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Table Of Contents

 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

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

     
    For the quarterly period ended June 30, 2014

 

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
(State or other jurisdiction of
incorporation or organization)

 

83-0245581
(IRS Employer
Identification No.)

 

2409 N Falkenburg Road
Tampa, Florida 33619

(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   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 

 

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  

 

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

 

As of August 13, 2014 the Company had 56,030,068 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 

 

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2014

 

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

 

 

18

 

Item 4. Controls and Procedures

 

 

20

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION  

 

 

 

 

 

 

 

 

 

 

Item 6. Exhibits

 

 

20

 

 

 

 

 

 

 

 

 

Signatures

 

 

21

 

 
 
 
 

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

June 30,

         
   

2014

   

September 30,

 
   

(unaudited)

   

2013

 

ASSETS

               
                 

Cash and equivalents

  $ 97,385     $ 89,812  

Accounts receivable

    323,323       303,565  

Inventory

    351,460       55,605  

Other current assets

    193,761       13,649  
                 

Total current assets

    965,929       462,631  
                 

Property, plant and equipment

    26,223       92,709  

Other assets

    2,000       103,295  
                 

Total Assets

  $ 994,152     $ 658,635  
                 
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               
                 

Accounts payable

  $ 439,420     $ 514,892  

Accrued expenses

    822,548       1,053,267  

Current portion of long term debt

    5,087,341       2,821,711  
                 

Total current liabilities

    6,349,309       4,389,870  
                 

Shareholder loans

    (20,182 )     (22,613 )

Long term debt, net of current portion

    464,691       112,629  
                 
                 

Total liabilities

    6,793,818       4,479,886  
                 
                 

Commitments and contingencies

    -       -  
                 

Shareholders’ deficit:

               

Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 issued and outstanding at June 30, 2014 and September 30, 2013

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares; 50,072,004 and 21,001,316 issued and outstanding at June 30, 2014 and September 30, 2013

    50,072       21,001  

Subscription receivable

    (66,000 )     (66,000 )

Additional paid in capital in excess of par

    23,418,790       23,174,191  

Retained deficit

    (29,242,528 )     (26,990,443 )
                 

Total shareholders’ deficit

    (5,799,666 )     (3,821,251 )
                 

Total liabilities and shareholders’ equity

  $ 994,152     $ 658,635  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Revenues

  $ 974,805     $ 2,248,509     $ 4,212,721     $ 5,225,297  

Cost of revenues

    904,568       1,802,895       3,740,284       4,428,434  
                                 

Gross profit

    70,237       445,614       472,437       796,863  
                                 

Selling and administrative expense

    758,045       512,631       2,218,936       1,694,063  

Stock based compensation

    5,500       -       88,000       273,182  

Depreciation and amortization expense

    6,074       160,930       112,685       453,648  

Interest expense

    109,926       28,743       265,652       513,330  
                                 

Total expenses

    879,545       702,304       2,685,273       2,934,223  
                                 

Income (loss) from operations

    (809,308 )     (256,690 )     (2,212,836 )     (2,137,360 )
                                 

Other income (expense)

                               

Other income

    (44,250 )     -       (39,249 )     13,317,570  
                                 

Income (loss) from continuing operations before income taxes

    (853,558 )     (256,290 )     (2,252,085 )     11,180,210  
                                 

Income tax expense

    -       -       -       -  
                                 

Income (loss) from continuing operations

    (853,558 )     (256,290 )     (2,252,085 )     11,180,210  

Income (loss) from discontinued operations, net of tax

    -       -       -       1,309,424  
                                 

Net Income (loss)

  $ (853,558 )   $ (256,290 )   $ (2,252,085 )   $ 12,489,634  
                                 

Basic net income (loss) per share

                               

Income (loss) from continuing operations

  $ (.022 )   $ (.013 )   $ (.01 )   $ .66  

Income (loss) from discontinued operations

    -       -       -       .08  

Net income (loss) per share

  $ (.022 )   $ (.013 )   $ (.01 )   $ .74  
                                 

Diluted net income (loss) per share

                               

Income (loss)from continuing operations

  $ (.022 )   $ (.013 )   $ (.01 )   $ .34  

Income (loss) from discontinued operations

    -       -       -       .04  

Net income (loss) per share

  $ (.022 )   $ (.013 )   $ (.01 )   $ .38  
                                 

Weighted average shares outstanding

                               

Basic

    38,420,517       18,526,316       22,566,851       16,859,849  

Diluted

    38,420,517       18,526,316       22,566,851       32,611,680  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)

 

   

2014

   

2013

 

