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Table Of Contents

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 June 30, 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 September 23, 2016 the Company had 295,571,436 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 

 

EXPLANATORY NOTE

 

 

This Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three and nine months ended June 30, 2016 amends the Quarterly Report on Form 10-Q that was originally filed on August 22, 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, and

 

 

2.

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 JUNE 30, 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

 

26

Item 4. Controls and Procedures

 

29

 

 

 

PART II – OTHER INFORMATION  

Item 1. Legal Proceedings 

 

 29

Item 6. Exhibits

 

31

 

 

 

Signatures

 

32

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

June 30,

         
   

2016

   

September 30,

 
   

(unaudited)

   

2015

 

ASSETS

               
                 

Cash and equivalents

  $ 812,415     $ 70,347  

Accounts receivable, net

    2,425,776       261,215  

Inventory

    766,961       259,591  

Other current assets

    493,731       148,548  

Current assets from discontinued operations

    -       -  
                 

Total current assets

    4,498,883       739,701  
                 

Fixed assets, net

    11,099,828       341,445  

Other assets

    179,380       13,237  

Goodwill

    4,789,772       -  

Non-current assets from discontinued operations

    -       -  
                 

Total Assets

  $ 20,567,863     $ 1,094,383  
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 1,389,336     $ 281,380  

Accounts payable – related parties

    1,726,226       733,922  

Accrued expenses and other current liabilities

    507,938       71,207  

Accrued expenses and other current liabilities – related parties

    1,008,838       810,536  

Current portion of long term debt

    6,536,611       265,646  

Current portion of notes payable – related parties

    106,280       -  

Current liabilities from discontinued operations

    1,172,333       1,150,000  
                 

Total current liabilities

    12,447,562       3,312,691  
                 

Shareholder loans

    88,500       -  

Derivative liability

    267,153       -  

Long term debt, net of current portion

    5,659,472       149,228  

Notes payable – related parties, net of current portion

    15,001,138       7,908,220  

Long term liabilities from discontinued operations

    10,800,000       10,800,000  
                 

Total liabilities

    44,263,825       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 June 30, 2016 and September 30, 2015

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares; 95,293,163 and 69,093,518 issued and outstanding at June 30, 2016 and September 30, 2015

    95,293       69,093  

Subscription receivable

    (66,000 )     (66,000 )

Common stock issuable

    157,500       -  

Additional paid in capital in excess of par

    28,454,060       26,231,658  

Accumulated deficit

    (52,397,704 )     (47,350,507 )

Total Bulova Technologies Group, Inc. shareholders’ deficit

    (23,716,851 )     (21,075,756 )

Non-controlling interest in BT-Twiss Transport LLC

    20,889       -  

Total shareholders’ deficit

    (23,695,962 )     (21,075,756 )

Total liabilities and shareholders’ deficit

  $ 20,567,863     $ 1,094,383  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 2016 AND 2015
(Unaudited)

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenues

    6,802,451       291,776     $ 12,202,964     $ 1,252,968  

Cost of revenues

    4,587,366       242,885       8,492,667       1,053,694  
                                 

Gross profit

    2,215,085       48,891       3,710,297       199,274  
                                 

Selling and administrative expense

    2,144,986       628,707       4,332,125       2,345,460  

Stock based compensation

    19,125       141,800       1,835,124       1,573,299  

Depreciation and amortization expense

    426,339       54,464       624,572       100,111  

Interest expense

    621,110       158,328       1,348,431       471,381  
                                 

Total expenses

    3,211,560       983,299       8,140,252       4,490,251  
                                 

Income (loss) from operations

    (996,475 )     (934,408 )     (4,429,955 )     (4,290,251 )
                                 

Other income (expense)

                               

Derivative expense

    (267,153 )     -       (267,153 )     -  

Other income

    30,001       -       163,771       2,768  
                                 

Income (loss) from continuing operations before income taxes

    (1,233,627 )     (934,408 )     (4,533,337 )     (4,288,209 )
                                 

Income tax expense

    -       -       -       -  
                                 

Income (loss) from continuing operations

    (1,233,627 )     (934,408 )     (4,533,337 )     (4,288,209 )

Income (loss) from discontinued operations, net of tax

    (22,409 )     (12,077 )     (492,971 )     128,466  
                                 

Net loss

    (1,256,036 )     (946,485 )     (5,026,308 )     (4,159,743 )

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

    (4,781 )     -       20,889       -  
                                 

Net loss attributable to Bulova Technologies Group, Inc.

