0001437749-12-000529.txt : 20120113 0001437749-12-000529.hdr.sgml : 20120113 20120113150048 ACCESSION NUMBER: 0001437749-12-000529 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 35 CONFORMED PERIOD OF REPORT: 20110930 FILED AS OF DATE: 20120113 DATE AS OF CHANGE: 20120113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Bulova Technologies Group, Inc. CENTRAL INDEX KEY: 0000317889 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 830245581 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09358 FILM NUMBER: 12526413 BUSINESS ADDRESS: STREET 1: 19337 US HIGHWAY 19 NORTH STREET 2: SUITE 525 CITY: CLEARWATER STATE: FL ZIP: 33764 BUSINESS PHONE: (727) 536-6666 MAIL ADDRESS: STREET 1: 19337 US HIGHWAY 19 NORTH STREET 2: SUITE 525 CITY: CLEARWATER STATE: FL ZIP: 33764 FORMER COMPANY: FORMER CONFORMED NAME: 3SI HOLDINGS INC DATE OF NAME CHANGE: 19980928 FORMER COMPANY: FORMER CONFORMED NAME: TYREX OIL CO DATE OF NAME CHANGE: 19920703 10-K 1 bulova_10k-093011.htm FORM 10-K bulova_10k-093011.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-K
     
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the fiscal year ended September 30, 2011
 
OR
     
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period from                          to                       
 
Commission File Number 000-09358
 
BULOVA TECHNOLOGIES GROUP, INC
(Exact name of registrant as specified in its charter)
     
Florida
 
83-0245581
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)
 
19337 U.S. Highway 19 North, Suite 525
Clearwater, Florida 33764
(Address of principal executive offices) (Zip Code)
 
(727) 536-6666
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $.001 par value
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o  No  þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o  No  þ
 
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  þ  No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
Accelerated filer  o
 
Non-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  þ
 
As of January 6, 2012, the aggregate market value of the voting stock held by non-affiliates of the Company was $1,043,302, which excludes voting stock held by directors, executive officers and holders of 5 percent or more of the voting power of the Company’s common stock (without conceding that such persons are “affiliates” of the Company for purposes of federal securities laws). The Company has no outstanding non-voting common equity.
 
As of January 6, 2012, the Company had 565,988,243 shares of Common Stock issued and outstanding, and 2,000,000,000 shares of Preferred Stock issued and outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
There are no documents incorporated by reference  
 
2

 
  
BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011
 
TABLE OF CONTENTS
             
       
Page
             
   
PART I
       
             
Item 1.
 
Business
   
4
 
Item 2.
 
Properties
   
7
 
Item 3.
 
Legal Proceedings
   
7
 
Item 4.
 
Submission of Matters to a Vote of Security Holders
   
7
 
             
   
PART II
       
             
Item 5.
 
Market for Registrant’s Common Equity and Related Stockholder Matters
   
8
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
8
 
Item 8.
 
Consolidated Financial Statements
   
11
 
Item 9.
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
   
22
 
Item 9A.
 
Controls and Procedures
   
22
 
             
   
PART III
       
             
Item 10.
 
Directors, Executive Officers and Corporate Governance of the Registrant
   
23
 
Item 11.
 
Executive Compensation
   
24
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
25
 
Item 13.
 
Certain Relationships and Related Transactions and Director Independence
   
26
 
Item 14.
 
Principal Accountant Fees and Services
   
26
 
             
   
PART IV
       
             
Item 15.
 
Exhibits and Financial Statement Schedules
   
27
 
             
   
Signatures
   
27
 
 
  EX-31.1 Rule 13a-14(a) Certification of President and Principal Executive Officer
  EX-31.2 Rule 13a-14(a) Certification of Treasurer and Principal Financial Officer
  EX-32.1 Certification of President and Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  EX-32.2 Certification of Treasurer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
3

 
 
PART I
 
FORWARD LOOKING STATEMENTS
 
Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements,
 
Item 1 . Business
 
Bulova Technologies Group, Inc. ("BLVT" or the "Company") was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”.  During 2007, the Company divested itself of all assets and previous operations.  During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30.  On January 1, 2009 the Company acquired the stock of a private company that was under common control and began operations in Florida. The Company operates as a government contractor in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Mayo, Florida.

BT Manufacturing Company LLC – prior to discontinuance, its operations were located in Melbourne, Florida, in a 35,000 square foot facility where it assembled a wide range of printed circuit boards, including single sided through 14 layers, through-hole, surface mount and mixed.  It manufactured cable assemblies and complete systems and offered value-add services such as direct-ship to end customers, depot repair and design assistance.  In June 2010, the Company determined to dispose of BT Manufacturing Company LLC, and as such has accounted for this business segment as a discontinued operation.  Final settlement and disposition of this segment was accomplished during the quarter ended March 31, 2011.

Bulova Technologies Ordnance Systems LLC. – located on 261 acres in Mayo, Florida is 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 produces a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world.

Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Clearwater, Florida, this subsidiary was originally formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009.  The Company has since changed the name to Bulova Technologies (Europe) LLC and is developing a Mortar Exchange program to facilitate the needs of NATO member countries.  The Company has leased an apartment in Frankfurt, Germany to facilitate this program.

Bulovatech Labs, Inc., prior to its disposal was located in Clearwater, Florida.  This entity was formed to incubate, develop and license commercial applications of technologies pertinent to the defense, alternative energy and healthcare industries.  Subsequent to its formation Bulovatech Labs, Inc. made various loans and investments in both private and public companies.  On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT).

Segments
 
Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operated in two business segments, government contracting and contract manufacturing.  With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting
 
Item 1A. Risk Factors

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

Our contracts (revenue arrangements) with U.S. Government customers entail certain risks.

A decline in or a redirection of the U.S. defense budget could result in a material decrease in our sales, earnings and cash flows.
 
 
4

 

Our government contracts are primarily dependent upon the U.S. defense budget. We, as well as other defense contractors, have benefited from increased overall Department of Defense (DoD) spending over recent years, including supplemental appropriations for military operations in Iraq, Afghanistan and the Global War on Terror (GWOT).  However, future DoD budgets could be negatively affected by several factors, including events we cannot foresee, U.S. Government budget deficits, current or future economic conditions, new administration priorities, U.S. national security strategies, a change in spending priorities, the cost of sustaining U.S. military and related security operations in Iraq and Afghanistan and other locales around the world where U.S. military support may be pivotal, and other related exigencies and contingencies. While we are unable to predict the impact and outcome of these uncertainties, the effect of changes in these DoD imperatives could cause the DoD budget to remain unchanged or to decline (or even to increase). A significant decline in or redirection of U.S. military expenditures in the future could result in a decrease to our sales, earnings and cash flows. The loss or significant reduction in government funding of a large program in which we participate could also result in a decrease in our future sales, earnings and cash flows. U.S. Government contracts are also conditioned upon continuing approval by Congress of the amount of necessary spending.

Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. Given the potential for uncertainty in the DoD fiscal process as we begin a new political era in the United States, and given the dangerous and volatile global condition in which the U.S. is a primary stabilizing force, our approach to future business planning will include our best assessments and judgments on how to account for change and adapt to new conditions and circumstances.

We rely predominantly on sales to U.S. Government entities, and the loss of a significant number of our contracts would have a material adverse effect on our results of operations and cash flows.

Our sales are predominantly derived from contracts (revenue arrangements) with agencies of, and prime system contractors to, the U.S. Government. The loss of all or a substantial portion of our sales to the U.S. Government would have a material adverse effect on our results of operations and cash flows.

A substantial majority of our total sales are for products and services under contracts with various agencies and procurement offices of the DoD or with prime contractors to the DoD. Although these various agencies, procurement offices and prime contractors are subject to common budgetary pressures and other factors, our customers exercise independent purchasing decisions. Because of this concentration of contracts, if a significant number of our DoD contracts and subcontracts are simultaneously delayed or cancelled for budgetary, performance or other reasons, it would have a material adverse effect on our results of operations and cash flows.

In addition to contract cancellations and declines in agency budgets, our backlog and future financial results may be adversely affected by:

 
•curtailment of the U.S. Government’s use of technology or other services and products providers, including curtailment due to government budget reductions and related fiscal matters;
 
•developments in Iraq, Afghanistan or other geopolitical developments that affect demand for our products and services;
 
•our ability to hire and retain personnel to meet increasing demand for our services; and
 
•technological developments that impact purchasing decisions or our competitive position.

Our government contracts contain unfavorable termination provisions and are subject to audit and modification.  If a termination right is exercised by the government, it could have a material adverse effect on our business, financial condition and results of operations.

Companies engaged primarily in supplying defense-related equipment and services to U.S. Government agencies are subject to certain business risks peculiar to the defense industry. These risks include the ability of the U.S. Government to unilaterally:

 
•suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;
 
•terminate existing contracts;
 
•reduce the value of existing contracts;
 
•audit our contract-related costs and fees, including allocated indirect costs; and
 
•control and potentially prohibit the export of our products.

