Brekford (TTSR) 10-Q 13 Aug 15 2015 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 03, 2015
Document And Entity Information
Entity Registrant Name	Brekford Corp.
Entity Central Index Key	1,357,115
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
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		44,632,569
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,015

Condensed Consolidated Balance

Condensed Consolidated Balance Sheet (Unaudited) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
CURRENT ASSETS
Cash, unrestricted	$ 809,873	$ 1,112,881
Accounts receivable, net of allowance $0 at June 30, 2015 and December 31, 2014, respectively	2,627,714	1,706,704
Unbilled receivables	390,930	198,725
Prepaid expenses	161,506	146,569
Inventory	965,205	681,948
Total current assets	4,955,228	3,846,827
Property and equipment, net	174,633	284,322
Other non-current assets	109,219	112,132
TOTAL ASSETS	5,239,080	4,243,281
CURRENT LIABILITIES
Accounts payable and accrued expenses	2,600,363	1,842,892
Accrued payroll and related expenses	91,858	23,252
Line of credit	935,999	1,169,558
Term loan - current portion	250,000	250,000
Deferred revenue	121,120	255,405
Customer deposits	$ 225,488	137,826
Obligations under capital leases - current portion		140,209
Obligations under other notes payable - current portion	$ 28,909	$ 28,602
Derivative liability	98,112
Other liabilities	47,369	$ 48,669
Deferred rent - current portion	1,067
Total current liabilities	4,400,285	$ 3,896,413
LONG - TERM LIABILITIES
Notes payable - stockholders	500,000	500,000
Other notes payable - net of current portion	36,426	$ 48,371
Deferred rent, net of current portion	42,272
Term notes payable, net of current portion	41,667	$ 166,667
Convertible promissory notes, net of debt discounts of $577,752 and $0 at June 30, 2015 and December 31, 2014, respectively	137,249
Total long-term liabilities	757,614	$ 715,038
TOTAL LIABILITIES	$ 5,157,899	$ 4,611,451
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred stock, par value $0.0001 per share; 20,000,000 shares authorized; none issued and outstanding
Common stock, par value $0.0001 per share; 150,000,000 shares authorized; 44,632,569 issued and outstanding, at June 30, 2015 and 44,500,569 issued and outstanding at December 31, 2014	$ 4,464	$ 4,450
Additional paid-in capital	10,811,006	10,204,479
Treasury Stock, at cost 10,600 shares at June 30, 2015 and December 31, 2014 respectively	(5,890)	(5,890)
Accumulated deficit	(10,726,922)	$ (10,571,209)
Other comprehensive loss	(1,477)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)	81,181	$ (368,170)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$ 5,239,080	$ 4,243,281

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Assets
Allowance for Receivables	$ 0	$ 0
Convertible promissory notes, net of debt discounts	$ 577,752	$ 0
Stockholders Equity
Preferred Stock par value	$ .0001	$ .0001
Preferred Stock Authorized	20,000,000	20,000,000
Preferred Stock Issued	0	0
Preferred Stock Outstanding	0	0
Common Stock par value	$ .0001	$ .0001
Common Stock Authorized	150,000,000	150,000,000
Common Stock Issued	44,632,569	44,500,569
Common Stock Outstanding	44,632,569	44,500,569
Treasury Stock, at cost	10,600	10,600

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) and Comprehensive loss - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Income Statement [Abstract]
NET REVENUE	$ 3,663,413	$ 3,892,307	$ 8,809,592	$ 8,554,594
COST OF REVENUE	2,603,951	3,232,244	6,824,538	7,306,372
GROSS PROFIT	1,059,462	660,063	1,985,054	1,248,222
OPERATING EXPENSES
Salaries and related expenses	456,042	445,967	996,263	933,596
Selling, general and administrative expenses	405,601	1,004,930	866,986	1,641,214
TOTAL OPERATING EXPENSES	861,643	1,450,897	1,863,249	2,574,810
INCOME (LOSS) FROM OPERATIONS	197,819	(790,834)	121,805	(1,326,588)
OTHER (EXPENSE) INCOME
Interest expense	(67,122)	$ (35,848)	(116,731)	$ (71,707)
Change in fair value in derivative liability	(31,080)		15,708
Other expense	(128,222)		(176,495)
TOTAL OTHER (EXPENSE) INCOME	(226,424)	$ (35,848)	(277,518)	$ (71,707)
NET (LOSS) INCOME	(28,605)	$ (826,682)	(155,713)	$ (1,398,295)
OTHER COMPREHENSIVE LOSS - foreign currency translation	(1,477)		(1,477)
COMPREHENSIVE LOSS	$ (30,082)	$ (826,682)	$ (157,190)	$ (1,398,295)
(LOSS) INCOME PER SHARE - BASIC AND DILUTED	$ 0	$ (0.02)	$ 0	$ (0.03)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC	44,632,569	44,500,569	44,628,923	44,498,635
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED	44,632,569	44,500,569	44,628,923	44,498,635

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (155,713)	$ (1,398,295)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	109,689	580,928
Share based compensation	48,620	15,994
Deferred rent	$ 43,339	(32,421)
Bad debt expense		21,938
Loss on disposal of property and equipment		$ 319,739
Amortization of debt discount	$ 137,248
Amortization of finance cost	29,362
Change in fair value of derivative liability	(15,708)
Changes in operating assets and liabilities:
Accounts receivables	(921,011)	$ (25,348)
Unbilled receivables	(192,205)	(90,987)
Prepaid expenses and other non-current assets	79,322	(6,143)
Inventory	(283,257)	668,985
Customer deposits	87,662	49,606
Accounts payable and accrued expenses	757,473	447,406
Accrued payroll and related expenses	68,606	(27,262)
Other liabilities	(1,300)	(561)
Deferred revenue	(134,285)	(205,842)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(342,158)	317,737
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in the line of credit	(233,559)	(1,238,449)
Payments on - other notes payable	(11,638)	(17,597)
Borrowings on term notes	650,000	$ 500,000
Payments on term notes	(125,000)
Deferred financing cost	(98,967)
Principal payments on capitallease obligations	(140,209)	$ (605,151)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	40,627	$ (1,361,197)
Effect of foreign currency translation	1,477
NET CHANGE IN CASH	(303,008)	$ (1,043,460)
CASH AND CASH EQUIVALENTS - Beginning of period	1,112,881	2,052,306
CASH AND CASH EQUIVALENTS - End of period	809,873	1,008,846
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	67,123	71,708
Cash paid for income taxes	1,300	$ 561
Discount on notes payable	$ 52,523
Liabilities settled in exchange for equipment		$ 260,000