  $ (1,251,255 )   $ (946,485 )   $ (5,047,197 )   $ (4,159,743 )
                                 

Basic and diluted net income (loss) per share

                               

Income (loss) from continuing operations

    (.01 )     (.01 )   $ (.05 )   $ (.07 )

Income (loss) from discontinued operations

    -       -       (.01 )     -  

Net income (loss) per share

    (.01 )     (.01 )   $ (.06 )   $ (.07 )
                                 

Weighted average shares outstanding, basic and diluted

    84,365,877       67,708,903       77,319,557       63,728,087  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2016 AND 2015
(Unaudited)

 

   

2016

   

2015

 

Cash flows from operating activities:

               

Loss from continuing operations

  $ (4,533,337 )   $ (4,288,209 )

Income (Loss) from discontinued operations

    (492,971 )     128,466  

Net Loss

    (5,026,308 )     (4,159,743 )

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

               

Depreciation and amortization

    624,572       100,111  

Stock based payment for services

    1,835,124       1,573,299  

Amortization of debt discount

    144,878       -  

Stock issued relative to debt restructure

    -       25,500  

Gain on sale of fixed assets

    (73,728 )     -  

Derivative expense

    267,153       -  

Changes in operating assets and liabilities

               
                 

Accounts receivable

    (493,219 )     190,655  

Inventory

    (507,320 )     1,643  

Prepaid expenses and other assets

    (319,324 )     (519,684 )

Accounts payable and accrued expenses

    1,461,979       (365,983 )
                 

Net cash flows from operating activities – continuing operations

    (2,086,193 )     (3,154,202 )

Net cash flows from operating activities – discontinued operations

    450,000       (356,763 )

Net cash flows from operating activities

    (1,636,193 )     (3,510,965 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (1,846 )     (45,082 )

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

    (4,839,272 )     (32,050 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    (4,839,272 )     (32,050 )
                 

Cash flows from financing activities:

               

Increase (decrease) of Shareholder loans

    133,940       (205,897 )

Increases in long term debt

    9,958,923       4,544,635  

Repayment of long term debt

    (2,875,330 )     (528,300 )
                 

Net cash flows from financing activities – continuing operations

    7,217,533       3,810,438  

Net cash flows from financing activities – discontinued operations

    -       (181,826 )

Net cash flows from financing activities

    7,217,533       3,628,612  
                 

Increase (decrease) in cash and cash equivalents

    742,068       85,597  

Cash and cash equivalents, beginning

    70,347       9,522  
                 

Cash and cash equivalents, ending

  $ 812,415     $ 95,119  
                 

Cash paid for interest

  $ 905,776     $ 307,590  
                 

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

 

April 2016 the Company financed the purchase of transportation equipment in the amount of $425,710.

 

April 2016 the Company issued 669,643 common shares as a partial payment of debt.

 

June 2016 the Company issued 8,494,191 common shares as a partial payment of debt.

 

See accompanying notes to consolidated financial statements.

 

  

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

Issuance of shares from the exercise of warrants

                    3,510,811       3,511                       (3,511 )                     -  

Issuance of shares for services

                    850,000       850                       18,275                       19,125  

Issuance of shares for debt conversion

                    9,163,834       9,164                       45,836                       55,000  

Net loss for the nine months ended June 30, 2016

                                                            (5,047,197 )     20,889       (5,026,308 )
                                                                                 

Balances, June 30, 2016

    4,000,000,000     $ 40,000       95,293,163     $ 95,293     $ (66,000 )   $ 157,500     $ 28,454,060     $ (52,397,704 )   $ 20,889     $ (23,695,962 )

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 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. BT-Twiss Transport LLC leases approximately 35,000 square feet of office, warehouse and maintenance space situated on approximately 10 acres in Largo, Florida, to facilitate corporate operations and its trucking business. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida.