All of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. Our contracts with foreign governments generally contain similar provisions relating to termination at the convenience of the customer.

U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors
General routinely audit and investigate costs and performance on contracts, as well as accounting and general business practices of contractors. Based on the results of such audits, the U.S. Government may adjust contract related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some costs, including most financing costs, portions of research and development costs, and certain marketing expenses may not be reimbursable under U.S. Government contracts.
 
 
5

 
 
We may not be able to win competitively awarded contracts or receive required licenses to export our products, which would have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our government contracts are subject to competitive bidding. We obtain many of our U.S. Government contracts through a competitive bidding process. We may not be able to continue to win competitively awarded contracts. In addition, awarded contracts may not generate sales sufficient to result in our profitability.  We are also subject to risks associated with the following:

 
•the frequent need to bid on programs in advance of the completion of their design, which may result in unforeseen technological difficulties and/or cost overruns;
 
•the substantial time, effort and experience required to prepare bids and proposals for competitively awarded contracts that may not be awarded to us;
 
•design complexity and rapid technological obsolescence; and
 
•the constant need for design improvement.
 
 
In addition to these U.S. Government contract risks, we are required to obtain licenses from U.S. Government agencies to export many of our products and systems. Additionally, we are not permitted to export some of our products. Failure to receive required licenses would eliminate our ability to sell our products outside the United States.

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

At any given time, we are a defendant in various material legal proceedings and litigation matters arising in the ordinary course of business, including litigation, claims and assessments that have been asserted against acquired businesses, which we have assumed. Although we maintain insurance policies, these policies may not be adequate to protect us from all material judgments and expenses related to potential future claims and these levels of insurance may not be available in the future at economical prices or at all. A significant judgment against us, arising out of any of our current or future legal proceedings and litigation, could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Intense competition in the industries in which our businesses operate could limit our ability to attract and retain customers.

The defense industry and the other industries in which our businesses operate and the market for defense applications is highly competitive.  We expect that the DoD’s increased use of commercial off-the-shelf products and components in military equipment will continue to encourage new competitors to enter the market. We also expect that competition for original equipment manufacturing business will increase due to the continued emergence of merchant suppliers. Additionally, some of our competitors are larger than we are and have more financial and other resources than we have.

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

With our January 1 2009 acquisition of 3Si Holdings, Inc., we assumed a certain amount of indebtedness associated with the business operations acquired.  At September 30, 2011, we had approximately $7.3 million in aggregate principal amount of outstanding debt related to continuing operations.

In addition, at September 30, 2011, we had approximately $1.2 million of indebtedness to shareholders under revolving credit facilities with our Chairman and Chief Executive Officer.  

In the future, we may need to increase our borrowings, subject to limitations imposed on us by our debt agreements. Further discussion concerning the scheduled maturity of our outstanding debt, is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources
.
Our ability to make scheduled payments of principal and interest on our indebtedness and to refinance our existing debt, including the scheduled maturities of our outstanding debt, depends on our future financial performance as well as our ability to access the capital markets, and the relative attractiveness of available financing terms. We do not have complete control over our future financial performance because it is subject to economic, political, financial (including credit market conditions), competitive, regulatory and other factors affecting the defense industry, as well as commercial industries in which we operate. It is possible that in the future our business may not generate sufficient cash flow from operations to allow us to service our debt and make necessary capital expenditures. If this situation occurs, we may have to reduce costs and expenses, sell assets, restructure debt or obtain additional equity capital. We may not be able to do so in a timely manner or upon acceptable terms in accordance with the restrictions contained in our debt agreements.
 
 
6

 

Our level of indebtedness has important consequences to us. These consequences may include:
 
•requiring a substantial portion of our net cash flow from operations to be used to pay interest and principal on our debt and therefore be unavailable for other purposes, including acquisitions, capital expenditures, paying dividends to our shareholders, repurchasing shares of our common stock, research and development and other investments;
 
•limiting our ability to obtain additional financing for acquisitions, working capital, investments or other expenditures, which, in each case, may limit our ability to carry out our acquisition strategy;
 
•increasing interest expenses due to higher interest rates on our borrowings that have variable interest rates;
 
•heightening our vulnerability to downturns in our business or in the general economy and restricting us from making acquisitions, introducing new technologies and products or exploiting business opportunities; and
 
•impacting debt covenants that limit our ability to borrow additional funds, dispose of assets, or repurchase shares of our common stock. Failure to comply with such covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our outstanding indebtedness.

Environmental laws and regulations may subject us to significant liability.

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

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

Termination of our backlog of orders could negatively impact our results of operations and cash flows.

We currently have a backlog of orders, primarily under contracts with the U.S. Government.  As described above, the U.S. Government may unilaterally modify or terminate its contracts. Accordingly, most of our backlog could be modified or terminated by the U.S. Government, which would negatively impact our results of operations and cash flows.

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

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

Additionally, while we are unable to predict the impact and outcome of these economic events and the U.S. Government’s intervention to shore up financial and other industries, these events could also negatively affect future U.S. defense budgets and spending and, consequently, our financial condition, results of operations and cash flows.

Item 1B. Unresolved Staff Comments
 
None.
 
Item 2. Property
 
At September 30, 2011 the Company operated corporate and administrative offices in two leased facilities, one in Clearwater, Florida, approximating 2,400 square feet, and the other in Brandon, Florida, approximating 5,000 square feet.  The Company also leases on a month to month basis, an apartment in Frankfurt Germany to facilitate its European program.
 
Our government contracting business is located on 261 acres owned by the Company in Mayo, Florida, where we operate a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators.  There are more than 38 buildings on the property consisting of warehouses, storage, and manufacturing facilities.
 
Item 3. Legal Proceedings
 
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.
 
Item 4. Submission of Matters to a Vote of Security Holders
 
During the year ended September 30, 2011 no matters were presented to our shareholders for approval.
 
 
7

 
PART II
 
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
 
Our Common Stock was traded on the "pink sheets" operated by the National Association of Securities Dealers, Inc., under the trading symbol "TSIH" from January 2, 1987 until April 2005.  Our Common Stock traded on the Over-the-Counter Bulletin Board under the same symbol, but because of our failure to timely file reports pursuant to the Securities Exchange Act of 1934, as amended, we were delisted from trading on the OTCBB. As of the date of this report, our Common Stock is traded again on the “pink sheets” under the trading symbol “BLVT”  We intend to cause an application to be filed to allow us to return to the Bulletin Board once we become current in our filings. However, there can be no assurances that our application will be approved.
 
The range of closing bid prices shown below is as reported by these markets. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.
 

 
Quarter Ending   High     Low  
             
December 31, 2009   $ 0.70     $ 0.09  
March 31, 2010     0.25       0.06  
June 30, 2010     0.20       0.06  
September 30, 2010     0.25       0.05  
                 
December 31, 2010   $ 0.08     $ 0.03  
March 31, 2011     0.14       0.04  
June 30, 2011     0.07       0.04  
September 30, 2011     0.06       0.01  
 
The closing bid price of our Common Stock on January 6, 2012, was $.0037
 
As of January 6, 2012, there were approximately 1,500 shareholders of record of our Common Stock, not including those persons who hold their shares in “street name”.
 
We have not paid any dividends on our Common Stock since our inception. We do not foresee that we will have the ability to pay a dividend on our Common Stock in the fiscal year ended September 30, 2012.
 
As of the date of this Report, our Common Stock is traded on the “pink sheets” operated by the National Association of Securities Dealers.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD LOOKING STATEMENTS
 
Certain portions of this report, and particularly the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Notes to Consolidated Financial Statements, contain forward-looking statements which represent the Company’s expectations or beliefs concerning future events. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements.
 
Overview:
 
Starting January 1, 2009, Bulova Technologies Group, Inc. has operated in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the US. Government and other Allied Governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC., and Bulova Technologies (Europe) LLC, The Contract Manufacturing segment produced cable assemblies, circuit boards as well as complete systems, and is accounted for through BT Manufacturing Company, LLC, another of its wholly owned subsidiaries. In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. During the quarter ended March 31, 2011, the Company accomplished this disposition.  For reporting purposes, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations and has segregated its operating results and presented them separately as a discontinued operation for all periods.  With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting.
 
 
8

 
 
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.
 
Results of operations :
 
Discontinued Operations
 
For the year ended September 30, 2011 compared to the year ended September 30, 2010.
 
The results of operations of BT Manufacturing Company LLC,  reported as discontinued operations reflect a gain of $486,416 for the year ended September 30, 2011 as compared to an operational loss of $3,621,754 and an estimated loss on disposal of $3,550,000 for the year ended September 30, 2010.  The reason for the gain after the discontinuance is primarily a result of over estimating the amount of loss to be incurred.  The only items remaining to be resolved are the ultimate resolution of a small amount of payables and the debt the Company could not get resolved with the disposition.
 
