Table of Contents

 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

 

 

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

     
    For the quarterly period ended March 31, 2017

 

OR

 

 

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

     
    For the transition period from                                             to                                            

 

Commission File Number 000-09358

 

BULOVA TECHNOLOGIES GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Florida
(State or other jurisdiction of
incorporation or organization)

83-0245581
(IRS Employer
Identification No.)

 

1501 Lake Avenue SE
Largo, Florida 33771

(Address of principal executive offices) (Zip Code)

 

(727) 536-6666
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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


 

Common Stock, $.001 par value

(Title of Class)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  

Accelerated filer    

Non-accelerated filer  

Smaller reporting company  

Emerging growth Company  ☐
    (Do not check if a smaller reporting company)  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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 May 20, 2017, the Company had 499,658,688 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 

 

 

 

 

EXPLANATORY NOTE

 

 

The Company has not been able to have its independent auditor complete their review of the financial statements for the three and six months ended March 31, 2017 as reported in this Form 10Q.

 

The Company understands that this report is deficient because the unaudited financial statements contained in this report for the three and six months ended March 31, 2017 have not been reviewed by an independent registered public accountant as required by rule 10 - 01(d) regulation S-X.  The Company understands that completion of this independent review of its quarterly 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 statement on forms S-2 and S-3.  When the review is complete, the Company will file an amendment to this report which will include the required certifications of the Company's Principal Executive Officer and Principal Financial and Accounting Officer as required by sections 302 and 906 of the Sarbanes-Oxley Act.

 

 

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2017

 

TABLE OF CONTENTS

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 4. Controls and Procedures

28

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 6. Exhibits

30

 

 

 

 

Signatures

31

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

March 31,

         
   

2017

   

September 30,

 
   

(unaudited)

   

2016

 

ASSETS

               
                 

Cash and equivalents

  $ 305,503     $ 650,262  

Accounts receivable, net

    2,301,620       2,325,582  

Inventory

    219,431       421,331  

Other current assets

    345,410       353,203  

Current assets from discontinued operations

    -       -  
                 

Total current assets

    3,171,964       3,750,378  
                 

Fixed assets, net

    10,166,071       10,745,924  

Other assets

    159,557       113,215  

Goodwill - (Note 4)

    4,789,772       4,789,772  

Non-current assets from discontinued operations

    -       -  
                 

Total Assets

  $ 18,287,364     $ 19,399,289  
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 1,433,803     $ 1,598,445  

Accounts payable – related parties

    2,142,055       1,786,436  

Accrued expenses and other current liabilities

    372,760       413,720  

Accrued expenses and other current liabilities – related parties

    1,347,641       1,137,163  

Current portion of long term debt

    8,801,080       4,553,201  

Current portion of notes payable – related parties

    282,046       412,720  

Current liabilities from discontinued operations

    -       1,111,962  
                 

Total current liabilities

    14,379,385       11,013,647  
                 

Amounts due shareholders

    173,822       419,260  

Derivative liability

    270,277       269,538  

Long term debt, net of current portion

    7,505,498       8,078,716  

Notes payable – related parties, net of current portion

    14,934,447       14,862,451  

Long term liabilities from discontinued operations

    -       10,800,000  
                 

Total liabilities

    37,263,429       45,443,612  
                 

Commitments and contingencies – (Note 9)

    -       -  
                 

Shareholders’ deficit:

               

Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 issued and outstanding at March 31, 2017 and September 30, 2016

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares; 499,658,688 and 343,752,151 issued and outstanding at March 31, 2017 and September 30, 2016

    499,659       343,752  

Subscription receivable

    (66,000 )     (66,000 )

Additional paid in capital in excess of par

    28,910,827       28,799,184  

Accumulated deficit

    (48,230,938 )     (55,419,392 )

Total Bulova Technologies Group, Inc. shareholders’ deficit

    (18,846,452 )     (26,302,456 )

Non-controlling interest in BT-Twiss Transport LLC

    (129,613 )     258,133  

Total shareholders’ deficit

    (18,976,065 )     (26,044,323 )
                 

Total liabilities and shareholders’ deficit

  $ 18,287,364     $ 19,399,289  

 

See accompanying notes to consolidated financial statements.

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

March 31,

   

March 31,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenues

    6,259,160       4,987,243     $ 12,646,404     $ 5,400,512  

Cost of revenues

    4,552,222       3,612,297       9,266,891       3,905,301  
                                 

Gross profit

    1,706,938       1,374,946       3,379,513       1,495,211  
                                 

Selling and administrative expense

    1,882,491       1,638,286       3,795,405       2,185,931  

Stock based compensation

    3,100       112,500       3,100       1,815,999  

Depreciation and amortization expense

    351,361       182,345       711,838       198,233  

Interest expense

    1,770,714       449,698       2,825,316       728,528  
                                 

Total expenses

    4,007,666       2,382,829       7,335,659       4,928,691  
                                 

Loss from operations

    (2,300,728 )     (1,007,883 )     (3,956,146 )     (3,433,480 )
                                 

Other income (expense)

                               

Derivative gain (loss)

    9,164       -       (739 )     -  

Other income (loss)

    334       103,769       (5,422 )     133,769  
                                 

Loss from continuing operations before income taxes

    (2,291,230 )     (904,114 )     (3,962,307 )     (3,299,711 )
                                 

Income tax expense

    -       -       -       -  
                                 

Loss from continuing operations

    (2,291,230 )     (904,114 )     (3,962,307 )     (3,299,711 )

Income (loss) from discontinued operations, net of tax

                               

Operating expenses and interest

    (4,588 )     (467,135 )     (33,385 )     (470,562 )

Gain on deconsolidation of subsidiary

    10,796,400       -       10,796,400       -  
                                 

Total income (loss) from discontinued operations, net of tax

    10,791,812       (467,135 )     10,763,015       (470,562 )
                                 

Net income (loss)

    8,500,582       (1,371,249 )     6,800,708       (3,770,273 )

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

    (125,710 )     25,670       (387,746 )     25,670  
                                 

Net income (loss) attributable to Bulova Technologies Group, Inc.

