Table Of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-K

 

   

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

   
  For the fiscal year ended September 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

 

83-0245581

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

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:

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $.001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   No 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes   No 

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

 

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 March 31, 2016, the aggregate market value of the voting stock held by non-affiliates of the Company was $2,387,939 which excludes voting stock held by directors, executive officers and holders of 5 percent or more of the voting power of the Company’s common stock (without conceding that such persons are “affiliates” of the Company for purposes of federal securities laws). The Company has no outstanding non-voting common equity.

 

As of January 4, 2017, the Company had 478,658,688 shares of Common Stock issued and outstanding and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

There are no documents incorporated by reference  

 

 

EXPLANATORY NOTE

 

The annual audit of the Company’s financial statements is in process, but has not been completed as of the date of filing this Form 10K for the year ended September 30, 2016.

 

The Company understands that the staff of the Securities and Exchange Commission (the "staff") has taken the position that this report is deficient because the annual financial statements contained in this report for the year ended September 30, 2016 have not yet been audited by an independent registered public accountant as required by Rule 10-01(d) of Regulation S-X.

 

The Company understands that completion of the audit of its annual financial statements and the filing of an amendment will make this report current, although it will not be deemed timely for purposes of the rules governing eligibility to use registration statements on Forms S-2 and S-3. When the audit is complete, the Company will file an amendment to this report which will include the independent auditors’ report and 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-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

 

 

PART I

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Business

 

 

3

 

Item 2.

 

Properties

 

 

10

 

Item 3.

 

Legal Proceedings

 

 

10

 

Item 4.

 

Mine Safety Disclosures

 

 

11

 

 

 

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity and Related Stockholder Matters

 

 

11

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

12

 

Item 8.

 

Consolidated Financial Statements

 

 

15

 

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

 

39

 

Item 9A.

 

Controls and Procedures

 

 

39

 

 

 

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance of the Registrant

 

 

39

 

Item 11.

 

Executive Compensation

 

 

41

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

42

 

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

 

 

43

 

Item 14.

 

Principal Accountant Fees and Services

 

 

43

 

 

 

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

 

44

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

44

 

 

 

PART I

 

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,

 

 

Item 1 . Business

 

Bulova Technologies Group, Inc. ("BTGI" 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 assets and operations of 3Si at that time were 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).

 

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.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

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. and entered into the transportation and logistics industry of freight storage and movement. 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 continues 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

 

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 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. 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, 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 September 30, 2016 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.

 

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 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 could have ordered non-standard (e.g. Eastern European) weapons for shipment to friendly forces abroad. The BPA expired in October 2015. Ordnance has not 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 an order issued under the BPA which took place in December, 2013.

 

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 132,055 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.

 

As of September 30, 2016, Twiss Transport Inc and Twiss Logistics Inc conduct their operations on approximately 10 acres of land in Largo, Florida. This property includes approximately 35,000 square feet of office, warehouse and maintenance space. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida to facilitate its operations.

 

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.

 

Item 1A. Risk Factors

 

You should carefully consider the following risk factors and other information contained or incorporated by reference in this Form 10-K, including “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Any of these risks could materially adversely affect our business and our financial condition, results of operations and cash flows, which could in turn materially adversely affect the price of our common stock.

 

 

Government Contracts.

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in October 2012, Ordnance had only one remaining DoD contract which expired in October 2015. The company is not seeking any additional work with DoD.

 

 

 

 

 

 

 

Brokerage of Small Caliber Ammunition Commercial Sales

 

The Brokerage business is dependent entirely upon both a strong U.S. demand and a lack of availability from U.S. manufacturers.

 

While the demand for small caliber commercial ammunition has been especially strong in the past 2-4 years in the U.S. and remains so, there can be no assurance that the market will continue to remain so. Without such demand, sales would drop precipitously. Similarly, should U.S. manufacturers increase production to a greater level and meet the increased U.S. demand, the import of Eastern European ammunition would also likely be affected adversely.

 

The importation of ammunition manufactured abroad could be affected by future U.S. regulations.

 

While Europe holds all licenses required to import ammunition from Eastern Europe, there can be no assurance that regulations might not be adopted in the future which could affect either the ability of Europe to import such ammunition or the price to Europe of such ammunition, in which case either Eastern European ammunition would become unavailable for import by Europe, or make such ammunition too costly to sell in the U.S.

 

Machine Tool Business Commercial Sales

 

BTM competes with much larger producers of machine tools products.

 

The machine tool product business is highly competitive and BTM competes against much larger entities with very strong resources and competitive pricing. There can be no assurance that BTM will succeed in its competition with such entities.

 

The machine tool business is subject to economic perturbations and foreign competition.