Continuing Operations
 
Revenue for continuing operations for the year ended September 30, 2011 of $4,903,292 is a decrease of $6,766,570 when compared to the revenue for the year ended September 30, 2010 of $11,669,862.
 
Cost of revenues for continuing operations for the year ended September 30, 2011 of $3,136,389 is a decrease of $5,439,745 when compared to the cost of revenues for the year ended September 30, 2010 of $8,576,134.
 
Gross profit for continuing operations for the year ended September 30, 2011 of $1,766,903 is a decrease of $1,326,825 when compared to the gross profit for the year ended September 30, 2010 of $3,093,728.
 
Selling and administrative expenses for continuing operations for the year ended September 30, 2011 of $5,475,857 is an increase of $1,071,986 when compared to selling and administrative expense for the year ended September 30, 2010 of $4,403,871.
 
Stock based compensation for continuing operations for the year ended September 30, 2011 of $3,020,055 is an increase of $2,436,009 when compared to stock based compensation for the year ended September 30, 2010 of $584,046.
 
Depreciation and amortization expense for continuing operations for the year ended September 30, 2011 of $2,141,931 is an increase of $1,516,202 when compared to depreciation and amortization for the year ended September 30, 2010 of $625,729.  The increase relates primarily to the amortization of debt discounts and loan costs associated with new debt incurred during the current fiscal year
 
Interest expense for continuing operations for the year ended September 30, 2011 of $1,012,163 is an increase of $280,255 when compared to interest expense for the year ended September 30, 2010 of $731,908 and is due to increased debt incurred during the current fiscal year.
 
Other income for the year ended September 30, 2011 of $1,273,735 is primarily the result of a dispute settlement in favor of the Company in the amount of $1,272,545.
 
The Company’s net loss from continuing operations for the year ended September 30, 2011 of $8,609,368 is an increase of $5,357,483 when compared to the net loss for the year ended September 30, 2010 of $3,251,885.  This increase in net loss is due primarily to the amortization of debt discounts and stock based compensation.
 
Liquidity and capital resources:
 
As of September 30, 2011, the Company’s sources of liquidity were new debt and loans from shareholders.
 
As of September 30, 2011, we had $169,499 in cash and cash equivalents.
 
Cash flows used in operating activities was $2,355,206 for the year ended September 30, 2011.  Continuing operations used cash flows of $2,239,035, while discontinued operations used $116,171.
 
 
9

 
 
Cash flows used in investing activities was $234,180 for the year ended September 30, 2011, and was all used by continuing operations.
 
Cash flows from financing activities were $2,746,280 for the year ended September 30, 2011, and was all provided by continuing operations.  Cash flows provided by continuing operations consisted primarily of new debt in the amount of $3,581,500, and proceeds from sale of stock in the amount of $633,000.
 
The Company’s ability to cover its operating and capital expenses, and make required debt service payments will depend primarily on its ability to generate substantial 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 conditions in or affecting the U.S. defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.
 
While the Company believes that anticipated revenues resulting from additional contract awards accompanied by its efforts 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.
 
Our ability to utilize net operating loss carry forwards may be limited
 
As of September 30, 2011, the Company had net operating loss carry forwards (NOLs) of approximately $17.3 million for federal income tax purposes that will begin to expire between the years of 2019 and 2027. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize NOLs if it experiences an ownership change as defined in Section 382.  In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years.  We may be found to have experienced an ownership change under Section 382 as a result of events in the past or the issuance of shares of common stock upon a conversion of notes, or a combination thereof.  If so, the use of our NOLs, or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of our NOLs before utilization.
 
 
10

 

Item 8. Consolidated Financial Statements
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
         
   
Page
 
         
Report of Independent Registered Public Accounting Firm
   
12
 
         
Consolidated Balance Sheets as of September 30, 2011 and 2010
   
13
 
         
Consolidated Statements of Operations for the Years Ended September 30, 2011 and 2010
   
14
 
         
Consolidated Statements of Cash Flows for the Years Ended September 30, 2011 and 2010
   
15
 
         
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended September 30, 2011 and 2010
   
17
 
         
Notes to Consolidated Financial Statements
   
19
 
         

 
11

 
 
Drake & Klein CPAs
2451 McMullen Booth Rd., Suite 210
Clearwater, FL  33759
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
To the Board of Directors and Shareholders of Bulova Technologies Group, Inc.
 
We have audited the accompanying consolidated balance sheets of Bulova Technologies Group, Inc. and subsidiaries as of September 30, 2011 and 2010, and the related consolidated statements of operations, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required at this time to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bulova Technologies Group, Inc. and subsidiaries as of September 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Drake & Klein CPAs
 

Drake & Klein CPAs
Clearwater, Florida

 
January 13, 2012
 
 
12

 
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
   
September 30,
 
   
2011
   
2010
 
             
ASSETS
           
             
Cash and cash equivalents
  $ 169,499     $ 12,605  
Accounts receivable
    228,085       451,793  
Contract claim receivable
    -       -  
Inventory
    685,226       1,240,031  
Other current assets
    130,826       -  
Current assets from discontinued operations
    -       1,305,707  
                 
Total Current Assets
    1,213,636       3,010,136  
                 
Property, plant and equipment
    2,545,258       2,501,704  
Investments
    1,791,855       1,766,855  
Other assets
    107,618       548,748  
Non-current assets from discontinued operations
    -       2,594,707  
                 
    $ 5,658,367     $ 10,422,150  
                 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
               
                 
Accounts payable
  $ 203,769     $ 231,365  
Accrued expenses
    6,416,831       6,451,243  
Advance payments and billings in excess of cost
    883,504       1,451,287  
Current portion of long term debt
    5,365,245       2,941,376  
Current liabilities from discontinued operations
    1,934,588       5,277,590  
                 
Total current liabilities
    14,803,937       16,352,861  
                 
Shareholder loans and accrued interest
    185,392       4,409,469  
Long term debt, net of current portion–
    1,268,925       1,396,022  
Non-current liabilities associated with assets held for sale
    -       1,160,000  
                 
      16,258,254       23,318,352  
                 
                 
Commitments and contingencies
    -       -  
                 
Shareholders’ deficit
               
Common stock, $.001 par; authorized 1,000,000,000 shares, 438,138,975 and 81,902,405 issued and outstanding at September 30, 2011 and 2010
    438,139       81,902  
Additional paid in Capital in excess of par
    18,065,442       8,002,412  
Retained earnings (deficit)
    (29,103,468 )     (20,980,516 )
                 
      (10,599,887 )     (12,896,202 )
                 
    $ 5,658,367     $ 10,422,150  
 
See accompanying notes to consolidated financial statements.
 
 
13

 
 
Table of Contents
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Years Ended September 30,
 
   
2011
   
2010
 
             
Revenues
  $ 4,903,292     $ 11,669,862  
Cost of revenues
    3,136,389       8,576,134  
                 
Gross profit
  $ 1,766,903       3,093,728  
                 
                 
Selling and administrative expenses
    5,475,857       4,403,871  
Stock based compensation
    3,020,055       584,046  
Depreciation and amortization expense
    2,141,931       625,729  
Interest expense
    1,012,163       731,908  
                 
Total expenses
    11,650,006       6,345,554  
                 
Loss from operations
    (9,883,103 )     (3,251,826 )
                 
Other income (expense)
               
Other income (expense)
    1,273,735       (59 )
                 
Loss from continuing operations before income taxes
    (8,609,368 )     (3,251,885 )
                 
Income tax expense
    -       -  
                 
Loss from continuing operations
    (8,609,368 )     (3,251,885 )
Gain (loss) from discontinued operations, net of tax
    486,416       (7,171,754 )
                 
Net loss
  $ (8,122,952 )   $ (10,423,639 )
                 
                 
Basic and diluted net loss per common share
               
Loss from continuing operations
  $ (.033 )   $ (041 )
Loss from discontinued operations
    .002       (.091 )
Net loss
  $ (.031 )   $ (.132 )
Weighted average common shares, basic and diluted
    259,784,348       78,530,187  
 
See notes to consolidated financial statements.
 