    8,626,292       (1,396,919 )   $ 7,188,454     $ (3,795,943 )
                                 

Basic and diluted net income (loss) per share

                               

Income (loss) from continuing operations

  $ -     $ (.02 )   $ (.01   $ (.05 )

Income (loss) from discontinued operations

    .02       -       .02       -  

Net income (loss) per share

  $ .02     $ (.02 )   $ .01     $ (.05 )
                                 

Weighted average shares outstanding, basic and diluted

    498,869,799       78,323,953       454,900,192       73,815,649  

 

See accompanying notes to consolidated financial statements.

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)

   

2017

   

2016

 

Cash flows from operating activities:

               

Loss from continuing operations

  $ (3,962,307 )   $ (3,299,711 )

Income (Loss) from discontinued operations

    10,763,015       (470,562 )

Net income (loss)

    6,800,708       (3,770,273 )

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

               

Depreciation and amortization

    711,838       198,233  

Stock based compensation

    3,100       1,815,999  

Amortization of debt discount

    82,716       98,523  

Interest expense from refinance transactions

    1,110,277       -  

Gain on sale of fixed assets

    (2,285 )     (73,728 )

Loss on change in fair value of derivative liability

    739       -  

Changes in operating assets and liabilities

               
                 

Accounts receivable

    23,962       (699,289 )

Inventory

    201,900       (508,325 )

Prepaid expenses and other assets

    (38,549 )     (264,304 )

Accounts payable and accrued expenses

    607,445       1,408,031  
                 

Net cash flows from operating activities – continuing operations

    9,501,851       (1,795,133 )

Net cash flows from operating activities – discontinued operations

    (10,800,462 )     450,000  

Net cash flows from operating activities

    (1,298,611 )     (1,345,133 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (1,172 )     (1,846 )

Cash purchased with business acquisition

    -       196,229  

Proceeds from disposal of assets

    151,647       132,500  

Cash payments in business acquisition

    -       (5,166,155 )
                 

Net cash flows from investing activities – continuing operations

    150,475       (4,845,823 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    150,475       (4,845,823 )
                 

Cash flows from financing activities:

               

Repayment of amounts due shareholders

    (245,438 )     -  

Increases in long term debt

    4,522,572       7,445,530  

Repayment of long term debt

    (3,319,070 )     (891,344 )

Increases in notes payable – related parties

    185,500       133,940  

Repayment of notes payable – related parties

    (312,687 )     -  
                 

Net cash flows from financing activities – continuing operations

    830,877       6,688,126  

Net cash flows from financing activities – discontinued operations

    (27,500 )     -  

Net cash flows from financing activities

    803,377       6,688,126  
                 

Decrease in cash and cash equivalents

    (344,759 )     (497,170 )

Cash and cash equivalents, beginning

    650,262       70,347  
                 

Cash and cash equivalents, ending

  $ 305,503     $ 567,517  

Cash paid for interest

  $ 1,404,549     $ 403,295  

Cash paid for taxes

  $ -     $ -  
                 

Supplemental disclosure of Non-Cash Investing and Financing Activities

               
                 

December 2015, issuance of 1,000,000 common stock warrants in satisfaction of debt

  $ -     $ 26,228  

January 2016, issuance of 5,100,000 common shares in partial satisfaction of debt

  $ -     $ 306,000  

October 2016, issuance of 6,561,299 common shares as a true up to a prior conversion of debt

  $ -     $ -  

October 2016, issuance of 7,500,000 common shares from exercise of warrants

  $ 14,250     $ -  

December 2016, issuance of 26,041,667 as partial payment on a settlement

  $ 25,000     $ -  

December 2016, issuance of 67,000,000 common shares as partial payment of account payable to a related party

  $ 207,700     $ -  

December 2016, issuance of 27,803,571 common shares as conversion of debt

  $ 10,000     $ -  

January 2017, issuance of 20,000,000 common shares as conversion of debt

  $ 7,500     $ -  

February 2017, issuance of 1,000,000 common shares for services

  $ 3,100     $ -  

Financed the acquisition of new equipment

  $ 296,619     $ -  

Satisfaction of debt on sale of assets

  $ 16,444     $ -  

Principal and interest payments through refinanced debt

  $ 2,981,894     $ -  

 

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 2017
(Unaudited)

 

   

Total Bulova Technologies Group, Inc. Shareholders' Deficit

                 
   

Preferred Stock

   

Common Stock

                                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Amount

   

Subscription Receivable

   

Common Stock Issuable

   

Additional Paid-In Capital

   

Accumulated Deficit

   

Non-Controlling Interest

   

Total

 
                                                                                 

Balances, October 1, 2015

    4,000,000,000     $ 40,000       69,093,518     $ 69,093     $ (66,000 )   $ -     $ 26,231,658     $ (47,350,507 )   $ -     $ (21,075,756 )

Issuance of shares from the exercise of warrants

                    75,000       75                       (75 )                     -  

Issuance of warrants associated with settlement of debt

                                                    26,228                       26,228  

Issuance of shares for services

                    5,000,000       5,000                       317,500                       322,500  

Issuance of warrants for services

                                                    1,380,999                       1,380,999  

Issuance of shares for services

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

Issuance of shares as part of acquisition

                    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 )

Issuance of shares for debt conversion

                    6,561,299       6,561                       (6,561 )                     -  

Issuance of shares from the exercise of warrants

                    7,500,000       7,500                       6,750                       14,250  

Issuance of shares for a settlement

                    26,041,667       26,042                       (1,042 )                     25,000  

Issuance of shares as partial satisfaction of an account payable to a related party

                    67,000,000       67,000                       140,700                       207,700  

Issuances of shares for debt conversion

                    27,803,571       27,804                       (17,804 )                     10,000  

Issuance of shares for debt conversion

                    20,000,000       20,000                       (12,500 )                     7,500  

Issuance of shares for services

                    1,000,000       1,000                       2,100                       3,100  

Net income (loss) for the six months ended March 31, 2017

                                                            7,188,454       (387,746 )     6,800,708  
                                                                                 

Balances, March 31, 2017

    4,000,000,000     $ 40,000       499,658,688     $ 499,659     $ (66,000 )   $ -     $ 28,910,827     $ (48,230,938 )   $ (129,613 )   $ (18,976,065 )

 

See accompanying notes to consolidated financial statements.

