Attached files

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EX-99.1 - AUDITED FINANCIAL STATEMENTS - Bulova Technologies Group, Inc.dex991.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - Bulova Technologies Group, Inc.dex311.htm
EX-10.1 - ACQUISITION AND EXCHANGE AGREEMENT - Bulova Technologies Group, Inc.dex101.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - Bulova Technologies Group, Inc.dex312.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - Bulova Technologies Group, Inc.dex321.htm
EX-32.2 - SECTION 906 CEO CERTIFICATION - Bulova Technologies Group, Inc.dex322.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-K

 

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2009

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number 000-09358

 

 

BULOVA TECHNOLOGIES GROUP, INC

(Exact name of registrant as specified in its charter)

 

 

 

Florida   83-0245581

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

19337 U.S. Highway 19 North, Suite 525

Clearwater, Florida 33764

(Address of principal executive offices) (Zip Code)

(727) 536-6666

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x


Table of Contents

 

As of October 13, 2010, the aggregate market value of the voting stock held by non-affiliates of the Company was $1,376,906, which excludes voting stock held by directors, executive officers and holders of 5 percent or more of the voting power of the Company’s common stock (without conceding that such persons are “affiliates” of the Company for purposes of federal securities laws). The Company has no outstanding non-voting common equity.

As of October 13, 2010, the Company had 89,496,870 shares of Common Stock issued and outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

There are no documents incorporated by reference

 

 

 


Table of Contents

 

BULOVA TECHNOLOGIES GROUP, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

 

          Page  
   PART I   
Item 1.    Business      4   
Item 2.    Properties      7   
Item 3.    Legal Proceedings      7   
Item 4.    Submission of Matters to a Vote of Security Holders      8   
   PART II   
Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters      8   
Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      8   
Item 8.    Consolidated Financial Statements      11   
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      32   
Item 9A.    Controls and Procedures      32   
   PART III   
Item 10.    Directors, Executive Officers and Corporate Governance of the Registrant      32   
Item 11.    Executive Compensation      33   
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      35   
Item 13.    Certain Relationships and Related Transactions and Director Independence      35   
Item 14.    Principal Accountant Fees and Services      36   
   PART IV   
Item 15.    Exhibits and Financial Statement Schedules      37   
   Signatures      38   

EX-31.1 Rule 13a-14(a) Certification of President and Principal Executive Officer

EX-31.2 Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer

EX-32.1 Certification of President and Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-32.2 Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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PART I

FORWARD LOOKING STATEMENTS

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements,

 

Item 1. Business

Bulova Technologies Group, Inc. (“BLVT” or the “Company”) was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”. During 2007, the Company divested itself of all assets and previous operations. During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30. The Company operates as a government contractor and a contract manufacturer in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Clearwater, Mayo and Melbourne, Florida.

On January 1, 2009, the Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the majority stockholder of the Company in exchange for 40,000,000 shares of its common stock. The assets and operations of 3Si are accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies Combat Systems LLC.

BT Manufacturing Company LLC – located in Melbourne, Florida, in a 100,000 square foot facility, assembles a wide range of printed circuit boards, including single sided through 14 layers, through-hole, surface mount and mixed. It manufactures cable assemblies and complete systems and offers value-add services such as direct-ship to end customers, depot repair and design assistance.

Bulova Technologies Ordnance Systems LLC. – located on 261 acres in Mayo, Florida is a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade Controls (DDTC). It produces a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world.

Bulova Technologies Combat Systems LLC – located in the Company’s corporate headquarters in Clearwater, Florida, Combat Systems was formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009. Bulova Technologies Combat Systems LLC functions as a broker to facilitate the movement of military articles across friendly borders to support soldiers throughout the world

Bulovatech Labs, Inc., located in Clearwater, Florida was formed to incubate, develop and license commercial applications of technologies pertinent to the defense, alternative energy and healthcare industries. Subsequent to its formation Bulovatech Labs, Inc. has made various loans and investments in both private and public companies.

Segments

Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operates in two business segments, government contracting and contract manufacturing.

 

Item 1A. Risk Factors

You should carefully consider the following risk factors and other information contained or incorporated by reference in this Form 10-K, including “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Any of these risks could materially adversely affect our business and our financial condition, results of operations and cash flows, which could in turn materially adversely affect the price of our common stock.

Our contracts (revenue arrangements) with U.S. Government customers entail certain risks.

A decline in or a redirection of the U.S. defense budget could result in a material decrease in our sales, earnings and cash flows.

Our government contracts are primarily dependent upon the U.S. defense budget. We, as well as other defense contractors, have benefited from increased overall Department of Defense (DoD) spending over recent years, including supplemental appropriations for military operations in Iraq, Afghanistan and the Global War on Terror (GWOT). However, future DoD budgets could be negatively affected by several factors, including events we cannot foresee, U.S. Government budget deficits, current or future economic conditions, new administration priorities, U.S. national security strategies, a change in spending priorities, the cost of sustaining U.S. military and

 

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related security operations in Iraq and Afghanistan and other locales around the world where U.S. military support may be pivotal, and other related exigencies and contingencies. While we are unable to predict the impact and outcome of these uncertainties, the effect of changes in these DoD imperatives could cause the DoD budget to remain unchanged or to decline (or even to increase). A significant decline in or redirection of U.S. military expenditures in the future could result in a decrease to our sales, earnings and cash flows. The loss or significant reduction in government funding of a large program in which we participate could also result in a decrease in our future sales, earnings and cash flows. U.S. Government contracts are also conditioned upon continuing approval by Congress of the amount of necessary spending.

Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. Given the potential for uncertainty in the DoD fiscal process as we begin a new political era in the United States, and given the dangerous and volatile global condition in which the U.S. is a primary stabilizing force, our approach to future business planning will include our best assessments and judgments on how to account for change and adapt to new conditions and circumstances.

We rely predominantly on sales to U.S. Government entities, and the loss of a significant number of our contracts would have a material adverse effect on our results of operations and cash flows.

Our sales are predominantly derived from contracts (revenue arrangements) with agencies of, and prime system contractors to, the U.S. Government. The loss of all or a substantial portion of our sales to the U.S. Government would have a material adverse effect on our results of operations and cash flows.

At September 30, 2009, we had 4 contracts (revenue arrangements) with individual estimated contract values in excess of $1 million. Our largest contract (revenue arrangement) in terms of annual sales was the U.S. Army RDECOM CTR contract, which generated approximately 81% of our sales, which provides for various weapons production and delivery to IRAQ to support U.S. military operations

A substantial majority of our total sales are for products and services under contracts with various agencies and procurement offices of the DoD or with prime contractors to the DoD. Although these various agencies, procurement offices and prime contractors are subject to common budgetary pressures and other factors, our customers exercise independent purchasing decisions. Because of this concentration of contracts, if a significant number of our DoD contracts and subcontracts are simultaneously delayed or cancelled for budgetary, performance or other reasons, it would have a material adverse effect on our results of operations and cash flows.

In addition to contract cancellations and declines in agency budgets, our backlog and future financial results may be adversely affected by:

 

   

curtailment of the U.S. Government’s use of technology or other services and products providers, including curtailment due to government budget reductions and related fiscal matters;

 

   

developments in Iraq, Afghanistan or other geopolitical developments that affect demand for our products and services;

 

   

our ability to hire and retain personnel to meet increasing demand for our services; and

 

   

technological developments that impact purchasing decisions or our competitive position.

Our government contracts contain unfavorable termination provisions and are subject to audit and modification. If a termination right is exercised by the government, it could have a material adverse effect on our business, financial condition and results of operations.

Companies engaged primarily in supplying defense-related equipment and services to U.S. Government agencies are subject to certain business risks peculiar to the defense industry. These risks include the ability of the U.S. Government to unilaterally:

 

   

suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

 

   

terminate existing contracts;

 

   

reduce the value of existing contracts;

 

   

audit our contract-related costs and fees, including allocated indirect costs; and

 

   

control and potentially prohibit the export of our products.

All of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. Our contracts with foreign governments generally contain similar provisions relating to termination at the convenience of the customer.

U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors

 

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General routinely audit and investigate our costs and performance on contracts, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government may adjust our contract related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some of our costs, including most financing costs, portions of research and development costs, and certain marketing expenses may not be reimbursable under U.S. Government contracts.

