Delaware
|
8742
|
81-5266334
|
(State or other jurisdiction of
incorporation or organization)
|
(Primary Standard Industrial
Classification Code Number)
|
(I.R.S. Employer Identification No.)
|
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
|
Non-accelerated
filer ☐
|
(Do not
check if a smaller reporting company)
|
Smaller
reporting company ☒
Emerging
growth company ☐
|
|
|
Page
|
|
|
Number
|
|
|
|
PART I.
|
Financial Information
|
3
|
Item 1.
|
Financial
Statements (Unaudited)
|
3
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
26
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
39
|
Item 4.
|
Controls
and Procedures
|
39
|
|
|
|
PART II.
|
Other Information
|
|
Item 1.
|
Legal
Proceedings
|
40
|
Item 1A.
|
Risk
Factors
|
40
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
40
|
Item 3.
|
Defaults
Upon Senior Securities
|
40
|
Item 4.
|
Mine
Safety Disclosures
|
40
|
Item 5.
|
Other
Information
|
40
|
Item 6.
|
Exhibits
|
40
|
|
|
|
Signatures
|
41
|
|
September 30, 2017
|
December 31, 2016
|
ASSETS
|
|
|
CURRENT ASSETS
|
|
|
Cash
and cash equivalents
|
$3,762,265
|
$2,788,587
|
Accounts
receivable, net of $24,000 and $0 of allowance for doubtful
accounts
|
3,300,742
|
1,997,831
|
Inventory
|
169,232
|
-
|
Notes
receivable - current portion
|
300,000
|
-
|
Other
current assets
|
253,607
|
81,011
|
Total
current assets
|
7,785,846
|
4,867,429
|
PROPERTY AND EQUIPMENT:
|
|
|
Furniture
and fixtures
|
160,749
|
137,784
|
Office
equipment
|
976,835
|
463,937
|
Camera
systems
|
969,003
|
-
|
Vehicles
|
151,224
|
-
|
Leasehold
improvements
|
59,051
|
33,259
|
|
2,316,862
|
634,980
|
Less:
accumulated depreciation
|
(1,951,826)
|
(515,911)
|
Net
property and equipment
|
365,036
|
119,069
|
Goodwill
|
1,960,345
|
-
|
Intangibles,
net
|
2,168,941
|
-
|
OTHER ASSETS
|
|
|
Notes
receivable - net of current portion
|
1,649,000
|
-
|
Deferred
offering and financing costs
|
-
|
236,963
|
Deferred
tax asset
|
1,184,359
|
219,982
|
Investment
at cost
|
262,140
|
-
|
Deposits
|
39,387
|
39,282
|
Total
other assets
|
3,134,886
|
496,227
|
Total
Assets
|
$15,415,054
|
$5,482,725
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
CURRENT LIABILITIES
|
|
|
Accounts
payable
|
$1,385,852
|
$577,268
|
Accrued
expenses and other current liabilities
|
1,904,493
|
575,203
|
Deferred
revenue
|
72,500
|
-
|
Total
current liabilities
|
3,362,845
|
1,152,471
|
LONG-TERM LIABILITIES
|
|
|
Note
payable
|
1,419,753
|
457,289
|
Deferred
rent
|
54,705
|
56,709
|
Total
long-term liabilities
|
1,474,458
|
513,998
|
Total
liabilities
|
4,837,303
|
1,666,469
|
|
|
|
Series
A Cumulative Convertible Redeemable Preferred stock, $0.0001 par
value, 505,000 and 500,000 shares authorized, 502,327 and 301,570
shares issued and outstanding as of September 30, 2017 and December
31, 2016, respectively
|
3,845,925
|
2,269,602
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
Common
stock, $0.0001 par value, 25,000,000 shares authorized, 13,933,784
and 5,000,000 shares issued and outstanding as of September 30,
2017 and December 31, 2016, respectively
|
1,394
|
500
|
Preferred
stock, $0.0001 par value, 7,500,000 and zero shares authorized,
505,000 and 500,000 shares designated as Series A as of September
30, 2017 and December 31, 2016, respectively
|
-
|
-
|
Additional
paid-in capital
|
9,325,795
|
1,976,549
|
(Accumulated
deficit) retained earnings
|
(2,595,363)
|
(430,395)
|
Other
comprehensive income
|
-
|
-
|
Total Stockholders’ Equity
|
6,731,826
|
1,546,654
|
Total Liabilities and Stockholders’
Equity
|
$15,415,054
|
$5,482,725
|
|
Three Months ended September 30,
|
Nine Months ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
REVENUE
|
$4,421,574
|
$2,405,529
|
$11,131,825
|
$9,582,874
|
Cost
of revenue
|
2,457,806
|
1,334,436
|
6,017,982
|
5,496,588
|
Gross
profit
|
1,963,768
|
1,071,093
|
5,113,843
|
4,086,286
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
Selling,
general, and administrative expenses
|
2,997,566
|
1,151,514
|
8,036,339
|
3,624,005
|
(Loss)
income from operations
|
(1,033,798)
|
(80,421)
|
(2,922,496)
|
462,281
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
Interest
expense
|
(33,720)
|
(15,656)
|
(97,624)
|
(28,693)
|
Other
income
|
51,016
|
-
|
142,283
|
-
|
Total
other income (expense)
|
17,296
|
(15,656)
|
44,659
|
(28,693)
|
(Loss)
income before taxes
|
(1,016,502)
|
(96,077)
|
(2,877,837)
|
433,588
|
Income
tax benefit (expense)
|
225,142
|
40,535
|
964,377
|
(13,380)
|
Net (loss) income
|
$(791,360)
|
$(55,542)
|
$(1,913,460)
|
$420,208
|
|
|
|
|
|
(Loss)
earnings per common share - basic
|
$(0.07)
|
$(0.01)
|
$(0.20)
|
$0.06
|
(Loss)
earnings per common share - diluted
|
$(0.07)
|
$(0.01)
|
$(0.20)
|
$0.06
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
Basic
|
11,756,560
|
9,713,956
|
10,920,866
|
7,016,373
|
Diluted
|
11,756,560
|
9,713,956
|
10,920,866
|
7,123,160
|
|
Shares of Common Stock
|
Common Stock
|
Additional Paid-In Capital
|
Retained Earnings
|
Total Stockholders’ Equity (Accumulated Deficit)
|
Balance
as of December 31, 2016
|
5,000,000
|
$500
|
$1,976,549
|
$(430,395)
|
$1,546,654
|
Net
common stock issued in Firestorm acquisition
|
488,094
|
49
|
976,237
|
-
|
976,286
|
Effect
of stock split and contribution to Novume Solutions, Inc. on August
28, 2017
|
5,158,503
|
516
|
(516)
|
-
|
-
|
Net
common stock issued in Brekford acquisition
|
3,287,187
|
329
|
5,850,864
|
|
5,851,193
|
Stock-based
compensation
|
-
|
-
|
227,470
|
-
|
227,470
|
Issuance
of warrants
|
-
|
-
|
295,191
|
-
|
295,191
|
Preferred
stock dividends
|
-
|
-
|
-
|
(251,508)
|
(251,508)
|
Net
loss
|
-
|
-
|
-
|
(1,913,460)
|
(1,913,460)
|
Balance
as of September 30, 2017
|
13,933,784
|
$1,394
|
$9,325,795
|
$(2,595,363)
|
$6,731,826
|
|
For the Nine Months ended September 30,
|
|
|
2017
|
2016
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
(loss) income
|
$(1,913,460)
|
$420,208
|
Adjustments
to reconcile net (loss) income to net cash used in operating
activities:
|
|
|
Depreciation
and amortization
|
404,143
|
39,498
|
Bad
debt expense
|
24,000
|
-
|
Deferred
taxes
|
(964,377)
|
-
|
Share-based
compensation
|
227,470
|
-
|
Deferred
rent
|
(18,588)
|
-
|
Warrant
expense
|
67,491
|
-
|
Changes
in operating assets and liabilities
|
|
|
Accounts
receivable
|
(870,426)
|
(453,985)
|
Inventory
|
(1,460)
|
-
|
Deposits
|
(105)
|
-
|
Notes
receivable
|
51,000
|
(24,000)
|
Prepaid
expenses and other current assets
|
(50,909)
|
20,932
|
Other
assets
|
-
|
(124,919)
|
Accounts
payable
|
(196,460)
|
542,077
|
Accrued
expenses and other current liabiltities
|
987,522
|
139,724
|
Deferred
revenue
|
50,007
|
-
|
Net
cash used in operating activities
|
(2,204,152)
|
559,535
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
Capital
expenditures
|
(52,985)
|
(35,377)
|
Net
cash used in investing activities
|
(52,985)
|
(35,377)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
Stockholders'
distributions
|
-
|
(125,615)
|
Deferred
stock offering costs
|
75,655
|
(670,091)
|
Proceeds
from notes payable
|
47,341
|
500,000
|
Loan
origination costs
|
-
|
(38,285)
|
Acquisition
of Firestorm - net of cash acquired
|
(417,704)
|
-
|
Acquisition
of Brekford - net of cash acquired
|
1,943,777
|
-
|
Net
proceeds from issuance of preferred stock
|
1,745,347
|
-
|
Payment
of preferred dividends
|
(163,601)
|
-
|
Net
cash provided by financing activities
|
3,230,815
|
(333,991)
|
Net
increase in cash and cash equivalents
|
973,678
|
190,167
|
Cash
and cash equivalents at beginning of year
|
2,788,587
|
567,866
|
Cash
and cash equivalents at end of period
|
$3,762,265
|
$758,033
|
Common
stock issued
|
$5,851,193
|
Total
consideration
|
5,851,193
|
Less
cash received
|
(1,943,778)
|
Less
other assets
|
(3,139,007)
|
Plus
liabilities assumed
|
1,191,937
|
Net
goodwill/intangible recorded
|
$1,960,345
|
Cash
paid
|
$500,000
|
Notes
payable issued
|
907,407
|
Common
stock issued
|
976,286
|
Warrants
issued, at $2.58
|
125,411
|
Warrants
issued, at $3.61
|
102,289
|
Total
consideration
|
2,611,393
|
Less
cash received
|
(82,296)
|
Less
other assets
|
(137,457)
|
Less
intangible and intellectual property
|
(2,497,686)
|
Plus
liabilities assumed
|
106,046
|
Net
goodwill recorded
|
$-
|
|
For the three months ended September 30,
|
For the nine months ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
Revenues
|
$4,906,343
|
$3,345,473
|
$13,353,752
|
$12,194,573
|
Net
income (loss)
|
$(1,065,371)
|
$(394,760)
|
$(2,815,977)
|
$(591,347)
|
Basic
earnings (loss) per share
|
$(0.09)
|
$(0.04)
|
$(0.26)
|
$(0.08)
|
Diluted
earnings (loss) per share
|
$(0.09)
|
$(0.04)
|
$(0.26)
|
$(0.08)
|
|
|
|
|
|
Basic Number of Shares
|
11,756,560
|
9,713,956
|
10,920,866
|
7,016,373
|
Diluted Number of Shares
|
11,756,560
|
9,713,956
|
10,920,866
|
7,016,373
|
Furniture and
fixtures
|
2 - 10 years
|
Office
equipment
|
2 - 5 years
|
Leasehold
improvements
|
3 -
10 years
|
Automobiles
|
3 - 5 years
|
Camera
systems
|
3
years
|
|
Nine months ended September 30, 2017
|
Risk-free interest rate
|
1.00% - 1.99%
|
Expected term
|
..3 – 6 years
|
Volatility
|
70%
|
Dividend yield
|
0%
|
Estimated annual forfeiture rate at time of grant
|
0% - 30%
|
|
For the Nine Months Ended
|
|
|
September 30, 2017
|
September 30, 2016
|
Cash
paid for interest
|
$33,429
|
$29,083
|
Cash
paid for taxes
|
$-
|
$-
|
|
|
|
Warrants
issued in connection with note payable
|
$-
|
$58,520
|
Warrants
issued in connection with issuance of Series A Preferred
Stock
|
$67,491
|
$-
|
|
|
|
Business
Combinations:
|
|
|
Current
Assets
|
$1,044,893
|
$-
|
Property
and equipment, net
|
$268,398
|
$-
|
Intangible
assets
|
$2,498,737
|
$-
|
Goodwill
|
$1,960,328
|
$-
|
Other
non-current assets
|
$1,962,140
|
$-
|
Assumed
liabilities
|
$(1,258,905)
|
$-
|
Deferred
revenue
|
$(22,493)
|
$-
|
Other
non-current liabilities
|
$(16,584)
|
$-
|
Issuance
of common stock
|
$(7,055,179)
|
$-
|
Notes
payable
|
$(907,407)
|
$-
|
|
Three Months ended September 30, 2017
|
Nine Months ended September 30, 2017
|
Deferred:
|
|
|
Federal
|
$(168,767)
|
$(812,223)
|
State
|
(56,375)
|
(152,154)
|
Benefit
from income taxes
|
$(225,142)
|
$(964,377)
|
|
|
|
Deferred
tax assets:
|
|
Amortizable
start-up costs
|
$110,729
|
Amortizable
intangibles
|
81,034
|
Accrued
bonuses
|
53,998
|
Net
operating loss carryforward
|
1,166,042
|
|
1,411,803
|
Deferred
tax liabilities:
|
|
Permanent differences
|
(137,205)
|
Fixed
assets
|
(90,239)
|
Total
deferred tax assets, net
|
$1,184,359
|
|
Three Months ended September 30, 2017
|
Nine Months ended September 30, 2017
|
U.S.
