Bulova Technologies Group, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Bulova Technologies Group, Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Bulova Technologies Group, Inc.	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Bulova Technologies Group, Inc.	ex32-1.htm
EX-32.2 - EXHIBIT 31.2 - Bulova Technologies Group, Inc.	ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - Bulova Technologies Group, Inc.	ex31-2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended December 31, 2011


o		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 (State or other jurisdiction of incorporation or organization)		83-0245581 (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 þ No o

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 þ No o

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 o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company þ

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

As of February 12, 2012 the Company had 873,238,243 shares of Common Stock and 2,000,000,000 shares of Preferred Stock issued and outstanding.

BULOVA TECHNOLOGIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2011

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			8
Item 4. Controls and Procedures			9

PART II – OTHER INFORMATION

Item 6. Exhibits			10

	Signatures		10

PART I

Item 1. Consolidated Financial Statements

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2011		September 30,
	(unaudited)		2011
ASSETS

Cash and equivalents	$	25,146	$	169,499
Accounts receivable		223,380		228,085
Contract claim receivable		-		-
Inventory		814,154		685,226
Other current assets		16,695		130,826

Total current assets		1,079,375		1,213,636

Property, plant and equipment		2,502,378		2,545,258
Investments		1,791,855		1,791,855
Other assets		76,728		107,618

Total Assets	$	5,450,336	$	5,658,367

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable	$	718,487	$	203,769
Accrued expenses		6,597,360		6,416,831
Advance payments and billings in excess of cost		512,524		883,504
Current portion of long term debt		5,587,691		5,365,245
Current liabilities associated with discontinued operations		1,957,425		1,934,588

Total current liabilities		15,373,487		14,803,937

Shareholder loans and accrued interest		195,393		185,392
Long term debt, net of current portion		1,244,244		1,268,925

Total liabilities		16,813,124		16,258,254

Commitments and contingencies		-		-

Shareholders’ deficit:
Preferred stock, $.00001 par, authorized 2,000,000,000 shares; 2,000,000,000 and -0- issued and outstanding at December 31, 2011 and September 30, 2011		20,000		-
Common stock, $.001 par; authorized 2,000,000,000 shares; 625,988,243 and 438,138,975 issued and outstanding at December 31, 2011 and September 30, 2011		625,988		438,139
Additional paid in capital in excess of par		18,734,703		18,065,442
Retained deficit		(30,743,479)		(29,103,468)

Total shareholders’ deficit		(11,362,788)		(10,599,887)

Total liabilities and shareholders’ equity	$	5,450,336	$	5,658,367

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

(Unaudited)

	2011			2010

Revenues	$	1,282,893		$	1,390,678
Cost of revenues		741,625			739,925

Gross profit		541,268			650,753

Selling and administrative expense		929,393			1,282,646
Stock based compensation		37,610			-
Depreciation and amortization expense		926,668			55,235
Interest expense		264,929			220,236

Total expenses		2,158,600			1,558,117

Income (loss) from operations		(1,617,332	)		(907,364	)

Other income (expense)
Other income		158			1,190

Loss from continuing operations before Income taxes		(1,617,174	)		(906,174	)

Income tax expense		-			-

Loss from continuing operations		(1,617,174	)		(906,174	)
Income (loss) from discontinued operations, net of tax		(22,837	)		-

Net loss	$	(1,640,011	)	$	(906,174	)

Basic and diluted net income (loss) per share
Loss from continuing operations	$	(.003	)	$	(.01	)
Loss from discontinued operations		-			-
Basic and diluted net income (loss) per share	$	(.003	)	$	(.01	)

Weighted average shares used in computing basic and diluted net (loss) per common share		467,867,250			124,827,498

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

(Unaudited)

	2011			2010
Cash flows from operating activities:
Net loss	$	(1,640,011	)	$	(906,174	)
(Income) Loss from discontinued operations		22,837			-
Loss from continuing operations		(1,617,174	)		(906,174	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		926,668			55,235
Stock based payment for services		37,610			126,638
Changes in operating assets and liabilities
Accounts receivable		4,705			(125,044	)
Inventory		(128,928	)		233,032
Prepaid expenses and other assets		114,131			61,162
Accounts payable and accrued expenses		695,248			2,611
Advance payments and billings in excess of costs		(370,980	)		(163,566	)