 

While there are more than 196,000 machine shops in the U.S. which utilize machine tool equipment, the businesses utilizing machine tools and, consequently, the sellers of machine tool equipment in the U.S. are subject to general economic perturbations as well as foreign competition. Factors such as the demand for products manufactured by machine tool shops, the availability of credit to machine tool purchasers and the competition machine tool manufacturer’s face from foreign manufacturers could adversely impact the sale of machine tools by BTM.

 

Transportation and Storage of Freight

 

We operate in a highly competitive industry, and our business will suffer if we are unable to adequately address potential downward pricing pressures and other factors that may adversely affect our operations and profitability.

 

Numerous competitive factors could impair our ability to maintain our current profitability. These factors include, but are not limited to, the following:

  

 

we compete with other transportation service providers of varying sizes, some of which may have more equipment, a broader global network, a wider range of services, greater capital resources or other competitive advantages;

 

 

some of our competitors may reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain revenue;

 

 

many customers reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers and we may not be selected;

 

 

many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors;

 

 

some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet;

 

 

some customers may choose to consolidate certain LTL shipments through a different mode of transportation, such as truckload, intermodal or rail;

 

 

a trend towards consolidation in the ground transportation industry may create other large carriers with greater financial resources and other competitive advantages relating to their size;

 

 

advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments; and

 

 

competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and ability to maintain sufficient pricing.

 

 

If we are unable to effectively compete with other LTL carriers, whether on the basis of price, service or otherwise, we may be unable to retain existing customers or attract new customers, either of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, continued merger and acquisition activity in transportation and logistics could result in stronger or new competitors, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to compete successfully in an increasingly consolidated LTL industry and cannot predict with certainty how industry consolidation will affect our competitors or us.

 

Insurance and claims expenses could significantly reduce our profitability.

 

We are exposed to claims related to cargo loss and damage, property, damage, personal injury, workers’ compensation, long-term disability and group health.  We have insurance coverage with third-party insurance carriers, but retain a portion of the risk associated with these claims.  If the number or severity of claims increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely affected.  Insurance companies may require us to obtain letters of credit to collateralize our self-insured retention.  If these requirements increase, our borrowing capacity could be adversely affected.  Our future insurance and claims expense might exceed historical levels, which could reduce our earnings.  We expect our growth strategy to require a periodic reassessment or our insurance strategy, relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as employees’ health insurance under pending federal legislation, which we are unable to predict.  We may also become responsible for our legal expenses relating to such claims.  With growth, we will be required to periodically evaluate and adjust our claims reserves to reflect our experience.  However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.  We maintain insurance with licensed insurance carriers.  Although we believe the aggregate insurance limits should be sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed our aggregate coverage limits.  Insurance carriers have raised premiums for many businesses, including trucking companies.  As a result, our insurance and claims expense could increase.  If these expenses increase, or if we experience a claim in excess of our coverage limits, or we experience a claim for which coverage is not provided, results of our operations and financial condition could be materially and adversely affected.

 

Our customers and suppliers’ business may be slow to recover from the most recent downturn in the world wide economy and disruption of financial markets.  We cannot predict the impact on the national and worldwide economy of an economic downturn.

 

Our business is dependent on a number of general economic and business factors that may have a materially adverse effect on our results of operations, many of which are beyond our control.  These customers represent a greater potential for bad debt losses, which may require us to increase our reserve for bad debt.  Economic conditions resulting in bankruptcies of one or more of our large customers could have a significant impact on our financial position, results of operations or liquidity in particular year or quarter.  Our suppliers’ business levels have also been and may continue to be adversely affected by current economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations.  A significant interruption in our normal supply chain could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.

 

 

We may be adversely impacted by fluctuations in the price and availability of diesel fuel.

 

We require large amounts of diesel fuel to operate our tractors and to power the temperature-control units on our trailers.  Fuel is one of our largest operating expenses.  Fuel prices tend to fluctuate and prices and availability of all petroleum products are subject to political, economic and market factors that are beyond our control.  We do not hedge against the risk of diesel fuel price increases.  We depend primarily on fuel surcharges, auxiliary power units for our tractors, volume purchasing arrangements with truck stop chains and bulk purchases of fuel at our terminals to control and recover our fuel expenses. An increase in diesel fuel prices or diesel fuel taxes, or any change in federal or state regulations that results in such an increase, could have a material adverse effect on our operating results, unless the increase is offset by increases in freight rates or fuel surcharges charged to our customers.  We continuously monitor the components of our pricing, including base freight rates and fuel surcharges, and address individual account profitability issues with our customers when necessary.  While we have historically been able to adjust our pricing to offset changes to the cost of diesel fuel, through changes to base rates and/or fuel surcharges, we cannot be certain that we will be able to do so in the future.  