Cash flows from operating activities:

               

Net Income (loss)

  $ (2,252,085 )   $ 12,489,634  

(Income) Loss from discontinued operations

    -       (1,309,424 )

Income (Loss) from continuing operations

    (2,252,085 )     11,180,210  

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

               

Depreciation and amortization

    112,685       453,648  

Stock based payment for services

    88,000       273,182  

Stock based settlement payment

    7,700       -  

Gain from change in accounting estimate

    -       (6,071,700 )

(Gain) from settlement of debt

    -       (356,765

Loss on sale of note receivable

    -       156,710  

Loss (Gain) on sale of assets

    920       (6,153,177 )

Changes in operating assets and liabilities

               
                 

Accounts receivable

    (19,758 )     112,005  

Inventory

    (295,855 )     55,404  

Prepaid expenses and other assets

    (173,487 )     (105,287 )

Accounts payable and accrued expenses

    (298,906 )     (143,483 )
                 

Net cash flows from operating activities – continuing operations

    (2,830,786 )     (599,253 )

Net cash flows from operating activities – discontinued operations

    -       (1,309,424 )

Net cash flows from operating activities

    (2,830,786 )     (1,908,677 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (1,283 )     -  

Proceeds from sale of assets

    -       9,547,580  

Proceeds from sale of note receivable

    -       250,000  

Principle collections on note receivable

    -       3,831  
                 

Net cash flows from investing activities – continuing operations

    (1,283 )     9,801,411  

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    (1,283 )     9,801,411  
                 

Cash flows from financing activities:

               

Proceeds from sale of preferred shares

    -       20,000  

Proceeds from sale of common shares

    142,800       -  

Increase (decrease) of Shareholder loans

    2,431       (244,488 )

Increases in long term debt

    2,764,349       1,623,673  

Repayment of long term debt

    (69,938 )     (9,277,836 )
                 

Net cash flows from financing activities – continuing operations

    2,839,642       (7,878,651 )

Net cash flows from financing activities – discontinued operations

    -       -  

Net cash flows from financing activities

    2,839,642       (7,878,651 )
                 

Increase (decrease) in cash and cash equivalents

    7,573       14,083  

Cash and cash equivalents, beginning

    89,812       29,034  
                 

Cash and cash equivalents, ending

  $ 97,385     $ 43,117  
                 

Cash paid for interest

  $ 15,322     $ 2,476  
                 

Cash paid for taxes

  $ -     $ -  

 

Supplemental schedule of non-cash financing and investing activities:

 

October 2013, the Company issued 500 000 common shares for services

 

November 2013, the Company issued 625,000 common shares for services

 

February 2014, the Company issued 1,102,564 common shares in satisfaction of debt

 

February 2014, the Company issued 4,000,000 common shares for services

 

March 2014, the Company issued 2,356,472 common shares in satisfaction of debt

 

May 2014, the Company issued 3,231,118 common shares in satisfaction of debt

  May 2014, The Company issued 1,100,000 warrants for services
 

June 2014, the Company issued 4,255,534 common shares in satisfaction of debt

 

June 2014, the Company issued 1,000,000 common shares as part of a judgment settlement

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 2014
(Unaudited)

 

 

   

Preferred Stock

   

Common Stock

                                 
   

Number of

Shares

   

Amount

   

Number of

Shares

   

Amount

   

Subscription

Receivable

   

Additional

Paid in

Capital

   

Accumulated

(deficit)

   

Total

 
                                                                 

Balances, October 1, 2013

    4,000,000,000     $ 40,000       21,001,316     $ 21,001     $ (66,000 )   $ 23,174,191     $ (26,990,443 )   $ (3,821,251 )
                                                                 

Issuance of shares for services

                    5,125,000       5,125               77,375               82,500  
                                                                 

Issuance of shares in satisfaction of debt

                    3,459,036       3,459               11,041               14.500  
                                                                 

Sale of common shares

                    12,000,000       12,000               130,800               142,800  
                                                                 

Issuance of shares in satisfaction of debt

                    7,486,652       7,487               13,183               20,670  
                                                                 

Issuance of shares for settlement

                    1,000,000       1,000               6,700               7,700  
Issuance of warrants for services                                             5,500               5,500  

Net loss for the nine months ended June 30, 2014

                                                    (2,252,085 )     (2,252,085 )
                                                                 

Balances, June 30, 2014

    4,000,000,000     $ 40,000       50,072,004     $ 50,072     $ (66,000 )   $ 23,418,790     $ (29,242,528 )   $ (5,799,666 )

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2014 AND 2013
(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 3Si Holdings, Inc. (“3Si”) a private company that was under common control and began operations in Florida.

