Attached files
file | filename |
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EX-31.2 - CERTIFICATION - Brekford Traffic Safety, Inc. | bfdi_ex312.htm |
EX-3.1.8 - SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION - Brekford Traffic Safety, Inc. | bfdi_ex318.htm |
EX-32.1 - CERTIFICATION - Brekford Traffic Safety, Inc. | bfdi_ex321.htm |
EX-31.1 - CERTIFICATION - Brekford Traffic Safety, Inc. | bfdi_ex311.htm |
EX-32.2 - CERTIFICATION - Brekford Traffic Safety, Inc. | bfdi_ex322.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-K
———————
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For
the fiscal year ended December 31,
2009
|
|
Or
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
For
the transition period from: _____________ to
_____________
|
———————
BREKFORD
INTERNATIONAL CORP.
(Exact
name of registrant as specified in its charter)
———————
Delaware
|
000-52719
|
20-4086662
|
||
(State
or Other Jurisdiction
of
Incorporation or Organization)
|
Commission
File
Number
|
(I.R.S.
Employer
Identification
No.)
|
7020
Dorsey Road, Suite C
Hanover,
Maryland 21076
(Address
of Principal Executive Office) (Zip Code)
(443)
557-0200
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address, if changed since last report)
———————
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.0001
———————
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large
accelerated filer ¨
|
Accelerated
filer
¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company þ
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No þ
The
aggregate market value of the voting stock held by non-affiliates of the
registrant, as of June 30, 2009, was approximately $1,941,000 based
upon the closing price reported for such date on the OTC Bulletin Board. For
purposes of this disclosure, shares of common stock held by persons who hold
more than 5% of the outstanding shares of common stock and shares held by
executive officers and directors of the registrant have been excluded because
such persons may be considered to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date: 39,705,513 as of March 15,
2010
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
BREKFORD
INTERNATIONAL CORP.
INDEX
PART I | 1 | ||||
FORWARD-LOOKING STATEMENTS | 1 | ||||
ITEM 1. | BUSINESS | 1 | |||
ITEM 2. | PROPERTIES | 4 | |||
ITEM 3. | LEGAL PROCEEDINGS | 5 | |||
PART II | 5 | ||||
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 5 | |||
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 7 | |||
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 10 | |||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 27 | |||
ITEM 9A(T) | CONTROLS AND PROCEDURES | 28 | |||
ITEM 9B. | OTHER INFORMATION | 29 | |||
PART III | 29 | ||||
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 29 | |||
ITEM 11. | EXECUTIVE COMPENSATION | 29 | |||
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 29 | |||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 29 | |||
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 29 | |||
PART IV | 29 | ||||
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 29 | |||
SIGNATURES | 32 |
PART
I
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K (“Annual Report”) contains forward-looking
statements that have been made pursuant to the provisions of Section 27A of
the Securities Act of 1933, as amended, Section 21E of the Securities
Exchange Act of 1934, as amended, and the Private Securities Litigation Reform
Act of 1995 and concern matters that involve risks and uncertainties that could
cause actual results to differ materially from historical results or from those
projected in the forward-looking statements. Discussions containing
forward-looking statements may be found in the material set forth under
“Business,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and in other sections of this Annual Report. Words such
as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “predict,” “potential,” “continue” or similar words are intended to
identify forward-looking statements, although not all forward-looking statements
contain these words. Although we believe that our opinions and expectations
reflected in the forward-looking statements are reasonable as of the date of
this Annual Report, we cannot guarantee future results, levels of activity,
performance or achievements, and our actual results may differ substantially
from the views and expectations set forth in this Annual Report. We expressly
disclaim any intent or obligation to update any forward-looking statements after
the date hereof, to conform such statements to actual results or to changes in
our opinions or expectations.
ITEM
1. BUSINESS
Our
History
Brekford
International Corp. is an emerging provider of vehicle upfitting, rugged
technology, video solutions and installation services geared towards mission
critical operations to law enforcement and first responder
markets. Depending upon the context, the terms “BFDI,” “Brekford
Corp.,” “Company,” “we,” “our,” and “us,” refers to Brekford and its
wholly-owned subsidiary. The Company (formerly California Cyber Design, Inc.
(“CCDI”)) was incorporated in Delaware on May 27, 1998 and changed its name
to American Financial Holdings, Inc. (Pink Sheets:“AFHI”) on August 11,
2004. AFHI, a publicly-traded corporation with no operations
announced the completion of its share exchange transaction with Pelican Mobile
Computers, Inc., a Maryland corporation (“Pelican Mobile”), on January 6,
2006. Pelican exchanged each issued and outstanding share of Pelican
Mobile Computers (1,000 shares issued and outstanding at the time of the share
exchange) for 25,000 shares of AFHI on a post-split basis (the “Share Exchange”)
with an aggregate of 25,000,000 shares of Common Stock of AFHI issued to the
former shareholders of Pelican Mobile. At the time of the
Share Exchange, the existing stockholders of AFHI retained 5,512,103 shares of
AFHI’s outstanding Common Stock after the cancellation of approximately
2,549,000 shares of Common Stock. As a result, the former shareholders of
Pelican Mobile became the majority stockholders of AFHI. Under the terms of the
merger, the Company changed its name to Tactical Solution Partners, Inc (Pink
Sheet: “TTSR”). On April 25, 2008, the Company’s stockholders approved a
proposal to change its name from Tactical Solution Partners, Inc. to Brekford
International Corp. to better reflect its business strategy.
Our
Business
Brekford
Corp. is a homeland technology service provider of fully integrated vehicle
installation and rugged technology and video solutions geared towards mission
critical operations. For more than a decade, we have provided services to
branches of the U.S. military, various federal entities and numerous security
and public safety agencies throughout the United States. We provide these
agencies with an end-to-end mobile communications, information technology, video
solutions and vehicle upfitting and services designed to streamline procurement
processes and offer maximum functionality to their day to day
operations.
We are a
“one-stop shop” for vehicle upfitting, cutting edge technology, video and
installation. We provide ruggedized mobile computers, video and
communications products and services for homeland security and public safety
environments, bumper-to-bumper vehicle modification products and services,
including specialized lights, sirens, prisoner cages and ballistics protection
for homeland security, law enforcement, fire and emergency
vehicles. The Brekford 360 degree approach provides our customers
with a one-stop upfitting, cutting edge technology and installation
service. The 360 degree approach is the only stop our customers make
to purchase law enforcement vehicles, upfitted with lights, sirens, radio
communication and rugged IT technology and then have them "ready to
roll." Our 360 degree engineered bumper-to-bumper vehicle solution,
our commitment to top quality fast reliable service, along with streamline
purchasing, is why we believe Brekford is the best all-around vehicle solution
provider.
1
Products
and Services
Law
enforcement agency, fire department and EMS personnel have unique requirements
for fleet vehicle upfitting and IT equipment to include characteristics such as
ruggedness and reliability. The equipment must be able to work in extreme
environments that include high levels of vibration and shock, wide temperature
ranges, varying humidity, electromagnetic interference and voltage and current
transients. Our rugged and non-rugged IT products and mobile data communication
systems provide public safety workers with the unique functionalities necessary
to enable effective response to emergency situations.
We
distinguish ourselves by truly being a “one-stop shop” for vehicle upfitting,
cutting edge technology, and installation services. Unlike our
competitors, we provide customers with one place to purchase law enforcement
vehicles that are not only upfitted with the traditional lights and sirens but
also with rugged IT hardware and communication equipment.
For more
than a decade, we have been a distributor for most major brands in the mobile
technology arena. We handle everything from Panasonic Toughbooks® and
Arbitrator® digital video systems to emergency lighting systems, vehicle GPS and
vehicle armor and wireless technology. We believe we have all of the
high-end products our customers need to handle their day to day operations and
protect the public they serve. Every product we sell is tested by highly trained
technicians and guaranteed to work in even the most extreme conditions. We
specialize in seamlessly incorporating custom-built solutions within existing
networks. We deliver our end-to-end solutions with service programs that work
for agencies large and small, from turn-key drop shipping to municipal leases.
Our commitment is to design and deliver solutions that meet or exceed industry
standards for safety, ergonomics, reliability, serviceability and
uniformity.
360
Degree Vehicle Solution
The Brekford
360 degree vehicle solution provides complete vehicle upfitting, mobile data and
video solutions including municipal financing and leasing services for agencies.
The 360 degree vehicle solutions approach provides customers with a one-stop
upfitting, cutting edge technology and installation service.
Video Solutions
Vehicle
Upfitting
We
provide and install most major brands of law enforcement vehicle equipment. Our
dedication is to provide and install equipment that ensures safe and efficient
vehicles while incorporating the latest technological advances. We adhere to
strict quality control procedures and provide comprehensive services. The
Brekford certified technician team provides our customers the highest level of
expertise and service from inception to completion, including maintenance and
upgrades.
Automatic
Traffic Enforcement - Photo Speed Enforcement.
Automatic
Traffic Enforcement systems are one of a wide range of measures that are
effective at reducing vehicle speeds and crashes. The automated speed
enforcement (ASE) system is an enforcement technique with one or more
motor vehicle sensors producing recorded images of motor vehicles traveling
at speeds above a defined threshold. Images captured by the ASE system are
processed and reviewed in an office environment and violation notices are mailed
to the registered owner of the identified vehicle.
In
Car Mobile Video System
Toughbook
Arbitrator is a rugged revolution in law enforcement video capture. The
Toughbook Arbitrator 360 degree is a rugged and durable mobile digital video
system. The fully-integrated system offers unparalleled video capture (up to 360
degrees), storage and transfer, and is designed to work with back-end software
for seamless video management, including archiving and retrieving.
Automatic
License Plate Reader (ALPR)
An
Automatic License Plate Reader (ALPR) is an image-processing technology used to
identify vehicles by their license plates. License Plate Readers
(LPRs) can record plates at about one per second at speeds of up to 100 MPH and
they often utilize infrared cameras for clarity and to facilitate reading at any
time of day or night. The data collected can either be processed in real-time,
at the site of the read, or it can be transmitted to remote centers and
processed at a later time.
2
Electronic Ticketing System-
Slick-Ticket
The
Slick-Ticket™ product is a fully portable over the seat organizer for public
safety vehicles, specially designed to house a printer and scanner to allow law
enforcement officers to quickly access driver's license and registration
information as well as issue tickets, warnings and citations.
Mobile
Data Solutions
We
develop integrated, interoperable, feature-rich mobile systems enabling first
responders, police, fire and EMS, to obtain and exchange information in
real-time. The rapid dissemination of real-time information is critical to
determine and assure timely and precise resource allocation by public sector
decision makers. As is a premiere Panasonic toughbook partner, we augment these
rugged laptops by designing and manufacturing vehicle mounting systems and
docking stations for in-vehicle communication equipment. From rugged laptop
computers, tablets and hand-helds, GPS terminals, two-way radios, and full
console systems, we provide ergonomically sound mounting products with full port
replication.
Purchasing and Order Fulfillment
We work
with manufacturers and distributors to secure the lowest cost possible while
taking advantage of any available incentives in order to maximize product
margins, provide competitive pricing and minimize delivery time to our
customers. Typically, once our sales persons receive orders from our customers,
we then purchase the required products from manufacturers such as Panasonic and
then sell (and where necessary install) the products to our
customers.
Business
Strategy
The
primary products and services from which Brekford has earned revenue and
anticipate we will continue to earn revenue is through our product and service
lines including, rugged mobile computers, vehicle mounting
systems, video systems, vehicle upfitting or outfitting,
electronic ticketing system-slick ticket and installation and maintenances
services of all the above components in first responder law enforcement
vehicles. The Public Safety Communications Market is a $4.2
billion market with the rugged mobile technology market growing at 10% per
annum. Police, Fire and EMS personnel have unique requirements for
communication, ruggedness, reliability and quality. Their equipment must be able
to work in extreme environments that include high levels of vibration and shock,
wide temperature ranges, varying humidity, electromagnetic interference and
voltage and current transients. Furthermore, public safety personnel
and emergency responders are demanding tailored mobile communication solutions
that enable real-time access and exchange of critical data to assure timely and
precise resource allocation by public sector decision makers. Brekford’s
in-vehicle technology and communication solutions provide public safety workers
and emergency responders with the unique functionalities necessary to enable
effective response to emergency situations.