Net cash flows from operating activities – continuing operations		(338,720	)		(716,106	)
Net cash flows from operating activities – discontinued operations		-			(111,452	)
Net cash flows from operating activities		(338,720	)		(827,558	)

Cash flows from investing activities:
Investments in multiple companies		-			(25,000	)
Purchase of property and equipment		-			-

Net cash flows from investing activities – continuing operations		-			(25,000	)
Net cash flows from investing activities – discontinued operations		-			-
Net cash flows from investing activities		-			(25,000	)

Cash flows from financing activities:
Shareholder advances		165,504			-
Repayment of Shareholder loans		-			(14,883	)
Increases in long term debt		65,000			535,000
Repayment of long term debt		(36,137	)		(30,915	)
Proceeds from sale of stock		-			390,000

Net cash flows from financing activities – continuing operations		194,367			879,202
Net cash flows from financing activities – discontinued operations		-			-
Net cash flows from financing activities		194,367			879,202

Increase (decrease) in cash and cash equivalents		(144,353	)		26,644
Cash and cash equivalents, beginning		169,499			12,605

Cash and cash equivalents, ending	$	25,146		$	39,249

Cash paid for interest	$	15,806		$	78,383

Cash paid for taxes	$	-		$	-

Supplemental schedule of non-cash financing and investing activities:

October 2011, the Company issued 8,896,394 common shares issued as conversion of debt

October 2011, the Company issued 500,000 common shares for services

November 2011, the Company issued 10,268,342 common shares to various individuals

November 2011, the Company issued 5,352,941 common shares as conversion of debt

December 2011, the Company issued 12,831,591 common shares as conversion of debt

December 2011, the Company issued 90,000,000 common shares and authorized the issuance of an additional 60,000,000 shares as conversion of related party debt.

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2011

(Unaudited)

	Preferred Stock				Common Stock
	Number of Shares		Amount		Number of Shares		Amount		Additional Paid in Capital			Accumulated (deficit)			Total
Balances, October 1, 2011		-	$	-		438,138,975	$	438,139	$	18,065,442		$	(29,103,468	)	$	(10,599,887	)
Issuance of shares for services		2,000,000,000		20,000		1,761,024		1,762		15,848						37,610
Issuance of shares to fulfill contractual obligation						9,007,318		9,007		(9,007	)					-
Issuance of shares in satisfaction of debt						177,080,926		177,080		630,920						808,000
Issuance of convertible debt										31,500						31,500
Net loss for the three months ended December 31, 2011													(1,640,011	)		(1,640,011	)
Balances, December 31, 2011		2,000,000,000	$	20,000		625,988,243	$	625,988	$	18,734,703		$	(30,743,479	)	$	(11,362,788	)

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010

(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 in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Mayo, Florida.

2. Principles of consolidation and basis of presentation:

The accompanying consolidated balance sheet as of September 30, 2011, 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 in 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 have been accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (Europe) LLC (formerly Bulova Technologies Combat Systems LLC).

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 (Europe) LLC – located in the Company’s corporate headquarters in Clearwater, Florida, this subsidiary was originally formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009. The Company has since changed the name to Bulova Technologies (Europe) LLC and is developing a Mortar Exchange program to facilitate the needs of NATO member countries.

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 December 31, 2011 and the results of operations and cash flows for the three months ended December 31, 2011 and 2010.