We may not be able to win competitively awarded contracts or receive required licenses to export our products, which would have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our government contracts are subject to competitive bidding. We obtain many of our U.S. Government contracts through a competitive bidding process. We may not be able to continue to win competitively awarded contracts. In addition, awarded contracts may not generate sales sufficient to result in our profitability. We are also subject to risks associated with the following:

 

   

the frequent need to bid on programs in advance of the completion of their design, which may result in unforeseen technological difficulties and/or cost overruns;

 

   

the substantial time, effort and experience required to prepare bids and proposals for competitively awarded contracts that may not be awarded to us;

 

   

design complexity and rapid technological obsolescence; and

 

   

the constant need for design improvement.

In addition to these U.S. Government contract risks, we are required to obtain licenses from U.S. Government agencies to export many of our products and systems. Additionally, we are not permitted to export some of our products. Failure to receive required licenses would eliminate our ability to sell our products outside the United States.

We are subject to the risks of current and future legal proceedings, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

At any given time, we are a defendant in various material legal proceedings and litigation matters arising in the ordinary course of business, including litigation, claims and assessments that have been asserted against acquired businesses, which we have assumed. Although we maintain insurance policies, these policies may not be adequate to protect us from all material judgments and expenses related to potential future claims and these levels of insurance may not be available in the future at economical prices or at all. A significant judgment against us, arising out of any of our current or future legal proceedings and litigation, could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Intense competition in the industries in which our businesses operate could limit our ability to attract and retain customers.

The defense industry and the other industries in which our businesses operate and the market for defense applications is highly competitive. We expect that the DoD’s increased use of commercial off-the-shelf products and components in military equipment will continue to encourage new competitors to enter the market. We also expect that competition for original equipment manufacturing business will increase due to the continued emergence of merchant suppliers. Additionally, some of our competitors are larger than we are and have more financial and other resources than we have.

Our level of debt and our ability to make payments on or service our indebtedness may adversely affect our financial and operating activities or ability to incur additional debt.

With our January 1 2009 acquisition of 3Si Holdings, Inc., we assumed a certain amount of indebtedness associated with the business operations acquired. At September 30, 2009, we had approximately $2.9 million in aggregate principal amount of outstanding debt.

In addition, at September 30, 2009, we had approximately $4.3 million of indebtedness to shareholders under revolving credit facilities with our Chairman and Chief Executive Officer.

In the future, we may need to increase our borrowings, subject to limitations imposed on us by our debt agreements. Further discussion concerning the scheduled maturity of our outstanding debt, is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources

Our ability to make scheduled payments of principal and interest on our indebtedness and to refinance our existing debt, including the scheduled maturities of our outstanding debt, depends on our future financial performance as well as our ability to access the capital markets, and the relative attractiveness of available financing terms. We do not have complete control over our future financial performance because it is subject to economic, political, financial (including credit market conditions), competitive, regulatory and other factors affecting the defense industry, as well as commercial industries in which we operate. It is possible that in the future our business may not generate sufficient cash flow from operations to allow us to service our debt and make necessary capital expenditures. If this

 

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situation occurs, we may have to reduce costs and expenses, sell assets, restructure debt or obtain additional equity capital. We may not be able to do so in a timely manner or upon acceptable terms in accordance with the restrictions contained in our debt agreements.

Our level of indebtedness has important consequences to us. These consequences may include:

 

   

requiring a substantial portion of our net cash flow from operations to be used to pay interest and principal on our debt and therefore be unavailable for other purposes, including acquisitions, capital expenditures, paying dividends to our shareholders, repurchasing shares of our common stock, research and development and other investments;

 

   

limiting our ability to obtain additional financing for acquisitions, working capital, investments or other expenditures, which, in each case, may limit our ability to carry out our acquisition strategy;

 

   

increasing interest expenses due to higher interest rates on our borrowings that have variable interest rates;

 

   

heightening our vulnerability to downturns in our business or in the general economy and restricting us from making acquisitions, introducing new technologies and products or exploiting business opportunities; and

 

   

impacting debt covenants that limit our ability to borrow additional funds, dispose of assets, or repurchase shares of our common stock. Failure to comply with such covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our outstanding indebtedness.

Environmental laws and regulations may subject us to significant liability.

Our operations are subject to various U.S. federal, state and local laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations.

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require us to incur a significant amount of additional costs in the future and could decrease the amount of free cash flow available to us for other purposes, including capital expenditures, research and development and other investments and could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Termination of our backlog of orders could negatively impact our results of operations and cash flows.

We currently have a backlog of orders, primarily under contracts with the U.S. Government. As described above, the U.S. Government may unilaterally modify or terminate its contracts. Accordingly, most of our backlog could be modified or terminated by the U.S. Government, which would negatively impact our results of operations and cash flows.

Global economic recession, continued tightening of credit markets, and U.S. Government intervention in financial and other industries may adversely affect our results.

Domestic and foreign economies and equity and fixed income markets have recently experienced significant declines, and severely diminished liquidity and credit availability. These economic conditions are currently negatively impacting, and could continue to adversely affect, our sales to the commercial markets in which we operate, including our contract manufacturing business.

Additionally, while we are unable to predict the impact and outcome of these economic events and the U.S. Government’s intervention to shore up financial and other industries, these events could also negatively affect future U.S. defense budgets and spending and, consequently, our financial condition, results of operations and cash flows.

 

Item 1B. Unresolved Staff Comments

None.

 

Item 2. Property

At September 30, 2009 the Company operated corporate and administrative offices in two leased facilities, one in Clearwater, Florida, approximating 2,400 square feet, and the other in Brandon, Florida, approximating 5,000 square feet.

The Company temporarily operated its contract manufacturing business segment in a 100,000 square facility located in Melbourne, Florida through November of 2009, at which time the operation was relocated to a new location of approximately 35,000 square feet.

Our government contracting business segment is located on 261 acres owned by the Company in Mayo, Florida, where we operate a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. There are more than 38 buildings on the property consisting of warehouses, storage, and manufacturing facilities.

 

Item 3. Legal Proceedings

 

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From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

 

Item 4. Submission of Matters to a Vote of Security Holders

During the year ended September 30, 2009 no matters were presented to our shareholders for approval.

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our Common Stock was traded on the “pink sheets” operated by the National Association of Securities Dealers, Inc., under the trading symbol “TSIH” from January 2, 1987 until April 2005. Our Common Stock traded on the Over-the-Counter Bulletin Board under the same symbol, but because of our failure to timely file reports pursuant to the Securities Exchange Act of 1934, as amended, we were delisted from trading on the OTCBB. As of the date of this report, our Common Stock is traded again on the “pink sheets” under the trading symbol “BLVT” We intend to cause an application to be filed to allow us to return to the Bulletin Board once we become current in our filings. However, there can be no assurances that our application will be approved.

The range of closing bid prices shown below is as reported by these markets. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

 

Quarter Ending

   High      Low  

December 31, 2007

   $ 0.45       $ 0.16   

March 31, 2008

     0.60         0.18   

June 30, 2008

     0.67         0.22   

September 30, 2008

     0.52         0.15   

December 31, 2008

   $ 3.30       $ 0.15   

March 31, 2009

     3.30         0.15   

June 30, 2009

     2.75         1.00   

September 30, 2009

     1.50         0.30   

The closing bid price of our Common Stock on October 25, 2010, was $.06

As of October 25, 2010, there were approximately 1,500 shareholders of record of our Common Stock, not including those persons who hold their shares in “street name”.

We have not paid any dividends on our Common Stock since our inception. We do not foresee that we will have the ability to pay a dividend on our Common Stock in the fiscal year ended September 30, 2010.

As of the date of this Report, our Common Stock is traded on the “pink sheets” operated by the National Association of Securities Dealers.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements.

Overview:

Bulova Technologies Group, Inc. currently operates in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the US. Government and other Allied Governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC., and Bulova Technologies Combat Systems LLC, The Contract Manufacturing segment produces cable assemblies, circuit boards as well as complete systems, and is accounted for through BT Manufacturing Company, LLC, another of its wholly owned subsidiaries.

Application of critical accounting policies:

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s unaudited

 

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Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and corresponding disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we continue to evaluate our estimates which in large part are based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Results of operations for the year ended September 30, 2009:

The Company’s revenue for the year ended September 30, 2009 of $21,497,542 has all been generated through the subsidiaries acquired on January 1, 2009. The Company did not have any revenue for the year ended September 30, 2008.

