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Table Of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(AMENDMENT NO.1)

 

 

 

 

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

     
   

For the quarterly period ended March 31, 2016

 

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 49th 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 July 18, 2016 the Company had 95,293,163 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding, as well as 3,000,000 shares of Common Stock issuable.

 

 

EXPLANATORY NOTE

 

 

This Amendment No.1 to our Quarterly Report on Form 10-Q/A for the three and six months ended March 31, 2016 amends in its entirety the Quarterly Report on Form 10-Q that was originally filed on May 23, 2016 (the “Quarterly Report”), to:

 

 

1.

comply with Rule 10-01(d) Regulation S-X, which requires interim financial statements included in quarterly reports on Form 10-Q to be reviewed by an independent public accountant using professional standards and procedures for conducting such reviews, as established by generally accepted auditing standards,

 

 

2.

to update the financial statements and various disclosures throughout this quarterly report, and,

 

 

3.

to include the required certifications of the Company's Principal Executive Officer and Principal Financial and Accounting Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act.

 

 

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2016

 

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

 

24

Item 4. Controls and Procedures

 

27

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 6. Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

March 31,

2016

(unaudited)

   

September 30,

2015

 

ASSETS

               
                 

Cash and equivalents

  $ 567,517     $ 70,347  

Accounts receivable, net

    2,631,846       261,215  

Inventory

    767,966       259,591  

Other current assets

    494,739       148,548  

Current assets from discontinued operations

    -       -  
                 

Total current assets

    4,462,068       739,701  
                 

Fixed assets, net

    9,757,861       341,445  

Other assets

    123,353       13,237  

Goodwill

    4,789,772       -  

Non-current assets from discontinued operations

    -       -  
                 

Total Assets

  $ 19,133,054     $ 1,094,383  
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 1,503,367     $ 281,380  

Accounts payable – related parties

    1,632,530       733,922  

Accrued expenses and other current liabilities

    497,233       71,207  

Accrued expenses and other current liabilities – related parties

    959,744       810,536  

Current portion of long term debt

    4,566,977       265,646  

Current portion of notes payable – related parties

    122,209       -  

Current liabilities from discontinued operations

    1,244,833       1,150,000  
                 

Total current liabilities

    10,526,893       3,312,691  
                 

Shareholder loans

    88,500       -  

Long term debt, net of current portion

    5,120,617       149,228  

Notes payable – related parties, net of current portion

    15,111,096       7,908,220  

Long term liabilities from discontinued operations

    10,800,000       10,800,000  
                 

Total liabilities

    41,647,106       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 March 31, 2016 and September 30, 2015

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares; 81,768,518 and 69,093,518 issued and outstanding at March 31, 2016 and September 30, 2015

    81,768       69,093  

Subscription receivable

    (66,000 )     (66,000 )

Common stock issuable

    157,500       -  

Additional paid in capital in excess of par

    28,393,460       26,231,658  

Accumulated deficit

    (51,146,450 )     (47,350,507 )

Total Bulova Technologies Group, Inc. shareholders’ deficit

    (22,539,722 )     (21,075,756 )

Non-controlling interest in BT-Twiss Transport LLC

    25,670       -  

Total deficit

    (22,514,052 )     (21,075,756 )

Total liabilities and shareholders’ deficit

  $ 19,133,054     $ 1,094,383  

 

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)

 

   

Three Months Ended

March 31,

   

Six Months Ended

March 31,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenues

    4,987,243       486,286     $ 5,400,512     $ 961,192  

Cost of revenues

    3,612,297       408,376       3,905,301       810,808  
                                 

Gross profit

    1,374,946       77,910       1,495,211       150,384  
                                 

Selling and administrative expense

    1,638,286       879,926       2,185,931       1,716,752  

Stock based compensation

    112,500       1,431,499       1,815,999       1,431,499  

Depreciation and amortization expense

    182,345       41,359       198,233       45,648  

Interest expense

    449,698       207,933       728,528       313,053  
                                 

Total expenses

    2,382,829       2,560,717       4,928,691       3,506,952  
                                 

Income (loss) from operations

    (1,007,883 )     (2,482,807 )     (3,433,480 )     (3,356,568 )
                                 

