Table Of Contents

 

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q/A

(AMENDMENT NO. 1)

 

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2015

 

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.)

 

12645 49^th Street North
Clearwater, Florida 33762
(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 February 22, 2016 the Company had 79,268,518 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-Q/A for the quarter ended December 31, 2015, amends the Form 10-Q that was originally filed on February 23, 2016 to include Exhibits 31 and 32 relative to the certifications by the Principal Executive and Principal Financial Officers of the Company, to include Exhibit 101 relative to XBRL information, and also the following disclosure updates:

 

●

Corrected the total for “Accumulated Deficit” on the Statement of Changes in Stockholder’s Equity at December 31, 2015

●

Updated Note 5 – Long Term Debt to include disclosure of security, if any, associated with loans.

●

Updated Note 6 – Notes Payable – Related Parties to correct the total for December 31, 2015.

●

Updated Note 8 – Related Party Transactions to provide disclosure of security on loans.

●

Updated Note 10 – Subsequent Events to include the financing sources associated with an acquisition.

 

Except as described above, no other changes have been made to the Original Filing or any other exhibits. This Amendment speaks as of the filing date of the Original Filing and does not reflect events occurring after the filing date, or modify or update those disclosures that may be affected by subsequent events. As such, this Form 10–Q/A should be read in conjunction with the Original Filing.

 

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BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2015

 

TABLE OF CONTENTS

 

	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4. Controls and Procedures	21
PART II – OTHER INFORMATION
Item 6. Exhibits	22
Signatures	23

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		December 31,				September 30,
		2015				2015
ASSETS
Cash and equivalents		$	23,158			$	70,347
Accounts receivable, net			287,950				261,215
Inventory			751,654				259,591
Other current assets			75,969				148,548
Current assets from discontinued operations			-				-
Total current assets			1,138,731				739,701
Fixed assets, net			327,403				341,445
Other assets			13,215				13,237
Non-current assets from discontinued operations			-				-
Total Assets		$	1,479,349			$	1,094,383
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable		$	266,476			$	281,380
Accounts payable – related parties			1,088,191				733,922
Accrued expenses and other current liabilities			117,177				71,207
Accrued expenses and other current liabilities – related parties			1,047,963				810,536
Current portion of long term debt			259,803				265,646
Current portion of notes payable – related parties			-				-
Current liabilities from discontinued operations			1,150,000				1,150,000
Total current liabilities			3,929,610				3,312,691
Shareholder loans			119,880				-
Long term debt, net of current portion			240,691				149,228
Notes payable – related parties, net of current portion			8,134,221				7,908,220
Long term liabilities from discontinued operations			10,800,000				10,800,000
Total liabilities			23,224,402				22,170,139
Commitments and contingencies			-				-
Shareholders’ deficit:
Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 issued and outstanding at December 31, 2014 and September 30, 2014			40,000				40,000
Common stock, $.001 par; authorized 500,000,000 shares; 74,168,518 and 69,093,518 issued and outstanding at December 31, 2015 and September 30, 2015			74,168				69.093
Subscription receivable			(66,000	)			(66,000	)
Additional paid in capital in excess of par			27,956,310				26.231.658
Retained deficit			(49,749,531	)			(47,350,507	)
Total shareholders’ deficit			(21,745,053	)			(21,075,756	)
Total liabilities and shareholders’ equity		$	1,479,349			$	1,094,383

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014
(Unaudited)

 

		Three Months Ended
		December 31,
		2015				2014
Revenues		$	413,269			$	474,906
Cost of revenues			293,004				402,432
Gross profit			120,265				72,474
Selling and administrative expense			547,645				836,826
Stock based compensation			1,703,499				-
Depreciation and amortization expense			17,221				4,289
Interest expense			277,497				105,120
Total expenses			2,545,862				946,235
Income (loss) from operations			(2,425,597	)			(873,761	)
Other income (expense)
Other income			30,000				-
Income (loss) from continuing operations before income taxes			(2,395,597	)			(873,761
Income tax expense			-				-
Income (loss) from continuing operations			(2,395,597	)			(873,761	)
Income (loss) from discontinued operations, net of tax			(3,427	)			(137,094	)
Net Income (loss)		$	(2,399,024	)		$	(1,010,855	)
Basic and diluted net income (loss) per share
Income (loss) from continuing operations		$	(.04	)		$	(.02	)
Income (loss) from discontinued operations			-				-
Net income (loss) per share		$	(.04	)		$	(.02	)
Weighted average shares outstanding, basic and diluted			69,311,181				60,248,273

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014
(Unaudited)

 