 

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 Clearwater, Florida, this wholly-owned subsidiary (“Europe”), has been engaged in several lines of related business, including a 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. Europe continues to pursue the brokerage of 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 - 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 Bulova Technologies Healthcare Products LLC and a joint venture relationship with 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 - 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 June 30, 2016 and September 30, 2015, and the results of operations and cash flows for the three and nine months ended June 30, 2016 and 2015.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date of filing of this Form 10-Q 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 June 30, 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 June 30, 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 June 30, 2016 and September 30, 2015, the Company has provided an allowance for doubtful accounts of $234,348 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 June 30, 2016 and September 30, 2015 is as follows:

 

   

June 30,

   

September 30,

 
   

2016

   

2015

 

Finished goods

  $ 713,707     $ 253,195  

Materials and supplies

    53,254       6,396  
                 

Total inventory of continuing operations

  $ 766,961     $ 259,591  

 

 

Other current assets

 

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

 

   

June 30,

   

September 30,

 
   

2016

   

2015

 

Prepaid expenses and deposits

  $ 398,713     $ 103,108  

Advances to shareholder

    95,018       45,440  
                 
    $ 493,731     $ 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 June 30, 2016 and September 30, 2015

 

   

June 30,

   

September 30,

 
   

2016

   

2015

 
                 

Funiture, fixtures and equipment

    476,674       407,113  

Tractors and trailers

    9,936,769       -  

Capital lease assets

    1,336,243       -  

Vehicle and other

    39,654       -  
      11,789,340       407,113  

Less accumulated depreciation

    (689,512 )     (65,668 )
                 

Net property, plant and equipment

  $ 11,099,828     $ 341,445  

 

 

Other assets

 

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

 

   

June 30,

   

September 30,

 
   

2016

   

2015

 

Advances - Bulova Technologies Compliance & Security

  $ 153,109     $ -  

Unamortized loan costs

    -     $ 3,111  

Refundable deposits

    26,271       10,126  
                 
    $ 179,380     $ 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.

 

Derivative Financial Instruments

 

The fair value of an embedded conversion option that is convertible into a variable amount of shares that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

 

As a result of entering into a convertible credit facility during the quarter ended June 30, 2016, for which such instrument contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation.

 

The Black-Scholes option valuation model was used to estimate the fair value of the conversion option. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the conversion option. The Company used the following Black-Scholes assumptions in arriving at the fair value of this conversion as of June 30, 2016 in the amount of $267,153.

 

 
   

June 30,

 
   

2016

 
         

Expected Life in Years

    1.0  

Risk-free Interest Rates

    45.00%  

Volatility

    213.97%  

Dividend Yield

    0%  

 

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 $27,229 for the nine months ended June 30, 2016 as compared to $17,175 for the nine months ended June 30, 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 June 30, 2016 there were 140,780,832 common stock equivalents that were antidilutive and were not included in the calculation.

 

Effect of Recent Accounting Pronouncements 

 

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.

 

ASU Update 2014-09 Revenue from Contracts with Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on recognizing revenue in contracts with customers on an effective date after December 31, 2017 will be evaluated as to impact and implemented accordingly.

 

ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines managements responsibility to evaluate whether there is a substantial doubt about an organizations ability to continue as a going concern. The additional disclosure required is effective after December 31, 2016 and will be evaluated as to impact and implemented accordingly.

 

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Cost. The guidance requires an entity to present debt issuance costs in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. Debt issuance costs related to revolving credit arrangements, however, will continue to be presented as an asset and amortized ratably over the term of the arrangement. ASU 2015-03 is effective for reporting periods beginning after December 15, 2015 including interim periods within those annual periods.

 

In July 2015, the FASB issued ASU 2015-11, Inventory, which simplifies the measurement principle of inventories valued under the First-In, First-Out ("FIFO") or weighted average methods from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-1 1 is effective for reporting periods beginning after December 15, 2016 including interim periods within those annual periods. We do not expect the standard to have a material impact on our Consolidated Financial Statements.

 

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that defe1Ted tax assets and liabilities be classified as non-current on the consolidated balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. Upon adoption, ASU 2015-17 may be applied either prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets ("lessees") to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee's right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee ("lessor") largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial Statements.

 

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 June 30, 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

   

Nine months ended

 
   

June 30

   

June 30

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenue

  $ -     $ -     $ -     $ -  

Cost of Sales

            -       -       -  

Gross profit

                    -       -  

Operating expenses and interest

    (22,409 )     (12,077 )     (492,971 )     (269,682 )

Other income

    -       -       -       398,148  

Income (loss) from operations

    (22,409 )     (12,077 )     (492,971 )     128,466  

Income tax benefit

            -       -       -  

Income (loss) from discontinued operations, net of tax

  $ (22,409 )   $ (12,077 )   $ (492,971 )   $ 128,466  

 

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:

 

   

June 30

   