The
majority of our sales have occurred within the Mid-Atlantic region, which is
comprised of the states of Maryland, Virginia, Delaware, New Jersey and
Pennsylvania. However, we are looking to expand beyond these
regions. Our products are primarily sold to state and local
government but we plan to expand into federal law enforcement agencies with our
public safety technology and upfitting solutions.
Competition
Although
we operate in an industry that has experienced substantial growth in recent
years, it is also characterized by extensive fragmentation and intense
competition. As such, larger competitors may have greater buying power and
therefore may be able to offer better pricing, which is one of the key factors
in determining whether a contract will be awarded by local, state and federal
agencies with limited budgets. In addition, although the majority of our sales
are to government agencies and other government contractors with historically
stable operating budgets, the significant economic downturn and recession has
had and will most likely continue to have a detrimental effect on our rate of
growth and, if long-term, an adverse effect on our financial condition and
operating results.
3
To
address these competitive pressures and industry trends, we intend to grow
revenues by:
|
·
|
Offering
an expanded platform of products and higher-end technical services to our
existing customers;
|
|
·
|
Increasing
our customer base by expanding our offerings into additional
regions;
|
|
·
|
Offering
360 degree one-stop shop for “smart” law enforcement
vehicle and municipal lease/financing options on full vehicle
build-outs;
|
|
·
|
Using
the Company’s placement on the General Services Administration (“GSA”)
Schedule 84, a preferred, pre-negotiated contract that provides
significant revenue opportunities from federal, state and local
governments, which, along with the passage of the Local Preparedness
Acquisition Act, management believes will benefit our upfitting group by
opening up our products and services to federal, state and local
governments with which we have not done business
before;
|
|
·
|
Increase
installation sales of Automatic Traffic Enforcement- Photo Speed
Enforcement. The global economic environment may present opportunities and
challenges in the year ahead, yet municipalities will still need to
address road safety issues and photo-enforcement is a crucial tool in that
task; and
|
|
·
|
We
will continue to invest in research and development to ensure that out
technologies remain at the forefront of the
industry.
|
Customers
During
the year ended December 31, 2009, no sales to one individual customer were
greater than 10% of net sales. Accounts
receivable due from two customers amounted to 15% and 13%, respectively, of
total accounts receivable at December 31, 2009. During the year
ended December 31, 2009, sales to government and commercial customers
represented 94% and 6% of net sales for the year, respectively.
Employees
As of
March 15, 2010, we employed 22 full-time and no part-time employees. We
have never had a work stoppage, and none of our employees are represented by
collective bargaining agreements. We anticipate hiring additional
employees to ensure timely delivery of customer projects as necessary.
Additionally, we intend to use the services of independent consultants and
contractors to perform various professional services, when appropriate. We
believe that this use of third-party service providers may enhance our ability
to contain general and administrative expenses.
Corporate
Information
Our
principal executive offices are located at 7020 Dorsey Road, Suite C, Hanover,
Maryland 21076, and our telephone number is (443) 557-0200.
Available
Information
Our
internet address is www.brekford.com. We provide free of charge on the Investor
Relations page of our web site access to our annual report on Form 10-K and
quarterly reports on Form 10-Q, as soon as reasonably practicable after
they are electronically filed with or furnished to the Securities and Exchange
Commission (“SEC”). Information appearing on our website is not incorporated by
reference and is not a part of this report.
ITEM
2. PROPERTIES
Our
corporate headquarters and first responder technology integration center is
located in Hanover, Maryland in an approximately 22,000 square foot office and
warehouse facility which is leased at various monthly rates for a 92-month term
expiring on January 15, 2015. Prior to December 31, 2008, we leased an
office and warehouse facility in Glen Burnie, Maryland for warehousing which
expired on December 31, 2008. We also lease a Class A office located
in Chesapeake, Virginia, that is subleased to former employees of the Company.
We believe these existing facilities are in good or excellent condition and are
adequate for our current needs.
4
ITEM
3. LEGAL
PROCEEDINGS
The
Company may be involved in litigation and other legal proceedings from time to
time in the ordinary course of its business. Except as otherwise set forth in
this Annual Report, the Company believes the ultimate resolution of these
matters will not have a material effect on the Company’s financial position,
results of operations or cash flows.
Brekford
International Corp. v. Woot, Inc.
On or
about January 16, 2009, we filed suit against Woot, Inc., a Texas
corporation (“Woot”) in the United States District Court of the Southern
District of Florida, Miami Division, Case
No. 09-20143-Civ-Seitz/O’Sullivan. The complaint alleges that on or about
July 29, 2008, we agreed to purchase from Woot, and Woot agreed to sell to
us, ten thousand (10,000) Lexmark printers and digital camera bundles (the
“Goods”) for the purchase price of $370,000 (the “Contract Price”). We paid Woot
the Contract Price and instructed Woot to ship the Goods to a third party. The
complaint further alleges Woot breached the contract by failing to deliver the
Goods to the third party as directed. We demanded Woot return the full Contract
Price to us but Woot has failed and refused to do so. As a result of Woot’s
alleged breaches, we are seeking damages in the amount of $320,000, plus
pre-judgment interest and costs. On March 9, 2009, Woot filed a motion to
dismiss for lack of personal jurisdiction and an alternative motion to transfer
venue. On April 14, 2009, an order was entered granting the defendant’s
request for a change of venue and transferring the case to the United States
District Court of the Eastern District of Texas. On May 5, 2009, Woot filed
an answer denying liability to the Company, and on May 11, 2009, Woot filed
third party complaints against the parties Chiragnee, Inc. and Zenith
Distributors, Inc. On January 21, 2010, the Company entered into a
compromise settlement agreement and mutual release whereby the Company agreed to
accept $245,000 in full settlement of its claims. The settlement
consideration is payable to the Company pursuant to the terms of the settlement
agreement on or about the following dates: $45,000 on or about January 30, 2010
by the defendant Woot; $50,000 on or about January 30, 2010 and an additional
$50,000 on February 15, 2010 by the defendants Zenith and Chiragnee; an
additional $50,000 on May 15, 2010 and a final payment of $50,000 on August 15,
2010 by defendant Zenith. To date $145,000 has been paid to the
Company under the settlement agreement.
Richard
A. Sajac v. Brekford International Corp.
On or
about June 19, 2009, Richard A. Sajac, a former employee and executive officer
of the Company, filed suit against the Company in Anne Arundel County Circuit
Court of Maryland, Case No. 02-C-09-141795. The complaint alleges that the
Company breached its obligations under an employment agreement and stock option
agreement. The plaintiff seeks treble damages in the amount of $382,500, plus
1,062,500 stock options and reasonable attorney’s fees, costs and unreimbursed
expenses. On July 17, 2009, the Company filed a notice removing the
case from state court to federal court in the United States District Court for
the District Of Maryland (Northern Division). The new case number is
1:09-cv-01888(CCB). On July 24, 2009, the Company filed an answer in federal
court denying the allegations contained in the complaint. On December 29, 2009,
the Company reached an agreement in principle with Mr. Sajac under which the
Company agreed to settle all claims arising out of the complaint filed by Mr.
Sajac. The terms of a definitive settlement agreement provided that as
consideration for the settlement of the lawsuit and releases from Mr. Sajac the
Company would pay Mr. Sajac an aggregate of $11,000 in cash, payable on or
before January 28, 2010 and issue to Mr. Sajac 800,000 shares of the Company’s
Common Stock. The definitive settlement agreement was executed and entered with
the court on January 26, 2010. The Company has issued all shares of
Common Stock and paid all cash amounts due under the settlement
agreement.
PART
II
ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
As of
March 15, 2010, we had approximately 48 stockholders of record, solely
based upon the count our transfer agent provided us as of that date. This number
does not include:
|
·
|
any
beneficial owners of common stock whose shares are held in the names of
various dealers, clearing agencies, banks, brokers and other fiduciaries,
or
|
|
·
|
broker-dealers
or other participants who hold or clear shares directly or indirectly
through the Depository Trust Company, or its nominee, Cede &
Co.
|
5
On
January 30, 2008, our Common Stock began trading on the OTCBB. Prior to
January 30, 2008, our Common Stock had been quoted over-the counter on the
Pink Sheets LLC automated electronic quotation service under the ticker symbol
“TTSR”. Our Common Stock is not listed on any national or regional securities
exchange.
The
following table sets forth, for the periods presented, the high and low bid
price ranges of our Common Stock as reported on the OTCBB and Pink Sheets LLC.
The over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
|
High
|
Low
|
||
Fiscal
year ended December 31, 2008:
|
||||
First
Quarter
|
$0.35
|
$0.11
|
||
Second
Quarter
|
$0.34
|
$0.07
|
||
Third
Quarter
|
$0.11
|
$0.01
|
||
Fourth
Quarter
|
$0.06
|
$0.01
|
||
Fiscal
year ended December 31, 2009:
|
||||
First
Quarter
|
$0.08
|
$0.03
|
||
Second
Quarter
|
$0.06
|
$0.03
|
||
Third
Quarter
|
$0.16
|
$0.03
|
||
Fourth
Quarter
|
$0.20
|
$0.09
|
Dividends
We have
never declared or paid dividends on our Common Stock. We intend to use retained
earnings, if any, for the operation and expansion of our business, and therefore
do not anticipate paying cash dividends in the foreseeable future.
In
addition, the General Corporation Law of the State of Delaware prohibits us from
declaring and paying a dividend on our Common Stock at a time when we do not
have either (as defined under that law):
·
|
a
surplus, or, if we do not have a
surplus,
|
·
|
net
profit for the year in which the dividend is declared and for the
immediately preceding year.
|
Equity
Compensation Plan
The
following table provides information as of December 31, 2009 with respect
to employee compensation plans under which our equity securities are authorized
for issuance.
Plan
Category
|
Number
of Securities
to
be Issued Upon
Exercise
of
Outstanding
Options,
Warrants
and
Rights
Column
(a)
|
Weighted–Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
Column
(b)
|
Number
of Securities
Remaining
Available
for
Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected
in
Column (a))
Column
(c)
|
|||
Equity
compensation plans approved by security holders (1)
|
|
—
|
|
—
|
|
7,980,000
|
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
The
repurchases provided in the table below were made during the quarter ended
December 31, 2009:
Issuer
Purchases of Equity Securities
|
||||||||||||||||
Total
Number of Securities Purchased
|
Average
Price Paid per Share
|
Total
Number of shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that may yet be Purchased Under the Plans or
Programs
|
|||||||||||||
October
2009
|
— | — | — | — | ||||||||||||
November
2009
|
28,910,000 | (1) | $ | 0.037 | — | — | ||||||||||
December
2009
|
— | — | — | — |
(1) The
shares of Common Stock and Warrants were repurchased in a private transaction
and were not part of a publicly announced plan.
6
On
October 1, 2009, three directors and executive officers of the Company, Messrs.
C.B. Brechin, Scott Rutherford, and Bruce Robinson, entered into a stock
purchase agreement on behalf of the Company (the “Stock Purchase Agreement”),
with the court-appointed receiver, Robert D. Gordon (the “Receiver”), for its
stockholder Legisi Marketing, Inc, to repurchase 18,910,000 shares of Common
Stock and cancel 10,000,000 common stock purchase warrants
exercisable at $.39 per share (the “Warrants”), which shares of Common Stock and
Warrants have been in the custody of the Receiver. The aggregate purchase price
for the securities under the Stock Purchase Agreement was $700,000. The
effectiveness of the Stock Purchase Agreement was subject to court approval
which was received on November 4, 2009. The repurchased shares of Common Stock
and Warrants have been returned to the Company’s treasury and
cancelled.
Unregistered
Sales of Equity Securities
Except as
provided herein, all unregistered sales of securities issued during the fiscal
year ended December 31, 2009 have been previously reported on the Company’s
quarterly reports on Form 10-Q or current reports on Form 8-K.
