL OPERATING EXPENSES | 1,197,373 | 801,279 | 3,440,973 | 2,632,078 |
(LOSS) INCOME FROM OPERATIONS | -518,874 | -15,278 | -833,974 | 308,908 |
OTHER (EXPENSE) INCOME | ' | ' | ' | ' |
Interest expense | -49,618 | -37,176 | -135,160 | -114,139 |
Interest income | ' | 1,506 | 174 | 4,126 |
TOTAL OTHER INCOME (EXPENSE) | -49,618 | -35,670 | -134,986 | -110,013 |
NET (LOSS) INCOME | ($568,492) | ($50,948) | ($968,960) | $198,895 |
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED | ($0.01) | $0 | ($0.02) | $0 |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED | 44,273,569 | 44,223,023 | 44,268,166 | 47,075,697 |
Condensed_Consolidated_Stateme1
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net (loss) income | ($968,960) | $198,895 |
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ' | ' |
Depreciation and amortization | 963,462 | 512,405 |
Share-based compensation | 17,750 | 10,500 |
Deferred rent | -47,312 | -40,869 |
Bad debt expense | 232,315 | 68,775 |
Changes in operating assets and liabilities: | ' | ' |
Accounts receivables | 498,799 | 825,631 |
Unbilled Receivables | 31,692 | -521,642 |
Prepaid expenses and other non-current assets | -61,729 | 374,726 |
Inventory | 16,740 | -114,987 |
Customer deposits | -33,317 | 97,226 |
Accounts payable and accrued expenses | -1,873,103 | 216,538 |
Accrued payroll and related expenses | 5,293 | -15,122 |
Income tax Payable | -154 | -21,296 |
Deferred revenue | 260,757 | 76,360 |
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | -957,767 | 1,667,140 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Purchases of property and equipment | -304,792 | -1,556,357 |
NET CASH USED IN INVESTING ACTIVITIES | -304,792 | -1,556,357 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Net change in line of credit | 2,500,000 | -500,000 |
Capital lease originaitons | ' | 1,000,000 |
Payments on notes payable - auto | -28,386 | -17,295 |
Principal payments on capital lease obligations | -456,606 | -238,828 |
Purchase of tresury stock | ' | -5,890 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,015,008 | 237,987 |
NET INCREASE IN CASH | 752,449 | 348,770 |
CASH - Beginning of period | 1,415,252 | 1,832,969 |
CASH - End of period | 2,167,701 | 2,181,739 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ' | ' |
Cash paid for interest | 137,627 | 114,139 |
Cash paid for income taxes | 154 | 21,296 |
Property and equipment acquisitions | 380,202 | 1,622,863 |
Amount financed | -75,410 | -65,506 |
Cash paid for property and equipment acquisitions | $304,792 | $1,556,357 |
1_DESCRIPTION_OF_THE_BUSINESS
1. DESCRIPTION OF THE BUSINESS | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 1 - DESCRIPTION OF THE BUSINESS | ' |
Brekford Corp. (OTCBB; OTCQB: BFDI) headquartered in Hanover, Maryland is a technology services provider of mobile computer and video systems through its vehicle upfitting services to homeland security agencies and federal, state, and municipal law enforcement agencies and offers traffic safety solutions to municipalities, including automated photo speed enforcement and red light camera solutions. Brekford is an established company which, for more than a decade, has provided services to branches of the U.S. military, various federal entities and numerous security and public safety agencies throughout the United States. Brekford provides these departments and agencies with an end-to-end suite of rugged mobile information technology (IT), vehicle upfitting services, and automated traffic safety photo enforcement technology solutions. | |
Brekford is a one-stop shop with its unique 360° approach to vehicle upfitting installations, cutting edge rugged mobile technology, and automated traffic enforcement services for jurisdictions in the United States. We provide bumper-to-bumper vehicle modification and automated traffic enforcement products, road safety camera programs, including red light and speed photo enforcement systems, and back office processing services. The Brekford 360° approach provides our customers with a one-stop engineered solution. Our commitment to top quality services, along with the core values that our employees strongly uphold: integrity; accountability; respect; excellence; and teamwork; is why we believe Brekford is the premier all-around vehicle upfitter and automated traffic safety technology solutions provider. | |
As used in these notes, the terms “BFDI,” “Brekford Corp.,” “Company,” “we,” “our,” and “us” refer to Brekford Corp. and, unless the context clearly indicates otherwise, its consolidated subsidiary. |
2_SUMMARY_OF_SIGNIFICANT_ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' |
Principles of Consolidation and Basis of Presentation | |
The consolidated financial statements of Brekford include accounts of the Company and its wholly-owned subsidiary, Municipal Recovery Agency, LLC. Intercompany transactions and balances are eliminated in consolidation. | |
Use of Estimates | |
Preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results could differ from those estimates. | |