		2015				2014
Cash flows from operating activities:
Income (loss) from continuing operations		$	(2,395,597	)		$	(873,761	)
Income (Loss) from discontinued operations			(3,427	)			(137,094	)
Net Income (Loss)			(2,399,024	)			(1,010,855	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			17,221				4,289
Stock based payment for services			1,703,499				-
Amortization of debt discount			45,940				-
Stock issued relative to debt restructure			-				25,500
Changes in operating assets and liabilities
Accounts receivable			(26,735	)			256,545
Inventory			(492,063	)			1,005
Prepaid expenses and other assets			25,828				52,869
Accounts payable and accrued expenses			630,990				149,783
Net cash flows from operating activities – continuing operations			(494,344	)			(520,864	)
Net cash flows from operating activities – discontinued operations			-				(98,307	)
Net cash flows from operating activities			(494,344	)			(422,557	)
Cash flows from investing activities:
Acquisition of fixed assets			(1,846	)			(34,235	)
Disposal of fixed assets			-				13,032
Net cash flows from investing activities – continuing operations			(1,846	)			(21,203	)
Net cash flows from investing activities – discontinued operations			-				-
Net cash flows from investing activities			(1,846	)			(21,203	)
Cash flows from financing activities:
Increase (decrease) of Shareholder loans			165,320				(4,203	)
Increases in long term debt			458,500				442,035
Repayment of long term debt			(174,819	)			(26,686	)
Net cash flows from financing activities – continuing operations			449,001				411,146
Net cash flows from financing activities – discontinued operations			-				47,678
Net cash flows from financing activities			449,001				458,824
Increase (decrease) in cash and cash equivalents			(47,189	)			15,064
Cash and cash equivalents, beginning			70,347				9,522
Cash and cash equivalents, ending		$	23,158			$	24,586
Cash paid for interest		$	74,359			$	38,250
Cash paid for taxes		$	-			$	-

 

Supplemental schedule of non-cash financing and investing activities:

●

November 2014, the Company issued 1,500,000 common shares in association to the extension of debt

	●	December 2014, the Company issued 1,313,450 common shares in satisfaction of debt
	●	November 2015, the Company issued 12,000,000 common stock warrants for services
	●	December 2015, the Company issued 7,400,000 common stock warrants for services

●

December 2015 the Company issued 1,000,000 common stock warrants in satisfaction of 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, 2015
(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, 2015			4,000,000,000			$	40,000				69,093,518			$	69,093			$	(66,000	)		$	26,231,658			$	(47,350,507	)		$	(21,075,756	)
Issuance of shares from the exercise of warrants											75,000				75								(75	)							-
Issuance of warrants associated with settlement of debt																							26,228								26,228
Issuance of shares for services											5,000,000				5,000								317,500								322.500
Issuance of warrants for services																							1,380,999								1,380,999
Net loss for the three months ended December 31, 2015																											(2,399,024	)			(2,399,024	)
Balances, December 31, 2015			4,000,000,000			$	40,000				74,168,518			$	74,168			$	(66,000	)		$	27,956,310			$	(49,749,531	)		$	(21,745,053	)

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2015 AND 2014
(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 Company also leases, on a month to month basis, an office in Frankfurt Germany to facilitate its European program.

 

Commencing in July of 2013, Bulova Technologies Machinery LLC leased approximately 6,000 square feet of office, showroom and warehouse space in Sanford, Florida, and approximately 10,000 square feet of office, showroom and warehouse space in Branchburg, New Jersey.  As of August 27, 2014, BTM terminated these leases and relocated all of its operations to a new facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida to facilitate commercial sales of its industrial machine tool business.

 

At September 30, 2012, our former government manufacturing business was located on 261 acres owned by Ordnance in Mayo, Florida, where Ordnance operated a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators.  This property was sold in October 2012 when Ordnance sold substantially all of its assets and discontinued operations.

 

The Company now has three major areas of focus which it conducts through its subsidiaries. Historically, the Company was dependent upon the Department of Defense as a customer, supplying the DoD with weaponry, ammunition and systems integration. For the reasons hereinafter described, the Company is engaged in a transition from DoD military product contracting. More recently, the Company has evolved to become a seller of high precision industrial machine tools, primarily through its distribution network. Most recently, the Company has begun the incubation and marketing of innovative technology products for which it believes it can lend value because of its highly recognizable name brand and extensive marketing experience.

 

 

2.	Principles of consolidation and basis of presentation:

 

The accompanying consolidated balance sheet as of September 30, 2015 has been derived from unaudited 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 then 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 Bulova Technologies Machinery LLC.

 

Bulova Technologies Machinery LLC - Formed in July of 2013, Bulova Technologies Machinery LLC represents the Company's entree into the machine tool business, and imports industrial machine tools and related equipment from recognized international sources and establishes a Distributor/Dealer Network throughout the United States and Canada.

 

Bulova Technologies Finance LLC - This subsidiary was created in 2015 to provide in-house financing to purchasers of BTM equipment. In August and September of 2015, the Company accomplished its first two finance activities through equipment leasing transactions.

