Brekford (TTSR) 10-Q 15 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 12, 2017
Document And Entity Information
Entity Registrant Name	Brekford Corp.
Entity Central Index Key	1,357,115
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
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	Q1
Document Fiscal Year Focus	2,017

Condensed Consolidated Balance

Condensed Consolidated Balance Sheet (Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
CURRENT ASSETS
Cash	$ 2,073,338	$ 591,618
Accounts receivable, net of allowance $0 at March 31, 2017 and December 31, 2016, respectively	161,140	115,106
Unbilled receivables	388,544	314,262
Prepaid expenses	38,143	53,211
Note receivable - current, including accrued interest of $5,096 at March 31, 2017	230,096	0
Inventory	281,526	221,186
Current assets - discontinued operations	0	1,069,511
Total current assets	3,172,787	2,364,894
Property and equipment, net	129,905	208,310
Other non-current assets	0	9,877
Investment in GPS	354,372	0
Note receivable - non-current	1,775,000	0
Non-current assets - discontinued operations	0	40,387
TOTAL ASSETS	5,432,064	2,623,468
CURRENT LIABILITIES
Accounts payable and accrued expenses	941,273	721,880
Accrued payroll and related expenses	53,253	17,062
Obligations under other notes payable - current portion	0	20,150
Derivative liability	17,472	24,360
Other liabilities	120,000	55,408
Current liabilities - discontinued operations	0	971,466
Total current liabilities	1,131,998	1,810,326
LONG - TERM LIABILITIES
Deferred rent, net of current portion	0	6,520
Convertible promissory notes, net of debt discounts of $40,853 at December 31, 2016	0	299,147
Long term liabilities - discontinued operations	0	989,520
Total long-term liabilities	0	1,295,187
TOTAL LIABILITIES	1,131,998	3,105,513
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; 49,311,264 and 45,151,254 issued and outstanding, at December 31, 2016 and 2016, respectively	4,931	4,931
Additional paid-in capital	11,518,851	11,515,472
Treasury Stock, at cost 10,600 shares at December 31, 2016 and 2016 respectively	(5,890)	(5,890)
Accumulated deficit	(7,218,051)	(11,996,783)
Other comprehensive loss	225	225
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY	4,300,066	(482,045)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$ 5,432,064	$ 2,623,468

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheet (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Assets
Allowance for Receivables	$ 0
Note receivable, accrued interest	5,096
Convertible promissory notes, net of debt discounts	$ 40,853
Stockholders Equity
Preferred Stock par value	$ 0.0001	$ 0.0001
Preferred Stock Authorized	20,000,000	20,000,000
Common Stock par value	$ 0.0001	$ 0.0001
Common Stock Authorized	150,000,000	150,000,000

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) and Comprehensive loss - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Net Revenue	$ 748,168	$ 612,946
Cost of Revenue	295,187	184,130
Gross profit	452,981	428,816
Operating expenses:
Salaries and related expenses	426,963	402,180
Selling, general and administrative expenses	352,472	301,645
Total operating expenses	779,435	703,825
Loss from operations	(326,454)	(275,009)
Other (expense) income:
Interest income	5,096	0
Interest expense	(248,352)	(107,588)
Change in fair value of derivative liability	6,888	(840)
Loss on extinguishment of debt	0	(122,472)
Total other (expense) income	(236,368)	(230,900)
Loss before income taxes	(562,822)	(505,909)
Income tax expense (benefit)	(2,068,132)	0
Net income (loss) from continuing operations	1,505,310	(505,909)
Net income (loss) from discontinued operations	3,273,422	(48,376)
Net income (loss)	4,778,732	(554,285)
Other comprehensive income (loss) – foreign currency translation	0	(1,473)
Comprehensive income (loss)	$ 4,778,732	$ (555,758)
Net income (loss) per share from continuing operations – basic	$ 0.03	$ (0.01)
Net income (loss) per share from discontinued operations – basic	0.07	0
Net income (loss) per share – basic	0.1	(0.01)
Net income (loss) per share from continuing operations – diluted	0.03	(0.01)
Net income (loss) per share from discontinued operations – diluted	0.07	0
Net income (loss) per share – diluted	$ 0.1	$ (0.01)
Weighted average shares outstanding used in computing per share basic	49,311,264	44,625,236
Weighted average shares outstanding used in computing per share diluted	49,311,264	44,625,236

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ 4,778,732	$ (554,285)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	73,633	24,648
Share based compensation	3,379	3,737
Amortization of debt discount	35,349	77,553
Amortization of financing cost	0	20,087
Change in fair value of warrant liability	(6,888)	840
Loss on extinguishment of debt	0	122,472
Gain on sale of discontinued operations	(5,700,446)	0
Changes in operating assets and liabilities:
Accounts receivables	(46,034)	7,561
Unbilled receivables	(74,281)	(81,250)
Prepaid expenses and other non-current assets	9,972	(28,311)
Inventory	(60,340)	0
Accounts payable and accrued expenses	219,392	109,152
Accrued payroll and related expenses	36,191	25,944
Customer deposits	0	10,071
Accrued tax liability	64,593	0
Deferred rent	(6,520)	(7)
Other liabilities	25,263	0
Net cash (used in) operating activities	(648,005)	(261,788)
Net cash provided by (used in) operating activities from discontinued operations	3,634,882	(26,065)
Net cash provided by (used in) operating activities	2,986,877	(287,853)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities from continuing operations	0	0
Net cash provided by (used in) investing activities from discontinued operations	4,772	(24,500)
Net cash provided by (used in) investing activities	4,772	(24,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on other notes payable	(20,150)	(7,273)
Repayments on term notes	(334,496)	0
Net change in the line of credit	0	13,989
Net cash (used in) provided by financing activities from continuing operations	(354,646)	6,716
Net cash (used in) provided by discontinued operations financing activities	(1,155,283)	269,762
Net cash (used in) provided by financing activities	(1,509,929)	276,478
Effect of foreign currency translation	0	(11)
Net change in cash	1,481,720	(35,886)
Cash – beginning of year	591,618	580,400
Cash – end of year	2,073,338	544,514
Supplemental disclosures of cash flow information:
Cash paid for interest	33,341	52,162
Conversion of notes payable in exchange for common stock	0	100,000
Note receivable attained in sale of discontinued operations	$ 2,000,000	$ 0