Concentration of Credit Risk | |
The Company maintains cash accounts with major financial institutions. From time to time, amounts deposited may exceed the FDIC insured limits. | |
Accounts Receivable | |
Accounts receivable are carried at estimated net realizable value. The Company has a policy of reserving for uncollectable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company calculates the allowance based on a specific analysis of past due balances. Past due status for a particular customer is based on how recently payments have been received from that customer. Historically, the Company’s actual collection experience has not differed significantly from its estimates, due primarily to credit and collections practices and the financial strength of its customers. | |
The Company’s practice of reserving for uncollectable citations generated through its photo enforcement solutions is based on its best estimate of the amount of probable losses. This estimate accounts for an initial loss in expected receivables from the existing population of uncollected receivables. The Company calculates allowances based on its experience with collecting citations. Past due status is based on varying client business rules for the extension of time allotted for payment. For certain contracts, the Company manages both the issuance of citations and the collection of unpaid fines. To be conservative, the percentage of allowance is calculated from the first day of citation issuance. The Company reviews and evaluates their collections efforts and makes necessary adjustments to the allowance accounts and complete write-offs as deemed necessary. | |
Inventory | |
Inventory principally consists of hardware and third-party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. These amounts are stated at the lower of first-in, first-out (“FIFO”) cost or market. | |
Property and Equipment | |
Property and equipment is stated at cost. Depreciation of furniture, vehicles, computer equipment and software and phone equipment is calculated using the straight-line method over the estimated useful lives (two to ten years), and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term (which is three to five years). | |
Revenue Recognition | |
The Company recognizes revenue relating to its vehicle upfitting solutions when it meets all of the following criteria: (i) persuasive evidence of an arrangement exists; (ii) delivery or installation has been completed; (iii) the customer accepts and verifies receipt; and (iv) collectability is reasonably assured. The Company considers delivery to its customers to have occurred at the time at which products are delivered and/or installation work is completed and the customer acknowledges its acceptance of the work. | |
The Company provides its customers with a warranty against defects in the installation of its vehicle upfitting solutions for one year from the date of installation. Warranty claims were $2,127 for the nine months ended September 30, 2013 and $23,448 for the nine months ended September 30, 2012. The Company also performs warranty repair services on behalf of the manufacturers of the equipment it sells. Effective January 2011, the Company offers separately priced extended warranty and product maintenance contracts to its customers on the equipment sold by the Company. Revenues from extended warranty services are apportioned over the period of the extended warranty service contracts and the warranty costs are expensed as incurred. Revenue from extended warranties for the nine-month periods ended September 30, 2013 and 2012 amounted to $263,757 and $251,416, respectively. | |
For automatic traffic enforcement revenue, the Company recognizes the revenue either on the date that the Company determines a valid violation has occurred or when the collection efforts are completed depending on the specific terms of the contract with each municipality. The Company records revenue related to automated traffic violations for the Company’s share of the violation amount. | |
Share-Based Compensation | |
The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all share-based awards on estimated fair values, net of estimated and actual forfeitures, on a straight line basis over the period during which the employee is required to provide services in exchange for the award. | |
Treasury Stock | |
The Company accounts for treasury stock using the cost method. As of September 30, 2013, 10,600 shares of Brekford Corp.’s common stock were held in treasury at an aggregate cost of $5,890. | |
Income Taxes | |
The Company uses the liability method to account for income taxes. Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between financial reporting and income tax bases of assets and liabilities. Deferred income taxes are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period. Valuation allowances are established when the realization of deferred tax assets are not considered more likely than not. | |