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 February 12, 2012 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 operated in two business segments, government contracting and contract manufacturing. With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting

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 December 31, 2011 and September 30, 2011 is as follows:

	December 31,		September 30,
	2011		2011
Finished goods	$	-	$	-
Work in process		-		96,000
Materials and supplies		814,154		589,226

Total inventory		814,154		685,226
Less inventory classified as discontinued operations		-		-

Total inventory of continuing operations	$	814,154	$	685,226

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 December 31, 2011 and September 30, 2011

	December 31,			September 30,
	2011			2011
Land	$	1,225,000		$	1,225,000
Buildings and improvements		1,170,194			1,170,194
Machinery and equipment		698,758			698,759
Funiture, fixtures and leasehold improvements		44,735			44,735

		3,138,687			3,138,688
Less accumulated depreciation		(636,309	)		(593,430	)

Net Property, plant and equipment		2,502,378			2,545,258
Less property, plant and equipment from discontinued operations		-			-

Net property, plant and equipment of continuing operations	$	2,502,378		$	2,545,258

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.

Discontinued Operations

In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations (“ASC 205-20”), we reported the results of BT Manufacturing Company LLC, our contract manufacturing segment as a discontinued operation. The application of ASC 205-20 is discussed in Note 5 “Discontinued Operations”

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.

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. The Company sis not incur any advertising expenses for the three months ended December 31, 2011 and 2010.

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. As of December 31, 2011, there were 24,924,000 common stock equivalents that were dilutive but had no effect on loss per share.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements 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 December 31, 2011 through the date these financial statements were issued.

3. 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 is pursuing 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.

4. 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 December 31, 2011 the cost and fair values of the investments were as follows:

Investments

	Cost		Gain		Loss		Fair Value
Level 1 Equity Investments	$	-	$	-	$	-	$	-
Level 2 Equity Investments		184,500		-		-		184,500
Level 2 Loans		1,607,355		-		-		1,607,355

	$	1,791,855	$	-	$	-	$	1,791,855

5. Discontinued Operations

In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. BT Manufacturing Company LLC, a wholly owned subsidiary of the Company represented our contract manufacturing segment. As a result of the decision to sell this business segment, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations at June 30, 2011 and September 30, 2010 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.

In September 2010, the Company estimated a loss in the amount of $2,650,000 to be realized upon completion of the disposal of this business segment, as well as an estimated operating loss of $900,000 to be incurred during the phase-out period. For the nine months ended June 30, 2011 the Company incurred actual operating losses associated with this discontinued segment of $598,728. During March 2011, the Company finalized its negotiations relative to the disposition of the assets of this operation with an effective date of December 31, 2010. As a part of this settlement, the buyer that acquired the operations has provided an earn out agreement to Sovereign Bank to assist in the payment of the remaining obligation on the note payable to them. This balance is carried as a liability from discontinued operations on our consolidated balance sheet.

Summarized operating resultes for discontinued operations is as follows:

	Three Months Ended
	December 31,
	2011			2010

Revenue	$	-		$	254,004
Cost of Sales		-			(152,403	)
Gross profit		-			101,601
Operating expenses		(22,837	)		(533,385	)
Other		-			-
Gain (Loss) to be recognized from discontinued operations		(22,837	)		(431,784	)
Prior provision for operating losses during phase-out period					900,000
Income tax benefit		-			-
Gain (loss) to be recognized from discontinued operations, net of tax	$	(22,837	)	$	-

The gain (loss) from discontinued operations above do not include any income tax effect as the Company was not in a taxable position due to its continued losses and a full valuation allowance

Summary of assets and liabilities of discontinued operations is as follows:

	December 31,		September 30,
	2011		2011

Accounts receivable	$	-	$	-
Inventory		-		-
Other current assets		-		-
Total current assets held for sale		-		-
Property plant and equipment - net		-		-
Other assets		-		-
Total assets from discontinued operations	$	-	$	-

Accounts payable and accrued expenses	$	296,542	$	273,705
Current portion of long-term debt		1,660,883		1,660,883
Provision for loss on disposal of business segment		-		-
Total current liabilities associated with discontinued operations		1,957,425		1,934,588
Long term debt, net of current portion		-		-
Total liabilities associated with discontinued operations	$	1,957,425	$	1,934,588

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 December 31, 2011 and September 30, 2011 are $512,524 and $883,504 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. The Company did not have any billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of December 31, 2011 and September 30, 2011.