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2017

(Unaudited)

 

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:

 

The accompanying consolidated balance sheet as of September 30, 2016, has been derived from audited financial statements.

 

The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s latest Form 10-K.

 

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 March 31, 2017, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of March 31, 2017, 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 operation 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.  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 expired in October 2015. Ordnance has not sought any new contracts from the DoD since 2012. On March 29, 2017, the Company sold all of its ownership interests in Ordnance.

 

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.

 

In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position as of March 31, 2017, and September 30, 2016 and the results of operations and cash flows for the three and six months ended March 31, 2017 and 2016.

 

 

Subsequent Events

 

The Company has evaluated subsequent events through the date of filing this Form 10-Q to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.

 

Business Segments

 

Commencing with the acquisition of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc., the Company began operating in two distinct business segments, transportation services and commercial sales. The transportation segment provides freight handling as well as transport, and the commercial sales segment is involved in sales and distribution of industrial machines, ammunition, and healthcare products. Financial information by segment is presented in the notes to the consolidated financial statements. 

 

Concentrations – Major Customers

 

For the six months ended March 31, 2017, approximately 33% of the revenue accounted for within the Company’s transportation business segment was provided by two customers, one representing approximately 25% and the other approximately 8%.

 

Use of Estimates

 

The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these consolidated 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 are 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 consolidated financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value.

 

Level 1: Quotes market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.

 

Level 3: Unobservable inputs that were not corroborated by market data.

 

Equity method of accounting – Joint Venture

 

The Company accounts for its joint venture interest in Bulova Technologies Compliance and Security LLC using the equity method of accounting. The Company’s ownership interest in this joint venture is 30 percent. At March 31, 2017, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of March 31, 2017, 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 consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk.

 

Accounts receivable

 

Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company’s business segments. The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. At March 31, 2017 and September 30, 2016, the Company has provided an allowance for doubtful accounts of $0 and $11,468 respectively.

 

Inventory

 

Inventory is stated at the lower of cost (first-in, first-out) or market. Market is generally considered to be net realizable value. Inventory consisted of items held for resale and materials and supplies for sale and service.

 

 

The breakdown of inventory at March 31, 2017 and September 30, 2016 is as follows:

 

   

March 31,

   

September 30,

 
   

2017

   

2016

 

Finished goods

  $ 169,431     $ 371,331  

Materials and supplies

    50,000       50,000  
                 

Total inventory of continuing operations

  $ 219,431     $ 421,331  

 

 

Other current assets

 

Other current assets are comprised of the following at March 31, 2017 and September 30, 2016

 

   

March 31,

2017

   

September 30,

2016

 
                 

Prepaid expenses and deposits

  $ 345,410     $ 353,203  
                 
    $ 345,410     $ 353,203  

 

Fixed Assets

 

Fixed assets stated at cost, less accumulated depreciation. Capital lease assets are recognized at the lower of fair market value or the present value of future minimum lease payments. Depreciation on assets under capital leases is included in depreciation expense. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 5 to 10 years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition are valued at fair value.

 

 

Fixed assets are comprised of the following at March 31, 2017 and September 30, 2016

 

   

March 31,

   

September 30,

 
   

2017

   

2016

 
                 

Funiture, fixtures and equipment

    422,464       476,350  

Tractors and trailers

    10,057,170       9,936,769  

Capital lease assets

    1,336,243       1,336,243  

Vehicle and other

    6,724       39,654  
      11,822,601       11,789,016  

Less accumulated depreciation

    (1,656,530 )     (1,043,092 )
                 

Net property, plant and equipment

  $ 10,166,071     $ 10,745,924  

 

Other assets

 

Other assets are comprised of the following at March 31, 2017 and September 30, 2016

 

   

March 31,

   

September 30,

 
   

2017

   

2016

 

Advances - Bulova Technologies Compliance & Security

  $ 134,938     $ 85,729  

Refundable deposits

    24,619       27,486  
                 
    $ 159,557     $ 113,215  

 

 

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 March 31, 2017, in the amount of $270,277.

 

 

   

March 31,

 
   

2017

 
       

Expected Life in Years

  0.25  

Risk-free Interest Rates

  0.76%  

Volatility

  336.20%  

Dividend Yield

  0%  

 

Discontinued Operations

 

In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations (“ASC 205-20”), we reported the results of Bulova Technologies Ordnance Systems LLC, formerly 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 are expensed as incurred and are included in the Company’s operating expenses. The Company incurred advertising expenses of $7,242 for the six months ended March 31, 2017 as compared to $21,165 for the six months ended March 31, 2016.

 

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 income (loss) per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of March 31, 2017, there were 140,780,832 vested common stock warrants outstanding, which were not included in the calculation of net income per share-diluted because they were anti-dilutive due to current market prices.

 

 

Effect of Recent Accounting Pronouncements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Going Concern Matters

 

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

 

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

 

 

 

3.