statutory federal rate
|
34.00%
|
34.00%
|
(Decrease)
increase in taxes resulting from:
|
|
|
State
income tax rate, net of U.S. Federal benefit
|
3.97%
|
3.96%
|
Net
effect of permanent and temporary reconciling items
|
-4.44%
|
-4.44%
|
Effective
tax rate
|
33.52%
|
33.52%
|
2017
|
$188,854
|
2018
|
697,153
|
2019
|
624,024
|
2020
|
64,475
|
Total
|
$1,574,506
|
|
|
|
Weighted
|
|
|
Number
|
Weighted
|
Average
|
|
|
of
Share
|
Average
|
Remaining
|
Aggregate
|
|
Subject
to
|
Exercise
|
Contractual
|
Intrinsic
|
|
Option
|
Price
|
Term
|
Value
|
Balance
at December 31, 2016
|
58,499
|
$1.68
|
9.29
|
|
Granted
|
1,161,313
|
1.56
|
9.30
|
|
Exercised
|
-
|
-
|
-
|
|
Canceled
|
-
|
-
|
-
|
|
Balance
at September 30, 2017
|
1,219,812
|
$1.56
|
9.26
|
$430,190
|
|
|
|
|
|
Exercisable
at September 30, 2017
|
262,645
|
$1.57
|
8.72
|
$102,397
|
|
|
|
|
|
Vested
and expected to vest at September 30, 2017
|
1,131,991
|
$1.56
|
9.26
|
$399,140
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
Basic and diluted
(loss) earnings per share
|
|
|
|
|
Net (loss) earnings
from continuing operations
|
$(791,360)
|
$(55,542)
|
$(1,913,460)
|
$420,208
|
Less: preferred
stock dividends
|
(87,907)
|
-
|
(251,508)
|
-
|
Net income (loss)
attributable to shareholders
|
(879,267)
|
(55,542)
|
(2,164,968)
|
420,208
|
Weighted average
common shares outstanding - basic
|
11,756,560
|
9,713,956
|
10,920,866
|
7,016,373
|
Basic (loss)
earnings per share
|
$(0.07)
|
$(0.01)
|
$(0.20)
|
$0.06
|
|
|
|
|
|
Weighted average
common shares outstanding - diluted
|
11,756,560
|
9,713,956
|
10,920,866
|
7,123,160
|
Diluted (loss)
earnings per share
|
$(0.07)
|
$(0.01)
|
$(0.20)
|
$0.06
|
|
|
|
|
|
Common stock
equivalents excluded due to anti-dilutive effect
|
2,105,295
|
121,247
|
1,960,282
|
-
|
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
Numerator:
|
|
|
|
|
Net (loss) earnings
from continuing operations
|
$(791,360)
|
$(55,542)
|
$(1,913,460)
|
$420,208
|
Less: preferred
stock dividends
|
(87,907)
|
-
|
(251,508)
|
-
|
Net income (loss)
attributable to shareholders
|
$(879,267)
|
$(55,542)
|
$(2,164,968)
|
$420,208
|
|
|
|
|
|
Denominator
(basic):
|
|
|
|
|
Weighted average
common shares outstanding
|
11,756,560
|
9,713,956
|
10,920,866
|
7,016,373
|
Participating
securities - Series A preferred stock
|
974,487
|
-
|
473,174
|
-
|
Weighted average
shares outstanding
|
12,731,047
|
9,713,956
|
11,838,797
|
7,016,373
|
|
|
|
|
|
Loss per common
share - basic under two-class method
|
$(0.07)
|
$(0.01)
|
$(0.18)
|
$0.06
|
|
|
|
|
|
Denominator
(diluted):
|
|
|
|
|
Weighted average
common shares outstanding
|
11,756,560
|
9,713,956
|
10,920,866
|
7,123,160
|
Participating
securities - Series A preferred stock (1)
|
974,487
|
-
|
917,931
|
-
|
Weighted average
shares outstanding
|
12,731,047
|
9,713,956
|
11,838,797
|
7,123,160
|
|
|
|
|
|
Loss per common
share - basic under two-class method
|
$(0.07)
|
$(0.01)
|
$(0.18)
|
$0.06
|
|
Three Months ended September 30,
|
Nine Months ended September 30,
|
||
|
2017
|
2016
|
2017
|
2016
|
REVENUE
|
$4,421,574
|
$2,405,529
|
$11,131,825
|
$9,582,874
|
Cost
of revenue
|
2,457,806
|
1,334,436
|
6,017,982
|
5,496,588
|
Gross
Profit
|
1,963,768
|
1,071,093
|
5,113,843
|
4,086,286
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
Selling,
general, and administrative expenses
|
2,997,566
|
1,151,514
|
8,036,339
|
3,624,005
|
Income
(loss) from operations
|
(1,033,798)
|
(80,421)
|
(2,922,496)
|
462,281
|
OTHER (EXPENSE) INCOME
|
|
|
|
|
Interest
expense
|
(33,720)
|
(15,656)
|
(97,624)
|
(28,693)
|
Other
Income
|
51,016
|
-
|
142,283
|
-
|
Total
other income
|
17,296
|
(15,656)
|
44,659
|
(28,693)
|
Income
(loss) before taxes
|
(1,016,502)
|
(96,077)
|
(2,877,837)
|
433,588
|
Income
tax benefit (expense)
|
225,142
|
40,535
|
964,377
|
(13,380)
|
Net
(loss) income
|
$(791,360)
|
$(55,542)
|
$(1,913,460)
|
$420,208
|
|
Nine Months ended September 30,
|
|
|
2017
|
2016
|
Net
cash provided by (used for):
|
|
|
Operating
activities
|
$(2,204,152)
|
$559,535
|
Investing
activities
|
(52,985)
|
(35,377)
|
Financing
activities
|
3,230,815
|
(333,991)
|
Net
increase (decrease) in cash and cash equivalents:
|
$973,678
|
$190,167
|
2017
|
$188,854
|
2018
|
697,153
|
2019
|
624,024
|
2020
|
64,475
|
Total
|
$1,574,506
|
Number
|
|
Description
|
|
|
|
|
Certification
of Principal Executive Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
|
|
|
Certification
of Principal Financial Officer Required Under
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
|
|
|
Certification
of Principal Executive Officer Required Under
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
|
|
|
Certification
of Principal Financial Officer Required Under
Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
|
|
|
Novume
Solutions, Inc.
|
|
|
|
|
|
/s/
Carl Kumpf
|
|
Name:
|
Carl
Kumpf
|
|
Title:
|
Chief
Financial Officer, Principal Accounting Officer
|
|
|
and
Authorized Signatory
|
|
Novume Solutions, Inc.
|
|
|
|
|
|
|
Date: November 13,
2017
|
By:
|
/s/
Robert A.
Berman
|
|
|
|
Robert A.
Berman
|
|
|
|
Chief
Executive Officer
Principal Executive
Officer
|
|
|
Novume Solutions, Inc.
|
|
|
|
|
|
|
Date: November 13,
2017
|
By:
|
/s/
Carl
Kumpf
|
|
|
|
Carl
Kumpf
|
|
|
|
Chief
Financial Officer
Principal Financial
and Accounting Officer
|
|
|
Novume Solutions, Inc.
|
|
|
|
|
|
|
Date: November 13,
2017
|
By:
|
/s/
Robert
A. Berman
|
|
|
|
Robert A.
Berman
|
|
|
|
Chief
Executive Officer
Principal Executive Officer |
|
|
Novume Solutions, Inc.
|
|
|
|
|
|
|
Date: November 13,
2017
|
By:
|
/s/
Carl
Kumpf
|
|
|
|
Carl
Kumpf
|
|
|
|
Chief
Financial Officer
Principal Financial and Accounting Officer |
|
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Nov. 01, 2017 |
|
Document And Entity Information | ||
Entity Registrant Name | Novume Solutions, Inc. | |
Entity Central Index Key | 0001697851 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | No | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 14,308,784 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2017 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 7,500,000 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 13,933,784 | 5,000,000 |
Common stock, outstanding | 13,933,784 | 5,000,000 |
Series A Cumulative Convertible Redeemable Preferred | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 505,000 | 500,000 |
Preferred stock, issued | 502,327 | 301,570 |
Preferred stock, outstanding | 502,327 | 301,570 |
Condensed Consolidated Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Income Statement [Abstract] | ||||
REVENUE | $ 4,421,574 | $ 2,405,529 | $ 11,131,825 | $ 9,582,874 |
Cost of revenue | 2,457,806 | 1,334,436 | 6,017,982 | 5,496,588 |
Gross Profit | 1,963,768 | 1,071,093 | 5,113,843 | 4,086,286 |
OPERATING EXPENSES | ||||
Selling, general, and administrative expenses | 2,997,566 | 1,151,514 | 8,036,339 | 3,624,005 |
Income (loss) from operations | (1,033,798) | (80,421) | (2,922,496) | 462,281 |
OTHER (EXPENSE) INCOME | ||||
Interest expense | (33,719) | (15,656) | (97,624) | (28,693) |
Other Income | 51,016 | 0 | 142,283 | 0 |
Total other income | 17,297 | (15,656) | 44,659 | (28,693) |
Income (loss) before taxes | (1,016,502) | (96,077) | (2,877,837) | 433,588 |
Income tax benefit (expense) | 362,347 | 40,535 | 1,101,582 | (13,380) |
Net (loss) income | $ (654,155) | $ (55,542) | $ (1,776,255) | $ 420,208 |
(Loss) earnings per common share - basic | $ (0.06) | $ (0.01) | $ (0.18) | $ 0.06 |
(Loss) earnings per common share - diluted | $ (0.06) | $ (0.01) | $ (0.18) | $ 0.06 |
Weighted average shares outstanding | ||||
Basic | 11,756,560 | 9,713,956 | 10,920,866 | 7,016,373 |
Diluted | 11,756,560 | 9,713,956 | 10,920,866 | 7,123,160 |
NATURE OF OPERATIONS AND RECAPITALIZATION |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Nature Of Operations And Recapitalization | |
NATURE OF OPERATIONS AND RECAPITALIZATION | Nature of Operations
Novume Solutions, Inc. (the “Company” or “Novume”) was formed in February 2017 and began operations upon the merger of KeyStone Solutions, Inc. (“KeyStone”) and Brekford Traffic Safety, Inc. (“Brekford”) in August 2017 (the “Brekford Merger”) and is headquartered in Chantilly, Virginia. The financial results of Brekford are included in the results of operations from August 28, 2017 through the September 30, 2017. For narrative purposes, Company and Novume references will include the Brekford, Keystone and Firestorm entities. The historical financial statements for Novume prior to the merger with Brekford reflect the historical financial statements of KeyStone.