Other income (expense)

                               

Other income

    103,769       2,768       133,769       2,768  
                                 

Income (loss) from continuing operations before income taxes

    (904,114 )     (2,480,039 )     (3,299,711 )     (3,353,800 )
                                 

Income tax expense

    -       -       -       -  
                                 

Income (loss) from continuing operations

    (904,114 )     (2,480,039 )     (3,299,711 )     (3,353,800 )

Income (loss) from discontinued operations, net of tax

    (467,135 )     277,637       (470,562 )     140,543  
                                 

Net loss

    (1,371,249 )     (2,202,402 )     (3,770,273 )     (3,213,257 )

Net income attributable to non-controlling interest in BT-Twiss Transport LLC

    25,670       -       25,670       -  
                                 

Net loss attributable to Bulova Technologies Group, Inc.

  $ (1,396,919 )   $ (2,202,402 )   $ (3,795,943 )   $ (3,213,257 )
                                 

Basic and diluted net income (loss) per share

                               

Income (loss) from continuing operations

    (.02 )     (.04 )   $ (.05 )   $ (.05 )

Income (loss) from discontinued operations

    -       -       -       -  

Net income (loss) per share

    (.02 )     (.04 )   $ (.05 )   $ (.05 )
                                 

Weighted average shares outstanding, basic and diluted

    78,323,953       63,260,185       73,815,649       61,737,680  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2016 AND 2015
(Unaudited)

 

   

2016

   

2015

 

Cash flows from operating activities:

               

Loss from continuing operations

  $ (3,299,711 )   $ (3,353,800 )

Income (Loss) from discontinued operations

    (470,562 )     140,543  

Net Loss

    (3,770,273 )     (3,213,257 )

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

               

Depreciation and amortization

    198,233       45,648  

Stock based payment for services

    1,815,999       1,431,499  

Amortization of debt discount

    98,523       -  

Stock issued relative to debt restructure

    -       25,500  

Gain on sale of fixed assets

    (73,728 )     -  

Changes in operating assets and liabilities

               
                 

Accounts receivable

    (699,289 )     85,695  

Inventory

    (508,325 )     1,005  

Prepaid expenses and other assets

    (264,304 )     (330,747 )

Accounts payable and accrued expenses

    1,408,031       (659,315 )
                 

Net cash flows from operating activities – continuing operations

    (1,795,133 )     (2,613,972 )

Net cash flows from operating activities – discontinued operations

    450,000       (356,713 )

Net cash flows from operating activities

    (1,345,133 )     (2,970,685 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (1,846 )     (41,920 )

Cash purchased with business acquisition

    196,229       -  

Proceeds from sale of assets

    132,500       13,032  

Cash payments in business acquisition

    (5,166,155 )     -  
                 

Net cash flows from investing activities – continuing operations

    (4,845,823 )     (28,888 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    (4,845,823 )     (28,888 )
                 

Cash flows from financing activities:

               

Increase (decrease) of Shareholder loans

    133,940       (127,632 )

Increases in long term debt

    7,445,530       4,544,635  

Repayment of long term debt

    (891,344 )     (523,429 )
                 

Net cash flows from financing activities – continuing operations

    6,688,126       3,893,574  

Net cash flows from financing activities – discontinued operations

    -       (181,826 )

Net cash flows from financing activities

    6,688,126       3,711,748  
                 

Increase (decrease) in cash and cash equivalents

    (497,170 )     712,175  

Cash and cash equivalents, beginning

    70,347       9,522  
                 

Cash and cash equivalents, ending

  $ 567,517     $ 721,697  
                 

Cash paid for interest

  $ 403,295     $ 237,218  
                 

Cash paid for taxes

  $ -     $ -  

 

Supplemental schedule of non-cash financing and investing activities:

 

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

 