Discontinued Operations

 

In October of 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party, and discontinued operations. As a result of the decision to sell these assets, the Company has identified the assets and liabilities of Ordnance as pertaining to discontinued operations at March 31, 2017 and September 30, 2016 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented. 

 

On March 29, 2017, the Company entered into a Member Purchase Agreement, to sell all of the membership interests of this wholly-owned subsidiary. The buyer is an independent third party and has no prior relationship to the Company and / or its officers. The Company recognized a gain on the deconsolidation of this subsidiary within the accounting for this discontinued operation as of March 31, 2017.

 

Summarized operating results for discontinued operations is as follows:

 

   

Three Months Ended March 31,

   

Six Months Ended March 31,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenue

  $ -     $ -     $ -     $ -  

Cost of Sales

    -       -       -       -  

Gross profit

    -       -       -       -  

Operating expenses and interest

    (4,588 )     (467,135 )     (33,385 )     (470,562 )

Other income (expense)

    -       -       -       -  

Income (loss) from operations

    (4,588 )     (467,135 )     (33,385 )     (470,562 )

Gain on deconsolidation of subsidiary

    10,796,400       -       10,796,400       -  

Income tax benefit

    -       -       -       -  

Income (loss) from discontinued operations, net of tax

  $ 10,791,812     $ (467,135 )   $ 10,763,015     $ (470,562 )

 

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:

 

   

March 31,

   

September 30, 

 
   

2017

   

2016

 
                 

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  

Current portion of long-term debt

    -       1,111,500  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities from discontinued operations

    -       1,111,962  

Deferred revenue - contract dispute

    -       10,800,000  

Total liabilities from discontinued operations

  $ -     $ 11,911,962  

 

 

 

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 the Company.

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

 

Accordingly, the results of BT-Twiss Transport LLC are included in the accompanying consolidated financial statements only from the acquisition date through March 31, 2017. The recorded cost of this acquisition was based upon the fair 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 was 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  

 

 

 

5.

Contract Dispute - Discontinued Operations

 

At September 30, 2016, and through March 29, 2017, the Company included in liabilities of discontinued operations the amount of $10,800,000 relative to a contract performance dispute of its then wholly owned subsidiary, Bulova Technologies Ordnance Systems LLC, with the US Government. This amount represented deferred revenue arising from the percentage of completion accounting applied to a contract that was terminated prior to its completion. Ordnance asserted various claims in this dispute and, consequently, carried this amount as long term pending resolution of the counter claims. On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

 

 

6.

Long Term Debt

 

Long term debt consisted of the following at:

 

   

March 31, 2017

   

September 30, 2016

 
                 

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.

    1,066,500       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  
                 

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.

    115,993       131,495  
                 

Various notes payable to EIN CAP in various amounts with no stipulated interest rate, and various maturity dates, unsecured, totaling $154,452 net of discount of $35,248 and $102,335 net of discount of $29,975 respectively.

    119,204       72,360  
                 

Various notes payable to Complete Business Solutions in various amounts, with no stipulated interest rate, and various maturity dates, unsecured, totaling $2,400,546 net of discount of $683,620 and $1,173,521 net of discount of $185,046 respectively

    1,716,926       988,475  
                 

Various notes payable to Yellowstone Capital in various amounts with no stipulated interest rate, and various maturity dates, unsecured, totaling $370,235 net of discount of $88,204 and $212,382 net of discount of $66,944 respectively/

    282,031       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.

    2,000,000       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 $34,033 and $38,472 respectively, secured by the assets of BT-Twiss Transport, LLC.

    1700,066       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, totaling $244,286 net of discount of $43,714 and $454,752 net of discount of $89,601 respectively

    200,572       365,151  

 

               

Financing agreements for the purchase of insurance through Bank Direct payable in monthly installments

    5,006       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 $49,292 and $54,769 respectively.

    5,428,112       6,408,431  

 

               

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

    1,101,110       409,820  

 

               

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

    898,478       1,087,613  

  

  

Various notes payable to Ace Funding in various amounts, with no stipulated interest rate, and various maturity dates, unsecured, totaling $237,105 net of discount of $52,513.

    184,592       -  

 

               

Note payable to RAM Capital, with no stipulated interest rate, unsecured.

    122,205       -  

 

               

Note payable to Caymus Funding, Inc., with no stipulated interest rate, unsecured

    281,818       -  

 

               

Note payable to New Era, with no stipulated interest rate, unsecured.

    93,030       -  

 

               

Two promissory notes payable to LiftForward, Inc., each in the amount of $510,000, each payable in twenty-four monthly installments of $25,997.23, with a maturity date of January 28, 2019, net of unamortized loan costs of $47,208.

    937,935       -  

 

               

Convertible promissory note payable to Power Up Lending Group LTD in the amount of $53,000, bearing interest at 8% per annum, with a maturity date of October 28, 2017.

    53,000       -  

 

               

 

    16,306,578       13,743,417  
                 

Less current portion pertaining to continuing operations

    (8,801,080 )     (4,553,201 )
                 

Less current portion pertaining to discontinued operations

    -       (1,111,500 )
                 

Less long term portion associated with discontinued operations

    -       -  
    $ 7,505,498     $ 8,078,716  

 

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

 

Period ended March 31,

       

2018

  $ 8,801,080  

2019

    2,418,235  

2020

    1,770,549  

2021

    2,460,350  

2022

    846,847  

Thereafter

    9,517  
    $ 16,306,578  

 

 

 

6.

Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

   

March 31, 2017

   

September 30, 2016

 
                 

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       119,500  
                 

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 $155,000 and the balance of $403,712 on March 31, 2020

    558,712       556,212  
                 

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

    186,000       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

    192,000       180,000  
                 

Various promissory notes as of September 30, 2014, exchanged on January 1, 2015 for Convertible promissory notes payable to Banyan Capital Finance bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    23,000       23,000  

 

 

Various promissory notes as of September 30, 2014, exchanged on January 1, 2015 for Convertible promissory notes payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    160,000       160,000  
                 

Convertible promissory note payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    20,000       20,000  
                 

Various promissory notes as of September 30, 2014, exchanged on January 1, 2015 for Convertible promissory notes payable to Rachel E Shapiro Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    51,500       51,500  
                 

Various promissory notes as of September 30, 2014, exchanged on January 1, 2015 for Convertible promissory notes payable to Shapiro Family D1 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    180,000       150,000  
                 

Promissory note as of September 30, 2014, exchanged on January 1, 2015 for a Convertible Promissory Note payable to The Shapiro Family D1 Trust dated bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31,2020

    400,000       400,000  
                 

Convertible promissory note dated February 6, 2015 in the original amount of $4,000,000 bearing interest at 7%, interest payable quarterly, with a maturity date of February 5, 2021, net of discount of $498,333 and $563,333 respectively

    2,899,294       2,834,294  
                 

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

    4,666,155       4,666,155  
                 

Promissory note dated January 28, 2016 in the amount of $2,400,000 bearing interest at 4.24% with a maturity date of January 29, 2021, net of unamortized loan costs of $26,900 and $30,408 respectively.

    2,260,519       2,282,746  
                 

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

    17,472       34,423  
                 

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

    400,000       400,000  
                 

Short term advance in the amount of $150,000, non-interest bearing, payable on demand. This advance was paid in full on October 5, 2016

    -       150,000  
                 
      15,216,493       15,275,171  

Less current portion pertaining to continuing operations

    282,046       412,720  
                 

Less current portion pertaining to discontinued operations

    -       -  
                 

Less long term portion associated with discontinued operations

    -       -  
    $ 14,934,447     $ 14,862,451  

 

 

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

 

Period ended March 31,

       
         

2018

  $ 282,046  
         

2019

    478,999  
         

2020

    4,867,271  
         

2021

    9,588,177  
         

2022

    -  
         

Thereafter

    -  
         
    $ 15,216,493  

 

As of March 31, 2017, and September 30, 2016 there is an amount of accrued interest on related party notes payable of $1,347,641 and $1,137,163 respectively included in accrued expenses – related party for each year.

 

 

7.

Income Taxes

 

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

 

The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2016 based on uncertainties concerning its ability to generate taxable income in future periods. Based on current events management has re-assessed the valuation allowance and the recognition of the deferred tax assets attributable to the net operating losses and other assets. Based on the Company’s history of losses and other negative evidence, the Company has determined that the valuation allowance should be increased accordingly to offset the entire deferred tax asset.

 

As of September 30, 2016, the Company has estimated net operating losses of approximately $28,950,000. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. The net operating loss carry forwards will expire in 2022 through 2036.

 

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

 

Continuing Operations

 

3/31/2017

   

9/30/2016

 
                 

Expected provision at US statutory rate

    34.00 %     34.00 %

State income tax net of federal benefit

    3.63 %     3.63 %

Permanent and Other Differences

    -       -  

Valuation Allowance

    -37.63 %     -37.63 %
                 

Effective Income Tax Rate

    0.00 %     0.00 %

 

 

The Company files income tax returns on a consolidated basis in the United States federal jurisdiction and the State of Florida. As of September 30, 2016, the tax returns for the Company for the years ending 2012 through 2015 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. The Company and its subsidiaries are not currently under examination for any period. 

 

 

The Company has adopted a policy to recognize interest and penalties accrued related to unrecognized tax benefits in its income tax provision. The Company has evaluated its unrecognized tax benefits and determined that due to the NOL carry forwards, that no accrual of interest and penalties is required in the current period.

 

 

8.

Segment reporting

 

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

 

SEGMENT INFORMATION FOR THE SIX MONTHS ENDED MARCH 31, 2017 IS AS FOLLOWS:

 

   

Commercial Sales

   

Transportation

   

Total

 
                         

Revenue

  $ 713,217     $ 11,933,187     $ 12,646,404  

Cost of Sales

    705,502       8,561,389       9,266,891  
                         

Gross profit

    7,715       3,371,798       3,379,513  

Selling, general and administrative expenses

    332,708       2,734,469       3,067,177  

Depreciation and interest expenses

    961       1,210,939       1,211,900  
                         

Income (loss) from operations

    (325,954 )     (573,610 )     (899,564 )

Other income (expense)

    (5,756 )     334       (5,422 )
                         

Net income (loss)

  $ (331,710 )   $ (573,276 )   $ (904,986 )
                         

Total Assets

  $ 616,835     $ 12,586,341     $ 13,203,176  
                         

Reconciliation of Segment Amounts Reported to Consolidated Amounts

                       
                         

Total revenues for reportable segments

                  $ 12,646,404  

Unallocated amounts relating to corporate operations

                    -  
                         

Total consolidated revenue

                  $ 12,646,404  
                         

Net loss

                       

Total loss for reportable segments

                  $ (904,986 )

Unallocated amounts relating to corporate operations

                       

Selling, general and administrative expenses

                    (728,228 )

Stock based compensation

                    (3,100 )

Income from discontinued operations and deconsolidation of subsidiary

                    10,763,015  

Change in fair value of derivative liability

                    (739 )

Depreciation and interest expense

                    (2,325,254 )
                         

Total consolidated net loss

                  $ 6,800,708  
                         

Assets

                       

Total assets for reportable segments

                  $ 13,203,176  

Goodwill

                    4,789,772  

Corporate investments and other assets

                    294,416  
                         

Total consolidated assets

                  $ 18,287,364  

 

 

 

9.

Commitments and Contingencies

 

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

 

At March 31, 2017 Company no longer operates corporate and administrative offices in a facility that was leased by Ordnance, (a discontinued operation), from a non-affiliate in Tampa, Florida, approximating 5,000 square feet. The Tampa location was leased for a base monthly rental increased by a minimum of 2.5% each year through an expiration date of December 21, 2027. The Company is no longer a party to that lease.