September 30,

 
   

2016

   

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

    1,167,333       700,000  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities from discontinued operations

    1,172,333       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

  $ 11,972,333     $ 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 June 30, 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

    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

    11,001,267  

Other assets

    23,648  

Less current liabilities assumed

    (1,326,652 )

Less long-term debt assumed

    (6,606,451 )
      5,226,288  
         

Calculated Goodwill

  $ 4,789,772  

 

Proforma unaudited condensed selected financial data for the three and nine months ended June 30, 2016 and 2015 as though this acquisition had taken place at October 1, 2014 are as follows:

 

   

Three Months Ended June 30,

   

Nine Months Ended June 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Revenues

  $ 6,802,451     $ 7,266,302     $ 19,857,425     $ 21,941,902  
                                 

Net Loss

  $ (1,256,036 )   $ (756,571 )   $ (5,977,204 )   $ (3,753,636 )
                                 

Loss per share

  $ (0.015 )   $ (0.011 )   $ (0.077 )   $ (0.059 )

 

 

 

5.

Contract Dispute - Discontinued Operations

 

At June 30, 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:

 

   

June 30,

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.

    1,167,333          
                 

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

    19,454       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, a maturity date of February 19, 2016, 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, a maturity date of March 15, 2016, 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.

    11       18,819  
                 

Convertible promissory note payable to Vis Vires Group, Inc. dated August 6, 2015 in the original amount of $84,000, bearing interest at 8%, with a maturity date of May 10, 2016, net of discount and unamortized loan costs of $0 and $28,300, secured by a conversion privilege to common stock.

    69,000       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.

    139,036       160,857  
                 

Convertible promissory note payable to Typenex Co-Investment LLC dated November 16, 2015 in the original amount of $115,000, bearing interest at 10% with a maturity date of April 16, 2017, net of discount of $7,941, secured by a conversion privilege to common stock.

    87,059       -  
                 

Note payable to Complete Business Solutions dated April 26, 2016 in the amount of $500,000 with no stipulated interest rate, a maturity date of October 12, 2016, unsecured.

    334,808       -  

 

 

Note payable to Complete Business Solutions dated June 14, 2016 in the amount of $550,000 with no stipulated interest rate, a maturity date of November 29, 2016, unsecured.

    498,320       -  
                 

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.

    2,000,000       -  
                 

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 $40,691, secured by the assets of BT-Twiss Transport, LLC.

    1,858,988       -  
                 

Note payable to Sunshine Bank dated May 31, 2016 in the amount of $1,000,000, bearing interest 5.49%, with a maturity date of December 1, 2016, secured by the assets of BT-Twiss Transport, LLC

    1,000,000          
                 

Note payable to Power Up Lending Group, LTD dated March 22, 2016 in the amount of $200,000 with no stipulated interest rate, a maturity date of October 14, 2016, net of unamortized loan costs of $1,714, unsecured.

    114,501       -  
                 

Note payable to Power Up Lending Group, LTD dated June 22, 2016 in the amount of $60,000 with no stipulated interest rate, a maturity date of December 19, 2016, net of unamortized loan costs of $1,200, unsecured.

    57,851          
                 

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

    3,584       -  
                 

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

    3,817       -  
                 

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

    3,315,918       -  
                 

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

    1,513,303       -  
                 

Various capital lease obligations for Transport Tractors, with various payment terms, secured by equipment

    1,180,433       -  
                 
      13,363,416       1,114,874  

Less current portion pertaining to continuing operations

    (6,536,611 )     (265,646 )
                 

Less current portion pertaining to discontinued operations

    (1,167,333 )     (700,000 )
                 

Less long term portion associated with discontinued operations

    -       -  
    $ 5,659,472     $ 149,228  

  

 

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

 

Period ended June 30,

       
         

2017

  $ 7,703,944  
         

2018

    2,675,984  
         

2019

    1,519,146  
         

2020

    556,571  
         

2021

    907,771  
         

Thereafter

    -  
         
    $ 13,363,416  

 

 

 

7.

Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

   

June 30,

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

    525,212       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 original amount of $4,000,000 bearing interest at 7%, interest payable quarterly, with a maturity date of February 5, 2021, net of discount of $595,833 and $693,333 respectively

    2,821,795       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.

    4,666,155       -  
                 

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 $32,163.