 

The headquarters of the Company is located in Tampa, Florida. The Company derives all of its revenues through the operation of its wholly-owned subsidiaries. Through 2012 the Company derived its revenue principally as a Government contractor through its wholly-owned subsidiary, Bulova Technologies Ordnance Systems LLC located in Mayo, Florida. In October 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party. Subsequently the Company expanded its sources of revenues to include the sales of commercial ammunition through its wholly-owned subsidiary, Bulova Technologies (Europe) LLC, and also sales of Industrial Tool Machines through its wholly-owned subsidiary, Bulova Technologies Machinery LLC, which was launched mid-2013.

 

 

2.

Principles of consolidation and basis of presentation:

 

The accompanying consolidated balance sheet as of September 30, 2013, 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). In July of 2013, the Company formed its newest subsidiary, Bulova Technologies Machinery LLC.

 

BT Manufacturing Company LLC – prior to discontinuance, its operations were located in Melbourne, Florida, in a 35,000 square foot facility where it assembled a wide range of printed circuit board products. In June 2010, the Company determined to dispose of BT Manufacturing Company LLC, and as such has accounted for this business segment as a discontinued operation. The settlement and disposition of this segment was accomplished during the quarter ended March 31, 2011, with the exception of a note payable, whose final settlement occurred when all of the assets of Ordnance were sold in October 2012.

 

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. In October 2012, the Company sold substantially all of the assets of this subsidiary to an unrelated party.

 

Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Tampa, Florida, this subsidiary markets and sells commercially ammunition acquired through various suppliers worldwide. The Company leases office space in Frankfurt, Germany to promote and facilitate its programs.

 

Bulova Technologies Machinery LLC - Formed in July of 2013, Bulova Technologies Machinery LLC represents the Company's entree into the machine tool business, and will import industrial machine tools and related equipment under exclusive arrangements with recognized international sources and establish a Distributor/Dealer Network throughout the United States and Canada.

 

 

In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2014 and September 30, 2013, and the results of operations and cash flows for the three and nine months ended June 30, 2014 and 2013.

 

Subsequent Events

 

The Company has evaluated subsequent events through August 15, 2014 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 formation of Bulova Technologies Machinery LLC and the expansion into commercial ammunition sales, the Company now operates in two business segments, government contracting and commercial sales.  

 

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. 

 

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 items held for resale and materials and supplies for sale and service.

 

 

The breakdown of inventory at June 30, 2014 and September 30, 2013 is as follows:

 

   

June 30,

   

September 30,

 
   

2014

   

2013

 

Inventory held for resale

  $ 351,460     $ -  

Materials and supplies

    -       55,605  
                 

Total inventory of continuing operations

  $ 351,460     $ 55,605  

 

 

 

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 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 June 30, 2014 and September 30, 2013

 

   

June 30,

   

September 30,

 
   

2014

   

2013

 
                 

Funiture, fixtures and equipment

    59,089       117,580  
                 
      59,089       117,580  

Less accumulated depreciation

    (32,866 )     (24,871 )
                 

Net property, plant and equipment

  $ 26,223     $ 92,709  

 

Depreciation expense for the nine months ended June 30, 2014 and 2013 was $18,015 and $6,860 respectively.

 

 

Loan Costs

 

 

The Company account for costs incurred relative to the acquisition of new debt in other assets, and amortizes these costs over the life of the debt. The unamortized balance of loan costs at June 30, 2014 and September 30, 2013 were $0 and $94,670 respectively.

 

Amortization of loan costs for the nine months ended June 30, 2014 and 2013 was $94,670 and $76,584 respectively.

 

Impairment of Long-Lived Assets

 

The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are 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 4 “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. A significant portion of the Company’s revenue have been 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 have been 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 did not incur any advertising expenses for the nine months ended June 30, 2014 and 2013.

 

Shipping Costs

 

The Company includes shipping costs in cost of revenues.

 

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 ASC48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.

 

Income (Loss) per Common Share

 

The Company computes income (loss) per share by dividing net earnings (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the year. Dilutive common stock equivalents may consist of shares issuable upon exercise of the Company's stock warrants and options (calculated using the treasury stock method).  As of June 30, 2014, there were 59,955,515 common stock equivalents that were anti-dilutive and were not included in the calculation. Common stock issuable is considered outstanding as of the original approval date for purposes of earnings per share computations.

  

Recent Accounting Pronouncements

 

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term.  The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.  Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.

 

3.   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 September 30, 2013 and September 30, 2012 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.