December 2014, the Company issued 1,313,450 common shares in satisfaction of debt

 

December 2015 the Company issued 1,000,000 common stock warrants in satisfaction of debt

 

January 2016 the Company issued 5,100,000 common shares in partial satisfaction of debt

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 2016
(Unaudited)

 

    Total Bulova Technologies Group, Inc. Shareholders' Deficit                  
   

Preferred Stock

   

Common Stock

                                                 
   

Number of

Shares

   

Amount

   

Number of

Shares

   

Amount

   

Subscription

Receivable

    Common Stock Issuable    

Additional Paid-

In Capital

   

Accumulated

Deficit

   

Non-

Controlling

Interest

   

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  

Issuance of shares for services

                    2,500,000       2,500                       110,000                       112,500  

Issuance of shares as part of acquisition

                                            157,500                               157,500  

Issuance of warrants as part of acquisition

                                                    26,250                       26,250  

Issuance of shares as partial settlement of debt

                    5,100,000       5,100                       300,900                       306,000  

Net loss for the six months ended March 31, 2016

                                                            (3,795,943 )     25,670       (3,770,273 )
                                                                                 

Balances, March 31, 2016

    4,000,000,000     $ 40,000       81,768,518     $ 81,768     $ (66,000 )   $ 157,500     $ 28,393,460     $ (51,146,450 )   $ 25,670     $ (22,514,052 )

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2016 AND 2015
(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.

 

In January 2016, the Company through a newly created joint venture, BT-Twiss Transport LLC, acquired 100% of the outstanding common stock of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc. The joint venture agreement provides for Bulova’s 30% ownership interest, however, Bulova is fully responsible for operational management of the acquired entities, and is liable for approximately 4.6 million of convertible debt utilized to accomplish the acquisition. Accordingly, the joint venture financial statements have been combined with those of the Company.

 

The Company now has four 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. And now with the acquisition accomplished through its joint venture entity, BT-Twiss Transport, LLC, the Company has entered into the transportation and logistics industry of freight storage and movement.

 

2.

Principles of consolidation and basis of presentation:

   
 

The accompanying consolidated balance sheet as of September 30, 2015 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 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.

 

 

 

We consolidate all entities we control by ownership of a majority voting interest and variable interest entities for which we have the power to direct activities and the obligation to absorb losses. Our judgment in determining if we consolidate a variable interest entity includes assessing which party if any has the power and benefits. Therefore we evaluate which activities most significantly affect the variable interest entities economic performance, and determine whether we or another party have the power to direct these activities. The following is a listing of the entities we control, and the variable interest entity we have included in our consolidated financial statements:

 

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.

 

 

 

BT Twiss Transport LLC – Newly created, 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 as a variable interest entity, and consolidates its operations. This company was established to facilitate the acquisition on January 28, 2016 of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage, Inc.

 

  Twiss Transport, Inc. is a full service Truckload and LTL freight shipping company specializing in the transportation of Frozen, Chilled and Dry goods to and from anywhere within the Continental United States.
 

Twiss Logistics, Inc. is a Truckload Brokerage company that negotiates competitive rates and utilizes a network of reliable carriers other than Twiss Transport, to facilitate the movement of additional freight in and out of Florida and anywhere else in the Continental United States.

 

Twiss Cold Storage, Inc. operates a Cold Storage facility of 150,000 square feet of frozen and chilled warehouse space providing refrigeration service for perishable products in transit through multiple distribution channels, as well as those provided by Twiss Transport and Twiss Logistics.

 

 

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 March 31, 2016 and September 30, 2015, and the results of operations and cash flows for the three and six months ended March 31, 2016 and 2015.

 

Subsequent Events

The Company has evaluated subsequent events through the date of filing this form 10-Q/A 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 acquisition of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc., the Company began operating in two distinct business segments, Transportation services and commercial sales. The transportation segment provides freight handling as well as transport, and the commercial sales segment is involved in sales and distribution of industrial machines, ammunition, and healthcare products. Financial information by segment is presented in the notes to the financial statements.