The Company files income tax returns with the U.S. Internal Revenue Service and with the revenue services of various states. The Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years prior to 2009. The Company’s policy is to recognize interest related to unrecognized tax benefits as income tax expense. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. | |
(Loss) Earnings per Share | |
Basic (loss) earnings per share is calculated by dividing net (loss) income available to common stockholders by the weighted-average number of common shares outstanding and does not include the effect of any potentially dilutive common stock equivalents. Diluted (loss) earnings per share is calculated by dividing net (loss) income by the weighted-average number of shares outstanding, adjusted for the effect of any potentially dilutive common stock equivalents. There is no dilutive effect on the loss per share during loss periods. See Note 10 for the calculation of basic and diluted (loss) earnings per share. | |
Fair Value of Financial Instruments | |
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk. | |
Segment Reporting | |
Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, requires that an enterprise report selected information about operating segments in its financial reports issued to its stockholders. Based on the analysis performed by the Company, management has determined that the Company has only one operating segment, which is Traffic Safety Solutions. The chief operating decision-makers use combined results to make operating and strategic decisions, and, therefore, the Company believes its entire operation is covered under a single segment. | |
Newly Issued Accounting Pronouncements | |
Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on our financial statements. | |
3_LINE_OF_CREDIT_AND_NOTES_PAY
3. LINE OF CREDIT AND NOTES PAYABLE - AUTO | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 3 - LINE OF CREDIT AND NOTES PAYABLE - AUTO | ' |
On July 12, 2012, the Company closed on an aggregate $3.5 million credit facility (the “Credit Facility”) with PNC Bank, National Association (“PNC”) as lender consisting of $3.0 million in revolving loans (the "Revolving Facility") and $500,000 in a committed non-revolving line of credit loan for the purpose of financing up to 90% of the cost of certain equipment (the “Equipment Loan”). The terms and conditions of the Credit Facility were set forth in a Loan Agreement between the Company and PNC dated June 28, 2012 (the “Loan Agreement”), and the Revolving Facility is evidenced by a Committed Line of Credit Note issued by the Company to the order of PNC (the “Revolving Note”). As part of the financing transaction, each of C.B. Brechin and Scott Rutherford, who serve as directors of the Company and as Chief Executive Officer/Chief Financial Officer and as President of the Company, respectively, entered into a Subordination Agreement dated June 28, 2012 with PNC (each, a “Subordination Agreement”) pursuant to which they agreed that all indebtedness owed to them by the Company (the “Subordinated Debt”) is subordinate to the indebtedness owed to PNC by the Company. The Subordination Agreements permit the Company to make regular loan payments to Messrs. Brechin and Rutherford so long as the Company is not in default under its loan agreements with PNC. The terms of the Equipment Loan will be evidenced by a separate promissory note if the Company requests that loan. The loan agreement was amended on July 18, 2013 to extend the loan’s maturity date to September 28, 2013. On September 27, 2013, the Company executed a Second Amendment to Loan Documents, effective as of September 28, 2013 (the “Modification Agreement”), to extend the maturity date of the Credit Facility to March 31, 2014. The Modification Agreement also amended the Credit Facility as follows: (i) the Company is now required to submit financial statements to PNC on a monthly basis rather than on a quarterly basis; (ii) the maximum ratio of total indebtedness (excluding Subordinated Debt) to EBITDA that the Company may maintain, to be tested on a quarterly basis, was increased to 3.5 to 1.0 (from 3.0 to 1.0); and (iii) the minimum rolling four-quarter Debt Service Coverage Ratio that the Company is required to maintain as of the end of each fiscal quarter was reduced to 1.0 to 1.0 (from 1.30 to 1.00). In connection with the Modification Agreement, the Company and PNC also executed a Borrowing Base Rider, effective September 28, 2013, which limits the aggregate principal amount of indebtedness that may be outstanding under the Credit Facility at any one time to a Borrowing Base and conditions the Company’s request for an advance under the Credit Facility on the Company’s submission of a Borrowing Base Certificate to the Bank on or before the 15th day of each month. As defined in the Borrowing Base Rider, the “Borrowing Base” is defined as the lesser of (i) $3.0 million and (ii) the sum of (a) 80% of Qualified Accounts (as defined in the Borrowing Base Rider) and (b) 50% of Qualified Inventory (as defined in the Borrowing Base Rider), provided, however, that the total amount of advances allocable to Qualified Inventory may not exceed $500,000. In the event that the outstanding principal amount of indebtedness under the Credit Facility exceeds the Borrowing Base, the Company must immediately repay the amount of such excess. | |