 

In October of 2012, the Company negotiated a settlement with PNL Newco II LLC for complete satisfaction of the only remaining debt associated with this discontinued operation for $625,000. The transaction resulted in a gain of $1,309,424.

 

 

Summarized operating results for discontinued operations is as follows:

 

   

Nine months ended

 
   

June 30,

 
   

2014

   

2013

 
                 

Revenue

  $ -     $ -  

Cost of Sales

    -       -  

Gross profit

    -       -  

Operating expenses and interest

    -       -  

Other income

    -       1,309,424  

Income (loss) from operations

    -       1,309,424  

Loss on disposal of discontinued operations

    -       -  

Income tax benefit

    -       -  

Income (loss) from discontinued operations, net of tax

  $ -     $ 1,309,424  

 

The income (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

 

As of June 30, 2014 and September 30, 2013, there are no remaining assets associated with this discontinued operation.

 

4.   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 had certain contracts with the U.S. Government that have been 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. The balances outstanding as of June 30, 2014 and September 30, 2013 are $0 and $0 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 June 30, 2014 and September 30, 2013.

 

 

5.   Long Term Debt

 

Long term debt consisted of the following at:

 

    June 30, 2014     September 30, 2013  

Convertible Note payable to Asher Enterprises, Inc. dated July 16, 2012 in the original amount of $14,500, bearing interest at 8% with a maturity date of April 19, 2013.

    -       14,500  
                 

Note payable to Keehan Trust Funding, LLC dated January 19, 2012 in the amount of $1,550,000, bearing interest at the rate of 10%. This note is secured by the assignment of the proceeds of a government contract with a value in excess of $4,700,000 as of June 30, 2014. Final payment due upon delivery

    700,000       700,000  
                 

Convertible Note payable to Asher Enterprises, Inc. dated November 7, 2012 in the original amount of $37,500, bearing interest at 8% with a maturity date of August 9, 2013.

    16,830       37,500  
                 

Note payable to GovFunding, LLC dated October 24, 2012 in the amount of $553,763, bearing interest at 8%, payable quarterly principal of $69,220.38 plus accrued interest, with a maturity of October 24, 2014.

    553,763       553,763  
                 

Note payable to an individual dated December 21, 2012 in the amount of $60,000, bearing interest at 8%, with a maturity date of February 1, 2013

    -       60,000  
                 

Note payable to NFC III LLC dated February 25, 2013 in the amount of $400,000 bearing interest at 10%, with a maturity date of November 25, 2013

    400,000       400,000  
                 

Note payable to an individual dated January 25, 2013 in the amount of $50,000 bearing interest at 7%, with a maturity of June 30, 2013

    50,000       50,000  
                 

Note payable to GovFunding LLC dated January 1, 2013 in the amount of $30,000, bearing interest at 8%, with a maturity date of December 31, 2013.

    30,000       30,000  
                 

Note payable to GovFunding LLC dated January 1, 2013 in the amount of $24,552 bearing interest at 8%, with a maturity of December 31, 2013

    24,552       24,552  
                 

Note payable to an individual dated April 30, 2013 in the amount of $60,000 non-interest bearing with a maturity of December 31, 2013

    45,000       60,000  
                 

Note payable to an individual dated April 30, 2013 in the amount of $26,269, non-interest bearing with a maturity of July 31, 2013

    26,269       26,269  
                 

Note payable to Yellowstone Capital dated June 19, 2013 in the amount of $30,000 with no stipulated interest rate, payable through 80 daily payments of $500.

    -       8,464  
                 

Revolving credit line payable to NFC III LLC bearing interest at 10%, payable on demand

    813,819       560,819  
                 

Note payable to Ford Credit non-interest bearing payable at $904.34 monthly with a maturity date of September 14, 2018

    -       54,261  
                 

Note payable to NFC III LLC bearing interest at 10% payable on demand

    75,000       75,000  
                 

Note payable to an individual dated September 10, 2013, bearing interest at 8% payable on demand

    125,000       75,000  
                 

Note payable to Shapiro Family Trust dated July 10, 2013, bearing interest at 8% payable on demand

    150,000       100,000  
                 

Note payable to Craigmore Machinery Company dated August 15, 2013, bearing interest at 8% payable on demand

    50,000       50,000  
                 

Note payable to Craigmore Machinery Company dated August 15, 2013 bearing interest at 8% payable on demand

    49,212       49,212  
                 

Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% payable on demand

    5,000       5,000  
                 

Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% payable on demand

    20,000       -  
                 

Note payable to SIII Associates Limited Partnership dated November 8, 2013 with a maximum amount of $1,435,000 bearing interest at 8% with a maturity date of March 31, 2014