 

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 March 31, 2016, 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 March 31, 2016 is $0.

 

 

 

Variable Interest Entities

 

Through the formation of BT Twiss Transport LLC, the Company is now a 30% owner in this new joint venture, which was utilized to acquire the three transportation services companies described in Note 4. To accomplish this acquisition, the Company provided approximately $4.6 million of the financing necessary through the issuance of convertible debt. Through a joint venture operating agreement, the Company has full power to direct the activities most significant to the economic performance of this joint venture. As a result, the Company is the primary beneficiary, and the joint venture has been consolidated in the Company’s consolidated financial statements.

 

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 March 31, 2016 and September 30, 2015, the Company has provided an allowance for doubtful accounts of $222,880 and $211,412 respectively. 

 

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 March 31, 2016 and September 30, 2015 is as follows:

 

   

March 31,

2016

   

September 30,

2015

 

Finished goods

  $ 714,712     $ 253,195  

Materials and supplies

    53,254       6,396  
                 

Total inventory of continuing operations

  $ 767,966     $ 259,591  

 

 

 

Other current assets

 

Other current assets are comprised of the following at March 31, 2016 and September 30, 2015

 

   

March 31,

2016

   

September 30,

2015

 

Prepaid expenses and deposits

  $ 401,884     $ 103,108  

Advances to shareholder

    92,855       45,440  
                 
    $ 494,739     $ 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 March 31, 2016 and September 30, 2015

 

   

March 31,

2016

   

September 30,

2015

 
                 

Funiture, fixtures and equipment

    476,674       407,113  

Tractors and trailers

    9,504,706       -  

Vehicle and other

    39,654       -  
      10,021,034       407,113  

Less accumulated depreciation

    (263,173 )     (65,668 )
                 

Net property, plant and equipment

  $ 9,757,861     $ 341,445  

 

 

 

Other assets

 

Other assets are comprised of the following at March 31, 2016 and September 30, 2015

 

   

March 31,

2016

   

September 30,

2015

 

Advances - Bulova Technologies Compliance & Security

  $ 88,184     $ -  

Unamortized loan costs

    -     $ 3,111  

Refundable deposits

    35,169       10,126  
                 
    $ 123,353     $ 13,237  

 

 

 

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

 

Commercial 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.

 

The Company recognizes transportation related revenues on the date the shipments are delivered to the customer. Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services. Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as the Company acts as a principal with substantial risks as primary obligor

 

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 relative to our Commercial Sales segment include direct materials and labor costs, and indirect labor associated with production and shipping costs.

 

The cost of revenues relative to our Transportation Services segment include tractor and trailer maintenance and operational costs as well as the costs associated with drivers.

 

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 $21,165 for the six months ended March 31, 2016 as compared to $5,048 for the six months ended March 31, 2015.

 

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 March 31, 2016 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 March 31, 2016 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 March 31, 2016 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

March 31,

   

Six months ended

March 31,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenue

  $ -     $ -     $ -     $ -  

Cost of Sales

            -       -       -  

Gross profit

                    -       -  

Operating expenses and interest

    (467,135 )     (120,511 )     (470,562 )     (257,605 )

Other income

    -       398,148       -       398,148  

Income (loss) from operations

    (467,135 )     277,637       (470,562 )     140,543  

Income tax benefit

            -       -       -  

Income (loss) from discontinued operations, net of tax

  $ (467,135 )   $ 277,637     $ (470,562 )   $ 140,543  

 

 

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:

 

   

March 31,

2015

   

September 30,

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

  $ 5,000     $ 450,000  

Current portion of long-term debt

    1,239,833       700,000  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities from discontinued operations

    1,244,833       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

  $ 12,044,833     $ 11,950,000  

 

 

 
 

4.    Business Combination – Variable Interest Entity and Intangibles

 

BT-Twiss Transport, LLC

 

As discussed in Note 1, on January 28, 2016, the Company, through its joint venture entity, BT-Twiss Transport LLC, closed on the acquisition of 100% of the outstanding stock of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage, Inc. in a transaction accounted for as a variable interest entity. The determination to include a variable interest entity in the consolidated financial statements of the Company is based on an evaluation of the benefits and obligations associated with the Company’s active role in the entity’s design and involvement in its ongoing activities. More specifically, was the determination that the Company is established as the primary beneficiary based on possessing both of the following:

  

 

Power to direct the activities of the VIE that most significantly impact the entity’s economic performance through an operating agreement entrusting full operational control and assets to Bulova.