    2,300,232       -  
                 

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

    42,683       -  
                 

Promissory note dated April 26, 2016 in the amount of $400,000 bearing interest 5%, with a maturity date of April 26, 2018, unsecured.

    400,000       -  
                 
      15,107,418       7,908,220  

Less current portion pertaining to continuing operations

    106,280       -  
                 

Less current portion pertaining to discontinued operations

    -       -  
                 

Less long term portion associated with discontinued operations

    -       -  
    $ 15,001,138     $ 7,908,220  

   

   

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

 

Period ended June 30,

       
         

2017

  $ 106,280  
         

2018

    484,429  
         

2019

    79,304  
         

2020

    4,959,590  
         

2021

    7,578,160  
         

Thereafter

    1,899,655  
         
    $ 15,107,418  

 

 

As of June 30, 2016 and September 30, 2015 there is an amount of accrued interest on related party notes payable of $1,008,838 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

 

6/30/2016

   

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 NINE MONTHS ENDED JUNE 30, 2016 IS AS FOLLOWS:

 

   

Commercial Sales

   

Transportation

   

Total

 
                         

Revenue

  $ 1,423,375     $ 10,779,589     $ 12,202,964  

Cost of Sales

    1,128,708       7,363,959       8,492,667  
                         

Gross profit

    294,667       3,415,630       3,710,297  

Selling, general and administrative expenses

    933,471       2,433,830       3,367,301  

Depreciation and interest expenses

    341,507       926,874       1,268,381  
                         

Income (loss) from operations

    (980,311 )     54,926       (925,385 )

Other income (expense)

    (221 )     73,992       73,771  
                         

Net income (loss)

  $ (980,532 )   $ 128,918     $ (851,614 )
                         

Total Assets

  $ 1,164,744     $ 14,015,936     $ 15,180,680  
                         

Reconciliation of Segment Amounts Reported to Consolidated Amounts

                       
                         

Total revenues for reportable segments

                  $ 12,202,964  

Unallocated amounts relating to corporate operations

                    -  
                         

Total consolidated revenue

                  $ 12,202,964  
                         

Net loss

                       

Total loss for reportable segments

                  $ (851,614 )

Unallocated amounts relating to corporate operations

                       

Selling, general and administrative expenses

                    (1,367,797 )

Stock based compensation

                    (1,835,124 )

Derivative expense

                    (267,153 )

Depreciation and interest expense

                    (704,620 )
                         

Total consolidated net loss

                  $ (5,026,308 )
                         

Assets

                       

Total assets for reportable segments

                  $ 15,180,680  

Goodwill

                    4,789,772  

Corporate investments and other assets

                    597,411  
                         

Total consolidated assets

                  $ 20,567,863  

 

 

 

9.

Commitments and Contingencies

 

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

 

At June 30, 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 an expiration date of December 21, 2027. The Company is no longer a party to that lease.

 

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. In September 2016, the property was sold, and the lease was cancelled.

 

 

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. BT-Twiss Transport LLC leases approximately 35,000 square feet of office, warehouse and maintenance space situated on approximately 10 acres in Largo, Florida, to facilitate all corporate operations as well as the trucking business of Twiss Transport, Inc. for $30,000 per month under a 20 year lease through November 1, 2035. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida commencing with a base rental of $82,534 per month through June 30, 2016, and adjusted upward by 3% annually through June 30, 2020. Twiss Logistics, Inc. currently leases office space on a month to month basis.

 

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 nine months ended June 30, 2016 and 2015, was approximately $685,000 and $243,376 respectively.

 

Bulova Technologies Group, Inc. is not currently a party to any lease commitments. BT-Twiss Transport LLC, and its wholly owned subsidiaries, as identified above, have the following commitments for minimum lease payments, under these operating leases for the next five years and thereafter as of June 30, 2016 are as follows:

 

Period ended June 30,

       
         

2017

  $ 1,407,125  
         

2018

    1,410,726  
         

2019

    1,442,250  
         

2020

    1,474,718  
         

2021

    360,000  
         

Thereafter

    5,263,000  
         
    $ 11,357,819  

 

 

 

10.

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 June 30, 2016, there is a balance outstanding due from Stephen L Gurba of $95,018, 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 June 30, 2016 and September 30, 2015, the Company had a balance payable to Craigmore of $1,726,227 and $733,922 respectively, and these balances are reflected as accounts payable – related parties for each year.