1. DESCRIPTION OF THE BUSINESS

1. DESCRIPTION OF THE BUSINESS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
DESCRIPTION OF THE BUSINESS	Brekford Corp. (BFDI) headquartered in Hanover, Maryland is a leading public safety technology service provider of fully integrated traffic safety solutions, parking enforcement citation management and mobile technology equipment for public safety vehicle services to state and local municipalities, the U.S. Military and various Federal public safety agencies throughout the United States. Brekford’s combination of upfitting services, cutting edge technology, and automated traffic enforcement (ATSE) services offers a unique 360º solution for law enforcement agencies and municipalities. Our core values of integrity, accountability, respect, and teamwork drive our employees to achieve excellence and deliver industry leading technology and services, thereby enabling a superior level of safety solutions to our clients. Brekford has one wholly owned subsidiary, Municipal Recovery Agency, LLC, a Maryland limited liability company, formed in 2012 for the purpose of providing collection systems and services for unpaid citations and parking fines. As used in these notes, the terms “Brekford”, “the Company”, “we”, “our”, and “us” refer to Brekford Corp. and, unless the context clearly indicates otherwise, its consolidated subsidiary.

2. LIQUIDITY

2. LIQUIDITY	6 Months Ended
	Jun. 30, 2015
Liquidity
LIQUIDITY	For the six months ended June 30, 2015, the Company incurred a net loss of $155,713, and used $342,158 of cash for operations and working capital. Additionally, at June 30, 2015 the Company had cash available of $809,873 and a working capital surplus of $554,943 Management believes that the Company’s current level of cash combined with cash that it expects to generate in its operations during the next 12 months and funds available from the credit facility and the convertible promissory note will be sufficient to sustain the Company’s business initiatives through at least June 30, 2016, but there can be no assurance that these measures will be successful or adequate. In the event that projected cash flow does not meet expectations, management believes that the Company could take immediate action with respect to cost reductions to align future expenditures with existing revenue streams.

3. SUMMARY OF SIGNIFICANT ACCOU

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Basis of Presentation and Principles of Consolidation The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The condensed consolidated balance sheet at December 31, 2014, was derived from audited financial statements of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our annual report on Form 10-K for the year ended December 31, 2014. Certain prior period information has been reclassified to conform to the current period presentation. The Company’s consolidated financial statements include the accounts of Brekford Corp. and its wholly-owned subsidiary, Municipal Recovery Agency, LLC. Intercompany transactions and balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, sales returns, allowance for inventory obsolescence, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives of fixed assets. 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. 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. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in- process. 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). Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Revenue Recognition The Company recognizes revenue relating to its vehicle upfitting solutions when all of the following criteria have been satisfied: (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 insignificant for the three months and six months ended June 30, 2015 and June 30, 2014. The Company also performs warranty repair services on behalf of the manufacturers of the equipment it sells. The Company also 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 amounted to $121,120 and $114,459 for the three and six months ended June 30, 2015, respectively, compared to $171,934 and $227,362 respectively, for the same periods of 2014. The Company recognizes ATSE revenue when the required collection efforts are completed and the respective municipality is billed depending on the terms of the respective contract. The Company records revenue related to automated traffic violations for the Company’s share of the violation amount. Share-Based Compensation The Company complies with the provisions of FASB ASC Topic 718, Compensation Stock Compensation Treasury Stock The Company accounts for treasury stock using the cost method. As of June 30, 2015, 10,600 shares of Brekford Corp. 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 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 2011. 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 per Share Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), outstanding and does not include the effect of any potentially dilutive common stock equivalents. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock 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 13 for the calculation of basic and diluted loss 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 promissory note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk. We account for our derivative financial instruments, consisting solely of certain stock purchase warrants that contain non-standard anti-dilutions provisions and/or cash settlement features, and certain conversion options embedded in our convertible instruments, at fair value using level 3 inputs. We determine the fair value of these derivative liabilities using the Black-Scholes option-pricing model when appropriate, and in certain circumstances using binomial lattice models or other accepted valuation practices. When determining the fair value of our financial assets and liabilities using the Black-Scholes option-pricing model, we are required to use various estimates and unobservable inputs, including, among other things, contractual terms of the instruments, expected volatility of our stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value. Foreign Currency Transactions The Company has certain revenue and expense transactions with a functional currency in Mexican pesos and the Company's reporting currency is the U.S. dollar. Assets and liabilities are translated from the functional currency to the reporting currency at the exchange rate in effect at the balance sheet date and equity at the historical exchange rates. Revenue and expenses are translated at rates in effect at the time of the transactions. Resulting translation gains and losses are accumulated in a separate component of stockholders' equity - other comprehensive income (loss). Realized foreign currency transaction gains and losses are credited or charged directly to operations. Segment Reporting FASB ASC Topic 280, Segment Reporting Recent Accounting Pronouncements In May 2014, the FASB amended the ASC and created Topic 606, Revenue from Contracts with Customers In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new accounting standard requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. Accounting Standards Update No. 2015-03 , Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs.