In
December 2009, we entered into an agreement in principle to issue 800,000 shares
of our Common Stock in the settlement of a litigation proceeding with our former
executive officer. These shares were valued at $136,000 at the time of the
agreement in principle. A formal settlement agreement was executed by the
Company and the former executive officer on January 26, 2010. We
believe that the issuance was exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended (“Securities Act”).
The
issuances of securities were exempt from registration under the Securities Act
in reliance upon Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder as transactions by an issuer not
involving a public offering. The securities are restricted securities for
purposes of the Securities Act. A legend was placed on the certificate
representing the securities providing that the securities have not been
registered under the Securities Act and cannot be sold or otherwise transferred
without an effective registration or an exemption therefrom.
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and the
notes thereto and other financial information appearing elsewhere in this Annual
Report.
This
section contains forward-looking statements. These forward-looking statements
are subject to various factors, risks and uncertainties that could cause actual
results to differ materially from those reflected in these forward-looking
statements. Further, as a result of these factors, risks and uncertainties, the
forward-looking events may not occur. Relevant factors, risks and uncertainties
include, but are not limited to, those discussed in “Item 1. Business,” and
elsewhere in this Annual Report. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management’s beliefs and
opinions as of the date of this Annual Report. We are not obligated to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
We are a
provider of fully integrated vehicle upfitting, rugged technology solutions
geared towards mission critical operations. For more than a decade, we have
provided services to branches of the U.S. military, various federal entities and
numerous security and public safety agencies throughout the United States.
Through our strategic partnerships with our distributors, we are able to provide
products and vehicle upfitting services specially designed for public safety,
law enforcement and emergency first responder vehicles and back office
operations.
7
Application
of Critical Accounting Policies and Pronouncements
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments affecting the reporting amounts of assets and liabilities, expenses
and related disclosures. We base our estimates on historical experience, our
knowledge of economic and market factors and various other assumptions we
believe to be reasonable under the circumstances. We may also engage third party
specialists to assist us in formulating estimates when considered necessary.
Estimates and judgments used in the preparation of our financial statements are,
by their nature, uncertain and unpredictable and depend upon, among other
things, many factors outside of our control, such as demand for our products and
economic conditions. Accordingly, our estimates and judgments may prove to be
different from actual amounts that may only be determined upon the outcome of
one or more confirming events and actual results may differ, perhaps
significantly, from these estimates under different estimates, assumptions or
conditions. We believe the critical accounting policies below are affected by
estimates, assumptions and judgments used in the preparation of our financial
statements.
Accounts
Receivable Allowance
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 is based on how recently payments have been
received by customers. Actual collection experience has not differed
significantly from the Company’s estimates, due primarily to credit and
collections practices and the financial strength of its customers.
Revenue
Recognition
The
Company recognizes revenue when all four basic criteria are met (i) persuasive
evidence of an arrangement exists, (ii) delivery or installation has been
completed, (iii) the customer accepts and verifies receipt, and (iv)
collectability is reasonably assured. The Company considers delivery
to its customers to have occurred at the time in which products are delivered
and/or installation work is completed and the customer acknowledges its
acceptance of the work.
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 will 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.
Results
of Operations
Comparative
Results of Operations for the Years Ended December 31, 2009 and
2008
The
following tables summarize selected items from the statement of operations for
the year ended December 31, 2009 compared to the year ended
December 31, 2008.
Year
Ended December 31,
|
Increase
|
|||||||||||||||
2009
|
2008
|
$ | % | |||||||||||||
Revenues
|
$ | 14,557,241 | $ | 13,501,757 | $ | 1,055,484 | 8 | % | ||||||||
Cost
of Sales
|
11,918,416 | 11,506,268 | 412,148 | 4 | % | |||||||||||
Gross
Profit
|
$ | 2,638,825 | $ | 1,995,489 | $ | 643,336 | 32 | % | ||||||||
Gross
Profit Percentage of Revenue
|
18 | % | 15 | % |
8
Revenues
Consolidated
revenues for the year ended December 31, 2009 were $14,557,241 compared to
$13,501,757 for the year ended December 31, 2008, an increase of $1,055,484
or 8%, primarily due to an increase in sales of laptops, modems and installation
services during the year ended December 31, 2009.
Cost
of Sales
Cost of
sales for the year ended December 31, 2009 was $11,918,416 compared to
$11,506,268 for the year ended December 31, 2008, an increase of $412,148
or 4%, primarily due to the increase in sales of laptops and installations and
an increase in vehicle upfitting services with higher gross profit margin
compared to the sales of lower gross profit margin of office electronics during
the year ended December 31, 2008.
Expenses
Year
Ended December 31,
|
Decrease
|
|||||||||||||||
2009
|
2008
|
$ | % | |||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Salaries
and related expenses
|
$ | 1,057,477 | $ | 1,280,768 | $ | (223,291 | ) | -17 | % | |||||||
Selling,
general and administrative expenses
|
945,302 | 2,254,391 | (1,309,089 | ) | -58 | % | ||||||||||
Total
operating expenses
|
$ | 2,002,779 | $ | 3,535,159 | $ | (1,532,380 | ) | -43 | % |
Salaries
and Related Expenses
Salaries
and wages paid in cash for the year ended December 31, 2009 amounted to
$1,057,477 compared to $1,280,768 for the year ended December 31, 2008, a
decrease of $223,291 or 17%. The decrease is primarily due to
elimination of the salaries and expenses of three executive officers and various
other employees during the fourth quarter of 2008.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses for the year ended December 31, 2009
were $945,302 compared to $2,254,391 for the year ended December 31, 2008,
a decrease of $1,309,089 or 58%. The decrease is primarily
due to the controlled spending and certain cost cutting measures implemented
during the fourth quarter of 2008 and the year ended December 31,
2009.
Liquidity
and Capital Resources
Management
believes that the Company’s current level of working capital combined with
funds that it expects to generate in its operations during the next twelve
months and available from its credit facility will be sufficient to sustain the
business through at least December 31, 2010. While the Company has taken
certain measures to conserve its liquidity as it continues the effort to pursue
its business initiatives, there can be no assurance that the Company will be
successful in its efforts to expand its operations or that the expansion of its
operations will improve its operating results. The Company also cannot provide
any assurance that unforeseen circumstances, such as the current economic
crisis, will not have a material adverse effect on the business that could
require it to raise additional capital or take other measures to sustain
operations in the event that outside sources of capital are not available.
Although the Company has no specific indication that its business will be
effected by the current economic crisis or at a level beyond management’s
ability to manage this risk, this matter is an uncertainty that is under
continuous review by management; this matter could also effect the availability
of external funding if needed. If the Company encounters unforeseen
circumstances it may need to curtail certain of its operations. Although
management believes the Company has access to capital resources, it has not
secured any commitments for new financing at this time nor can it provide any
assurance that new capital will be available to it on acceptable terms, if
at all.
Off-Balance
Sheet Arrangements
The
Company is not party to any off-balance sheet transactions as defined in Item
303 of the Securities and Exchange Commission’s Regulation S-K.
9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
|
||||
Page
|
||||
Reports of Independent Registered Public
Accounting Firms
|
11 | |||
Consolidated Balance Sheets as of
December 31, 2009 and 2008
|
13 | |||
Consolidated Statements of Operations for the
Years Ended December 31, 2009 and 2008
|
14 | |||
Consolidated Statements of Changes in
Stockholders’ Equity for the Years Ended
December 31, 2009 and
2008
|
15 | |||
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2009 and 2008
|
16 | |||
Notes to Consolidated Financial
Statements
|
17 |
10
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the Board of Directors and
Stockholders
of Brekford International Corp. and Subsidiary
We have
audited the accompanying consolidated balance sheet of Brekford International
Corp. and Subsidiary (the “Company”) as of December 31, 2009, and the
related consolidated statements of operations, changes in stockholders’ equity
and cash flows for the year then ended. The Company’s management is responsible
for these consolidated financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brekford
International Corp. and Subsidiary as of December 31, 2009, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Stegman &
Company
|
|
Stegman
& Company
|
|
Baltimore,
Maryland
|
|
March 15,
2010
|
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the
Board of
Directors and Stockholders
of
Brekford International Corp.
We have
audited the accompanying consolidated balance sheet of Brekford International
Corp and Subsidiary (f/k/a Tactical Solution Partners, Inc.) (the “Company”) as
of December 31, 2008, and the related consolidated statements of
operations, stockholders’ equity and cash flows for the year ended
December 31, 2008. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Brekford International
Corp. and Subsidiary as of December 31, 2008, and the consolidated results
of their operations and their cash flows for the year ended December 31,
2008 in conformity with United States generally accepted accounting
principles.
/s/ Marcum llp
|
|
Marcum
llp
(formerly Marcum &
Kliegman llp)
|
|
New
York, New York
|
|
March
23, 2009
|
12
BREKFORD
INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
December 31,
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 1,750,362 | $ | 436,451 | ||||
Restricted
cash
|
— | 331,823 | ||||||
Accounts
receivable, net of allowance of $0 in 2009 and $181,402 in
2008
|
1,236,127 | 2,230,479 | ||||||
Prepaid
expenses
|
259,762 | 28,139 | ||||||
Inventory
|
418,833 | 275,925 | ||||||
Total
current assets
|
3,665,084 | 3,302,817 | ||||||
Property
and equipment, net
|
432,832 | 541,454 | ||||||
Other
non-current assets
|
24,872 | 464,228 | ||||||
Total
assets
|
$ | 4,122,788 | $ | 4,308,499 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 836,063 | $ | 1,778,347 | ||||
Accrued
payroll and related expenses
|
17,157 | 50,345 | ||||||
Income
tax payable
|
80,000 | |||||||
Customer
deposits
|
27,060 | — | ||||||
Deferred
revenue
|
25,000 | — | ||||||
Obligations
under capital leases – current portion
|
24,799 | 45,704 | ||||||
Deferred
rent – current portion
|
42,063 | 20,778 | ||||||
Total
current liabilities
|
1,052,142 | 1,895,174 | ||||||
Long-term
liabilities:
|
||||||||
Notes
payable – stockholders, net of discount
|
421,370 | — | ||||||
Obligations
under capital leases, net of current portion
|
17,628 | 53,371 | ||||||
Deferred
rent, net of current portion
|
223,926 | 265,989 | ||||||
Total
long-term liabilities
|
662,924 | 265,989 | ||||||
Total
Liabilities
|
1,715,066 | 2,214,534 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, par value $0.0001 per share; 20,000,000 shares
authorized;
none issued and outstanding
|
— | — | ||||||
Common
stock, par value $0.0001 per share; 150,000,000 shares
authorized; 39,705,513
issued and outstanding as of December 31, 2009 and 59,626,565 shares
issued outstanding as of December 31, 2008
|
3,971 | 5,963 | ||||||
Additional
paid-in capital
|
10,005,201 | 10,494,892 | ||||||
Accumulated
deficit
|
(7,601,450 | ) | (8,179,207 | ) | ||||
2,407,722 | 2,321,648 | |||||||
Less:
treasury stock, at cost; 1,904,025 shares as of December 31,
2008
|
— | (227,683 | ) | |||||
Total
stockholders’ equity
|
2,407,722 | 2,093,965 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 4,122,788 | $ | 4,308,499 |
The
accompanying notes are an integral part of these consolidated financial
statements.
13
BREKFORD
INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
Sales
|
$ | 14,557,241 | $ | 13,501,757 | ||||
Cost
of sales
|
11,918,416 | 11,506,268 | ||||||
Gross
profit
|
2,638,825 | 1,995,489 | ||||||
Operating
expenses:
|
||||||||
Salaries
and related expenses
|
1,057,477 | 1,280,768 | ||||||
Selling,
general and administrative expenses
|
945,302 | 2,254,391 | ||||||
Total
operating expenses
|
2,002,779 | 3,535,159 | ||||||
Income
(loss) from operations
|
636,046 | (1,539,670 | ) | |||||
Other
(expense) income:
|
||||||||
Interest
expense
|
(35,372 | ) | (12,062 | ) | ||||
Interest
income
|
19,702 | 38,783 | ||||||
Other
income
|
37,381 | 32,400 | ||||||
Total
other income
|
21,711 | 59,121 | ||||||
Income
(loss) before income taxes
|
657,757 | (1,480,549 | ) | |||||
Income
tax expense
|
80,000 | — | ||||||
Net
income (loss)
|
$ | 577,757 | $ | (1,480,549 | ) | |||
Net
income (loss) per share – basic and diluted
|
$ | 0.01 | $ | (0.02 | ) | |||
Weighted
average shares outstanding used in computing per share
amounts:
|
||||||||
Basic
|
53,588,970 | 63,566,827 | ||||||
Diluted
|
55,013,628 | 63,566,827 |
The
accompanying notes are an integral part of these consolidated financial
statements.