As of September 30, 2013, amounts outstanding under the line of credit were $2,500,000. | |
The Company financed certain vehicles and equipment under finance agreements. The agreements mature beginning September 2014 through January 2018. The agreements require various monthly payments under the finance agreements. As of September 30, 2013 and 2012, financed assets of $127,088 and $94,797, respectively, net of accumulated amortization of $41,876 and $22,799, respectively, are included in property and equipment on the balance sheets. |
4_NOTES_PAYABLE_STOCKHOLDERS
4. NOTES PAYABLE - STOCKHOLDERS | 9 Months Ended | |
Sep. 30, 2013 | ||
Notes to Financial Statements | ' | |
NOTE 4 - NOTES PAYABLE - STOCKHOLDERS | ' | |
Brekford Corp. financed the repurchase of shares of its common stock and warrants from the proceeds of convertible promissory notes that were issued by Brekford Corp. on November 9, 2009 in favor of a lender group that included two directors of Brekford Corp., Messrs. C.B. Brechin and Scott Rutherford, in the principal amounts of $250,000 each (a “Promissory Note, and together, the “Promissory Notes”). Each Promissory Note bears interest at the rate of 12% per annum and at the time of execution was to be convertible into shares of Common Stock, at the option of each holder, at an original conversion price of $.07 per share. At the time of the execution of the Promissory Notes, Brekford Corp. agreed to pay the unpaid principal balance of the Promissory Notes and all accrued but unpaid interest on the date that was the earlier of (i) two years from the issue date of the notes, or (ii) ten business days from the date on which Brekford Corp. closes any equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. | ||
On April 1, 2010, Brekford Corp. and each member of the lender group executed a First Amendment to the Unsecured Promissory Note. Each Promissory Note was amended as follows: | ||
● | To include any accrued but unpaid interest in the amount that may be converted at the election of the holder; and | |
● | To extend the maturity date of the Promissory Notes to the date that is the earlier of (i) four years from the issue date of the Promissory Note or (ii) ten business days from the date on which Brekford Corp. closes any equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. | |
On November 8, 2013, Brekford Corp. and each member of the lender group executed an agreement to extend the maturity date of the Promissory Notes to the earlier of (i) November 9, 2014 or (ii) ten business days from the date on which Brekford Corp. closes any equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. | ||
As of September 30, 2013 and December 31, 2012, the aggregate amount outstanding under the Promissory Notes totaled $500,000. |
5_LEASES
5. LEASES | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 5 - LEASES | ' |
Capital Leases | |
The Company financed certain equipment under separate non-cancelable equipment loan and security agreements. The agreements mature in March 2015 and April 2015. The agreements require various monthly payments and are secured by the assets under lease. As of September 30, 2013 and 2012, the Company had capital lease assets of $1,112,741 and $1,835,683, respectively, net of accumulated amortization of $1,121,259 and $454,889, respectively. These amounts are included in property and equipment on the balance sheets. | |
Operating Leases | |
The Company records rent expense under a non-cancelable operating lease that expires on January 2015. Rent expense under this lease amounted to $138,410 and $146,164 for the nine months ended September 30, 2013 and 2012, respectively. | |
The Company leases approximately 2,500 square feet of office space from a related party under a non-cancelable operating lease that will expire in June 2015. Rent expense under this lease amounted to $37,570 and $31,732 for the nine-month periods ended September 30, 2013 and 2012, respectively. | |
6_MAJOR_CUSTOMERS_AND_VENDORS
6. MAJOR CUSTOMERS AND VENDORS | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 6 - MAJOR CUSTOMERS AND VENDORS | ' |
Major Customers | |
The Company has several contracts with government agencies, of which net revenue from two major customers during the nine months ended September 30, 2013 represented 34% of the total net revenue for such nine-month period. Accounts receivable due from two customers at September 30, 2013 amounted to 60% of total accounts receivable at that date. | |
For the quarter ended September 30, 2012, the Company had several contracts with government agencies, of which net revenue from one major customer represented 12% of the total net revenue for such nine-month period. Accounts receivable due from these three customers at September 30, 2012 amounted to 46% of total accounts receivable at that date. | |