4. LINE OF CREDIT AND NOTES PAY

4. LINE OF CREDIT AND NOTES PAYABLE	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
LINE OF CREDIT AND NOTES PAYABLE	On May 27, 2014, Brekford Corp. closed (the “Closing”) on an aggregate $3.0 million credit facility (the “Credit Facility”) with Rosenthal & Rosenthal, Inc. (“Rosenthal”) as lender consisting of $2.5 million in revolving loans (the “Revolving Facility”) and a $500,000 non-revolving loan (the “Term Loan”). The terms and conditions of the Credit Facility are set forth in a Financing Agreement between the Company and Rosenthal dated May 27, 2014 (the “Financing Agreement”). The Term Loan is additionally evidenced by a Term Note issued by the Company in favor of Rosenthal. The maximum amount that the Company may borrow from time to time under the Revolving Facility will be the lesser of $2.5 million or the “Loan Availability” (as defined in the Financing Agreement), which is tied to the amount of the Company’s “Eligible Receivables” (as defined in the Financing Agreement) and the amount of its “Eligible Inventory” (as defined in the Financing Agreement). Interest on the unpaid principal balances due under the Credit Facility will be payable monthly in arrears. Amounts borrowed under the Revolving Facility that do not exceed the “Receivable Availability” (as defined in the Financing Agreement) will bear interest at an annual rate equal to the prime rate from time to time publicly announced in New York City by JPMorgan Chase Bank (the “Prime Rate”) plus 2.5%; amounts borrowed under the Revolving Facility that relate to the “Inventory Availability” (as defined in the Financing Agreement) will bear interest at an annual rate equal to the Prime Rate plus 3.0% (the “Inventory Rate”); and any amounts that, on any day, exceed the Loan Availability will bear interest at an annual rate equal to the Inventory Rate plus 4.0%; provided, however, that the Prime Rate will never be deemed to be less than 4.0%. The Company agreed to pay a minimum of $3,000 in monthly interest under the Revolving Facility, as well as a $1,000 monthly loan administration fee. In addition, the Company agreed to pay Rosenthal a facility fee at the Closing in the amount of $30,000. At each annual renewal of the Financing Agreement, the Company will pay Rosenthal a facility fee in the amount of $18,750 . The Company’s obligations under the Financing Agreement and related documents are secured by a continuing lien on and security interest in substantially all of the Company’s assets. The Company’s repayment obligations under the Revolving Facility are due on demand by Rosenthal or, at Rosenthal’s option, upon the expiration of the Financing Agreement and/or the occurrence of an event of default thereunder. The original term of the Financing Agreement will expire on May 31, 2016 but will automatically renew for successive one-year terms unless the Company elects not to renew the Financing Agreement by providing at least 60 days’ prior written notice thereof to Rosenthal. Rosenthal may terminate the Financing Agreement at any time upon 60 days’ prior written notice to the Company. The Credit Facility replaced the Company’s $2.0 million credit facility with PNC Bank, National Association (“PNC”), under that certain Loan Agreement, dated as of June 28, 2012, as amended (the “PNC Facility”), and refinanced the amounts that were due under the PNC Facility. At the Closing, the Company paid approximately $1,030,707 to PNC in satisfaction of its obligations under the PNC Facility. In addition, the Company used proceeds from the Credit Facility, totaling approximately $310,649, to satisfy its obligations to Bank of America, N.A., under its Master Lease Agreement, dated as of December 13, 2011. As of June 30, 2015, we were out of compliance with one of the financial covenant contained in our credit facility with Rosenthal & Rosenthal as a result of the loss recorded for the six months ended June 30, 2015. We have reported this non-compliance to Rosenthal & Rosenthal and received a wavier on the covenants. The Company financed certain vehicles and equipment under finance agreements. The agreements mature at various dates through December 2017. The agreements require various monthly payments of principal and interest until maturity. As of June 30, 2015 and December 31, 2014, financed assets of $61,860 and $136,256, respectively, net of accumulated amortization of $80,056 and $67,126, respectively, are included in property and equipment on the balance sheets. The weighted average interest rate was 2.96% at June 30, 2015 and 3.75% at December 31, 2014.

5. CONVERTIBLE NOTES PAYABLE -

5. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS	Brekford Corp. financed the repurchase of shares of its common stock, par value $0.0001 per share (the “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 of its directors, Messrs. C.B. Brechin and Scott Rutherford, in the principal amounts of $250,000 each (each, a “Stockholder Note” and together, the “Stockholder Notes”). Each Stockholder Note bears interest at the rate of 12% per annum and at the time of issuance was to be convertible into shares of Common Stock, at the option of the holder, at an original conversion price of $.07 per share. At the time of issuance, Brekford agreed to pay the unpaid principal balance of the Stockholder Notes and all accrued but unpaid interest on the date that was the earlier of (i) two years from the issuance date or (ii) 10 business days after the date on which Brekford Corp. closes an 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, which amended the Promissory Notes as follows: ● Revise the conversion price in the provision that allows the holder of the Promissory Note to elect to convert any outstanding and unpaid principal portion of the Promissory Note and any accrued but unpaid interest into shares of the common stock at a price of fourteen cents ($0.14) per share, and ● Each Promissory Note’s maturity date was extended to the earlier of (i) four years from the issuance date or (ii) 10 business days after the date on which Brekford closes an 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 agreed to further extend the maturity dates of the Promissory Notes to the earlier of (i) November 9, 2014 or (ii) 10 business days after the date on which Brekford Corp. closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On November 14, 2014, the maturity dates of the Stockholder Notes were extended to the earlier of (i) November 9, 2015 or (ii)10 business days from the date on which Brekford Corp. closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. The Company anticipates the maturity date of these notes will be extended, thus, they are classified as long term liability. As of June 30, 2015 and December 31, 2014, the amounts outstanding under the Stockholder Notes totaled $500,000.