14
BREKFORD INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For
the Years Ended December 31, 2009 and 2008
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Treasury Stock
|
||||||||||||||||||||||
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Shares
|
Par
Value
|
|||||||||||||||||||
BALANCE
– January 1, 2008
|
—
|
$
|
—
|
63,435,674
|
$
|
6,344
|
(286,992
|
)
|
$
|
(42,802
|
)
|
$
|
10,785,566
|
$
|
(6,698,658
|
)
|
$
|
4,050,450
|
||||||
Common
stock issued to directors, net of forfeitures
|
—
|
—
|
30,000
|
3
|
(10,000
|
)
|
(499
|
)
|
1,497
|
—
|
1,001
|
|||||||||||||
Common
stock granted for services provided by employees, 750,000 shares fully
vested
|
—
|
—
|
—
|
—
|
—
|
—
|
65,625
|
—
|
65,625
|
|||||||||||||||
Common
stock withheld for tax withholding upon vesting of restricted stock
grant
|
—
|
—
|
—
|
—
|
(262,030
|
)
|
(64,590
|
)
|
—
|
—
|
(64,590
|
)
|
||||||||||||
Issuance
of warrants in connection with legal settlement less amounts previously
recognized
|
—
|
—
|
—
|
—
|
—
|
—
|
(178,808
|
)
|
—
|
(178,808
|
)
|
|||||||||||||
Common
stock surrendered in connection with legal settlement
|
—
|
—
|
—
|
—
|
(1,125,000
|
)
|
(119,792
|
)
|
—
|
—
|
(119,792
|
)
|
||||||||||||
Recognized
portion of common stock granted to employees for services
|
—
|
—
|
—
|
—
|
—
|
—
|
145,496
|
—
|
145,496
|
|||||||||||||||
Recognized
portion of stock options issued for services provided by
employees
|
—
|
—
|
—
|
—
|
—
|
—
|
100,000
|
—
|
100,000
|
|||||||||||||||
Recognized
portion of warrants issued in lieu of cash for services provided by
non-employees
|
—
|
—
|
—
|
—
|
—
|
—
|
177,160
|
—
|
177,160
|
|||||||||||||||
Common
stock issued in connection with cashless exercise of employee stock
options, net of 21,705 shares withheld for income tax
withholding
|
—
|
—
|
40,795
|
4
|
—
|
—
|
(4
|
)
|
—
|
—
|
||||||||||||||
Value
of common stock for tax withheld upon exercise of stock
options
|
—
|
—
|
—
|
—
|
—
|
—
|
(3,039
|
)
|
—
|
(3,039
|
)
|
|||||||||||||
Common
stock surrendered in connection with legal settlement
|
—
|
—
|
—
|
—
|
(220,003
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||
Common
stock cancelled under a restricted stock award forfeited upon officer
resignation
|
—
|
—
|
(3,129,904
|
)
|
(313
|
)
|
—
|
—
|
(495,551
|
)
|
—
|
(495,864
|
)
|
|||||||||||
Common
stock cancelled under restricted stock awards forfeited by
employees
|
—
|
—
|
(750,000
|
)
|
(75
|
)
|
—
|
—
|
(103,050
|
)
|
—
|
(103,125
|
)
|
|||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,480,549
|
)
|
(1,480,549
|
)
|
|||||||||||||
BALANCE
– December 31, 2008
|
—
|
—
|
59,626,565
|
5,963
|
(1,904,025
|
)
|
(227,683
|
)
|
10,494,892
|
(8,179,207
|
)
|
2,093,965
|
||||||||||||
Cancellation
of treasury shares
|
—
|
—
|
(1,811,052)
|
(181)
|
1,904,025
|
227,683
|
(227,502)
|
—
|
—
|
|||||||||||||||
Repurchase
and cancellation of common stock
|
—
|
—
|
(18,910,000)
|
(1,891)
|
—
|
—
|
(698,109)
|
—
|
(700,000)
|
|||||||||||||||
Common
stock issued in connection with legal settlement
|
—
|
—
|
800,000
|
80
|
—
|
—
|
135,920
|
—
|
136,000
|
|||||||||||||||
Beneficial
conversion feature on notes payable - stockholders
|
—
|
—
|
—
|
—
|
—
|
—
|
300,000
|
—
|
300,000
|
|||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
577,757
|
577,757
|
|||||||||||||||
BALANCE
– December 31, 2009
|
—
|
$
|
—
|
39,705,513
|
$
|
3,971
|
—
|
$
|
—
|
$
|
10,005,201
|
$
|
(7,601,450)
|
$
|
2,407,722
|
The
accompanying notes are an integral part of these consolidated financial
statements.
15
BREKFORD
INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | 577,757 | $ | (1,480,549 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
98,322 | 119,091 | ||||||
Share-based
compensation, net of treasury stock and forfeiture
|
— | 489,282 | ||||||
Forfeiture
of common stock
|
— | (598,989 | ) | |||||
Share-based
legal settlement
|
136,000 | (298,600 | ) | |||||
Amortization
of debt discount
|
21,370 | — | ||||||
Deferred
rent
|
(20,778 | ) | (15,869 | ) | ||||
Loss
on disposal of fixed assets
|
39,510 | — | ||||||
Bad
debt expense
|
— | 149,118 | ||||||
Gain
recognized on capital lease termination
|
(41,437 | ) | — | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
994,352 | (1,049,258 | ) | |||||
Prepaid
expenses and other non-current assets
|
207,733 | 1,242 | ||||||
Inventory
|
(142,908 | ) | (264,772 | ) | ||||
Accounts
payable and accrued expenses
|
(942,284 | ) | 1,590,590 | |||||
Accrued
payroll and related expenses
|
(33,188 | ) | (209,653 | ) | ||||
Income
tax payable
|
80,000 | |||||||
Customer
deposits
|
27,060 | — | ||||||
Deferred
revenue
|
25,000 | — | ||||||
Net
cash provided by (used in) operating activities
|
1,026,509 | (1,568,367 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property and equipment
|
(49,210 | ) | (62,162 | ) | ||||
Proceeds
from sale of fixed assets
|
20,000 | — | ||||||
Release
of restricted cash
|
331,823 | 15,523 | ||||||
Net
cash provided by (used in) investing activities
|
302,613 | (46,639 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Principal
payments on equipment note payable
|
(15,211 | ) | (41,494 | ) | ||||
Net
cash used in financing activities
|
(15,211 | ) | (41,494 | ) | ||||
Net
increase (decrease) in cash
|
1,313,911 | (1,656,500 | ) | |||||
Cash –
beginning of year
|
436,451 | 2,092,951 | ||||||
Cash –
end of year
|
$ | 1,750,362 | $ | 436,451 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 10,999 | $ | 12,601 | ||||
Cash
paid for income taxes
|
$ | — | $ | — | ||||
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||
Common
stock held upon vesting of restricted stock grant for tax
withholding
|
$ | — | $ | 67,629 | ||||
Notes
payables incurred in connection with purchase of equity
securities
|
$ | 700,000 | $ | — |
The
accompanying notes are an integral part of these consolidated financial
statements.
16
BREKFORD
INTERNATIONAL CORP. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009
NOTE
1 – DESCRIPTION OF THE BUSINESS
Brekford
International Corp. (“Brekford” or the “Company”) is a homeland technology
service provider of fully integrated vehicle installation and rugged technology
solutions geared towards mission critical operations. For more than a decade,
the Company has provided services to branches of the U.S. military, various
federal entities and numerous security and public safety agencies throughout the
United States. Brekford provides these agencies with an end-to-end suite of
superior products and services designed to streamline procurement processes and
offer maximum functionality to their day to day operations.
Brekford
provides end-to-end mobile communications, information technology and vehicle
upfitting solutions including:
·
|
Ruggedized
mobile computing, video and communications products and services for
homeland security and public safety environments;
and,
|
·
|
Bumper-to-bumper
vehicle modification products and services, including specialized lights,
sirens, prisoner cages and ballistics protection for homeland security,
law enforcement, fire and emergency medical
vehicles.
|
Brekford
360 Degree vehicle solutions provides complete vehicle upfitting, mobile data
and video solutions including municipal financing and leasing services for
agencies. The 360 Degree vehicle solutions approach provides customers with a
one-stop upfitting cutting edge technology and installation
service.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements of Brekford International Corp. include
accounts of the Company and its wholly-owned subsidiary, Pelician Mobile
Computers, Inc. Intercompany transactions and balances are eliminated in
consolidation.
Use
of Estimates
Preparation
of financial statement that follow accounting principles generally accepted in
the United States required management to make estimates and assumptions that
affect the amounts reported in the financial statement and notes. Actual results
could differ from those estimates.
Concentration
of Credit Risk
The
Company maintains cash accounts with major financial institutions. Cash deposits
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000
at each institution as of December 31, 2009. From time to time,
amounts deposited may exceed the FDIC 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 is based on how recently payments have been
received by customers. Actual collection experience has not differed
significantly from the Company’s estimates, due primarily to credit and
collections practices and the financial strength of its customers.
17
Inventory
Inventory
principally consists of hardware and third-party packaged software that is
modified to conform to customer specifications and held temporarily until the
completion of a contract. These amounts are stated at lower of first-in,
first-out (“FIFO”) cost or market.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of furniture, vehicles, computer
equipment and software and phone equipment is calculated using the straight-line
method over the estimated useful lives (two to ten years), and leasehold
improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the lease term (which is three to five
years).
Revenue
Recognition
The
Company recognizes revenue when all four basic criteria are met (i) persuasive
evidence of an arrangement exists, (ii) delivery or installation has been
completed, (iii) the customer accepts and verifies receipt, and (iv)
collectability is reasonably assured. The Company considers delivery
to its customers to have occurred at the time in which products are delivered
and/or installation work is completed and the customer acknowledges its
acceptance of the work.
The
Company provides its customers with a warranty against defects in the
installation of its vehicle upfitting solutions for one year from the date of
installation. Warranty claims were insignificant during the years
ended December 31, 2009 and 2008. The Company also performs
warranty repair services on behalf of the manufacturers of the equipment it
sells. The Company does not currently offer separately priced extended warranty
and product maintenance contracts, nor does the Company reduce its prices in
anticipation of selling extended warranties offered by the manufacturers of the
equipment it sells. Revenues from warranty services were insignificant during
the years ended December 31, 2009 and 2008.
Shipping
and Handling Costs
All
amounts billed to customers related to shipping and handling are included in
products revenues and all costs of shipping and handling are included in cost of
sales in the accompanying consolidated statements of operations. Shipping and
handling costs that the Company incurred amounted to $51,304 and $33,900 for the
years ended December 31, 2009 and 2008, respectively.
Advertising
Costs
The
Company expenses advertising costs as incurred; these expenses are included in
selling, general and administrative expenses in the accompanying statements of
operations. Advertising expense amounted to $24,515 and $20,334 for
the years ended December 31, 2009 and 2008, respectively.
Share-Based
Compensation
The
Company accounts for stock incentive plans by measurement and recognition of
compensation expense for all share-based awards on estimated fair values, net of
estimated and actual forfeitures. Share-based compensation expense
recognized for the years ended December 31, 2009 and 2008 includes compensation
expense for restricted stock awards, stock options, common stock and
warrants.
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 will 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.
18
Subsequent
Events
It is the
policy of the Company to evaluate subsequent events though the date the
consolidated financial statements are filed with the Securities and Exchange
Commission.