 

 

Bulova Technologies (Europe) LLC – co-located at the Company’s headquarters in Tampa, Florida, this wholly-owned subsidiary (“Europe”), employing three people, was engaged in several lines of related business, including the Mortar Exchange Program, the offsets program, the administration of the blanket purchase agreement awarded to Ordnance by the Government, and the brokerage of commercial, small caliber ammunition. Pursuit of the Mortar Exchange Program, an offering made by a joint venture together with the TriGas Oil and Trade S.A. (a Swiss company) to NATO countries whereby the joint venture would sell new mortar rounds to such countries accepting, in partial payment, outdated mortar rounds for refurbishment, was halted during the course of the year so that Europe could concentrate on its commercial ammunition business. Similarly, pursuit of the offsets program, whereby the same joint venture partners offered to facilitate commercial entities in the U.S. with offsets (counter-purchases from friendly countries demanded by such countries in exchange for their purchases of U.S. made goods) was halted in 2013 for the same reason. Europe continues to administer the Ordnance BPA and broker the sale of Eastern European commercial small caliber ammunition to large U.S. customers on a wholesale basis and to small retail customers in the U.S.

 

Bulova Technologies Advanced Products LLC - Newly created, and co-located at the Company’s headquarters in Clearwater, Florida, this subsidiary (“BTAP”) actively seeks technologically innovative products in industries in which the Bulova Technologies name and management team can bring value. Currently, BTAP is in the process of identifying several products in the healthcare and software areas which it may elect to pursue. The Company commenced operations in mid-2015 through two new subsidiaries, Bulova Technologies Healthcare Products LLC and Bulova Technologies Compliance and Security LLC.

 

Bulova Technologies Healthcare Products LLC -This subsidiary was formed in 2015 as the Company’s entrant into the health care field. This subsidiary has focused its attention initially on a technologically innovative and patented cast product for which it has certain U.S. distribution rights.

 

Bulova Technologies Compliance and Security LLC - Newly created, and co-located at the Company’s headquarters in Clearwater, Florida, this company is a joint venture. The Company’s ownership interest in this joint venture is 30 percent. The Company accounts for this joint venture interest using the equity method of accounting and does not consolidate its operations. At September 30, 2015, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of September 30, 2015 is $0. This company was established to market the Enterprise Content Management Library ("ECM Library"©) and the companion K-3 Data Encryption software to government agencies, banks, law firms and mid to large size businesses. The ECM Library© software system provides for advanced search capability, high demand security, protection notification alerts, and back-up repository maintenance. The software provides unique layers of security in the access to the stored data. These layers actively monitor access to repository data, download and transmission of confidential files, insertion of external memory devices, on-line searches that have been performed, web-sites visited, and e-mails sent or received using the repository content. The Company anticipates operations to commence in mid-2016.

 

Bulova Technologies Ordnance Systems LLC. - Prior to discontinuance, its operations were located on 261 acres in Mayo, Florida. Ordnance was 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 produced 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, Ordnance sold substantially all of its assets to an unrelated party. The sale included both the right to perform Ordnance’s then-current contracts with the Department of Defense. As a result, the only remaining work with the DoD performed by Ordnance was the nominal performance of the contracts which were transferred (until a novation of the transferred contracts was to take place) and a remaining blanket purchase agreement (BPA) with the DoD whereby the DoD may order non-standard (e.g. Eastern European) weapons for shipment to friendly forces abroad. The BPA, which is now administered by representatives of Bulova Technologies (Europe) LLC, remains in place but Ordnance has received no orders thereunder since 2011, nor has it sought any new contracts from the DoD since 2012. Ordnance is engaged currently in litigation with the DoD concerning the propriety of a termination of a similar BPA which took place in July, 2010.

 

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 December 31, 2015 and September 30, 2015, and the results of operations and cash flows for the three months ended December 31, 2015 and 2014.

 

Subsequent Events

 

The Company has evaluated subsequent events through February 22, 2016 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, the Company began operating in two business segments, government contracting and commercial sales.  As the only income from government contracting for the three months ended December 31, 2015 and 2014 was included in discontinued operations, the Company has determined not to present financial information by segment.

 

 

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.

 

Equity method of accounting – Joint Venture

 

The Company accounts for its joint venture interest in Bulova Technologies Compliance and Security LLC using the equity method of accounting. The Company’s ownership interest in this joint venture is 30 percent. At December 31, 2015, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of December 31, 2015 is $0.

 

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. At December 31, 2015 and September 30, 2015, the Company has provided an allowance for doubtful accounts of $211,412.

 

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 December 31, 2015 and September 30, 2015 is as follows:

 

		December 31				September 30,
		2015				2015
Finished goods		$	253,195			$	253,195
Prepayments on machine inventory			493,380				-
Materials and supplies			5,079				6,396
Total inventory of continuing operations		$	751,654			$	259,591

 

Other current assets

 

Other current assets are comprised of the following at December 31, 2015 and September 30, 2015

 

		December 31, 2015				September 30, 2015
Prepaid expenses and deposits		$	75,969			$	103,108
Advances to shareholder			-				45,440
		$	75,969			$	148,548

 

Fixed Assets

 

Fixed assets 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.

 

Fixed assets are comprised of the following at December 31, 2015 and September 30, 2015

 

		December 31,				September 30,
		2015				2015
Funiture, fixtures and equipment			408,958				407,113
			408,958				407,113
Less accumulated depreciation			(81,555	)			(65,668	)
Net property, plant and equipment		$	327,403			$	341,445

 

Depreciation expense for the three months ended December 31, 2015 and 2014 was $15,887 and $4,289 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 December 31, 2015 and September 30, 2015 were $1,778 and $3,111 respectively.