6. CONVERTIBLE PROMISSORY NOTES

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR	6 Months Ended
	Jun. 30, 2015
Convertible Promissory Notes Payable - Investor
CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR	On March 17, 2015, the Company entered into a note and warrant purchase agreement (the “Agreement”) with an accredited investor (the “Investor”) pursuant to which the Investor purchased an aggregate principal amount of $715,000 of a 6% convertible promissory note issued by the Company for an aggregate purchase price of $650,000 (the “Investor Note”). The Investor Note bears interest at a rate of 6% per annum and the principal amount is due on March 17, 2017. Any interest that accrues under the Investor Note is payable either upon maturity or upon any principal being converted on any voluntary conversion date (as to that principal amount then being converted). The Investor Note is convertible at the option of the Investor at any time into shares of Common Stock at a conversion price equal to the lesser of (i) $0.25 per share and (ii) 70% of the average of the lowest three volume weighted average prices for the twelve (12) trading days prior to such conversion (the “Conversion Price”). In no event shall the Conversion Price go below a price per share that is less than $0.10; provided, however, that if on or after the date of the Agreement the Company sells any Common Stock or Common Stock Equivalents (as defined in the Agreement) at an effective price per share that is less than $0.10 per share, then the Conversion Price shall be equal to the par value of the Common Stock then in effect. In connection with the Agreement, the Investor received a warrant to purchase 780,000 shares of Common Stock (the “Warrant”). The Warrant is exercisable for a period of five years from the date of issuance at an exercise price of $0.50, subject to adjustment (the “Exercise Price”). The following table provides information relating to the Investor Note at June 30, 2015: 2015 Convertible promissory note payable $ 715,000 Original issuance discount, net of amortization of the $12,478 as of June 30, 2015 (52,523) Beneficial conversion feature, net of amortization of $107,097 as of June 30, 2015 (450,825) Warrant feature, net of amortization of the $17,675 as of June 30, 2015 (74,403) Convertible promissory note payable, net $ 137,249 We evaluated the financing transactions in accordance with ASC Topic 470, Debt with Conversion and Other Options Accordingly, a portion of the proceeds was allocated to the Warrant based on its relative fair value, which totaled $92,079 using the Black Scholes option-pricing model. Further, the Company attributed a beneficial conversion feature of $557,921 to the shares of Common Stock issuable under the Investor Note based upon the difference between the effective conversion price of those shares and the closing price of the Common Stock on the date on which the Investor Note was issued. The assumptions used in the Black-Scholes model are as follows: (i) dividend yield of 0%; (ii) expected volatility of 80.5%, (iii) weighted average risk-free interest rate of 1.56%, (iv) expected life of five years, and (v) estimated fair value of the Common Stock of $0.26 per share. The expected term of the Warrant represents the estimated period of time until exercise and is based on historical experience of similar awards giving consideration to the contractual terms. The Company recorded amortization of the beneficial conversion feature and warrant feature of the Investor Note as interest expense in the amount of $107,097 and $12,478, respectively, during the six months ended June 30, 2015. The Company recorded an original issue discount of $65,000 to be amortized over the term of the Agreement as interest expense. The Company recognized $17,675 of interest expense as a result of the amortization during the six months ended June 30, 2015.

7. WARRANT DERIVATIVE LIABILITY

7. WARRANT DERIVATIVE LIABILITY	6 Months Ended
	Jun. 30, 2015
Warrant Derivative Liability
WARRANT DERIVATIVE LIABILITY	On March 17, 2015, in conjunction with the issuance of the Investor Note (see Note 6), the Company issued the Warrant, which permits the Investor to purchase 840,000 shares of Common Stock, including 60,000 related to the financing costs, with an exercise price of $0.50 per share and a life of five years. The Warrant is subject to anti-dilution adjustments that allow for the reduction in the conversion price in the event the Company subsequently issues equity securities, including shares of Common Stock or any security convertible or exchangeable for shares of Common Stock, for no consideration or for consideration less than $0.50 a share. The Company accounted for the conversion option of the Warrant in accordance with ASC Topic 815. Accordingly, the conversion option is not considered to be solely indexed to the Company’s own stock and, as such, is recorded as a liability. The derivative liability associated with the Warrant has been measured at fair value at March 17, 2015 and June 30, 2015 using the Black Scholes option-pricing model. The assumptions used in the Black-Scholes model are as follows: (i) dividend yield of 0%; (ii) expected volatility of 80.5%; (iii) weighted average risk-free interest rate of 1.37-1.56%; (iv) expected life of five years; and (v) estimated fair value of the Common Stock of $0.18-$0.26 per share. At June 30, 2015, the outstanding fair value of the derivative liability was $98,112.

8. LEASES

8. LEASES	6 Months Ended
	Jun. 30, 2015
Leases [Abstract]
LEASES	Capital Leases The Company financed certain equipment under separate non-cancelable equipment loan and security agreements. The agreements matured in April 2015. The agreements required various monthly payments and were secured by the assets under lease. At June 30, 2015 and December 31, 2014, no capital lease was included in property and equipment on the consolidated balance sheets. Operating Leases The Company rents office space under separate non-cancelable operating leases. Rent expense under our main headquarters lease, expiring on April 30, 2020 amounted to $83,676 and $73,947 for the six months ended June 30, 2015 and 2014, respectively. The Company also leases approximately 2,500 square feet of office space from a related party under a non-cancelable operating lease expiring on June 30, 2016. Rent expense under this lease amounted to $24,600 and $23,400 for the six months ended June 30, 2015 and 2014, respectively.