     
 

An exposure to absorb losses of the entity that could potentially be significant to the VIE through the provision of approximately $4.6 million dollars of financing to complete the acquisition through convertible debt.

 

 

 

Accordingly, the results of BT-Twiss Transport LLC are included in the accompanying consolidated financial statements only from the acquisition date through March 31, 2016. The recorded cost of this acquisition was based upon the fair market value of the Company’s acquired based on an independent valuation. An intangible asset for goodwill has been recorded in the amount of $4,789,772. Generally accepted accounting principles do not allow the amortization of goodwill, but instead require an annual evaluation of the amount for impairment.

 

The total purchase price of the three companies is calculated as follows: 

 

 

Cash consideration

  $ 5,166,155  

Convertible promissory note

    4,666,155  

3,000,000 restricted common shares to be issued

    157,500  

Warrants to purchase 500 000 common shares

    26,250  
         

Total purchase price

  $ 10,016,060  

 

 

 

Goodwill is calculated by comparing the total purchase price to the fair values of assets acquired and liabilities assumed in connection with this acquisition by the Company’s joint venture, as follows:

 

 

Total Purchase Price

  $ 10,016,060  
         

Fair Value of Assets and Liabilities

       

Cash

  $ 196,229  

Accounts receivable

    1,671,342  

Inventory

    50,000  

Prepaid expenses and other assets

    216,905  

Property and equipment

    9,665,024  

Other assets

    23,648  

Less current liabilities assumed

    (1,326,652 )

Less long-term debt assumed

    (5,270,208 )
      5,226,288  
         

Calculated Goodwill

  $ 4,789,772  

 

 

 

Proforma unaudited condensed selected financial data for the three and six months ended March 31, 2016 and 2015 as though this acquisition had taken place at October 1, 2014 are as follows:

 

   

Three Months Ended March 31,

   

Six Months Ended March 31,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenues

  $ 6,746,568     $ 7,151,656     $ 13,054,974     $ 14,675,600  
                                 

Net Loss

  $ (1,602,113 )   $ (2,137,480 )   $ (4,605,955 )   $ (2,997,065 )
                                 

Loss per share

  $ (0.020 )   $ (0.034 )   $ (0.062 )   $ (0.049 )

 

 

 
 

5.  Contract Dispute - Discontinued Operations

 

At March 31, 2016 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.

 

 

 
 

6.  Long Term Debt

 

Long term debt consisted of the following at:

 

   

March 31, 2016

   

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  
                 

Note payable to Keehan Trust Funding, LLC as amended on February 16, 2016 in the amount of $1,600,000. 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.

    1,239,833          
                 

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

    20,940       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 Westfield Bank for insurance finance agreement, dated August 1, 2014 bearing interest at 4%, final payment due May 1,2015, unsecured.

    2,391       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 and unamortized loan costs of $5,520 and $28,300, secured by a conversion privilege to common stock.

    78,480       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.

    146,442       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 $10,588, secured by a conversion privilege to common stock.

    104,412       -  
                 

Note payable to Complete Business Solutions dated February 18, 2016 in the amount of $300,000 with no stipulated interest rate payable through 125 daily payments of $3,120, unsecured.

    239,933       -  
                 

Note payable to Complete Business Solutions dated February 26, 2016 in the amount of $100,000 with no stipulated interest rate payable through 125 daily payments of $1,040, unsecured.

    84,092       -  
                 

Note payable to Sunshine Bank dated January 28, 2016 as a revolving credit line, bearing interest at Prime plus 1%, with a maturity of January 31, 2021, secured by the assets of BT Twiss Transport LLC.