1. DESCRIPTION OF THE BUSINESS

1. DESCRIPTION OF THE BUSINESS	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
DESCRIPTION OF THE BUSINESS	Brekford Corp. (“the Company”) (OTCQX:BFDI), headquartered in Hanover, Maryland, is a leading public safety technology service provider of fully integrated automated traffic safety enforcement (“ATSE”) solutions, including speed, red light, and distracted driving camera systems. The Company’s 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 reliability to our clients. Prior to March 1, 2017, part of Brekford’s business included sales of products and services focusing on law enforcement vehicles. These products and services included rugged information technology solutions, mobile data, digital video, electronic ticketing, and vehicle upfitting. Rugged information technology solutions included both ruggedized laptops and in-car video solutions, among other technology offerings, in addition to vehicle mounting systems, docking stations, and custom-built packages. Vehicle upfitting solutions included the turnkey installation of various components including rugged technology, as well as sirens, lights, radios, gun racks, and decals. On February 7, 2017, the Company entered into a Contribution and Unit Purchase Agreement (the “Agreement”) with LB&B Associates Inc. (the “Purchaser”) and Global Public Safety, LLC (“GPS”). The closing for the transaction set forth in the Agreement occurred on February 28, 2017 (the “Closing”) and on such date the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business (the “Business”) to GPS. On the Closing, GPS sold units representing 80.1% of the units of GPS to the Purchaser, and Brekford continues to own 19.9% of the units of GPS. (See Note 4). 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	3 Months Ended
	Mar. 31, 2017
Liquidity
LIQUIDITY	For the three months ended March 31, 2017, the Company incurred net income of $4,778,732, used $648,005 of cash for continuing operations, and provided cash from discontinued operations of $3,634,882. Additionally, at March 31, 2017 the company had cash available of $2,073,338 and a working capital surplus of $2,040,789. On February 28, 2017, as presented elsewhere in this Quarterly Report, the Company completed a transaction to sell substantially all assets and certain liabilities related to its vehicle services business. From the approximately $4.0 million in cash proceeds, all outstanding debt of the Company was retired, including the Loan Agreement, the Investor Note, and the notes payable to two of its directors, Messrs. C.B. Brechin and Scott Rutherford. Management believes that the Company’s current level of cash combined with cash that it expects to generate in its operations during the next 12 months including anticipated new customer contracts will be sufficient to sustain the Company’s business initiatives through at least May 2018, but there can be no assurance that these measures will be successful or adequate. In the event that the Company’s cash reserves and cash flow from operations are not sufficient to fund the Company’s future operations, it may need to obtain additional capital. On February 10, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine the businesses of Brekford and KeyStone Solutions, Inc. (“KeyStone”). Upon closing of the merger, Brekford will become a wholly-owned subsidiary of Novume Solutions, Inc., a Delaware corporation (“Novume”). For additional detail regarding this transaction, refer to Subsequent Events (Note 15).

3. SUMMARY OF SIGNIFICANT ACCOU

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2017
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 Corp. and its wholly owned subsidiary, Municipal Recovery Agency, LLC (“MRA”). Intercompany transactions and balances are eliminated in consolidation. MRA was dissolved in August 2016. 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. Reclassifications Certain amounts in prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. Concentration of Credit Risk The Company maintains cash accounts with major financial institutions. From time to time, amounts deposited may exceed the FDIC insured limits. Accounts Receivable Accounts receivable are carried at estimated net realizable value. The Company has a policy of reserving for uncollectable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company calculates the allowance based on a specific analysis of past due balances. Past due status for a particular customer is based on how recently payments have been received from that customer. Historically, the Company’s actual collection experience has not differed significantly from its estimates, due primarily to credit and collections practices and the financial strength of its customers. Inventory Inventory principally consists of hardware and third party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in- process. Property and Equipment Property and equipment is stated at cost. Depreciation of furniture, vehicles, computer equipment and software and phone equipment is calculated using the straight-line method over the estimated useful lives (two to ten years), and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term (which is three to five years). Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Revenue Recognition For automated traffic safety enforcement revenue, the Company recognizes the revenue when the required collection efforts, from citizens, are completed and posted to the municipality’s account. The respective municipality is then billed depending on the terms of the respective contract, typically 15 days after the preceding month while collections are reconciled. For contracts where the Company receives a percentage of collected fines, revenue is calculated based upon the posted payments from citizens multiplied by the Company’s contractual percentage. For contracts where the Company receives a specific fixed monthly fee regardless of citations issued or collected, revenue is recorded once the amount collected from citizens exceeds the monthly fee per camera. Our fixed fee contracts typically have a revenue neutral provision whereby the municipality’s payment to the Company cannot exceed amounts collected from citizens within a given month. 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 March 31, 2017, 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 allowances are established when the realization of deferred tax assets are not considered more likely than not. Due to the Company’s continued losses 100% valuation allowance has been established on all deferred tax assets. 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. In the three months Ended March 31 2017 and 2016, we reported financial results for both operations and discontinued operations. ASC 740-20-45 sets down the general rule for allocating income tax expense or benefit between operations and discontinued operations. The general rule requires the computation of tax expense or benefit by entity taking into consideration all items of income, expense, and tax credits. Next, a computation is made taking into consideration only those items related to continuing operations. Any difference is allocated to items other than continuing operations e.g. discontinued operations. Under these general rules, no tax expense or benefit would be allocated to discontinued operations. An exception to these rules apply under ASC 740-20-45-7 where an entity has 1) a loss from continuing operations and income related to other items such as discontinued operations and 2) the entity would not otherwise recognize a benefit for the loss from continuing operations under the approach described in ASC 740-20-45. This fact pattern applies for the three months ended March 31, 2017 and 2016. Application of this rule exception results in the allocation of tax expense to discontinued operations with an offsetting amount of tax benefit reported by the continuing operations. Overall, we allocated $2,132,725 and $0 of tax expense to net income from discontinued operations and an offsetting tax benefit to net loss from continuing operations in the three months ended March 31 2017 and 2016, respectively. Income (Loss) per Share Basic income (loss) per share is calculated by dividing net 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 income (loss) per share is calculated by dividing net 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 income (loss) earnings per share. Fair Value of Financial Instruments The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s 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 8 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 not 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. 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 has the adopted the methodologies prescribed by this ASU by the date required and there is no material impact on the Company’s consolidated financial statements. 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 are 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 did not have any material impact on the Company's financial position, results of operations and disclosures. In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. The adoption of this standard did not have any material impact on the Company's financial position, results of operations and disclosures. In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard will not have any impact on the Company's financial position, results of operations and disclosures.

