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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2010

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: None

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

 

Common Stock, $.001 par value

(Title of Class)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  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

As of December 24, 2010, the Company had 141,269,127 shares of Common Stock outstanding.

 

 

 


Table of Contents

BULOVA TECHNOLOGIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2010

TABLE OF CONTENTS

 

         Page  
PART I – FINANCIAL INFORMATION   
Item 1.   Financial Statements      3   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      19   
Item 4.   Controls and Procedures      21   
PART II – OTHER INFORMATION   
Item 6.   Exhibits      21   
  Signatures      22   

 

2


Table of Contents

PART I

 

Item 1. Consolidated Financial Statements

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     March  31,
2010
(unaudited)
    September 30,
2009
 

ASSETS

    

Cash and equivalents

   $ 241,405      $ 69,295   

Accounts receivable

     290,356        1,147,321   

Contract claim receivable

     —          —     

Inventory

     2,578,497        2,617,817   

Other current assets

     8,360        56,252   
                

Total current assets

     3,118,618        3,890,685   

Property, plant and equipment

     5,137,702        3,926,829   

Investments

     2,400,840        2,058,385   

Other assets

     930,135        549,839   
                
   $ 11,587,295      $ 10,425,738   
                

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Accounts payable and accrued expenses

   $ 5,588,412      $ 2,504,026   

Advance payments and billings in excess of cost

     1,679,483        4,327,946   

Current portion of long term debt

     3,295,335        1,361,749   
                

Total current liabilities

     10,563,230        8,193,721   

Deferred revenue

     438,269        540,531   

Shareholder loans and accrued interest

     4,613,092        4,294,589   

Long term debt, net of current portion

     2,842,990        1,512,444   
                
     18,457,581        14,541,285   
                

Commitments and contingencies

     —          —     

Shareholders’ deficit:

    

Common stock, $.001 par; authorized 150,000,000 shares; 80,055,909 and 72,355,910 issued and 80,052,909 and 72,352,910 outstanding at March 31, 2010 and September 30, 2009

     80,055        72,355   

Additional paid in capital in excess of par

     7,891,897        6,407,159   

Retained deficit

     (14,804,054     (10,556,877

Treasury stock at cost – 3,000 shares

     (38,184     (38,184
                
     (6,870,286     (4,115,547
                
   $ 11,587,295      $ 10,425,738   
                

See accompanying notes to consolidated financial statements.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

     Three Months Ended
March 31,
    Six Months Ended
March 31
 
     2010     2009     2010     2009  

Revenues

   $ 5,230,318      $ 12,741,590      $ 8,303,366      $ 12,741,590   

Cost of revenues

     4,052,004        10,920,536        6,564,604        10,920,536   
                                

Gross profit

     1,178,315        1,821,054        1,738,762        1,821,054   

Selling and administrative expense

     1,941,001        1,894,203        4,694,565        1,894,203   

Stock based compensation

     433,500        —          433,500        —     

Depreciation and amortization expense

     422,026        139,607        560,572        139,607   

Interest expense

     252,498        19,159-        345,131        19,159   
                                

Total expenses

     3,049,025        2,052,969        6,033,768        2,052,969   
                                

Income (loss) from operations

     (1,870,710     (231,915     (4,295,006     (231,915

Other income (expense)

        

Other income

     31,733        5,718        47,829        5,718   
                                

Loss before Income taxes

     (1,838,977     (226,197     (4,247,177     (226,197

Income tax expense

     —          —          —          —     
                                

Net loss

   $ (1,838,977   $ (226,197   $ (4,247,177   $ (226,197
                                

Basic and diluted net income (loss) per share

   $ (.02   $ (.003   $ (.06   $ (.005
                                

Weighted average shares used in computing basic and diluted net (loss) per common share

     79,266,021        68,355,910        76,521,931        41,328,286   
                                

See accompanying notes to consolidated financial statements.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

     2010     2009  

Cash flows from operating activities:

    

Net income (loss)

   $ (4,247,177   $ (226,197

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     560,572        139,607   

Recognition of deferred revenue

     (102,262     —     

Lease settlement expense

     400,000        —     

Stock based compensation

     433,500        —     

Changes in operating assets and liabilities

    