Major Vendors | |
The Company purchased substantially all hardware products that it resold during the periods presented covered by these financial statements from the major distributors. Revenues from hardware products amounted to 49% and 59% of total revenues for the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013 and 2012, accounts payable due to this distributor amounted to 56% and 66% of total accounts payable, respectively. |
7_STOCKHOLDERS_EQUITY
7. STOCKHOLDERS' EQUITY | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 7 - STOCKHOLDERS' EQUITY | ' |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |
On September 7, 2010, the Company issued a press release announcing that its board of directors authorized a stock repurchase program permitting the Company to repurchase up to $500,000 in shares of its outstanding Common Stock from time to time over a period of 12 months in open market transactions or in privately negotiated transactions at the Company's discretion. The stock repurchase program was subsequently extended for an additional 12 months until September 7, 2012. On September 28, 2012, the Company adopted a new stock repurchase program which permits the Company to repurchase the $363,280 in shares that remained available for repurchase under the old program, with the same terms and conditions except that the term of the new stock repurchase program is 24 months. No shares were repurchased during the nine months ended September 30, 2013. |
8_SHAREBASED_COMPENSATION
8. SHARE-BASED COMPENSATION | 9 Months Ended | ||||||||||||
Sep. 30, 2013 | |||||||||||||
Notes to Financial Statements | ' | ||||||||||||
NOTE 8 - SHARE-BASED COMPENSATION | ' | ||||||||||||
Brekford Corp. has issued restricted stock and warrants to purchase shares of common stock (“Common Stock Purchase Warrants”) and has granted non-qualified stock options to certain employees and non-employees at the discretion of the board of directors. On April 25, 2008, Brekford Corp.’s shareholders approved the 2008 Stock Incentive Plan (the “Plan”). To date, there have been no stock option grants under the Plan. All stock options granted to employees were granted under previous arrangements, have exercise prices that are less or equal to the fair value of the underlying common stock at the date of grant and have terms of ten years. | |||||||||||||
Common Stock Purchase Warrants | |||||||||||||
For the nine months ended September 30, 2013 and 2012, there was no share-based compensation expense for Common Stock Purchase Warrants. As of September 30, 2013, there are no unvested Common Stock Purchase Warrants. | |||||||||||||
A summary of warrant activity is as follows for nine months ended September 30, 2013: | |||||||||||||
Shares Underlying | Weighted Average | Weighted Average | |||||||||||
Warrants | Exercise Price | Remaining Contractual Term (in years) | |||||||||||
Outstanding and exercisable at January 1, 2013 | 375,000 | $ | 0.3 | 0.37 | |||||||||
Granted | — | — | — | ||||||||||
Forfeited or expired | (375,000 | ) | 0.3 | — | |||||||||
Exercised | — | — | — | ||||||||||
Outstanding and exercisable at September 30, 2013 | — | $ | — | — | |||||||||
Restricted Stock Grants | |||||||||||||
For the nine months ended September 30, 2013, Brekford Corp. granted an aggregate of 25,000 shares of restricted common stock to a consultant as part of its service agreement. The weighted average value of the shares amounted to $0.71 per share based upon the closing price of shares of Brekford Corp.’s common stock on the date of the grant. These shares were fully vested on the date of the grant. The Company recorded $17,750 in share-based compensation expense during the period ending September 30, 2013 related to restricted stock grants. For the nine months ended September 30, 2012, the Company recorded $10,500 in share-based compensation expense related to restricted stock grants. | |||||||||||||
Restricted Stock | Weighted Average | ||||||||||||
Shares | Value | ||||||||||||
Nonvested restricted stock at January 1, 2013 | — | $ | — | ||||||||||
Granted | 25,000 | 0.71 | |||||||||||
Vested | (25,000 | ) | 0.71 | ||||||||||
Forfeited or expired | — | — | |||||||||||
Nonvested restricted stock at September 30, 2013 | — | $ | — |
9_INVENTORY
9. INVENTORY | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
NOTE 9 - INVENTORY | ' |
As of September 30, 2013 and December 31, 2012, inventory consisted entirely of raw materials of $656,565 and $672,874, respectively. |
10_LOSS_EARNINGS_PER_SHARE
10. (LOSS) EARNINGS PER SHARE | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||
10. (LOSS) EARNINGS PER SHARE | ' | ||||||||||||||||
The following table sets forth the calculation of basic and diluted (loss) earnings per common share for the three and nine months ended September 30, 2013 and 2012. | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Basic (loss) earnings per share : | |||||||||||||||||