Fair
Value of Financial Instruments
The
carrying amounts reported in the consolidated balance sheet for cash, accounts
receivable, accounts payable and accrued expenses approximate their fair values
based on the short-term maturity of these instruments. The carrying amount of
the Company’s note obligations approximate fair value, as the terms of these
notes are consistent with terms available in the market for instruments with
similar risk.
Recently
Issued Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued the
Accounting Standards Codification (“ASC”) Subtopic 105, “Generally Accepted
Accounting Principles,” which establishes the ASC as the single source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with Generally Accepted Accounting Principles (“GAAP”). Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The subsequent issuances of new standards will be in the form
of Accounting Standards Updates that will be included in the codification. This
guidance is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company updated its historical
GAAP references to comply with the codification effective at the beginning of
its fiscal quarter ending October 31, 2009. The adoption of this guidance
did not have a material effect on the Company’s consolidated financial position,
results of operations or cash flows, since the codification is not intended to
change GAAP.
In
May 2009, the FASB issued authoritative guidance included in ASC Subtopic
855 “Subsequent Events,” which establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued. Specifically,
this guidance provides (i) the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This guidance
is effective for interim or annual financial periods ending after June 15,
2009, and is to be applied prospectively. The Company adopted this guidance as
of July 31, 2009. The adoption of this guidance did not have a
material effect on the Company’s consolidated financial position, results of
operations or cash flows.
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements, or ASU 2009-13. ASU 2009-13, which amends existing revenue
recognition accounting pronouncements that are currently within the scope of
ASC, Subtopic 605-25 (previously included within EITF 00-21, Revenue
Arrangements with Multiple Deliverables, or EITF 00-21). The consensus to
EITF Issue No. 08-01, Revenue Arrangements with Multiple Deliverables, or
EITF 08-01, provides accounting principles and application guidance on
whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated. This guidance eliminates the requirement to
establish the fair value of undelivered products and services and instead
provides for separate revenue recognition based upon management’s estimate of
the selling price for an undelivered item when there is no other means to
determine the fair value of that undelivered item. EITF 00-21 previously
required that the fair value of the undelivered item be the price of the item
either sold in a separate transaction between unrelated third parties or the
price charged for each item when the item is sold separately by the vendor. This
was difficult to determine when the product was not individually sold because of
its unique features. Under EITF 00-21, if the fair value of all of the
elements in the arrangement was not determinable, then revenue was deferred
until all of the items were delivered or fair value was determined. This new
approach is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15,
2010. The Company does not expect the implementation of this standard
to have a material impact on its financial position and results of
operations.
19
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Leasehold
improvements
|
$ | 447,195 | $ | 447,195 | ||||
Computer
equipment and software
|
58,418 | 110,967 | ||||||
Vehicles
|
105,273 | 82,032 | ||||||
Furniture
|
61,489 | 92,479 | ||||||
672,375 | 732,673 | |||||||
Accumulated
depreciation and amortization
|
(239,543 | ) | (191,219 | ) | ||||
$ | 432,832 | $ | 541,454 |
Depreciation
and amortization of property and equipment for the years ended December 31,
2009 and 2008 was $98,322 and $119,091, respectively.
NOTE
4 – LINE OF CREDIT AND LETTER OF CREDIT
On July
27, 2009, the Company entered into a $500,000 Standby Letter of Credit and a
$250,000 Line of Credit with a bank. Borrowings under the Standby Letter
of Credit are repayable plus accrued interest at a rate equal to the greater of
(i) the fluctuating annual rate of interest equal to the prime rate plus 1.00
percentage point, adjusted daily, or (ii) 6.00 per annum. Borrowings under
the Line of Credit are repayable over one year plus accrued interest calculated
at prime plus 5% per annum and cannot exceed the lesser of $250,000 or 75% of
eligible receivables, as defined in the agreement. The Standby Letter of
Credit and Line of Credit are collateralized by all assets of the Company and
are personally guaranteed by officers of the Company. The Standby Letter
of Credit expires in July 2010 and the Line of Credit matures in August 2010.
NOTE
5 – NOTES PAYABLE – STOCKHOLDERS
On
October 1, 2009, three directors of the Company entered into a stock
purchase agreement on behalf of the Company, to repurchase 18,910,000 shares of
the Company’s common stock and cancel 10,000,000 common stock purchase warrants
exercisable, see Note 9. On November 9, 2009, three directors of the
Company, in the respective principal amounts of $250,000, $250,000 and $200,000
(each, a “Promissory Note, and together, the “Promissory Notes”) financed the
Stock Purchase Agreement for $700,000. Each Promissory Note is
convertible into shares of Common Stock, at the option of each holder, at a
conversion price of $.07 per share, and bears 12% interest per annum. The
Company has agreed to pay the unpaid principal balance of the Promissory Notes
and all accrued and unpaid interest on the date that is the earlier of (i) two
(2) years from the issue date of the notes, or (ii) ten (10) business days from
the date of closing by the Company of any equity financing generating gross
proceeds in the aggregate amount of not less than Five Million Dollars
($5,000,000) (the “Maturity Date”).
The
occurrence of any of the following events of default (“Event of Default”) will,
at the option of the holder of a Promissory Note, make all sums of principal and
interest then remaining unpaid and all other amounts payable immediately due and
payable, upon written demand from the holder, which Event of Default has not
been cured within sixty (60) calendar days of receipt by the Company of written
demand: (i) the Company fails to pay the entire principal and any accrued and
unpaid interest due on the Maturity Date; (ii) filing by the Company of a
voluntary petition under the United States Bankruptcy Code, or under any other
insolvency act or law, state or federal, now or hereafter existing; or any
action indicating the Company’s consent to, approval of, or acquiescence in, any
such petition or proceeding; or the Company’s consent to the appointment of a
receiver or trustee for all or a substantial part of its respective properties;
or the making of an assignment to the benefit of the creditors on behalf of the
Company; and (iii) filing of an involuntary petition against the Company under
the United States Bankruptcy Code, or under any other insolvency act or law,
state or federal, now or hereafter existing; or the involuntary appointment of a
receiver or trustee for all or a substantial part of the Company’s property; or
the issuance of a warrant of attachment, execution or similar process against
any substantial part of such properties, which remains undismissed, unbonded or
undischarged ninety (90) days’ after issuance.
20
The
convertible notes contained a “beneficial conversion” feature that required
separate recognition, at issuance, of a portion of the proceeds equal to the
intrinsic value of the feature as additional paid-in-capital. This
“discount” is being amortized using the effective interest method through a
charge to interest expense over the term of the notes. As of December
31, 2009, the notes were convertible into 10,000,000 shares of common
stock.
NOTE
6 – LEASES
Capital
Leases
The
Company financed certain equipment and software under two separate
non-cancelable equipment and software loan and security
agreements. One agreement matures in August 2010 and one
agreement matures in July 2012. The agreements require various
monthly payments and are secured by the assets under lease. As of
December 31, 2009 and 2008, capital lease assets of $56,572 and $87,562,
respectively, net of accumulated amortization of $16,930 and $12,257,
respectively are included in fixed assets on the consolidated balance
sheets. In February 2010, the Company negotiated with the lessor to
payoff the software lease for $10,000. The software lease was written
down as of December 31, 2009 on the consolidated balance sheet.
Future
minimum lease payments under these lease agreements at December 31, 2009
are as follows:
2010
|
$ | 24,799 | ||
2011
|
14,712 | |||
2012
|
7,726 | |||
Total
minimum lease payments
|
$ | 47,237 | ||
Less:
amounts representing interest
|
(4,810 | ) | ||
Present
value of net minimum lease payments
|
$ | 42,427 |
Operating
Leases
The
Company rents office space under two separate non-cancelable operating leases
expiring March 2011 and January 2015, respectively.
Future
minimum lease payments under these lease agreements, exclusive of the Company’s
share of operating costs at December 31, 2009 are as follows:
2010
|
$ | 229,794 | ||
2011
|
205,710 | |||
2012
|
201,522 | |||
2013
|
207,566 | |||
2014
|
212,736 | |||
2015
|
17,728 | |||
Total
|
$ | 1,075,056 |
In
addition, the lessor provided the Company with a $221,400 leasehold improvement
incentive that was recorded as a component of property and equipment and is
included in deferred rent and being amortized over the lease term. The lease
agreement provides for the Company to reimburse the lessor for the cost of the
improvements on a pro rata basis over the term of the lease in the event of the
Company's default on or termination of the lease agreement prior to the
expiration of term of the lease in 2015.
21
The
Company records rent expense over the term of the lease on a straight-line
basis, less amounts received under sub-lease arrangements. Rent expense amounted
to $184,286 and $236,258 for the years ended December 31, 2009 and 2008,
respectively.
The
Company leased approximately 2,500 square feet of office space from Peppermill
Properties, LLC, a Maryland limited liability company (“Peppermill”). Peppermill
is owned and managed by Chandra (C.B.) Brechin and Scott Rutherford, both
officers, directors and principal stockholders of the Company. On
January 1, 2004, the Company entered into a 5-year lease with Peppermill.
For the year ended December 31, 2008, lease payments amounted to $27,600.
The lease ended December 31, 2008 and was not renewed.
Beginning
in November 2008, the Company entered into a sub-lease arrangement with certain
former employees of the Company, expiring March 2011. The
sub-lease arrangement requires various monthly payments ranging from $3,091 to
$3,353, and is recorded in rent expense, net of sub-lease
expense. For the years ended December 31, 2009 and 2008, lease
payment of $39,838 and $10,060, respectively, are included in the future minimum
lease payment schedule.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Brekford
International Corp. v. Woot, Inc.
On or
about January 16, 2009, the Company filed suit against Woot, Inc., a Texas
corporation (“Woot”) in the United States District Court of the Southern
District of Florida, Miami Division, Case
No. 09-20143-Civ-Seitz/O’Sullivan. The complaint alleged that on or about
July 29, 2008, the Company agreed to purchase from Woot, and Woot agreed to
sell to the Company, ten thousand (10,000) Lexmark printers and digital camera
bundles (the “Goods”) for the purchase price of $370,000 (the “Contract Price”).
The Company paid Woot the Contract Price and instructed Woot to ship the Goods
to a third party. The complaint further alleges Woot breached the contract by
failing to deliver the Goods to the third party as directed. The Company
demanded Woot return the full Contract Price to the Company, but Woot has failed
and refused to do so. As a result of Woot’s alleged breaches, the Company sought
damages in the amount of $320,000, plus pre-judgment interest and costs. On
March 9, 2009, Woot filed a motion to dismiss for lack of personal
jurisdiction and an alternative motion to transfer venue. On April 14,
2009, an order was entered granting the defendant’s request for a change of
venue and transferring the case to the United States District Court of the
Eastern District of Texas. On May 5, 2009, Woot filed an answer denying
liability to the Company, and on May 11, 2009, Woot filed third party
complaints against the parties Chiragnee, Inc. and Zenith Distributors,
Inc. On January 21, 2010, the Company entered into a compromise
settlement agreement and mutual release whereby the Company agreed to accept
$245,000 in full settlement of its claims. The settlement
consideration is payable to the Company pursuant to the terms of the settlement
agreement on or about the following dates: $45,000 on or about January 30, 2010
by the defendant Woot; $50,000 on or about January 30, 2010 and an additional
$50,000 on February 15, 2010 by the defendants Zenith and Chiragnee; an
additional $50,000 on May 15, 2010 and a final payment of $50,000 on August 15,
2010 by defendant Zenith. As of December 31, 2009 the amount was
previously classified as a long-term asset. As of December 21, 2008,
as a result of the settlement, the value of the long-term asset was written down
to $245,000 and reclassed to prepaid current assets on the accompanying
consolidated balance sheet.
Richard
A. Sajac v. Brekford International Corp.
On or
about June 19, 2009, Richard A. Sajac, a former employee and executive officer
of the Company, filed suit against the Company in Anne Arundel County Circuit
Court of Maryland, Case No. 02-C-09-141795. The complaint alleged that the
Company breached its obligations under an employment agreement and stock option
agreement. The plaintiff sought treble damages in the amount of $382,500, plus
1,062,500 stock options and reasonable attorney’s fees, costs and unreimbursed
expenses. On July 17, 2009, the Company filed a notice removing the case from
state court to federal court in the United States District Court for the
District Of Maryland (Northern Division). The new case number was
1:09-cv-01888(CCB). On July 24, 2009, the Company filed an answer in federal
court denying the allegations contained in the complaint. On December 29, 2009,
the Company reached an agreement in principle with Mr. Sajac under which the
Company agreed to settle all claims arising out of the complaint filed by Mr.