 
14

 
 
Table of Contents
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Years Ended September 30,
 
   
2011
   
2010
 
                 
Cash flows from operating activities:
               
Net loss
 
$
(8,122,952)
   
$
(10,423,639)
 
(Gain) loss from discontinued operations
   
(486,416)
     
7,171,754
 
Loss from continuing operations
   
(8,609,368)
     
(3,251,885)
 
Adjustments to reconcile loss from continuing operations to net cash flows from operating activities:
               
Depreciation and amortization
   
2,141,931
     
625,729
 
Recognition of deferred revenue
   
-
     
(136,349)
 
Stock based compensation
   
3,020,055
     
584,046
 
Changes in operating assets and liabilities
               
Accounts receivable
   
223,708
     
61,907
 
Inventory
   
554,805
     
64,758
 
Prepaid expenses and other assets
   
721,625
     
81,814
 
Accounts payable and accrued expenses
   
275,992
     
4,615,968
 
Advance payments and billings in excess of costs
   
(567,783)
     
(2,876,659)
 
             
Net cash flows from operating activities – continuing operations
   
(2,239,035)
     
(230,671)
 
Net cash flows from operating activities – discontinued operations
   
(116,171)
     
(1,716,871)
 
Net cash flows from operating activities
   
(2,355,206)
     
(1,947,542)
 
                 
Cash flows from investing activities:
               
Cash disposed of in business disposition
   
-
     
(42,853)
 
Investments in multiple companies
   
(25,000)
     
(256,545)
 
Purchase of property and equipment
   
(209,180)
     
(4,573)
 
Net cash flows from investing activities – continuing operations
   
(234,180)
     
(303,971)
 
Net cash flows from investing activities – discontinued operations
   
-
     
(257,057)
 
Net cash flows from investing activities
   
(234,180)
     
(561,028)
 
                 
Cash flows from financing activities
               
Shareholder advances
   
667,154
     
404,126
 
Repayment of Shareholder loans
   
(1,205,736)
     
-
 
Increases in long term debt
   
3,581,500
     
2,000,000
 
Repayments of long term debt
   
(929,638)
     
(111,795)
 
Proceeds from sale of stock
   
633,000
         
                 
Net cash flows from financing activities – continuing operations
   
2,746,280
     
2,292,331
 
Net cash flows from financing activities – discontinued operations
           
159,549
 
Net cash flows from financing activities
   
2,746,280
     
2,451,880
 
                 
Increase (decrease) in cash and cash equivalents
   
156,894
     
(56,690)
 
Cash and cash equivalents, beginning
   
12,605
     
69,295
 
             
Cash and cash equivalents, ending
 
$
169,499
   
$
12,605
 
Cash paid for interest
 
$
305,312
   
$
550,161
 
Cash paid for taxes
 
$
-
   
$
-
 
 
 
15

 
 
Supplemental schedule of non-cash financing and investing activities:
 
 
·
October 16,2009, the Company issued 249,999 shares of common stock to acquire Cybercare
 
 
 
·
November 24, 2009, the Company issued 2,100,000 shares of common stock in satisfaction of debt to unrelated parties
 
 
 
·
December 16, 2009, the Company issued 2,500,000 shares of common stock to securitized debt
 
 
 
·
December 22, 2009, the Company issued warrants to acquire 2,500,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
December 22, 2009, the Company incurred debt in the amount of $1,672,451 to acquire equipment and settle a related party lease
 
 
 
·
January 20, 2010, the Company issued 2,000,000 shares to securitize debt and recorded it as stock based compensation
 
 
 
·
February 8, 2010, the Company issued 850,000 shares to various individuals as stock based compensation
 
 
 
·
June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT).
 
 
 
·
During the month of August  2010 – the Company issued 1,849,496 shares to various individuals as stock based compensation
 
 
 
·
October 29, 2010, the Company issued 45,000,000 shares of common stock for interest accrued on related party debt
 
 
 
·
November 5, 2010, the Company issued warrants to acquire 1,600,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
February 4, 2011, the Company issued warrants to acquire 1,000,000 shares of common stock in conjunction with the acquisition of new convertible debt
 
 
 
·
March 22, 2011, the Company issued warrants to acquire 1,300,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
May 25, 2011, the Company issued warrants to acquire 3,000,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
June 23, 2011, the Company issued warrants to acquire 1,800,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
July 14, 2011, the Company issued warrants to acquire 2,300,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
August 1, 2011, the Company issued warrants to acquire 3,000,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
August 9, 2011, the Company issued warrants to acquire 5,850,000 shares of common stock in conjunction with the acquisition of new debt
 
 
 
·
August 30, 2011, the Company issued warrants to acquire 2,574,000 shares of common stock in conjunction with the acquisition of new debt
 
See notes to consolidated financial statements.
 
 
16

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

   
Common Stock
                         
   
Number of Shares
   
Amount
   
Additional Paid in Capital
   
Accumulated (deficit)
   
Treasury Stock
   
Total
 
Balances, September 30, 2009
    72,355,910     $ 72,355     $ 6,407,159     $ (10,556,877 )   $ (38,184 )   $ (4,115,547 )
Issuance of shares to acquire Cybercare
    249,999       250       102,250                       102,500  
Issuance of shares in satisfaction of debt
    2,100,000       2,100       422,900                       425,000  
Issuance of shares for securitization of debt
    2,500,000       2,500       272,500                       275,000  
Issuance of warrants associated with new debt
                    256,438                       256,438  
Issuance of shares for securitization of debt
    2,000,000       2,000       338,000                       340,000  
Issuance of shares as stock based compensation
    850,000       850       92,650                       93,500  
Issuance of shares as stock based compensation
    1,849,496       1,850       148,696                       150,546  
Cancellation of treasury shares
    (3,000 )     (3 )     (38,181 )             38,184       -  
Net loss for the year ended September 30, 2010
                            (10,423,639 )             (10,423,639 )
Balances, September 30, 2010
    81,902,405     $ 81,902     $ 8,002,412     $ (20,980,516 )   $ -     $ (12,896,202 )
 
Issuance of shares for services
    2,328,156       2,328       124,310                   126,638  
Issuance of shares associated with related party debt
    51,659,181       51,659       864,590                   916,249  
Issuance of shares from sales
    5,379,385       5,380       384,620                   390,000  
Issuance of warrants and convertible debt
                    93,730                   93,730  
Issuance of shares for services
    5,490,444       5,491       453,657                   459,148  
Issuance of shares in satisfaction of debt
    6,000,000       6,000       119,000                   125,000  
Issuance of shares from sales
    13,422,222       13,422       229,578                   243,000  
Issuance of warrants and convertible debt
                    645,971                   645,971  
Issuance of shares associated with related party debt
    199,395,376       199,395       1,794,558                   1,993,953  
Issuance of shares for services
    30,766,775       30,767       1,805,502                     1,836,269  
Issuance of shares to securitize debt
    10,000,000       10,000       588,000                     598,000  
Issuance of shares associated with new debt
    9,000,000       9,000       513,000                     522,000  
Issuance of warrants and convertible debt
                    1,861,329                     1,861,329  
Issuance of shares associated with related party debt
    20,000,000       20,000       180,000                       200,000  
Issuance of shares in satisfaction of debt
    2,795,031       2,795       24,205                       27,000  
Issuance of warrants and convertible debt
                    380,980                       380,980  
Net loss for the year ended September 30, 2011
                            (8,122,952 )             (8,122,952 )
Balances, September 30, 2011     438,138,975     $ 438,139     $ 18,065,442     $ (29,103,468 )   $ -     $ (10,599,887 )
 
See notes to consolidated financial statements.
 
 
17

 

1.     Description of business:
 
Bulova Technologies Group, Inc. ("BLVT" or the "Company") was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”.  During 2007, the Company divested itself of all assets and previous operations.  During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30.  On January 1, 2009 the Company acquired the stock of a private company that was under common control and began operations in Florida. The Company operates as a government contractor in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Mayo, Florida.
 
2.     Principles of consolidation and basis of presentation:
 
These consolidated financial statements include the assets and liabilities of Bulova Technologies Group, Inc. and its subsidiaries as of September 30, 2011 and 2010.  All material intercompany transactions have been eliminated.
 
On January 1, 2009, the Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the majority stockholder of the Company in exchange for 40,000,000 shares of its common stock.  The assets and operations of 3Si have been accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (Europe) LLC (formerly Bulova Technologies Combat Systems LLC).
 
BT Manufacturing Company LLC – prior to discontinuance, its operations were located in Melbourne, Florida, in a 35,000 square foot facility where it assembled a wide range of printed circuit boards, including single sided through 14 layers, through-hole, surface mount and mixed.  It manufactured cable assemblies and complete systems and offered value-add services such as direct-ship to end customers, depot repair and design assistance.  In June 2010, the Company determined to dispose of BT Manufacturing Company LLC, and as such has accounted for this business segment as a discontinued operation.  Final settlement and disposition of this segment was accomplished during the quarter ended March 31, 2011.
 
Bulova Technologies Ordnance Systems LLC. – located on 261 acres in Mayo, Florida is 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 produces a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world.
 
Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Clearwater, Florida, this subsidiary was originally formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009.  The Company has since changed the name to Bulova Technologies (Europe) LLC and is developing a Mortar Exchange program to facilitate the needs of NATO member countries.
 
Bulovatech Labs, Inc., prior to its disposal was located in Clearwater, Florida.  This entity was formed to incubate, develop and license commercial applications of technologies pertinent to the defense, alternative energy and healthcare industries.  Subsequent to its formation Bulovatech Labs, Inc. made various loans and investments in both private and public companies.  On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT)

In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2011 and 2010, and the results of operations and cash flows for the years ended September 30, 2011 and 2010.
 
Subsequent Events
 
The Company has evaluated subsequent events through January 13, 2012 to assess the need for potential recognition or disclosure in this report.  Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.
 
