Brekford (TTSR) 10-Q 14 Nov 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016
Document And Entity Information
Entity Registrant Name	Brekford Corp.
Entity Central Index Key	1,357,115
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
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		49,311,264
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,016

Condensed Consolidated Balance

Condensed Consolidated Balance Sheet (Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS
Cash	$ 593,806	$ 580,400
Accounts receivable, net of allowance of $0 at September 30, 2016 and December 31, 2015	1,677,923	3,781,263
Unbilled receivables	762,718	304,470
Prepaid expenses	38,133	71,740
Inventory	472,000	606,471
Total current assets	3,544,580	5,344,344
Property and equipment, net	269,104	223,347
Other non-current assets	81,402	179,208
TOTAL ASSETS	3,895,086	5,746,899
CURRENT LIABILITIES
Accounts payable and accrued expenses	1,741,872	2,979,131
Accrued payroll and related expenses	74,773	98,000
Line of credit, net of fees	836,813	1,402,380
Term loan - current portion, net of fees	166,667	166,667
Deferred revenue	72,080	95,233
Customer deposits	31,863	36,070
Obligations under other notes payable - current portion	24,392	29,277
Derivative liability	18,228	99,036
Other liabilities	46,179	46,979
Total current liabilities	3,012,867	4,952,773
LONG - TERM LIABILITIES
Notes payable - stockholders	500,000	500,000
Other notes payable - net of current portion, net of fees	4,409	21,660
Deferred rent, net of current portion	43,937	44,923
Term notes payable, net of current portion	333,358	0
Convertible promissory notes, net of debt discounts and issuance costs of $90,207 and $418,731 at September 30, 2016 and December 31, 2015, respectively	249,794	221,269
Total long-term liabilities	1,131,498	787,852
TOTAL LIABILITIES	4,144,365	5,740,625
STOCKHOLDERS' (DEFICIT) 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; 49,177,264 and 45,151,254 issued and outstanding, at September 30, 2016 and December 31, 2015, respectively	4,918	4,515
Additional paid-in capital	11,498,570	10,951,491
Treasury Stock, at cost 10,600 shares at September 30, 2016 and December 31, 2015 respectively	(5,890)	(5,890)
Accumulated deficit	(11,746,378)	(10,942,380)
Other comprehensive loss	(499)	(1,462)
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY	(249,279)	6,274
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$ 3,895,086	$ 5,746,899

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Assets
Allowance for Receivables	$ 0	$ 0
Convertible promissory notes, net of debt discounts	$ 90,207	$ 418,730
Stockholders Equity
Preferred Stock par value	$ 0.0001	$ 0.0001
Preferred Stock Authorized	20,000,000	20,000,000
Preferred Stock Issued	0	0
Preferred Stock Outstanding	0	0
Common Stock par value	$ 0.0001	$ 0.0001
Common Stock Authorized	150,000,000	150,000,000
Common Stock Issued	49,177,264	45,151,254
Common Stock Outstanding	49,177,264	45,151,254
Treasury Stock, at cost	10,600	10,600

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) and Comprehensive loss - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
NET REVENUE	$ 3,035,153	$ 5,776,862	$ 10,748,006	$ 14,586,453
COST OF REVENUE	2,158,181	4,887,299	8,201,217	11,711,852
GROSS PROFIT	876,972	889,563	2,546,789	2,874,601
OPERATING EXPENSES
Salaries and related expenses	484,783	485,740	1,489,311	1,482,003
Selling, general and administrative expenses	335,666	397,473	1,122,333	1,264,458
TOTAL OPERATING EXPENSES	820,449	883,213	2,611,644	2,746,461
INCOME (LOSS) FROM OPERATIONS	56,523	6,350	(64,855)	128,140
OTHER (EXPENSE) INCOME
Interest expense	(207,062)	(194,061)	(528,039)	(487,287)
Change in fair value of derivative liability	10,500	(54,936)	80,808	(39,228)
Loss on extinguishment of debt	(130,517)	0	(291,912)	0
TOTAL OTHER (EXPENSE) INCOME	(327,079)	(248,997)	(739,143)	(526,515)
NET LOSS	(270,556)	(242,647)	(803,998)	(398,375)
OTHER COMPREHENSIVE INCOME (LOSS) - foreign currency translation	(499)	(4,383)	(499)	(4,383)
COMPREHENSIVE LOSS	$ (271,055)	$ (247,030)	$ (804,497)	$ (402,758)
LOSS PER SHARE - BASIC AND DILUTED	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC	48,360,299	44,632,569	46,710,189	44,630,151
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED	48,360,299	44,632,569	46,710,189	44,630,151