The Company’s cost of sales for the year ended September 30, 2009 of $17,821,871 has all been generated through the subsidiaries acquired on January 1, 2009. The Company did not have any cost of sales for the year ended September 30, 2008.

The Company’s gross profit for the year ended September 30, 2009 of $3,675,671 has all been generated through the subsidiaries acquired on January 1, 2009. The Company did not have any gross profit for the year ended September 30, 2008.

The Company’s operating expenses consisting of selling, general and administrative, depreciation and amortization, and interest for the quarter ended September 30, 2009 has all been generated through the subsidiaries acquired on January 1, 2009. The Company did not incur any operating expenses for the year ended September 30, 2008.

The Company did not have any related party stock based compensation for the year ended September 30, 2009. Related party stock based compensation for the year ended September 30, 2008 in the amount of $560,000 was a one-time transaction representative of compensation for the services of the Chairman of the Board.

The Company’s net loss for the year ended September 30, 2009 of $3,829,283 has all been generated through the subsidiaries acquired on January 1, 2009. The net loss for the year ended September 30, 2008 of $560,000 consisted entirely of the related party stock based compensation incurred.

Liquidity and capital resources:

As of September 30, 2009, the Company’s sources of liquidity were a combination of cash flows generated from operations, and loans from shareholders.

As of September 30, 2009, we had $69,295 in cash and cash equivalents.

Cash flows used in operating activities was $2,216,716 for the year ended September 30, 2009.

Cash flows used in investing activities was $990,507 for the year ended September 30, 2009 and consisted of acquisitions of property, plant and equipment of $239,859 and investments in multiple companies through Buovatech Labs of $772,310.

Cash flows from financing activities were $3,276,518 for the year ended September 30, 2009, and included loans from shareholders in the amount of $3,353,612.

The Company’s ability to cover its operating and capital expenses, and make required debt service payments will depend primarily on its ability to generate substantial operating cash flows.

The Company’s business may not generate cash flows at sufficient levels, and it is possible that currently anticipated contract awards may not be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, refinance all or a portion of our existing debt as well as our operating needs, or obtain additional financing and we may not be able to do so on a timely basis, on satisfactory terms, or at all. Our ability to make scheduled principal payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the U.S. defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

While the Company believes that anticipated revenues resulting from additional contract awards accompanied by its efforts will be sufficient to bring profitability and a positive cash flow to the Company, it is uncertain that these results can be achieved. Accordingly, the Company will, in all likelihood have to raise additional capital to operate. There can be no assurance that such capital will be available when needed, or that it will be available on satisfactory terms.

 

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There are no off-balance sheet arrangements.

Our ability to utilize net operating loss carry forwards may be limited

As of September 30, 2009, the Company had net operating loss carry forwards (NOLs) of approximately $3.7 million for federal income tax purposes that will begin to expire between the years of 2019 and 2027. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years. We may be found to have experienced an ownership change under Section 382 as a result of events in the past or the issuance of shares of common stock upon a conversion of notes, or a combination thereof. If so, the use of our NOLs, or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of our NOLs before utilization.

 

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Item 8. Consolidated Financial Statements

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     12   

Consolidated Balance Sheets as of September 30, 2009 and 2008

     13   

Consolidated Statements of Operations for the Years Ended September 30, 2009 and 2008

     14   

Consolidated Statements of Cash Flows for the Years Ended September 30, 2009 and 2008

     15   

Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended September  30, 2009 and 2008

     17   

Notes to Consolidated Financial Statements

     18   

 

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Randall N. Drake, C.P.A., P.A.

1981 Promenade Way

Clearwater, FL 33760

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Bulova Technologies Group, Inc.

We have audited the accompanying consolidated balance sheets of Bulova Technologies Group, Inc. and subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of operations, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required at this time to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bulova Technologies Group, Inc. and subsidiaries as of September 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Randall N. Drake, CPA, PA

Randall N. Drake, CPA, PA

Clearwater, Florida

November 16, 2010

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

     September 30,  
     2009     2008  

ASSETS

    

Cash and cash equivalents

   $ 69,295      $ —     

Accounts receivable

     1,147,321        —     

Contract claim receivable

     —          —     

Inventory

     2,617,817        —     

Other current assets

     56,252        —     
                

Total Current Assets

     3,890,685        —     

Property, plant and equipment

     3,926,829        —     

Investments

     2,058,385        —     

Other assets

     549,839        —     
                
   $ 10,425,738      $ —     
                

LIABILITIES AND SHAREHOLDERS’ DEFICIT

    

Accounts payable and accrued expenses

   $ 2,504,026      $ —     

Advance payments and billings in excess of cost

     4,327,946        —     

Current portion of long term debt

     1,361,749        —     
                

Total current liabilities

     8,193,721        —     

Deferred revenue

     540,531        —     

Shareholder loans and accrued interest

     4,294,589        195,000   

Long term debt, net of current portion–

     1,512,444        —     
                
     14,541,285        195,000   
                

Commitments and contingencies

     —          —     

Shareholders’ deficit

    

Common stock, $.001 par; authorized 150,000,000 shares, 72,355,910 and 6,355,910 issued and 72,352,910 and 6,352,910 outstanding at September 30, 2009 and 2008

     72,355        6,355   

Additional paid in Capital in excess of par

     6,407,159        6,564,423   

Retained earnings (deficit)

     (10,556,877     (6,727,594

Treasury stock at cost – 3,000 shares

     (38,184     (38,184
                
     (4,115,547     (195,000
                
   $ 10,425,738      $ —     
                

See accompanying notes to consolidated financial statements.

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Years Ended September 30,  
     2009     2008  

Revenues

   $ 21,497,542      $ —     

Cost of revenues

     17,821,871        —     
                

Gross profit

     3,675,671        —     
                

Selling and administrative expenses

     7,100,724        —     

Depreciation and amortization expense

     336,174     

Interest expense

     153,854     

Related party stock based compensation

     —          560,000   
                

Total expenses

     7,590,752        560,000   
                

Loss from operations

     (3,915,081     (560,000

Other income (expense)

    

Other income

     85,798        —     
                

Loss before income taxes

     (3,829,283     —     

Income tax expense

     —          —     
                

Net loss

   $ (3,829,283   $ (560,000
                

Basic and diluted net loss per common share

   $ (.06   $ (.12
                

Weighted average common shares, basic and diluted

     55,927,339        4,697,592   
                

See notes to consolidated financial statements.

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Years Ended September 30,  
     2009     2008  

Cash flows from operating activities:

    

Net loss

   $ (3,829,283   $ (560,000

Adjustments to reconcile net loss to net cash used by operating activities:

    

Related party compensation funded through stock issuance

     —          560,000   

Issuance of common stock for securitization

     2,000        —     

Depreciation and amortization

     336,174        —     

Recognition of deferred revenue

     (73,044     —     

Changes in operating assets and liabilities:

    

Accounts receivable

     (1,147,321     —     

Inventory

     535,338        —     

Prepaid expenses and other assets

     (570,827     —     

Accounts payable and accrued expenses

     1,402,898        —     

Advance payments and billings in excess of costs

     1,127,349        —     
                

Net cash used by operating activities

     (2,216,716     —     
                

Cash flows from investing activities:

     21,662        —     

Cash acquired in business acquisition

    

Investments in multiple companies

     (772,310     —     

Purchase of property and equipment

     (239,859     —     
                

Net cash used by investing activities

     (990,507     —     

Cash flows from financing activities:

    

Shareholder advances

     3,353,612        —     

Repayments of long term debt

     (77,094     —     
                

Net cash provided by financing activities

     3,276,518        —     
                

Increase in cash and cash equivalents

     69,295        —     

Cash and cash equivalents, beginning

     —          —     
                

Cash and cash equivalents, ending

   $ 69,295      $ —     
                

Supplemental schedule of non-cash financing and investing activities:

    

Cash paid for interest

   $ 108,254      $ —     

Cash paid for taxes

   $ —        $ —     

During 2009, the Company:

 

   

November 4, 2008, the Company issued 14,000,000 shares of common stock to pay down the amount of loan payable – related party – eSPG, reducing the remaining balance to $24,375

 

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January 1, 2009, the Company issued 8,000,000 shares of common stock in conjunction with the acquisition of 3Si Holdings, Inc. The shares have been issued as satisfaction of a warrant obligation assumed, and are being held in trust for the warrant holder, Webster Business Capital Corporation.