9. MAJOR CUSTOMERS AND VENDORS

9. MAJOR CUSTOMERS AND VENDORS	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
MAJOR CUSTOMERS AND VENDORS	Major Customers The Company has several contracts with government agencies, of which net revenue from one major customer during the six months ended June 30, 2015 represented 22% of the total net revenue for the period. Accounts receivable due from three customers at June 30, 2015 amounted to 55% of total accounts receivable. For the period ended June 30, 2014, the Company had several contracts with government agencies, of which net revenue from one major customer represented 17% of the total net revenue for the period. Accounts receivable due from two customers at June, 30, 2014 amounted to 53% of total accounts receivable. Accounts receivable due from customers at December 31, 2014 amounted to 53% of total accounts receivable at that date. Major Vendors The Company purchased substantially all hardware products that it resold during the periods presented from two major distributors. Revenues from hardware products amounted to 46% and 54% of total revenues for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and 2014, accounts payable due to these distributors amounted to 59% and 67% of total accounts payable, respectively. Accounts payable due to these distributors at December 31, 2014, amounted to 53% of total accounts payable at that date.

10. STOCKHOLDERS' EQUITY

10. STOCKHOLDERS' EQUITY	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
STOCKHOLDERS' EQUITY	Purchases of Equity Securities by the Issuer and Affiliated Purchasers On September 7, 2010, Brekford Corp. 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 outstanding shares of the 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 was 24 months. The repurchase plan expired in September 2014. Warrants The assumptions used to value warrant grants during the six months ended June 30, 2015 were as follows: Six months ended June 30, 2015 Expected life (in years) 5.00 Volatility 80.5% Risk free interest rate 1.56% Expected Dividend Rate 0 Summary of the warrant activity for six months ended June 30, 2015 is as follows: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2015 — $ — — $ 0.00 Granted 840,000 0.50 4.65 0.00 Forfeited or expired — — — 0.00 Exercised — — — Outstanding at June 30, 2015 840,000 0.50 4.65 0.00 Exercisable at June 30, 2015 840,000 0.50 4.65 0.00 The weighted average remaining contractual life of warrants outstanding as of June 30, 2015 was as follows: Weighted Average Stock Stock Remaining Exercisable Warrants Warrants Contractual Prices Outstanding Exercisable Life (years) $ 0.50 840,000 840,000 4.65 Total 840,000 840,000

11. SHARE-BASED COMPENSATION

11. SHARE-BASED COMPENSATION	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
SHARE-BASED COMPENSATION	The Company has issued shares of Common Stock and warrants to purchase shares of Common Stock and has granted non-qualified stock options to certain employees and non-employees. On April 25, 2008, the Company’s stockholders approved the 2008 Stock Incentive Plan (the “2008 Incentive Plan”). During the six months ended June 30, 2014, Brekford Corp. granted stock options under the 2008 Incentive Plan to its non-employee directors. These options have exercise prices equal to the fair market value of a share of Common Stock as of the date of grant and have terms of ten years. Stock Options There were no option grants during the six months ended June 30, 2015. Option grants during the six months ended June 30, 2014 were primarily made to non-employee directors. The options had a grant date fair value of $0.10 per share and will vest and become exercisable with respect to option shares over a three-year period commencing from the date of grant at a rate of 33.33% per year. The Company recorded $3,740 and $2,493 in stock option compensation expense during in the six-month periods ending June 30, 2015 and 2014, respectively, related to the stock option grants. Summary of the option activity for six months ended June 30, 2015 is as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2015 225,000 $ 0.20 4.15 $ 0.00 Granted — — — — Forfeited or expired — — — 0.00 Exercised — — — Outstanding at June 30, 2015 225,000 $ 0.20 3.65 $ 0.00 Exercisable at June 30, 2015 75,000 $ 0.20 3.65 $ 0.00 Vested and expected to vest 150,000 $ 0.20 3.65 $ 0.00 The unrecognized compensation cost for unvested stock option awards outstanding at June 30, 2015 was approximately $12,465 to be recognized over approximately 1.65 years. Stock Grants During the six months ended June 30, 2015, the Company granted an aggregate of 132,000 shares of Common Stock to key employees in consideration of services rendered and part of employment agreement. The weighted average value of the shares amounted to $0.34 per share based upon the closing price of shares of Common Stock on the date of the grant. These shares were fully vested on the date of the grant. The Company recorded $44,880 in share-based compensation expense during the period ending June 30, 2014 related to stock grants. For the six months ended June 30, 2014, the Company recorded $13,500, in share-based compensation expense related to stock grants. Shares Weighted Average Value Nonvested restricted stock at January 1, 2015 — $ — Granted 132,000 0.34 Vested (132,000) 0.34 Forfeited or expired — — Nonvested restricted stock at June 30, 2015 — $ —

12. INVENTORY

12. INVENTORY	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
INVENTORY	As of June 30, 2015 and December 31, 2014, inventory consisted of the following: June 30, 2015 December 31, 2014 Raw Materials $ 965,205 $ 579,279 Work in Process — 102,669 Total Inventory $ 965,205 $ 681,948

13. NET LOSS PER SHARE

13. NET LOSS PER SHARE	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
NET LOSS PER SHARE	The following table provides information relating to the calculation of loss per common share: Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Basic net loss per share : Net loss $ (28,605 ) $ (826,682 ) $ (155,713 ) $ (1,398,295 ) Weighted average common shares outstanding 44,632,569 44,500,569 44,628,923 44,498,635 Basic net loss per share $ (0.00 ) $ (0.02 ) $ (0.00 ) $ (0.03 ) Diluted net loss per share : Net loss $ (28,605 ) $ (826,682 ) $ (155,713 ) $ (1,398,295 ) Weighted average common shares outstanding 44,632,569 44,500,569 44,628,923 44,498,635 Potential dilutive securities — — — — Weighted average common shares outstanding – diluted 44,632,569 44,500,569 44,628,923 44,498,635 Diluted earnings per share $ (0.00 ) $ (0.02 ) $ (0.00 ) $ (0.03 ) Common stock equivalents excluded due to anti-dilutive effect 8,842,311 3,796,429 8,842,311 3,796,429