 

Amortization of loan costs for the three months ended December 31, 2015 and 2014 was $1,333 and $0 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 Bulova Technologies Ordnance Systems LLC our government contracting 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.

 

Revenue from rental payments received on equipment operating leases is recognized on a straight-line basis over the term of the lease.

 

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.

 

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 incurred advertising expenses of $12,699 for the three months ended December 31, 2015 as compared to $5,035 for the three months ended December 31, 2014.

 

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

 

Basic net loss per share excludes 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, 2015 there were 149,692,933 common stock equivalents that were antidilutive and were not included in the calculation.

 

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, 2015 through the date these financial statements were issued.

 

 

Going concern matters

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has sustained substantial losses, and has minimal assets. These factors, among others, indicate that the Company may not be able to continue as a going concern for a reasonable period of time.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern

 

3. Discontinued Operations

 

In October of 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party, and discontinued operations. As a result of the decision to sell these assets, the Company has identified the assets and liabilities of Ordnance as pertaining to discontinued operations at December 31, 2015 and September 30, 2015 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.

 

Summarized operating results for discontinued operations is as follows:

 

		Three months ended
		December 31,
		2015				2014
Revenue		$	-			$	-
Cost of Sales			-				-
Gross profit			-				-
Operating expenses and interest			(3,427	)			(137,094	)
Other income			-				-
Income (loss) from operations			(3,427	)			(137,094	)
Income tax benefit			-				-
Income (loss) from discontinued operations, net of tax		$	(3,427	)		$	(137,094	)

 

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

 

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

 

		December 31,				September 30,
		2015				2015
Cash		$	-			$	-
Accounts receivable			-				-
Inventory			-				-
Other current assets			-				-
Total current assets from discontinued operations			-				-
Property plant and equipment - net			-				-
Other assets			-				-
Total assets from discontinued operations		$	-			$	-
Accounts payable and accrued expenses		$	450,000			$	450,000
Current portion of long-term debt			700,000				700,000
Provision for loss on disposal of business segment			-				-
Total current liabilities from discontinued operations			1,150,000				1,150,000
Deferred revenue - contract dispute			10,800,000				10,800,000
Long term debt, net of current portion			-				-
Total liabilities from discontinued operations		$	11,950,000			$	11,950,000

 

 

4.  Contract Dispute - Discontinued Operations

 

At December 31, 2015 and September 30, 2015, the Company has included in liabilities of discontinued operations the amount of $10,800,000 relative to a contract performance dispute of its wholly owned subsidiary, Bulova Technologies Ordnance Systems LLC, with the US Government. This amount represents deferred revenue arising from the percentage of completion accounting applied to a contract that was terminated prior to its completion. The Company has asserted various claims in this dispute and, consequently, is carrying this amount as long term pending resolution of the counter claims. There can be no assurance with respect to the outcome of this dispute.

 

5. Long Term Debt

 

Long term debt consisted of the following at:

 

		December 31, 2015				September 30, 2015
Note payable to an individual dated January 25, 2013 and amended on August 1, 2014 in the amount of $50,000 payable at $4,000 monthly for eleven months and a final payment of $6,000 on July 10, 2015, unsecured.			-				18,000
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 potential proceeds from a claim against a terminated government contract with a value in excess of $4,700,000.			700,000				700,000
Note payable to Ford Credit dated October 1, 2014 in the amount of $32,929 payable in 48 monthly installments of $744, secured by a vehicle.			23,170				25,791
Note payable to Power Up Lending Group, LTD dated August 25, 2015 in the amount of $100,000 with no stipulated interest rate payable through 126 daily payments of $1,071, unsecured.			-				87,139
Note payable to Power Up Lending Group, LTD dated September 17, 2015 in the amount of $50,000 with no stipulated interest rate payable through 126 daily payments of $536, unsecured.			-				48,568
Note payable to Power Up Lending Group, LTD dated September 17, 2015 in the amount of $165,000 with no stipulated interest rate payable through 126 daily payments of $1,493, unsecured.			144,973				-
Note payable to Westfield Bank for insurance finance agreement, dated August 1, 2014 bearing interest at 4%, final payment due May 1, 2015, unsecured.			9,496				18,819
Convertible promissory note payable to Vis Vires Group, Inc. dated August 6, 2015 in the amount of $84,000, bearing interest at 8%, with a maturity date of May 10, 2016, net of discount of $16,628 and $28,300, secured by a conversion privilege to common stock.			67,375				55,700
Capital lease obligation dated July 16, 2015, bearing interest at 8%, payable at 3,355 monthly with a final payment due June 16, 2020, secured by equipment.			153,715				160,857
Convertible promissory note payable to Typenex Co-Investment LLC dated November 16, 2015 in the amount of $115,000, bearing interest at 10% with a maturity date of April 16, 2017, net of discount of $13,235, secured by a conversion privilege to common stock.			101,765				-
			1,200,494				1,114,874
Less current portion pertaining to continuing operations			(259,803	)			(265,646	)
Less current portion pertaining to discontinued operations			(700,000	)			(700,000	)
Less long term portion associated with discontinued operations			-				-
		$	240,691			$	149,228