 

   

January 1, 2009, the Company issued 40,000,000 shares of common stock in exchange for the stock of 3Si Holdings, Inc. valued as follows:

 

Cash

   $ 21,662   

Inventory

     3,153,155   

Contract claim receivable

     3,200,597   

Contract claim reserve

     (3,200,597

Property and equipment - net

     4,021,146   

Other assets

     37,262   

Accounts payable and accrued expenses

     (1,101,128

Advance payments on government contracts

     (3,200,597

Shareholder loans payable

     (693,477

Long term debt

     (2,526,287

Deficit equity acquired

     288,264   
        

Value of common stock issued

   $ —     
        

 

   

May 7, 2009, the Company received 45,000,000 shares of Pangenex Corporation common stock in exchange for a license to certain technologies owned by the company. The shares were valued at $613,575.

 

   

July 1, 2009, the Company received 48,083,333 shares of New Green Technologies, Inc. common stock as satisfaction of a loan receivable from New Green. The shares were valued at the face amount of the receivable satisfied of $672,500.

 

   

July 13, 2009, the Company issued 2,000,000 shares of common stock to pay off the remaining amount of loan payable – related party – eSPG in the amount of $24,375

See notes to consolidated financial statements.

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

 

     Common Stock                          
     Number of
Shares
    Amount     Additional
Paid in
Capital
    Accumulated
(deficit)
    Treasury
Stock
    Total  

Balances, September 30, 2008 –as previously stated - par $.01

     95,326,943        953,269        5,617,509        (6,727,594     (38,184     (195,000

Adjustment to reflect reverse split of 1 for 15 common shares

     (88,971,033     (889,710     889,710            —     

Adjustment to reflect change in par value from $.01 to $.001

       (57,204     57,204            —     
                                                

Balances, September 30, 2008 – as restated - par $.001

     6,355,910        6,355        6,564,423        (6,727,594     (38,184     (195,000

Issuance of shares for reduction of related party debt

     14,000,000        14,000        156,625            170,625   

Issuance of shares to acquire 3Si Holdings, Inc.

     40,000,000        40,000        (40,000         —     

Deficit equity acquired with the acquisition of 3Si Holdings, Inc.

         (288,264         (288,264

Issuance of shares in satisfaction of warrant obligation

     8,000,000        8,000        (8,000         —     

Issuance of shares for securitization

     2,000,000        2,000              2,000   

Issuance of shares for reduction of related party debt

     2,000,000        2,000        22,375            24,375   

Net loss for the year ended September 30, 2009

           (3,829,283       (3,829,283
                                                

Balances, September 30, 2009 – par $.001

     72,355,910      $ 72,355      $ 6,407,159      $ (10,556,877   $ (38,184   $ (4,115,547
                                                

See notes to consolidated financial statements.

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

1. Description of business:

Bulova Technologies Group, Inc. (“BLVT” or the “Company”) was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”. During 2007, the Company divested itself of all assets and previous operations. During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30. On January 1, 2009 the Company acquired the stock of a private company that was under common control and began operations in Florida. The Company operates as a government contractor and a contract manufacturer in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Clearwater, Mayo and Melbourne, Florida.

2. Principles of consolidation and basis of presentation:

These consolidated financial statements include the assets and liabilities of Bulova Technologies Group, Inc. as of September 30, 2008 and the assets and liabilities of Bulova Technologies Group, Inc. and its subsidiaries as of September 30, 2009. The results of operations for the acquired company and subsidiaries have been included from the date of acquisition, January 1, 2009 through September 30, 2009. All material intercompany transactions have been eliminated.

On January 1, 2009, the Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the majority stockholder of the Company in exchange for 40,000,000 shares of its common stock. The assets and operations of 3Si are accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies Combat Systems LLC.

BT Manufacturing Company LLC – located in Melbourne, Florida, in a 100,000 square foot facility, assembles a wide range of printed circuit boards, including single sided through 14 layers, through-hole, surface mount and mixed. It manufactures cable assemblies and complete systems and offers value-add services such as direct-ship to end customers, depot repair and design assistance.

Bulova Technologies Ordnance Systems LLC. – located on 261 acres in Mayo, Florida is a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade Controls (DDTC). It produces a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world.

Bulova Technologies Combat Systems LLC – located in the Company’s corporate headquarters in Clearwater, Florida, Combat Systems was formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009. Bulova Technologies Combat Systems LLC functions as a broker to facilitate the movement of military articles across friendly borders to support soldiers throughout the world

Bulovatech Labs, Inc., located in Clearwater, Florida was formed to incubate, develop and license commercial applications of technologies pertinent to the defense, alternative energy and healthcare industries. Subsequent to its formation Bulovatech Labs, Inc. has made various loans and investments in both private and public companies.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2009 and the results of operations and cash flows for the years ended September 30, 2009 and 2008.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Subsequent Events

The Company has evaluated subsequent events through November 12, 2010 to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.

Business Segments

Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operates in two business segments, government contracting and contract manufacturing.

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

Use of Estimates

The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Financial Instruments

The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.

Fair Value Measurement

All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value.

Level 1: Quotes market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.

Level 3: Unobservable inputs that were not corroborated by market data.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk.

Accounts receivable

Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company’s business segments. The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts.

The majority of the Company’s revenues and accounts receivable pertain to contracts with the US Government.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market. Market was generally considered to be net realizable value. Inventory consisted of materials used to manufacture the Company’s products work in process and finished goods ready for sale. The breakdown of inventory at September 30, 2009 and 2008 is as follows:

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

     As of September 30,  
     2009      2008  

Finished goods

   $ 18,760       $ —     

Work in process

     295,952         —     

Materials and supplies

     2,303,105         —     
                 

Total inventory

   $ 2,617,817       $ —     
                 

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 10 to 20 years for buildings and improvements and 5 to 10 years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition are valued at fair value.

Property, plant and equipment are comprised of the following at September 30, 2009 and 2008

 

     As of September 30,  
     2009     2008  

Land

   $ 1,225,000      $ —     

Buildings and improvements

     1,170,194        —     

Machinery and equipment

     1,919,035        —     

Furniture and fixtures

     93,507        —     
                
     4,407,736        —     

Less accumulated depreciation

     (480,907     —     
                

Net Property, plant and equipment

   $ 3,926,829      $ —     
                

Impairment of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets’ carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.

Revenue Recognition

Sales revenue is generally recognized upon the shipment of product to customers or the acceptance by customers of the product. Allowances for sales returns, rebates and discounts are recorded as a component of net sales in the period the allowances were recognized. The majority of the Company’s revenue is generated under various fixed and variable price contracts as follows:

Revenues on fixed-price type contracts are recognized using the Percentage-Of-Completion (POC) method of accounting as specified in government contract accounting standards and the particular contract. Revenues earned on fixed-price production contracts under which units are produced and delivered in a continuous or sequential process are recognized as units are delivered based on their contractual selling prices (the “Units-of-Delivery” basis of determination). Sales and profits on each fixed-price production contract under which units are not produced in a continuous or sequential process are recorded based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

estimated contract revenue, less cumulative sales recognized in prior periods (the “Cost-to-Cost” basis of determination). Under both types of basis for determining revenue earned, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year. The estimated total profit margin is evaluated on a periodic basis by management throughout the term of an individual contract to determine if the estimated total profit margin should be adjusted.

The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances.

Cost of Revenues

The costs of revenues include direct materials and labor costs, and indirect labor associated with production and shipping costs.

Advertising Costs

The costs of advertising are expensed as incurred and are included in the Company’s operating expenses. Advertising expenses for the years ended September 30, 2009 and 2008 were $21,109 and $0, respectively.

Shipping Costs

The Company includes shipping costs in cost of goods sold.

Income Taxes

Income tax benefits or provisions are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled. Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The Company follows the guidance provided by FIN 48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.