Accounts receivable

     856,965        (5,373,452

Inventory

     39,320        171,537   

Prepaid expenses and other assets

     (184,866     (87,592

Accounts payable and accrued expenses

     3,084,386        3,211,968   

Advance payments and billings in excess of costs

     (2,648,463     1,705,418   
                

Net cash used in operating activities

     (1,808,025     (458,711
                

Cash flows from investing activities:

    

Cash acquired in business acquisition

     —          21,662   

Investments in multiple companies

     (239,955     —     

Purchase of property and equipment

     (261,630     (71,243
                

Net cash used in investing activities

     (501,585     (49,581
                

Cash flows from financing activities

    

Shareholder advances

     318,503        1,058,587   

Increases in long term debt

     2,327,549        —     

Repayments of long term debt

     (164,332     (203,842
                

Net cash provided by financing activities

     2,481,720        854,745   
                

Increase (decrease) in cash and cash equivalents

     172,110        —     

Cash and cash equivalents, beginning

     69,295        346,453   
                

Cash and cash equivalents, ending

   $ 241,405      $ 346,453   
                

Cash paid for interest

   $ 211,056      $ 19,159   

Cash paid for taxes

   $ —        $ —     

Supplemental schedule of non-cash financing and investing activities:

 

   

November 4, 2008, the Company issued 14,000,000 shares of common stock to reduce related party debt.

 

   

October 16,2009, the Company issued 249,999 shares of common stock to acquire Cybercare

 

   

November 24, 2009, the Company issued 2,100,000 shares of common stock in satisfaction of debt to unrelated parties

 

   

December 16, 2009, the Company issued 2,500,000 shares of common stock to securitized debt

 

   

December 22, 2009, the Company issued warrants to acquire 2,500,000 shares of common stock in conjunction with the acquisition of new debt

 

   

December 22, 2009, the Company incurred debt in the amount of $1,672,451 to acquire equipment and settle a related party lease

 

   

January 20, 2010, the Company issued 2,000,000 shares to securitize debt and recorded it as stock based compensation

 

   

February 8, 2010, the Company issued 850,000 shares to various individuals as stock based compensation

See accompanying notes to consolidated financial statements.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2010

(Unaudited)

 

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

Balances, October 1, 2009

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

Issuance of shares for to acquire Cybercare

     249,999         250         102,250             102,500   

Issuance of shares in satisfaction of debt

     2,100,000         2,100         422,900             425,000   

Issuance of shares for securitization

     2,500,000         2,500         272,500             275,000   

Issuance of warrants associated with new debt

           256,438             256,438   

Issuance of shares to securitize debt

     2,000,000         2,000         338,000             340,000   

Issuance of shares as stock based compensation

     850,000         850         92,650             93,500   

Net loss for the six months ended March 31, 2010

              (4,247,177       (3,813,677
                                                   

Balances, March 31, 2010

     80,055,909       $ 80,055       $ 7,891,897       $ (14,804,054   $ (38,184   $ (6,870,286
                                                   

See accompanying notes to consolidated financial statements.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

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:

The accompanying consolidated balance sheet as of September 30, 2009, has been derived from audited financial statements.

The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included n annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s latest Form 10-K.

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 35,000 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 unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2010 and the results of operations and cash flows for the six months ended March 31, 2010 and 2009.

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 December 28, 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.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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.

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.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 March 31, 2010 and 2009 is as follows:

 

     As of March 31,  
     2010      2009  

Finished goods

   $ 18,399       $ 17,966   

Work in process

     322,686         69,678   

Materials and supplies

     2,237,412         2,893,974   
                 

Total inventory

   $ 2,578,497       $ 2,981,618   
                 

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 March 31, 2010 and 2009

 

     As of March 31,  
     2010     2009  

Land

   $ 1,225,000      $ 1,225,000   

Buildings and improvements

     1,170,194        315,764   

Machinery and equipment

     3,214,054        2,661,327   

Furniture and fixtures

     98,081        87,025   

Leasehold improvements

     234,489        —     
                
     5,941,818        4,289,116   

Less accumulated depreciation

     (804,116     (335,668
                

Net Property, plant and equipment

   $ 5,137,702      $ 3,953,448   
                

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 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.

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 six months ended March 31, 2010 and 2009 were $21,104 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 ASC 740, 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 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).

 

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Table of Contents

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 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   
        

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

Pro forma results of operations for the six months ended March 31, 2010 and 2009 as though this acquisition had taken place at October 1, 2008 are as follows:

 

     Six Months Ended
March 31,
 
     2010     2009  

Revenues

   $ 8,303,366      $ 13,173,525   
                

Net loss

   $ (3,813,677   $ (452,151
                

Net loss per share

   $ (0.05   $ (0.007
                

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, 2008.