 

 

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

 

Period ended ‘December 31,
2016		$	959,803
2017			142,314
2018			41,341
2019			37,269
2020			19,767
Thereafter			-
		$	1,200,494

 

6. Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

		December 31, 2015				September 30, 2015
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to NFC III LLC bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			1,356,819				1,356,819
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to SIII Associates Limited Partnership bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			1,341,755				1,341,755
Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible promissory note payable to SIII Associates Limited Partnership bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020			100,000				100,000
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to SV Associates Limited Partnership bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			119,500				116,000
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Craigmore Machinery Company bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			443,712				418,712
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Gary Shapiro bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			205,000				205,000
Promissory note payable to Craigmore DB Plan dated November 9, 2015 bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020			165,000				-
Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible promissory note payable to Tropico Equity Partners LLC bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020			68,161				68,161
Convertible promissory note payable to Tropico Management LP bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020			10,606				10,606
Convertible promissory notes payable to SF NextGen bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			180,000				180,000
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Banyan Capital Finance bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			23,000				23,000
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			160,000				160,000
Convertible promissory note payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020			20,000				20,000
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Rachel E Shapiro Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			51,500				51,500
Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Shapiro Family D1 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020			150,000				150,000
Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible Promissory Note payable to The Shapiro Family D1 Trust dated bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31,2020			400,000				400,000
Convertible promissory note dated February 6, 2015 in the amount of $4,000,000 bearing interest at 7%, interest payable quarterly, with a maturity date of February 5, 2021, net of discount of $660,832 and $693,333 respectively			3,339,168				3,306,667
			8,134,221				7,908,220
Less current portion pertaining to continuing operations			-				-
Less current portion pertaining to discontinued operations			-				-
Less long term portion associated with discontinued operations			-				-
		$	8,134,221			$	7,908,220

 

 

Principal maturities of notes payable – related parties for the next five years and thereafter are as follows:

 

Period ended December 31,
2016		$	-
2017			-
2018			-
2019			-
2020			4,795,053
Thereafter			3,339,168
		$	8,134,221

 

As of December 31, 2015 and September 30, 2015 there is an amount of accrued interest on related party notes payable of $732,742 and $732,742 respectively included in accrued expenses – related party for each year.

 

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 the 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 carryovers. Because of the change in ownership of 3SI Holdings, the net operating loss carryovers 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 2014 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, 2015 the Company had federal net operating loss carry forwards of approximately $21,890,000 and Florida net operating loss carry forwards of approximately $17,295,000. 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 2035.

 

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

 

Continuing Operations		12/31/2015				9/30/2015
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, 2015, the tax returns for the Company for the years ending 2011 through 2014 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.

 

At December 31, 2015 the Company no longer operates corporate and administrative offices in a facility that was leased by Ordnance, (a discontinued operation), from a non-affiliate in Tampa, Florida, approximating 5,000 square feet.  The Tampa location was leased for a base monthly rental increased by a minimum of 2.5% each year through the expiration date of December 21, 2027. Management has determined not to accrue any additional rent pending a settlement.

 

On August 27, 2014, Bulova Technologies Machinery LLC entered into a six year lease for a facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida for $13,500 per month, and relocated all of its operations to this facility. This facility is leased from an entity controlled by shareholders of the Company.

 

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

 

Total rent expense for the three months ended December 31, 2015 and 2014, was approximately $51,927 and $112,600 respectively.

 

The Company’s commitments for minimum lease payments, exclusive of any future settlement regarding the Ordnance lease, under these operating leases for the next five years and thereafter as of December 31, 2015 are as follows:

 

Period ended December 31,
2016		$	162,000
2017			162,000
2018			162,000
2019			162,000
2020			117,450
Thereafter			-
		$	765,450

 

 

8. Related Party Transactions

 

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

 

The Company has received advances from major shareholders from time to time to facilitate the cash needs of the Company. These advances are generally for short term needs and do not bear interest. As of December 31, 2015, there is a balance outstanding to Stephen L Gurba of $61,380, and a balance outstanding to Gary Shapiro of $58,500. The combined total of $119,880 is included as shareholder loans at December 31,2015.

 

Craigmore Machinery Company is the sole source supplier for the industrial machine tools and related equipment that are sold by Bulova Technologies Machinery LLC. Craigmore is owned by Gary Shapiro, a major shareholder of the Company. As of December 31, 2015 and September 30, 2015, the Company had a balance payable to Craigmore of $1,088,191 and $733,922 respectively, and these balances are reflected as accounts payable – related parties for each year.

 

During the three months ended December 31, 2015, Bulova Technologies Compliance and Security LLC made various advances to the Company. As of December 31, 2015 and September 30, 2015 there is an amount due to Compliance of $34,411 and $77,794 respectively. These amounts are included in accrued expenses – related parties.