7. Long Term Debt

Long term debt consisted of the following at:

	December 31, 2011		September 30, 2011
Promissory note payable to Webster Business Capital Corporation, dated December 16, 2008, in the original amount of $825,000 payable in full on June 30, 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 December 31, 2011.	$	825,000		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 December 31, 2011. Final payment is due on March 10, 2021.		518,000		532,000

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 December 31, 2011. Final payment is due on December 1, 2020.		789,403		799,283

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.		58,725		59,463

Note payable to PNL Newco II, LLC, 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 an earn out agreement with the party that acquired all of the personal property of the discontinued operations of BT Manufacturing Company, LLC. Final balloon payment is due December 22, 2011. This loan is currently in default.		1,660,883		1,660,883

Convertible Note payable to GovFunding, LLC, dated February 4, 2011, in the amount of $3,158,000 net of debt discount of $202,354, bearing interest at 18%., secured by a lock box agreement tied to the proceeds of a single government contract with a carrying value of approximately $2,600,000 at December 31, 2011. Final payment is due January 31, 2012.		3,107,000		2,955,646

Convertible Note payable to Asher Enterprises, Inc. dated February 28, 2011 in the original amount of $75,000, current balance net of debt discount of $6,141, bearing interest at 8%. with a maturity date of December 2, 2011.		-		41,859

Insurance premium financing agreement with First Insurance Funding Corp. dated January 21, 2011 in the original amount of $75,043, bearing interest at 9.9%, payable in monthly installments of $8,693 per month, final payment due October 21, 2011	-	7,924

Note payable to The David J Keehan Trust dated June 30, 2011 in the amount of $500,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.	500,000	500,000

Convertible Note payable to Asher Enterprises, Inc. dated March 31, 2011 in the amount of $42,500 net of debt discount of $5,703, bearing interest at 8%. with a maturity date of January 4, 2012.	-	36,797

Convertible Note payable to Asher Enterprises, Inc. dated May 26, 2011 in the amount of $35,000 net of debt discount of $7,459, bearing interest at 8%. with a maturity date of March 1, 2012.	-	27,541

Convertible Note payable to GovFunding, LLC dated May 25, 2011 in the amount of $220,000 net of debt discount of $41,712, bearing interest at 18%. with a maturity date of April 30, 2012.	178,288	146,573

Convertible Note payable to GovFunding LLC dated June 23, 2011 in the amount of $133,000 net of debt discount of $35,904, bearing interest at 18%. with a maturity date of June 30, 2012.	97,096	78,946

Note payable to GovFunding LLC dated July 14, 2011 in the amount of $105,000, bearing interest at 18%. with a maturity date of August 1, 2011.	105,000	105,000

Insurance premium financing agreement with Flat Iron Capital dated July 26, 2011 in the original amount of $14,224, bearing interest at 7.4%, payable in monthly installments of $1,251 per month, final payment due May 26, 2012	6,142	9,737

Convertible Note payable to GovFunding LLC dated August 1, 2011 in the amount of $128,000 net of debt discount of $37,375, bearing interest at 18%. with a maturity date of April 30, 2012.	90,625	62,208

Convertible Note payable to GovFunding LLC dated August 9, 2011 in the amount of $250,000 net of debt discount of $91,090, bearing interest at 18%. with a maturity date of June 30, 2012.	158,910	112,865

Convertible Note payable to Asher Enterprises, Inc. dated August 19, 2011 in the original amount of $43,000 net of debt discount of $9,989, bearing interest at 8%. with a maturity date of May 22, 2012	33,011	26,584

Note payable to The David J Keehan Trust dated July 11, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.	100,000	100,000

Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.	100,000	100,000

Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $50,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.	50,000	50,000

Convertible Note payable to GovFunding LLC dated August 30, 2011 in the amount of $110,000 net of debt discount of $35,375, bearing interest at 18%. with a maturity date of June 30, 2012.	74,625	56,744