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 if and when such claims are settled.

5. Investments

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 March 31, 2010 the cost and fair values of the investments were as follows:

Investments

 

     Cost      Gain      Loss      Fair Value  

Level 1 Equity Investments

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

Level 2 Equity Investments

     1,303,499         —           —           1,303,499   

Level 2 Loans

     424,841         —           —           424,841   
                                   
   $ 2,400,840       $ —         $ —         $ 2,400,840   
                                   

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 balances outstanding as of March 31, 2010 and 2009 are $992,295 and $3,087,035 respectively.

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. Billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of March 31, 2010 and 2009 are $687,188 and $1,818,980 respectively.

Billing in Excess

 

     2010     2009  

Total contract amount

   $ 23,674,556      $ 26,794,334   

Total estimated costs

     20,090,239        22,779,479   

Amount incurred to date

     18,635,239        10,166,794   

Percentage complete

     93     45

Amount earned to date

     21,959,968        11,958,699   

Amount Received to date

     22,647,156        13,777,679   

Billing in excess of costs plus earning on uncompleted contracts

   $ 687,188      $ 1,818,980   
                

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 six months ended March 31, 2010 is $102,262.

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

 

Years ended March 31,

     2011       $ 204,525   
     2012         204,525   
     2013         29,219   
     2014         —     
     2015         —     
           
      $ 438,269   
           

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

8. Long Term Debt

Long term debt consisted of the following as of:

 

     March 31,  
     2010     2009  
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 March 31, 2010.    $ 825,000      $ 643,980   
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 March 31, 2010. Final payment is due on March 10, 2021.      616,000        690,190   
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 March 31, 2010. Final payment is due on December 1, 2020.      882,500        936,724   
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.      65,361        69,741   
Note payable to Sovereign Bank, dated December 22, 2009, in the original amount of $2,000,000, payable in monthly fixed principal payments of $42,000 plus variable interest at LIBOR plus 5% with a minimum rate of 5.5%, secured by all personal property of BT Manufacturing Company, LLC with carrying values of approximately $4,000,000 at December 31, 2009. Final balloon payment is due December 22, 2011.      1,896,000        —     
Note payable to GovFunding, LLC, dated December 22, 2009, in the amount of $2,000,000 net of debt discount of $256,438, bearing interest at 24%., secured by a lock box agreement tied to the proceeds of a single government contract with a carrying value of approximately $2,800,000 at March 31, 2010. Final payment is due July 31, 2010.      1,853,464        —     
                
     6,138,325        2,322,445   

Less current portion

     (3,295,335     (753,549
                
   $ 2,842,990      $ 1,568,896   
                

Principal maturities of long term debt for the next five years and thereafter as of March 31, 2010 are as follows:

 

 

Period ended March 31,

  

2011

   $ 3,295,335   

2012

     1,509,591   

2013

     122,703   

2014

     128,240   

2015

     134,235   

Thereafter

     948,221   
        
   $ 6,138,325   
        

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 tax free reorganization under the provisions of Section 368A of the Internal Revenue Code. 3SI Holdings had various net operating loss carryovers. 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 Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2009 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 income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:

 

Continuing Operations    3/31/10     9/30/2009  

Expected provision at US statutory rate

     34.00     34.00

State income tax net of federal benefit

     3.63     3.63

Permanent and Other Differences

     —          —     

Valuation Allowance

     (37.63 )%      (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 December 31, 2009, the Clearwater location was leased for a monthly base rent of $6,717, increased by 3% each year through the 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.

In November 2009 the Company relocated its contract manufacturing business segment to a new facility also located in Melbourne, Florida at a monthly rental of $18,842. The new lease expires November 2014.

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 bought out this lease cancelling any future obligation under this lease from that point forward and recorded $1,272,451 in equipment and a lease termination cost of $400,000, which is included in selling, general and administrative expenses.

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 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 six months ended March 31, 2010, was approximately $331,275.

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of March 31, 2010 are as follows:

 

Period ended March 31

  

2011

   $ 554,462   

2012

     554,462   

2013

     440,117   

2014

     433,400   

2015

     358,033   

Thereafter

     2,643,075   
        
   $ 4,983,549   
        

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 six months ended March 31, 2010 was $188,401.