 

Included within Long Term Debt are various notes payable to Gary L Shapiro and / or entities controlled by Gary L. Shapiro and / or his family members. As of December 31, 2015 and September 30, 2015, the total amount outstanding under these related party notes is $4,795,053 and $4,601,553 respectively. These notes are secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired, subordinated to the $4,000,000 Convertible Promissory Note payable to Richard Welkowitz dated February 6, 2015.

 

On February 6, 2015, the Company issued a $4,000,000 7% Convertible Promissory Note payable to Richard Welkowitz, with interest payable quarterly and a maturity date of February 15, 2021. The debt may be converted into common stock of the Company at the following exchange rate: year 1; $.10/share: year 2, $.20/share; year 3, $.30/share; year 4, $.40/share; and year 5, $.50/share. Additionally, as part of the financing agreement, the Company issued 12,000,000 warrants to purchase the common stock of the Company at a strike price of $.02 per share for a period of ten years. The value of these warrants has been accounted for as a debt discount in the initial amount of $779,999 and is being amortized over the six year life of the loan. This note is secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired.

 

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.

 

During October 2015 the Company issued 75,000 common shares due to the exercise of a cashless warrant.

 

During December 2015 the Company issued 5,000,000 common shares for the benefit of Stephen L. Gurba.

 

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.

 

 

Common Stock Warrants

 

The following table represents common stock warrant activity as of and for the three months ended December 31, 2015:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (in years)				Aggregate Intrinsic Value
Warrants Outstanding - October 1, 2015			129,342,993			$	0.02				8.6			$	-
Granted / Vested			20,400,000			$	0.05
Exercised			(100,000	)			-
Forfeited/expired/cancelled			-
Warrants Outstanding – December 31, 2015			149,642,993			$	0.02				8.8			$	0.04
Outstanding Exercisable – October 1, 2015			129,342,993			$	0.02				8.6			$	-
Outstanding Exercisable – December 31, 2015			149,642,993			$	0.02				8.8			$	0.04

 

10. Subsequent Events

 

January 2016 – 5,100,000 common shares issued in association with renegotiated debt terms.

 

January 28, 2016 –  , BT-Twiss Transport LLC, a subsidiary of Bulova Technologies Group, Inc., closed on the acquisition of all of the outstanding stock of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage Inc., all Florida corporations, pursuant to two separate “Stock Purchase Agreements”. The stock of these three companies was owned equally by two parties, namely (a) Ernest P. Twiss, as Trustee of the Ernest P. Twiss Revocable Trust dated June 20, 2013, and (b) Ronald R. Damico, as Trustee of the Ronald R. Damico Revocable Trust dated September 6, 2013.

 

The terms of the two “Stock Purchase Agreements” are as follows:

 

	1.	A stock purchase agreement between BT-Twiss Transport LLC and Ernest P. Twiss, as Trustee of the Ernest P. Twiss Revocable Trust dated June 20, 2013, to purchase all of its outstanding stock, representing 50% of all outstanding stock of all three companies, for cash consideration of $5,000,000.
	2.	A stock purchase agreement between BT-Twiss Transport LLC and Ronald R. Damico, as Trustee of the Ronald R. Damico Revocable Trust dated September 6. 2013, to purchase all of its outstanding stock, representing 50% of all outstanding stock of all three companies, for cash consideration of $ 250,000, a five year five percent (5%) promissory note in the principal amount of $4,750,000 due five years from the closing, five year warrants to purchase 500,000 common shares of the Company at $.08 per share, and 3,000,000 restricted common shares of the Company

 

On January 28, 2016, BT-Twiss Transport LLC, a subsidiary of Bulova Technologies Group, Inc., Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage Inc., Richard Welkowitz (majority owner of BT-Twiss Transport LLC) and Stephen Gurba (CEO of Bulova Technologies Group, Inc.) entered into a term loan agreement with Sunshine Bank for $2,000,000. The term loan bears interest at 4.75% per annum, includes a monthly payment of $28,033, and has a final maturity date of January 29, 2021.

 

On January 28, 2016, BT-Twiss Transport LLC, a subsidiary of Bulova Technologies Group, Inc., Twiss Transport, Inc., Twiss Logistics, Inc., Twiss Cold Storage Inc., entered into a revolving credit agreement with Sunshine Bank up to a maximum of $2,000,000 based on a borrowing base associated with accounts receivable and inventory of the borrowers. The revolving credit loan bears interest at the Prime Rate plus 1.0% as defined in the agreement.

 

On January 28, 2016, B-T Twiss Transport LLC, a subsidiary of Bulova Technologies Group, Inc., entered into a promissory note agreement with Lake Avenue South East Real Estate, LLC (a company controlled by Stephen Gurba and Richard Welkowitz), for $2,400,000. The promissory note bears interest at 4.24% for the first five years and will be adjusted to a new fixed rate on January 29, 2021. Monthly payments of $14,848.83 for the first five years adjusted along with the interest rate on January 29, 2021 to be amortized through the maturity date of January 29, 2036.