KeyStone was formed in March 2016 as a holding company for its wholly-owned subsidiary AOC Key Solutions, Inc. (“KSI”), which is headquartered in Chantilly, Virginia. KSI provides consulting and technical support services to assist clients seeking U.S. Federal government contracts in the technology, telecommunications, defense, and aerospace industries.
On January 25, 2017, Novume (KeyStone) acquired Firestorm (See Note 2), a nationally-recognized leader in crisis management, crisis communications, emergency response, and business continuity, including workplace violence prevention, cyber-breach response, communicable illness/pandemic planning, predictive intelligence, and other emergency, crisis and disaster preparedness initiatives. Firestorm is headquartered in Roswell, Georgia.
Brekford, headquartered in Hanover, Maryland, is a leading public safety technology service provider of fully-integrated automated traffic safety enforcement (“ATSE”) solutions, including speed, red light, and distracted driving camera systems.
Recapitalization
On March 15, 2016, the stockholders of KSI formed KeyStone as a holding company with the same proportionate ownership percentage as KSI. On that same date KSI entered into a merger agreement (the “KSI Merger Agreement”) with KeyStone and KCS Merger Sub, Inc. (“Merger Sub”), a wholly-owned subsidiary of KeyStone with no activity. Pursuant to the KSI Merger Agreement, on March 15, 2016, Merger Sub was merged with and into KSI, and thus KSI became a wholly-owned subsidiary of KeyStone (the “KSI Merger”). To complete the KSI Merger, the stockholders exchanged 100% of the outstanding common stock of KSI for newly issued common stock of KeyStone, representing 100% of the outstanding common stock. This effectively transferred 100% of the voting equity interest and control of KSI to KeyStone. The undistributed earnings totaling $1,192,844 of KSI as of that date were considered a capital contribution to KeyStone and were therefore reclassified to additional paid-in capital. The operations of KSI did not change, nor have any assets or operations transferred to either KeyStone or Merger Sub. The KSI Merger transaction resulted in no gain or loss to either entity. The stockholders’ proportionate ownership of KeyStone remained the same as it was for KSI. KeyStone accounted for the merger transaction as a recapitalization in the accompanying consolidated financial statements. |
ACQUISITION |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITION | Brekford Acquisition
On August 28, 2017, the mergers by and among Novume, KeyStone, Brekford, Brekford Merger Sub, Inc. (“Brekford Merger Sub”), and KeyStone Merger Sub, LLC (“KeyStone Merger Sub”), were consummated (the “Brekford Merger”) as a result of a merger agreement (the “Brekford Merger Agreement”). As a result, Brekford became a wholly-owned subsidiary of the Novume, and Brekford Merger Sub ceased to exist. KeyStone Merger Sub also became a wholly-owned subsidiary of Novume, and KeyStone Solutions, Inc. ceased to exist. When KeyStone Merger Sub filed its certificate of merger with the Secretary of State of the State of Delaware, it immediately effectuated a name-change to KeyStone Solutions, LLC, the name by which it is now known. For the purposed of this document any references to KeyStone are to KeyStone Solutions, Inc. prior to August 28, 2017 and to KeyStone Solutions, LLC on and after August 28, 2017.
Upon completion of the Brekford Merger, the merger consideration was issued in accordance with the terms of the Brekford Merger Agreement. Immediately upon completion of the Brekford Merger, the pre-merger stockholders of KeyStone owned approximately 80% of the issued and outstanding capital stock of Novume on a fully-diluted basis, and the pre-merger stockholders of Brekford owned approximately 20% of the issued and outstanding capital stock of Novume on a fully-diluted basis.
As the Brekford Merger has recently been completed, the Company is currently in the process of completing the purchase price allocation treating the Brekford Merger as a business combination. The purchase price allocation for Brekford will be included in the Company’s consolidated financial statements in future periods. The table below shows the preliminary analysis related to the Brekford acquisition:
The initial determination of the fair value of the assets acquired and liabilities assumed, which includes approximately $2.0 million of goodwill, is based on a preliminary valuation and the estimates and assumptions for these items are subject to change as we obtain additional information during the measurement period. Subsequent changes to the purchase price or other fair value adjustments determined during the measurement period will be recorded as an adjustment to goodwill and possibly intangibles.
Firestorm Acquisition
On January 25, 2017 (the “Firestorm Closing Date”), Novume acquired Firestorm Solutions, LLC and Firestorm Franchising, LLC (collectively, the “Firestorm Entities” or “Firestorm”).
Membership Interest Purchase Agreement
Pursuant to the terms of the Membership Interest Purchase Agreement (the “MIPA”), by and among Novume, each of the Firestorm Entities, each of the Members of the Firestorm Entities (described below), and a newly-created acquisition subsidiary of Novume, Firestorm Holdings, LLC, a Delaware limited liability company (“Firestorm Holdings”), Novume acquired all of the membership interests in each of the Firestorm Entities for the following consideration:
The Company has completed its analysis of the purchase price allocation. The table below shows the final breakdown related to the Firestorm acquisition:
The determination of the fair value of the assets acquired and liabilities assumed includes approximately $2.5 million of intangible and intellectual property. In connection with the acquistion, Novume has also entered into employment agreements with three of the founders of the Firestorm Entities as set forth below.
Harry W. Rhulen Employment Agreement
The Rhulen Employment Agreement provides that upon the Firestorm Closing Date his employment agreement will become effective for an initial five-year term as President of Novume Solutions, Inc. His base salary will be $275,000 per annum, and he will be eligible for a bonus as determined by Novume’s compensation committee. Mr. Rhulen will also be eligible to receive all such other benefits as are provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume. Mr. Rhulen has been granted options to purchase 155,195 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.55 per share.
Suzanne Loughlin Employment Agreement
The Loughlin Employment Agreement provides that upon the Firestorm Closing Date her employment agreement will become effective for an initial five-year term as General Counsel and Chief Administrative Officer of Novume Solutions, Inc. Her base salary will be $225,000 per annum, and she will be eligible for a bonus as determined by Novume’s compensation committee. Ms. Loughlin will also be eligible to receive all such other benefits as are provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume. Ms. Loughlin has been granted options to purchase 155,195 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.5464 per share.
James W. Satterfield Employment Agreement
The Satterfield Employment Agreement provides that upon the Firestorm Closing Date his employment agreement will become effective for an initial five-year term as President and Chief Executive Officer of each of the Firestorm Entities. His base salary will be $225,000 per annum, and he will be eligible for a bonus as determined by Novume’s compensation committee. Mr. Satterfield will also be eligible to receive all such other benefits as are provided by Novume to other management employees that are consistent with Novume’s fringe benefits available to any other officer or executive of Novume or its subsidiaries. Mr. Satterfield has been granted options to purchase 96,997 Novume Common Shares, which shall begin vesting on the one-year anniversary of the Firestorm Closing Date and continue vesting monthly over the following two years, at an exercise price of $1.55 per share, in connection with the Acquisition.
The following unaudited pro-forma combined financial information gives effect to the acquisition of Firestorm and the merger with Brekford as if they were consummated January 1, 2016. This unaudited pro-forma financial information is presented for information purposes only, and is not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2016 (the beginning of the earliest period presented) or to project potential operating results as of any future date or for any future periods.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation
The consolidated financial statements include the accounts of Novume, the parent company, and its wholly-owned subsidiaries AOC Key Solutions, Inc., Brekford Traffic Safety Inc., Novume Media, Inc., Chantilly Petroleum, LLC, Firestorm Solutions, LLC and Firestorm Franchising, LLC.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the accounting rules under Regulation S-X, as promulgated by the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
Novume considers all highly liquid debt instruments purchased with the maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its clients’ financial condition, and the Company generally does not require collateral.
Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, client historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.
The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also considers recording as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and the Company’s assessment of the general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, the Company had an allowance for doubtful accounts of $24,000 at September 30, 2017 and determined that an allowance was not required at December 31, 2016.
Inventory
Inventory principally consists of hardware and third-party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in-process.
Property and Equipment
The cost of furniture and fixtures and office equipment is depreciated over the useful lives of the related assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the lease. Depreciation and amortization is recorded on the straight-line basis.
The range of estimated useful lives used for computing depreciation are as follows:
Depreciation and amortization expense for the three months ended September 30, 2017 and 2016 was $353,982 and 9,833, respectively, and for the nine months ended September 30, 2017 and 2016 was $404,143 and $39,498 , respectively.
Revenue Recognition
The Company recognizes revenues for the provision of services when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable and the collectability of the related revenue is reasonably assured. The Company principally derives revenues from fees for services generated on a project-by-project basis. Revenues for time-and-materials contracts are recognized based on the number of hours worked by the employees or consultants at an agreed-upon rate per hour set forth in the Company’s standard rate sheet or as written from time to time in the Company’s contracts or purchase orders. Revenues related to firm-fixed-price contracts are primarily recognized upon completion of the project as these projects are typically short-term in nature. Revenue from the sale of individual franchises is recognized when the contract is signed and collectability is assured, unless the franchisee is required to perform certain training before operations commence. The franchisor has no obligation to the franchisee relating to store development and the franchisee is considered operational at the time the franchise agreement is signed or when required training is completed, if applicable. Royalties from individual franchises are earned based upon the terms in the franchising agreement which are generally the greater of $1,000 or 8% of the franchisee’s monthly gross sales.
For automated traffic safety enforcement revenue, the Company recognizes the revenue when the required collection efforts, from citizens, are completed and posted to the municipality’s account. The respective municipality is then billed depending on the terms of the respective contract, typically 15 days after the preceding month while collections are reconciled. For contracts where the Company receives a percentage of collected fines, revenue is calculated based upon the posted payments from citizens multiplied by the Company’s contractual percentage. For contracts where the Company receives a specific fixed monthly fee regardless of citations issued or collected, revenue is recorded once the amount collected from citizens exceeds the monthly fee per camera. Brekford’s fixed-fee contracts typically have a revenue neutral provision whereby the municipality’s payment to Brekford cannot exceed amounts collected from citizens within a given month.
Advertising
The Company expenses all non-direct-response advertising costs as incurred. Such costs were not material for the three or nine months ended September 30, 2017 and 2016.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual amounts may differ from these estimates. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, fair value of debt and equity instruments and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.
Income Taxes
Through March 15, 2016, KSI elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay U.S. Federal corporate income taxes, and in most instances state income tax, on its taxable income. Instead, the KSI stockholders were liable for individual income taxes on their respective shares of KSI’s net income. KSI effectively revoked its S Corporation election upon the March 15, 2016 merger with the KeyStone. Novume is currently subject to corporate income taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company’s evaluation as of September 30, 2017 revealed no uncertain tax positions that would have a material impact on the consolidated financial statements. The 2013 through 2015 tax years remain subject to examination by the IRS and various states. Management does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the consolidated financial statements.
Equity-Based Compensation
The Company recognizes equity-based compensation based on the grant-date fair value of the award on a straight-line basis over the requisite service period, net of estimated forfeitures. Total equity-based compensation expense included in selling, general and administrative expenses in the accompanying consolidated statements of operations for the three months ended September 30, 2017 and 2016 was $107,321 and $0, respectively, and for the nine months ended September 30, 2017 and 2016 was $227,470 and $51,380, respectively.