4. DISCONTINUED OPERATIONS

4. DISCONTINUED OPERATIONS	3 Months Ended
	Mar. 31, 2017
Discontinued Operations
DISCONTINUED OPERATIONS	On February 6, 2017, the Company entered into a Contribution and Unit Purchase Agreement (the “Agreement”) with LB&B Associates Inc. (the “Purchaser”) and Global Public Safety, LLC (“GPS”). The closing for the transaction set forth in the Agreement occurred on February 28, 2017 (the “Closing”) and on such date the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business (the “Business”) to GPS. After the Closing, the Company will continue to own and run other business operations that are not related to the Business. On the Closing, GPS sold units representing 80.1% of the units of GPS to the Purchaser for $6,048,394, after certain purchase price adjustments of prepaid expenses and unbilled customer deposits. $4,048,394 was paid in cash, including a $250,000 deposit that was paid on February 6, 2017, and $2,000,000 was paid by Purchaser issuing the Company a promissory note (the “Promissory Note”). After the Closing, the Company continues to own 19.9% of the units of GPS. The Promissory Note is subordinated to the Purchaser’s senior lender and accrues interest at a rate of 3% per annum. The maturity date of the Promissory Note is March 31, 2022. The Promissory Note is to be repaid as follows: (a) $75,000 plus all accrued interest on each of September 30, 2017; December 31, 2017; March 31, 2018, June 30, 2018 and September 30, 2018 (or, in the event any such date is not a business day, the first business day after such date), (b) $100,000 plus all accrued interest on each of December 31, 2018; March 31, 2019; June 30, 2019 and September 30, 2019 (or, in the event any such date is not a business day, the first business day after such date) (c) $125,000 plus all accrued interest on each of December 31, 2019; March 31, 2020; June 30, 2020; September 30, 2020, December 31, 2020; March 31, 2021, June 31, 2021; September 30, 2021; and December 31, 2021 (or, in the event any such date is not a business day, the first business day after such date), and (d) $100,000 on March 31, 2022. ASC 360-10-45-9 requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. This criteria was achieved on December 21, 2016 as the Company entered into a letter of intent with the purchaser. Additionally, the discontinued operations are comprised of the entirety of the vehicle services business, excluding corporate services expenses. Lastly, for comparability purposes certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying consolidated statements of operations, consolidated statements of cash flows, and the consolidated balance sheets. In accordance with ASC 205-20-S99, "Allocation of Interest to Discontinued Operations", the Company elected to not allocate consolidated interest expense to discontinued operations where the debt is not directly attributable to or related to discontinued operations. The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheet: December 31, 2016 Current assets - discontinued operations: Accounts receivable $ 776,715 Inventory 272,679 Other current assets 20,117 Total current assets - discontinued operations $ 1,069,511 Noncurrent assets - discontinued operations: Property and equipment, net $ 27,362 Other non-current assets 13,025 Total noncurrent assets - discontinued operations $ 40,387 Current liabilities - discontinued operations: Accounts payable and accrued liabilities $ 664,569 Accrued Payroll 15,386 Customer Deposits 34,219 Deferred revenue 54,581 Line of Credit 202,711 Total current liabilities - discontinued operations: $ 971,466 Long term liabilities - discontinued operations: Note payable - long term portion $ 452,572 Deferred rent 36,948 Notes payable - related parties, long term portion 500,000 Total long term liabilities - discontinued operations $ 989,520 The following information presents the major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations for the three months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 Revenue $ 425,269 $ 2,468,180 Cost of goods sold 535,376 2,284,742 Gross margin (110,107 ) 183,439 Salaries and related expenses 86,327 77,680 Selling, general and administrative expenses 73,077 109,695 Total operating expenses 159,404 187,375 Operating loss (269,511 ) (3,936 ) Other income (expense): Gain on sale of discontinued operations 5,700,446 — Interest expense, net (24,788 ) (44,440 ) Total other income (expense) 5,675,658 (44,440 ) Income from discontinued operations before tax 5,406,147 (48,376 ) Income tax expense 2,132,725 - Income from discontinued operations, net of tax $ 3,273,422 $ (48,376 ) The following information presents the major classes of line items constituting significant operating and investing cash flow activities in the unaudited consolidated statements of cash flows relating to discontinued operations: Three Months Ended March 31 2017 2016 Cash flows from operating activities of discontinued operations: Adjustments to reconcile net loss to net cash used in operating activities of discontinued operations: Gain on sale of discontinued operations, net of fees $ 5,700,446 $ — Note receivable (2,000,000 ) Depreciation and amortization 36,447 134 Changes in operating assets and liabilities including assets and liabilities held for sale: Accounts receivable 369,210 1,224,880 Prepaid expenses and other non-current assets (1,580 ) 87,953 Inventory (131,017 ) 52,225 Accounts payable and accrued expenses (352,556 ) (1,387,121 ) Deferred revenue (54,581 ) 31,975 Other liabilities 68,513 (36,111 ) Net cash provided by (used in) operating activities from discontinued operations 3,634,882 (26,065 ) Cash flows from investing activities in discontinued operations: Purchases of property and equipment 4,772 (24,500 ) Net cash provided by (used in) investing activities in discontinued operations 4,772 (24,500 ) Cash flows from financing activities in discontinued operations: Net change in line of credit (202,712 ) 365,670 Repayment of related party notes (500,000 ) — Borrowings (repayments) on term notes (452,571 ) 84,282 Deferred financing cost — (13,523 ) Payments on term notes — (166,667 ) Net cash provided by (used in) financing activities in discontinued operations $ (1,155,283 ) $ 269,762

5. LINE OF CREDIT AND NOTES PAY

5. LINE OF CREDIT AND NOTES PAYABLE	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
LINE OF CREDIT AND NOTES PAYABLE	Line of Credit 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 provided 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 was $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 was to 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 $533,670. The amounts advanced under the Loan Agreement were due and payable on the three (3) year anniversary of the Closing Date (the “Maturity Date”), and thereafter, the Maturity Date was to be automatically 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 could have terminated 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 could terminate the Loan Agreement without notice to the Company, effective immediately. Upon termination by the Lender, the Company would have been 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 bore 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 the Credit Limit could 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 had occurred under the Loan Agreement. The Company could 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 were $2,253,617, were 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, each a Company director, as well as with the Investor described in Note 8 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 contained 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 contained certain financial covenants, including, but not limited to, a debt service coverage ratio. The Loan Agreement included 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 were due upon a default under the terms of the Loan Agreement. The Company’s obligations under the Loan Agreement were guaranteed by C.B. Brechin, a Company director, pursuant to the terms of a surety agreement. At December 31, 2016, the Company had $274,795 in outstanding indebtedness under the Revolving Facility and $452,571 in outstanding indebtedness under the Term Loan, and the Company could have borrowed up to an additional $2,725,205 under the Revolving Facility. As of December 31, 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 year ended December 31, 2016. The Company did not request a waiver for the year ended December 31, 2016 and the Revolving Facility and Term Loan were repaid in full on February 28, 2017. Other Notes Payable The Company financed certain vehicles and equipment under finance agreements. The agreements matured at various dates through December 2017. Principal maturities in 2017 were $20,150. The agreements required various monthly payments of principal and interest until maturity. As of March 31, 2017 and December 31, 2016, financed assets of $0 and $19,475, respectively, net of accumulated amortization of $0 and $122,441, respectively, are included in property and equipment on the balance sheets. The weighted average interest rate was 3.75% at March 31, 2017 and December 31, 2016. All notes were repaid in full on February 28, 2017.