 

 

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:
	From January 1, 2009, Bulova Technologies Group, Inc. operated in multiple business segments. Government Contracting was focused on the production and procurement of military articles for the US Government and other Allied Governments throughout the world, and was accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (Europe) LLC. In October 2012, this segment was discontinued through the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, with any remaining assets and liabilities associated with that operation being segregated and reported as a discontinued operation. Contract Manufacturing included the production of cable assemblies and circuit boards accounted for through BT Manufacturing Company LLC, a wholly owned subsidiary that was discontinued and disposed of in March 2011. More recently, the Company engaged in Commercial Sales that have included the brokering of Eastern European small caliber ammunition to large U.S. customers on a wholesale basis and to small retail customers in the U.S. accounted for through Bulova Technologies (Europe) LLC, and the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC.
	The Company has begun to evaluate the incubation and marketing of innovative technology products for which it believes it can lend value because of its highly recognizable name brand and extensive marketing experience.
	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, 2015 compared to the three months ended December 31, 2014.
	Discontinued Operations
	The Company is reporting results of operations of Bulova Technologies Ordnance Systems LLC (BTOS) as discontinued operations for the three months ended December 31, 2015 and 2014.
	In October 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party. The purchaser performed certain contracts remaining in the name of Ordnance as a subcontractor for the balance of the year ended September 30, 2013 and for a portion of the year ended September 30, 2014. The effect was a very small gross profit as most of the contract revenues were passed through to the purchaser for fulfillment.
	Ordnance did not have any revenue for the three months ended December 31, 2015 or 2014.
	Ordnance did not incur any costs of revenues for the three months ended December 31, 2015 or 2014.
	Ordnance did not realize any gross profit for the three months ended December 31, 2015 or 2014.

 

 

	Operating expenses and interest for the discontinued operations of Ordnance for the three months ended December 31, 2015 of $3,427 is a decrease of $133,667 when compared to operating expenses and interest for the three months ended December 31, 2014 of $137,094, and is due primarily to a reduction in legal and professional fees associated administering certain contract disputes still pending.
	Ordnance did not have any other income or expense for the three months ended December 31, 2015 or 2014.
	Continuing Operations
	Revenue for continuing operations for the three months ended December 31, 2015 of $413,269 is a decrease of $61,637 when compared to the revenue for the three months ended December 31, 2014 of $474,906.
	Cost of revenues for continuing operations for the three months ended December 31, 2015 of $293,004 is a decrease of $109,428 when compared to the cost of revenues for the three months ended December 31, 2014 of $402,432.
	Gross profit for continuing operations for the three months ended December 31, 2015 of $120,265 is an increase of $47,791 when compared to the gross profit for the three months ended December 31, 2014 of $72,474.
	Selling and administrative expenses for continuing operations for the three months ended December 31, 2015 of $547,645 is a decrease of $289,181 when compared to selling and administrative expense for the three months ended December 31, 2014 of $836,826.
	Stock based compensation for continuing operations for the three months ended December 31, 2015 of $1,703,499 is an increase of $1,703,499 when compared to stock based compensation for the three months ended December 31, 2014 of $0. This increase is primarily due to the issuance of 5,075,000 common shares and 20,400,000 common stock warrants.
	Interest expense for continuing operations for the three months ended December 31, 2015 of $277,497 is an increase of $172,377 when compared to interest expense of $105,120 for the three months ended December 31, 2014. This increase in interest expense is a result of borrowing on unfavorable terms to facilitate operations.
3.	Liquidity and capital resources:
	As of December 31, 2015, 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 December 31, 2015, we had $23,158 in cash and cash equivalents.
	Cash flows used in operating activities was $494,344 for the three months ended December 31, 2015.
	Cash flows used in investing activities was $1,846 for the three months ended December 31, 2015
	Cash flows from financing activities were $449,001 for the three months ended December 31, 2015, and consisted primarily advances from shareholders and new debt.
	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 economic, political, financial, competitive, legislative and regulatory factors beyond our control.
	While the Company believes that anticipated revenues resulting from its expanded efforts relative to its new commercial sales segment 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 not effective at December 31, 2015 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 1. Legal Proceedings

 

From time to time the Company may be a party to litigation matters involving claims against the Company which could have a material effect on our future financial position or results of operations.

 

In July 2010, the U.S. Army terminated a contract to which Bulova Technologies Ordnance Systems LLC was a party. Concurrently, the Army demanded repayment of approximately $12,000,000 of payments provided previously to Ordnance under that contract. Ordnance appealed the termination on October 26, 2010. Ordnance challenged this decision before the Armed Services Board of Contract Appeals (“ASBCA”). In January 2014 a decision was rendered by the ASBCA finding that the contract was partially terminated correctly and partially terminated without justification. Based on this decision, which recognized both that the Army had improperly terminated a portion of the contract, converting that portion of the contract to a termination for convenience (which entitles Ordnance to payment of its termination costs by the Army) and implicitly that the Army had delayed unreasonably in supplying contractually-required documents to Ordnance. Ordnance submitted a termination for convenience claim in excess of $1,400,000 to the Army in April 2014 and a delay claim in excess of $3,200,000 in October 2014, the principle reason Ordnance has been maintained as a legal entity. The Army will likely pursue Ordnance for the balance (plus interest and penalties). The assets of Ordnance were sold at arms-length to an independent third party and virtually all of the proceeds distributed to secured and unsecured third party creditors. There can be no assurance that the Government will not seek to either reverse the sale of Ordnance’s assets or pursue Bulova Technologies Group as the parent corporation of Ordnance and, if such actions were successful, these actions could have a material adverse effect on Bulova Technologies Group.