    1,306,688       -  
                 

Note payable to SV Associates Limited Partnership dated January 9, 2014 bearing interest at 8% payable on demand

    41,000       -  
                 

Note payable to Craigmore Machinery Company dated January 9, 2014 bearing interest at 8% payable on demand

    30,000       -  
                 

Note payable to an individual dated January 17, 2014 bearing interest at 8% payable on demand

    8,000       -  
                 

Note payable to Craigmore Machinery Company dated January 24, 2014 bearing interest at 8% payable on demand

    20,000       -  
                 

Note payable to Craigmore Machinery Company dated January 31, 2014 bearing interest at 8% payable on demand

    8,000       -  
                 

Note payable to Tropico Equity Partners LLC dated February 3, 2014 bearing interest at 8% payable on demand

    68,161       -  
                 

Note payable to Rachel E Shapiro Trust dated February 14, 2014 bearing interest at 6% payable on demand

    51,500       -  
                 

Note payable to Metro Bank dated February 14, 2014 with a maximum amount of $200,000 bearing interest at 4.65% with a maturity date of December 14, 2014

    125,000       -  
                 

Note payable to Banyan Capital Finance dated March 12, 2014 bearing interest at 8% payable on demand

    23,000       -  
                 

Note payable to Capital Stack, LLC dated March 24, 2014 in the amount of $35,000 with no stipulated interest rate payable through 83 daily payments of $599

    4,977       -  
                 

Note payable to Fast Advance Funding dated March 26, 2014 in the amount of $15,000 with no stipulated interest rate, payable through 83 daily payments of $256.45

    3,975       -  
                 

Note payable to Colleen Stacy Shapiro 2007 Trust, dated April 23, 2014 in the amount of $160,000, bearing interest at 6%, payable on demand

    160,000       -  
                 

Subordinated Promissory Note payable to The Shapiro Family D1 Trust dated April 29, 2014 in the amount of $400,000, bearing interest at 6%, payable on demand

    400,000       -  
                 

Note payable to an individual dated May 1, 2014 in the amount of $67,286, bearing interest at 4%, with a maturity date of April 1, 2019

    67,286       -  
                 

Note payable to SIII Associates Limited Partnership dated May 8, 2014 in the amount of $100,000 bearing interest at 6% payable on demand

    100,000       -  
                 
      5,552,032       2,934,340  
                 

Less current portion pertaining to continuing operations

    (5,087,341 )     (2,821,711 )
                 
    $ 464,691     $ 112,629  

 

 

Principal maturities of long term debt for the next five years and thereafter as of June 30, 2014 are as follows:

 

Period ended June 30,

       
         

2015

  $ 5,087,341  
         

2016

    15,933  
         

2017

    416,582  
         

2018

    17,258  
         

2019

    14,918  
         

Thereafter

    -  
         
    $ 5,552,032  

 

6.   Income Taxes

 

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

 

On January 1 2009 the Company acquired for stock of 3SI Holdings in exchange for shares of the Company's common stock. For income tax purposes this transaction has been treated as a tax free reorganization under the provisions of Section 368A of the Internal Revenue Code. 3SI Holdings had various net operating loss carry over’s. 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 2013 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, 2013 the Company had federal net operating loss carry forwards of approximately $12,406,000 and Florida net operating loss carry forwards of approximately $11,174,000. The federal net operating loss carry forwards will expire in 2020 through 2033 and state net operating loss carry forwards that will expire in 2028 through 2033.

 

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

 

Continuing Operations

 

6/30/2014

   

9/30/2013

 
                 

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

    0.00 %     0.00 %

 

 

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, 2013, the tax returns for the Company for the years ending 2010 through 2012 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. 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.

 

 

7.   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.

 

In 2010, Bulova Technologies Ordnance Systems LLC (Ordnance), one of the Company’s wholly owned subsidiaries, received a contract termination from the United States government for portions of a weapons contract with the U.S. Army. Ordnance has disputed this termination, and has filed a counter-claim. This dispute is ongoing, and the Company does not believe the outcome will have any material effect on the Company’s financial position or results of operations.

 

At June 30, 2014 the Company operated corporate and administrative offices in a facility leased from a non-affiliate in Tampa, Florida, approximating 5,000 square feet. The Tampa location is leased for a base monthly rental increased by a minimum of 2.5% each year through the expiration date of December 21, 2027.