Convertible Note payable to Asher Enterprises, Inc. dated December 2, 2011 in the original amount of $35,000 net of debt discount of $14,243, bearing interest at 8%. with a maturity date ofSeptember 30, 2012		20,757		-

Convertible Note payable to Asher Enterprises, Inc. dated December 30, 2011 in the original amount of $35,000 net of debt discount of $15,647, bearing interest at 8%. with a maturity date of October 31, 2012		19,353		-
		8,492,818		8,295,053
Less current portion pertaining to continuing operations		-5,587,691		-5,365,245
Less current portion associated with discontinued operations		-1,660,883		-1,660,883
Less long term portion associated with discontinued operations		-		-
	$	1,244,244	$	1,268,925

Principal maturities of long term debt for the next five years and thereafter as of December 31, 2011 are as follows:

Period ended December 31,
2012	$	7,248,574
2013		123,089
2014		128,657
2015		134,687
2016		141,218
Thereafter		716,592
	$	8,492,818

8. 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, 2011 the Company had federal net operating loss carry forwards of approximately $17,344,000 and Florida net operating loss carry forwards of approximately $17,245,000. The federal net operating loss carry forwards will expire in 2020 through 2030 and state net operating loss carry forwards that will expire in 2028 through 2030.

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

Continuing Operations	12/31/2011			9/30/2011

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, 2010, 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.

9. 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.

U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors General routinely audit and investigate costs and performance on contracts, as well as accounting and general business practices of contractors Based on the results of such audits, the U.S. Government may adjust contract related costs and fees, including allocated indirect costs. None of the Company’s contracts are currently the subject of any government audits.

The Company operates corporate and administrative offices in two leased facilities, one in Clearwater, Florida, and the other in Brandon, Florida, and a field office in Frankfurt, Germany on a month to month basis. During the quarter ended December 31, 2011, 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.

Total rent expense for the three months ended December 31, 2011 and 2010, was approximately $85,000 and $142,090 respectively.

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of June 30, 2011 are as follows:

Period ended December 31
2012	$	234,168
2013		207,300
2014		207,300
2015		207,300
2016		207,300
Thereafter		2,280,300
	$	3,343,668

10. Related Party Transactions

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

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 expired on January 1, 2011. Pursuant to the terms of the agreement, Ramal received a marketing fee for services of 4% of net sales generated through contracts of Bulova Technologies Ordnance Systems LLC. Subsequent to the expiration of this marketing agreement, the marketing fee of 4% is now paid to Stephen Gurba as a part of his compensation package.

The Company has received loans from the two (2) major shareholders totaling $593,558 and $1,160,053 as of December 31, 2011 and September 30, 2011 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. During the three months ended December 31, 2011, the Company issued 150,000,000 shares of common stock in exchange for $682,500 of shareholder loans.

On October 29, 2010 the Company issued each of the two major shareholders 22,500,000 shares of stock as payment on interest accrued to date and for an estimate of the interest that will accrue on their respective loans through 2011.

11. Stockholders’ Equity

Common Shares

In October 2011, the Company issued 8,896,394 shares issued as conversion of debt in the amount of $48,000

In October 2011, the Company issued 500,000 shares issued for services

In November 2011, the Company issued 1,261,024 shares to various individuals

In November 2011, the Company issued 9,007,318 shares to fulfill a contractual obligation associated with a prior issuance. There was no additional consideration received by the Company for the issuance of these shares.

In November 2011, the Company issued 5,352,941 shares as conversion of debt in the amount of $27,000

In December 2011, the Company issued 12,831,591 shares as conversion of debt in the amount of $50,000

In December 2011, the Company issued 90,000,000 shares and authorized an additional 60,000,000 shares issued as conversion of related party debt in the amount of $682,500

In November 2011, the Company amended its Articles of Incorporation to create a class of Preferred Stock with an authorization of 2,000,000,000 shares, all of which were issued to our Chairman of the Board.

In November 2011, the Company increased its authorization of common shares to 2,000,000,000.