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (803,998)	$ (398,375)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	94,817	150,627
Share based compensation	50,590	52,890
Deferred rent	(986)	44,131
Amortization of debt discount	191,874	257,505
Amortization of finance cost	39,106	35,924
Change in fair value of warrant liability	(80,808)	39,228
Loss on extinguishment of debt	291,912	0
Changes in operating assets and liabilities:
Accounts receivables	2,103,340	(2,133,049)
Unbilled receivables	(458,248)	(291,921)
Prepaid expenses and other non-current assets	131,413	3,489
Inventory	134,471	(488,886)
Customer deposits	(4,207)	(511)
Accounts payable and accrued expenses	(1,215,316)	874,399
Accrued payroll and related expenses	(23,227)	57,962
Deferred revenue	(23,153)	(173,451)
Other liabilities	(800)	(1,300)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	426,780	(1,971,248)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets	(140,574)	0
NET CASH USED IN INVESTING ACTIVITIES	(140,574)	0
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in the line of credit	(584,960)	1,441,126
Principal payments on capital lease obligations	0	(140,209)
Payments on other notes payable	(22,136)	(18,813)
Borrowings on term notes	500,000	650,000
Payments on term notes	(166,667)	(187,500)
Deferred financing cost	0	(85,444)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(273,763)	1,659,160
Effect of foreign currency translation	963	(4,383)
NET CHANGE IN CASH	13,406	(316,471)
CASH - Beginning of period	580,400	1,112,881
CASH - End of period	593,806	796,410
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	215,557	181,382
Cash paid for income taxes	800	1,300
SUPPLEMENTAL DISCLOSURES OF NON-CASH INFORMATION
Conversion of notes payable in exchange for common stock	300,000	0
Discount on convertible debt	$ 7,104	$ 41,590

1. DESCRIPTION OF THE BUSINESS

1. DESCRIPTION OF THE BUSINESS	9 Months Ended
	Sep. 30, 2016
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 and Mexico. Brekford’s combination of upfitting services, cutting edge technology, and automated traffic safety 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	9 Months Ended
	Sep. 30, 2016
Liquidity
LIQUIDITY	For the nine months ended September 30, 2016, the Company incurred a net loss of $803,998 and provided $426,780 of cash for operations. Additionally, at September 30, 2016 the Company had cash available of $593,806, a working capital surplus of $531,713 and availability under the established credit facility (see Note 4) of $2,163,187. On July 12, 2016 (the “Closing Date”), the Company entered into a loan and security agreement (the “Loan Agreement”) with Fundamental Funding LLC (the “Lender”). The primary purpose of the new Loan Agreement is to pay off the prior loan with the lender, and provide additional working capital. The Loan Agreement provides for a multi-draw loan to the Company for (i) the Company’s accounts receivable, the lesser of (y) $2,500,000 or (z) 85% of the Company’s eligible accounts and (ii) the Company’s inventory advances, the lesser of (y) $500,000 or (z) 50% of the eligible inventory (the “Revolving Loans”). The maximum amount available to the Company under the Loan Agreement for the Revolving Loans is $3,500,000 (the “Credit Limit”). In addition, the Lender agreed to provide the Company with an accommodation loan in an amount not to exceed $500,000, which shall be repaid in thirty-six (36) equal monthly installments of principal and interest (the “Accommodation Loan” and together with the Revolving Loans, the “Loans”). Management believes that the Company’s current level of cash combined with cash that it expects to generate in its operations during the next twelve months including anticipated new customer contracts and funds available from the credit facility (see Note 14) will be sufficient to sustain the Company’s business initiatives through at least September 30, 2017, but there can be no assurance that these measures will be successful or adequate. In the event that the Company’s cash reserves, cash flow from operations and funds available under the Credit Facility (see Note 14) are not sufficient to fund the Company’s future operations, it may need to obtain additional capital. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of sustained profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern. We currently have no firm commitments for any additional capital. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock.

3. SUMMARY OF SIGNIFICANT ACCOU

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Principles of Consolidation and Basis of Presentation The Company’s consolidated financial statements include the accounts of Brekford 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. generally accepted accounting principles (“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 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 nine months ended September 30, 2016 and September 30, 2015. 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 $25,054 and $86,594 for the three and nine months ended September 30, 2016, respectively, compared to $39,166 and $211,100 respectively, for the same periods in 2015. For automated traffic safety enforcement revenue, the Company recognizes the 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation Stock Compensation Treasury Stock The Company accounts for treasury stock using the cost method. As of September 30, 2016, 10,600 shares of our 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 The Company files income tax returns with the U.S. Internal Revenue Service and with the revenue services of various states. 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. Earnings (loss) per Share Basic earnings (loss) per share is calculated by dividing net income (loss) 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 earnings (loss) per share is calculated by dividing net income (loss) 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 13 for the calculation of basic and diluted earnings (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, which are discussed in Note 14 to these condensed consolidated financial statements. 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 issued ASU 2014-09, Revenue from contracts with Customers (Topic 606) (May 2014). The topic of Revenue Recognition had become broad with several other regulatory agencies issuing standards, which lacked cohesion. The new guidance established a “comprehensive framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 31, 2016. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements. The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it established the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt the organization’s ability to continue as a going concern or to provide footnote disclosures. The ASU provides guidance to an organization’s management, with principles and definition that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments in this update are effective for the annual period ending after December 31, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of the Debt Issuance Cost.” To simplify the presentation of the debt issuance costs, the amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those years. By adopting this standard, we have reclassified certain of our assets and liabilities. In February 2016, FASB issued ASU-2016-02, "Leases (Topic 842)." The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for the Company beginning January 1, 2019, including interim periods within that fiscal year. We are currently evaluating the impact of adopting the new guidance of the consolidated financial statements. In January 2016, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Update ("ASU") 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and is to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard. In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The adoption of this standard will not have any impact on the Company's financial position, results of operations and disclosures.