Net (loss) income | $ | (568,492 | ) | $ | (50,948 | ) | $ | (968,960 | ) | $ | 198,895 | ||||||
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 | |||||||||||||
Basic (loss) earnings per share | $ | (0.01 | ) | $ | 0 | $ | (0.02 | ) | $ | 0 | |||||||
Diluted (loss) earnings per share : | |||||||||||||||||
Net (loss) income | $ | (568,492 | ) | $ | (50,948 | ) | $ | (968,960 | ) | $ | 198,895 | ||||||
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 | |||||||||||||
Potential dilutive securities | — | — | — | 2,983,817 | |||||||||||||
Weighted average common shares outstanding – diluted | 44,273,569 | 44,223,023 | 44,268,166 | 47,075,697 | |||||||||||||
Diluted (loss) earnings per share | $ | (0.01 | ) | $ | 0 | $ | (0.02 | ) | $ | 0 | |||||||
Common Stock Equivalents excluded due to antidilutive effect | 2,717,184 | 2,646,280 | 2,837,501 | — | |||||||||||||
2_SUMMARY_OF_SIGNIFICANT_ACCOU1
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
Principles of Consolidation and Basis of Presentation | ' |
The consolidated financial statements of Brekford include accounts of the Company and its wholly-owned subsidiary, Municipal Recovery Agency, LLC. Intercompany transactions and balances are eliminated in consolidation. | |
Use of Estimates | ' |
Preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results could differ from those estimates. | |
Concentration of Credit Risk | ' |
The Company maintains cash accounts with major financial institutions. From time to time, amounts deposited may exceed the FDIC insured limits. | |
Accounts Receivables | ' |
Accounts receivable are carried at estimated net realizable value. The Company has a policy of reserving for uncollectable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company calculates the allowance based on a specific analysis of past due balances. Past due status for a particular customer is based on how recently payments have been received from that customer. Historically, the Company’s actual collection experience has not differed significantly from its estimates, due primarily to credit and collections practices and the financial strength of its customers. | |
The Company’s practice of reserving for uncollectable citations generated through its photo enforcement solutions is based on its best estimate of the amount of probable losses. This estimate accounts for an initial loss in expected receivables from the existing population of uncollected receivables. The Company calculates allowances based on its experience with collecting citations. Past due status is based on varying client business rules for the extension of time allotted for payment. For certain contracts, the Company manages both the issuance of citations and the collection of unpaid fines. To be conservative, the percentage of allowance is calculated from the first day of citation issuance. The Company reviews and evaluates their collections efforts and makes necessary adjustments to the allowance accounts and complete write-offs as deemed necessary. | |
Inventory | ' |
Inventory principally consists of hardware and third-party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. These amounts are stated at the lower of first-in, first-out (“FIFO”) cost or market. | |
Property and Equipment | ' |
Property and equipment is stated at cost. Depreciation of furniture, vehicles, computer equipment and software and phone equipment is calculated using the straight-line method over the estimated useful lives (two to ten years), and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term (which is three to five years). | |
Revenue Recognition | ' |
The Company recognizes revenue relating to its vehicle upfitting solutions when it meets all of the following criteria: (i) persuasive evidence of an arrangement exists; (ii) delivery or installation has been completed; (iii) the customer accepts and verifies receipt; and (iv) collectability is reasonably assured. The Company considers delivery to its customers to have occurred at the time at which products are delivered and/or installation work is completed and the customer acknowledges its acceptance of the work. | |
The Company provides its customers with a warranty against defects in the installation of its vehicle upfitting solutions for one year from the date of installation. Warranty claims were $2,127 for the nine months ended September 30, 2013 and $23,448 for the nine months ended September 30, 2012. The Company also performs warranty repair services on behalf of the manufacturers of the equipment it sells. Effective January 2011, the Company offers separately priced extended warranty and product maintenance contracts to its customers on the equipment sold by the Company. Revenues from extended warranty services are apportioned over the period of the extended warranty service contracts and the warranty costs are expensed as incurred. Revenue from extended warranties for the nine-month periods ended September 30, 2013 and 2012 amounted to $263,757 and $251,416, respectively. | |