 

During the nine months ended June 30, 2016, Bulova Technologies Compliance and Security LLC received various advances from the Company. As of June 30, 2016 there is an amount due from Compliance of $153,109. 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 June 30, 2016 and September 30, 2015, the total amount outstanding under these related party notes is $4,876,553 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 holder shall have the right at any time prior to June 30, 2017 to convert into common stock of the Company up to $250,000 of the debt in increments not less than $10,000 at 65% of the average of the lowest three trading prices during 10 days prior to conversion. The balance of 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.

 

 

On January 28, 2016, the Company, in conjunction with the purchase of Twiss Transport, Twiss Logistics and Twiss cold storage, issued a $4,666,155 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.

 

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.

 

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

 

During January 2016, the Company issued 3,000,000 common shares as a part of the purchase price of the BT Twiss Transport acquisitions. These shares are accounted for as issuable as of June 30, 2016. The shares were issued in August 2016.

 

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

 

During April 2016, the Company issued 669,643 common shares as a partial payment of debt.

 

During June 2016, the Company issued 3,510,811 common shares due to the exercise of three cashless warrants.

 

During June 2016, the Company issued 850,000 common shares for services.

 

During June 2016, the Company issued 8,494,191 common shares as a partial payment of debt.

 

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 nine months ended June 30, 2016:

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

 

Weighted

Average

Remaining

Contractual

Life (years)

 

Aggregate

Intrinsic

Value

 

Warrants Outstanding - October 1, 2015

    129,342,993     $ 0.02  

8.6

  $ -  

Granted / Vested

    20,900,000     $ 0.05            

Exercised

    (9,462,161 )     -            

Forfeited/expired/cancelled

    -                    
                           

Warrants Outstanding – June 30, 2016

    140,780,832     $ 0.02  

8.8

  $ 0.04  
                           

Outstanding Exercisable – October 1, 2015

    129,342,993     $ 0.02  

8.6

  $ -  

Outstanding Exercisable – June 30, 2015

    140,780,832     $ 0.02  

8.8

  $ 0.04  

 

 

12.

Subsequent Events

 

During July 2016, the Company issued 18,208,460 common shares as partial payment of debt

 

During August 2016, the Company issued the 3,000,000 common shares accounted for as issuable as of June 30, 2016.

 

During August 2016, the Company issued 158,715,038 common shares as partial payment of debt.

 

During September 2016, the Company issued 20,354,775 common shares as partial payment of debt.

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Result 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.

 

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.

 

 

Application of critical accounting policies:

 

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and corresponding disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we continue to evaluate our estimates which in large part are based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 

2.

Results of operations:

 

For the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

 

Discontinued Operations

 

The Company is reporting results of operations of Bulova Technologies Ordnance Systems LLC (BTOS) as discontinued operations for the three months ended June 30, 2016 and 2015.

 

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 June 30, 2016 and 2015.

 

Ordnance did not incur any costs of revenues for the three months ended June 30, 2016 or 2015.

 

Ordnance did not realize any gross profit for the three months ended June 30, 2016 or 2015.

 

Operating expenses and interest for the discontinued operations of Ordnance for the three months ended June 30, 2016 of $22,409 is an increase of $10,332 when compared to operating expenses and interest for the three months ended June 30, 2015 of $12,077, and is due primarily to professional fees.

 

Continuing Operations

 

Revenue for continuing operations for the three months ended June 30, 2016 of $6,802,451 is an increase of $6,510,675 when compared to the revenue for the three months ended June 30, 2015 of $291,776, and is primarily due to the acquisition of the Transportation businesses in January 2016.

 

Cost of revenues for continuing operations for the three months ended June 30, 2016 of $4,587,366 is an increase of $4,344,481when compared to the cost of revenues for the three months ended June 30, 2015 of $242,885, and is primarily due to the acquisition of the Transportation businesses in January 2016, and consists of the tractor, trailer and driver expenses associated with the transportation services.

 

Gross profit for continuing operations for the three months ended June 30, 2016 of $2,215,085 is a large increase of $2,166,194 when compared to the gross profit for the three months ended June 30, 2015 of $48,891 for the reasons referred to above.

 

Selling and administrative expenses for continuing operations for the three months ended June 30, 2016 of $2,144,986 is an increase of $1,516,279 when compared to selling and administrative expense for the three months ended June 30, 2015 of $628,707. Stock based compensation if $19,125 is a decrease of $122,675 when compared to stock based compensation for the three months ended June 30, 2015 of $141,800.