4. LINE OF CREDIT AND NOTES PAY

4. LINE OF CREDIT AND NOTES PAYABLE	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
LINE OF CREDIT AND NOTES PAYABLE	On July 12, 2016 (the “Closing Date”), the Company entered into a loan and security agreement (the “Loan Agreement”) with Fundamental Funding LLC (the “Lender”). The Loan Agreement provides for a multi-draw loan to the Company for (i) the Company’s accounts receivable, the lesser of (y) $2,500,000 or (z) 85% of the Company’s eligible accounts and (ii) the Company’s inventory advances, the lesser of (y) $500,000 or (z) 50% of the eligible inventory (the “Revolving Loans”). The maximum amount available to the Company under the Loan Agreement for the Revolving Loans is $3,500,000 (the “Credit Limit”). In addition, the Lender agreed to provide the Company with an accommodation loan in an amount not to exceed $500,000, which shall be repaid in thirty-six (36) equal monthly installments of principal and interest (the “Accommodation Loan” and together with the Revolving Loans, the “Loans”). On the Closing Date, the Lender advanced the Company an amount equal to $533,670. The amounts advanced under the Loan Agreement are due and payable on the three (3) year anniversary of the Closing Date (the “Maturity Date”), and thereafter, the Maturity Date shall automatically be extended for successive periods of one year unless the Company shall give lender written notice of termination not less than ninety (90) days prior to the end of such term or renewal term, as applicable. Lender may terminate the Loan Agreement at any time in its sole discretion by giving the Company ninety (90) days prior written notice, provided that upon an Event of Default (as defined in the Loan Agreement), Lender may terminate the Loan Agreement without notice to the Company, effective immediately. Upon termination by the Lender, the Company shall be required to pay certain termination fees based on a percentage of the Credit Limit as set forth in the Loan Agreement. The outstanding principal balance under the Note for the Revolving Loans shall bear interest at a rate per annum equal to the “prime rate” published from time to time in the Wall Street Journal The remaining portion of Credit Limit may be advanced to the Company upon written notice provided to the Lender during the period beginning from the Closing Date through the Maturity Date provided no default has occurred under the Loan Agreement. The Company may prepay any portion of the Accommodation Loan, in whole or in part, to Lender on or prior to the Maturity Date. Initial borrowings under the Loan Agreement were subject to, among other things, the substantially concurrent repayment by the Company of all amounts due and owing under the Company’s credit facility, dated May 24, 2014, with Rosenthal & Rosenthal, Inc. and the satisfaction and termination of such borrowing and all liens thereunder (collectively, the “Rosenthal Loan”). All amounts owed under the Rosenthal Loan, which was approximately an aggregate of $2,253,617, was satisfied and terminated by the Company on the Closing Date. In addition, on the Closing Date, the Company entered into a subordination agreement with each of C.B. Brechin and Scott Rutherford, the Company’s chief executive officer and chief strategy officer, respectively, as well as with the Investor described in Note 6 pursuant to which each of the parties agreed to subordinate all present and future indebtedness held by each of them to the obligations of the Lender. On the Closing Date, as part of the Loan Agreement and to secure the payment and performance of all of the obligations owed to Lender under the Loan Agreement when due, the Company granted to Lender a security interest in all right, title and interest to all assets of the Borrower, whether now owned or hereafter arising or acquired and wherever located. The Loan Agreement contains customary affirmative and negative covenants for loan agreements of its type, including but not limited to, limiting the Company’s ability to pay dividends or make any distributions, incur additional indebtedness, grant additional liens, engage in any other lime of business, make investments, merge, consolidate or sell all or substantially all of its assets and enter into transactions with related parties. The Loan Agreement also contains certain financial covenants, including, but not limited to, a debt service coverage ratio. The Loan Agreement includes customary events of default, including but not limited to, failure to pay principal, interest or fees when due, failure to comply with covenants, default under certain other indebtedness, certain insolvency or bankruptcy events, the occurrence of certain material judgments the institution of any proceeding by a government agency or a change of control of the Company. All borrowings under the Loan Agreement are due upon a default under the terms of the Loan Agreement. The Company’s obligations under the Loan Agreement are guaranteed by C.B. Brechin, the Company’s chief executive officer pursuant to the terms of a surety agreement. At September 30, 2016, the Company had $836,813 in outstanding indebtedness under the Revolving Facility and $500,000 in outstanding indebtedness under the Term Loan, and the Company could have borrowed up to an additional $2,163,187 under the Revolving Facility. As of September 30, 2016, we were out of compliance with one of the financial covenants contained in the Credit Facility as a result of the loss recorded for the nine months ended September 30, 2016. We reported this non-compliance to Fundamental, and requested a waiver for the nine months ended September 30, 2016. 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. At September 30, 2016 and December 31, 2015, financed assets of $26,539 and $47,732, respectively, net of accumulated amortization of $115,377 and $98,184, respectively, were included in property and equipment on the balance sheets. The weighted average interest rate was 3.75% at September 30, 2016 and December 31, 2015.