For automatic traffic enforcement revenue, the Company recognizes the revenue either on the date that the Company determines a valid violation has occurred or when the collection efforts are completed depending on the specific terms of the contract with each municipality. The Company records revenue related to automated traffic violations for the Company’s share of the violation amount. | |
Share-Based Compensation | ' |
The Company accounts for stock incentive plans by measurement and recognition of compensation expense for all share-based awards on estimated fair values, net of estimated and actual forfeitures, on a straight line basis over the period during which the employee is required to provide services in exchange for the award. | |
Treasury Stock | ' |
The Company accounts for treasury stock using the cost method. As of September 30, 2013, 10,600 shares of Brekford Corp.’s common stock were held in treasury at an aggregate cost of $5,890. | |
Income Taxes | ' |
The Company uses the liability method to account for income taxes. Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between financial reporting and income tax bases of assets and liabilities. Deferred income taxes are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense, if any, consists of the taxes payable for the current period. Valuation allowances are established when the realization of deferred tax assets are not considered more likely than not. | |
The Company files income tax returns with the U.S. Internal Revenue Service and with the revenue services of various states. The Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years prior to 2009. The Company’s policy is to recognize interest related to unrecognized tax benefits as income tax expense. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. | |
(Loss) Earnings per Share | ' |
Basic (loss) earnings per share is calculated by dividing net (loss) income available to common stockholders by the weighted-average number of common shares outstanding and does not include the effect of any potentially dilutive common stock equivalents. Diluted (loss) earnings per share is calculated by dividing net (loss) income by the weighted-average number of shares outstanding, adjusted for the effect of any potentially dilutive common stock equivalents. There is no dilutive effect on the loss per share during loss periods. See Note 10 for the calculation of basic and diluted (loss) earnings per share. | |
Fair Value of Financial Instruments | ' |
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk. | |
Segment Reporting | ' |
Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting, requires that an enterprise report selected information about operating segments in its financial reports issued to its stockholders. Based on the analysis performed by the Company, management has determined that the Company has only one operating segment, which is Traffic Safety Solutions. The chief operating decision-makers use combined results to make operating and strategic decisions, and, therefore, the Company believes its entire operation is covered under a single segment. | |
Newly Issued Accounting Pronouncements | ' |
Management does not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on our financial statements. |
8_SHAREBASED_COMPENSATION_Tabl
8. SHARE-BASED COMPENSATION (Tables) | 9 Months Ended | ||||||||||||
Sep. 30, 2013 | |||||||||||||
Notes to Financial Statements | ' | ||||||||||||
Summary of Warrant Activity | ' | ||||||||||||
Shares Underlying | Weighted Average | Weighted Average | |||||||||||
Warrants | Exercise Price | Remaining Contractual Term (in years) | |||||||||||
Outstanding and exercisable at January 1, 2013 | 375,000 | $ | 0.3 | 0.37 | |||||||||
Granted | — | — | — | ||||||||||
Forfeited or expired | (375,000 | ) | 0.3 | — | |||||||||
Exercised | — | — | — | ||||||||||
Outstanding and exercisable at September 30, 2013 | — | $ | — | — | |||||||||
Share-based compensation expense related to restricted stock grants | ' | ||||||||||||
Restricted Stock | Weighted Average | ||||||||||||
Shares | Value | ||||||||||||
Nonvested restricted stock at January 1, 2013 | — | $ | — | ||||||||||
Granted | 25,000 | 0.71 | |||||||||||
Vested | (25,000 | ) | 0.71 | ||||||||||
Forfeited or expired | — | — | |||||||||||
Nonvested restricted stock at September 30, 2013 | — | $ | — |
10_LOSS_EARNINGS_PER_SHARE_Tab
10. (LOSS) EARNINGS PER SHARE (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||
Calculation of basic and diluted (loss) earnings per common share | ' | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Basic (loss) earnings per share : | |||||||||||||||||
Net (loss) income | $ | (568,492 | ) | $ | (50,948 | ) | $ | (968,960 | ) | $ | 198,895 | ||||||
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 | |||||||||||||
Basic (loss) earnings per share | $ | (0.01 | ) | $ | 0 | $ | (0.02 | ) | $ | 0 | |||||||
Diluted (loss) earnings per share : | |||||||||||||||||
Net (loss) income | $ | (568,492 | ) | $ | (50,948 | ) | $ | (968,960 | ) | $ | 198,895 | ||||||