The Company estimates the fair value of stock options using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires the use of subjective assumptions, including the fair value and projected volatility of the underlying common stock and the expected term of the award.
The fair value of each option granted has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following assumptions during the nine months ended September 30, 2017:
Risk-Free Interest Rate – The yield on actively traded non-inflation indexed U.S. Treasury notes with the same maturity as the expected term of the underlying grants was used as the average risk-free interest rate.
Expected Term – The expected term of options granted was determined based on management’s expectations of the options granted which are expected to remain outstanding.
Expected Volatility – Because the Company’s common stock has only been publicly traded since late August 2017, there is not a substantive share price history to calculate volatility and, as such, the Company has elected to use the calculated value method.
Dividend Yield – The Black-Scholes option pricing model requires an expected dividend yield as an input. The Company has not issued common stock dividends in the past nor does the Company expect to issue common stock dividends in the future.
Forfeiture Rate – This is the estimated percentage of equity grants that are expected to be forfeited or cancelled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on past turnover data, level of employee receiving the equity grant, and vesting terms, and revises the rate if subsequent information indicates that the actual number of instruments that will vest is likely to differ from the estimate. The cumulative effect on current and prior periods of a change in the estimated number of awards likely to vest is recognized in compensation cost in the period of the change.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value as of September 30, 2017 and December 31, 2016 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of September 30, 2017, given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.
The determination of fair value is based upon the fair value framework established by Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company has concluded that its Series A Preferred Stock is a Level 3 financial instrument and that the fair value approximates the carrying value due to the proximity of the date of the sale of the Series A Preferred Stock to independent third-parties as compared to September 30, 2017. There were no changes in levels during the three or nine months ended September 30, 2017 and the Company did not have any financial instruments prior to 2016.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. Concentrations of credit risk with respect to accounts receivable are minimal due to the collection history and due to the nature of the Company’s client base. The Company limits its credit risk with respect to cash by maintaining cash balances with high-quality financial institutions. At times, the Company’s cash may exceed U.S. Federally insured limits, and as of September 30, 2017 and December 31, 2016, the Company had $3,762,265 and $2,788,587 , respectively, of cash and cash equivalents on deposit that exceeded the federally insured limit.
Earnings per Share
Basic earnings per share, or EPS, is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and potentially dilutive securities outstanding during the period, except for periods of net loss for which no potentially dilutive securities are included because their effect would be anti-dilutive. Potentially dilutive securities consist of common stock issuable upon exercise of stock options or warrants using the treasury stock method. Potentially dilutive securities issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.
The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. Participating securities consist of Series A Preferred Stock and warrants that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders.
Foreign Currency Transactions
Brekford has certain revenue and expense transactions with a functional currency in Mexican pesos and the Company's reporting currency is the U.S. dollar. Assets and liabilities are translated from the functional currency to the reporting currency at the exchange rate in effect at the balance sheet date and equity at the historical exchange rates. Revenue and expenses are translated at rates in effect at the time of the transactions. Any resulting translation gains and losses are accumulated in a separate component of stockholders' equity - other comprehensive income (loss). Realized foreign currency transaction gains and losses are credited or charged directly to operations.
Segment Reporting
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, requires that an enterprise report selected information about operating segments in its financial reports issued to its stockholders. Based on its analysis of current operations, management has determined that the Company has only one operating segment, which is Novume. Management will continue to reevaluate its segment reporting as the Company grows and matures. However, the chief operating decision-makers currently use combined results to make operating and strategic decisions, and, therefore, the Company believes its entire operation is currently covered under a single segment.
Going Concern Assessment
Beginning with the year ended December 31, 2016 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period. Management’s assessment determined the Company is a going concern.
New Accounting Pronouncements
Recently Issued Accounting Pronouncements
Not Yet Adopted
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems.
In May 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. The update is effective for fiscal year 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. The Company is currently evaluating the effect of this update but does not believe it will have a material impact on its financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, as part of its simplification initiatives. The update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than deferring the recognition until the asset has been sold to an outside party as is required under current GAAP. The update is effective for fiscal year 2019. The new standard will require adoption on a modified retrospective basis through a cumulative-effect adjustment to retained earnings, and early adoption is permitted. The Company is currently evaluating the effect that this update will have on its financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.
In January 2016, the FASB, issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:
The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. The Company is currently in the process of completing its assessment of any significant contract and assessing the impact the adoption of the new revenue standard will have on its consolidated financial statements and related disclosures. The standard update, as amended, will be effective for annual periods beginning after December 15, 2017. The Company performed an initial assessment of the impact of the ASU and is developing a transition plan, including necessary changes to policies, processes, and internal controls as well as system enhancements to generate the information necessary for the new disclosures. The project is on schedule for adoption on January 1, 2018 and the Company will apply the modified retrospective method. The Company expects revenue recognition across its portfolio of services to remain largely unchanged. However, the Company expects to recognize revenue earlier than it does under current guidance in a few areas, including accounting for variable fees and for certain consulting services, which will be recognized over time rather than at a point in time. While the Company has not finalized its assessment of the impact of the ASU, based on the analysis completed to date, the Company does not currently anticipate that the ASU will have a material impact on its Consolidated Financial Statements.
There are currently no other accounting standards that have been issued, but not yet adopted, that will have a significant impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption.
Recently Adopted
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The Company early adopted and applied the new standard retrospectively to the prior period presented in the consolidated balance sheets and it did not have a material impact.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. The update requires that deferred debt issuance costs be reported as a reduction to long-term debt (previously reported in other noncurrent assets). The Company adopted ASU 2015-03 in 2016 and for all retrospective periods, as required, and the impact of the adoption was not material to the consolidated financial statements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern, which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. This accounting standard update applies to all entities and was effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company adopted this standard during fiscal year 2016.
In March 2016, FASB issued ASU ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard and the impact of the adoption was not material to the consolidated financial statements.
The Company does not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on its consolidated financial statements.
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INVESTMENT AT COST AND NOTES RECEIVABLE |
9 Months Ended |
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Sep. 30, 2017 | |
Investment At Cost And Notes Receivable | |
INVESTMENT AT COST AND NOTES RECEIVABLE | On February 6, 2017, prior to the Brekford Merger, the Company entered into a Contribution and Unit Purchase Agreement (the “CUP Agreement”) with LB&B Associates Inc. (the “LB&B”) and Global Public Safety, LLC (“GPS”).
The closing for the transaction set forth in the CUP Agreement occurred on February 28, 2017 (the “GPS Closing”) and on such date the Company contributed substantially all of the assets and certain liabilities related to its vehicle services business to GPS. On the GPS Closing, the Company sold units representing 80.1% of the units of GPS to the LB&B for $6,048,394, after certain purchase price adjustments of prepaid expenses and unbilled customer deposits. $4,048,394 was paid in cash, including a $250,000 deposit that was paid on February 6, 2017, and $2,000,000 was paid by LB&B issuing the Company a promissory note receivable (the “GPS Promissory Note”). After the GPS Closing, the Company continues to own 19.9% of the units of GPS after the transaction. The Company is accounting for this as an investment at cost.
The GPS Promissory Note is subordinated to the LB&B’s senior lender and accrues interest at a rate of 3% per annum. The maturity date of the GPS Promissory Note is March 31, 2022. The GPS Promissory Note is to be repaid as follows: (a) $75,000 plus all accrued interest on each of September 30, 2017; December 31, 2017; March 31, 2018, June 30, 2018 and September 30, 2018 (or, in the event any such date is not a business day, the first business day after such date), (b) $100,000 plus all accrued interest on each of December 31, 2018; March 31, 2019; June 30, 2019 and September 30, 2019 (or, in the event any such date is not a business day, the first business day after such date) (c) $125,000 plus all accrued interest on each of December 31, 2019; March 31, 2020; June 30, 2020; September 30, 2020, December 31, 2020; March 31, 2021, June 31, 2021; September 30, 2021; and December 31, 2021 (or, in the event any such date is not a business day, the first business day after such date), and (d) $100,000 on March 31, 2022. The GPS Promissory Note is secured pursuant to the terms of a Pledge Agreement (the “LB&B Pledge Agreement”) between the Company and LB&B. Pursuant to the LB&B Pledge Agreement LB&B, granted the Company a continuing second priority lien and security interest in the LB&B’s units of GPS subject to liens of the LB&B’s senior lender. The current portion of notes receivable was $300,000 and zero as of September 30, 2017 and December 31, 2016. The long-term portion of the notes receivable was $1,649,000 and zero as of September 30, 2017 and December 31, 2016. |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | Supplemental disclosures of cash flow information for the nine months ended September 30, 2017 and 2016 was as follows:
Dividends on the Series A Preferred Stock totaling $5,286 were approved and declared in 2016. On April 7, 2017, the Company paid cash dividends of $75,695 to shareholders of record as of March 30, 2017. On July 8, 2017, the Company paid cash dividends of $87,907 to shareholders of record as of June 30, 2017. On September 30, 2017, the Company declared and accrued dividends of $87,907 payable to shareholders of record as of September 30, 2017.
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DEBT |
9 Months Ended |
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Sep. 30, 2017 | |
Debt | |
DEBT | Line of Credit
KSI was a party to a business loan agreement (the “2015 Loan Agreement”) with Sandy Spring Bank (“SSB”) dated as of September 25, 2015. The primary credit facility was an asset-based revolving line of credit up to $1,000,000 which was due to mature on September 30, 2016. To secure its obligations under the 2015 Loan Agreement, KSI had granted to SSB a security interest in its accounts receivable. SSB was required to advance funds to KSI up to the lesser of (1) $1,000,000 or (2) eighty percent (80%) of the aggregate amount of all of its accounts receivable aged 90-days or less which contained selling terms and conditions acceptable to the SSB. KSI’s obligations under the 2015 Loan Agreement were guaranteed by James McCarthy, Chairman of the Board of KSI, and his wife. KSI did not draw any funds from this credit facility in 2015. Pursuant to First Amendment to Business Loan Agreement (Asset Based), dated May 9, 2016, SSB had waived the restrictions in the 2015 Loan Agreement on KSI’s ability to make dividends to the Company. There was no outstanding balance on the 2015 Loan Agreement at December 31, 2016.
On August 11, 2016, Novume entered into Loan and Security Agreement (the “2016 Line of Credit”) with SSB that replaced the 2015 Loan Agreement. The 2016 Line of Credit is comprised of: 1) an asset-based revolving line of credit up to $1,000,000 for short-term working capital needs and general corporate purposes which was due to mature on July 31, 2017, bears interest at the Wall Street Journal Prime Rate, floating, plus 0.50% and is secured by a first lien on all of Novume’s business assets; and 2) an optional term loan of $100,000 which must be drawn by July 31, 2017, which is for permanent working capital, bears interest at the Wall Street Journal Prime Rate, floating, plus 0.75%, requires monthly payments of principal plus interest to fully amortize the loan over four (4) years, is secured by a first lien on all of Novume’s business assets, cross-collateralized and cross-defaulted with the revolving line of credit, and matures on February 15, 2019. The 2016 Line of Credit does not require any personal guarantees.
The borrowing base for the 2016 Line of Credit is up to the lesser of (1) $1,000,000 or (2) eighty percent (80%) of the aggregate amount of all of Novume’s eligible accounts receivable as defined by SSB. The borrowing base for the $100,000 term loan is fully reserved under the borrowing base for the revolving line of credit. The 2016 Line of Credit has periodic reporting requirements, balance sheet and profitability covenants, as well as affirmative and negative operational and ownership covenants. Novume was in compliance with all 2016 Line of Credit covenents at December 31, 2016. In August 2017, the Company terminated the 2016 Line of Credit with SSB. As such, there was no outstanding balance on the 2016 Line of Credit at September 30, 2017.