6. CONVERTIBLE NOTES PAYABLE -

6. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS	3 Months Ended
	Mar. 31, 2017
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 On April 1, 2010, Brekford Corp. and each member of the lender group executed a First Amendment to the Unsecured Promissory Note, which amended the Promissory Notes as follows: ● Revise the conversion price in the provision that allows the holder of the Promissory Note to elect to convert any outstanding and unpaid principal portion of the Promissory Note and any accrued but unpaid interest into shares of the common stock at a price of fourteen cents ($0.14) per share, and ● Each Promissory Note’s maturity date was extended to the earlier of (i) four years from the issuance date or (ii) 10 business days after the date on which Brekford closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On November 8, 2013, Brekford Corp. and each member of the lender group agreed to extend the maturity dates of the Promissory Notes to the earlier of (i) November 9, 2014 or (ii) 10 business days after the date on which Brekford Corp. closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On November 4, 2014, Brekford Corp. and each member of the lender group agreed to further extend the maturity dates of the Promissory Notes to the earlier of (i) November 9, 2015 or (ii) 10 business days after the date on which Brekford Corp. closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. On November 9, 2015, the maturity dates of the Stockholder Notes were extended to the earlier of (i) November 9, 2016 or (ii) 10 business days from the date on which Brekford Corp. closes an equity financing that generates gross proceeds in the aggregate amount of not less than $5,000,000. Mr. Brechin and Mr. Rutherford indicated that they would not exercise their right of repayment prior to March 31, 2017. 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 anticipated that the maturity date of the Stockholder Notes would continue to be extended for the foreseeable future; thus, they were classified as long-term liabilities. As of December 31, 2016, the amounts outstanding under the Stockholder Notes totaled $500,000. On March 1, 2017, the balance was repaid in full.

7. CONVERTIBLE PROMISSORY NOTES

7. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR	3 Months Ended
	Mar. 31, 2017
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 bore interest at a rate of 6% per annum and the principal amount is due on March 17, 2017. Any interest that accrued under the Investor Note was 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 was 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 could the Conversion Price have been less than $0.10; provided, however, that if on or after the date of the Agreement the Company sold any Common Stock or Common Stock Equivalents (as defined in the Agreement) at an effective price per share that was less than $0.10 per share, then the Conversion Price would 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 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 $44,617. The following table provides information relating to the Investor Note at March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Convertible promissory note payable $ — $ 340,000 Original issuance discount, net of amortization of the $65,000 and $61,786 as of March 31, 2017 and December 31, 2016 — (3,214 ) Beneficial conversion feature, net of amortization of $557,921 and $530,338 as of March 31, 2017 and December 31, 2016 — (27,583 ) Warrant feature, net of amortization of the $92,079 and $87,527 as of March 31, 2017 and December 31, 2016 — (4,552 ) Original issuance cost, net of amortization of $52,500 and $46,996 as of March 31, 2017 and December 31, 2016 — (5,504 ) Convertible promissory note payable, net $ — $ 299,147 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 had 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 were beneficial to the investors at inception, because the conversion option had an effective strike price that was 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 would 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 $27,583 and $4,552 during the three months ended March 31, 2017 and $60,514 and $9,987, during the three months ended March 31, 2016, respectively. 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 $3,214 and $11,608 of interest expense as a result of the amortization during the three months ended March 31, 2017 and 2016 respectively, which also includes the unamortized original issue discount attributable to the $100,000 principal converted to equity in the three months ended March 31, 2016. On February 28, 2017, the Company repaid the remaining balance in full and retired the note.

8. WARRANT DERIVATIVE LIABILITY

8. WARRANT DERIVATIVE LIABILITY	3 Months Ended
	Mar. 31, 2017
Warrant Derivative Liability
WARRANT DERIVATIVE LIABILITY	On March 17, 2015, in conjunction with the issuance of the Investor Note (see Note 7), 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 31, 2017 and December 31, 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 80.5% - 105.1%; (iii) weighted average risk-free interest rate of 1.14-1.93%; (iv) expected life of five years; and (v) estimated fair value of the Common Stock of $0.10-$0.26 per share. At March 31, 2017 and December 31, 2016, the outstanding fair value of the derivative liability was $17,472 and $24,360, respectively. There were no warrants issued during the three months ended March 31, 2017.

9. LEASES

9. LEASES	3 Months Ended
	Mar. 31, 2017
Leases [Abstract]
LEASES	The Company rents office space under separate non-cancelable operating leases. Rent expense under our main headquarters lease, that was due to expire on April 30, 2020 amounted to $32,040 and $42,810 for the three months ended March 31, 2017 and 2016, respectively. On February 28, 2017 the headquarters lease was assumed by Global Public Safety, and the Company signed a month-to-month sub-lease with Global Public Safety payable at 15% of the original lease. 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 $12,300 for the three months ended March 31, 2017 and 2016, respectively.

10. MAJOR CUSTOMERS AND VENDORS

10. MAJOR CUSTOMERS AND VENDORS	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
MAJOR CUSTOMERS AND VENDORS	Major Customers The Company has several ATSE contracts with government agencies, of which net revenue from four customers during the three months ended March 31, 2017 represented 54% of the total net revenue. Four customers accounted for 91% of total accounts receivable as of March 31, 2017, which was subsequently collected. Net revenue from five customers during the three months ended March 31, 2016 represented 63% of the total net revenue. Accounts receivable due from four customers at December 31, 2016 amounted to 88% of total accounts receivable at that date. Major Vendors The Company purchased products and services for fulfillment of ATSE contracts from several vendors. As of March 31, 2017 and December 31, 2016, accounts payable due to these vendors amounted to 38% and 47% of total accounts payable, respectively.