 

Increased prices, reduced productivity, and restricted availability of new revenue equipment could cause our financial condition, results of operations and cash flows to suffer.

 

Prices for new tractors have increased over the past few years, primarily as a result of higher commodity prices, better pricing power among equipment manufacturers, and government regulations applicable to newly manufactured tractors and diesel engines.  We expect to continue to pay increased prices for revenue equipment and incur additional expenses and related financing costs for the foreseeable future.  Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers or if we have to pay increased prices for new revenue equipment.  

 

Seasonality and the impact of weather can adversely affect our profitability.

 

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments.  At the same time, operating expenses generally increase with harsh weather creating higher accident frequency, increased claims and more equipment repairs.  We can also suffer short-term impacts from weather-related events such as hurricanes, blizzards, ice-storms, and floods that could harm our results or make our results more volatile.

 

Difficulties attracting and retaining qualified drivers could result in increases in driver compensation and could adversely affect our profitability, our ability to maintain or grow our fleet and our ability to maintain our customer relationships.

 

From time to time we have experienced difficulty in attracting and retaining sufficient numbers of qualified drivers and such shortages may recur in the future. Due in part to the time commitment, physical requirements, our stringent Company hiring standards and current industry conditions, the available pool of qualified employee drivers has been declining. Because of the intense competition for drivers, we may face difficulty maintaining or increasing our number of drivers. The compensation we offer our drivers is subject to market conditions that may require increases in driver compensation. If we are unable to attract and retain a sufficient number of qualified drivers, we could be required to adjust our compensation packages, amend our hiring standards, or operate with fewer trucks and face difficulty meeting customer demands, any of which could adversely affect our growth and profitability.

 

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.

 

The USDOT and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements.  Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the USDOT, including those relating to drug and alcohol testing and hours-of-service.  We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours-of-service, ergonomics, or other matters affecting safety or operating methods.  Other agencies, such as the EPA and the Department of Homeland Security, or DHS, also regulate our equipment, operations, and drivers.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs.  Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.

 

Some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  From time to time, various federal, state, or local taxes are increased, including taxes on fuels.  We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our profitability.

 

General Business Risks

 

We are subject to the risks of current and future legal proceedings, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

 

At any given time, we are a defendant in various material legal proceedings and litigation matters arising in the ordinary course of business, including litigation, claims and assessments that have been asserted against acquired businesses, which we have assumed. Although we maintain insurance policies, these policies may not be adequate to protect us from all material judgments and expenses related to potential future claims and these levels of insurance may not be available in the future at economical prices or at all. A significant judgment against us, arising out of any of our current or future legal proceedings and litigation, could have a material adverse effect on our business, financial condition, results of operations and future prospects. We are currently involved, through Ordnance, in legal proceedings involving the termination of a DoD contract which took place in July 2011. (See Part 3, Legal Proceedings).

 

 

Our level of debt and our ability to make payments on or service our indebtedness may adversely affect our financial and operating activities or ability to incur additional debt.

 

Our ability to make scheduled payments of principal and interest on our indebtedness and to refinance our existing debt, including the scheduled maturities of our outstanding debt, depends on our future financial performance as well as our ability to access the capital markets, and the relative attractiveness of available financing terms. We do not have complete control over our future financial performance because it is subject to economic, political, financial (including credit market conditions), competitive, regulatory and other factors affecting the defense industry, as well as commercial industries in which we operate. It is possible that in the future our business may not generate sufficient cash flow from operations to allow us to service our debt and make necessary capital expenditures. If this situation occurs, we may have to reduce costs and expenses, sell assets, restructure debt or obtain additional equity capital. We may not be able to do so in a timely manner or upon acceptable terms in accordance with the restrictions contained in our debt agreements.

 

Our level of indebtedness has important consequences to us. These consequences may include:

 

requiring a substantial portion of our net cash flow from operations to be used to pay interest and principal on our debt and therefore be unavailable for other purposes, including acquisitions, capital expenditures, paying dividends to our shareholders, repurchasing shares of our common stock, research and development and other investments;

 

limiting our ability to obtain additional financing for acquisitions, working capital, investments or other expenditures, which, in each case, may limit our ability to carry out our acquisition strategy;

 

increasing interest expenses due to higher interest rates on our borrowings that have variable interest rates;

 

heightening our vulnerability to downturns in our business or in the general economy and restricting us from making acquisitions, introducing new technologies and products or exploiting business opportunities; and

 

impacting debt covenants that limit our ability to borrow additional funds, dispose of assets, or repurchase shares of our common stock. Failure to comply with such covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our outstanding indebtedness.

 

Environmental laws and regulations may subject us to significant liability.

 

Our operations are subject to various U.S. federal, state and local laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations.