Sajac. The terms of a definitive settlement agreement provided that as
consideration for the settlement of the lawsuit and release from Mr. Sajac the
Company would pay Mr. Sajac an aggregate of $11,000 in cash, payable on or
before January 28, 2010 and issue to Mr. Sajac 800,000 shares of the Company’s
common stock. The definitive settlement agreement was executed and entered with
the court on January 26, 2010. The Company has issued all shares of
common stock and paid all cash amounts due under the settlement
agreement. The shares were valued at the closing price on the date of
grant, resulting in $136,000 of compensation expense in the accompanying income
statement.
22
NOTE
8 – NET INCOME (LOSS) PER SHARE
Basic net
income (loss) per share is computed by dividing net income (loss) available to
common stockholders by the weighted average number of shares of Common Stock
outstanding during the period. Diluted net income (loss) per share is computed
by adjusting the denominator of the basic income (loss) per share computation
for the effect of all dilutive potential common shares outstanding during the
period.
|
Year
ended December 31,
|
|||||||
|
2009
|
2008
|
||||||
Numerator:
|
|
|||||||
Net
income (loss) - basic
|
|
$
|
577,757
|
$
|
(1,480,549)
|
|
||
Convertible
debt interest
|
21,370
|
—
|
||||||
Net
income (loss) - diluted
|
$
|
599,127
|
$
|
(1,480,549)
|
||||
|
||||||||
Denominator:
|
|
|||||||
Weighted
average shares outstanding—basic
|
|
53,588,970
|
|
63,566,827
|
|
|||
Assumed
conversion of debt
|
|
1,424,658
|
|
—
|
|
|||
Weighted
average shares outstanding—diluted
|
|
55,013,628
|
|
63,566,827
|
|
|||
|
||||||||
Basic
earnings (loss) per common share
|
|
$
|
0.01
|
$
|
(0.02
|
)
|
||
Diluted
earnings (loss) per common share
|
|
$
|
0.01
|
$
|
(0.02
|
)
|
||
Antidilutive
warrants
|
4,595,000
|
16,595,000
|
NOTE
9 - STOCKHOLDERS’ EQUITY
Securities
Purchase Agreement and Warrants
On
October 1, 2009, three directors of the Company entered into a stock
purchase agreement on behalf of the Company, to repurchase 18,910,000 shares of
the Company’s common stock, par value $.0001 per share, and cancel 10,000,000
common stock purchase warrants exercisable at $.39 per share. The aggregate
purchase price for the securities was $700,000. The effectiveness of the Stock
Purchase Agreement was required to be approved by the courts. The
court approval was received on November 4, 2009; consequently, the
repurchased shares of Common Stock and Warrants have been returned to the
Company’s treasury and cancelled. The Stock Purchase Agreement was
financed by three notes payable to stockholders, see Note 5.
Settlement
of Legal Proceedings
On or
about June 19, 2009, Richard A. Sajac, a former employee and former officer
of the Company, filed suit against the Company in Anne Arundel County Circuit
Court of Maryland, Case No. 02-C-09-141795. The complaint alleged that the
Company breached its obligations under an employment agreement and stock option
agreement. The plaintiff seeks treble damages in the amount of $382,500, plus
1,062,500 stock options and reasonable attorney’s fees, costs and unreimbursed
expenses. On July 17, 2009, the Company filed a notice removing the case
from state court to federal court in the United States District Court for the
District Of Maryland (Northern Division). On July 24, 2009, the
Company filed an answer in federal court denying the allegations contained in
the complaint. On December 29, 2009 the parties agreed in a
Settlement Agreement to issue Sajac 800,000 shares of the Company’s common
stock, par value $.0001 per share. The shares were valued at the
closing price on the date of grant, resulting in $136,000 of compensation
expense in the accompanying income statement.
NOTE
10 – SHARE-BASED COMPENSATION
The
Company has issued restricted stock, warrants and granted non-qualified stock
options to certain employees and non-employees at the discretion of the board of
directors. On April 25, 2008, the Company’s stockholders approved the 2008
Stock Incentive Plan (the “Plan”). All stock options granted to employees prior
to the approval of the Plan have exercise prices that are less than or equal to
the fair value of the underlying stock at the date of grant and have terms of
ten years. The vesting period of all options granted to date is 2 years and
is dependent upon continued employment with the Company. To date, there have
been no stock option grants under the Plan. The Company reserves
common stock for future issuance for restricted stock awards, stock options, and
warrants.
23
Restricted
Stock Grants
On
April 2, 2008, the board of directors authorized the Company to accelerate
vesting of an aggregate of 750,000 shares of restricted stock granted in 2006 to
one of its key executives and one key employee in consideration of services
rendered. The fair value of the shares amounted to $150,000, or $0.20 per share
based upon the fair value of its Common Stock at January 19, 2006. The
Company withheld 262,030 shares with an aggregate fair value of $64,590 to pay
withholding taxes. The Company had recorded $84,375 in prior periods for these
750,000 shares and therefore recorded an additional $65,625 in share-based
compensation expense during 2008.
Effective
October 31, 2008, the Company’s board of directors canceled 3,129,904
shares of restricted Common Stock granted to a key executive granted in 2006 in
connection with his resignation. As a result of the cancellation of these
shares, the Company recorded a credit of $378,493 to share-based compensation
expense during 2008.
During
the fourth quarter of 2008, 750,000 shares of restricted Common Stock granted to
three employees in January 2006 were forfeited by the employees in
connection with their resignation from the Company. As a result, the Company
recorded a credit of $75,000 to share-based compensation expense during
2008.
As of
December 31, 2009 and 2008, 4,520,096 shares of restricted stock grants were
outstanding.
Common
Stock Purchase Warrants
For the
year ended December 31, 2008, total share-based compensation income for
common stock purchase warrants amounted to $1,648, and none for the year ended
December 31, 2009. As of December 31, 2009, there are no unvested common
stock purchase warrants. The Company did not capitalize the cost associated with
share-based compensation.
On May
14, 2008, the Company issued (i) 175,000 Common Stock purchase warrants
exercisable at $0.25 per share, (ii) 100,000 Common Stock purchase warrants
exercisable at $0.3125 per share, and (iii) 100,000 Common Stock purchase
warrants exercisable at $0.375 per share, for an aggregate of 375,000 Common
Stock purchase warrants. The fair value of these warrants amounted to
$34,736. The Company determined the fair value of these warrants using the
Black-Scholes Option Pricing Model. Assumptions relating to the estimated fair
value of these warrants are as follows: fair value of Common Stock of $0.15;
risk–free interest rate of 3.22%; expected dividend yield zero percent;
expected warrant life of 5 years; and current volatility of 103%.
A summary
of warrant activity is as follows:
Shares
Underlying
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Fair Value
|
Weighted
Average
Remaining
Contractual
Life
|
|||||||||||||
Outstanding
at January 1, 2008
|
17,220,000 | $ | 0.43 | 3.88 | ||||||||||||
Granted
|
375,000 | $ | 0.30 | $ | 0.09 | 4.37 | ||||||||||
Forfeited
or expired
|
(1,000,000 | ) | $ | 0.25 | $ | 0.75 | — | |||||||||
Exercised
|
— | — | — | |||||||||||||
Outstanding
at December 31, 2008
|
16,595,000 | $ | 0.44 | 2.76 | ||||||||||||
Granted
|
— | — | — | |||||||||||||
Forfeited
or expired
|
(12,000,000 | ) | $ | 0.49 | $ | 0.04 | — | |||||||||
Exercised
|
— | — | — | |||||||||||||
Outstanding
at December 31, 2009
|
4,595,000 | $ | 0.31 | 0.47 | ||||||||||||
Exercisable
at December 31, 2009
|
4,595,000 | $ | 0.31 | 0.47 |
24
Stock
Options
For the
year ended December 31, 2008, total share-based compensation expense for
options amounted to $100,000, and none for the year ended December 31, 2009. As
of December 31, 2009, there are no outstanding stock options. The Company
did not capitalize the cost associated with share-based
compensation.
A summary
of option activity is as follows:
Shares
Underlying
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Fair Value
|
Weighted
Average
Remaining
Contractual
Life
|
|||||||||||||
Outstanding
at January 1, 2008
|
625,000 | $ | 0.01 | 8.54 | ||||||||||||
Granted
|
— | — | — | |||||||||||||
Forfeited
or expired
|
— | — | — | |||||||||||||
Exercised
|
(62,500 | ) | $ | 0.01 | $ | 0.20 | — | |||||||||
Outstanding
at December 31, 2008
|
562,500 | $ | 0.01 | 7.57 | ||||||||||||
Granted
|
— | — | — | |||||||||||||
Forfeited
or expired
|
(562,500 | ) | $ | 0.01 | $ | 0.30 | — | |||||||||
Exercised
|
— | — | — | |||||||||||||
Outstanding
at December 31, 2009
|
— | — | — | |||||||||||||
Exercisable
at December 31, 2009
|
— | — | — |
During
2008, an option holder exercised 62,500 options at an aggregate exercise price
of $625. The option holder elected to pay the associated withholding taxes by
surrendering 21,705 shares of stock valued at $3,039, resulting in a net
issuance of 40,795 shares of Common Stock.
At
December 31, 2008, the aggregate intrinsic value of options outstanding and
exercisable, based on the December 31, 2008 closing price of the Company’s
common stock ($0.04 per share) each amounted to $16,875.
Aggregate
credit to share-based compensation is $136,000 in connection with employee
terminations and legal settlements during the year ended December 31,
2009.
Aggregate
credit to share-based compensation, including $100,000 for the fair value of
employee stock options, $(1,648) for the fair value of warrants issued to
non-employees, and $(506,660) for the fair value of vested restricted stock to
employees and non-employees for awards recognized or forfeited in connection
with employee terminations and legal settlements during the year ended
December 31, 2008 amounted to $408,308.
2008
Stock Incentive Plan
On
February 19, 2008, the Board of Directors authorized the adoption of the
2008 Stock Incentive Plan (the “Incentive Plan”), subsequently approved by the
stockholders on April 25, 2008, which is designed to provide an additional
incentive to executives, employees, directors and key consultants, aligning the
long term interests of participants in the Incentive Plan with those of the
Company and the Company’s stockholders. The Incentive Plan provides that up to
8 million shares of the Company’s common stock may be issued under the
Plan. The 20,000 shares of common stock issued to directors of the Company
during the year ended December 31, 2008 were issued pursuant to the
Incentive Plan. There are 7,980,000 shares available for future issuances under
this Plan. No other securities have been issued under the Incentive
Plan.
2008
Employee Stock Purchase Plan
On
February 19, 2008, the Board of Directors authorized the adoption of the
2008 Employee Stock Purchase Plan (the “Purchase Plan”), subsequently approved
by the stockholders on April 25, 2008, which is designed to encourage and
enable eligible employees to acquire a proprietary interest in the Company’s
common stock. The Purchase Plan provides that up to 2 million shares of the
Company’s common stock may be issued under the plan. No shares have been issued
under the plan.
25
NOTE
11 – MAJOR CUSTOMERS AND VENDORS
Major
Customers
During
the year ended December 31, 2009, no sales to one individual customer were
greater than 10% of net sales. Accounts receivable due from two other customers
amounted to 15% and 13%, respectively, of total accounts receivable at
December 31, 2009. December 31, 2009, sales to government and
commercial customers represented 94% and 6% of net sales for the year,
respectively.
During
the year ended December 31, 2008, sales to one customer which is an agency
of a municipal government represented 13% of net sales and 49% of total accounts
receivable at December 31, 2008. Accounts receivable due from one other
customer amounted to 17% of total accounts receivable at December 31,
2008. During the year ended December 31, 2008, sales to
government and commercial customers represented 86% and 14% of net sales for the
year, respectively.