11. SHARE-BASED COMPENSATION

11. SHARE-BASED COMPENSATION	3 Months Ended
	Mar. 31, 2017
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 The Company recorded $3,379 and $3,737 in stock option compensation expense during in the period ending March 31, 2017 and 2016, respectively, related to the stock option grants. There were no options granted during the three months ended March 31, 2017. Summary of the option activity for three months ended March 31, 2017 is as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2017 550,000 $ 0.20 3.00 $ 0.00 Granted — — — — Forfeited or expired (75,000 ) 0.12 — 0.00 Exercised — — — Outstanding at March 31, 2017 475,000 0.19 2.75 0.00 Exercisable at March 31, 2017 475,000 0.19 — 0.00 Vested and expected to vest 475,000 0.19 2.75 0.00 Restricted Stock Grants There were no stock grants during the three months ended March 31, 2017 and 2016.

12. INVENTORY

12. INVENTORY	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
INVENTORY	As of March 31, 2017 and December 31, 2016 inventory consisted entirely of raw materials of $281,526 and $221,186, respectively.

13. INCOME (LOSS) PER SHARE

13. INCOME (LOSS) PER SHARE	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
LOSS PER SHARE	The following table provides information relating to the calculation of loss earnings per common share for continuing operations: Three Months Ended March 31 2017 2016 Basic income (loss) earnings per share Net income (loss) from continuing operations $ 1,505,310 $ (505,909 ) Weighted average common shares outstanding - basic 49,311,264 44,625,236 Basic income (loss) per share $ 0.03 $ (0.01 ) Diluted loss per share Net income (loss) from continuing operations $ 1,505,310 $ (505,909 ) Weighted average common shares outstanding 49,311,264 44,625,236 Potential dilutive securities — — Weighted average common shares outstanding – diluted 49,311,264 44,625,236 Diluted income (loss) per share $ 0.03 $ (0.01 ) Common stock equivalents excluded due to anti-dilutive effect 840,000 7,987,899 The following table provides information relating to the calculation of net income per common share for discontinued operations: Three Months Ended March 31 2017 2016 Basic net income per share Net income from discontinued operations $ 3,273,422 $ (48,376 ) Weighted average common shares outstanding - basic 49,311,264 44,625,236 Basic income (loss) per share $ 0.07 $ (0.00 ) Diluted net income per share Net income from discontinued operations $ 3,273,422 $ (48,376 ) Weighted average common shares outstanding 49,311,264 44,625,236 Potential dilutive securities — — Weighted average common shares outstanding – diluted 49,311,264 44,625,236 Diluted income (loss) per share $ 0.07 $ (0.00 ) Common stock equivalents excluded due to anti-dilutive effect 840,000 7,987,899

14. FAIR VALUE OF FINANCIAL INS

14. FAIR VALUE OF FINANCIAL INSTRUMENTS	3 Months Ended
	Mar. 31, 2017
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 March 31, 2017, 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 March 31, 2017: Total (Level 1) (Level 2) (Level 3) Liabilities Derivative liability — — — 17,472 Total liabilities measured at fair value $ — $ — $ — $ 17,472 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, 2016 $ 24,360 Fair value of derivative liabilities issued — Gain on change in derivative liability (6,888 ) Ending balance as of March 31, 2017 $ 17,472

15. MERGER SUMMARY

15. MERGER SUMMARY	3 Months Ended
	Mar. 31, 2017
Merger Summary
MERGER SUMMARY	Merger Agreement On February 10, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to combine the businesses of Brekford and KeyStone Solutions, Inc., a Delaware corporation (“KeyStone”). The Merger Agreement provides that Brekford and KeyStone will each engage in merger transactions (the “Mergers”) with separate wholly-owned subsidiaries of a newly-formed company, Novume Solutions, Inc., a Delaware corporation (“Novume”). Under one merger transaction (the “Brekford Merger”), one wholly-owned subsidiary of Novume will merge with and into Brekford, leaving Brekford as a wholly-owned subsidiary of Novume. Under a separate merger transaction (the “KeyStone Merger”), KeyStone will merge with and into another wholly-owned subsidiary of Novume (“KeyStone Merger Sub”), with KeyStone Merger Sub surviving such merger. The time at which the Mergers are completed in accordance with the Merger Agreement is referred to as the “Effective Time”. As soon as practicable after the Effective Time, Brekford will change its name to “Brekford Traffic Safety, Inc.” and KeyStone Merger Sub will change its name to “KeyStone Solutions, Inc.” Merger Consideration As consideration for the Mergers, each outstanding share of the common stock, par value $0.0001 per share, of Brekford (“Brekford Common Stock”) immediately prior to the Effective Time will become convertible into and exchangeable for 1/15th of a share of common stock, par value $0.0001 per share, of Novume (“Novume Common Stock” and such ratio, the “Brekford Exchange Ratio”). Each outstanding share of the common stock, par value $0.0001 per share, of KeyStone (“KeyStone Common Stock”) immediately prior to the Effective Time, will become convertible into and exchangeable for 1.9975 shares of Novume Common Stock, and each outstanding share of the Series A Cumulative Convertible Redeemable Preferred Stock, par value $0.0001 per share, of KeyStone (“KeyStone Preferred Stock”) will become convertible into and exchangeable for 1.9975 shares of the Series A Cumulative Convertible Redeemable Preferred Stock of Novume (“Novume Preferred Stock” and such ratio, the “KeyStone Exchange Ratio”). The outstanding warrants and options to purchase shares of Brekford Common Stock and KeyStone Common Stock, as applicable, shall be exchanged for warrants and options to purchase Novume Common Stock at the Brekford Exchange Ratio or the KeyStone Exchange Ratio, as applicable. Collectively, the forgoing is referred to herein as the “Merger Consideration”. The Merger Consideration, and each of the Brekford Exchange Ratio and the KeyStone Exchange Ratio, were determined so that, immediately after the Effective Time, the pre-merger stockholders of Brekford will own such portion of the capital stock of Novume as shall be equal to approximately 20% of the issued and outstanding Novume Common Stock, on a fully-diluted basis, and the pre-merger stockholders of KeyStone will own that portion of the capital stock of Novume as is equal to approximately 80% of the issued and outstanding Novume Common Stock, on a fully-diluted basis. The original terms of the Merger Agreement authorized each of the Company and KeyStone to terminate the Merger Agreement if closing of the transactions contemplated under the Merger Agreement did not occur by June 1, 2017 (the “Termination Date”). On May 9, 2017, the Company, KeyStone, Novume and KeyStone entered into a First Amendment to the merger Agreement pursuant to which the Termination Date was extended until July 31, 2017.