The Company has received loans from the two (2) major shareholders totaling $4,613,092 and $4,294,589 as of March 31, 2010 and September 30, 2009 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 March 31, 2010.

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

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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.

On October 16, 2009, the Company issued 249,999 shares of common stock as satisfaction of the reorganization plan of Cybercare, a company acquired in Bulovatech Labs

On November 24, 2009, the Company issued 2,100,000 shares of common stock as satisfaction of debt to unrelated parties in the amount of $425,000.

On December 16, 2009 the Company authorized the issuance of 2,500,000 shares to securitized its new debt with Sovereign Bank.

On December 22, 2009 the Company issued debt in the amount of $2,000,000 with detachable warrants. These warrants provide for the purchase of 2,500,000 shares of the Company’s stock at $.10 per share for a period of 5 years. The warrants have a fair value of $256,438 which is accounted for as a discount to the debt and amortized over the life of the debt which is 7 months.

On January 20, 2010 the Company issued 2,000,000 shares to the Company’s Chief Executive Officer as stock based compensation for the purpose of securitizing debt.

On February 8, 2010 the Company issued 850,000 shares to various individuals as stock based compensation.

13. Subsequent Events

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).

Subsequent to March 31, 2010, the Company issued additional shares of its common stock as follows:

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

October 2010 – 59,366,722 shares issued to various individuals

The Company declared a distribution of 141,272,127 shares of its 200,000,000 shares of Growth Technologies International, Inc. to the shareholders of record as of October 29, 2010

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

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 THREE MONTHS ENDED MARCH 31, 2010 IS AS FOLLOWS:

 

     Government
Contracting
     Contract
Manufacturing
    Total  

Revenue

   $ 4,711,796       $ 467,391      $ 5,179,187   

Cost of Sales

     3,679,825         372,179        4,052,004   
                         

Gross profit

     1,031,971         95,212        1,127,183   

Selling, general and administrative expenses

     591,569         737,759        1,329,328   

Depreciation, amortization and interest expense

     385,376         207,469        592,845   
                         

Income (loss) from operations

     55,026         (850,016     (794,990
                         

Other income (expense)

     —           31,733        31,733   
                         

Net Income (loss)

   $ 55,026       $ (818,283   $ (763,257
                         

Total Assets

   $ 4,729,061       $ 4,404,559      $ 9,133,620   
                         

Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts

       

Revenue

       

Total revenues for reportable segments

        $ 5,179,187   

Unallocated amounts relating to corporate operations

       

License fee revenue

          51,131   
             

Total consolidated revenue

        $ 5,230,318   
             

Net loss

       

Total loss for reportable segments

        $ (763,257

Unallocated amounts relating to corporate operations

       

License fee revenue

          51,131   

Selling, general and administrative expenses

          (1,045,173

Depreciation, amortization and interest expense

          (81,678
             

Total consolidated net loss

        $ (1,838,977
             

Assets

       

Total assets for reportable segments

        $ 9,133,620   

Corporate investments and other assets

          2,453,675   
             

Total consolidated assets

        $ 11,587,295   
             

 

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BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SIX MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

 

(UNAUDITED)

SEGMENT INFORMATION FOR THE SIX MONTHS ENDED MARCH 31, 2010 IS AS FOLLOWS:

 

     Government
Contracting
    Contract
Manufacturing
    Total  

Revenue

   $ 7,411,839      $ 789,265      $ 8,201,104   

Cost of Sales

     5,849,591        715,013        6,564,604   
                        

Gross profit

     1,562,248        74,252        1,636,500   

Selling, general and administrative expenses

     1,097,085        2,348,527        3,445,612   

Depreciation, amortization and interest expense

     460,804        304,382        765,186   
                        

Income (loss) from operations

     4,359        (2,578,657     (2,574,298
                        

Other income (expense)

     (607     48,436        47,829   
                        

Net Income (loss)

   $ 3,752      $ (2,530,221   $ (2,526,469
                        

Total Assets

   $ 4,729,061      $ 4,404,559      $ 9,133,620   
                        

Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts

  

Revenue

      

Total revenues for reportable segments

       $ 8,201,104   

Unallocated amounts relating to corporate operations

      

License fee revenue

         102,262   
            

Total consolidated revenue

       $ 8,303,366   
            

Net loss

      

Total loss for reportable segments

       $ (2,526,469

Unallocated amounts relating to corporate operations

      

License fee revenue

         102,262   

Selling, general and administrative expenses

         (1,682,454

Depreciation, amortization and interest expense

         (140,516
            

Total consolidated net loss

       $ (4,247,177
            

Assets

      

Total assets for reportable segments

       $ 9,133,620   

Corporate investments and other assets

         2,453,675   
            

Total consolidated assets

       $ 11,587,295   
            

 

Item 2. 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.