Preferred Shares

In November 2011, the Company amended its Articles of Incorporation to create a Preferred Shares class of stock. The amendment authorizes the Company to issue up to 2,000,000,000 preferred shares, with a par value of $.00001 per share. The preferred shares have co-voting rights with the outstanding common shares on a one to one basis, so that the common shares and the preferred shares shall vote as though, together they were a single class of stock. The shares are redeemable by the Corporation at any time, with the permission of the Preferred Shareholders, at 1/1,000,000 of a cent per preferred share. These preferred shares have no conversion rights, no dividend rights, nor any liquidation preferences. These shares are not listed on any exchange.

12. Subsequent Events

January 2012 - the Company issued 139,000,000 shares of its common stock for services in conjunction with Bulova Tedchnologies (Europe),

February 2012 - the Company issued 13,250,000 shares of its common stock to various individuals.

February 2012 - the Company issued 95,000,000 shares of its common stock in association with new debt.

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:

	Since January 1, 2009, Bulova Technologies Group, Inc. has operated 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 (Europe) 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. In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. During the quarter ended March 31, 2011, the Company accomplished this disposition. For reporting purposes, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations and has segregated its operating results and presented them separately as a discontinued operation for all periods.

	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.

2 .	Results of operations:

	For the three months ended December 31, 2011 compared to the three months ended December 31, 2010.

	Discontinued Operations

	There only activity to reflect as results from operations of BT Manufacturing Company LLC for the three months ended December 31, 2011 is the accrual of interest on the note that the Company is negotiating to resolve.as there was no other activity relative to this disposed segment during this quarter.

	Continuing Operations

	The Company’s revenue for continuing operations for the three months ended December 31, 2011 of $1,282,893 is a decrease of $107,785 when compared to the Company’s revenue for the three months ended December 31, 2010 of $1.390.678.
	The Company’s cost of sales for continuing operations for the three months ended December 31, 2011 of $741,625 is a slight increase of $1,700 when compared to the Company’s cost of sales for the three months ended December 31, 2010 of $739,925.
	The Company’s gross profit for continuing operations for the three months ended December 31, 2011 of $541,268 is a decrease of $109,485 when compared to the Company’s gross profit for the three months ended December 31, 2010 of $650,753.
	The Company’s operating expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization, and interest for the three months ended December 31, 2011 of $2,120,990 is an increase of $562,873 when compared to the same expenses of $1,558,117 for the three months ended December 31, 2010. This is due primarily to the large amortization cost associated with debt discounts and beneficial conversion features on debt.. Selling and administrative expenses actually decreased by $353,252 for the three months ended December 31, 2011 when compared to the three months ended December 31, 2010.

	The Company’s stock based compensation for continuing operations for the three months ended December 31, 2011 was 37,610. The Company did not issued stock based compensation for the three months ended December 31, 2010.
	The Company’s net loss for continuing operations for the three months ended December 31, 2011 of $1,617,332 is an increase of 709,968 when compared to the Company’s net loss for the three months ended December 31, 2010 of $907,364.

3.	Liquidity and capital resources:

	As of December 31, 2011, the Company’s sources of liquidity were new debt and loans from shareholders.

	As of December 31, 2011, we had $25,146 in cash and cash equivalents.

	Cash flows used in operating activities was $338,720 for the three months ended December 31, 2011.

	The Company did not use any resources for activities for the three months ended December 31,2011,

	Cash flows from financing activities were $194,367 for the three months ended December 31, 2011. Cash flows provided by continuing operations consisted primarily of new debt in the amount of $65,000 and shareholder advances in the amount of $165,504.

	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.

	There are no off-balance sheet arrangements.

	Item 4. Controls and Procedures

	Evaluation of Disclosure 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 officer.
	Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were effective at December 31, 2011 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. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.

	Changes in Internal Control over Financial Reporting

	There have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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

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/ Frank W. Barker, Jr.
				Frank W. Barker, Jr.
				Principal Financial and Accounting Officer

DATED: February 14, 2012

Attached files

Bulova Technologies Group, Inc. Reports

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