Business Segments
 
Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operated in two business segments, government contracting and contract manufacturing.  With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting.
 
 
18

 
 
Use of Estimates
 
The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
 
Financial Instruments
 
The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments.  Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.
 
Fair Value Measurement
 
All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements.  This value was evaluated on a recurring basis (at least annually).  Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs were used to measure fair value.
 
Level 1: Quotes market prices in active markets for identical assets or liabilities.
 
Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.
 
Level 3: Unobservable inputs that were not corroborated by market data.
 
Cash and Cash Equivalents
 
For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk.
 
Accounts receivable
 
Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company’s business segments.  The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts.
The majority of the Company’s revenues and accounts receivable pertain to contracts with the US Government.
 
Inventory
 
Inventory is stated at the lower of cost (first-in, first-out) or market.  Market was generally considered to be net realizable value.  Inventory consisted of materials used to manufacture the Company’s products work in process and finished goods ready for sale. 
 
 
19

 
 
The breakdown of inventory at September 30, 2011 and 2010 is as follows:
 
   
September 30,
   
September 30,
 
   
2011
   
2010
 
Finished goods
  $ -     $ 14,733  
Work in process
    96,000       106,119  
Materials and supplies
    589,226       2,153,992  
                 
Total inventory
    685,226       2,274,844  
Less inventory classified as discontinued operations
    -       (1,034,813 )
                 
Total inventory of continuing operations
  $ 685,226     $ 1,240,031  
 
Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 10 to 20 years for buildings and improvements and 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.
 
Property, plant and equipment are comprised of the following at September 30, 2011 and 2010
 
   
As of September 30,
 
   
2011
   
2010
 
Land
  $ 1,225,000     $ 1,225,000  
Buildings and improvements
    1,170,194       1,170,194  
Machinery and equipment
    698,759       3,214,054  
Funiture and fixtures
    44,735       98,081  
Leasehold improvements
    -       234,489  
                 
      3,138,688       5,941,818  
Less accumulated depreciation
    (593,430 )     (1,037,123 )
                 
Net property, plant and equipment
    2,545,258       4,904,695  
Less property, plant and equipment from discontinued operations
    -       (2,402,991 )
                 
Net property, plant and equipment of continuing operations
  $ 2,545,258     $ 2,501,704  
 
Impairment of Long-Lived Assets
 
The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets’ carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.
 
Discontinued Operations
 
In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations (“ASC 205-20”), we reported the results of BT Manufacturing Company LLC, our contract manufacturing segment as a discontinued operation. The application of ASC 205-20 is discussed in Note 5 “Discontinued Operations”
 
 
20

 
 
Revenue Recognition
 
Sales revenue is generally recognized upon the shipment of product to customers or the acceptance by customers of the product. Allowances for sales returns, rebates and discounts are recorded as a component of net sales in the period the allowances were recognized. The majority of the Company’s revenue is generated under various fixed and variable price contracts as follows:
 
Revenues on fixed-price type contracts are recognized using the Percentage-Of-Completion (POC) method of accounting as specified in government contract accounting standards and the particular contract. Revenues earned on fixed-price production contracts under which units are produced and delivered in a continuous or sequential process are recognized as units are delivered based on their contractual selling prices (the “Units-of-Delivery” basis of determination). Sales and profits on each fixed-price production contract under which units are not produced in a continuous or sequential process are recorded based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract revenue, less cumulative sales recognized in prior periods (the “Cost-to-Cost” basis of determination). Under both types of basis for determining revenue earned, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year. The estimated total profit margin is evaluated on a periodic basis by management throughout the term of an individual contract to determine if the estimated total profit margin should be adjusted.
 
The Company has certain contracts with the U.S. Government that have been funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances.
 
Cost of Revenues
 
The costs of revenues include direct materials and labor costs, and indirect labor associated with production and shipping costs.
 
Advertising Costs
 
The costs of advertising are expensed as incurred and are included in the Company’s operating expenses. Advertising expenses for the years ended September 30, 2011 and 2010 were $ -0- and $29,904, respectively.
 
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 ASC 740, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.
 
Loss per Common Share
 
Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of September 30, 2011, there were 24,924,000 common stock equivalents that were dilutive but had no effect on loss per share.
 
Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents.
 
 
21

 
 
Effect of Recent Accounting Pronouncements
 
The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2011 through the date these financial statements were issued.
 
3. Contract Claim Receivable
 
The acquisition of 3Si Holdings, Inc. included the membership interest in Bulova Technologies Ordnance Systems LLC which had certain obligations to perform on then existing contracts with the US Government. Bulova Technologies Ordnance Systems, LLC had received advance funding under these contracts by the US Government through Performance-Based-Payments, a method of financing designed by the government to provide working capital to small business contractors so they can purchase the materials needed to fulfill the contract. At the time of the acquisition, the US Government had provided advance financing on the assumed contracts in the amount of $3,200,597.
 
In accordance with the provisions of Section 9-610 of the Uniform Commercial Code as enacted in the state of New York these cash funds amounting to $3,200,597 were retained by Webster Business Capital Corporation, the secured lender that had acquired the assets pursuant to the Section 9 foreclosure proceedings. The Company has performed under the contract and has filed a claim against the secured lender, Webster Bank, for the recovery of these funds.
 
The Company is attempting to resolve this matter, and expects to be successful in recovering these amounts. However, as in all matters in litigation, the outcome is not certain and amounts recovered, if any, could be materially different than expected. These amounts, which are not carried as assets on the balance sheet, will be recorded as revenue if and when such claims are settled.
 
4. Discontinued Operations
 
In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. BT Manufacturing Company LLC, a wholly owned subsidiary of the Company represented our contract manufacturing segment. As a result of the decision to sell this business segment, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations at September 30, 2011 and September 30, 2010 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.
 
In September 2010, the Company estimated a loss in the amount of $2,650,000 to be realized upon completion of the disposal of this business segment, as well as an estimated operating loss of $900,000 to be incurred during the phase-out period. During March 2011, the Company finalized its negotiations relative to the disposition of the assets of this operation with an effective date of December 31, 2010. As a part of this settlement, the buyer that acquired the operations has provided an earn out agreement to Sovereign Bank to assist in the payment of the remaining obligation on the note payable to them. This balance is carried as a liability from discontinued operations on our consolidated balance sheet.
 
 
22

 
 
Summarized operating resultes for discontinued operations is as follows:
 
 
   
Year Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Revenue
  $ 254,004     $ 1,932,807  
Cost of Sales
    (152,403 )     (1,734,195 )
Gross profit
    101,601       198,612  
Operating expenses
    (542,802 )     (3,892,724 )
Other income
    927,617       72,358  
Income (loss) from operations
    486,416       (3,621,754 )
Loss on disposal of discontinued operations
    -       (3,550,000 )
Income tax benefit
    -       -  
Income (loss) from discontinued operations, net of tax
  $ 486,416     $ (7,171,754 )
 
The income (loss) from discontinued operations above do not include any income tax effect as the Company was not in a taxable position due to its continued losses and a full valuation allowance
 
Summary of assets and liabilities of discontinued operations is as follows:
 
   
September 30,
 
      2011       2010  
                 
Accounts receivable
  $ -     $ 232,630  
Inventory
    -       1,034,813  
Other current assets
    -       38,264  
Total current assets from discontinued operations
    -       1,305,707  
Property plant and equipment - net
    -       2,402,991  
Other assets
    -       191,716  
Total assets from discontinued operations
  $ -     $ 3,900,414  
                 
                 
Accounts payable and accrued expenses
  $ 273,705     $ 1,055,590  
Current portion of long-term debt
    1,660,883       672,000  
Provision for loss on disposal of business segment
    -       3,550,000  
Total current liabilities associated with discontinued operations
    1,934,588       5,277,590  
Long term debt, net of current portion
    -       1,160,000  
Total liabilities associated with discontinued operations
  $ 1,934,588     $ 6,437,590  
 
5. Investments
 
Investments represent various loans and investments in both private and public companies through Bulovatech Labs. Loans are reported at cost and equity investments are valued at fair value. Equity investments are primarily in technology development companies and are not held for resale.
 
On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT).
 
The Level 2 Equity Investments represent the carrying value of the stock received in the transaction. The Level 2 loans represent the amount of the loan receivable from Bulovatech Labs.
 
23

 
 
At September 30, 2011 the cost and fair values of the investments were as follows:
 
Investments
                       
                         
   
Cost
   
Gain
   
Loss
   
Fair Value
 
Level 1 Equity Investments
  $ -     $ -     $ -     $ -  
Level 2 Equity Investments
    184,500       -       -       184,500  
Level 2 Loans
    1,607,355       -       -       1,607,355  
                                 
    $ 1,791,855     $ -     $ -     $ 1,791,855  
 
6. Advance Payments and Billings in Excess of Cost
 
Advance payments and billings in excess of costs represents liabilities of the Company associated with contracts in process as of the balance sheet date, and consist of the following:
 
Advance Payments - The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances. On January 1, 2009, with the acquisition of 3Si Holdings, Inc. and membership interest of Bulova Technologies Ordnance Systems LLC, the Company assumed certain obligations to perform contracts with the US Government with an outstanding balance at the date of acquisition of $3,200,597. The balances outstanding as of September 30, 2011 and September 30, 2010 are $ 883,504 and $1,041,516 respectively.
 