Major
Vendors
The
Company purchased substantially all laptop computers that it resold during the
periods presented from a single distributor. Revenues from laptop computers,
which amounted to $9,444,914 and $5,518,552, comprised approximately 65% and 41%
of total revenues for the years ended December 31, 2009 and 2008,
respectively.
While the
Company believes that alternative sources of these products are available, it
has yet to identify sources other than these two vendors that have the ability
to deliver these products to the Company within the time frames and
specifications that it currently demands. The loss of either of these vendors
could result in a temporary disruption of the Company’s operations.
NOTE
12 – INCOME TAXES
As of
December 31, 2009, the Company has approximately $2.3 million of federal
and state net operating loss carryforwards available to offset future taxable
income, if any, through 2026. If, however, there is an ownership change in
the Company, Section 382 of the Internal Revenue Code may restrict the
Company’s ability to utilize these loss carryforwards to a percentage of
the market value of the Company at the time of the ownership change. Therefore,
these operating loss carryforwards could become limited in future years if
ownership changes were to occur as defined in the Internal Revenue Code and
similar state income tax provisions.
The
Company’s deferred tax assets and liabilities are as follows for each of the
periods presented:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
operating loss carry forwards
|
$ | 889,000 | $ | 1,383,000 | ||||
Share-based
compensation
|
— | 72,000 | ||||||
Other
|
9,000 | 6,000 | ||||||
898,000 | 1,461,000 | |||||||
Valuation
allowance
|
(898,000 | ) | (1,461,000 | ) | ||||
Net
deferred tax asset
|
$ | — | $ | — |
The
Company’s recorded income tax, net of the change in the valuation allowance for
each of the periods presented, is as follows:
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
|
||||||||
Federal
|
$ | 23,000 | $ | — | ||||
State
|
57,000 | — | ||||||
$ | 80,000 | $ | — | |||||
Deferred
|
||||||||
Federal
|
$ | 517,000 | $ | (696,000 | ) | |||
State
|
46,000 | (94,000 | ) | |||||
$ | 563,000 | $ | (790,000 | ) | ||||
Change
in valuation allowance
|
(563,000 | ) | 790,000 | |||||
$ | 80,000 | $ | — |
26
The tax
provision for 2009 was due to the alternative minimum tax liability at the
federal level and unusable net operating loss carryforwards at the state
level.
Pursuant
to SFAS No. 109, management has evaluated the recoverability of the
deferred income tax assets and the level of the valuation allowance required
with respect to such deferred income tax assets. After considering all available
facts, the Company fully reserved for its deferred tax assets because it is more
likely than not that their benefit will not be realized in future periods. The
Company will continue to evaluate its deferred tax assets to determine whether
any changes in circumstances could affect the realization of their future
benefit. If it is determined in future periods that portions of the Company’s
deferred income tax assets satisfies the realization standard of SFAS
No. 109, the valuation allowance will be reduced accordingly.
A
reconciliation of the expected Federal statutory rate of 34% to the Company’s
actual rate as reported for each of the periods presented is as
follows:
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Expected
statutory rate
|
34.0 | % | (34.0 | )% | ||||
State
income tax rate, net of Federal benefit
|
8.2 | % | (4.5 | )% | ||||
Application
of net operating loss carryforward
|
(32.0 | )% | ||||||
Permanent
differences
|
||||||||
Restricted
stock awards not deductible for income tax purposes
|
— | (9.1 | )% | |||||
Other
|
2.0 | % | (5.8 | )% | ||||
12.2 | % | (53.4 | )% | |||||
Valuation
allowance
|
— | 53.4 | % | |||||
12.2 | % | — |
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
December 7, 2009, the audit committee and the board of directors of the Company
approved the dismissal of the Company’s independent registered public accounting
firm, Marcum LLP (“Marcum”). On that date, the audit committee and
the board approved and ratified the engagement of Stegman & Company
(“Stegman”) to serve as the Company’s independent registered public accountants
for the fiscal year ended December 31, 2009. During each of the
fiscal years ended December 31, 2007 and December 31, 2008 and the subsequent
period from January 1, 2009 through the Company’s notice to Marcum of its
dismissal on December 9, 2009 (the “Dismissal Notice”), there were no
disagreements between the Company and Marcum on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedure, which disagreement, if not resolved to the satisfaction of Marcum,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.
During
each of the fiscal years ended December 31, 2007 and December 31, 2008 and the
subsequent period from January 1, 2009 through the Dismissal Notice, the
following occurrences were “reportable events" as defined in Item 304(a)(1)(v)
of Regulation S-K. As of December 31, 2007, and during the three months ended
March 31, 2008, Marcum had advised the Company that it identified certain
deficiencies in the Company’s internal controls over financial reporting. The
material weaknesses that were identified related to the fact that the Company’s
overall financial reporting structure and staffing levels were not sufficient to
support the complexity of its financial reporting requirements; that the Company
lacked the expertise it needed to apply complex accounting principles relating
to the Company’s equity transactions at that time; that the Company needed to
institute controls to ensure the timely filing of employee income tax
withholding and corporate tax returns; and that the Company had a deficiency in
its revenue cut-off procedures for which it identified several sales
transactions that had been erroneously recorded in the fourth quarter of 2007
which were adjusted for prior to filing the Company’s annual report Form 10-K
for that fiscal reporting period. Marcum’s reports on the Company's financial
statements for 2007 and 2008 did not contain an adverse opinion or a disclaimer
of opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles.
27
ITEM
9A(T). CONTROLS AND PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, management carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated can provide only reasonable, but not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based upon that evaluation, management concluded that these disclosure controls and procedures were ineffective as of the end of the period covered in this report.
(b) Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing using criteria described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its assessment, management has concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2009.
The
matter involving internal controls and procedures that our management considered
to be a material weakness under the standards of the Public Company Accounting
Oversight Board is:
During
the fourth quarter of 2009, the Company’s chief financial officer became
seriously ill and was unable to perform his duties. Audit adjustments were
detected due to the lack of review by a sufficiently knowledgeable person in a
financial reporting role which produced the potential for misstatement in the
financial statements to occur and not be detected in a timely manner. This
deficiency could cause the financial statements and the underlying financial
records to be misstated. In addition, it creates, the opportunity for possible
irregularities to exist and continue without detection on a timely
basis.
Even
though management is not aware of any instance in which the Company failed to
identify or resolve a disclosure matter or failed to perform a timely and
effective review, the control deficiencies described above could result in a
misstatement of balance sheet and income statement accounts and statements of
cash flow in our interim or annual consolidated financial statements that would
not be prevented or detected. Accordingly, management has determined that these
control deficiencies constitute a material weakness. The material
weakness is anticipated to be remediated in the first quarter of
2010.
The
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.
Management’s
report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.
28
ITEM
9B. OTHER
INFORMATION
On March
13, 2010, Mr. Bruce M. Robinson, a Class II director and the secretary of the
Company provided written notice to the board of directors of his resignation
from the board effective on that date.
PART
III
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required by this item is incorporated by reference to certain
information from the Proxy Statement of the Company to be filed with the
Securities and Exchange Commission in connection with the 2010 Annual Meeting of
Stockholders (the “Proxy Statement”) not later than 120 days after the end of
the fiscal year covered by this Annual Report.
ITEM
11. EXECUTIVE
COMPENSATION
The
information required by this item is incorporated herein by reference to certain
information from the Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this Annual Report.
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
information required in Item 5 of Part II of this Annual Report under the
heading “Equity Compensation Plan Information” is incorporated by
reference. All other information required by this item is
incorporated by reference to certain information from the Proxy Statement of the
Company to be filed with the Securities and Exchange Commission not later than
120 days after the end of the fiscal year covered by this Annual
Report.
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information required by this item is incorporated herein by reference to the
Proxy Statement to be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Annual
Report.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
information required by this item is incorporated herein by reference to the
Proxy Statement which will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year covered by this
Annual Report.
PART
IV
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a)
|
Documents
filed as part of the report.
|
||
(1)
|
Financial
Statements
Incorporated
by reference from the financial statements and accompanying notes to
financial statements set forth in Item 8 of this Annual
Report.
|
Schedules
not listed above have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
Consolidated Financial Statements or notes thereto.
29
(3)
Exhibits
Exhibit
Number
|
Description
|
2.1
|
|
Agreement
and Plan of Share Exchange by and between Pelican Mobile Computers, Inc.
and American Financial Holdings Inc. (formerly known as California Cyber
Design, Inc.) **
|
2.2
|
Bill
of Sale by and between Brekford International Corp. and TSO Armor and
Training, Inc. dated December 8, 2008. +++
|
|
2.3
|
Contract
and Agreement for Sale of Assets by and between Brekford International
Corp. and TSO Armor and Training, Inc. dated December 8,
2008. +++
|
|
3.1.1
|
Certificate
of Incorporation of California Cyber Design, Inc. as filed with the State
of Delaware on May 27, 1998 **
|
|
3.1.2
|
Certificate
of Correction of Certificate of Incorporation of California Cyber Design,
Inc. as filed with the State of Delaware on July 17,
1998 **
|
|
3.1.3
|
Certificate
of Amendment of Certificate of Incorporation of California Cyber Design,
Inc. as filed with the State of Delaware on August 11,
2004 **
|
|
3.1.4
|
Certificate
of Amendment of Certificate of Incorporation of American Financial
Holdings Inc. (formerly known as California Cyber Design, Inc.) as filed
with the State of Delaware on January 6,
2006 **
|
|
3.1.5
|
Certificate
of Amendment of Certificate of Incorporation of American Financial
Holdings Inc. as filed with the State of Delaware on January 6,
2006 **
|
|
3.1.6
|
First
Amended and Restated Certificate of Incorporation of Brekford
International Corp. as filed with the State of Delaware on January 4,
2006 **
|
|
3.1.7
|
Certificate
of Amendment to the First Amended and Restated Certificate of
Incorporation of Tactical Solution Partners, Inc. as filed with State of
Delaware on April 29, 2008. ****
|
|
3.1.8
|
Second
Amended and Restated Certificate of Incorporation of Brekford
International Corp. as filed with the State of Delaware on February 4,
2010+
|
|
3.2
|
Bylaws
of Brekford International Corp. **
|
|
4.1
|
Stock
Purchase Agreement by and between Brekford International Corp. and Paul
Harary and Paris McKenzie TBE (Subscriber) dated January 31,
2007 ***
|
|
4.2
|
Warrant
to Purchase Brekford International Corp. Common Stock in favor of Paul
Harary and Paris McKenzie TBE (Warrant Holder) dated January 31,
2007 **
|
|
4.3
|
Form of
Subscription Agreement to Purchase Units of Brekford International
Corp. **
|
|
4.4
|
Form of
Warrant to Purchase Brekford International Corp. Common Stock by and among
Brekford International Corp. and the Unit purchasers signatory
thereto **
|
|
4.5
|
Form of
Registration Rights Agreement, by and among Brekford International Corp.
and the Unit purchasers signatory thereto **
|
|
4.6
|
Form of
Warrant issued to Sierra Equity Group, Ltd. Inc. with respect to the
Company’s March 2007 private offering closed March 30, 2007 and
its assigns **
|
|
4.7
|
Form of
Warrant issued to Sierra Equity Group, Ltd. Inc. under the Investment
Banking Advisory Agreement dated December 18, 2006 and its
assigns **
|
|
4.8
|
Form of
Non-qualified Option Agreement to Purchase Shares of Common Stock of
Brekford International Corp. **
|
|
4.9
|
Warrant
issued to Trilogy Capital Partners, Inc., dated May 23,
2007 +++
|
|
4.10
|
Form
of Warrant issued to Birch Systems, LLC pursuant to the General Release
and Settlement Agreement between the Company and Birch Systems,
LLC +++
|
|
10.1
|
Employment
Agreement, dated March 1, 2006, between Brekford International Corp.