 

On August 27, 2014, Bulova Technologies Machinery LLC entered into a six-year lease for a facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida for $13,500 per month, and relocated all of its operations to this facility. This facility is leased from an entity controlled by shareholders of the Company. In September 2016, the property was sold, and the lease was cancelled.

 

In January 2016, the Company through a newly created joint venture, BT-Twiss Transport LLC, acquired 100% of the outstanding common stock of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc. BT-Twiss Transport LLC leases approximately 35,000 square feet of office, warehouse and maintenance space situated on approximately 10 acres in Largo, Florida, to facilitate all corporate operations as well as the trucking business of Twiss Transport, Inc. for $30,000 per month under a 20-year lease through November 1, 2035. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida commencing with a base rental of $82,534 per month through June 30, 2016, and adjusted upward by 3% annually through June 30, 2020. Twiss Logistics, Inc. currently leases office space on a month to month basis.

 

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

 

Total rent expense for the three and six months ended March 31, 2017 and 2016, was approximately $727,372 and $327,624 respectively.

 

Bulova Technologies Group, Inc. is not currently a party to any lease commitments. BT-Twiss Transport LLC, and its wholly owned subsidiaries, as identified above, have the following commitments for minimum lease payments, under these operating leases for the next five years and thereafter as of March 31, 2017, are as follows:

 

Period ended March 31,

       
         

2018

  $ 1,403,078  
         

2019

    1,434,370  
         

2020

    1,466,601  
         

2021

    638,679  
         

2022

    360,000  
         

Thereafter

    4,989,000  
         
    $ 10,291,728  

 

 

10.

Related Party Transactions

 

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

 

The Company has received advances from major shareholders from time to time to facilitate the cash needs of the Company. These advances are generally for short term needs and do not bear interest. During 2016, Stephen L Gurba incurred an obligation of $800,000 on behalf of the Company relative to a corporate guaranty. The Company agreed to reimburse him for this expenditure. As of March 31, 2017, there is a balance outstanding to Stephen L Gurba of $106,322, and a balance outstanding to Gary Shapiro of $67,500, totaling $173,822. This amount is reported on the consolidated balance sheet as amounts due shareholders.

 

Craigmore Machinery Company is the sole source supplier for the industrial machine tools and related equipment that are sold by Bulova Technologies Machinery LLC. Craigmore is owned by Gary Shapiro, a major shareholder of the Company. As of March 31, 2017, and September 30, 2016, the Company had a balance payable to Craigmore of $2,142,055 and $1,786,436 respectively, and these balances are reflected as accounts payable – related parties for each year. During December 2016, the Company issued 67,000,000 common shares as a partial payment on these payables to Craigmore using a valuation of $.0031 per share, for a total of $207,700.

 

 

During the six months ended March 31, 2017, Bulova Technologies Compliance and Security LLC received various advances from the Company. As of March 31, 2017, there is an amount due from Compliance of $134,938. This amount is included in other current assets.

 

Included within Long Term Debt are various notes payable to Gary L Shapiro and / or entities controlled by Gary L. Shapiro and / or his family members. As of March 31, 2017, and September 30, 2016, the total amount outstanding under these related party notes is $4,973,053 and $4,907,553 respectively. These notes are secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired, subordinated to the $4,000,000 Convertible Promissory Note payable to Richard Welkowitz dated February 6, 2015.

 

On February 6, 2015, the Company issued a $4,000,000 7% Convertible Promissory Note payable to Richard Welkowitz, with interest payable quarterly and a maturity date of February 15, 2021. The holder shall have the right at any time prior to June 30, 2017 to convert into common stock of the Company up to $250,000 of the debt in increments not less than $10,000 at 65% of the average of the lowest three trading prices during 10 days prior to conversion. The balance of the debt may be converted into common stock of the Company at the following exchange rate: year 1; $.10/share: year 2, $.20/share; year 3, $.30/share; year 4, $.40/share; and year 5, $.50/share. Additionally, as part of the financing agreement, the Company issued 12,000,000 warrants to purchase the common stock of the Company at a strike price of $.02 per share for a period of ten years. The value of these warrants has been accounted for as a debt discount in the initial amount of $779,999 and is being amortized over the six-year life of the loan. This note is secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired.

 

On January 28, 2016, the Company, in conjunction with the purchase of Twiss Transport, Twiss Logistics and Twiss cold storage, issued a $4,666,155 5% Convertible Promissory Note payable to Ron Damico Jr with interest payable quarterly, as well as 3,000,000 restricted common shares, and a ten-year warrant to buy 500,000 common shares.

 

 

11.

Stockholders’ Equity

 

Common Shares

 

During October 2016, the Company issued 6,561,299 common shares as partial payment of debt

 

During October 2016, the Company issued 7,500,000 common shares due to the exercise of warrants

 

During October 2016, the Company issued 26,041,667 common shares as payment on a settlement

 

During December 2016, the Company issued 67,000,000 common shares to Craigmore, a related party, as payment on behalf of Bulova Technologies Machinery LLC for inventory.

 

During December 2016, the Company issued 27,083,571 common shares as partial payment of debt.

 

During January 2017, the Company issued 20,000,000 common shares as partial payment of debt.

 

During February 2017, the Company issued 1,000,000 common shares for services.

 

Preferred shares

 

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

 

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

 

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

 

The preferred shares have co-voting rights with the outstanding common shares, so that the common shares and the preferred shares shall vote as though, together they were a single class of stock. The shares are redeemable by the Corporation at any time, with the permission of the Preferred Shareholders, at 1/1,000,000 of a cent per preferred share. These preferred shares have no conversion rights, no dividend rights, nor any liquidation preferences. These shares are not listed on any exchange.