Loss per Common Share

Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. Some of the accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management and evaluated for the potential effect on these consolidated financial statements include:

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-03, SEC Update — Amendments to Various Topics Containing SEC Staff Accounting Bulletins. This ASU updated cross-references to Codification text.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures — Overall, to provide guidance on the fair value measurement of liabilities.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-08, Earnings Per Share Amendments to Section 260-10-S99. This Codification Update represents technical corrections to Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that Includes a Redemption or an Induced

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This Accounting Standards Update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Section 323-10-S99-4 was originally entered into the Codification incorrectly.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-12, Fair Value Measurements and Disclosures (Topic 820), Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall, to provide guidance on the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent).

Management does not believe any of the subsequent pronouncements noted above will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2009 through the date these financial statements were issued.

3. Acquisition of 3Si Holdings, Inc.

On December 16, 2008, BT Acquisition Company LLC purchased from Webster Business Credit Corporation, various assets including inventory, machinery and equipment, and the membership interest of Bulova Technologies Ordnance Systems LLC, an operating company, under Section 9 of the Uniform Commercial Code as enacted in the state of New York. The primary reason for the acquisition was to acquire the rights to current and future government contracts and the operating assets of Bulova Technologies Ordnance Systems LLC to complete those contracts.

BT Acquisition Company LLC accounted for the assets, liabilities and ownership interests in accordance with the provisions of ASC 805, Business Combinations for acquisitions occurring in years beginning before December 15, 2008 (formerly SFAS No. 141, Business Combinations). As such, the recorded costs of the assets acquired were limited to the consideration given, and consequently not recorded at the fair market value of the assets received. The values recorded as of the date of acquisition are as follows:

 

Contract Claim

   $ 3,200,597   

Reserve against claim

     (3,200,597

Inventory

     3,153,155   

Property plant and equipment

     4,021,146   

Other assets

     34,745   
        

Total assets acquired

   $ 7,209,046   
        

Current liabilities assumed

   $ 4,195,135   

Long term debt assumed

     1,603,911   

Shareholder loans

     585,000   

Acquisition debt

     825,000   
        

Total consideration given

   $ 7,209,046   
        

On December 17, 2008 BT Manufacturing Company LLC was formed. Everything acquired from Webster Business Credit Corporation except for what was part of Bulova Technologies Ordnance LLC was placed into BT Manufacturing Company LLC with the intent of starting a contract manufacturing business. During December 2008 BT Manufacturing Company LLC incurred various liabilities and paid certain expenses as a part of this process.

On January 1, 2009, Bulova Technologies Group, Inc. acquired 100% of the outstanding stock of 3Si Holdings, Inc. (Florida) by issuing 40,000,000 shares of its common stock.

The majority shareholder of Bulova Technologies Group, Inc. also held a majority interest in 3Si Holdings, Inc. and

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

maintained his controlling interests in both entities both before and after the transaction. Accordingly, the acquisition of 3Si Holdings, Inc. (Florida) has been accounted for as a corporate re-organization because of the retention of common control. The book value of 3Si Holdings, Inc. (Florida) at the time of the acquisition was as follows:

 

Cash

   $ 41,793   

Contract Claim

     3,200,597   

Reserve against claim

     (3,200,597

Inventory

     3,153,155   

Property plant and equipment

     4,021,146   

Other assets

     37,262   
        

Total assets

   $ 7,253,356   
        

Current liabilities assumed

   $ 5,244,232   

Shareholder loans assumed

     693,477   

Long term debt assumed

     1,603,911   

Equity deficit acquired

     (288,264
        

Total liabilities and deficit

   $ 7,253,356   
        

Pro forma results of operations for the years ended September 30, 2009 and 2008 as though this acquisition had taken place at October 1, 2007 are as follows:

 

     Years Ended September 30,  
     2008     2009  

Revenues

   $ 1,364,230      $ 21,929,477   
                

Net loss

   $ (964,822   $ (4,055,237
                

Net loss per share

   $ (0.21   $ (0.07
                

The unaudited pro forma results disclosed in the table above are based on various assumptions and are not necessarily indicative of the results of operations that would have occurred had the Company completed this acquisition on October 1, 2007.

4. Contract Claim Receivable

The acquisition of 3Si Holdings, Inc. included the membership interest in Bulova Technologies Ordnance Systems LLC which had certain obligations to perform on then existing contracts with the US Government. Bulova Technologies Ordnance Systems, LLC had received advance funding under these contracts by the US Government through Performance-Based-Payments, a method of financing designed by the government to provide working capital to small business contractors so they can purchase the materials needed to fulfill the contract. At the time of the acquisition, the US Government had provided advance financing on the assumed contracts in the amount of $3,200,597.

In accordance with the provisions of Section 9-610 of the Uniform Commercial Code as enacted in the state of New York these cash funds amounting to $3,200,597 were retained by Webster Business Capital Corporation, the secured lender that had acquired the assets pursuant to the Section 9 foreclosure proceedings. The Company has performed under the contract and has filed a claim against the secured lender, Webster Bank, for the recovery of these funds.

The Company is attempting to resolve this matter, and expects to be successful in recovering these amounts. However, as in all matters in litigation, the outcome is not certain and amounts recovered, if any, could be materially different than expected. These amounts, which are not carried as assets on the balance sheet, will be recorded as revenue when such claims are settled.

5. Investments

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

Investments represent various loans and investments in both private and public companies through Bulovatech Labs. Loans are reported at cost and equity investments are valued at fair value. Equity investments are primarily in technology development companies and are not held for resale.

On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT).

At September 30, 2009 the carrying and fair values of the investments were as follows:

Investments

 

     Carrying
Value
     Gain      Loss      Fair Value  

Level 1 Equity Investments

   $ 672,500       $ —         $ —         $ 672,500   

Level 2 Equity Investments

     938,575         —           —           938,575   

Level 2 Loans

     447,561         —           —           447,561   
                                   
   $ 2,058,636       $ —         $ —         $ 2,058,636   
                                   

6. Advance Payments and Billings in Excess of Cost

Advance payments and billings in excess of costs represents liabilities of the Company associated with contracts in process as of the balance sheet date, and consist of the following:

Advance Payments – The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances. On January 1, 2009, with the acquisition of 3Si Holdings, Inc. and membership interest of Bulova Technologies Ordnance Systems LLC, the Company assumed certain obligations to perform contracts with the US Government with an outstanding balance at the date of acquisition of $3,200,597. The balance outstanding as of September 30, 2009 is $1,487,638.

Advanced payments

 

     2009      2008  

Initial Funding

   $ 3,200,597       $ —     

Amount billed to date

     1,903,288         —     

Amount received 10%

     190,329         —     
                 

Net amount from advanced funding

     1,712,959         —     

Remaining advanced funding

   $ 1,487,638       $ —     
                 

Billings in Excess of Cost plus Earnings on Uncompleted Contracts – The Company accounts for fixed-price production contracts under which units are not produced in a continuous or sequential process based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract price.

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

Billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of September 30, 2009 are $2,840,308.

Billing in Excess

 

     2009     2008  

Total contract amount

   $ 23,674,556      $ —     

Total estimated costs

     20,090,239        —     

Amount incurred to date

     14,440,539        —     

Percentage complete

     72  

Amount earned to date

     17,016,888        —     

Amount Received to date

     19,857,197        —     

Billing in excess of costs plus earning on uncompleted contracts

   $ 2,840,308      $ —     
                

7. Deferred Revenue

Deferred revenue represents the unamortized portion of the fair value of the stock received for license rights to technology owned by Bulovatech Labs. The license fee is being amortized on a straight line basis over the initial term of the license agreement, of 3 years. The revenue recognized for the year ended September 30, 2009 is $73,044.

Deferred revenue to be recognized over the next five years is as follows:

 

Years ended September 30,         2010

   $ 204,525   

                         2011

     204,525   

                         2012

     131,481   

                         2013

     —     

                         2014

     —     
        
   $ 540,531   
        

8. Long Term Debt

Long term debt consisted of the following as of:

 

     September 30,  
     2009      2008  

Promissory note payable to Webster Business Capital Corporation, dated December 16, 2008, in the original amount of $825,000 payable in full on March 31, 2009, with interest at 4.5% annually. This note was not repaid and is still outstanding as of the issuance of these financial statements. This note is secured by a lien on real estate, timber rights and certain equipment with net carrying values of approximately $2,000,000 at September 30, 2009.