 

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require us to incur a significant amount of additional costs in the future and could decrease the amount of free cash flow available to us for other purposes, including capital expenditures, research and development and other investments and could have a material adverse effect on our business, financial condition, results of operations and future prospects.

 

Global economic recession, continued tightening of credit markets, and U.S. Government intervention in financial and other industries may adversely affect our results.

 

Domestic and foreign economies and equity and fixed income markets have recently experienced significant declines, and severely diminished liquidity and credit availability. These economic conditions are currently negatively impacting, and could continue to adversely affect, our sales to the commercial markets in which we operate.

 

 

Item 1B. Unresolved Staff Comments

 

None

 

Item 2. Property

 

As of September 30, 2016, Twiss Transport Inc and Twiss Logistics Inc conduct their operations on approximately 10 acres of land in Largo, Florida. This property includes approximately 35,000 square feet of office, warehouse and maintenance space. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida to facilitate its operations.

 

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

 

Item 3. 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 of the $12,000,000 (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 government recognition of 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 if any 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 terminated a contract 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 the contract to the purchaser of the assets of Ordnance.

 

No monies were advanced to Ordnance under the contract. 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.

 

In December 2013, the Army terminated Call Order #4 to the BPA. This Call Order required the delivery of weapons procured in Eastern Europe to friendly forces in Afghanistan. Ordnance appealed this decision to the Armed Services Board of Contract Appeals, and the matter is currently in litigation. The Government advanced no money to Ordnance under the Call Order and has not notified Ordnance as to whether it incurred excess costs n re-procuring the weaponry. Ordnance takes the position that due to the Government’s interference in the performance of the Call Order, the Call Order was improperly terminated. If Ordnance’s position is found to be correct, it would be entitled to a conversion of the termination for failing to perform, into a termination for convenience, and would entitle Ordnance to receipt from the Government of its reasonable costs incurred in performance of the Call Order plus a profit thereon.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

 

Our Common Stock is traded on the “OTCQB” operated by the OTC Markets Group, Inc., under the trading symbol “BTGI”. The range of closing bid prices shown below is as reported by these markets. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

 

 

 

Quarter Ending

 

High

   

Low

 
                 

December 31, 2014

  $ 0.0345     $ 0.0100  

March 31, 2015

    0.1500       0.0120  

June 30, 2015

    0.1000       0.0117  

September 30,2015

    0.1550       0.0350  
                 

December 31, 2015

  $ 0.0900     $ 0.0550  

March 31, 2016

    0.0800       0.0412  

June 30, 2016

    0.0500       0.0071  

September 30,2016

    0.0250       0.0020  

 

 

The closing bid price of our Common Stock on January 9, 2017, was $.0038.

 

As of January 9, 2017, there were approximately 2,500 shareholders of record of our Common Stock, not including those persons who hold their shares in “street name”.

 

We have not paid any dividends on our Common Stock since our inception. We do not foresee that we will pay a dividend on our Common Stock in the fiscal year ended September 30, 2017.

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

FORWARD LOOKING STATEMENTS

 

 

Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements.

 

 

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.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

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. and entered into the transportation and logistics industry of freight storage and movement. 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 continues to evaluate the incubation and marketing of innovative technology products for which it believes it can lend value because of its highly recognizable name brand and extensive marketing experience.

 

Application of critical accounting policies:  

 

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s 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.    

 

Results of operations : 

 

For the year ended September 30, 2016 compared to the year ended September 30, 2015.  

 

Discontinued Operations

 

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

 

Ordnance did not incur any costs of revenues for the years ended September 30, 2016 and 2015. 

 

Ordnance did not realize any gross profit for the years ended September 30, 2016 and 2015. 

 

Operating expenses and interest for the discontinued operations of Ordnance for the year ended September 30, 2016 of $491,553 is an increase of $214,931 when compared to operating expenses and interest for the year ended September 30, 2015 of $276,622, and is due primarily to legal costs, as well as additional interest costs incurred in the restructuring of the terms of certain debts associated with the discontinued operations of Ordnance. 

 

Other income for the discontinued operations of Ordnance for the year ended September 30, 2016 was $0 as compared to the year ended September 30, 2015 which had other income of $398,148, which represented a negotiated gain on a settlement of debt. The Company settled principal and interest of $818,111 for a cash payment of $300,000 and the issuance of 2,000,000 warrants valued at $119,963.  

 

 

Continuing Operations

 

Revenue for continuing operations for the years ended September 30, 2016 of $18,720,762 is an increase of $16,967,189 when compared to the revenue for the year ended September 30, 2015 of $1,753,573, and is primarily due to the acquisition of the Transportation businesses in January 2016. Revenues from the new entities which only constitute eight months of activity in the year ended September 30, 2016 amounted to approximately 16.9 million in new sales.  