    1,972,817       -  
                 

Note payable to Sunshine Bank dated January 28, 2016 in the amount of $2,000,000, bearing interest at 4.75%, with a maturity date of January 31, 2021, net of unamortized loan costs of $42,911, secured by the assets of BT Twiss Transport, LLC.

    1,937,501       -  
                 

Note payable to Power Up Lending Group, LTD dated March 22, 2016 in the amount of $200,000 with no stipulated interest rate payable through 147 daily payments of $1,810, net of unamortized loan costs of $3,429, unsecured.

    190,019       -  
                 

Financing agreement for the purchase of insurance through First Insurance Funding payable over 10 installments

    7,102       -  
                 

Financing agreement for the purchase of insurance through Bank Direct payable over 10 installments

    4,831       -  
                 

Financing agreement for the purchase of insurance through Bank Direct payable over 10 installments

    5,650       -  
                 

Various equipment financing contracts for Transport Tractors, with various terms and interest rates, secured by equipment

    3,600,733       -  
                 

Various equipment financing contracts for Transport Trailers, with various terms and interest rates, secured by equipment

    1,292,251       -  
                 
                 
      10,927,427       1,114,874  
                 

Less current portion pertaining to continuing operations

    (4,566,977 )     (265,646 )
                 

Less current portion pertaining to discontinued operations

    (1,239,833 )     (700,000 )
                 

Less long term portion associated with discontinued operations

    -       -  
                 
    $ 5,120,617     $ 149,228  

 

 

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

 

Period ended ‘March 31,

       
         

2017

  $ 5,806,810  
         

2018

    1,901,500  
         

2019

    1,721,722  
         

2020

    579,289  
         

2021

    918.106  
         

Thereafter

    -  
         
    $ 10,927,427  

 

 

 
 

7. Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

   

March 31, 2016

   

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

    493,712       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 $628,333 and $693,333 respectively

    3,371,667       3,306,667  
                 

Convertible promissory note dated January 28, 2016 in the amount of $4,666,155 bearing interest at 5%, interest payable quarterly, convertible at $.10 per share, with a maturity date of January 28, 2020.

    4,661,155          
                 

Promissory note dated January 28, 2016 in the amount of $2,400,000 bearing interest at 4.24% with a maturity date of January 29, 2021, net of unamortized loan costs of $33,917.

    2,304,683          
                 

Promissory note dated February 3, 2011 in the amount of $229,755 bearing interest at 8% payable on demand

    50,747          
                 
                 
      15,233,305       7,908,220  
                 

Less current portion pertaining to continuing operations

    122,209       -  
                 

Less current portion pertaining to discontinued operations

    -       -  
                 

Less long term portion associated with discontinued operations

    -       -  
                 
    $ 15,111,096     $ 7,908,220  

 

 
17 

Table Of Contents
 

 

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

 

Period ended March 31,

       
         

2017

  $ 122,209  
         

2018

    72,995  
         

2019

    76,535  
         

2020

    4,925,281  
         

2021

    8,120,111  
         

Thereafter

    1,916,174  
         
    $ 15,233,305  

  

 
18 

Table Of Contents
 

 

 

As of March 31, 2016 and September 30, 2015 there is an amount of accrued interest on related party notes payable of $959,744 and $732,742 respectively included in accrued expenses – related party for each year.

 

 
 
 

8.     Income Taxes

 

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

 

On January 1 2009 the Company acquired 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 2015 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.

 

9.    Segment reporting

 

Commencing with the Company’s acquisitions through its joint venture entity, BT-Twiss Transport LLC, in January 2016, the Company now operates in two business segments. The Commercial Sales segment is focused on sales of Industrial Machinery, ammunition, software and healthcare products. The Transportation segment provides for freight storage and movement throughout the Continental United States.