5. CONVERTIBLE NOTES PAYABLE -

5. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS	Brekford financed the repurchase of shares of its common stock and warrants from the proceeds of convertible promissory notes that were issued by Brekford 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 “Promissory Note” and together, the “Promissory Notes”). Each Promissory Note bears interest at the rate of 12% per annum and at the time of issuance was to be convertible into shares of Brekford 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 Promissory 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 closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On April 1, 2010, Brekford and each member of the lender group executed a First Amendment to each Promissory Note, which amended the respective Promissory Note 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 and each member of the lender group agreed to 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 closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On November 9, 2015, the maturity dates of the Promissory Notes were extended to the earlier of (i) November 9, 2016 or (ii) 10 business days from 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 4, 2016, the maturity dates of the Promissory Notes were extended to the earlier of (i) November 9, 2017 or (ii) 10 business days from the date on which Brekford closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. Mr. Brechin and Mr. Rutherford have indicated that they will not exercise their right of repayment prior to September 30, 2017. The Company anticipates the maturity date of the Promissory Notes will continue to be extended for the foreseeable future; thus, they are classified as long-term liabilities. As of September 30, 2016 and December 31, 2015, the amounts outstanding under the Promissory Notes totaled $500,000.

6. CONVERTIBLE PROMISSORY NOTES

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR	9 Months Ended
	Sep. 30, 2016
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 can the Conversion Price be 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 per share, subject to adjustment (the “Exercise Price”). On October 23, 2015, the Investor converted $25,000 of principal and $904 of accrued interest due under the Investor Note into 169,530 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $19,869. On December 2, 2015, the Investor converted $50,000 of principal and $2,129 of accrued interest due under the Investor Note into 349,155 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $35,160. On February 26, 2016 the Investor converted $50,000 of principal and $2,844 of accrued interest due under the Investor Note into 476,500 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $49,525. On March 31, 2016 the Investor converted $50,000 of principal and $3,123 of accrued interest due under the Investor Note into 510,310 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $72,947. On May 31, 2016 the Investor converted $50,000 of principal and $3,625 of accrued interest due under the Investor Note into 605,928 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $38,923. On July 1, 2016 the Investor converted $50,000 of principal and $3,880 of accrued interest due under the Investor Note into 699,733 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $40,875. On July 27, 2016 the Investor converted $50,000 of principal and $4,093 of accrued interest due under the Investor Note into 758,670 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $45,024. On August 31, 2016 the Investor converted $50,000 of principal and $4,381 of accrued interest due under the Investor Note into 776,869 shares of Common Stock and the Company recognized a loss on extinguishment of debt of $44,618. The following table provides information relating to the Investor Note at September 30, 2016: September 30, 2016 December 31, 2015 Convertible promissory note payable $ 340,000 $ 640,000 Original issuance discount, net of amortization of the $57,896 and $29,820 as of September 30, 2016 and December 31, 2015 (7,104 ) (35,180 ) Beneficial conversion feature, net of amortization of $496,948 and $255,960 as of September 30, 2016 and December 31, 2015 (60,973 ) (301,960 ) Warrant feature, net of amortization of the $82,015 and $42,243 as of September 30, 2016 and December 31, 2015 (10,063 ) (49,835 ) Original issuance cost, net of amortization of $40,433 and $20,744 as of September 30, 2016 and December 31, 2015 (12,066 ) (31,756 ) Convertible promissory note payable, net $ 249,794 $ 221,269 We evaluated the financing transactions in accordance with ASC Topic 470, Debt with Conversion and Other Options, and determined that the conversion feature of the Investor Note was afforded the exemption for conventional convertible instruments due to its fixed conversion rate. The Investor Note has an explicit limit on the number of shares issuable so it did meet the conditions set forth in current accounting standards for equity classification. The debt was issued with non-detachable conversion options that are beneficial to the investors at inception, because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The accounting for the beneficial conversion feature requires that the beneficial conversion feature be recognized by allocating the intrinsic value of the conversion option to additional paid-in-capital, resulting in a discount on the convertible notes, which will be amortized and recognized as interest expense. 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 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 in other expense in the amount of $240,988 and $39,773 during the nine months ended September 30, 2016 and $255,960 and $42,243, during the year ended December 31, 2015 which also includes the unamortized beneficial conversion feature and warrant feature attributable to the $375,000 principal converted to equity. 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 $28,076 and $29,820 of interest expense as a result of the amortization during the nine months ended September 30, 2016 and the year ended December 31, 2015 respectively, which also includes the unamortized original issue discount attributable to the $375,000 principal converted to equity.