   $ 825,000       $ —     

Mortgage payable to Bank of America, dated March 10, 2006, in the original amount of $840,000 payable in monthly fixed principal payments of $4,667 plus variable interest at 2.5% plus the banks index rate, secured by real estate with carrying values of approximately $1,500,000 at September 30, 2009. Final payment is due on March 10, 2021.

     644,000         —     

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

Note payable to Harold L. and Helene M. McCray, dated October 19, 2005, in the original amount of $1,070.000, bearing interest at 8% per annum, payable in monthly installments of $10,225.48 secured by land and buildings with carrying values of approximately $1,500,000 at September 30, 2009. Final payment is due on December 1, 2020.

     912,279        —     

Note payable to Edward Viola, dated October 19, 2005, in the original amount of $80,000, bearing interest at 8% per annum, payable in monthly installments of $764.52. Final payment is due on December 1, 2020.

     67,914        —     

Loan payable to an individual in the amount of $300,000, non interest bearing and unsecured. This note is payable through the issuance of 1,500,000 shares of common stock on November 24,2009

     300,000        —     

Loan payable to an individual in the amount of $125,000, non interest bearing and unsecured. This note is payable through the issuance of 600,000 shares of common stock on November 24, 2009

     125,000        —     
                
     2,874,193        —     

Less current portion

     (1,361,749     —     
                
   $ 1,512,444      $ —     
                

Principal maturities of long term debt for the next five years and thereafter as of September 30, 2009 are as follows:

 

Period ended September 30,       

2010

   $ 1,361,749   

2011

     116,376   

2012

     121,387   

2013

     126,814   

2014

     132,691   

Thereafter

     1,015,176   
        
   $ 2,874,193   
        

9. Income Taxes

Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry forwards. The Company evaluates temporary differences resulting from the different treatment of items for tax and accounting purposes and records deferred tax assets and liabilities on the balance sheet using the tax rates expected when the temporary differences reverse.

On January 1 2009 the Company acquired for stock of 3SI Holdings in exchange for shares of the Company’s common stock. For income tax purposes this transaction has been treated as a tax free reorganization under the provisions of Section 368A of

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

the Internal Revenue Code. 3SI Holdings had various net operating loss carry overs. Because of the change in ownership of 3SI Holdings, the net operating loss carry-overs will transfer to the Company. The transferred net operating losses are subject to an annual limitation under the provisions of Section 382 of the Internal Revenue Code to offset future taxable income of the Company. These net operating loss carry-overs are included in the deferred tax asset of the Company.

The income tax provision consists of the following for the years ending September 30 2009 and 2008:

 

     9/30/2009      9/30/2008  

Current

     

Federal

   $ —         $ —     

State

     —           —     
                 
   $ —         $ —     
                 

Deferred - Continuing Operations

     

Federal

   $ —         $ —     

State

     —           —     
                 
   $ —         $ —     
                 

The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2008 based on uncertainties concerning its ability to generate taxable income in future periods. Based on current events management has re-assessed the valuation allowance and the recognition of the deferred tax assets attributable to the net operating losses and other assets. Based on the Company’s history of losses and other negative evidence, the Company has determined that the valuation allowance should be increased accordingly to offset the entire deferred tax asset.

As of September 30, 2009 the Company had federal net operating loss carry forwards of approximately $3,725,000 and Florida net operating loss carry forwards of approximately $3,600,000. The federal net operating loss carry forwards will expire in 2020 through 2029 and state net operating loss carry forwards that will expire in 2028 through 2029.

The components of deferred tax assets and liabilities as of September 30, 2009 and 2008 is as follows:

 

     Current     Non-Current  

Deferred tax assets:

    

NOL and contribution carry forwards

   $ —          1,404,085   

Property & Equipment

     —          12,808   

Accrued Comp

     109,880        —     

Accrued Interest

     17,160        —     

Accrued Marketing Fee

     26,936        —     

Share based Compensation

     —          210,728   
                
     153,976        1,627,621   

Valuation Allowance

     (153,976     (1,627,621
                

Net Deferred Tax Asset

   $ —        $ —     
                

Deferred tax (liabilities):

    

Net Deferred Tax Liability

   $ —        $ —     
                

Net deferred tax asset (liability)

   $ —        $ —     
                

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

The change in the valuation allowance is as follow:

 

September 30, 2008

   $ —     

September 30, 2009

     1,781,597   
        

Increase in valuation allowance

   $ 1,781,597   
        

The Company increased the valuation allowance by approximately $378,000 in the period ending September 30 2009. The valuation allowance was increased to offset the current year net operating loss and the net operating losses acquired from 3SI Holdings, Inc. as well as the other identified tax assets.

The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:

 

Continuing Operations    9/30/2009     9/30/2008  

Expected provision at US statutory rate

     34.00     —     

State income tax net of federal benefit

     3.63     —     

Permanent and Other Differences

     —          —     

Valuation Allowance

     (37.63 )%      —     
                

Effective Income Tax Rate

   $ —        $ —     
                

The Company files income tax returns on a consolidated basis in the United States federal jurisdiction and the State of Florida. As of September 30, 2009, the tax returns for the Company for the years ending 2008 and 2009 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. In addition the tax returns related to 3SI remain open to federal and state examination for the periods ending June 2005 through 2008. The Company and its subsidiaries are not currently under examination for any period.

The Company has adopted a policy to recognize interest and penalties accrued related to unrecognized tax benefits in its income tax provision. The Company has evaluated its unrecognized tax benefits and determined that due to the NOL carry forwards, that no accrual of interest and penalties is required in the current period.

10. Commitments and Contingencies

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

The Company operates corporate and administrative offices in two leased facilities, one in Clearwater, Florida, and the other in Brandon, Florida. During the quarter ended March 31, 2009, the Clearwater location was leased for a monthly base rent of $4,170 with an original expiration date of May 31, 2010. Effective May 1, 2009, this lease was been amended to increase the square footage and increase the base rental to $6,717 per month, increased by 3% each year through the new expiration date of April 30, 2012 The Brandon location is leased for a monthly rental of $17,275 with an expiration date of December 21, 2027.

The Company operated its contract manufacturing business segment in facilities located in Melbourne, Florida at a monthly rental of $111,111. This facility is owned by an independent third party, and the use of the facility was provided for by Stephen L Gurba, our Chief Executive Officer and a shareholder of the Company through November of 2009, at which time the Company relocated to a different facility under a new lease.

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

The Company leased certain equipment used in its contract manufacturing business segment from Lamar Systems Co., a related corporation owned by Stephen L Gurba, our Chief Executive Officer and a shareholder of the Company for $65,000 per month. In December 2009, the Company purchased the equipment under this lease cancelling any future obligation under this lease from that point forward.

The Company leases certain equipment used in its contract manufacturing segment from Fleetwood Leasing, LLC, under various leases. The lease terms are for three years with an expiration date of April 2012. The total of the monthly lease payments through December 2009 are $6,000. The leases were modified effective January 1, 2010 whereby the monthly lease payments were reduced to $3,371 for the remainder of the lease term.

Total rent expense for the year ended September 30, 2009, was approximately $1,871,000.

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of September 30, 2009 are as follows:

 

Period ended September 30

  

2010

   $ 673,506   

2011

     554,462   

2012

     493,931   

2013

     433,400   

2014

     433,400   

Thereafter

     2,558,266   
        
   $ 5,146,965   
        

11. Related Party Transactions

The following related party transactions not disclosed elsewhere in this document are as follows:

On November 4, 2008, and then on July 13, 2009, the Company settled the full amount of the amount of the outstanding debt to eSPG through the issuance of 14,000,000 shares and 2,000,000 shares respectively, to entities affiliated with or identified by our Chairman of the Board. Our Chairman, John D. Stanton had financed a proposed merger transaction, which letter of intent was dated August 23, 2005 through eSPG. eSPG assigned its $195,000 balance outstanding to him, and he subsequently assigned it to other parties, some of which are the beneficiary of these share issuances. As a result of these issuances the balance has been satisfied in full.

The acquisition of 3Si Holdings, Inc., which occurred on January 1, 2009, had certain preexisting relationships. Our Chairman of the Board, John D. Stanton owned and/or beneficially controlled 44% of 3Si Holdings, Inc. prior to the acquisition. Stephen L Gurba, our Chief Executive Officer owned and/or beneficially controlled 35% of 3Si Holdings, Inc. prior to the acquisition. Stephen L Gurba, our Chief Executive Officer did not own any shares of Bulova Technologies Group, Inc. before this acquisition.