 

 

 

SEGMENT INFORMATION FOR THE SIX MONTHS ENDED MARCH 31, 2016 IS AS FOLLOWS:

 

   

Commercial

Sales

   

Transportation

   

Total

 
                         

Revenue

  $ 1,111,890     $ 4,288,622     $ 5,400,512  

Cost of Sales

    871,788       3,033,513       3,905,301  
                         

Gross profit

    240,102       1,255,109       1,495,211  

Selling, general and administrative expenses

    662,240       977,785       1,640,025  

Depreciation and interest expenses

    66,224       273,745       339,969  
                         

Income (loss) from operations

    (488,362 )     3,579       (484,783 )

Other income (expense)

    -       73,992       73,992  
                         

Net income (loss)

  $ (488,362 )   $ 77,571     $ (410,791 )
                         

Total Assets

  $ 391,692     $ 13,072,951     $ 13,464,643  
                         

Reconciliation of Segment Amounts Reported to Consolidated Amounts

                       
                         

Total revenues for reportable segments

                    5,400,512  

Unallocated amounts relating to corporate operations

                    -  
                         

Total consolidated revenue

                    5,400,512  
                         

Net loss

                       

Total loss for reportable segments

                    (410,791 )

Unallocated amounts relating to corporate operations

                       

Selling, general and administrative expenses

                    (956,691 )

Stock based compensation

                    (1,815,999 )

Depreciation and interest expense

                    (586,792 )
                         

Total consolidated net loss

                    (3,770,273 )
                         

Assets

                       

Total assets for reportable segments

                    13,464,643  

Goodwill

                    4,789,772  

Corporate investments and other assets

                    878,639  
                         

Total consolidated assets

                  $ 19,133,054  

 

 
 

10.  Commitments and Contingencies

 

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

 

At March 31, 2016 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 six months ended March 31, 2016 and 2015, was approximately $327,624 and $202,000 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 March 31, 2016 are as follows:

 

Period ended March 31,

       
         

2017

  $ 162,000  
         

2018

    162,000  
         

2019

    162,000  
         

2020

    162,000  
         

2021

    117,450  
         

Thereafter

    -  
         
    $ 765,450  

 

 
 
 
 
 

11. 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 March 31, 2016, there is a balance outstanding due from Stephen L Gurba of $92,855, and a balance outstanding to Gary Shapiro of $88,500. .

 

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 March 31, 2016 and September 30, 2015, the Company had a balance payable to Craigmore of $1,632,530 and $733,922 respectively, and these balances are reflected as accounts payable – related parties for each year.

 

During the three months ended March 31, 2016, Bulova Technologies Compliance and Security LLC received various advances from the Company. As of March 31, 2016 there is an amount due from Compliance of $88,184. This amount is included in other current assets. 

 

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 March 31, 2016 and September 30, 2015, the total amount outstanding under these related party notes is $4,845,053 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. The amount amortized for the six-month period was $65,000, leaving a debt discount balance of $628,333 at March 31, 2016.  This note is secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired.

 

On January 28, 2016, the Company, in conjunction with the purchase of Twiss Transport, Twiss Logistics and Twiss cold storage, issued a $4,661,155 5% Convertible Promissory Note payable to Ron Damico Jr with interest payable quarterly, as well as 3,000,000 restricted common shares, and a ten year warrant to buy 500,000 common shares.

 
 

 

12. 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.

 

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.

 

During January 2016, the Company issued 5,100,000 common shares as a partial payment of debt.

 

During January 2016, the Company committed to issue 3,000,000 common shares as a part of the purchase price of the BT Twiss Transport acquisitions. These shares have not been issued as of March 31, 2016 and have been recorded as common stock issuable.

 

During March 2016, the Company issued 2,500,000 common shares for services. 

 

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 six months ended March 31, 2016:

 

   

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

    20,900,000     $ 0.05                  

Exercised

    (100,000 )     -                  

Forfeited/expired/cancelled

    -                          
                                 

Warrants Outstanding – March 31, 2016

    150,142,993     $ 0.02       8.8     $ 0.04  
                                 

Outstanding Exercisable – October 1, 2015