 

The Company leases approximately 6,000 square feet of office, showroom and warehouse space in Sanford, Florida on a month to month basis, and approximately 10,000 square feet of office, showroom and warehouse space in Branchburg, New Jersey for a period of one year, with two, two year options at the same rate. These two locations are to facilitate the commercial sales of Bulova Technologies Machinery LLC. As of June 30, 2014, the Company has vacated the New Jersey location.

 

The Company also leases on a month to month basis, an office in Frankfurt, Germany to facilitate its European program.

 

Total rent expense for the nine months ended June 30, 2014 and 2013, was approximately $296,600 and $211,000 respectively.

 

 

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of June 30, 2014 are as follows:  

 

Period ended June 30,        
         

2015

  $ 260,448  
         

2016

    266,959  
         

2017

    273,633  
         

2018

    280,474  
         

2019

    287,486  
         

Thereafter

    2,812,178  
         
    $ 4,181,178  

 

8.   Related Party Transactions

 

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

 

The Company has received loans from major shareholders which were 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 them to a maximum of $5,000,000. As of June 30, 2014 and September 30, 2013, the only remaining debt associated with these notes is a temporary balance due from Stephen L. Gurba and Evelyn R. Gurba in the amount of $20,182 and $22,613 respectively.

 

9.   Stockholders’ Equity

 

Common Shares

 

On December 30, 2013, the Company affected a 1 for 200 reverse split of its common stock. The financial statements have been retroactively adjusted to reflect the effects of this reverse split. All equity issuances relative to common shares are presented as post reverse quantities (1/200), as compared to filings prior to the reverse.

 

Concurrently, the Company amended its articles to reduce the amount of authorized common shares from 5,000,000,000 to 500,000,000.

 

October 2012, the Company issued 754,038 common shares for services

 

October 2012, the Company issued 4,944,618 common shares as conversion of debt

 

November 2012, the Company issued 757,500 common shares for services

 

November 2012, the Company issued 915,150 common shares as conversion of debt

 

December 2012, the Company issued 496,250 common shares for services

 

January 2013 – the Company issued 1,237,121 shares of its common stock as conversion of debt

 

January 2013 – the Company issued 150,000 shares of its common stock in association with new debt

 

January 2013 – the Company issued 205,000 common shares for services

 

February 2013 – the Company issued 750,000 common shares of its common stock as conversion of debt

 

June 2013 – the Company issued 750,000 common shares of its common stock as conversion of debt

 

July 2013 – the Company issued 750,000 common shares in association with the extension of terms on existing debt

 

September 2013 – the Company issued 1,000,000 common shares for services

 

October 2013 - the Company issued 500 000 common shares for services

 

November 2013 - the Company issued 625,000 common shares for services

 

 

February 2014, the Company issued 1,102,564 common shares as conversion of debt

 

February 2014, the Company issued 4,000,000 common shares for services

 

March 2014, the Company issued 2,356,472 common shares as conversion of debt

 

April 2014, the Company sold 12,000,000 shares of common stock for $142,800

 

May 2014, the Company issued 3,231,118 common shares as conversion of debt

 

June 2014, the Company issued 4,255,534 common shares as conversion of debt

 

June 2014, the Company issued 1,000,000 common shares in conjunction with a judgment settlement

 

Preferred shares

 

In November 2011, the Company amended its Articles of Incorporation to create a Preferred Shares class of stock, initially authorizing the Company to issue up to 2,000,000,000 preferred shares, with a par value of $.00001 per share, all of which were issued to our Chairman of the Board.

 

In September 2012, the Company amended its Articles of Incorporation to increase its authorization to issue preferred shares to 5,000,000,000 at a par value of $.00001.

 

February 25, 2013, the Company sold 2,000,000,000 preferred shares

 

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.

 

Subscription receivable

 

In February 2013, the Company issued 20,589,981 warrants in exchange for subscription notes receivable of $66,000.

 

Warrants and options

 

In May 2014, the Company issued warrants to purchase 1,100,000 shares of our common stock at $0.02 per share any time prior to May 11, 2024

 

As of June 30, 2014, the Company had outstanding non-qualified warrants and options to purchase 59,955,515 shares of our common stock at any time prior to various expiration dates, the earliest being February 15, 2022, and the latest being May 11, 2024, all with an exercise price of $0.02 per share.

 

10. Change in Accounting Estimate

 

The Company had previously included an amount of $6,071,700 in accrued expenses that was a result of percentage of completion accounting on a single contract that was terminated by the US Government before completion. The Company is disputing the termination, and has maintained this balance in anticipation of a resolution. In October 2012, The Company sold substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the subsidiary that was a party to that specific contract, and has determined that the contract will never be completed. Therefore, the Company is recognizing in other income the full amount previously deferred. This change is a change in the way the revenue on this contract was estimated to be realized.