 

In connection with the sale of substantially all of its assets to a third party in October 2012, Bulova Technologies Ordnance Systems LLC agreed to participate with the purchaser (the “Purchaser”) in the submission of a Novation Agreement to the U.S. Government in order to gain recognition by the U.S. Government of the transfer of certain Army and Navy contracts to the Purchaser. Bulova Technologies Ordnance Systems LLC completed its portion of the Novation Agreement in a timely way, but the Purchaser did not complete its portion of the Novation Agreement and submit it to the U.S. Government until April 2014. The U.S. Government refused to acknowledge the transfer of the three remaining, fixed-price uncompleted contracts in September 2014. Accordingly, while Ordnance has no facilities to perform these contracts, it remains liable for their performance and the Purchaser refused to perform without a novation of the contracts. In management’s opinion, these potential demands would not have any material adverse effect upon us because Ordnance, as a discontinued operation, has no assets to satisfy any such potential liabilities. However, there is no assurance that the Army or Navy will not pursue us as the parent Company of Ordnance, which actions, if successful, could have a material adverse effect upon us. In the judgment of management, based upon discussions with relevant Government officials, the denial by the Government of the transfer of the contracts was caused by the delay in submission of the Novation Agreement by Purchaser and, accordingly, Bulova Technologies Ordnance Systems LLC is exploring a cause of action against Purchaser for claims by the Army and Navy resulting from the terminations.

 

The four contracts discussed above were contracts W91CRB-09-C-0014, (awarded on January 9, 2011 (“Contract 1”)), W52P1J-06-D-0014 (awarded on May 5, 2006 (“Contract 2”)), and W52P1J-09-D-0066 (awarded on September 28, 2009 (“Contract 3”)), and N00164-12-D-JS87 (awarded on May 15, 2012 (“Contract 4”)).

 

 

The performance of Contract 1, involving the purchase by Ordnance of arms from Eastern European countries for importation into Afghanistan for friendly forces located there, was to take place between approximately July 2009 and January 2010, but was delayed, at least in part, due to the Government’s failure to produce proper documentation to permit performance by Ordnance. Monies were advanced by the Government, to be liquidated as weaponry was delivered. Ordnance delivered an amount of goods sufficient to liquidate a portion of the advances prior to termination, thus resulting in the Army’s demand for repayment referred to above, which amount is expected to be offset in part by the termination and delay claims filed by Ordnance. The termination provision contained in Contract 1 also permits the Army to claim excess re-procurement costs in buying replacement goods, but there is no evidence any such excess costs were incurred and the Army has, to date, claimed none.

 

The Army has terminated Contracts 2 and 3, which called for the delivery of Booby Trap Simulators with initial contract values of $13,495,520 and $5,310,565, respectively, during the period from May 2006 to approximately September 2014 as a result of the unwillingness of the Defense Contract Management Agency to recognize the novation of Contracts 2 and 3 to the purchaser of the assets of Ordnance. The termination provisions contained in Contract 2 and Contract 3 permit the Army to demand repayment of unliquidated advance payments and excess re-procurement fees, if any. No such demands have been made and Ordnance has received no advice that the simulators have been re-procured.

 

The Navy has advised it is considering terminating Contract 4, which originally called for the delivery of 11,085 Hand Held Signal Flares from May 2012 to approximately September 2014, as a result of the unwillingness of the Defense Contract Management Agency to recognize the novation of Contract 4 to the purchaser of the assets of Ordnance.

 

No monies were advanced to Ordnance under Contract 4. The termination provision contained in the contract would permit the Navy to demand repayment of excess re-procurement costs, if any. Ordnance has received no advice that the flares have been re-procured.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Common Stock

 

October 2015, the Company issued 75,000 common shares due to the exercise of a cashless warrant.

 

December 2015, the Company issued 5,000,000 common shares for the benefit of Stephen L. Gurba.

 

Common Stock Warrants

 

For the three months ended December 31, 2015, the Company granted the following Common Stock Warrants, all fully vested:

 

November 2015 – 12,000,000 - ten year common stock warrants for services with an exercise price of $.05.

 

December 2015 – 650,000 - ten year common stock warrants for services with an exercise price of $.02.

 

December 2015 – 1,000,000 – ten year common stock warrants in satisfaction of debt with an exercise price of $.05.

 

December 2015 – 6,750,000 - ten year common stock warrants for services with an exercise price of $.05.

 

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

 

 

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/ Michael J. Perfetti
		Michael J. Perfetti
		Principal Financial and Accounting Officer

 

     DATED: March 2, 2016

 

 

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