14. FAIR VALUE OF FINANCIAL INS

14. FAIR VALUE OF FINANCIAL INSTRUMENTS	6 Months Ended
	Jun. 30, 2015
Fair Value Disclosures [Abstract]
FAIR VALUE OF FINANCIAL INSTRUMENTS	Disclosures about fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2015, the amounts reported for cash, accrued interest and other expenses, notes payables, and derivative liability approximate their fair values because of their short maturities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include: ● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2015: Total (Level 1) (Level 2) (Level 3) Liabilities Derivative liability 98,112 - - 98,112 Total liabilities measured at fair value $ 98,112 $ - $ - $ 98,112 The following is a reconciliation of the derivative liability for which Level 3 inputs were used in determining the approximate fair value: Beginning balance as of December 31, 2014 $ - Fair value of derivative liabilities issued 113,820 Gain on change in derivative liability (15,708 ) Ending balance as of June 30, 2015 $ 98,112

3. SUMMARY OF SIGNIFICANT ACC20

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Basis of Presentation and Principles of Consolidation	The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The condensed consolidated balance sheet at December 31, 2014, was derived from audited financial statements of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our annual report on Form 10-K for the year ended December 31, 2014. Certain prior period information has been reclassified to conform to the current period presentation. The Company’s consolidated financial statements include the accounts of Brekford Corp. and its wholly-owned subsidiary, Municipal Recovery Agency, LLC. Intercompany transactions and balances are eliminated in consolidation.
Use of Estimates	The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying unaudited condensed consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, sales returns, allowance for inventory obsolescence, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives of fixed assets. 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.
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. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in- process.
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). Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Revenue Recognition	The Company recognizes revenue relating to its vehicle upfitting solutions when all of the following criteria have been satisfied: (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 insignificant for the three months and six months ended June 30, 2015 and June 30, 2014. The Company also performs warranty repair services on behalf of the manufacturers of the equipment it sells. The Company also 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 amounted to $121,120 and $114,459 for the three and six months ended June 30, 2015 and 2014, respectively, compared to $171,934 and $227,362 respectively, for the same periods of 2014. The Company recognizes ATSE revenue when the required collection efforts are completed and the respective municipality is billed depending on the terms of the respective contract. The Company records revenue related to automated traffic violations for the Company’s share of the violation amount.
Share-Based Compensation	The Company complies with the provisions of FASB ASC Topic 718, Compensation Stock Compensation
Treasury Stock	The Company accounts for treasury stock using the cost method. As of June 30, 2015, 10,600 shares of Brekford Corp. 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 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 2011. 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 per Share	Basic loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), outstanding and does not include the effect of any potentially dilutive common stock equivalents. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock 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 13 for the calculation of basic and diluted loss 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 promissory note obligations approximate fair value, as the terms of these notes are consistent with terms available in the market for instruments with similar risk. We account for our derivative financial instruments, consisting solely of certain stock purchase warrants that contain non-standard anti-dilutions provisions and/or cash settlement features, and certain conversion options embedded in our convertible instruments, at fair value using level 3 inputs. We determine the fair value of these derivative liabilities using the Black-Scholes option-pricing model when appropriate, and in certain circumstances using binomial lattice models or other accepted valuation practices. When determining the fair value of our financial assets and liabilities using the Black-Scholes option-pricing model, we are required to use various estimates and unobservable inputs, including, among other things, contractual terms of the instruments, expected volatility of our stock price, expected dividends, and the risk-free interest rate. Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the instrument. Increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value.
Foreign Currency Transactions	The Company has certain revenue and expense transactions with a functional currency in Mexican pesos and the Company's reporting currency is the U.S. dollar. Assets and liabilities are translated from the functional currency to the reporting currency at the exchange rate in effect at the balance sheet date and equity at the historical exchange rates. Revenue and expenses are translated at rates in effect at the time of the transactions. Resulting translation gains and losses are accumulated in a separate component of stockholders' equity - other comprehensive income (loss). Realized foreign currency transaction gains and losses are credited or charged directly to operations.
Segment Reporting	FASB ASC Topic 280, Segment Reporting
Recent Accounting Pronouncements	In May 2014, the FASB amended the ASC and created Topic 606, Revenue from Contracts with Customers In August 2014, the FASB issued a new U.S. GAAP accounting standard that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new accounting standard requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The new accounting standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. Accounting Standards Update No. 2015-03 , Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs.

6. CONVERTIBLE PROMISSORY NOT21

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Tables)	6 Months Ended
	Jun. 30, 2015
Convertible Promissory Notes Payable - Investor Tables
Convertible promissory note	2015 Convertible promissory note payable $ 715,000 Original issuance discount, net of amortization of the $12,478 as of June 30, 2015 (52,523) Beneficial conversion feature, net of amortization of $107,097 as of June 30, 2015 (450,825) Warrant feature, net of amortization of the $17,675 as of June 30, 2015 (74,403) Convertible promissory note payable, net $ 137,249

10. STOCKHOLDERS' EQUITY (Table

10. STOCKHOLDERS' EQUITY (Tables)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Assumptions for warrent valuation	Six months ended June 30, 2015 Expected life (in years) 5.00 Volatility 80.5% Risk free interest rate 1.56% Expected Dividend Rate 0
Summary of warrant activity	Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2015 — $ — — $ 0.00 Granted 840,000 0.50 4.65 0.00 Forfeited or expired — — — 0.00 Exercised — — — Outstanding at June 30, 2015 840,000 0.50 4.65 0.00 Exercisable at June 30, 2015 840,000 0.50 4.65 0.00
Weighted Average Remaining Contractual Life of Warrants	Weighted Average Stock Stock Remaining Exercisable Warrants Warrants Contractual Prices Outstanding Exercisable Life (years) $ 0.50 840,000 840,000 4.65 Total 840,000 840,000