 

Subscription receivable

 

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

 

 

Common Stock Warrants

 

The following table represents common stock warrant activity as of and for the six months ended March 31, 2017:

 

   

Number of Shares

   

Weighted

Average

Exercise Price

   

Weighted

Average

Remaining

Contractual

Life

(years)

   

Aggregate

Intrinsic Value

 

Warrants Outstanding - October 1, 2016

    140,780,832     $ 0.04       7.8     $ -  

Granted / Vested

    -                          

Exercised

    -                          

Forfeited/expired/cancelled

    -                          
                                 

Warrants Outstanding – March 31, 2017

    140,780,832     $ 0.04       7.3     $ -  
                                 

Outstanding Exercisable – October 1, 2016

    140,780,832     $ 0.04       7.8     $ -  

Outstanding Exercisable – March 31, 2017

    140,780,832     $ 0.04       7.3     $ -  

 

 

12.

Subsequent Events

 

The Company has evaluated subsequent events through the filing of this Form 10-Q, to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included

 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

FORWARD LOOKING STATEMENTS

 

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

 

1.

Overview:

 

From January 1, 2009, Bulova Technologies Group, Inc. operated in multiple business segments. Government Contracting was focused on the production and procurement of military articles for the US Government and other Allied Governments throughout the world, and was accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (Europe) LLC. In October 2012, this segment was discontinued through the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, with any remaining assets and liabilities associated with that operation being segregated and reported as a discontinued operation. Contract Manufacturing included the production of cable assemblies and circuit boards accounted for through BT Manufacturing Company LLC, a wholly owned subsidiary that was discontinued and disposed of in March 2011.

 

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

 

2.

Results of operations:

 

For the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

 

Discontinued Operations

 

The Company is reporting results of operations of Bulova Technologies Ordnance Systems LLC (BTOS) as discontinued operations for the three months ended March 31, 2017 and 2016.

 

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.

 

 

On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

Ordnance did not have any revenue for the three months ended March 31, 2017 and 2016. 

 

Ordnance did not incur any costs of revenues for the three months ended March 31, 2017 or 2016.

 

Ordnance did not realize any gross profit for the three months ended March 31, 2017 or 2016.

 

Operating expenses and interest for the discontinued operations of Ordnance for the three months ended March 31, 2017 of $4,588 is a decrease of $462,547 when compared to operating expenses and interest for the three months ended March 31, 2016 of $467,135, and is due to the final shut down and sale of the subsidiary.

 

The sale of Ordnance is accounted for as a deconsolidation of a subsidiary, whereby the net assets are valued at the date of the deconsolidation, and a gain or loss is recognized based on the value of the assets received. As of March 29, 2017, Ordnance had no assets, and a liability of $10,800,000 from a contract dispute with the US Government. The sale of 100% of the ownership interest in Ordnance, was to an unrelated party for a nominal amount, plus the issuance of 2,000,000 common shares. As of March 29, 2017, the fair value of the common shares was $0.0018, or $3,600. The resultant gain recognized on deconsolidation is $10,796,400.

 

Continuing Operations

 

Revenue for continuing operations for the three months ended March 31, 2017 of $6,259,160 is an increase of $1,271,917 when compared to the revenue for the three months ended March 31, 2016 of $4,987,243, and is primarily due to the acquisition of the Transportation businesses in January 2016, which included only two months of operations for the three months ended March 31, 2016.

 

Cost of revenues for continuing operations for the three months ended March 31, 2017 of $4,552,222 is an increase of $939,925 when compared to the cost of revenues for the three months ended March 31, 2016 of $3,612,297, and is primarily due to the acquisition of the Transportation businesses in January 2016 as described above, and consists of the tractor, trailer and driver expenses associated with the transportation services.

 

Gross profit for continuing operations for the three months ended March 31, 2017 of $1,706,938 is an increase of $331,992 when compared to the gross profit for the three months ended March 31, 2016 of $1,374,946 for the reasons referred to above.

 

Selling and administrative expenses for continuing operations for the three months ended March 31, 2017 of $1,882,491 is an increase of $1,365,269 when compared to selling and administrative expense for the three months ended March 31, 2016 of $244,205. The Company had stock based compensation of $3,100 for the three months ended March 31, 2017 as compared to stock based compensation for the three months ended March 31, 2016 of $112,500.

 

Interest expense for continuing operations for the three months ended March 31, 2017 of $1,770,714 is an increase of $1,321,016 when compared to interest expense of $449,698 for the three months ended March 31, 2016.

 

For the six months ended March 31, 2017 compared to the six months ended March 31, 2016.

 

Discontinued Operations

 

The Company is reporting results of operations of Bulova Technologies Ordnance Systems LLC (BTOS) as discontinued operations for the six months ended March 31, 2017 and 2016.

 

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.

 

On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

Ordnance did not have any revenue for the six months ended March 31, 2017 and 2016. 

 

Ordnance did not incur any costs of revenues for the six months ended March 31, 2017 or 2016.

 

 

Ordnance did not realize any gross profit for the six months ended March 31, 2017 or 2016.

 

Operating expenses and interest for the discontinued operations of Ordnance for the six months ended March 31, 2017 of $33,385 is a decrease of $462,547 when compared to operating expenses and interest for the three months ended March 31, 2016 of $437,177, and is due to the final shut down and sale of the subsidiary.

 

The sale of Ordnance is accounted for as a deconsolidation of a subsidiary, whereby the net assets are valued at the date of the deconsolidation, and a gain or loss is recognized based on the value of the assets received. As of March 29, 2017, Ordnance had no assets, and a liability of $10,800,000 from a contract dispute with the US Government. The sale of 100% of the ownership interest in Ordnance, was to an unrelated party for a nominal amount, plus the issuance of 2,000,000 common shares. As of March 29, 2017, the fair value of the common shares was $0.0018, or $3,600. The resultant gain recognized on deconsolidation is $10,796,400.