7. WARRANT DERIVATIVE LIABILITY

7. WARRANT DERIVATIVE LIABILITY	9 Months Ended
	Sep. 30, 2016
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 Exercise Price is subject to anti-dilution adjustments that allow for its reduction 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 September 30, 2016 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 81.67% -80.50%; (iii) weighted average risk-free interest rate of 1.14% - 1.56% (iv) expected life of five years; and (v) estimated fair value of the Common Stock of $0.10-$0.26 per share. At September 30, 2016, the outstanding fair value of the derivative liability was $18,228.

8. LEASES

8. LEASES	9 Months Ended
	Sep. 30, 2016
Leases [Abstract]
LEASES	Capital Leases At September 30, 2016 and December 31, 2015, 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 $128,432 and $126,486 for the nine months ended September 30, 2016 and 2015, 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, 2017. Rent expense under this lease amounted to $36,900 for the nine months ended September 30, 2016 and 2015, respectively.

9. MAJOR CUSTOMERS AND VENDORS

9. MAJOR CUSTOMERS AND VENDORS	9 Months Ended
	Sep. 30, 2016
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 nine months ended September 30, 2016 represented 14% of the total net revenue for the period. Accounts receivable due from three customers at September 30, 2016 amounted to 43% of total accounts receivable. For the period ended September 30, 2015, the Company has several contracts with government agencies, of which net revenue from one major customer represented 23% of the total net revenue for the period. Accounts receivable due from three customers at September 30, 2015 amounted to 60% of total accounts receivable. Accounts receivable due from these customers at December 31, 2015 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 51% and 47% of total revenues for the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016 and 2015, accounts payable due to these distributors amounted to 62% and 43% of total accounts payable, respectively. Accounts payable due to these distributors at December 31, 2015, amounted to 72% of total accounts payable at that date.

10. STOCKHOLDERS' EQUITY

10. STOCKHOLDERS' EQUITY	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
STOCKHOLDERS' EQUITY	Warrants The assumptions used to value warrant grants during the nine months ended September 30, 2016, which consisted solely of the Warrant, were as follows: Nine months ended September 30, 2016 Expected life (in years) 5.00 Volatility 81.67 % Risk free interest rate 1.14 % Expected Dividend Rate 0 Summary of the warrant activity for the nine months ended September 30, 2016 is as follows: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2016 840,000 $ 0.50 4.21 $ 0.00 Granted — — — 0.00 Forfeited or expired — — — 0.00 Exercised — — — — Outstanding at September 30, 2016 840,000 0.50 3.46 0.00 Exercisable at September 30, 2016 840,000 0.50 3.46 0.00 The weighted average remaining contractual life of warrants outstanding as of September 30, 2016 was as follows: Weighted Average Stock Stock Remaining Exercisable Warrants Warrants Contractual Prices Outstanding Exercisable Life (years) $ 0.50 840,000 840,000 3.46 Total 840,000 840,000 3.46

11. SHARE-BASED COMPENSATION

11. SHARE-BASED COMPENSATION	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
SHARE-BASED COMPENSATION	The Company has issued shares of restricted 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”). Stock Options Option grants during the nine months ended September 30, 2016 were primarily made to non-employee directors who elected to receive options for their Board service. The options had a grant date fair value of $0.07 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 $3,515 and $10,988 and $4,360 and $8,100 in stock option compensation expense for the three and nine months ended September 30, 2016 and 2015, respectively, related to the stock option grants. Summary of the option activity for nine months ended September 30, 2016 is as follows: Number of Options Weighted Average Remaining Contractual Life (Years) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2016 400,000 $ 0.20 3.25 $ 0.00 Granted 225,000 0.12 3.50 0.00 Forfeited or expired 75,000 0.22 2.00 0.00 Exercised — — — — Outstanding at September 30, 2016 550,000 0.20 3.25 0.00 Exercisable at September 30, 2016 225,000 — — 0.00 Vested and expected to vest 325,000 0.20 3.25 0.00 The unrecognized compensation cost for unvested stock option awards outstanding at September 30, 2016 was approximately $24,547 to be recognized over approximately 3.25 years. Restricted Stock Grants During the nine months ended September 30, 2016, the Company granted an aggregate of 198,000 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 $0.20 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 $0 and $39,600 in share-based compensation expense for the three and nine months ended September 30, 2016 related to stock grants. For the three and nine months ended September 30, 2015, the Company recorded $0 and $44,880 in share-based compensation expense related to stock grants.

12. INVENTORY

12. INVENTORY	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
INVENTORY	As of September 30, 2016 and December 31, 2015, inventory consisted of the following: September 30, 2016 December 31, 2015 Raw Materials $ 472,000 $ 573,769 Work in Process — 32,702 Total Inventory $ 472,000 $ 606,471

13. LOSS PER SHARE

13. LOSS PER SHARE	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
LOSS PER SHARE	The following table provides information relating to the calculation of loss per common share. Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Basic net income (loss) per share : Net income (loss) $ (270,556 ) $ (242,647 ) $ (803,998 ) $ (398,375 ) Weighted average common shares outstanding 48,360,299 44,632,569 46,710,189 44,630,151 Basic net income (loss) per share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.01 ) Diluted net income (loss) per share : Net income (loss) $ (270,556 ) $ (242,647 ) $ (803,998 ) $ (398,375 ) Weighted average common shares outstanding 48,360,299 44,632,569 46,710,189 44,630,151 Potential dilutive securities — — — — Weighted average common shares outstanding – diluted 48,360,299 44,632,569 46,710,189 44,630,151 Diluted earnings per share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.01 ) Common stock equivalents excluded due to anti-dilutive effect 6,961,429 9,067,311 6,961,429 9,067,311