1 . 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 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.

 

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2 . Results of operations:

For the three months ended March 31, 2010 compared to the three months ended March 31, 2009.

The Company’s revenue for the three months ended March 31, 2010 of $5,230,318 is a decrease of $7,511,272 when compared to the Company’s revenue for the three months ended March 31, 2009 of $12,741,590.

The Company’s cost of sales for the three months ended March 31, 2010 of $4,052,004 is a decrease of $6,868,532 when compared to the Company’s cost of sales for the three months ended March 31, 2009 of $10,920,536.

The Company’s gross profit for the three months ended March 31, 2010 of $1,178,315 is a decrease of $642,739 when compared to the Company’s gross profit for the three months ended March 31, 2009 of $1,821,054.

The Company’s operating expenses consisting of selling, general and administrative, depreciation, amortization, and interest for the three months ended March 31, 2010 of $2,615,525 is an increase of $562,556 when compared to the same expenses of $2,052,969 for the three months ended March 31, 2009.

The Company’s Stock based compensation for the three months ended March 31, 2010 of $433,500 is an increase of $433,500 when compared to the three months ended March 31, 2009, as the Company did not have any stock based compensation for that period.

The Company’s net loss for the three months ended March 31, 2010 of $1,838,977 is an increase of $1,612,780 when compared to the Company’s net loss for the three months ended March 31, 2009 of $226,197.

For the six months ended March 31, 2010 compared to the six months ended March 31, 2009.

The Company’s revenue for the six months ended March 31, 2010 of $8,303,366 is a decrease of $4,438,224 when compared to the Company’s revenue for the six months ended March 31, 2009 of $12,741,590.

The Company’s cost of sales for the six months ended March 31, 2010 of $6,564,604 is a decrease of $4,355,932 when compared to the Company’s cost of sales for the six months ended March 31, 2009 of $10,920,536.

The Company’s gross profit for the six months ended March 31, 2010 of $1,738,762 is a decrease of $82,292 when compared to the Company’s gross profit for the six months ended March 31, 2009 of $1,821,054.

The Company’s operating expenses consisting of selling, general and administrative, depreciation, amortization, and interest for the six months ended March 31, 2010 of $5,600,268 is an increase of $3,547,299 when compared to the same expenses of $2,052,969 for the six months ended March 31, 2009.

The Company’s Stock based compensation for the six months ended March 31, 2010 of $433,500 is an increase of $433,500 when compared to the six months ended March 31, 2009, as the Company did not have any stock based compensation for that period.

The Company’s net loss for the six months ended March 31, 2010 of $4,247,177 is an increase of $4,020,980 when compared to the Company’s net loss for the six months ended March 31, 2009 of $226,197.

3. Liquidity and capital resources:

As of March 31, 2010, the Company’s sources of liquidity were new debt and loans from shareholders.

As of March 31, 20110, we had $241,405 in cash and cash equivalents.

Cash flows used in operating activities was $1,808,025 for the six months ended March 31, 2010.

Cash flows used in investing activities was $501,585 for the six months ended March 31,2010 and consisted primarily of acquisitions of property, plant and equipment of $261,630 and investments through Buovatech Labs of $239,955.

Cash flows from financing activities were $2,481,720 for the six months ended March 31, 2010, and included new debt in the amount of $2327,549 and increased loans from shareholders in the amount of $318,503.

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

 

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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.

There are no off-balance sheet arrangements.

 

Item 4. 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 March 31, 2010 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 II – OTHER INFORMATION

 

Item 6. Exhibits

 

(b) Exhibits:

 

31.1    Rule 13a-14(a) Certification of Principal Executive Officer
31.2    Rule 13a-14(a) Certification of Principal Financial Officer
32.1    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURE

In accordance with the requirements of the Exchange Act, the Issuer 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
By   /S/    JOHN D. STANTON        
  John D. Stanton
  Principal Financial Officer

DATED: December 30, 2010

 

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