 

Cost of revenues for continuing operations for the year ended September 30, 2016 of $13,348,460 is an increase of $11,864,923 when compared to the cost of revenues for the year ended September 30, 2015 of $1,483,537, 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 year ended September 30, 2016 of $5,372,302 is an increase of $5,102,266 when compared to the gross profit for the year ended September 30, 2016 of $270,036 for the reasons referred to above. 

 

Selling and administrative expenses for continuing operations for the year ended September 30, 2016 of $7,242,817 is an increase of $3,678,590 when compared to selling and administrative expense for the year ended September 30, 2015 of $3,564,227. Stock based compensation of $1,948,424 is an increase of $375,125 when compared to stock based compensation for the year ended September 30, 2015 of $1,573,299. 

 

Depreciation and amortization expense for continuing operations for the year ended September 30, 2016 of $979,941 is an increase of $949,638 when compared to depreciation and amortization expense for the year ended September 30, 2015 of $30,303.

 

Interest expense for continuing operations for the year ended September 30, 2016 of $2,439,511 is an increase of $1,695,187 when compared to interest expense of $744,324 for the year ended September 30, 2015. This increase in interest expense is a result of borrowing to facilitate operations as well as increases in new debt.   

 

 

Liquidity and capital resources:    

 

As of September 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 September 30, 2016, we had $650,262 in cash and cash equivalents.  

 

Cash flows used in operating activities by continuing operations was $2,938,107 for the year ended September 30, 2016.

 

Cash flows used in operating activities by discontinued operations was $450,462.   Cash flows used in investing activities by continuing operations was $4,849,107 for the year ended September 30, 2016. There were no cash flows from investing activities by discontinued operations for the year ended September 30, 2016. 

 

Cash flows from financing activities by continuing operations were $8,041,667 for the year ended September 30, 2016. Cash flows used by financing activities by discontinued operations were $125,000. 

 

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, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, refinance all or a portion of our existing debt as well as our operating needs, or obtain additional financing and we may not be able to do so on a timely basis, on satisfactory terms, or at all.  Our ability to make scheduled principal payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general economic, political, financial, competitive, legislative and regulatory factors beyond our control. 

 

While the Company believes that anticipated revenues resulting from its expanded efforts relative to its new 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 need 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.  

 

 

Our ability to utilize net operating loss carry forwards may be limited

 

As of September 30, 2016, the Company had net operating loss carry forwards (NOLs) of approximately 23 million for federal income tax purposes that will begin to expire between the years of 2022 and 2036. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize NOLs if it experiences an ownership change as defined in Section 382.  In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years.  We may be found to have experienced an ownership change under Section 382 as a result of events in the past or the issuance of shares of common stock upon a conversion of notes, or a combination thereof.  If so, the use of our NOLs, or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of our NOLs before utilization.

 

 

Item 8. Consolidated Financial Statements

 

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2016 and 2015

 

 

16

 

 

 

 

 

 

Consolidated Statements of Operations for the Years Ended September 30, 2016 and 2015

 

 

17

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Years Ended September 30, 2016 and 2015

 

 

18

 

         

Consolidated Statement of Changes in Stockholders’ Deficit for the Years Ended September 30, 2016 and 2015

   

20

 
         

Notes to Consolidated Financial Statements

   

21

 

 

 

 

 

 

 

   

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

September 30,

 
   

2016

   

2015

 
                 

ASSETS

               
                 

Cash and cash equivalents

  $ 650,262     $ 70,347  

Accounts receivable

    2,325,582       261,215  

Inventory

    421,331       259,591  

Other current assets

    353,203       148,548  

Current assets from discontinued operations

    -       -  
                 

Total Current Assets

    3,750,378       739,701  
                 

Fixed assets, net

    10,745,924       341,445  

Other assets

    113,215       13,237  

Goodwill

    4,789,772       -  

Non-current assets from discontinued operations

    -       -  
                 
    $ 19,399,289     $ 1,094,383  
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 1,598,445     $ 281,380  

Accounts payable – related parties

    1,786,436       733,922  

Accrued expenses and other current liabilities

    413,720       71,207  

Accrued expenses and other current liabilities – related parties

    1,137,163       810,536  

Current portion of long term debt

    4,553,201       265,646  

Current portion of notes payable – related parties

    412,720       -  

Current liabilities from discontinued operations

    1,111,962       1,150,000  
                 

Total current liabilities

    11,013,647       3,312,691  
                 

Amounts due shareholders

    419,260       -  

Derivative liability

    269,538       -  

Long term debt, net of current portion

    8,078,716       149,228  

Notes payable – related parties, net of current portion

    14,862,451       7,908,220  

Long term liabilities from discontinued operations

    10,800,000       10,800,000  
                 

Total liabilities

    45,443,612       22,170,139  
                 

Commitments and contingencies

    -       -  
                 

Shareholders’ deficit

               

Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 and 4,000,000,000 issued and outstanding at September 30, 2016 and 2015

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares, 343,752,151and 69,093,518 issued and outstanding at September 30, 2016 and 2015

    343,752       69,093  

Subscription receivable

    (66,000 )     (66,000 )

Additional paid in capital in excess of par

    28,799,184       26,231,658  

Accumulated deficit

    (55,419,392 )     (47,350,507 )

Total Bulova Technologies Group, Inc. shareholders’ deficit

    (26,302,456 )     (21,075,756 )

Non-controlling interest in BT-Twiss Transport LLC

    258,133       -  

Total shareholders’ deficit

    (26,044,323 )     (21,075,756 )
    $ 19,399,289     $ 1,094,383  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

Years Ended September 30,

 
   

2016

   

2015

 
                 

Revenues

  $ 18,720,762     $ 1,753,573  

Cost of revenues

    13,348,460       1,483,537  
                 

Gross profit

    5,372,302       270,036  
                 

Selling and administrative expenses

    7,242,817       3,564,227  

Stock based compensation

    1,948,424       1,573,299  

Depreciation and amortization expense

    979,941       30,303  

Interest expense

    2,439,511       744,324  
                 

Total expenses

    12,610,693       5,912,153  
                 

Loss from operations

    (7,238,391 )     (5,642,117 )
                 

Other income (expense)

               

Derivative expense

    (269,538 )     -  

Other income

    188,730       72,796  
                 

Loss from continuing operations before income taxes

    (7,319,199 )     (5,569,321 )
                 

Income tax expense

    -       -  
                 

Loss from continuing operations

    (7,319,199 )     (5,569,321 )

Income (loss) from discontinued operations, net of tax

    (491,553 )     121,526  
                 

Net loss

    (7,810,752 )     (5,447,795 )

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

    258,133       -  
                 

Net loss attributable to Bulova Technologies Group, Inc.

  $ (8,068,885 )   $ (5,447,795 )
                 

Basic and diluted net income (loss) per share

               

Loss from continuing operations

  $ (.068 )   $ (.085 )

Income (loss) from discontinued operations

    (.005 )     .002  

Net loss per share

  $ (.073 )   $ (.083 )
                 

Weighted average shares outstanding, basic and diluted

    107,466,765       65,080,470  

 

See accompanying notes to consolidated financial statements.

 

 

 BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

Years Ended September 30,

 
   

2016

   

2015

 
                 

Cash flows from operating activities:

               

Loss from continuing operations

  $ (7,319,199 )   $ (5,569,321 )

Income (Loss) from discontinued operations

    (491,553 )     121,526  

Net loss

    (7,810,752 )     (5,447,795 )

Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities:

               

Depreciation and amortization

    979,941       30,303  

Stock based payment for services

    1,948,424       1,573,299  

Amortization of debt discount

    196,689       93,646  

Stock issued relative to debt restructure

    -       25,500  

Gain on sale and disposal of assets

    (71,910 )     -  

Derivative expense

    269,538       -  

Loss on inventory write-down

    253,195       -  

Changes in operating assets and liabilities

               

Accounts receivable

    (393,025 )     92,736  

Inventory

    (414,885 )     (247,531 )

Prepaid expenses and other assets

    (112,631 )     45,539  

Accounts payable and accrued expenses

    1,752,609       412,876  

Amounts due shareholders

    464,700       (67,270 )
                 

Net cash flows from operating activities – continuing operations

    (2,938,107 )     (3,488,697 )

Net cash flows from operating activities – discontinued operations

    (450,462 )     (356,758 )

Net cash flows from operating activities

    (2,487,645 )     (3,845,455 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (11,681 )     (117,788 )

Cash purchased with business acquisition

    196,229       -  

Proceeds from sale of assets

    132,500       13,032  
      (5,166,155 )     -  

Net cash flows from investing activities – continuing operations

    (4,849,107 )     (104,756 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    (4,849,107 )     (104,756 )
                 

Cash flows from financing activities

               

Increases in long term debt

    8,717,840       283,500  

Repayment of long term debt

    (3,226,247 )     (514,744 )

Increases in notes payable – related parties

    3,251,087       4,473,206  

Repayment of notes payable – related parties

    (701,014 )     (49,100 )
                 

Net cash flows from financing activities – continuing operations

    8,041,667       4,192,862  

Net cash flows from financing activities – discontinued operations

    (125,000 )     (181,826 )

Net cash flows from financing activities

    7,916,667       4,011,036  
                 

Increase (decrease) in cash and cash equivalents

    579,915       60,825  

Cash and cash equivalents, beginning

    70,347       9,522  
                 

Cash and cash equivalents, ending

  $ 650,262     $ 70,347  

Cash paid for interest

  $ 2,308,346     $ 98,425  

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.