and Richard A. Sajac **
|
|
10.2
|
Lease
Agreement by and between Pelican Mobile Computers, Inc. and Peppermill
Properties, LLC dated January 1, 2004 **
|
|
10.3
|
Lease
Agreement by and between Brekford International Corp. and Greenbrier Point
Partners, L.P. dated February 13, 2006 **
|
|
10.4
|
Contract
by and between Pelican Mobile Computers, Inc. and the State of Maryland
dated July 15, 2001 **
|
|
10.5
|
Lease
Agreement by and between Brekford International Corp. and FRP Hillside LLC
#3 dated May 16, 2007 **
|
|
10.6
|
Letter
from Panasonic Personal Computer Company confirming Pelican Mobile
Computers, Inc. as the only Maryland based Company authorized to sell the
fully ruggedized line of Panasonic Notebooks to Maryland State and Local
government agencies dated February 8,
2006 ***
|
30
Exhibit
Number
|
Description
|
10.7
|
Sublease
Agreement by and between Brekford International Corp. and TSO Armor and
Training, Inc. dated December 8, 2008. +++
|
|
10.8
|
Standby
Letter of Credit Agreement, dated July 27, 2009, by and between Brekford
International Corp. and American Bank(1)
|
|
10.9
|
Loan
and Security Agreement, dated July 27, 2009, by and between Brekford
International Corp. and American Bank(1)
|
|
10.10
|
Pledge
and Security Agreement, dated July 27, 2009, by Brekford International
Corp., in favor of American Bank(1)
|
|
10.11
|
Promissory
Note, dated July 27, 2009, in the principal amount of $250,000 in favor of
American Bank(1)
|
|
10.12
|
Stock
Purchase Agreement, effective November 4, 2009, by and between the
receiver of stockholder Legisi Marketing, Inc. and certain directors of
Brekford International Corp., on behalf of the
Company(2)
|
|
10.13
|
Form
of Promissory Note, dated November 9, 2009, in favor of certain directors
of Brekford International Corp.(2)
|
|
10.14
|
Teaming
Agreement by and between Brekford International Corp. and LINXX Security,
Inc. dated January 18, 2007 ++
|
|
10.15
|
Teaming
Agreement by and between Brekford International Corp. and Protective
Enterprises, LLC dated August 3, 2006 ++
|
|
10.16
|
Teaming
Agreement by and between Brekford International Corp. and Science
Applications International Corporation dated December 29,
2006 ++
|
|
10.17
|
Teaming
Agreement by and between Brekford International Corp. and Science
Applications International Corporation dated February 5,
2007 ++
|
|
10.18
|
Teaming
Agreement by and between Brekford International Corp. and Marine
Solutions, Inc. dated January 17, 2007 ++
|
|
10.19
|
Standard
Government Teaming Agreement by and between Brekford International Corp.
and Science Applications International Corporation dated August 28,
2007 ++
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 +
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 +
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 +
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 +
|
———————
**
|
Previously
filed as an exhibit to the Company’s Registration Statement on
Form 10-SB (SEC File No. 000-52719) filed on July 6, 2007
and incorporated herein by
reference.
|
***
|
Previously
filed as an exhibit to the Company’s Amendment No. 1 to the
Registration Statement on Form 10-SB (SEC File No. 000-52719)
filed on September 21, 2007 and incorporated herein by
reference.
|
****
|
Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q
filed on May 15, 2008 and incorporated herein by
reference.
|
++
|
Previously
filed as an exhibit to the Company’s Amendment No. 2 to the
Registration Statement on Form 10-SB (SEC File No. 000-52719)
filed on October 18, 2007 and incorporated herein by reference.
Portions of the exhibit have been omitted pursuant to a request for
confidential treatment.
|
+++ Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March
23, 2009 and incorporated herein by reference.
(1) Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on
November 2, 2009 and incorporated herein by reference.
(2) Previously
filed as an exhibit to the Company’s Current Report on Form 8-K filed on
November 10, 2009 and incorporated herein by reference.
+ Filed
herewith.
31
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Brekford
International Corp.
|
|
Date:
March 15, 2010
|
By:
|
/s/
C.B. Brechin
|
Chandra
(C.B.) Brechin
|
||
Chief
Executive Officer, Treasurer and Director
|
||
Date:
March 15, 2010
|
By:
|
/s/
Tin Khin
|
Tin
Khin
|
||
Chief
Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
C.B. Brechin
|
Chief
Executive Officer, Treasurer and Director
|
March 15,
2010
|
||
Chandra
(C.B.) Brechin
|
||||
/s/
Scott
Rutherford
|
President
and Director
|
March 15,
2010
|
||
Scott
Rutherford
|
||||
/s/
Douglas
DeLeaver
|
Director
|
March 15,
2010
|
||
Douglas
DeLeaver
|
||||
/s/
Jessie
Lee, Jr.
|
Director
|
March 15,
2010
|
||
Jessie
Lee, Jr.
|
||||
32
EXHIBIT
INDEX
Exhibit
Number
|
Description
|
2.1
|
Agreement
and Plan of Share Exchange by and between Pelican Mobile Computers, Inc.
and American Financial Holdings Inc. (formerly known as California Cyber
Design, Inc.) **
|
|
2.2
|
Bill
of Sale by and between Brekford International Corp. and TSO Armor and
Training, Inc. dated December 8, 2008. +++
|
|
2.3
|
Contract
and Agreement for Sale of Assets by and between Brekford International
Corp. and TSO Armor and Training, Inc. dated December 8,
2008. +++
|
|
3.1.1
|
Certificate
of Incorporation of California Cyber Design, Inc. as filed with the State
of Delaware on May 27, 1998 **
|
|
3.1.2
|
Certificate
of Correction of Certificate of Incorporation of California Cyber Design,
Inc. as filed with the State of Delaware on July 17,
1998 **
|
|
3.1.3
|
Certificate
of Amendment of Certificate of Incorporation of California Cyber Design,
Inc. as filed with the State of Delaware on August 11,
2004 **
|
|
3.1.4
|
Certificate
of Amendment of Certificate of Incorporation of American Financial
Holdings Inc. (formerly known as California Cyber Design, Inc.) as filed
with the State of Delaware on January 6,
2006 **
|
|
3.1.5
|
Certificate
of Amendment of Certificate of Incorporation of American Financial
Holdings Inc. as filed with the State of Delaware on January 6,
2006 **
|
|
3.1.6
|
First
Amended and Restated Certificate of Incorporation of Brekford
International Corp. as filed with the State of Delaware on January 4,
2006 **
|
|
3.1.7
|
Certificate
of Amendment to the First Amended and Restated Certificate of
Incorporation of Tactical Solution Partners, Inc. as filed with State of
Delaware on April 29, 2008. ****
|
|
3.1.8
|
Second
Amended and Restated Certificate of Incorporation of Brekford
International Corp. as filed with the State of Delaware on February 4,
2010+
|
|
3.2
|
Bylaws
of Brekford International Corp. **
|
|
4.1
|
Stock
Purchase Agreement by and between Brekford International Corp. and Paul
Harary and Paris McKenzie TBE (Subscriber) dated January 31,
2007 ***
|
|
4.2
|
Warrant
to Purchase Brekford International Corp. Common Stock in favor of Paul
Harary and Paris McKenzie TBE (Warrant Holder) dated January 31,
2007 **
|
|
4.3
|
Form of
Subscription Agreement to Purchase Units of Brekford International
Corp. **
|
|
4.4
|
Form of
Warrant to Purchase Brekford International Corp. Common Stock by and among
Brekford International Corp. and the Unit purchasers signatory
thereto **
|
|
4.5
|
Form of
Registration Rights Agreement, by and among Brekford International Corp.
and the Unit purchasers signatory thereto **
|
|
4.6
|
Form of
Warrant issued to Sierra Equity Group, Ltd. Inc. with respect to the
Company’s March 2007 private offering closed March 30, 2007 and
its assigns **
|
|
4.7
|
Form of
Warrant issued to Sierra Equity Group, Ltd. Inc. under the Investment
Banking Advisory Agreement dated December 18, 2006 and its
assigns **
|
|
4.8
|
Form of
Non-qualified Option Agreement to Purchase Shares of Common Stock of
Brekford International Corp. **
|
|
4.9
|
Warrant
issued to Trilogy Capital Partners, Inc., dated May 23,
2007 +++
|
|
4.10
|
Form
of Warrant issued to Birch Systems, LLC pursuant to the General Release
and Settlement Agreement between the Company and Birch Systems,
LLC +++
|
|
10.1
|
Employment
Agreement, dated March 1, 2006, between Brekford International Corp.
and Richard A. Sajac **
|
|
10.2
|
Lease
Agreement by and between Pelican Mobile Computers, Inc. and Peppermill
Properties, LLC dated January 1, 2004 **
|
|
10.3
|
Lease
Agreement by and between Brekford International Corp. and Greenbrier Point
Partners, L.P. dated February 13, 2006 **
|
|
10.4
|
Contract
by and between Pelican Mobile Computers, Inc. and the State of Maryland
dated July 15, 2001 **
|
|
10.5
|
Lease
Agreement by and between Brekford International Corp. and FRP Hillside LLC
#3 dated May 16, 2007 **
|
|
10.6
|
Letter
from Panasonic Personal Computer Company confirming Pelican Mobile
Computers, Inc. as the only Maryland based Company authorized to sell the
fully ruggedized line of Panasonic Notebooks to Maryland State and Local
government agencies dated February 8,
2006 ***
|
|
10.7
|
Sublease
Agreement by and between Brekford International Corp. and TSO Armor and
Training, Inc. dated December 8, 2008. +++
|
|
10.8
|
Standby
Letter of Credit Agreement, dated July 27, 2009, by and between Brekford
International Corp. and American Bank(1)
|
|
10.9
|
Loan
and Security Agreement, dated July 27, 2009, by and between Brekford
International Corp. and American Bank(1)
|
|
10.10
|
Pledge
and Security Agreement, dated July 27, 2009, by Brekford International
Corp., in favor of American Bank(1)
|
|
10.11
|
Promissory
Note, dated July 27, 2009, in the principal amount of $250,000 in favor of
American Bank(1)
|
|
10.12
|
Stock
Purchase Agreement, effective November 4, 2009, by and between the
receiver of stockholder Legisi Marketing, Inc. and certain directors of
Brekford International Corp., on behalf of the
Company(2)
|
|
10.13
|
Form
of Promissory Note, dated November 9, 2009, in favor of certain directors
of Brekford International Corp.(2)
|
|
10.14
|
Teaming
Agreement by and between Brekford International Corp. and LINXX Security,
Inc. dated January 18, 2007 ++
|
|
10.15
|
Teaming
Agreement by and between Brekford International Corp. and Protective
Enterprises, LLC dated August 3, 2006 ++
|
|
10.16
|
Teaming
Agreement by and between Brekford International Corp. and Science
Applications International Corporation dated December 29,
2006 ++
|
|
10.17
|
Teaming
Agreement by and between Brekford International Corp. and Science
Applications International Corporation dated February 5,
2007 ++
|
|
10.18
|
Teaming
Agreement by and between Brekford International Corp. and Marine
Solutions, Inc. dated January 17, 2007 ++
|
|
10.19
|
Standard
Government Teaming Agreement by and between Brekford International Corp.
and Science Applications International Corporation dated August 28,
2007 ++
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 +
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 +
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 +
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 +
|
———————
**
|
Previously
filed as an exhibit to the Company’s Registration Statement on
Form 10-SB (SEC File No. 000-52719) filed on July 6, 2007
and incorporated herein by
reference.
|
***
|
Previously
filed as an exhibit to the Company’s Amendment No. 1 to the
Registration Statement on Form 10-SB (SEC File No. 000-52719)
filed on September 21, 2007 and incorporated herein by
reference.
|
****
|
Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q
filed on May 15, 2008 and incorporated herein by
reference.
|
++
|
Previously
filed as an exhibit to the Company’s Amendment No. 2 to the
Registration Statement on Form 10-SB (SEC File No. 000-52719)
filed on October 18, 2007 and incorporated herein by reference.
Portions of the exhibit have been omitted pursuant to a request for
confidential treatment.
|
+++ Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March
23, 2009 and incorporated herein by reference.
(1) Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on
November 2, 2009 and incorporated herein by reference.
(2) Previously
filed as an exhibit to the Company’s Current Report on Form 8-K filed on
November 10, 2009 and incorporated herein by reference.
+ Filed
herewith.
33