11. SHARE-BASED COMPENSATION (T

11. SHARE-BASED COMPENSATION (Tables)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Summary of the option activity	Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2015 225,000 $ 0.20 4.15 $ 0.00 Granted — — — — Forfeited or expired — — — 0.00 Exercised — — — Outstanding at June 30, 2015 225,000 $ 0.20 3.65 $ 0.00 Exercisable at June 30, 2015 75,000 $ 0.20 3.65 $ 0.00 Vested and expected to vest 150,000 $ 0.20 3.65 $ 0.00
Share-based compensation expense related to restricted stock grants	Shares Weighted Average Value Nonvested restricted stock at January 1, 2015 — $ — Granted 132,000 0.34 Vested (132,000) 0.34 Forfeited or expired — — Nonvested restricted stock at June 30, 2015 — $ —

12. INVENTORY (Tables)

12. INVENTORY (Tables)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Schedule of Inventory	June 30, 2015 December 31, 2014 Raw Materials $ 965,205 $ 579,279 Work in Process — 102,669 Total Inventory $ 965,205 $ 681,948

13. NET LOSS PER SHARE (Tables)

13. NET LOSS PER SHARE (Tables)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Calculation of loss per common share	Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Basic net loss per share : Net loss $ (28,605 ) $ (826,682 ) $ (155,713 ) $ (1,398,295 ) Weighted average common shares outstanding 44,632,569 44,500,569 44,628,923 44,498,635 Basic net loss per share $ (0.00 ) $ (0.02 ) $ (0.00 ) $ (0.03 ) Diluted net loss per share : Net loss $ (28,605 ) $ (826,682 ) $ (155,713 ) $ (1,398,295 ) Weighted average common shares outstanding 44,632,569 44,500,569 44,628,923 44,498,635 Potential dilutive securities — — — — Weighted average common shares outstanding – diluted 44,632,569 44,500,569 44,628,923 44,498,635 Diluted earnings per share $ (0.00 ) $ (0.02 ) $ (0.00 ) $ (0.03 ) Common stock equivalents excluded due to anti-dilutive effect 8,842,311 3,796,429 8,842,311 3,796,429

14. FAIR VALUE OF FINANCIAL I26

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)	6 Months Ended
	Jun. 30, 2015
Fair Value Disclosures [Abstract]
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis	Total (Level 1) (Level 2) (Level 3) Liabilities Derivative liability 98,112 - - 98,112 Total liabilities measured at fair value $ 98,112 $ - $ - $ 98,112
Reconciliation of the derivative liability	Beginning balance as of December 31, 2014 $ - Fair value of derivative liabilities issued 113,820 Gain on change in derivative liability (15,708 ) Ending balance as of June 30, 2015 $ 98,112

2. LIQUIDITY (Details Narrative

2. LIQUIDITY (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Liquidity
Net loss	$ (28,605)	$ (826,682)	$ (155,713)	$ (1,398,295)
Working capital			342,158
Cash available	809,873		809,873		$ 1,112,881
Working capital surplus	554,943		554,943
Line of credit facility	$ 1,500,000		$ 1,500,000

3. SUMMARY OF SIGNIFICANT ACC28

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Revenue from extended warrents	$ 121,120	$ 121,120	$ 114,459	$ 114,459
Common stock were held in treasury amount	$ 5,890		$ 5,890		$ 5,890
Treasury Stock [Member]
Common stock were held in treasury, shares	10,600		10,600
Common stock were held in treasury amount	$ 5,890		$ 5,890

4. LINE OF CREDIT AND NOTES P29

4. LINE OF CREDIT AND NOTES PAYABLE (Details Narrative) - USD ($)	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014
Financed assets	$ 101,838		$ 136,256
Accumulated amortization	$ 67,126		$ 32,707
weighted average interest rate	3.75%		3.75%
PNC Facility [Member]
Financed assets	$ 61,860	$ 136,256
Accumulated amortization	$ 80,056	$ 67,126
weighted average interest rate	2.96%	3.75%

5. CONVERTIBLE NOTES PAYABLE 30

5. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS (Details Narrative) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Convertible Notes Payable - Stockholders Details Narrative
Amounts outstanding under Promissory Notes, total	$ 500,000	$ 500,000

6. CONVERTIBLE PROMISSORY NOT31

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Details)	Jun. 30, 2015USD ($)
Convertible Promissory Notes Payable - Investor Details
Convertible promissory note payable	$ 715,000
Original issuance discount, net of amortization of the $12,478 as of June 30, 2015	(52,523)
Beneficial conversion feature, net of amortization of $107,097 as of June 30, 2015	(450,825)
Warrant feature, net of amortization of the $17,675 as of June 30, 2015	(74,403)
Convertible promissory note payable, net	$ 137,249

6. CONVERTIBLE PROMISSORY NOT32

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Details Narrative)	6 Months Ended
	Jun. 30, 2015USD ($)
Convertible Promissory Notes Payable - Investor Details
Interest expense	$ 17,675
Original issue discount	65,000
Amortization of the beneficial conversion feature	107,097
Amortization of the beneficial warrant feature	$ 12,478

7. WARRANT DERIVATIVE LIABILI33

7. WARRANT DERIVATIVE LIABILITY (Details Narrative) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Warrant Derivative Liability
Derivative liability	$ 98,112

8. LEASES (Details Narrative)

8. LEASES (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Rent expense	$ 83,676	$ 73,947
Leases [Member]
Rent expense	$ 24,600	$ 23,400