 

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

 

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

 

September 2016 the Company issued 29,535,490 common shares as a partial payment of debt.

 

September 2016 the Company issued 39,000,000 common shares from exercise of warrants

 

September 30, 2016 the Company refinanced and consolidated various equipment loans in the amount of $6,108,431.

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT

 

   

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, 2014

    4,000,000,000     $ 40,000       59,280,068     $ 59,280     $ (66,000 )   $ -     $ 23,681,161     $ (41,902,712 )   $ -     $ (18,188,271 )

Issuance of shares associated with satisfaction of debt

                    1,500,000       1,500                       24,000                       25,500  

Issuance of shares in satisfaction of debt

                    1,313,450       1,313                       24,956                       26,269  

Issuance of shares for services

                    5,000,000       5,000                       340,000                       345,000  

Issuance of warrants associated with satisfaction of debt

                                                    119,963                       119,963  

Issuance of warrants associated witn new debt

                                                    779,999                       779,999  

Issuance of shares for services

                    2,000,000       2,000                       139,800                       141,800  

Issuance of warrants for services

                                                    1,086,499                       1,086,499  

Debt discount associated with convertible debt

                                                    35,280                       35,280  

Net loss for the year ended September 30, 2015

                                                            (5,447,795 )             (5,447,795 )

Balances, September 30, 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

                    3,000,000       3,000                       154,500                       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  

Issuance of shares for debt conversion

                    206,458,988       206,459                       116,324                       322,783  

Issuance of shares from the exercise of warrants

                    39,000,000       39,000                       74,300                       113,300  

Net loss for the year ended September 30, 2016

                                                            (8,068,885 )     258,133       (7,810,752 )
                                                                                 

Balances, September 30, 2016

    4,000,000,000     $ 40,000       343,752,151     $ 343,752     $ (66,000 )   $ -     $ 28,799,184     $ (55,419,392 )   $ 258,133     $ (26,044,323 )

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2016 AND 2015

 

 

1.

Description of business:

 

 

Bulova Technologies Group, Inc. ("BTGI" 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 assets and operations of 3Si at that time were 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).

 

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.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

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. and entered into the transportation and logistics industry of freight storage and movement. 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.

 

 

2.

Principles of consolidation and basis of presentation:

 

These consolidated financial statements include the assets and liabilities of Bulova Technologies Group, Inc. and its subsidiaries as of September 30, 2016 and 2015. All material intercompany transactions have been eliminated.

 

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 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. 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, 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 September 30, 2016 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.

 

Bulova Technologies Ordnance Systems LLC. - Prior to discontinuance, this operations was 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 BPA which took place in December 2013.

 

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 September 30, 2016 and 2015, and the results of operations and cash flows for the years ended September 30, 2016 and 2015.

 

Subsequent Events

 

The Company has evaluated subsequent events through the date of filing this Form 10-K 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 September 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 September 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 September 30, 2016 and 2015 the Company has provided an allowance for doubtful accounts of $11,468 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.

 

 

The breakdown of inventory at September 30, 2016 and 2015 is as follows:

 

   

September 30,

   

September 30,

 
   

2016

   

2015

 

Products held for sale

  $ 371,331     $ 253,195  

Materials and supplies

    50,000       6,396  
                 

Total inventory of continuing operations

  $ 421,331     $ 259,591  

 

Other current assets

 

Other current assets are comprised of the following at September 30, 2015 and 2014

 

   

September 30, 2016

   

September 30, 2015

 
                 

Prepaid expenses and deposits

  $ 353,203     $ 103,108  

Advances to shareholder

    -       45,440  
                 
    $ 353,203     $ 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 September 30, 2016 and September 30, 2015

 

   

September 30,

   

September 30,

 
   

2016

   

2015

 
                 

Funiture, fixtures and equipment

    476,350       407,113  

Tractors and trailers

    9,936,769       -  

Capital lease assets

    1,336,243       -  

Vehicle and other

    39,654       -  
      11,789,016       407,113  

Less accumulated depreciation

    (1,043,092 )     (65,668 )
                 

Net property, plant and equipment

  $ 10,745,924     $ 341,445  

 

 

Other assets

 

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

 

   

September 30,

   

September 30,

 
   

2016

   

2015

 

Advances - Bulova Technologies Compliance & Security

  $ 85,729     $ -  

Unamortized loan costs

    -     $ 3,111  

Refundable deposits

    27,486       10,126  
                 
    $ 113,215     $ 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 September 30, 2016 in the amount of $269,538.