 

Interest expense for continuing operations for the three months ended June 30, 2016 of $621,110 is an increase of $462,782 when compared to interest expense of $158,328 for the three months ended June 30, 2015. This increase in interest expense is a result of borrowing to facilitate operations, as well as increase in new debt.

 

For the nine months ended June 30, 2016 compared to the nine months ended June 30, 2015.

 

Discontinued Operations

 

The Company is reporting results of operations of Bulova Technologies Ordnance Systems LLC (BTOS) as discontinued operations for the nine months ended June 30, 2016 and 2015.

 

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 nine months ended June 30, 2016 and 2015.

 

Ordnance did not incur any costs of revenues for the nine months ended June 30, 2016 or 2015.

 

Ordnance did not realize any gross profit for the nine months ended June 30, 2016 or 2015.

 

Operating expenses and interest for the discontinued operations of Ordnance for the nine months ended June 30, 2016 of $492,971 is an increase of $223,289 when compared to operating expenses and interest for the nine months ended June 30, 2015 of $269,682, and is due primarily to an interest expense recorded pursuant to a forbearance agreement in the amount of $450,000.

 

 

Ordnance did not have any other income for the nine months ended June 30, 2016 as compared to other income of $398,148 for the nine months ended June 30, 2015.

 

Continuing Operations

 

Revenue for continuing operations for the nine months ended June 30, 2016 of $12,202,964 is an increase of $10,949,996 when compared to the revenue for the nine months ended June 30, 2015 of $1,252,968, and is primarily due to the acquisition of the Transportation businesses in January 2016. Revenues from the new entities which only constitute five months of activity in the nine months ended June 30, 2016 amounted to approximately 10.8 million in new sales.

 

Cost of revenues for continuing operations for the nine months ended June 30, 2016 of $8,492,667 is an increase of $7,438,973 when compared to the cost of revenues for the nine months ended June 30, 2015 of $1,053,694, and is primarily due to the acquisition of the Transportation businesses in January 2016, and consists of the tractor, trailer and driver expenses associated with the transportation services.. .

 

Gross profit for continuing operations for the nine months ended June 30, 2016 of $3,710,297 is an increase of $3,511,023 when compared to the gross profit for the nine months ended June 30, 2016 of $199,274 for the reasons referred to above.

 

Selling and administrative expenses for continuing operations for the nine months ended June 30, 2016 of $4,332,125 is an increase of $1,986,665 when compared to selling and administrative expense for the nine months ended June 30, 2015 of $2,345,460. Stock based compensation if $1,835,124 is an increase of $261,825 when compared to stock based compensation for the nine months ended June 30, 2015 of $1,573,299.

 

Interest expense for continuing operations for the nine months ended June 30, 2016 of $1,348,431 is an increase of $877,050 when compared to interest expense of $471,381 for the nine months ended June 30, 2015. This increase in interest expense is a result of borrowing to facilitate operations as well as increases in new debt.

 

 

3.

Liquidity and capital resources:

 

As of June 30, 2016, the Company’s sources of liquidity consisted of new debt as well as new sales reported in the commercial sales and service business segment along with the new sales in the transportation segment of the business..

 

As of June 30, 2016, we had $812,415 in cash and cash equivalents.

 

Cash flows used in operating activities was $2,086,193 for the nine months ended June 30, 2016.

 

Cash flows used in investing activities was $4,839,272 for the nine months ended June 30, 2016

 

Cash flows provided by financing activities were $7,217,533 for the nine months ended June 30, 2016, and consisted primarily of new loans associated with the Company’s acquisition of a trucking company.

 

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 transportation and commercial sales segments 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 financial officer.

 

Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at June 30, 2016 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.

 

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

 

January 28, 2016, the Company issued 3,000,000 common shares as part of an acquisition.

 

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

 

April 2016, the Company issued 669,643 common shares as a partial payment of debt.

 

June 2016, the Company issued 3,510,811 common shares due to the exercise of three cashless warrants.

 

June 2016, the Company issued 850,000 common shares for services.

 

June 2016, the Company issued 8,494,191 common shares as a partial payment of debt.

 

Common Stock Warrants

 

For the nine months ended June 30, 2016, 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.

 

January 28, 2016 – 500,000 – ten year common stock warrants as part of an acquisition with an exercise price of $.08.

 

 

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

 

   *

 

filed with this amendment

 

 

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: September 28, 2016

  

 

 

 

32