As of September 30, 2017 and 2016, Novume had no balances due, respectively, for the 2016 Line of Credit and the 2015 Loan Agreement and there are no amounts outstanding as of the date of this Form 10-Q. When Novume replaced the 2015 Loan Agreement with the 2016 Line of Credit on August 11, 2016, neither line of credit had a balance due. The Company terminated its line of credit in August 2017.
Long-Term Debt
On March 16, 2016, Novume entered into a Subordinated Note and Warrant Purchase Agreement (the “Avon Road Note Purchase Agreement”) pursuant to which Novume agreed to issue up to $1,000,000 in subordinated debt and warrants to purchase up to 242,493 shares of Novume’s common stock (“Avon Road Subordinated Note Warrants”). The exercise price for the Avon Road Subordinated Note Warrants is equal to $1.03 per share of common stock. Subordinated notes with a face amount of $500,000 and Avon Road Subordinated Note Warrants to purchase 121,247 shares of Novume’s common stock have been issued pursuant to the Avon Road Note Purchase Agreement to Avon Road Partners, L.P. (“Avon Road”), an affiliate of Robert Berman, Novume’s CEO and a member of Novume’s Board of Directors. The Avon Road Subordinated Note Warrants has an expiration date of March 16, 2019 and qualified for equity accounting as the warrant did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The fair value was determined to be $58,520 and is recorded as a debt discount and additional paid-in capital in the accompanying consolidated balance sheet as of December 31, 2016. The debt discount is being amortized as interest expense on a straight-line basis, which approximates the effective interest method, through the maturity date of the note payable.
The note is subordinated to the Novume’s 2016 Line of Credit with SSB and any successor financing facility. Simple interest accrues on the unpaid principal of the note at a rate equal to the lower of (a) 9% per annum, or (b) the highest rate permitted by applicable law. Interest is payable monthly, and the note matures on March 16, 2019. The Company terminated the 2016 Loan Agreement in August 2017.
Pursuant to the terms of the Novume acquisition of the membership interests in the Firestorm Entities, the Company issued $1,000,000 in the aggregate in the form of four unsecured, subordinated promissory notes issued by Novume payable over five years after the Firestorm Closing Date, to all the Members of the Firestorm Entities. The principal amount of the note payable to Lancer is $500,000. The principal amount of the note payable to Mr. Rhulen is $166,666.66. The principal amount of the notes payable to each of Mr. Satterfield and Ms. Loughlin is $166,666.67. The Firestorm Principal Notes are payable at an interest rate of 2% and the Lancer Note is payable at an interest rate of 7%. The balance of these notes payable was $919,753 as of September 30, 2017 to reflect the amortized fair value of the notes issued due to the difference in interest rates.
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INCOME TAXES |
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INCOME TAXES | The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence pursuant to the requirements of ASC Topic 740, including current and historical results of operations, future income projections and the overall prospects of the Company’s business.
The benefit from income taxes for the three and nine months ended September 30, 2017 consists of the following:
The components of deferred income tax assets and liabilities are as follows at September 30, 2017:
The difference between the income tax provision computed at the U.S. Federal statutory rate and the actual tax benefit is accounted for as follows for the three and nine months ended September 30, 2017:
The Company files income tax returns in the United States and in various state and foreign jurisdictions. No U.S. Federal, state or foreign income tax audits were in process as of September 30, 2017.
As more fully disclosed in Note 2, through March 15, 2016, KSI elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay federal corporate income taxes, and in most instances state income tax, on its taxable income. Thus, for the year ended December 31, 2016, KSI did not have any provision for income taxes.
There was no valuation allowance for deferred tax assets at September 30, 2017, as management believes that the deferred tax assets will be realized through future operations. At September 30, 2017, Novume had net operating loss carryforwards of approximately $2,974,597.
For the three and nine months ended September 30, 2017 and 2016, Novume did not record any interest or penalties related to unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits as part of income tax expense.
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STOCKHOLDERS’ EQUITY |
9 Months Ended |
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Sep. 30, 2017 | |
Stockholders' Equity Attributable to Parent [Abstract] | |
STOCKHOLDERS' EQUITY | Common Stock
As of September 30, 2017 and December 31, 2016, the authorized, issued and outstanding common shares of Novume were 13,933,784 and 5,000,000 (9.699,722 shares post Brekford Merger), respectively.
As described in more detail in Note 1, on March 15, 2016, the stockholders of KSI formed KeyStone as a holding company with the same proportionate ownership percentage as KSI. Pursuant to the Keystone Merger Agreement, the stockholders exchanged 100% of the outstanding common stock of KSI for 5,000,000 (9.699,720 post merger split) shares newly issued KeyStone common stock, representing 100% of the outstanding common stock. The formation of KeyStone provided for 25,000,000 authorized shares of KeyStone $.0001 par value common stock. As of December 31, 2016, 5,000,000 (9.699,720 post merger split) shares of KeyStone common stock were issued and outstanding.
In January 2017, the Company issued 488,094 (946,875 post Brekford Merger) shares of Novume common stock as consideration as part of its acquisition of Firestorm.
Upon completion of the KeyStone and Brekford merger on August 28, 2017, consideration was issued in accordance with the terms of the Brekford Merger Agreement. Immediately upon completion of the Brekford Merger, the pre-merger stockholders of KSI owned approximately 80% of the issued and outstanding capital stock of the Company on a fully-diluted basis, and the pre-merger stockholders of Brekford owned approximately 20% of the issued and outstanding capital stock of Novume on a fully-diluted basis.
Series A Cumulative Convertible Redeemable Preferred Stock
The formation of Novume provided for 7,500,000 shares of $.0001 par value KeyStone Series A Cumulative Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”).
In November 2016, Novume commenced its Reg 1A Offering (the “Reg1A Offering”) of up to 3,000,000 Units. Each Unit, after the Brekford Merger, consisted of one share of Series A Preferred Stock which is convertible to 1.94 shares of Novume Common Stock and one Unit Warrant to purchase 0.48 shares of the Novume Common Stock at an exercise price of $1.03 per share. The Series A Preferred Stock holders are entitled to quarterly dividends of 7.0% per annum per share.
The Series A Preferred Stock holder has a put right to convert each share into common stock at an initial conversion price and a specified price which increases annually based on the passage of time beginning in November 2019. The Series A Preferred Stock holder also has put right after 60 months from the issuance date to redeem any or all of the Series A Preferred Stock at a redemption price of $7.73 per share plus any accrued but unpaid dividends. Novume has a call right after 36 months from the issuance date to redeem all of the Series A Preferred Stock at a redemption price which increases annually based on the passage of time beginning in November 2019. The Series A Preferred Stock contains an automatic conversion feature based on a qualified initial public offering in excess of $30,000,000 or a written agreement by at least two-thirds of the Series A Preferred Stock holders at an initial conversion price and a specified price which increases annually based on the passage of time beginning in November 2016. Based on the terms of the Series A Preferred Stock, the Company concluded that the Series A Preferred Stock should be classified as temporary equity in the accompanying consolidated balance sheet as of September 30, 2017.
The Reg 1A Offering Units were sold at $10 per Unit in minimum investment amounts of $5,000. There were three closings related to the sales of the Units. The gross proceeds, which the Company deemed to be fair value, from the first closing on December 23, 2016 totaled $3,015,700 with the issuance of 301,570 shares of Series A Preferred Stock and 301,570 Unit Warrants. On January 23, 2017, the Company completed its second closing of the Offering for the issuance of 119,757 shares of Series A Preferred Stock and 119,757 Unit Warrants with the Company receiving aggregate gross proceeds of $1,197,570.
On March 20, 2017, the Company increased the total number of designated shares of the Series A Preferred Stock from 500,000 to 505,000 shares.
On March 21, 2017, the Company completed its third and final closing of the Reg 1A Offering. The third and final sale of 81,000 shares of Series A Preferred Stock and 81,000 Unit Warrants with the Company receiving aggregate gross proceeds of $810,000.
The aggregate total sold in the Reg 1A Offering through and including the third and final closing was 502,327 Units, or 502,327 shares of Series A Preferred Stock and 502,327 Unit Warrants, for total gross proceeds to the Company of $5,023,270. The Reg 1A Offering is now closed.
Novume will adjust the value of the Series A Preferred Stock to fair (redemption) value at the end of the reporting period. The adjustment to the redemption value will be recorded through equity.
As of September 30, 2017, 502,327 shares of Series A Preferred Stock were issued and outstanding.
The Novume Series A Preferred Stock is entitled to quarterly cash dividends of $0.175 (7% per annum) per share. On April 7, 2017, the Company paid cash dividends of $75,695 to shareholders of record as of March 30, 2017. On July 8, 2017, the Company paid cash dividends of $87,907 to shareholders of record as of June 30, 2017. On September 30, 2017, the Company declared and accrued dividends of $87,907 payable to shareholders of record as of September 30, 2017.
The expiration date of the Unit Warrants is seven years from the date of issuance. The Unit Warrants are required to be measured at fair value at the time of issuance and classified as equity. The Company determined that under the Black-Scholes option pricing model, the fair value at the date of issuance was $169,125. As of September 30, 2017, 502,327 Unit Warrants are outstanding.
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WARRANT DERIVATIVE LIABILITY |
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Sep. 30, 2017 | |
Warrant Derivative Liability | |
WARRANT DERIVATIVE LIABILITY | On March 17, 2015, Brekford issued a Warrant (“Brekford Warrant”), which permits the holder to purchase 56,000 shares of Common Stock with an exercise price of $7.50 per share and a life of five years.
The Brekford Warrant exercise price is subject to anti-dilution adjustments that allow for its reduction in the event the company subsequently issues equity securities, including shares of Common Stock or any security convertible or exchangeable for shares of Common Stock, for no consideration or for consideration less than $7.50 a share. The Company accounted for the conversion option of the Brekford Warrant in accordance with ASC Topic 815. Accordingly, the conversion option is not considered to be solely indexed to the Company’s own stock and, as such, is recorded as a liability. The derivative liability associated with the Brekford Warrant has been measured at fair value at September 30, 2017 and December 31, 2016 using the Black Scholes option-pricing model. The assumptions used in the Black-Scholes model are as follows: (i) dividend yield of 0%; (ii) expected volatility of 80.5% - 105.1%; (iii) weighted average risk-free interest rate of 1.14-1.93%; (iv) expected life of five years; and (v) estimated fair value of the Common Stock of $0.10-$0.26 per share.
At September 30, 2017 and December 31, 2016, the outstanding fair value of the derivative liability was $18,228 and $24,360, respectively. |
COMMON STOCK OPTION AGREEMENT |
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Sep. 30, 2017 | |
Common Stock Option Agreement | |
COMMON STOCK OPTION AGREEMENT | On March 16, 2016, two stockholders of the Company entered into an option agreement with Avon Road (collectively, the “Avon Road Parties”). Under the terms of this agreement Avon Road paid the stockholders $10,000 each (a total of $20,000) for the right to purchase, on a simultaneous and pro-rata basis, up to 4,318,856 shares of Novume’s common stock owned by those two shareholders at $0.52 per share, which was determined to be the fair value. The option agreement had a two-year term which expires on March 16, 2018. On September 7, 2017, the Avon Road Parties entered into an amended and restated option agreement which extended the right to exercise the option up to and including March 21, 2019. |
COMMITMENTS |
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Commitments | ||||||||||||||||||||||||||||||||||||
COMMITMENTS | Operating Leases
KSI leases office space in Chantilly, Virginia under the terms of a ten-year lease expiring October 31, 2019. The lease contains one five-year renewal option. The lease terms include an annual increase in base rent and expenses of 2.75%. KSI also leases office space in New Orleans, Louisiana under the terms of a three-year lease expiring May 31, 2018.