 

11. Subsequent Events

 

July 8, 2014, the Company issued 2,129,032 common shares as conversion of debt.

 

July 17, 2014, the Company issued 2,129,032 common shares as conversion of debt.

 

August 1, 2014, the Company issued 1,700,000 common shares as conversion of debt.

 

12. Segment Information

 

With Bulova Technologies (Europe) LLC beginning to diversify into product sales to non US Government customers in the quarter ended December 31, 2013 and Bulova Technologies Machinery LLC commencing the sale and service of its products commercially, the Company now operates in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the U.S. 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 Commercial Sales segment is focused on the sale and service of commercial products to non-government customers consisting of ammunition and industrial business machines, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies (Europe) LLC and Bulova Technologies Machinery LLC.

 

 

(UNAUDITED)

 

SEGMENT INFORMATION FOR THE NINE MONTHS ENDED JUNE 30, 2014 IS AS FOLLOWS:

 

   

Government Contracting

   

Commercial

Sales & Service

   

Total

 
                         
                         

Revenue

  $ 1,580,488     $ 2,632,233     $ 4,212,721  

Cost of Sales

    1,570,912       2,169,372       3,740,284  
                         

Gross profit

    9,576       462,861       472,437  

Selling, general and administrative expenses

    348       1,035,388       1,035,736  

Depreciation and interest expense

    62,432       33,443       95,875  
                         

Income (loss) from operations

    (53,204 )     (605,970 )     (659,174 )
                         

Other income (expense)

    4,451       -       4,451  

Net Income (loss)

  $ (48,753 )   $ (605,970 )   $ (654,723 )

Total Assets

  $ 1,918     $ 972,125     $ 974,043  

 

 

 

Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts    

 

Revenue

       
         

Total revenues for reportable segments

  $ 4,212,721  
         

Total consolidated revenue

  $ 4,212,721  
         
         

Net loss

       
         

Total loss for reportable segments

  $ (654,723 )
         

Unallocated amounts relating to corporate operations

       

Selling, general and administrative expenses

    (1,183,200 )

Stock based compensation

    (88,000 )

Judgment settlement

    (43,700 )

Amortization of loan costs

    (94,670 )

Depreciation and interest expense

    (187,792 )
         

Total consolidated net loss

  $ (2,252,085

)

         

Assets

       
         

Total assets for reportable segments

  $ 974,043  
         

Corporate investments and other assets

    20,109  
         

Total consolidated assets

  $ 994,152  

 

 

 

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 produced cable assemblies, circuit boards as well as complete systems, and was 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 June 30, 2014 compared to the three months ended June 30, 2013.

 

Discontinued Operations

 

There is no activity from discontinued operations for the three months ended June 30, 2014 or 2013.

 

Continuing Operations

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the contracts that were being performed at the Mayo, Florida location are in the process of being novated to the buyer of the facilities. This process conveys the rights to the contracts conveyed, and also releases our Company from the obligation to perform. Until this process is completed, the contracts remain in the name of Bulova Technologies Ordnance Systems LLC, and our Company is still legally responsible for their fulfillment. As a consequence, the Company is subcontracting the performance to the buyer of the facilities, and passing all monies on those specific contracts straight through. The effect on our financial statements will be to show revenue with very little gross profit as pertaining only to those contracts that are in the process of novation.

 

The Company’s revenue for continuing operations for the three months ended June 30, 2014 of $974,805 is a decrease of $1,273,704 when compared to the Company’s revenue for the three months ended June 30, 2013 of $2,248,509. This change is comprised of new revenues from ammunition and industrial machines of $807,864 and a reduction in government contract revenue of $2,081,568.

 

The Company’s cost of sales for continuing operations for the three months ended June 30, 2014 of $904,568 is a decrease of $898,327 when compared to the Company’s cost of sales for the three months ended June 30, 2013 of $1,802,895.

 

The Company’s gross profit for continuing operations for the three months ended June 30, 2014 of $70,237 is a decrease of $375,377 when compared to the Company’s gross profit for the three months ended June 30, 2013 of $445,614.

 

 
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The Company’s expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization of loan costs, and interest for the three months ended June 30, 2014 of $874,045 is an increase of $171,741 when compared to the same expenses of $702,304 for the three months ended June 30, 2013. This is due primarily to the ramp up of the new industrial machine business segment.

 

The Company had stock based compensation for continuing operations of $5,500 and $0 for the three months ended June 30, 2014 and 2013, respectively.