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 | |||||||||||||
Potential dilutive securities | — | — | — | 2,983,817 | |||||||||||||
Weighted average common shares outstanding – diluted | 44,273,569 | 44,223,023 | 44,268,166 | 47,075,697 | |||||||||||||
Diluted (loss) earnings per share | $ | (0.01 | ) | $ | 0 | $ | (0.02 | ) | $ | 0 | |||||||
Common Stock Equivalents excluded due to antidilutive effect | 2,717,184 | 2,646,280 | 2,837,501 | — |
2_SUMMARY_OF_SIGNIFICANT_POLIC
2. SUMMARY OF SIGNIFICANT POLICIES (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Warranty claims | $2,127 | $23,448 | ' |
Revenue from extended warranties | 263,757 | 251,416 | ' |
Common Stock held in treasury amount | 5,890 | ' | 5,890 |
TreasuryStockMember | ' | ' | ' |
Common Stock held in treasury shares | 10,600 | ' | ' |
Common Stock held in treasury amount | $5,890 | ' | ' |
3_LINE_OF_CREDIT_AND_NOTES_PAY1
3. LINE OF CREDIT AND NOTES PAYABLE - AUTO (Details Narrative) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Line Of Credit And Notes Payable - Auto Details Narrative | ' | ' |
Line of credit amount outstanding | $2,500,000 | ' |
Financed assets | 127,088 | 94,797 |
Accumulated amortization | $41,876 | $22,799 |
4_NOTES_PAYABLE_STOCKHOLDERS_D
4. NOTES PAYABLE - STOCKHOLDERS (Details Narrative) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Notes Payable - Stockholders Details Narrative | ' | ' |
Amounts outstanding under Promissory Notes, total | $500,000 | $500,000 |
5_LEASES_Details_Narrative
5. LEASES (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Leases Details Narrative | ' | ' | ' |
Capital Lease Assets, net of amortization | $1,112,741 | ' | $1,835,683 |
Capital Lease Assets Amortization | 1,121,259 | ' | 454,889 |
Rent expense over term of lease on straight-line basis | 138,410 | 146,164 | ' |
Rent expense amount | $37,570 | $31,732 | ' |
6_MAJOR_CUSTOMERS_AND_VENDORS_
6. MAJOR CUSTOMERS AND VENDORS (Details Narrative) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Hardware products Vendor | ' | ' |
Revenues from hardware products | 49.00% | 59.00% |
Accounts payable due to distributor | 56.00% | 66.00% |
Two Major Customers | ' | ' |
Net sales | 34.00% | ' |
Accounts receivable | 60.00% | ' |
Three Major Customers | ' | ' |
Net sales | ' | 12.00% |
Accounts receivable | ' | 46.00% |
8_SHAREBASED_COMPENSATION_Deta
8. SHARE-BASED COMPENSATION (Details) (Warrant [Member], USD $) | 9 Months Ended |
Sep. 30, 2013 | |
Warrant [Member] | ' |
Shares Underlying Warrants | ' |
Outstanding and exercisable at January 1, 2013 | 375,000 |
Granted | ' |
Forfeited or expired | -375,000 |
Exercised | ' |
Outstanding and exercisable at September 30, 2013 | ' |
Weighted Average Exercise Price | ' |
Outstanding and exercisable at January 1, 2013 | $0.30 |
Granted | ' |
Forfeited or expired | $0.30 |
Exercised | ' |
Outstanding and exercisable at September 30, 2013 | ' |
Weighted Average Remaining Contractual Term (in years) | ' |
Outstanding and exercisable at January 1, 2013 | '4 months 13 days |
8_SHAREBASED_COMPENSATION_Deta1
8. SHARE-BASED COMPENSATION (Details 1) (Restricted Stock [Member], USD $) | 9 Months Ended | |
Sep. 30, 2013 | Dec. 31, 2012 | |
Restricted Stock [Member] | ' | ' |
Restricted Stock Shares | ' | ' |
Nonvested restricted stock at January 1, 2013 | ' | ' |
Granted | 25,000 | ' |
Vested | -25,000 | ' |
Forfeited or expired | ' | ' |
Nonvested restricted stock at September 30, 2013 | ' | ' |
Weighted Average Value | ' | ' |
Nonvested restricted stock beginning | ' | ' |
Granted | $0.71 | ' |
Vested | $0.71 | ' |
Forfeited or expired | ' | ' |
Nonvested restricted stock ending | ' | ' |
8_SHAREBASED_COMPENSATION_Deta2
8. SHARE-BASED COMPENSATION (Detail Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items] | ' | ' |
Share - based compensation expense under restricted stock grants | $17,750 | $10,500 |
RestrictedStockGrantsMember | ' | ' |
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items] | ' | ' |
Shares of restricted stock | 25,000 | ' |
Share - based compensation expense under restricted stock grants | $17,500 | $10,500 |
10_LOSS_EARNINGS_PER_SHARE_Det
10. (LOSS) EARNINGS PER SHARE (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Basic (loss) earnings per share : | ' | ' | ' | ' |
Net (loss) income | ($568,492) | ($50,948) | ($968,960) | $198,895 |
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 |
Basic earnings per share | ($0.01) | $0 | ($0.02) | $0 |
Diluted (loss) earnings per share : | ' | ' | ' | ' |
Net (loss) income | ($568,492) | ($50,948) | ($968,960) | $198,895 |
Weighted average common shares outstanding | 44,273,569 | 44,223,023 | 44,268,166 | 44,091,880 |
Potential dilutive securities | ' | ' | ' | 2,983,817 |
Weighted average common shares outstanding - assuming dilution | 44,273,569 | 44,223,023 | 44,268,166 | 47,075,697 |
Diluted net income per share | ($0.01) | $0 | ($0.02) | $0 |
Common Stock Equivalents excluded due to antidilutive effect | 2,717,184 | 2,646,280 | 2,837,501 | ' |