14. FAIR VALUE OF FINANCIAL INS

14. FAIR VALUE OF FINANCIAL INSTRUMENTS	9 Months Ended
	Sep. 30, 2016
Fair Value Disclosures [Abstract]
FAIR VALUE OF FINANCIAL INSTRUMENTS	Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2016, 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 September 30, 2016: Total (Level 1) (Level 2) (Level 3) Liabilities Derivative liability 18,228 — — 18,228 Total liabilities measured at fair value $ 18,228 $ — $ — $ 18,228 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, 2015 $ 99,036 Fair value of derivative liabilities issued — Gain on change in derivative liability (80,808 ) Ending balance as of September 30, 2016 $ 18,228

3. SUMMARY OF SIGNIFICANT ACC20

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Principles of Consolidation and Basis of Presentation	The Company’s consolidated financial statements include the accounts of Brekford 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. generally accepted accounting principles (“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 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 nine months ended September 30, 2016 and September 30, 2015. 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 $25,054 and $86,594 for the three and nine months ended September 30, 2016, respectively, compared to $39,166 and $211,100 respectively, for the same periods in 2015. For automated traffic safety enforcement revenue, the Company recognizes the 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation Stock Compensation
Treasury Stock	The Company accounts for treasury stock using the cost method. As of September 30, 2016, 10,600 shares of our 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 The Company files income tax returns with the U.S. Internal Revenue Service and with the revenue services of various states. 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.
Earnings (loss) per Share	Basic earnings (loss) per share is calculated by dividing net income (loss) 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 earnings (loss) per share is calculated by dividing net income (loss) 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 13 for the calculation of basic and diluted earnings (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, which are discussed in Note 14 to these condensed consolidated financial statements. 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 issued ASU 2014-09, Revenue from contracts with Customers (Topic 606) (May 2014). The topic of Revenue Recognition had become broad with several other regulatory agencies issuing standards, which lacked cohesion. The new guidance established a “comprehensive framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 31, 2016. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements. The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it established the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt the organization’s ability to continue as a going concern or to provide footnote disclosures. The ASU provides guidance to an organization’s management, with principles and definition that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments in this update are effective for the annual period ending after December 31, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company’s consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of the Debt Issuance Cost.” To simplify the presentation of the debt issuance costs, the amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those years. By adopting this standard, we have reclassified certain of our assets and liabilities. In February 2016, FASB issued ASU-2016-02, "Leases (Topic 842)." The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for the Company beginning January 1, 2019, including interim periods within that fiscal year. We are currently evaluating the impact of adopting the new guidance of the consolidated financial statements. In January 2016, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Update ("ASU") 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and is to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard. In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annual periods. The adoption of this standard will not have any impact on the Company's financial position, results of operations and disclosures.

6. CONVERTIBLE PROMISSORY NOT21

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Tables)	9 Months Ended
	Sep. 30, 2016
Convertible Promissory Notes Payable - Investor Tables
Convertible promissory note	September 30, 2016 December 31, 2015 Convertible promissory note payable $ 340,000 $ 640,000 Original issuance discount, net of amortization of the $57,896 and $29,820 as of September 30, 2016 and December 31, 2015 (7,104 ) (35,180 ) Beneficial conversion feature, net of amortization of $496,948 and $255,960 as of September 30, 2016 and December 31, 2015 (60,973 ) (301,960 ) Warrant feature, net of amortization of the $82,015 and $42,243 as of September 30, 2016 and December 31, 2015 (10,063 ) (49,835 ) Original issuance cost, net of amortization of $40,433 and $20,744 as of September 30, 2016 and December 31, 2015 (12,066 ) (31,756 ) Convertible promissory note payable, net $ 249,794 $ 221,269

10. STOCKHOLDERS' EQUITY (Table

10. STOCKHOLDERS' EQUITY (Tables)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Assumptions for warrent valuation	Nine months ended September 30, 2016 Expected life (in years) 5.00 Volatility 81.67 % Risk free interest rate 1.14 % 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, 2016 840,000 $ 0.50 4.21 $ 0.00 Granted — — — 0.00 Forfeited or expired — — — 0.00 Exercised — — — — Outstanding at September 30, 2016 840,000 0.50 3.46 0.00 Exercisable at September 30, 2016 840,000 0.50 3.46 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 3.46 Total 840,000 840,000 3.46