Firestorm leases office space in Roswell, Georgia under the terms of a lease expiring on October 31, 2017.
Brekford leases office space from Global Public Safety on a month-to-month basis. Brekford also leases space under an operating lease expiring on December 31, 2017.
Rent expense for the three months ended September 30, 2017 and 2016 was $193,985 and $178,946 , respectively, and for the nine months ended September 30, 2017 and 2016 was $575,181 and $533,168 , respectively and is included in selling, general and administrative expenses.
As of September 30, 2017, the future obligations over the primary terms of Novume’s long-term leases expiring through 2020 are as follows:
The Company is the lessor in an agreement to sublease office space in Chantilly, Virginia with an initial term of two years with eight one-year options to renew the sublease through October 31, 2019. The lease provides for an annual increase in base rent and expenses of 2.90%. The initial term ended October 31, 2011 and the Company exercised the renewal options through 2015. On April 7, 2015, the lease was amended to sublease more space to the subtenant and change the rental calculation.
Rent income for the three months ended September 30, 2017 and 2016 was $46,957 and $45,634 , respectively, and for the nine months ended September 30, 2017 and 2016 was $140,871 and $136,901 , respectively, and is included in other income in the accompanying consolidated statements of operations.
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EQUITY INCENTIVE PLAN |
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EQUITY INCENTIVE PLAN | In August 2017, the Company approved and adopted the 2017 Equity Award Plan (the “2017 Plan”) which replaced the 2016 Equity Award Plan (the “2016 Plan”). The 2017 Plan permits the granting of stock options, stock appreciation rights, restricted and unrestricted stock awards, phantom stock, performance awards and other stock-based awards for the purpose of attracting and retaining quality employees, directors and consultants. Maximum awards available under the 2017 Plan were initially set at 3,000,000 shares. To date, only stock options have been issued under the 2016 Plan and the 2017 Plan.
Stock Options
Stock options granted under the 2017 Plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). ISOs may be granted to employees and NSOs may be granted to employees, directors, or consultants. Stock options are granted at exercise prices as determined by the Board of Directors. The vesting period is generally three to four years with a contractual term of 10 years.
The 2017 Plan is administered by the Administrator, which is currently the Board of Directors of the Company. The Administrator has the exclusive authority, subject to the terms and conditions set forth in the 2017 Award Plan, to determine all matters relating to awards under the 2017 Plan, including the selection of individuals to be granted an award, the type of award, the number of shares of Novume common stock subject to an award, and all terms, conditions, restrictions and limitations, if any, including, without limitation, vesting, acceleration of vesting, exercisability, termination, substitution, cancellation, forfeiture, or repurchase of an award and the terms of any instrument that evidences the award.
Novume has also designed the 2017 Plan to include a number of provisions that Novume’s management believes promote best practices by reinforcing the alignment of equity compensation arrangements for nonemployee directors, officers, employees, consultants and stockholders’ interests. These provisions include, but are not limited to, the following:
No Discounted Awards. Awards that have an exercise price cannot be granted with an exercise price less than the fair market value on the grant date.
No Repricing Without Stockholder Approval. Novume cannot, without stockholder approval, reduce the exercise price of an award (except for adjustments in connection with a Novume recapitalization), and at any time when the exercise price of an award is above the market value of Novume common stock, Novume cannot, without stockholder approval, cancel and re-grant or exchange such award for cash, other awards or a new award at a lower (or no) exercise price.
No Evergreen Provision. There is no evergreen feature under which the shares of common stock authorized for issuance under the 2017 Plan can be automatically replenished.
No Automatic Grants. The 2017 Plan does not provide for “reload” or other automatic grants to recipients.
No Transferability. Awards generally may not be transferred, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, unless approved by the Administrator.
No Tax Gross-Ups. The 2017 Plan does not provide for any tax gross-ups.
No Liberal Change-in-Control Definition. The change-in-control definition contained in the 2017 Plan is not a “liberal” definition that would be activated on mere stockholder approval of a transaction.
“Double-trigger” Change in Control Vesting. If awards granted under the 2017 Plan are assumed by a successor in connection with a change in control of Novume, such awards will not automatically vest and pay out solely as a result of the change in control, unless otherwise expressly set forth in an award agreement.
No Dividends on Unearned Performance Awards. The 2017 Plan prohibits the current payment of dividends or dividend equivalent rights on unearned performance-based awards.
Limitation on Amendments. No amendments to the 2017 Plan may be made without stockholder approval if any such amendment would materially increase the number of shares reserved or the per-participant award limitations under the 2017 Plan, diminish the prohibitions on repricing stock options or stock appreciation rights, or otherwise constitute a material change requiring stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of the principal exchange on which Novume’s shares are traded.
Clawbacks. Awards based on the satisfaction of financial metrics that are subsequently reversed, due to a financial statement restatement or reclassification, are subject to forfeiture.
When making an award under the 2017 Plan, the Administrator may designate the award as “qualified performance-based compensation,” which means that performance criteria must be satisfied in order for an employee to be paid the award. Qualified performance-based compensation may be made in the form of restricted common stock, restricted stock units, common stock options, performance shares, performance units or other stock equivalents. The 2017 Plan includes the performance criteria the Administrator has adopted, subject to stockholder approval, for a “qualified performance-based compensation” award.
A summary of stock option activity under the Company’s 2016 Plan and 2017 Plan for the nine months ended September 30, 2017 is as follows:
Stock compensation expense for the three months ended September 30, 2017 and 2016 was $107,321 and $0, respectively, and for the nine months ended September 30, 2017 and 2016 was $227,470 and $51,380, respectively, and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
The intrinsic value of the stock options granted during the nine months ended September 30, 2017 was $400,543. No stock options were granted or outstanding prior to 2016. The total fair value of shares that became vested after grant during the nine months ended September 30, 2017 was $72,750.
As of September 30, 2017, there was $527,347 of unrecognized stock compensation expense related to unvested stock options granted under the 2016 Plan that will be recognized over a weighted average period of 2.58 years.
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EMPLOYEE BENEFIT PLAN |
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Sep. 30, 2017 | |
Employee Benefit Plan | |
EMPLOYEE BENEFIT PLAN | KSI has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “Code”) (the “401(k) Plan”) which was amended on January 1, 2013, as required by the Code. Pursuant to the amended 401(k) Plan, KSI will make nondiscretionary “safe harbor” matching contributions of 100% of the participant’s salary deferrals up to 3%, and 50% of the next 2%, of a participant’s compensation for all participants. The amount of contributions recorded by Novume during the three months ended September 30, 2017 and 2016 were $25,122 and $31,955 , respectively, and during the nine months ended September 30, 2017 and 2016 were $60,875 and $69,387 , respectively. |
INVENTORY |
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Sep. 30, 2017 | |
Inventory Abstract | |
INVENTORY | As of September 30, 2017 and December 31, 2016, inventory consisted entirely of raw materials of $169,232 and $0, respectively. |
EARNINGS (LOSS) PER SHARE |
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EARNINGS (LOSS) PER SHARE | The following table provides information relating to the calculation of earnings (loss) per common share:
For the three months ended September 30, 2017, the following potentially dilutive securities were excluded from diluted loss per share as the Company had a net loss: 1,052,122 common stock equivalents related to the outstanding warrants, 974,487 common stock equivalents related to the Series A Preferred Stock and 78,686 related to outstanding options. In addition, 10,000 options were excluded from the diluted loss per share calculations as the exercise price of these shares exceeded the per share value of the common stock. For the three months ended September 30, 2016, the following potentially dilutive securities were excluded from diluted loss per share as the Company had a net loss: 121,247 common stock equivalents related to the outstanding warrants. A total of 4,167 options were excluded from the diluted loss per share calculations during the three months ended September 30, 2016 as the exercise price of these shares exceeded the per share value of the common stock.
For the nine months ended September 30, 2017, the following potentially dilutive securities were excluded from diluted loss per share as the Company had a net loss: 967,845 common stock equivalents related to the outstanding warrants, 917,931 common stock equivalents related to the Series A Preferred Stock and 74,506 related to outstanding options. In addition, 15,707 options were excluded from the diluted loss per share calculations as the exercise price of these shares exceeded the per share value of the common stock. A total of 11,923 options were excluded from the diluted loss per share calculations during the nine months ended September 30, 2016 as the exercise price of these shares exceeded the per share value of the common stock.
(Loss) Earnings Per Share under Two – Class Method
The Series A Preferred Stock has the non-forfeitable right to participate on an as converted basis at the conversion rate then in effect in any common stock dividends declared and, as such, is considered a participating security. The Series A Preferred Stock is included in the computation of basic and diluted loss per share pursuant to the two-class method. Holders of the Series A Preferred Stock do not participate in undistributed net losses because they are not contractually obligated to do so.
The computation of diluted (loss) earnings per share attributable to common stockholders reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock that are dilutive were exercised or converted into shares of common stock (or resulted in the issuance of shares of common stock) and would then share in our earnings. During the periods in which we record a loss attributable to common stockholders, securities would not be dilutive to net loss per share and conversion into shares of common stock is assumed not to occur.
The following table provides a reconciliation of net (loss) to preferred shareholders and common stockholders for purposes of computing net (loss) per share for the three and nine months ended September 30, 2017. There were no outstanding participating securities during the three and nine months ended September 30, 2016.
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SUBSEQUENT EVENTS |
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Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Acquisition of Global Technical Services, Inc and Global Contract Professionals, Inc.
On October 1, 2017 (the “Global Closing Date”), the Company completed its acquisition of Global Technical Services, Inc. (“GTS”) and Global Contract Professionals, Inc. (“GCP) (collectively, the “Global Entities”) (the “Global Merger”). Consideration (“Global Merger Consideration”) paid as part of the Global Merger included: (a) $750,000 in cash, (b) 375,000 shares of Novume common stock and (c) 240,861 shares of Novume Series B Cumulative Convertible Preferred Stock (the “Novume Series B Preferred Stock”). In addition to the Global Merger Consideration, Novume paid $365,037 to satisfy in full all of the outstanding debt of GTS and GCP at closing, except for certain intercompany debt and ordinary course debt, and amounts due under (a) the Secured Account Purchase Agreement dated August 22, 2012 by and between GTS and Wells Fargo Bank, National Association (the “GTS Wells Fargo Credit Facility”) and (b) the Secured Account Purchase Agreement dated August 22, 2012 by and between GCP and Wells Fargo Bank, National Association (the “GCP Wells Fargo Credit Facility” and together with the GTS Wells Fargo Credit Facility, the “Wells Fargo Credit Facilities”), which will remain in effect following the consummation of the Global Merger. In connection with the Wells Fargo Credit Facilities, Novume has delivered to Wells Fargo Bank, National Association, general continuing guaranties dated September 29, 2017 and effective upon the Global Closing Date of the Global Merger (the “Wells Fargo Guaranty Agreements”), guaranteeing the obligations of GTS and GCP (as defined in the Wells Fargo Guaranty Agreements) under the Wells Fargo Credit Facilities, and paid $175,000 in the aggregate to reduce the current borrowed amounts under the Wells Fargo Credit Facilities as of the Global Closing Date.
Issuance of Series B Cumulative Convertible Preferred Stock
As part of the Global Merger, the Company created 240,861 shares of $.0001 par value Novume Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”). All Series B Preferred Stock was issued at a price of $10 per share as part of the acquisition of the Global Merger. The Series B Preferred Stock is entitled to quarterly cash dividends of 1.121% (4.484% per annum) per share. The Series B Preferred Stock has a conversion price of $5 per share. Each Series B Preferred Stock has an automatic conversion feature based on the share price of Novume.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||
Principles of Consolidation | The consolidated financial statements include the accounts of Novume, the parent company, and its wholly-owned subsidiaries AOC Key Solutions, Inc., Brekford Traffic Safety Inc., Novume Media, Inc., Chantilly Petroleum, LLC, Firestorm Solutions, LLC and Firestorm Franchising, LLC.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the accounting rules under Regulation S-X, as promulgated by the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions have been eliminated in consolidation.