Bulova Technologies Ordnance Systems LLC has a Marketing Firm Agreement with Ramal Management Co. (“Ramal”), a related company owned by Stephen L Gurba, our Chief Executive Officer which expires on January 1, 2011. Pursuant to the terms of the agreement, Ramal receives a marketing fee for services of 4% of net sales generated through contracts of Bulova Technologies Ordnance Systems LLC. Marketing fees paid to Ramal for the year ended September 30, 2009 was $785,133.

The Company has received loans from the two (2) major shareholders in the amount of $4,294,589 and $195,000 as of September 30, 2009 and 2008, respectively. These loans are supported by notes bearing interest at 5% annually with restricted conversion features and no repayment schedule. The notes were originally issued for $1,500,000 for each shareholder then subsequently raised to a maximum of $5,000,000. All shareholder debt is accruing interest. Due to restrictions on the maximum amount of stock holdings allowed, the conversion feature was not operable as of September 30, 2009.

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

12. Stockholders’ Equity

On November 4, 2008, the Company affected a 1 share for 15 shares reverse split of its common stock. As a result, the issued and outstanding shares at September 30, 2008 were decreased from 95,326,943 shares to 6,355,910, and the treasury shares were reduced from 45,000 shares to 3,000. In addition, the par value of the common stock was decreased from $0.01 to $0.001

On November 4, 2008, the Company issued 14,000,000 shares of common stock to pay down the amount of loan payable – eSPG, reducing the outstanding balance at that time to $24,375.

On January 1, 2009, the Company authorized, with an effective date of January 1, 2009, the acquisition of 3Si Holdings, Inc., a Florida corporation, through a tax free exchange of shares by the issuance of 40,000,000 shares of its common stock in exchange for 100% of the outstanding shares of 3Si Holdings, Inc.

On January 1, 2009, the Company, as a part of consummating the acquisition of 3Si Holdings, Inc., authorized, with an effective date of January 1, 2009, the issuance of 8,000,000 shares to satisfy an obligation associated with warrants outstanding of 3Si Holdings, Inc., at the date of the acquisition.

On June 17, 2009, the Company issued 2,000,000 shares of common stock to securitize a loan.

On July 13, 2009, the Company issued 2,000,000 shares of common stock to pay the balance of the loan payable – eSPG of $24,375 satisfying the balance in full.

13. Subsequent Events

On November 6, 2009 - BT Manufacturing Company LLC, entered into a lease for a 35,000 square foot facility in Melbourne, Florida to relocate its contract manufacturing operation. The base rent for the new facility is $18,841 per month commencing on January 1, 2010. The term of the lease is from November 2009 through November 2014.

On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT). The market value of the stock received was $1,000,000. The fair value of the stock received had not been determined at the date of this filing.

Subsequent to September 30, 2009, the Company issued additional shares of its common stock as follows:

October 16, 2009 – 249,999 shares issued to creditors of a target company

November 24, 2009 – 2,100,000 shares issued in satisfaction of debt.

December 16, 2009 – 2,500,000 shares issued as additional collateral for an equipment loan

January 20, 2010 – 2,000,000 shares issued to securitize debt

February 8, 2010 – 850,000 shares issued to various individuals

August 2010 – 1,849,496 shares issued to various individuals

October 2010 – 7,591,465 shares issued to various individuals

 

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BULOVA TECHNOLOGIES GROUP, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

 

14. Segment Information

Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operates in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the US. Government and other allied governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC and Bulova Technologies Combat Systems LLC. The Contract Manufacturing segment produces cable assemblies as well as complete systems, and is accounted for through BT Manufacturing Company, LLC, another of its wholly owned subsidiaries.

(UNAUDITED)

SEGMENT INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 2009 IS AS FOLLOWS:

 

     Government
Contracting
     Contract
Manufacturing
    Total  

Revenue

   $ 19,091,025       $ 2,333,473      $ 21,424,498   

Cost of Sales

     15,955,909         1,865,962        17,821,871   
                         

Gross profit

     3,135,116         467,511        3,602,627   

Selling, general and administrative expenses

     1,878,577         3,751,286        4,809,863   

Depreciation and interest expense

     182,663         217,658        400,321   
                         

Income (loss) from operations

     1,073,876         (3,501,433     (2,427,557
                         

Other income (expense)

     6,431         79,367        85,798   
                         

Net Income (loss)

   $ 1,080,307       $ (3,422,066   $ (2,341,759
                         

Total Assets

   $ 4,996,360       $ 3,326,271      $ 8,322,631   
                         

Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts

 

Revenue

  

Total revenues for reportable segments

   $ 21,424,498   

Unallocated amounts relating to corporate operations

  

License fee revenue

     73,044   
        

Total consolidated revenue

   $ 21,497,542   
        

Net loss

  

Total loss for reportable segments

   $ (2,341,759

Unallocated amounts relating to corporate operations

  

License fee revenue

     73,044   

Selling, general and administrative expenses

     (1,470,861

Depreciation and interest expense

     (89,707
        

Total consolidated net loss

   $ (3,829,283
        

Assets

  

Total assets for reportable segments

   $ 8,322,631   

Corporate investments and other assets

     2,103,107   
        

Total consolidated assets

   $ 10,425,738   
        

 

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in, or disagreements with, accountants on accounting or financial disclosure as defined by Item 304 of Regulation S-K.

 

Item 9A. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer.

Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at September 30, 2009 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, but are being changed to allow timely filing in the future.

The Company has made numerous changes in its internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting. The Company continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Board of Directors and the Company’s auditors.

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

The executive officers, directors of the Company, and their ages and positions, are as follows:

 

Name

  

Age

  

Office Held

John D. Stanton

   62    Chairman of the Board and Principal Financial Officer

Stephen L. Gurba

   54    Chief Executive Officer and President

Our bylaws provide that the number of members of our board of directors shall have up to (5) members. Our current number of directors is two (2). Directors are elected by the shareholders at the annual meeting and serve until their successors are duly elected and qualified. Directors are elected for a term of one (1) year. All of our officers serve at the discretion of our board of directors

The following is a biographical summary of the business experience of our directors and executive officers:

John D. Stanton is the Chairman of the Board of Directors and also serves as our Principal Financial Officer. Mr. Stanton has served as the President and Chief Executive Officer of Florida Engineered Construction Products, Corporation. Since the early 1990’s, Mr. Stanton has been, and continues to be, involved in turn-around management for financially distressed companies, providing both management guidance and financing. In 1981, Mr. Stanton assumed the role of Chief Financial Officer for Florida Engineered Construction Products, Corporation, a privately held manufacturer of residential and commercial construction products, located in Tampa, Florida. Mr. Stanton worked as an auditor with the international professional services firm that is now known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton, a Vietnam veteran of the United States Army, graduated from the University of South Florida with a Bachelors Degree in Marketing and Accounting in 1972, and with an MBA in 1973. Mr. Stanton earned the designation of Certified Public Accountant in 1974 and was a Sells Award winner in the CPA examination.

Stephen L. Gurba is our Chief Executive Officer and President. Mr. Gurba has over 30 years of experience in the design, development, production, and management of complex systems for the defense ammunition industry as well as commercial products. His experience has included responsibility for companies with sales of up to $300 million annually and employing as many as 2000 employees. Mr. Gurba has previously held the position of Senior Vice President of General Defense Corporation Vice President of Marketing for Olin Ordnance, President of Valentec International Corporation, President and CEO of National Manufacturing Corporation, and President, CEO, and Owner of Bulova Technologies, LLC. Mr. Gurba received a BA in Mathematics & Natural Science in 1978, an MBA in Executive Management and Administration in 1988, and a PhD in Business administration in 1991.

 

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Audit Committee

The Company’s Board of Directors currently serves as the Audit Committee.

Code of Ethics:

The Company has adopted a Code of Ethics which applies to all directors, officers and employees of the Company and its subsidiaries including the Principal Executive Officer and the Principal Financial Officer, which meets the requirement of a “code of ethics” as defined in Item 406 of Regulation S-K. The Company will provide a copy of the Code to shareholders pursuant to any request directed to the Company’s principal offices.

 

Item 11. Executive Compensation

The following summary compensation table sets forth certain information concerning compensation paid to our Principal Financial Officer and Principal Executive Officer.

