| 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
Companys 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys 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 managements responsibility to evaluate
whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote
disclosures. The new accounting standard requires management to assess an entitys 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. |