11. SHARE-BASED COMPENSATION (T

11. SHARE-BASED COMPENSATION (Tables)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Summary of the option activity	Number of Options Weighted Average Remaining Contractual Life (Years) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2016 400,000 $ 0.20 3.25 $ 0.00 Granted 225,000 0.12 3.50 0.00 Forfeited or expired 75,000 0.22 2.00 0.00 Exercised — — — — Outstanding at September 30, 2016 550,000 0.20 3.25 0.00 Exercisable at September 30, 2016 225,000 — — 0.00 Vested and expected to vest 325,000 0.20 3.25 0.00

12. INVENTORY (Tables)

12. INVENTORY (Tables)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Schedule of Inventory	September 30, 2016 December 31, 2015 Raw Materials $ 472,000 $ 573,769 Work in Process — 32,702 Total Inventory $ 472,000 $ 606,471

13. NET LOSS PER SHARE (Tables)

13. NET LOSS PER SHARE (Tables)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Calculation of loss per common share	Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Basic net income (loss) per share : Net income (loss) $ (270,556 ) $ (242,647 ) $ (803,998 ) $ (398,375 ) Weighted average common shares outstanding 48,360,299 44,632,569 46,710,189 44,630,151 Basic net income (loss) per share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.01 ) Diluted net income (loss) per share : Net income (loss) $ (270,556 ) $ (242,647 ) $ (803,998 ) $ (398,375 ) Weighted average common shares outstanding 48,360,299 44,632,569 46,710,189 44,630,151 Potential dilutive securities — — — — Weighted average common shares outstanding – diluted 48,360,299 44,632,569 46,710,189 44,630,151 Diluted earnings per share $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.01 ) Common stock equivalents excluded due to anti-dilutive effect 6,961,429 9,067,311 6,961,429 9,067,311

14. FAIR VALUE OF FINANCIAL I26

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)	9 Months Ended
	Sep. 30, 2016
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 18,228 — — 18,228 Total liabilities measured at fair value $ 18,228 $ — $ — $ 18,228
Reconciliation of the derivative liability	Beginning balance as of December 31, 2015 $ 99,036 Fair value of derivative liabilities issued — Gain on change in derivative liability (80,808 ) Ending balance as of September 30, 2016 $ 18,228

2. LIQUIDITY (Details Narrative

2. LIQUIDITY (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Liquidity
Net loss	$ (270,556)	$ (242,647)	$ (803,998)	$ (398,375)
Working capital			426,780
Cash available	593,806		593,806		$ 580,400
Working capital surplus	531,713		531,713
Line of credit facility	$ 2,163,187		$ 2,163,187

3. SUMMARY OF SIGNIFICANT ACC28

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Revenue from extended warranties	$ 25,054	$ 39,166	$ 86,594	$ 211,100
Common stock were held in treasury, shares	10,600		10,600		10,600
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 ($)	Sep. 30, 2016	Dec. 31, 2015
Notes to Financial Statements
Financed assets	$ 26,539	$ 47,732
Accumulated amortization	$ 115,377	$ 98,184
Weighted average interest rate	3.75%	3.75%

5. CONVERTIBLE NOTES PAYABLE 30

5. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS (Details Narrative) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
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) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Convertible Promissory Notes Payable - Investor Details
Convertible promissory note payable	$ 340,000	$ 640,000
Original issuance discount, net of amortization of the $57,896 and $29,820 as of September 30, 2016 and December 31, 2015	(7,104)	(35,180)
Beneficial conversion feature, net of amortization of $496,948 and $255,960 as of September 30, 2016 and December 31, 2015	(60,973)	(301,960)
Warrant feature, net of amortization of the $82,015 and $42,243 as of September 30, 2016 and December 31, 2015	(10,063)	(49,835)
Original issuance cost, net of amortization of $40,433 and $20,744 as of September 30, 2016 and December 31, 2015	(12,066)	(31,756)
Convertible promissory note payable, net	$ 249,794	$ 221,269

6. CONVERTIBLE PROMISSORY NOT32

6. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Details Narrative) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Convertible Promissory Notes Payable - Investor Details
Interest expense	$ 28,076	$ 29,820
Amortization of the beneficial conversion feature	240,988	255,960
Amortization of the beneficial warrant feature	$ 39,773	$ 42,243

7. WARRANT DERIVATIVE LIABILI33

7. WARRANT DERIVATIVE LIABILITY (Details Narrative) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Warrant Derivative Liability
Derivative liability	$ 18,228	$ 99,036

8. LEASES (Details Narrative)

8. LEASES (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Rent expense	$ 128,432	$ 126,486
Leases [Member]
Rent expense	$ 36,900	$ 36,900

9. MAJOR CUSTOMERS AND VENDORS

9. MAJOR CUSTOMERS AND VENDORS (Details Narrative)	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Major Customers [Member]
Net sales	14.00%	23.00%
Accounts receivable	43.00%	60.00%	53.00%
Revenues from hardware products	51.00%	47.00%
Major Vendors [Member]
Accounts payable due to distributor	62.00%	43.00%	72.00%

10. STOCKHOLDERS' EQUITY (Detai

10. STOCKHOLDERS' EQUITY (Details)	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
Expected life (in years)	5 years
Volatility	81.67%
Risk free interest rate	1.14%
Expected Dividend Rate	0.00%

Disclosure - 10. STOCKHOLDERS'