3. SUMMARY OF SIGNIFICANT ACC21

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Principles of Consolidation and Basis of Presentation	The Company’s consolidated financial statements include the accounts of Brekford Corp. and its wholly owned subsidiary, Municipal Recovery Agency, LLC (“MRA”). Intercompany transactions and balances are eliminated in consolidation. MRA was dissolved in August 2016.
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.
Reclassifications	Certain amounts in prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements.
Concentration of Credit Risk	The Company maintains cash accounts with major financial institutions. From time to time, amounts deposited may exceed the FDIC insured limits.
Accounts Receivables	Accounts receivable are carried at estimated net realizable value. The Company has a policy of reserving for uncollectable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company calculates the allowance based on a specific analysis of past due balances. Past due status for a particular customer is based on how recently payments have been received from that customer. Historically, the Company’s actual collection experience has not differed significantly from its estimates, due primarily to credit and collections practices and the financial strength of its customers.
Inventory	Inventory principally consists of hardware and third party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in- process.
Property and Equipment	Property and equipment is stated at cost. Depreciation of furniture, vehicles, computer equipment and software and phone equipment is calculated using the straight-line method over the estimated useful lives (two to ten years), and leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term (which is three to five years). Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Revenue Recognition	For automated traffic safety enforcement revenue, the Company recognizes the revenue when the required collection efforts, from citizens, are completed and posted to the municipality’s account. The respective municipality is then billed depending on the terms of the respective contract, typically 15 days after the preceding month while collections are reconciled. For contracts where the Company receives a percentage of collected fines, revenue is calculated based upon the posted payments from citizens multiplied by the Company’s contractual percentage. For contracts where the Company receives a specific fixed monthly fee regardless of citations issued or collected, revenue is recorded once the amount collected from citizens exceeds the monthly fee per camera. Our fixed fee contracts typically have a revenue neutral provision whereby the municipality’s payment to the Company cannot exceed amounts collected from citizens within a given month.
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 March 31, 2017, 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 allowances are established when the realization of deferred tax assets are not considered more likely than not. Due to the Company’s continued losses 100% valuation allowance has been established on all deferred tax assets. 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. In the three months Ended March 31 2017 and 2016, we reported financial results for both operations and discontinued operations. ASC 740-20-45 sets down the general rule for allocating income tax expense or benefit between operations and discontinued operations. The general rule requires the computation of tax expense or benefit by entity taking into consideration all items of income, expense, and tax credits. Next, a computation is made taking into consideration only those items related to continuing operations. Any difference is allocated to items other than continuing operations e.g. discontinued operations. Under these general rules, no tax expense or benefit would be allocated to discontinued operations. An exception to these rules apply under ASC 740-20-45-7 where an entity has 1) a loss from continuing operations and income related to other items such as discontinued operations and 2) the entity would not otherwise recognize a benefit for the loss from continuing operations under the approach described in ASC 740-20-45. This fact pattern applies for the three months ended March 31, 2017 and 2016. Application of this rule exception results in the allocation of tax expense to discontinued operations with an offsetting amount of tax benefit reported by the continuing operations. Overall, we allocated $2,132,725 and $0 of tax expense to net income from discontinued operations and an offsetting tax benefit to net loss from continuing operations in the three months ended March 31 2017 and 2016, respectively.
Income (Loss) per Share	Basic income (loss) per share is calculated by dividing net 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 income (loss) per share is calculated by dividing net 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 income (loss) earnings per share.
Fair Value of Financial Instruments	The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amount of the Company’s 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 8 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 not 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. 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 has the adopted the methodologies prescribed by this ASU by the date required and there is no material impact on the Company’s consolidated financial statements. 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 are 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 did not have any material impact on the Company's financial position, results of operations and disclosures. In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption permitted. The adoption of this standard did not have any material impact on the Company's financial position, results of operations and disclosures. In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard will not have any impact on the Company's financial position, results of operations and disclosures.

4. DISCONTINUED OPERATIONS (Tab

4. DISCONTINUED OPERATIONS (Tables)	3 Months Ended
	Mar. 31, 2017
Discontinued Operations Tables
Presents the major classes of line item of assets and liabilities	December 31, 2016 Current assets - discontinued operations: Accounts receivable $ 776,715 Inventory 272,679 Other current assets 20,117 Total current assets - discontinued operations $ 1,069,511 Noncurrent assets - discontinued operations: Property and equipment, net $ 27,362 Other non-current assets 13,025 Total noncurrent assets - discontinued operations $ 40,387 Current liabilities - discontinued operations: Accounts payable and accrued liabilities $ 664,569 Accrued Payroll 15,386 Customer Deposits 34,219 Deferred revenue 54,581 Line of Credit 202,711 Total current liabilities - discontinued operations: $ 971,466 Long term liabilities - discontinued operations: Note payable - long term portion $ 452,572 Deferred rent 36,948 Notes payable - related parties, long term portion 500,000 Total long term liabilities - discontinued operations $ 989,520 Three Months Ended March 31, 2017 2016 Revenue $ 425,269 $ 2,468,180 Cost of goods sold 535,376 2,284,742 Gross margin (110,107 ) 183,439 Salaries and related expenses 86,327 77,680 Selling, general and administrative expenses 73,077 109,695 Total operating expenses 159,404 187,375 Operating loss (269,511 ) (3,936 ) Other income (expense): Gain on sale of discontinued operations 5,700,446 — Interest expense, net (24,788 ) (44,440 ) Total other income (expense) 5,675,658 (44,440 ) Income from discontinued operations before tax 5,406,147 (48,376 ) Income tax expense 2,132,725 - Income from discontinued operations, net of tax $ 3,273,422 $ (48,376 ) Three Months Ended March 31 2017 2016 Cash flows from operating activities of discontinued operations: Adjustments to reconcile net loss to net cash used in operating activities of discontinued operations: Gain on sale of discontinued operations, net of fees $ 5,700,446 $ — Note receivable (2,000,000 ) Depreciation and amortization 36,447 134 Changes in operating assets and liabilities including assets and liabilities held for sale: Accounts receivable 369,210 1,224,880 Prepaid expenses and other non-current assets (1,580 ) 87,953 Inventory (131,017 ) 52,225 Accounts payable and accrued expenses (352,556 ) (1,387,121 ) Deferred revenue (54,581 ) 31,975 Other liabilities 68,513 (36,111 ) Net cash provided by (used in) operating activities from discontinued operations 3,634,882 (26,065 ) Cash flows from investing activities in discontinued operations: Purchases of property and equipment 4,772 (24,500 ) Net cash provided by (used in) investing activities in discontinued operations 4,772 (24,500 ) Cash flows from financing activities in discontinued operations: Net change in line of credit (202,712 ) 365,670 Repayment of related party notes (500,000 ) — Borrowings (repayments) on term notes (452,571 ) 84,282 Deferred financing cost — (13,523 ) Payments on term notes — (166,667 ) Net cash provided by (used in) financing activities in discontinued operations $ (1,155,283 ) $ 269,762