9. MAJOR CUSTOMERS AND VENDORS

9. MAJOR CUSTOMERS AND VENDORS (Details Narrative)	6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Major Customers [Member]
Net sales	22.00%	17.00%
Accounts receivable	55.00%	53.00%	53.00%
Major Vendors [Member]
Revenues from hardware products	46.00%	54.00%
Accounts payable due to distributor	59.00%	67.00%	53.00%

10. STOCKHOLDERS' EQUITY (Detai

10. STOCKHOLDERS' EQUITY (Details) - 6 months ended Jun. 30, 2015	Total
Notes to Financial Statements
Expected life (in years)	5 years
Volatility	80.50%
Risk free interest rate	1.56%
Expected Dividend Rate	0.00%

Disclosure - 10. STOCKHOLDERS'

Disclosure - 10. STOCKHOLDERS' EQUITY (Details 1) - $ / shares	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Number of Warrants
Outstanding beginning
Granted	840,000
Forfeited or expired
Exercised
Outstanding end	840,000
Exercisable end	840,000
Weighted Average Exercise Price
Outstanding beginning	$ 0.50
Granted	$ 0.50
Forfeited or expired
Exercised
Outstanding end	$ 0.50
Exercisable end	$ 0.50
Granted	4 years 7 months 24 days
Outstanding end	4 years 7 months 24 days
Exercisable end	4 years 7 months 24 days
Aggregate Intrinsic Value
Outstanding beginning	$ 0
Outstanding end	0
Exercisable end	$ 0

Disclosure - 10. STOCKHOLDERS38

Disclosure - 10. STOCKHOLDERS' EQUITY (Details 2) - Jun. 30, 2015 - $ / shares	Total
Notes to Financial Statements
Exercisable Price	$ 0.50
Stock Options Outstanding	840,000
Stock Options Exercisable	840,000
Weighted Average Remaining Contractual Life	4 years 7 months 24 days

11. SHARE-BASED COMPENSATION (D

11. SHARE-BASED COMPENSATION (Details) - Jun. 30, 2015 - USD ($)	Total
Number of Options
Outstanding beginning	225,000
Granted
Forfeited or expired
Exercised	75,000
Outstanding end	225,000
Exercisable end	75,000
Vested and expected to vest	150,000
Weighted Average Exercise Price
Outstanding beginning	$ 0.20
Granted
Forfeited or expired
Exercised
Outstanding end	$ 0.20
Exercisable end	.20
Vested and expected to vest	$ 0.20
Outstanding beginning	4 years 1 month 24 days
Outstanding end	3 years 7 months 24 days
Exercisable end	3 years 7 months 24 days
Vested and expected to vest	3 years 7 months 24 days
Aggregate Intrinsic Value
Outstanding beginning	$ 0
Granted
Forfeited or expired	$ 0
Outstanding end	$ 0
Exercisable end	75,000
Vested and expected to vest	$ 0

11. SHARE-BASED COMPENSATION 40

11. SHARE-BASED COMPENSATION (Details 1) - 6 months ended Jun. 30, 2015 - $ / shares	Total
Weighted Average Value
Forfeited or expired
Restricted Stock [Member]
Restricted Stock Shares
Nonvested restricted stock at January 1, 2015
Granted	132,000
Vested	(132,000)
Forfeited or expired
Nonvested restricted stock at June 30, 2015
Weighted Average Value
Nonvested restricted stock at January 1, 2015
Granted	$ 0.34
Vested	$ 0.34
Forfeited or expired
Nonvested restricted stock at June 30, 2015

11. SHARE-BASED COMPENSATION 41

11. SHARE-BASED COMPENSATION (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Notes to Financial Statements
Stock option compensation expense	$ 3,740	$ 2,493
Unrecognized compensation cost for unvested stock option	$ 12,465
Unrecognized compensation cost for unvested stock option period	1 year 7 months 24 days

12. INVENTORY (Details)

12. INVENTORY (Details) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Notes to Financial Statements
Raw Materials	$ 965,205	$ 579,279
Work in Process		102,669
Total Inventory	$ 965,205	$ 681,948

14. FAIR VALUE OF FINANCIAL I43

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details)	Jun. 30, 2015USD ($)
Liabilities
Derivative liability	$ 98,112
Total liabilities measured at fair value	$ 98,112
Level 1
Liabilities
Derivative liability
Total liabilities measured at fair value
Level 2
Liabilities
Derivative liability
Total liabilities measured at fair value
Level 3
Liabilities
Derivative liability	$ 98,112
Total liabilities measured at fair value	$ 98,112

14. FAIR VALUE OF FINANCIAL I44

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1)	6 Months Ended
	Jun. 30, 2015USD ($)
Fair Value Disclosures [Abstract]
Beginning balance as of December 31, 2014
Fair value of derivative liabilities issued	$ 113,820
Gain on change in derivative liability	(15,708)
Ending balance as of June 30, 2015	$ 98,112

13. LOSS PER SHARE (Details)

13. LOSS PER SHARE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Basic net loss per share :
Net loss	$ (28,605)	$ (826,682)	$ (155,713)	$ (1,398,295)
Weighted average common shares outstanding	44,632,569	44,500,569	44,628,923	44,498,635
Basic loss per share	$ 0	$ (0.02)	$ 0	$ (0.03)
Diluted net loss per share :
Net loss	$ (28,605)	$ (826,682)	$ (155,713)	$ (1,398,295)
Weighted average common shares outstanding	44,632,569	44,500,569	44,628,923	44,498,635
Potential dilutive securities
Weighted average common shares outstanding - diluted	44,632,569	44,500,569	44,628,923	44,498,635
Diluted earnings per share	$ 0	$ (0.02)	$ 0	$ (0.03)
Common stock equivalents excluded due to anti-dilutive effect	8,842,311	3,796,429	8,842,311	3,796,429