Billings in Excess of Cost plus Earnings on Uncompleted Contracts – The Company accounts for fixed-price production contracts under which units are not produced in a continuous or sequential process based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract price. The Company did not have any billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of September 2011 and September 30, 2010.
 
At September 30, 2011, the Company has included in accrued expenses an amount of approximately $6,100,000 relative to a contract performance dispute with the US Government. The Company has filed claims pursuant to this dispute with the government to recover all or substantially all of the expenses provided for in this accrual. There can be no assurance with respect to the outcome of this litigation.
 
 
24

 
 
7. Long Term Debt
 
Long term debt consisted of the following at:
 
   
September 30, 2011
   
September 30, 2010
 
Promissory note payable to Webster Business Capital Corporation, dated December 16, 2008, in the original amount of $825,000 payable in full on June 30, 2009, with interest at 4.5% annually. This note was not repaid and is still outstanding as of the issuance of these financial statements. This note is secured by a lien on real estate, timber rights and certain equipment with net carrying values of approximately $2,000,000 at June 30, 2011.
  $ 825,000     $ 825,000  
                 
Mortgage payable to Bank of America, dated March 10, 2006, in the original amount of $840,000 payable in monthly fixed principal payments of $4,667 plus variable interest at 2.5% plus the banks index rate, secured by real estate with carrying values of approximately $1,500,000 at June 30, 2011. Final payment is due on March 10, 2021.
    532,000       588,000  
                 
Note payable to Harold L. and Helene M. McCray, dated October 19, 2005, in the original amount of $1,070.000, bearing interest at 8% per annum, payable in monthly installments of $10,225.48 secured by land and buildings with carrying values of approximately $1,500,000 at June 30, 2011. Final payment is due on December 1, 2020.
    799,283       860,365  
                 
Note payable to Edward Viola, dated October 19, 2005, in the original amount of $80,000, bearing interest at 8% per annum, payable in monthly installments of $764.52. Final payment is due on December 1, 2020.
    59,463       64,032  
                 
Note payable to PNL Newco II, LLC, dated December 22, 2009, in the original amount of $2,000,000, payable in monthly fixed principal payments of $42,000 plus variable interest at LIBOR plus 5% with a minimum rate of 5.5%, secured by an earn out agreement with the party that acquired all of the personal property of the discontinued operations of BT Manufacturing Company, LLC. Final balloon payment is due December 22, 2011.
    1,660,883       1,832,000  
                 
Note payable to GovFunding, LLC, dated December 22, 2009,in the amount of $2,000,000 bearing interest at 22%., secured by a lock box agreement tied to the proceeds of a single government contract with a carrying value of approximately $2,800,000 at June 30, 2011 On February 4, 2011, this note was refinanced in a new convertible note.
    -       2,000,000  
                 
Convertible Note payable to GovFunding, LLC, dated February 4, 2011, in the amount of $3,158,000 net of debt discount of $202,354, bearing interest at 18%., secured by a lock box agreement tied to the proceeds of a single government contract with a carrying value of approximately $2,600,000 at June 30, 2011. Final payment is due January 31, 2012.
    2,955,646       -  
                 
Convertible Note payable to Asher Enterprises, Inc. dated February 28, 2011 in the original amount of $75,000, current balance net of debt discount of $6,141, bearing interest at 8%. with a maturity date of December 2, 2011.
    41,859       -  
                 
Insurance premium financing agreement with First Insurance Funding Corp. dated January 21, 2011 in the original amount of $75,043, bearing interest at 9.9%, payable in monthly installments of $8,693 per month, final payment due October 21, 2011
    7,924       -  
                 
Note payable to The David J Keehan Trust dated June 30, 2011 in the amount of $500,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.
    500,000       -  
                 
Convertible Note payable to Asher Enterprises, Inc. dated March 31, 2011 in the amount of $42,500 net of debt discount of $5,703, bearing interest at 8%. with a maturity date of January 4, 2012.
    36,797       -  
                 
Convertible Note payable to Asher Enterprises, Inc. dated May 26, 2011 in the amount of $35,000 net of debt discount of $7,459, bearing interest at 8%. with a maturity date of March 1, 2012.
    27,541       -  
 
 
25

 
 
Convertible Note payable to GovFunding, LLC dated May 25, 2011 in the amount of $220,000 net of debt discount of $73,427, bearing interest at 18%. with a maturity date of April 30, 2012.
    146,573       -  
                 
Convertible Note payable to GovFunding LLC dated June 23, 2011 in the amount of $133,000 net of debt discount of $54,054, bearing interest at 18%. with a maturity date of June 30, 2012.
    78,946       -  
                 
Note payable to GovFunding LLC dated July 14, 2011 in the amount of $105,000, bearing interest at 18%. with a maturity date of August 1, 2011.
    105,000       -  
                 
Insurance premium financing agreement with Flat Iron Capital dated July 26, 2011 in the original amount of $14,224, bearing interest at 7.4%, payable in monthly installments of $1,251 per month, final payment due May 26, 2012
    9,737       -  
                 
Convertible Note payable to GovFunding LLC dated August 1, 2011 in the amount of $128,000 net of debt discount of $65,792, bearing interest at 18%. with a maturity date of April 30, 2012.
    62,208       -  
                 
Convertible Note payable to GovFunding LLC dated August 9, 2011 in the amount of $250,000 net of debt discount of $137,135, bearing interest at 18%. with a maturity date of June 30, 2012.
    112,865       -  
                 
Convertible Note payable to Asher Enterprises, Inc. dated August 19, 2011 in the original amount of $43,000 net of debt discount of $16,416, bearing interest at 8%. with a maturity date of May 22, 2012
    26,584       -  
                 
Note payable to The David J Keehan Trust dated July 11, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.
    100,000       -  
                 
Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.
    100,000       -  
                 
Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $50,000, bearing interest at the rate of 10% payable interest only through maturity. Final payment due September 30, 2011.
    50,000       -  
                 
Convertible Note payable to GovFunding LLC dated August 30, 2011 in the amount of $110,000 net of debt discount of $53,256, bearing interest at 18%. with a maturity date of June 30, 2012.
    56,744       -  
      8,295,053       6,169,398  
Less current portion pertaining to continuing operations
    (5,365,245 )     (2,941,376 )
Less current portion associated with discontinued operations
    (1,660,883 )     (672,000 )
Less long term portion associated with discontinued operations
    -       (1,160,000 )
    $ 1,268,925     $ 1,396,022  
 
 
26

 
 
Principal maturities of long term debt for the next five years and thereafter as of September 30, 2011 are as follows:
 
Period ended September 30,
     
2012
  $ 7,026,128
2013
    127,286
2014
    133,203
2015
    139,610
2016
    146,550
Thereafter
    722,276
    $ 8,295,053
 
8.    Income Taxes
 
Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry forwards. The Company evaluates temporary differences resulting from the different treatment of items for tax and accounting purposes and records deferred tax assets and liabilities on the balance sheet using the tax rates expected when the temporary differences reverse.
 
On January 1 2009 the Company acquired for stock of 3SI Holdings in exchange for shares of the Company's common stock.  For income tax purposes this transaction has been treated as a tax free reorganization under the provisions of Section 368A of the Internal Revenue Code.  3SI Holdings had various net operating loss carry over’s. Because of the change in ownership of 3SI Holdings, the net operating loss carry-overs will transfer to the Company. The transferred net operating losses are subject to an annual limitation under the provisions of Section 382 of the Internal Revenue Code to offset future taxable income of the Company.  These net operating loss carry-overs are included in the deferred tax asset of the Company.
 
The income tax provision consists of the following for the years ending September 30 2011 and 2010:
 
   
9/30/2011
   
9/30/2010
 
Current
           
Federal
  $ -     $ -  
State
    -       -  
                 
Deferred - Continuing Operations
               
Federal
    -       -  
State
    -       -  
    $ -     $ -  
                 
Deferred - Discontinued Operations
               
Federal
    -       -  
State
    -       -  
    $ -     $ -  
 
The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2008 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, 2011 the Company had federal net operating loss carry forwards of approximately $17,344,000 and Florida net operating loss carry forwards of approximately $17,245,000. The federal net operating loss carry forwards will expire in 2020 through 2030 and state net operating loss carry forwards that will expire in 2028 through 2030.
 