7. CONVERTIBLE PROMISSORY NOT23

7. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Tables)	3 Months Ended
	Mar. 31, 2017
Convertible Promissory Notes Payable - Investor Tables
Convertible promissory note	March 31, 2017 December 31, 2016 Convertible promissory note payable $ — $ 340,000 Original issuance discount, net of amortization of the $65,000 and $61,786 as of March 31, 2017 and December 31, 2016 — (3,214 ) Beneficial conversion feature, net of amortization of $557,921 and $530,338 as of March 31, 2017 and December 31, 2016 — (27,583 ) Warrant feature, net of amortization of the $92,079 and $87,527 as of March 31, 2017 and December 31, 2016 — (4,552 ) Original issuance cost, net of amortization of $52,500 and $46,996 as of March 31, 2017 and December 31, 2016 — (5,504 ) Convertible promissory note payable, net $ — $ 299,147

11. SHARE-BASED COMPENSATION (T

11. SHARE-BASED COMPENSATION (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Summary of the option activity	Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2017 550,000 $ 0.20 3.00 $ 0.00 Granted — — — — Forfeited or expired (75,000 ) 0.12 — 0.00 Exercised — — — Outstanding at March 31, 2017 475,000 0.19 2.75 0.00 Exercisable at March 31, 2017 475,000 0.19 — 0.00 Vested and expected to vest 475,000 0.19 2.75 0.00

13. INCOME (LOSS) PER SHARE (Ta

13. INCOME (LOSS) PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Schedule of calculation of basic and diluted (loss) earnings per common share	Three Months Ended March 31 2017 2016 Basic income (loss) earnings per share Net income (loss) from continuing operations $ 1,505,310 $ (505,909 ) Weighted average common shares outstanding - basic 49,311,264 44,625,236 Basic income (loss) per share $ 0.03 $ (0.01 ) Diluted loss per share Net income (loss) from continuing operations $ 1,505,310 $ (505,909 ) Weighted average common shares outstanding 49,311,264 44,625,236 Potential dilutive securities — — Weighted average common shares outstanding – diluted 49,311,264 44,625,236 Diluted income (loss) per share $ 0.03 $ (0.01 ) Common stock equivalents excluded due to anti-dilutive effect 840,000 7,987,899
Schedule of the calculation of net income per common share	Three Months Ended March 31 2017 2016 Basic net income per share Net income from discontinued operations $ 3,273,422 $ (48,376 ) Weighted average common shares outstanding - basic 49,311,264 44,625,236 Basic income (loss) per share $ 0.07 $ (0.00 ) Diluted net income per share Net income from discontinued operations $ 3,273,422 $ (48,376 ) Weighted average common shares outstanding 49,311,264 44,625,236 Potential dilutive securities — — Weighted average common shares outstanding – diluted 49,311,264 44,625,236 Diluted income (loss) per share $ 0.07 $ (0.00 ) Common stock equivalents excluded due to anti-dilutive effect 840,000 7,987,899

14. FAIR VALUE OF FINANCIAL I26

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)	3 Months Ended
	Mar. 31, 2017
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 — — — 17,472 Total liabilities measured at fair value $ — $ — $ — $ 17,472
Reconciliation of the derivative liability	Beginning balance as of December 31, 2016 $ 24,360 Fair value of derivative liabilities issued — Gain on change in derivative liability (6,888 ) Ending balance as of March 31, 2017 $ 17,472

2. LIQUIDITY (Details Narrative

2. LIQUIDITY (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Liquidity
Net income	$ 4,778,732	$ (554,285)
Cash available	2,073,338		$ 591,618
Working capital surplus	$ 2,040,789

3. SUMMARY OF SIGNIFICANT ACC28

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Common stock were held in treasury amount	$ 5,890	$ 5,890
Treasury Stock [Member]
Common stock were held in treasury, shares	10,600
Common stock were held in treasury amount	$ 5,890

4. DISCONTINUED OPERATIONS (Det

4. DISCONTINUED OPERATIONS (Details)	Dec. 31, 2016USD ($)
Current assets - discontinued operations:
Accounts receivable	$ 776,715
Inventory	272,679
Other current assets	20,117
Total current assets - discontinued operations	1,069,511
Noncurrent assets - discontinued operations:
Property and equipment, net	27,362
Other non-current assets	13,025
Total noncurrent assets - discontinued operations	40,387
Current liabilities - discontinued operations:
Accounts payable and accrued liabilities	664,569
Accrued Payroll	15,386
Customer Deposits	34,219
Deferred revenue	54,581
Line of Credit	202,711
Total current liabilities - discontinued operations:	971,466
Long term liabilities - discontinued operations:
Note payable - long term portion	452,572
Deferred rent	36,948
Notes payable - related parties, long term portion	500,000
Total long term liabilities - discontinued operations	$ 989,520

4. DISCONTINUED OPERATIONS (D30

4. DISCONTINUED OPERATIONS (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Discontinued Operations Details 1
Revenue	$ 425,269	$ 2,468,180
Cost of goods sold	535,376	2,284,742
Gross margin	(110,107)	183,439
Salaries and related expenses	86,327	77,680
Selling, general and administrative expenses	73,077	109,695
Total operating expenses	159,404	187,375
Operating loss	(269,511)	(3,936)
Other income (expense):
Gain on sale of discontined operations	5,700,446	0
Interest expense, net	(24,788)	(44,440)
Total other income (expense)	5,675,658	(44,440)
Income from discontinued operations before tax	5,406,147	(48,376)
Income tax expense	2,132,725	0
Income from discontinued operations, net of tax	$ (178,198)	$ (48,376)

4. DISCONTINUED OPERATIONS (D31

4. DISCONTINUED OPERATIONS (Details 2) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities of discontinued operations:
Gain on sale of discontined operations	$ 5,700,446	$ 0
Note receivable	(2,000,000)	0
Depreciation and amortization	36,447	134
Changes in operating assets and liabilities including assets and liabilities held for sale
Accounts receivable	369,210	1,224,880
Prepaid expenses and other non-current assets	(1,580)	87,953
Inventory	(131,017)	52,225
Accounts payable and accrued expenses	(352,556)	(1,387,121)
Deferred revenue	(54,581)	31,975
Other liabilities	68,513	(36,111)
Net cash provided by (used in operating activities from discontinued operations	3,634,882	(26,065)
Purchases of property and equipment	4,772	(24,500)
Net cash used in investing activities in discontinued operations	4,772	(24,500)
Cash flows from financing activities in discontinued operations:
Net change in line of credit	(202,712)	365,670
Repayment of related party notes	(500,000)	0
Borrowings on term notes	(452,571)	84,282
Deferred financing cost	0	(13,523)
Payments on term notes	0	(166,667)
Net cash provided by (used in) financing activities in discontinued operations	$ (1,155,283)	$ 269,762