SUMMARY COMPENSATION TABLE - YEARS ENDED SEPTEMBER 30, 2009 AND 2008

 

Name and Principal Position

  Year     Salary     Bonus     Stock
Awards
    Option
Awards
    Non-Equity
Incentive  Plan
Compensation
    Change in Pension Value
and non Qualified Deferred
Compensation Earnings
    All Other
Compensation
    Total  

John D. Stanton,
Chairman of the Board and Principal Financial Officer (1)

    2008      $ —        $ —        $ 560,000      $ —        $ —        $ —        $ —        $ 560,000   
    2009      $ 180,000      $ —        $ —        $ —        $ —        $ —        $ —        $ 180,000   

Stephen L. Gurba,
Chief Executive Officer and President

    2008      $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —     
    2009      $ 252,000      $ —        $ —        $ —        $ —        $ —        $ —        $ 252,000   
                                                                 
    $ 432,000      $ —        $ 560,000      $ —        $ —        $ —        $ —        $ 992,000   
                                                                 

 

(1) – Mr. Stanton’s compensation is accrued at $20,000 per month; none of this compensation has been paid.

The following table summarizes that the Company does not have any Outstanding Equity Awards at fiscal year ended September 30, 2009

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Name

  OPTION AWARDS     STOCK AWARDS  
  Number of
Securities
Underlying
Unexercised
Options, #
Exercisable
    Number of
Securities
Underlying
Unexercised
Options, #
Unexercisable
    Equity
Incentive

Plan
Awards:

Number of
Securities

Underlying
Unexercised

Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number of
Shares  or
Units

of Stock
That

Have Not
Vested (#)
    Market
Value of
Shares

or Units
of Stock
That

Have
Not
Vested
($)
    Equity
Incentive
Plan Awards:
Number of

Unearned
Shares,

Units or Other
Rights That
Have Not
Vested (#)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
 

John D. Stanton

    —          —          —        $ —          —          —        $ —          —          —     

Stephen L. Gurba

    —          —          —        $ —          —          —        $ —          —          —     

 

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DIRECTOR COMPENSATION

 

Name and Principal Position

   Fees Earned or Paid
in Cash ($)
     Stock
Awards
     Option
Awards
     Non-Equity
Incentive Plan
Compensation
     Change in Pension Value
and non Qualified Deferred
Compensation Earnings ($)
     All Other
Compensation ($)
     Total  

John D. Stanton

   $ —           —           —           —         $ —         $ —         $ —     

Stephen L. Gurba

   $ —           —           —           —         $ —         $ —         $ —     

 

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We maintain a policy whereby our directors may be compensated for out of pocket expenses incurred by each of them in the performance of their relevant duties. Directors do not receive any form of compensation.

We currently do not have any employment agreements with any of our executive officers.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The table below lists the beneficial ownership of our voting securities by each person known by us to be the beneficial owner of more than 5% of such securities, as well as by all our directors and officers. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.

The information reflected in the following table was furnished by the persons listed therein. The calculations of the percent of shares beneficially owned are based on 72,355,910 shares of common stock outstanding on September 30, 2009.

 

Title of Class

  

Name and Address

of Beneficial Owner

   Amount and Nature of
Beneficial Ownership
    Percent
of Class
 

Common Stock

  

John D. Stanton

19337 US Hwy 19, Suite 525.

Clearwater, Fl 33764

     21,333,334 (1)      29.5

Common Stock

  

Stephen L. and Evelyn Gurba

19337 US Hwy 19, Suite 525

Clearwater, Fl 33764

     16,000,000 (2)      22.1

 

(1) Includes 1,000,000 shares in the name of Mr. Stanton’s minor children
(2) Includes 2,000,000 shares issued in the name of Stephen L and Evelyn Gurba, but being held as security for a loan.

 

Item 13. Certain Relationships and Related Transactions and Director Independence

The Company operated its contract manufacturing business segment in facilities located in Melbourne, Florida at a monthly rental of $111,111. This facility is owned by an independent third party, and the use of the facility was provided for by Stephen L Gurba, our Chief Executive Officer and a shareholder of the Company through November of 2009, at which time the Company relocated to a different facility under a new lease.

The Company leased certain equipment used in its contract manufacturing business segment from Lamar Systems Co., a related corporation owned by Stephen L Gurba, our Chief Executive Officer and a shareholder of the Company for $65,000 per month. In December 2009, the Company purchased the equipment under this lease cancelling any future obligation under this lease from that point forward.

On November 4, 2008, and then on July 13, 2009, the Company settled the full amount of the amount of the outstanding debt to eSPG through the issuance of 14,000,000 shares and 2,000,000 shares respectively, to entities affiliated with or identified by our Chairman of the Board. Our Chairman, John D. Stanton had financed a proposed merger transaction, which letter of intent was dated August 23, 2005 through eSPG. eSPG assigned its $195,000 balance outstanding to him, and he subsequently assigned it to other parties, some of which are the beneficiary of these share issuances. As a result of these issuances the balance has been satisfied in full.

The acquisition of 3Si Holdings, Inc., which occurred on January 1, 2009, had certain preexisting relationships. Our Chairman of the Board, John D. Stanton owned and/or beneficially controlled 44% of 3Si Holdings, Inc. prior to the acquisition. Stephen L Gurba, our Chief Executive Officer owned and/or beneficially controlled 35% of 3Si Holdings, Inc. prior to the acquisition. Stephen L Gurba, our Chief Executive Officer did not own any shares of Bulova Technologies Group, Inc. before this acquisition.

Bulova Technologies Ordnance Systems LLC has a Marketing Firm Agreement with Ramal Management Co. (“Ramal”), a related company owned by Stephen L Gurba, our Chief Executive Officer which expires on January 1, 2011. Pursuant to the terms of the agreement, Ramal receives a marketing fee for services of 4% of net sales generated through contracts of Bulova Technologies Ordnance Systems LLC. Marketing fees paid to Ramal for the year ended September 30, 2009 was $785,133.

The Company has received loans from the two (2) major shareholders in the amount of $4,294,589 and $195,000 as of September 30, 2009 and 2008, respectively. These loans are supported by notes bearing interest at 5% annually with restricted conversion features and no repayment schedule. The notes were originally issued for $1,500,000 for each shareholder then subsequently raised to a maximum of $5,000,000. All shareholder debt is accruing interest. Due to restrictions on the maximum amount of stock holdings allowed, the conversion feature was not operable as of September 30, 2009.

 

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Item 14. Principal Accountant Fees and Services

(1) Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by Randall N. Drake, CPA, PA; the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:

 

2009

   $ 109,109  

2008

   $ 13,000   

(2) Audit-Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by Randall N. Drake, CPA, PA; the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:

 

2009

   $ 0.00   

2008

   $ 0.00   

(3) Tax Fees

The aggregate fees billed in each of the last two fiscal years for professional services rendered; the principal accountant for tax compliance, tax advice, and tax planning was:

 

2009

   $ 0.00   

2008

   $ 0.00   

(4) All Other Fees

The aggregate fees billed in each of the last two fiscal yeas for the products and services provided by Randall N. Drake, CPA, PA; the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:

 

2009

   $ 0.00   

2008

   $ 0.00   

(5) Our audit committee’s pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

(6) The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was 0%.

 

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PART IV

 

Item 15. Exhibits and Financial Statement Schedules

(a) and (c) The consolidated financial statements are included in Item 8.

(b) Exhibits:

 

10.1    Acquisition and Exchange Agreement between Bulova Technologies Group, Inc. and the shareholders of 3Si Holdings, Inc., dated January 1, 2009
31.1    Rule 13a-14(a) Certification of President and Principal Executive Officer
31.2    Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer
32.1    Certification of President and Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1    Audited Financial Statements – Bulova Technologies Ordnance Systems, LLC, for the years ended December 31, 2008 and 2007

 

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Bulova Technologies Group, INC.

By

 

/S/    STEPHEN L. GURBA        

  Stephen L. Gurba
  Principal Executive Officer

DATED: November 16, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and on the dates indicated.

 

/S/    STEPHEN L. GURBA        

     November 16, 2010
Stephen L. Gurba     
Principal Executive Officer     

/S/    JOHN D. STANTON        

     November 16, 2010
John D. Stanton     
Principal Financial Officer     

 

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