 
27

 
 
The components of deferred tax assets and liabilities as of September 30, 2011 and 2010 is as follows:
 
   
Current
   
Non-Current
 
             
Deferred tax assets:            
NOL and contribution carry forwards
  $ -     $ 6,522,961  
Property & Equipment
            (33,936 )
Accrued Comp
    225,780          
Accrued Interest
    -          
Accrued Marketing Fee
    18,254          
Share based Compensation
    -       1,548,695  
Estimated Loss - Segment Disposal
    -          
      244,034       8,037,721  
                 
Valuation Allowance
    (244,034 )     (8,037,721 )
Net Deferred Tax Asset
  $ -     $ -  
                 
Deferred tax (liabilities):                
      -       -  
Net Deferred Tax Liability
    -       -  
                 
                 
Net deferred tax asset (liability)   $ -     $ -  
Less: current net deferred tax asset (liability)
    -       -  
Net non-current deferred tax asset (liability)
  $ -     $ -  
                 
The change in the valuation allowance is as follow:                
                 
September 30, 2010
  $ 5,704,014          
September 30, 2011
    8,281,754          
                 
Increase in valuation allowance
  $ 2,577,740          
 
The Company increased the valuation allowance by approximately $2,578,000 in the period ending September 30, 2011. The valuation allowance was increased  to offset the current year net operating loss and other identified tax assets.
 
The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:
 
Continuing Operations
 
9/30/2011
   
9/30/2010
 
             
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, 2011, the tax returns for the Company for the years ending 2009 through 2011 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. In addition the tax returns related to 3SI remain open to federal and state examination for the periods ending June 2005 through 2008. 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.
 
 
28

 
 
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.
 
U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors General routinely audit and investigate costs and performance on contracts, as well as accounting and general business practices of contractors  Based on the results of such audits, the U.S. Government may adjust contract related costs and fees, including allocated indirect costs.  None of the Company’s contracts are currently the subject of any government audits.
 
The Company operates corporate and administrative offices in two leased facilities, one in Clearwater, Florida, and the other in Brandon, Florida, and an apartment in Frankfurt, Germany on a month to month basis.  During the quarter ended September 30, 2011, the Clearwater location was leased for a monthly base rent of $6,717, increased by 3% each year through the expiration date of April 30, 2012  The Brandon location is leased for a base monthly rental of $17,275 increased by a minimum of 2.5% each year through the expiration date of December 21, 2027.
 
Total rent expense for the year ended September 30, 2011, was approximately $338,519.
 
The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of September 30, 2011 are as follows:
 
Period ended September 30
     
2012
  $ 254,319  
2013
    207,300  
2014
    207,300  
2015
    207,300  
2016
    207,300  
Thereafter
    2,332,125  
    $ 3,415,644  
 
10.   Related Party Transactions
 
The following related party transactions not disclosed elsewhere in this document are as follows:
 
Bulova Technologies Ordnance Systems LLC had a Marketing Firm Agreement with Ramal Management Co. (“Ramal”), a related company owned by Stephen L Gurba, our Chief Executive Officer which expired on January 1, 2011.  Pursuant to the terms of the agreement, Ramal received a marketing fee for services of 4% of net sales generated through contracts of Bulova Technologies Ordnance Systems LLC.  Subsequent to the expiration of this marketing agreement, the marketing fee of 4% is now paid to Stephen Gurba as a part of his compensation package.
 
The Company has received loans from the two (2) major shareholders totaling $1,627,385 and $4,409,469 as of June 30, 2011 and September 30, 2010 respectively.  These loans are supported by notes bearing interest at 5% annually with restricted conversion features and no repayment schedule.  The notes were originally issued for $1,500,000 for each shareholder then subsequently raised to a maximum of $5,000,000.  All shareholder debt is accruing interest. During the year ended September 30, 2011, the Company issued 226,054,557 shares of common stock in exchange for $2,565,202 of shareholder loans.
 
On October 29, 2010 the Company issued each of the two major shareholders 22,500,000 shares of stock as payment on interest accrued to date and for an estimate of the interest that will accrue on their respective loans through 2011.
 
On July 12, 2011 John Stanton resigned as Chairman, Director and Chief Financial Officer of the Company.  Stephen L. Gurba was appointed Chairman of the Board and Frank W. Barker, Jr. was appointed Chief Financial Officer.
 
 
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11.  Stockholders’ Equity
 
On October 16, 2009, the Company issued 249,999 shares of common stock as satisfaction of the reorganization plan of Cybercare, a company acquired in Bulovatech Labs
 
On November 24, 2009, the Company issued 2,100,000 shares of common stock as satisfaction of debt to unrelated parties in the amount of $425,000.
 
On December 16, 2009 the Company authorized the issuance of 2,500,000 shares to securitize its new debt with Sovereign Bank.
 
On December 22, 2009 the Company issued debt in the amount of $2,000,000 with detachable warrants.  These warrants provide for the purchase of 2,500,000 shares of the Company’s stock at $.10 per share for a period of 5 years.  The warrants have a fair value of $256,438 which is accounted for as a discount to the debt and amortized over the life of the debt which is 7 months.
 
On January 20, 2010 the Company issued 2,000,000 shares to the Company’s Chief Executive Officer as stock based compensation for the purpose of securitizing debt.
 
On February 8, 2010 the Company issued 850,000 shares to various individuals as stock based compensation
 
During August 2010, the Company issued 1,849,496 shares to various individuals as stock based compensation
 
On October 7, 2010,the Company issued 6,659,181 shares in exchange for related party debt
 
On October 8, 2010 the Company issued 932,284 shares for services in the amount of $42,885.
 
On October 29, 2010 the Company issued 1,395,872 shares for services in the amount of $83,752.
 
On October 29, 2010 the Company sold 5,379,385 shares to various individuals
 
On October 29, 2010 the Company issued 22,500,000 shares to its Chief Executive Officer in payment of past due interest accrued on a convertible promissory note over the balance of 2010 and prospectively through 2011.
 
On October 29, 2010 the Company issued 22,500,000 shares to its Chairman of the Board in payment of past due interest accrued on a convertible promissory note over the balance of 2010 and prospectively through 2011.
 
On November 5, 2010 the Company issued debt in the amount of $250,000 with detachable warrants.  These warrants provide for the purchase of 1,600,000 shares of the Company’s stock at $.05 per share for a period of 5 years.  The warrants had a fair value of $77,160 at the time of issuance, which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.
 
On January 27, 2011 the Company sold 2,400,000 shares to various individuals.
 
On January 27, 2011 the Company issued 2,550,000 shares for services in the amount of $204,000.
 
On February 2, 2011 the Company issued 480,000 shares for services in the amount of $43,200.
 
On February 3, 2011 the Company amended its articles of incorporation to increase its authorized shares to 1,000,000,000 (one billion)
 
On February 4, 2011 the Company issued convertible debt in the amount of $3,158,000 with detachable warrants.  These warrants provide for the purchase of 1,000,000 shares of the Company’s stock at $.08 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $593,783 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.
 
On February 25, 2011 the Company issued 1,124,444 shares for services and a negotiated settlement in the amount of $98,389.
 
On February 25, 2011 the Company sold 1,188,889 shares to various individuals.
 
On February 28, 2011, the Company issued convertible debt in the amount of $75,000.  The beneficial conversion feature of this note had a fair value of $27,000 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months
 
On March 15, 2011 the Company issued 1,086,000 shares for services in the amount of $92,310.
 
 
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On March 15, 2011 the Company sold 6,500,000 shares to various individuals.
 
On March 22, 2011 the Company issued debt in the amount of $65,000 with detachable warrants.  These warrants provide for the purchase of 1,300,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $41,759 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is one month.
 
On March 31, 2011 the Company sold 3,333,333 shares to an individual
 
On March 31, 2011 the Company issued 6,000,000 shares to satisfy a debt in the amount of $125,000.
 
On March 31, 2011, the Company issued convertible debt in the amount of $42,500.  The beneficial conversion feature of this note had a fair value of $16,575 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months
 
On April 4, 2011, the Company issued 746,775 shares to various individuals for service
 
On April 27, 2011 the Company issued 195,895,376 shares as a conversion of related party debt in the amount of $1,958,953
 
On April 27, 2011 the Company issued 30,020,000 shares various individuals for services.
 
On April 28, 2011 the Company issued 10,000,000 shares as stock based compensation for the purpose of securitizing debt.
 
On May 9, 2011 the Company issued 3,500,000 shares as a conversion of related party debt in the amount of $35,000.
 
On May 16, 2011 the Company issued 9,000,000 shares in conjunction with new debt
 
On May 25, 2011 the Company issued convertible debt in the amount of $220,000 with detachable warrants.  These warrants provide for the purchase of 3,000,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $117,552 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.
 
On May 26, 2011, the Company issued convertible debt in the amount of $35,000.  The beneficial conversion feature of this note had a fair value of $16,650 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months
 
On June 23, 2011 the Company issued convertible debt in the amount of $133,000 with detachable warrants.  These warrants provide for the purchase of 1,800,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $73,584 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 12 months.
 