 

Continuing Operations

 

Revenue for continuing operations for the six months ended March 31, 2017 of $12,646,404 is an increase of $7,245,892 when compared to the revenue for the six months ended March 31, 2016 of $5,400,512, and is primarily due to the acquisition of the Transportation businesses in January 2016, which included only two months of its operations for the six months ended March 31, 2016.

 

Cost of revenues for continuing operations for the six months ended March 31, 2017 of $9,266,891 is an increase of $5,361,590 when compared to the cost of revenues for the six months ended March 31, 2016 of $3,905,301, and is primarily due to the acquisition of the Transportation businesses in January 2016 as described above, and consists of the tractor, trailer and driver expenses associated with the transportation services.

 

Gross profit for continuing operations for the six months ended March 31, 2017 of $3,379,513 is an increase of $1,884,302 when compared to the gross profit for the six months ended March 31, 2016 of $1,495,211 for the reasons referred to above.

 

Selling and administrative expenses for continuing operations for the six months ended March 31, 2017 of $3,795,405 is an increase of $1,609,474 when compared to selling and administrative expense for the six months ended March 31, 2016 of $2,185,931. The Company had stock based compensation of $3,100 for the six months ended March 31, 2017 as compared to stock based compensation for the six months ended March 31, 2016 of $1,815,999.

 

Interest expense for continuing operations for the six months ended March 31, 2017 of $2,825,316 is an increase of $2,096,788 when compared to interest expense of $728,528 for the six months ended March 31, 2016.

 

 

3.

Liquidity and capital resources:

 

As of March 31, 2017, 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 March 31, 2017, we had $305,503 in cash and cash equivalents.

 

Cash flows used in operating activities was $1,298,611 for the six months ended March 31, 2017. 

 

Cash flows provided by in investing activities was $150,475 for the six months ended March 31, 2017.

 

Cash flows provided by financing activities were $803,377 for the six months ended March 31, 2017.

 

The Company’s ability to cover its operating and capital expenses, and make required debt service payments will depend primarily on its ability to generate operating cash flows.

 

The Company‘s business may not generate cash flows at sufficient levels, and it is possible that currently anticipated contract awards may not be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, refinance all or a portion of our existing debt as well as our operating needs, or obtain additional financing and we may not be able to do so on a timely basis, on satisfactory terms, or at all. Our ability to make scheduled principal payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

 

While the Company believes that anticipated revenues resulting from its expanded efforts relative to its transportation and commercial sales segments will be sufficient to bring profitability and a positive cash flow to the Company, it is uncertain that these results can be achieved. Accordingly, the Company will, in all likelihood have to raise additional capital to operate. There can be no assurance that such capital will be available when needed, or that it will be available on satisfactory terms. 

 

 

There are no off-balance sheet arrangements.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal financial officer.

 

Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at March 31, 2017 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.

 

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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

 

In July 2010, the U.S. Army terminated a contract to which Bulova Technologies Ordnance Systems LLC was a party. Concurrently, the Army demanded repayment of approximately $12,000,000 of payments provided previously to Ordnance under that contract. Ordnance appealed the termination on October 26, 2010. Ordnance challenged this decision before the Armed Services Board of Contract Appeals (“ASBCA”). In January 2014, a decision was rendered by the ASBCA finding that the contract was partially terminated correctly and partially terminated without justification. Based on this decision, which recognized both that the Army had improperly terminated a portion of the contract, converting that portion of the contract to a termination for convenience (which entitles Ordnance to payment of its termination costs by the Army) and implicitly that the Army had delayed unreasonably in supplying contractually-required documents to Ordnance. Ordnance submitted a termination for convenience claim in excess of $1,400,000 to the Army in April 2014 and a delay claim in excess of $3,200,000 in October 2014, the principle reason Ordnance has been maintained as a legal entity. The Army will likely pursue Ordnance for the balance 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.

 

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 has 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.

 

On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

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

 

Common Stock

 

 

October 2016, the Company issued 6,561,299 common shares as partial payment of debt

 

October 2016, the Company issued 7,500,000 common shares due to the exercise of warrants

 

October 2016, the Company issued 26,041,667 common shares as payment on a settlement

 

December 2016, the Company issued 67,000,000 common shares to Craigmore, a related party, as payment on behalf of Bulova Technologies Machinery LLC for inventory.

 

December 2016, the Company issued 27,083,571 common shares as partial payment of debt.

 

January 2017, the Company issued 20,000,000 common shares as partial payment of debt

 

February 2017, the Company issued 1,000,000 common shares as payment for services.

 

 

Item 6. Exhibits

 

 

(b)

Exhibits:

 

 

*

31.1

Rule 13a-14(a) Certification of Principal Executive Officer

*

31.2

Rule 13a-14(a) Certification of Principal Financial Officer

*

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

*

101.INS

XBRL Instance

*

101.SCH

XBRL Taxonomy Extension Schema

*

101.CAL

XBRL Taxonomy Extension Calculation

*

101.DEF

XBRL Taxonomy Extension Definition

*

101.LAB

XBRL Taxonomy Extension Labels

*

101.PRE

XBRL Taxonomy Extension Presentation

     

*

   To be filed or furnished by amendment

 

 

SIGNATURE

 

     In accordance with the requirements of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BULOVA TECHNOLOGIES GROUP, INC.
 

 

 

 

By

/s/ Stephen L Gurba

    Stephen L Gurba
 

 

Principal Executive Officer

 

 

 

 

By

/s/ Michael J. Perfetti

 

 

Michael J. Perfetti

 

 

Principal Financial and Accounting Officer

 

     DATED: May 22, 2017

 

 

 

31