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Cash Equivalents | Novume considers all highly liquid debt instruments purchased with the maturity of three months or less to be cash equivalents. |
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Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its clients’ financial condition, and the Company generally does not require collateral.
Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, client historical trends, available credit ratings information, other financial data and the overall economic environment. Collection agencies may also be utilized if management so determines.
The Company records an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. The Company also considers recording as an additional allowance a certain percentage of aged accounts receivable, based on historical experience and the Company’s assessment of the general financial conditions affecting its customer base. If actual collection experience changes, revisions to the allowance may be required. After all reasonable attempts to collect an account receivable have failed, the amount of the receivable is written off against the allowance. Based on the information available, the Company had an allowance for doubtful accounts of $24,000 at September 30, 2017 and determined that an allowance was not required at December 31, 2016.
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Inventory | Inventory principally consists of hardware and third-party packaged software that is modified to conform to customer specifications and held temporarily until the completion of a contract. Inventory is valued at the lower of cost or market value. The cost is determined by the lower of first-in, first-out (“FIFO”) method, while market value is determined by replacement cost for raw materials and parts and net realizable value for work-in-process. |
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Property and Equipment | The cost of furniture and fixtures and office equipment is depreciated over the useful lives of the related assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the lease. Depreciation and amortization is recorded on the straight-line basis.
The range of estimated useful lives used for computing depreciation are as follows:
Depreciation and amortization expense for the three months ended September 30, 2017 and 2016 was $353,982 and 9,833, respectively, and for the nine months ended September 30, 2017 and 2016 was $404,143 and $39,498 , respectively.
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Revenue Recognition | The Company recognizes revenues for the provision of services when persuasive evidence of an arrangement exists, services have been rendered or delivery has occurred, the fee is fixed or determinable and the collectability of the related revenue is reasonably assured. The Company principally derives revenues from fees for services generated on a project-by-project basis. Revenues for time-and-materials contracts are recognized based on the number of hours worked by the employees or consultants at an agreed-upon rate per hour set forth in the Company’s standard rate sheet or as written from time to time in the Company’s contracts or purchase orders. Revenues related to firm-fixed-price contracts are primarily recognized upon completion of the project as these projects are typically short-term in nature. Revenue from the sale of individual franchises is recognized when the contract is signed and collectability is assured, unless the franchisee is required to perform certain training before operations commence. The franchisor has no obligation to the franchisee relating to store development and the franchisee is considered operational at the time the franchise agreement is signed or when required training is completed, if applicable. Royalties from individual franchises are earned based upon the terms in the franchising agreement which are generally the greater of $1,000 or 8% of the franchisee’s monthly gross sales.
For automated traffic safety enforcement revenue, the Company recognizes the revenue when the required collection efforts, from citizens, are completed and posted to the municipality’s account. The respective municipality is then billed depending on the terms of the respective contract, typically 15 days after the preceding month while collections are reconciled. For contracts where the Company receives a percentage of collected fines, revenue is calculated based upon the posted payments from citizens multiplied by the Company’s contractual percentage. For contracts where the Company receives a specific fixed monthly fee regardless of citations issued or collected, revenue is recorded once the amount collected from citizens exceeds the monthly fee per camera. Brekford’s fixed-fee contracts typically have a revenue neutral provision whereby the municipality’s payment to Brekford cannot exceed amounts collected from citizens within a given month.
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Advertising | The Company expenses all non-direct-response advertising costs as incurred. Such costs were not material for the three or nine months ended September 30, 2017 and 2016.
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Use of Estimates | Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual amounts may differ from these estimates. On an on-going basis, the Company evaluates its estimates, including those related to collectability of accounts receivable, fair value of debt and equity instruments and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions.
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Income Taxes | Through March 15, 2016, KSI elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, KSI did not pay U.S. Federal corporate income taxes, and in most instances state income tax, on its taxable income. Instead, the KSI stockholders were liable for individual income taxes on their respective shares of KSI’s net income. KSI effectively revoked its S Corporation election upon the March 15, 2016 merger with the KeyStone. Novume is currently subject to corporate income taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company’s evaluation as of September 30, 2017 revealed no uncertain tax positions that would have a material impact on the consolidated financial statements. The 2013 through 2015 tax years remain subject to examination by the IRS and various states. Management does not believe that any reasonably possible changes will occur within the next twelve months that will have a material impact on the consolidated financial statements. |
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Equity-Based Compensation | The Company recognizes equity-based compensation based on the grant-date fair value of the award on a straight-line basis over the requisite service period, net of estimated forfeitures. Total equity-based compensation expense included in selling, general and administrative expenses in the accompanying consolidated statements of operations for the three months ended September 30, 2017 and 2016 was $107,321 and $0, respectively, and for the nine months ended September 30, 2017 and 2016 was $227,470 and $51,380, respectively.
The Company estimates the fair value of stock options using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires the use of subjective assumptions, including the fair value and projected volatility of the underlying common stock and the expected term of the award.
The fair value of each option granted has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following assumptions during the nine months ended September 30, 2017:
Risk-Free Interest Rate – The yield on actively traded non-inflation indexed U.S. Treasury notes with the same maturity as the expected term of the underlying grants was used as the average risk-free interest rate.
Expected Term – The expected term of options granted was determined based on management’s expectations of the options granted which are expected to remain outstanding.
Expected Volatility – Because the Company’s common stock has only been publicly traded since late August 2017, there is not a substantive share price history to calculate volatility and, as such, the Company has elected to use the calculated value method.
Dividend Yield – The Black-Scholes option pricing model requires an expected dividend yield as an input. The Company has not issued common stock dividends in the past nor does the Company expect to issue common stock dividends in the future.
Forfeiture Rate – This is the estimated percentage of equity grants that are expected to be forfeited or cancelled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on past turnover data, level of employee receiving the equity grant, and vesting terms, and revises the rate if subsequent information indicates that the actual number of instruments that will vest is likely to differ from the estimate. The cumulative effect on current and prior periods of a change in the estimated number of awards likely to vest is recognized in compensation cost in the period of the change.
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Fair Value of Financial Instruments | The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value as of September 30, 2017 and December 31, 2016 because of the relatively short-term maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value as of September 30, 2017, given management’s evaluation of the instrument’s current rate compared to market rates of interest and other factors.
The determination of fair value is based upon the fair value framework established by Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. ASC 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company has concluded that its Series A Preferred Stock is a Level 3 financial instrument and that the fair value approximates the carrying value due to the proximity of the date of the sale of the Series A Preferred Stock to independent third-parties as compared to September 30, 2017. There were no changes in levels during the three or nine months ended September 30, 2017 and the Company did not have any financial instruments prior to 2016.
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Concentrations of Credit Risk | Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. Concentrations of credit risk with respect to accounts receivable are minimal due to the collection history and due to the nature of the Company’s client base. The Company limits its credit risk with respect to cash by maintaining cash balances with high-quality financial institutions. At times, the Company’s cash may exceed U.S. Federally insured limits, and as of September 30, 2017 and December 31, 2016, the Company had $3,762,265 and $2,788,587 , respectively, of cash and cash equivalents on deposit that exceeded the federally insured limit. |
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Earnings per Share | Basic earnings per share, or EPS, is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and potentially dilutive securities outstanding during the period, except for periods of net loss for which no potentially dilutive securities are included because their effect would be anti-dilutive. Potentially dilutive securities consist of common stock issuable upon exercise of stock options or warrants using the treasury stock method. Potentially dilutive securities issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.
The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. Participating securities consist of Series A Preferred Stock and warrants that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders.
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Foreign Currency Transactions | Brekford has certain revenue and expense transactions with a functional currency in Mexican pesos and the Company's reporting currency is the U.S. dollar. Assets and liabilities are translated from the functional currency to the reporting currency at the exchange rate in effect at the balance sheet date and equity at the historical exchange rates. Revenue and expenses are translated at rates in effect at the time of the transactions. Any resulting translation gains and losses are accumulated in a separate component of stockholders' equity - other comprehensive income (loss). Realized foreign currency transaction gains and losses are credited or charged directly to operations.
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Segment Reporting | The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, requires that an enterprise report selected information about operating segments in its financial reports issued to its stockholders. Based on its analysis of current operations, management has determined that the Company has only one operating segment, which is Novume. Management will continue to reevaluate its segment reporting as the Company grows and matures. However, the chief operating decision-makers currently use combined results to make operating and strategic decisions, and, therefore, the Company believes its entire operation is currently covered under a single segment.
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Going Concern Assessment | Beginning with the year ended December 31, 2016 and all annual and interim periods thereafter, management will assess going concern uncertainty in the Company’s consolidated financial statements to determine there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period. Management’s assessment determined the Company is a going concern.
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New Accounting Pronouncements | Recently Issued Accounting Pronouncements
Not Yet Adopted
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for hedging activities. This guidance expands strategies that qualify for hedge accounting, changes how many hedging relationships are presented in the financial statements, and simplifies the application of hedge accounting in certain situations. The standard will be effective for us beginning July 1, 2019, with early adoption permitted for any interim or annual period before the effective date. Adoption of the standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of this standard on our consolidated financial statements, including accounting policies, processes, and systems.
In May 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. The update is effective for fiscal year 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. The Company is currently evaluating the effect of this update but does not believe it will have a material impact on its financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the update requires only a single-step quantitative test to identify and measure impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. The update is effective for fiscal year 2021 and is to be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, as part of its simplification initiatives. The update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than deferring the recognition until the asset has been sold to an outside party as is required under current GAAP. The update is effective for fiscal year 2019. The new standard will require adoption on a modified retrospective basis through a cumulative-effect adjustment to retained earnings, and early adoption is permitted. The Company is currently evaluating the effect that this update will have on its financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. It will require companies to recognize lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years; earlier adoption is permitted. In the financial statements in which the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity. Practical expedients are available for election as a package and if applied consistently to all leases. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial condition, results of operations and cash flows.
In January 2016, the FASB, issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance in U.S. generally accepted accounting principles on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and are to be adopted by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this standard.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC Topic 606, which supersedes existing accounting standards for revenue recognition and creates a single framework. Additional updates to Topic 606 issued by the FASB in 2015 and 2016 include the following:
The underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard permits the use of either a retrospective or modified retrospective application. The Company is currently in the process of completing its assessment of any significant contract and assessing the impact the adoption of the new revenue standard will have on its consolidated financial statements and related disclosures. The standard update, as amended, will be effective for annual periods beginning after December 15, 2017. The Company performed an initial assessment of the impact of the ASU and is developing a transition plan, including necessary changes to policies, processes, and internal controls as well as system enhancements to generate the information necessary for the new disclosures. The project is on schedule for adoption on January 1, 2018 and the Company will apply the modified retrospective method. The Company expects revenue recognition across its portfolio of services to remain largely unchanged. However, the Company expects to recognize revenue earlier than it does under current guidance in a few areas, including accounting for variable fees and for certain consulting services, which will be recognized over time rather than at a point in time. While the Company has not finalized its assessment of the impact of the ASU, based on the analysis completed to date, the Company does not currently anticipate that the ASU will have a material impact on its Consolidated Financial Statements.
There are currently no other accounting standards that have been issued, but not yet adopted, that will have a significant impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption.
Recently Adopted
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 is aimed at reducing complexity in accounting standards. Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The Company early adopted and applied the new standard retrospectively to the prior period presented in the consolidated balance sheets and it did not have a material impact.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. The update requires that deferred debt issuance costs be reported as a reduction to long-term debt (previously reported in other noncurrent assets). The Company adopted ASU 2015-03 in 2016 and for all retrospective periods, as required, and the impact of the adoption was not material to the consolidated financial statements
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern, which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. This accounting standard update applies to all entities and was effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, with early adoption permitted. The Company adopted this standard during fiscal year 2016.