On July 14, 2011 the Company issued debt in the amount of $105,000 with detachable warrants.  These warrants provide for the purchase of 2,300,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $54,861 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 1 month.
 
On August 1, 2011 the Company issued convertible debt in the amount of $128,000 with detachable warrants.  These warrants provide for the purchase of 3,000,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $84,325 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 9 months.
 
On August 9, 2011 the Company issued convertible debt in the amount of $250,000 with detachable warrants.  These warrants provide for the purchase of 5,850,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $163,161 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 12 months.
 
On August 9, 2011 the Company issued debt in the amount of $110,000 with detachable warrants.  These warrants provide for the purchase of 2,574,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $59,282 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.
 
On August 19, 2011, the Company issued convertible debt in the amount of $43,000.  The beneficial conversion feature of this note had a fair value of $19,350 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months
 
 
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On August 19, 2011 the Company issued 20,000,000 shares as a conversion of related party debt in the amount of $200,000.
 
On September 7, 2011 the Company issued 652,174 shares as a conversion of debt in the amount of $12,000
 
On September 23, 2011 the Company issued 2,142,857 shares as a conversion of debt in the amount of $15,000
 
12. Subsequent Events
 
Subsequent to September 30, 2011, the Company issued additional shares of its common stock as follows:
 
October 2011 –8,896,394 shares issued as conversion of debt
 
October 2011 – 500,000 shares issued for services
 
November 2011 – 10,268,342 shares issued to various individuals
 
November 2011 – 5,352,941 shares issued as conversion of debt
 
December 2011 – 12,831,591 shares issued as conversion of debt
 
December 2011 – 90,000,000 shares issued as conversion of related party debt
 
In November 2011, the Company amended its Articles of Incorporation to create a class of Preferred Stock with an authorization of 2,000,000,000 shares, all of which were issued to our Chairman of the Board.
 
In November 2011, the Company increased its authorization of common shares to 2,000,000,000.
 
 
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
There were no changes in, or disagreements with, accountants on accounting or financial disclosure as defined by Item 304 of Regulation S-K.
 
Item 9A. 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 effective at September 30, 2011 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 continues to enhance its internal controls over financial reporting, primarily by evaluating and enhancing process and control documentation. Management discusses with and discloses these matters to the Board of Directors and the Company’s auditors.
 
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
 
The executive officers, directors of the Company, and their ages and positions, are as follows as of September 30, 2011:
 
Name
 
Age
 
Office Held
Stephen L. Gurba
 
55
 
Chairman of the Board. Chief Executive Officer and President
         
Frank W. Barker, Jr.
  56  
Chief Financial Officer
         
Craig S. Schnee
 
63
 
Secretary and General Counsel
 
Our bylaws provide that the number of members of our board of directors shall have up to (5) members. Our current number of directors is one (2).  Directors are elected by the shareholders at the annual meeting and serve until their successors are duly elected and qualified. Directors are elected for a term of one (1) year. All of our officers serve at the discretion of our board of directors
 
The following is a biographical summary of the business experience of our directors and executive officers:
 
Stephen L. Gurba is our Chairman of the Board, Chief Executive Officer and President.  Mr. Gurba has over 34 years of experience in the design, development, production, and management of complex systems for the defense ammunition industry as well as commercial products.  His experience has included responsibility for companies with sales of up to $300 million annually and employing as many as 2000 employees.  Mr. Gurba has previously held the position of Senior Vice President of General Defense Corporation Vice President of Marketing for Olin Ordnance, President of Valentec International Corporation, President and CEO of National Manufacturing Corporation, and President, CEO, and Owner of Bulova Technologies, LLC.  Mr. Gurba received a BA in Mathematics & Natural Science in 1978, an MBA in Executive Management and Administration in 1988, and a PhD in Business administration in 1991.
 
Frank W. Barker, Jr. is our Treasurer and Chief Financial Officer.  Mr. Barker is a Certified Public Accountant licensed to practice in the State of Florida, and has been in practice since 1978. He was co-founder of the accounting firm of Peel, Barker, Schatzel and Wells, PA in 1979, and went on to form the consulting firm of Frank W. Barker, Jr., CPA in 1993. Mr. Barker has over 33 years of experience covering a broad spectrum of industries, and has served in various capacities as an independent consultant as well as a chief financial officer for both public and private companies. Mr. Barker received a Bachelor of Arts in Accounting and Finance from the University of South Florida, Tampa in 1978.
 
Craig S Schnee is Secretary and General Counsel.  Mr. Schnee has served as a Senior Executive for Mr. Gurba's Management Team for more than two decades, holding the positions of Secretary, General Counsel, Senior Vice President of the Parent Company, and President of several operating subsidiaries engaged in Defense, Commercial and Retail Sales, respectively. He holds a J.D. from the University of Virginia and an MBA from the University of Pennsylvania.
 
 
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Audit Committee
 
The Company’s Board of Directors currently serves as the Audit Committee.
 
Code of Ethics:
 
The Company has adopted a Code of Ethics which applies to all directors, officers and employees of the Company and its subsidiaries including the Principal Executive Officer and the Principal Financial Officer, which meets the requirement of a “code of ethics” as defined in Item 406 of Regulation S-K. The Company will provide a copy of the Code to shareholders pursuant to any request directed to the Company’s principal offices.
 
Item 11. Executive Compensation
 
The following summary compensation table sets forth certain information concerning compensation paid to our Principal Financial Officer and Principal Executive Officer.
 
SUMMARY COMPENSATION TABLE - YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
Name and Principal Position
 
Year
 
Salary
   
Bonus
   
Stock
Awards (3)
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
   
Change in Pension Value
and non Qualified Deferred
Compensation Earnings
   
All Other
Compensation
   
Total
 
                                                     
Stephen L. Gurba, Chairman of the Board,
 
2010
  $ 367,362     $ -     $ 2,000     $ -     $ -     $ -     $ -     $ 369,362  
Chief Executive Officer and President (1)
 
2011
  $ 507,416     $ -     $ 10,000     $ -     $ -     $ -     $ -     $ 517,416  
                                                                     
Craig S Schnee
 
2010
  $ 220,000     $ -     $ -     $ -     $ -     $ -     $ -     $ 220,000  
Secretary and General Counsel
 
2011
  $ 220,000     $ -     $ 7,000     $ -     $ -     $ -     $ -     $ 227,000  
                                                                     
Frank W. Barker, Jr,
 
2010
  $ 89,850     $ -     $ -     $ -     $ -     $ -     $ -     $ 89,850  
Chief Financial Officer (1)
 
2011
  $ 156,000     $ -     $ 12,000     $ -     $ -     $ -     $ -     $ 168,000  
                                                                     
John D. Stanton, Chairman of the Board
 
2010
  $ 240,000     $ -     $ -     $ -     $ -     $ -     $ -     $ 240,000  
and Principal Financial Officer (1) (2)
 
2011
  $ 180,000     $ -     $ -     $ -     $ -     $ -     $ -     $ 180,000  
                                                                     
        $ 1,980,628     $ -     $ 31,000     $ -     $ -     $ -     $ -     $ 2,011,628  
 
(1) – On July 12, 2011 John Stanton resigned as Chairman, Director and Chief Financial Officer of the Company.  Stephen L. Gurba was appointed Chairman of the Board and Frank W. Barker, Jr. was appointed Chief Financial Officer at that time..
 
(2) – Mr. Stanton’s compensation was accrued at $20,000 per month; none of the compensation for 2011 and 2010 has been paid.
 
(3) – Common stock awards are stated at the amount reported as taxable income to the recipients using a par value of $.001 per share as these stock certificates bare a restrictive legend limiting their marketability.
 
 
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The following table summarizes that the Company does not have any Outstanding Equity Awards at fiscal year ended September 30, 2011
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
   
OPTION AWARDS
   
STOCK AWARDS
 
Name
 
Number of
Securities
Underlying
Unexercised
Options, #
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options, #
Unexercisable
   
Equity Incentive
Plan Awards:
Number of Securities
Underlying Unexercised
Unearned Options (#)
   
Option
Exercise
Price ($)
   
Option
Expiration
Date
   
Number of
Shares or Units
of Stock That
Have Not
Vested (#)
   
Market Value of Shares
or Units of Stock That
Have Not Vested ($)
   
Equity Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other Rights
That Have Not
Vested (#)
   
Equity Incentive Plan
Awards: Marketor
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested (#)
 
                                                       
Stephen L. Gurba
    -       -       -     $ -       -       -     $ -       -       -  
Frank W. Barker, Jr.
    -       -       -     $ -       -       -     $ -       -       -  
John D. Stanton
    -       -       -     $ -       -       -     $ -       -       -  
 
 
DIRECTOR COMPENSATION
 
Name and Principal Position
 
Fees Earned or Paid
in Cash ($)
   
Stock
Awards
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
   
Change in Pension Value
and non Qualified Deferred
Compensation Earnings ($)
   
All Other
Compensation ($)
   
Total