 

 

   

September 30,

 
   

2016

 
         

Expected Life in Years

    0.5  

Risk-free Interest Rates

    0.45%  

Volatility

    318.78%  

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 BT Manufacturing Company LLC, our contract manufacturing segment, and Bulova Technologies Ordnance Systems LLC, our government contracting segment as discontinued operations. The application of ASC 205-20 is discussed in Note 3 “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.

 

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 include the cost of trade show promotions and are expensed as incurred and are included in the Company’s operating expenses. The Company incurred advertising expenses of $482,942 for the year ended September 30, 2016 as compared to $34,450 for the year ended September 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 September 30, 2016, there were 140,780,832 common stock equivalents that were anti-dilutive and were not included in the calculation.

 

Effect of Recent Accounting Pronouncements

 

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2016 through the date these financial statements were issued.

 

Going Concern Matters

 

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

 

 

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

 

3. Discontinued Operations

 

In October of 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party, and discontinued operations. As a result of the decision to sell these assets, the Company has identified the assets and liabilities of Ordnance as pertaining to discontinued operations at September 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:

 

   

Year Ended September 30,

 
   

2016

   

2015

 
                 

Revenue

  $ -     $ -  

Cost of Sales

    -       -  

Gross profit

    -       -  

Operating expenses and interest

    (491,553 )     (276,622 )

Other income (expense)

    -       398,148  

Income (loss) from operations

    (491,553 )     121,526  

Gain on disposal of discontinued operations

    -       -  

Income tax benefit

    -       -  

Income (loss) from discontinued operations, net of tax

  $ (491,553 )   $ 121,526  

 

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

 

 

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

 

   

As of 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

  $ 462     $ 450,000  

Current portion of long-term debt

    1,111,500       700,000  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities from discontinued operations

    1,111,962       1,150,000  

Deferred revenue - contract dispute

    10,800,000       10,800,000  

Total liabilities from discontinued operations

  $ 11,911,962     $ 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 September 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 years ended September 30, 2016 and 2015 as though this acquisition had taken place at October 1, 2014 are as follows:

 

   

Years Ended September 30,

 
   

2016

   

2015

 
                 

Revenues

  $ 26,375,224     $ 29,366,692  
                 

Net Loss

  $ (8,154,881 )   $ (4,928,442 )
                 

Loss per share

  $ (0.076 )   $ (0.076 )

 

 

5.  Contract Dispute - Discontinued Operations

 

At September 30, 2016 and 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:

 

   

September 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.

    1,111,500          
                 

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

    17,187       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.

    -       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.

    -       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.

    131,495       160,857  
                 

Note payable to EIN CAP dated September 27, 2016 in the amount of $75,200 with no stipulated interest rate, a maturity date of January 6, 2017, unsecured.

    72,360       -  
                 

Various notes payable to Complete Business Solutions in various amounts, with no stipulated interest rate, and various maturity dates, unsecured.

    988,475       -  
                 

Note payable to Yellowstone Capital dated September 21, 2016 in the amount of $150,000 with no stipulated interest rate, a maturity date of March 9, 2017, unsecured.

    145,438       -  
                 

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

    1,163,853       -  
                 

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 $38,472, secured by the assets of BT-Twiss Transport, LLC.

    1,820,594       -  
                 

Various notes payable to Power Up Lending Group, LTD in various amounts, with no stipulated interest rate, and various maturity dates, unsecured.

    365,151       -  
                 

Financing agreements for the purchase of insurance through Bank Direct

    21,500       -  
                 

Note payable to Sunshine Bank dated September 30, 2016 as a revolving credit line, bearing interest at Prime plus 1%, with a maturity of January 31, 2021, secured by the assets of Twiss Transport, Inc. net of unamortized loan costs of $54,769.

    6,408,431       -  
                 

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

    409,820       -  
                 

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

    1,087,613       -  
                 
                 
      13,743,417       1,114,874  

Less current portion pertaining to continuing operations

    (4,553,201 )     (265,646 )
                 

Less current portion pertaining to discontinued operations

    (1,111,500 )     (700,000 )
                 

Less long term portion associated with discontinued operations

    -       -  
                 
    $ 8,078,716     $ 149,228  

 

 

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

 

Period ended September 30,

       
         

2017

  $ 5,664,701  
         

2018

    2,293,525  
         

2019

    1,663,951  
         

2020

    1,746,700  
         

2021

    2,264,752  
         

Thereafter

    109,788  
         
    $ 13,743,417  

 

 

6. Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

   

September 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 September 15, 2017 for $3,500 and the balance of $116,000 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 September 15, 2017 for $152,500 and the balance of $403,712 on March 31, 2020

    556,212       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