In March 2016, FASB issued ASU ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard reduces complexity in several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard and the impact of the adoption was not material to the consolidated financial statements.
The Company does not believe that any recently issued accounting standards, in addition to those referenced above, would have a material effect on its consolidated financial statements.
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ACQUISITION (Tables) |
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Purchase price allocation | The table below shows the preliminary analysis related to the Brekford acquisition:
The table below shows the final breakdown related to the Firestorm acquisition:
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Tables) |
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EQUITY INCENTIVE PLAN (Tables) |
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Earnings Loss Per Share Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) per common share |
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Earnings (loss) per common share, Class Method |
|
NATURE OF OPERATIONS AND RECAPITALIZATION (Details Narrative) |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Nature Of Operations And Recapitalization Details Narrative | |
Date of operation | Feb. 01, 2017 |
State of operation | Virginia |
ACQUISITION (Details) - USD ($) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Notes payable issued | $ 907,407 | $ 0 | |
Common stock issued | 7,055,179 | 0 | |
Less intangible and intellectual property | (2,498,737) | 0 | |
Net goodwill/intangible recorded | 1,960,345 | $ 0 | $ 0 |
Brekford | |||
Common stock issued | 5,851,193 | ||
Total consideration | 5,851,193 | ||
Less cash received | (1,943,778) | ||
Less other assets | (3,139,007) | ||
Plus liabilities assumed | 1,191,937 | ||
Net goodwill/intangible recorded | 1,960,345 | ||
Firestorm | |||
Cash paid | 500,000 | ||
Notes payable issued | 907,407 | ||
Common stock issued | 976,286 | ||
Warrants issued, at $2.58 | 125,411 | ||
Warrants issued, at $3.61 | 102,289 | ||
Total consideration | 2,611,393 | ||
Less cash received | (82,296) | ||
Less other assets | (137,457) | ||
Less intangible and intellectual property | (2,497,686) | ||
Plus liabilities assumed | 106,046 | ||
Net goodwill/intangible recorded | $ 0 |
ACQUISITION (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Acquisition Details 1 | ||||
Revenues | $ 4,906,343 | $ 3,345,473 | $ 13,353,752 | $ 12,194,573 |
Net income (loss) | $ (928,166) | $ (394,760) | $ (2,678,772) | $ (591,347) |
Basic earnings (loss) per share | $ (0.08) | $ (0.04) | $ (0.25) | $ (0.08) |
Diluted earnings (loss) per share | $ (0.08) | $ (0.04) | $ (0.25) | $ (0.08) |
Basic Number of Shares | 11,756,560 | 9,713,956 | 10,920,866 | 7,016,373 |
Diluted Number of Shares | 11,756,560 | 9,713,956 | 10,920,866 | 7,016,373 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Furniture and fixtures | Minimum | |
Estimated useful life | 2 years |
Furniture and fixtures | Maximum | |
Estimated useful life | 10 years |
Office equipment | Minimum | |
Estimated useful life | 2 years |
Office equipment | Maximum | |
Estimated useful life | 5 years |
Leasehold improvements | Minimum | |
Estimated useful life | 3 years |
Leasehold improvements | Maximum | |
Estimated useful life | 10 years |
Automobiles | Minimum | |
Estimated useful life | 3 years |
Automobiles | Maximum | |
Estimated useful life | 5 years |
Camera systems | |
Estimated useful life | 3 years |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) |
9 Months Ended |
---|---|
Sep. 30, 2017 | |
Volatility | 70.00% |
Dividend yield | 0.00% |
Minimum | |
Risk-free interest rate | 1.00% |
Expected term | 3 months 18 days |
Estimated annual forfeiture rate at time of grant | 0.00% |
Maximum | |
Risk-free interest rate | 1.99% |
Expected term | 6 years |
Estimated annual forfeiture rate at time of grant | 30.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Summary Of Significant Accounting Policies Details Narrative | |||||
Allowance for doubtful accounts | $ 24,000 | $ 24,000 | $ 24,000 | ||
Depreciation and amortization expense | 353,982 | $ 9,833 | 404,143 | $ 39,498 | |
Equity-based compensation expense | 107,321 | $ 0 | 227,470 | $ 51,380 | |
Uninsured cash and cash equivalents | $ 3,762,265 | $ 3,762,265 | $ 2,788,587 |
INVESTMENT AT COST AND NOTES RECEIVABLE (Details Narrative) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Investment At Cost And Notes Receivable Details Narrative | ||
Notes receivable, current | $ 300,000 | $ 0 |
Notes receivable, noncurrent | $ 1,649,000 | $ 0 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Details) - USD ($) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Supplemental Disclosures Of Cash Flow Information Details | |||
Cash paid for interest | $ 33,429 | $ 29,083 | |
Cash paid for taxes | 0 | 0 | |
Warrants issued in connection with note payable | 0 | 58,520 | |
Warrants issued in connection with issuance of Series A Preferred Stock | 67,491 | 0 | |
Business Combinations: | |||
Current Assets | 1,044,893 | 0 | |
Property and equipment, net | 268,398 | 0 | |
Intangible assets | 2,498,737 | 0 | |
Goodwill | 1,960,345 | 0 | $ 0 |
Other non-current assets | 1,962,140 | ||
Assumed liabilities | (1,258,905) | 0 | |
Deferred revenue | (22,493) | 0 | |
Other non-current liabilities | (16,584) | 0 | |
Issuance of common stock | (7,055,179) | 0 | |
Notes payable | $ (907,407) | $ 0 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
|
Deferred: | ||
Federal | $ (305,972) | $ (949,428) |
State | (56,375) | (152,154) |
Benefit from income taxes | $ (362,347) | $ (1,101,582) |
INCOME TAXES (Details 1) |
Sep. 30, 2017
USD ($)
|
---|---|
Deferred tax assets: | |
Amortizable start-up costs | $ 110,729 |
Amortizable intangibles | 81,034 |
Accrued bonuses | 53,998 |
Net operating loss carryforward | 1,166,042 |
Deferred tax assets | 1,411,803 |
Deferred tax liabilities: | |
Fixed assets | (90,239) |
Total deferred tax assets, net | $ 1,321,564 |
INCOME TAXES (Details 2) |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2017 |
Sep. 30, 2017 |
|
Income Taxes Details 2 | ||
U.S. statutory federal rate | 34.00% | 34.00% |
(Decrease) increase in taxes resulting from: | ||
State income tax rate, net of U.S. Federal benefit | 5.20% | 5.20% |
Net effect of permanent and temporary reconciling items | (0.09%) | 0.85% |
Effective tax rate | 39.11% | 40.05% |
INCOME TAXES (Details Narrative) |
Sep. 30, 2017
USD ($)
|
---|---|
Income Taxes Details Narrative | |
Net operating loss carryforwards | $ 2,974,597 |
STOCKHOLDERS’ EQUITY (Details Narrative) - $ / shares |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 7,500,000 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 13,933,784 | 5,000,000 |
Common stock, outstanding | 13,933,784 | 5,000,000 |
Series A Cumulative Convertible Redeemable Preferred | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 505,000 | 500,000 |
Preferred stock, issued | 502,327 | 301,570 |
Preferred stock, outstanding | 502,327 | 301,570 |
WARRANT DERIVATIVE LIABILITY (Details Narrative) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Warrant Derivative Liability Details Narrative | ||
Fair value of derivative liability | $ 18,228 | $ 24,360 |
COMMITMENTS (Details) |
Sep. 30, 2017
USD ($)
|
---|---|
Commitments Details | |
2017 | $ 188,854 |
2018 | 697,153 |
2019 | 624,024 |
2020 | 64,475 |
Total | $ 1,574,506 |
COMMITMENTS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Commitments Details Narrative | ||||
Rent expense | $ 193,985 | $ 178,946 | $ 575,181 | $ 533,168 |
Rent income | $ 46,957 | $ 45,634 | $ 140,871 | $ 136,901 |
EQUITY INCENTIVE PLAN (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Equity Incentive Plan Details Narrative | ||||
Stock compensation expense | $ 107,321 | $ 0 | $ 227,470 | $ 51,380 |
Unrecognized stock compensation expense | $ 527,347 | $ 527,347 | ||
Unrecognized stock compensation expense, recognition period | 2 years 6 months 29 days |
EMPLOYEE BENEFIT PLAN (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Employee Benefit Plan Details Narrative | ||||
Contributions | $ 25,122 | $ 31,955 | $ 60,875 | $ 69,387 |
INVENTORY (Details Narrative) - USD ($) |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Inventory Details Narrative | ||
Raw materials | $ 169,232 | $ 0 |
EARNINGS (LOSS) PER SHARE (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Basic and diluted (loss) earnings per share | ||||
Net (loss) earnings from continuing operations | $ (654,155) | $ (55,542) | $ (1,776,255) | $ 422,541 |
Less: preferred stock dividends | (73,732) | 0 | (144,141) | 0 |
Net income (loss) attributable to shareholders | $ (727,887) | $ (55,542) | $ (1,920,396) | $ 422,541 |
Weighted average common shares outstanding - basic | 11,756,560 | 9,713,956 | 10,920,866 | 7,016,373 |
Basic (loss) earnings per share | $ (0.06) | $ (0.01) | $ (0.18) | $ 0.06 |
Weighted average common shares outstanding - diluted | 11,756,560 | 9,713,956 | 10,920,866 | 7,123,160 |
Diluted (loss) earnings per share | $ (0.06) | $ (0.01) | $ (0.18) | $ 0.06 |
Common stock equivalents excluded due to anti-dilutive effect | 2,105,295 | 121,247 | 1,960,282 | 0 |
EARNINGS (LOSS) PER SHARE (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|||
Numerator: | ||||||
Net (loss) earnings from continuing operations | $ (654,155) | $ (55,542) | $ (1,776,255) | $ 422,541 | ||
Less: preferred stock dividends | (73,732) | 0 | (144,141) | 0 | ||
Net income (loss) attributable to shareholders | $ (727,887) | $ (55,542) | $ (1,920,396) | $ 422,541 | ||
Denominator (basic): | ||||||
Weighted average common shares outstanding | 11,756,560 | 9,713,956 | 10,920,866 | 7,016,373 | ||
Participating securities - Series A preferred stock | 502,327 | 0 | 473,174 | 0 | ||
Weighted average shares outstanding | 12,258,887 | 9,713,956 | 11,838,797 | 7,016,373 | ||
Loss per common share - basic under two-class method | $ (0.06) | $ (0.01) | $ (0.16) | $ 0.06 | ||
Denominator (diluted): | ||||||
Weighted average common shares outstanding | 11,756,560 | 9,713,956 | 10,920,866 | 7,123,160 | ||
Participating securities - Series A preferred stock | [1] | 502,327 | 0 | 917,931 | 0 | |
Weighted average shares outstanding | 12,258,887 | 9,713,956 | 11,838,797 | 7,123,160 | ||
Loss per common share - basic under two-class method | $ (0.06) | $ (0.01) | $ (0.16) | $ 0.06 | ||
|
EARNINGS (LOSS) PER SHARE (Details Narrative) - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Potentially dilutive securities excluded from loss per share | 2,105,295 | 121,247 | 1,960,282 | 0 |
Warrants | ||||
Potentially dilutive securities excluded from loss per share | 1,052,122 | 121,247 | 967,845 | |
Series A Preferred Stock | ||||
Potentially dilutive securities excluded from loss per share | 974,487 | 917,931 | ||
Options | ||||
Potentially dilutive securities excluded from loss per share | 78,686 | 4,167 | 74,506 | 11,923 |
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