Disclosure - 10. STOCKHOLDERS' EQUITY (Details 1)	9 Months Ended
	Sep. 30, 2016$ / sharesshares
Number of Warrants
Outstanding beginning | shares	840,000
Granted | shares	0
Forfeited or expired | shares	0
Exercised | shares	0
Outstanding end | shares	840,000
Exercisable end | shares	840,000
Weighted Average Exercise Price
Outstanding beginning	$ 0.50
Granted	0
Forfeited or expired	0
Exercised	0
Outstanding end	0.50
Exercisable end	$ 0.50
Outstanding beginning	4 years 2 months 16 days
Granted	0 years
Forfeited or expired	0 years
Exercised	0 years
Outstanding end	3 years 5 months 5 days
Exercisable end	3 years 5 months 5 days
Aggregate Intrinsic Value
Outstanding beginning	$ 0
Granted	0
Forfeited or expired	0
Exercised	0
Outstanding end	0
Exercisable end	$ 0

Disclosure - 10. STOCKHOLDERS38

Disclosure - 10. STOCKHOLDERS' EQUITY (Details 2)	9 Months Ended
	Sep. 30, 2016$ / sharesshares
Notes to Financial Statements
Exercisable Price | $ / shares	$ 0.50
Stock Options Outstanding	840,000
Stock Options Exercisable	840,000
Weighted Average Remaining Contractual Life	3 years 5 months 5 days

11. SHARE-BASED COMPENSATION (D

11. SHARE-BASED COMPENSATION (Details)	9 Months Ended
	Sep. 30, 2016USD ($)$ / sharesshares
Number of Options
Outstanding beginning | shares	400,000
Granted | shares	225,000
Forfeited or expired | shares	75,000
Exercised | shares	0
Outstanding end | shares	550,000
Exercisable end | shares	225,000
Vested and expected to vest | shares	325,000
Weighted Average Exercise Price
Outstanding beginning | $ / shares	$ 0.20
Granted | $ / shares	0.12
Forfeited or expired | $ / shares	0.22
Exercised | $ / shares	0
Outstanding end | $ / shares	0.20
Vested and expected to vest | $ / shares	$ 0.20
Outstanding beginning	3 years 3 months
Granted	3 years 6 months
Forfeited or expired	2 years
Exercised	0 years
Outstanding end	3 years 3 months
Vested and expected to vest	3 years 3 months
Aggregate Intrinsic Value
Outstanding beginning | $	$ 0
Granted | $	0
Forfeited or expired | $	0
Exercised | $	0
Outstanding end | $	0
Exercisable end | $	0
Vested and expected to vest | $	$ 0

11. SHARE-BASED COMPENSATION 40

11. SHARE-BASED COMPENSATION (Details 1)	9 Months Ended
	Sep. 30, 2016$ / shares
Weighted Average Value
Forfeited or expired	$ 0.22

11. SHARE-BASED COMPENSATION 41

11. SHARE-BASED COMPENSATION (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Notes to Financial Statements
Stock option compensation expense	$ 39,600	$ 44,880
Unrecognized compensation cost for unvested stock option	$ 24,547
Unrecognized compensation cost for unvested stock option period	3 years 3 months

12. INVENTORY (Details)

12. INVENTORY (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Notes to Financial Statements
Raw Materials	$ 472,000	$ 573,769
Work in Process	0	32,702
Total Inventory	$ 472,000	$ 606,471

13. LOSS PER SHARE (Details)

13. LOSS PER SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Basic net loss per share :
Net income (loss)	$ (270,556)	$ (242,647)	$ (803,998)	$ (398,375)
Weighted average common shares outstanding	48,360,299	44,632,569	46,710,189	44,630,151
Basic loss per share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.01)
Diluted net loss per share :
Net income (loss)	$ (270,556)	$ (242,647)	$ (803,998)	$ (398,375)
Weighted average common shares outstanding	48,360,299	44,632,569	46,710,189	44,630,151
Potential dilutive securities	0	0	0	0
Weighted average common shares outstanding - diluted	48,360,299	44,632,569	46,710,189	44,630,151
Diluted earnings per share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.01)
Common stock equivalents excluded due to anti-dilutive effect	6,961,429	9,067,311	6,961,429	9,067,311

14. FAIR VALUE OF FINANCIAL I44

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details)	Sep. 30, 2016USD ($)
Liabilities
Derivative liability	$ 18,228
Total liabilities measured at fair value	18,228
Level 1
Liabilities
Derivative liability	0
Total liabilities measured at fair value	0
Level 2
Liabilities
Derivative liability	0
Total liabilities measured at fair value	0
Level 3
Liabilities
Derivative liability	18,228
Total liabilities measured at fair value	$ 18,228

14. FAIR VALUE OF FINANCIAL I45

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1)	9 Months Ended
	Sep. 30, 2016USD ($)
Fair Value Disclosures [Abstract]
Beginning balance as of December 31, 2015	$ 99,036
Fair value of derivative liabilities issued	0
Gain on change in derivative liability	(80,808)
Ending balance as of September 30, 2016	$ 18,228