 

The Company had other income (expense) of ($44,250) for the three months ended June 30, 2014 which consisted primarily of a negotiated settlement of $43,700. This amount represents a decrease of $44,250 as compared to $0 for the three months ended June 30, 2013.

 

The Company’s net loss from continuing operations for the three months ended June 30, 2014 of $853,558 is a decrease of $597,268 when compared to the net loss from continuing operations of $256,290 for the three months ended June 30, 2013.

 

For the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013.

 

Discontinued Operations

 

There is no activity from discontinued operations for the nine months ended June 30, 2014. The only activity to reflect as results from our discontinued operations for the nine months ended June 30, 2013 is the final settlement of the note balance that carried over after the disposition of all of the assets of BT Manufacturing Company LLC. The Company negotiated a substantial discount of approximately $1.3 million in settling almost $2 million of guaranteed debt and accrued interest.

 

Continuing Operations

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the contracts that were being performed at the Mayo, Florida location are in the process of being novated to the buyer of the facilities. This process conveys the rights to the contracts conveyed, and also releases our Company from the obligation to perform. Until this process is completed, the contracts remain in the name of Bulova Technologies Ordnance Systems LLC, and our Company is still legally responsible for their fulfillment. As a consequence, the Company is subcontracting the performance to the buyer of the facilities, and passing all monies on those specific contracts straight through. The effect on our financial statements will be to show revenue with very little gross profit as pertaining only to those contracts that are in the process of novation.

 

The Company’s revenue for continuing operations for the nine months ended June 30, 2014 of $4,212,721 is a decrease of $1,012,576 when compared to the Company’s revenue for the nine months ended June 30, 2013 of $5,225,297. This change is comprised of new revenues from ammunition and industrial machines of $2,632,233 and a reduction in government contract revenues of $3,644,809.

 

The Company’s cost of sales for continuing operations for the nine months ended June 30, 2014 of $3,740,284 is a decrease of $688,150 when compared to the Company’s cost of sales for the nine months ended June 30, 2013 of $4,428,434.

 

The Company’s gross profit for continuing operations for the nine months ended June 30, 2014 of $472,437 is a decrease of $324,426 when compared to the Company’s gross profit for the nine months ended June 30, 2013 of $796,863.

 

The Company’s expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization of loan costs, and interest for the nine months ended June 30, 2014 of $2,597,273 is a decrease of $63,768 when compared to the same expenses of $2,661,041 for the nine months ended June 30, 2013.

 

The Company’s stock based compensation for continuing operations for the nine months ended June 30, 2014 was $88,000, and represents a decrease of $185,182 as compared to the stock based compensation of $273,182 for the nine months ended June 30, 2013.

 

The Company’s other income for the nine months ended June 30, 2014 of $(39,249), consists primarily of income of $5,000 from a settlement with a vendor, offset by an expense of $43,700 from a negotiated judgment settlement against the Company. This amount is a decrease of $13,356,819 as compared to $13,317,570 for the nine months ended June 30, 2013. This decrease is comprised primarily of the net gain on the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in the amount of $7,257,719 which occurred on October 24, 2012.

 

The Company’s net loss from continuing operations for the nine months ended June 30, 2014 of $2,252,085 is a decrease of $13,432,295 when compared to the net income from continuing operations of $11,180,210 for the nine months ended June 30, 2013, which again relates to the large net gain on the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC.

 

 

3.

Liquidity and capital resources:

 

As of June 30, 2014, the Company’s sources of liquidity consisted of new debt as well as new sales reported in the commercial sales and service business segment.

 

As of June 30, 2014, we had $97,385 in cash and cash equivalents.

 

Cash flows used in operating activities was $2,830,786 for the nine months ended June 30, 2014.

 

Cash flows used in investing activities was $1,283 for the nine months ended June 30, 2014,

 

Cash flows provided from financing activities were $2,839,642 for the nine months ended June 30, 2014, and consisted primarily of new debt in the amount of $2,764,349.

 

 
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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 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 and new commercial sales, 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 June 30, 2014 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

     
  101.INS**

XBRL Instance

     
  101.SCH**

XBRL Taxonomy Extension Schema

     
  101.CAL**

XBRL Taxonomy Extension Calculation

     
  101.DEF**

XBRL Taxonomy Extension Definition

     
  101.LAB**

XBRL Taxonomy Extension Labels

     
  101.PRE**

XBRL Taxonomy Extension Presentation

     
  ** XBRL

Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

  

 

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/ William McMillen

 

 

 

 

 

 

William McMillen

 

 

 

 

 

 

Principal Financial and Accounting Officer

 

 

 

     DATED: August 19, 2014

 

 

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