5. LINE OF CREDIT AND NOTES P32

5. LINE OF CREDIT AND NOTES PAYABLE (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Notes to Financial Statements
Financed assets	$ 0	$ 19,475
Accumulated amortization	$ 0	$ 122,441
Weighted average interest rate	3.75%	3.75%

6. CONVERTIBLE NOTES PAYABLE 33

6. CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Convertible Notes Payable - Stockholders Details Narrative
Amounts outstanding under Promissory Notes, total	$ 0	$ 500,000

7. CONVERTIBLE PROMISSORY NOT34

7. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Convertible Promissory Notes Payable - Investor Details
Convertible promissory note payable	$ 0	$ 340,000
Original issuance discount, net of amortization of the $65,000 and $61,786 as of March 31, 2017 and December 31, 2016	0	(3,214)
Beneficial conversion feature, net of amortization of $557,921 and $530,338 as of March 31, 2017 and December 31, 2016	0	(27,583)
Warrant feature, net of amortization of the $92,079 and $87,527 as of March 31, 2017 and December 31, 2016	0	(4,552)
Original issuance cost, net of amortization of $52,500 and $46,996 as of March 31, 2017 and December 31, 2016	0	(5,504)
Convertible promissory note payable, net	$ 0	$ 299,147

7. CONVERTIBLE PROMISSORY NOT35

7. CONVERTIBLE PROMISSORY NOTES PAYABLE - INVESTOR (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Convertible Promissory Notes Payable - Investor Details
Interest expense	$ 3,214	$ 11,608
Original issue discount	100,000
Amortization of the beneficial conversion feature	27,583	60,514
Amortization of the beneficial warrant feature	$ 4,552	$ 9,987

8. WARRANT DERIVATIVE LIABILI36

8. WARRANT DERIVATIVE LIABILITY (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Warrant Derivative Liability
Derivative liability	$ 17,472	$ 24,360

9. LEASES (Details Narrative)

9. LEASES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Lease One [Member]
Rent expense	$ 32,040	$ 42,810
Lease Two [Member]
Rent expense	$ 12,300	$ 12,300

10. MAJOR CUSTOMERS AND VENDO38

10. MAJOR CUSTOMERS AND VENDORS (Details Narrative)	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Major Customers [Member]
Net sales	54.00%
Accounts receivable	91.00%		88.00%
Revenues from hardware products		63.00%
Major Vendors [Member]
Accounts payable due to distributor	38.00%	47.00%

11. SHARE-BASED COMPENSATION (D

11. SHARE-BASED COMPENSATION (Details)	3 Months Ended
	Mar. 31, 2017USD ($)$ / sharesshares
Number of Options
Outstanding beginning | shares	550,000
Granted | shares	0
Forfeited or expired | shares	(75,000)
Exercised | shares	0
Outstanding end | shares	475,000
Exercisable end | shares	475,000
Vested and expected to vest | shares	475,000
Weighted Average Exercise Price
Outstanding beginning | $ / shares	$ 0.20
Granted | $ / shares	0
Forfeited or expired | $ / shares	0.12
Exercised | $ / shares	0
Outstanding end | $ / shares	.19
Exercisable end | $ / shares	.19
Vested and expected to vest | $ / shares	$ .19
Outstanding beginning	3 years
Outstanding end	2 years 9 months
Vested and expected to vest	2 years 9 months
Aggregate Intrinsic Value
Outstanding beginning | $	$ 0
Forfeited or expired | $	0
Outstanding end | $	0
Exercisable end | $	0
Vested and expected to vest | $	$ 0

11. SHARE-BASED COMPENSATION 40

11. SHARE-BASED COMPENSATION (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Notes to Financial Statements
Stock option compensation expense	$ 3,379	$ 3,737

12. INVENTORY (Details Narrativ

12. INVENTORY (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Notes to Financial Statements
Raw Materials	$ 281,526	$ 221,186

13. INCOME (LOSS) PER SHARE (De

13. INCOME (LOSS) PER SHARE (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Basic loss earnings per share
Net income (loss) from continuing operations	$ 1,505,310	$ (505,909)
Weighted average common shares outstanding - basic	49,311,264	44,625,236
Basic income (loss) per share	$ 0.03	$ (0.01)
Diluted loss per share
Net income (loss) from continuing operations	$ 1,505,310	$ (505,909)
Weighted average common shares outstanding	49,311,264	44,625,236
Potential dilutive securities	0	0
Weighted average common shares outstanding - diluted	49,311,264	44,625,236
Diluted income (loss) per share	$ 0.03	$ (0.01)
Common stock equivalents excluded due to anti-dilutive effect	840,000	7,987,899

13. INCOME (LOSS) PER SHARE (43

13. INCOME (LOSS) PER SHARE (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Basic net income per share
Net income from discontinued operations	$ 3,273,422	$ (48,376)
Weighted average common shares outstanding - basic	$ 49,311,264	$ 44,625,236
Basic income (loss) per share	$ 0.07	$ 0
Diluted net income per share
Net income from discontinued operations	$ 3,273,422	$ (48,376)
Weighted average common shares outstanding	49,311,264	44,625,236
Potential dilutive securities	0	0
Weighted average common shares outstanding - diluted	$ 49,311,264	$ 44,625,236
Diluted loss per share	$ 0.07	$ 0
Common stock equivalents excluded due to anti-dilutive effect	840,000	7,987,899

14. FAIR VALUE OF FINANCIAL I44

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details)	Mar. 31, 2017USD ($)
Liabilities
Derivative liability	$ 0
Total liabilities measured at fair value	0
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	17,472
Total liabilities measured at fair value	$ 17,472

14. FAIR VALUE OF FINANCIAL I45

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 1)	3 Months Ended
	Mar. 31, 2017USD ($)
Fair Value Disclosures [Abstract]
Beginning balance as of December 31, 2016	$ 24,360
Fair value of derivative liabilities issued	0
Gain on change in derivative liability	(6,888)
Ending balance as of March 31, 2017	$ 17,472