10-Q 1 blvt20130630_10q.htm FORM 10-Q blvt20130630_10q.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

 

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

 

                 For the quarterly period ended June 30, 2013

 

OR

 

 

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

 

                 For the transition period from                                             to                                            

 

Commission File Number 000-09358

 

BULOVA TECHNOLOGIES GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida
(State or other jurisdiction of
incorporation or organization)

 

83-0245581
(IRS Employer
Identification No.)

 

2409 N Falkenburg Road
Tampa, Florida 33619

(Address of principal executive offices) (Zip Code)

 

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

 

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

 

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

 

Common Stock, $.001 par value

(Title of Class)

 

 

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

 

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

 

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

Large accelerated filer  

Accelerated filer    

Non-accelerated filer  
(Do not check if a smaller reporting company)

Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

 

As of August 2, 2013 the Company had 4,000,263,290 shares of Common Stock and 4,000,000,000 shares of Preferred Stock issued and outstanding.

 



 

 
 

 

 

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2013

 

TABLE OF CONTENTS

 

 

   

Page

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

3

Item 2.

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

22
Item 4.

Controls and Procedures

24
     
 

PART II – OTHER INFORMATION

 
Item 6.

Exhibits

24
     
 

Signatures

25

 

 

 
2

 

 

 

PART I

 

Item 1. Consolidated Financial Statements

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

June 30,

         
   

2013

   

September 30,

 
   

(unaudited)

   

2012

 

ASSETS

               
                 

Cash and equivalents

  $ 43,117     $ 29,034  

Accounts receivable

    -       112,005  

Contract claim receivable

    -       0  

Inventory

    -       1,023,980  

Other current assets

    153,621       48,334  
                 

Total current assets

    196,738       1,213,353  
                 

Property, plant and equipment

    24,633       2,474,928  

Other assets

    240,617       27,461  
                 

Total Assets

  $ 461,988     $ 3,715,742  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               
                 

Accounts payable

  $ 397,463     $ 423,102  

Accrued expenses

    355,707       7,202,905  

Advance payments and billings in excess of cost

    -       666,490  

Current portion of long term debt

    2,181,152       8,386,675  

Current liabilities associated with discontinued operations

    -       2,011,937  
                 

Total current liabilities

    2,934,322       18,691,109  
                 

Shareholder loans and accrued interest

    202,035       185,195  

Long term debt, net of current portion

    138,441       1,144,074  
                 

Total liabilities

    3,274,798       20,020,378  
                 

Commitments and contingencies

    -       -  
                 

Shareholders’ deficit:

               

Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 and 2,000,000,000 issued and outstanding at June 30, 2013 and September 30, 2012

    40,000       20,000  

Common stock, $.001 par; authorized 5,000,000,000 shares; 3,850,263,290 and 1,658,327,831 issued and outstanding at June 30, 2013 and September 30, 2012

    3,850,263       1,658,328  

Subscription receivable - warrants

    (66,000 )        

Additional paid in capital in excess of par

    19,079,929       20,223,672  

Retained deficit

    (25,717,002 )     (38,206,636 )
                 

Total shareholders’ deficit

    (2,812,810 )     (16,304,636 )
                 

Total liabilities and shareholders’ equity

  $ 461,988     $ 3,715,742  

 

See accompanying notes to consolidated financial statements.

 

 
3

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2013

   

2012

   

2013

   

2012

 
                                 

Revenues

  $ 2,248,509     $ 616,871     $ 5,225,297     $ 2,538,613  

Cost of revenues

    1,802,895       404,509       4,428,434       1,564,947  
                                 

Gross profit

    445,614       212,362       796,863       973,666  
                                 

Selling and administrative expense

    512,631       852,256       1,694,063       2,781,151  

Stock based compensation

    -       738,255       273,182       2,265,939  

Depreciation and amortization expense

    160,930       489,308       453,648       1,676,065  

Interest expense

    28,743       89,084       513,330       728,892  
                                 

Total expenses

    702,304       2,168,903       2,934,223       7,452,047  
                                 

Income (loss) from operations

    (256,690 )     (1,956,541 )     (2,137,360 )     (6,478,381 )
                                 

Other income (expense)

                               

Other income

    -       106       13,317,570       525,264  
                                 

Income (loss) from continuing operations before income taxes

    (256,690 )     (1,956,435 )     11,180,210       (5,953,117 )
                                 

Income tax expense

    -       -       -       -  
                                 

Income (loss) from continuing operations

    (256,690 )     (1,956,435 )     11,180,210       (5,953,117 )

Income (loss) from discontinued operations, net of tax

    -       (22,837 )     1,309,424       (68,511 )
                                 

Net Income (loss)

  $ (256,690 )   $ (1,979,272 )   $ 12,489,634     $ (6,021,628 )
                                 

Basic net income (loss) per share

                               

Income (loss) from continuing operations

  $ -     $ (.002 )   $ .003     $ (.008 )

Income (loss) from discontinued operations

    -       -       -       -  

Net income (loss) per share

  $ -     $ (.002 )   $ .003     $ (.008 )
                                 

Diluted net income (loss) per share

                               

Income (loss)from continuing operations

  $ -     $ (.002 )   $ .0017     $ (.008 )

Income (loss) from discontinued operations

    -       -       -       -  

Net income (loss) per share

  $ -     $ (.002 )   $ .0017     $ (.008 )
                                 

Weighted average shares outstanding

                               

Basic

    3,705,263,290       966,737,758       3,371,969,803       756,066,512  

Diluted

    3,705,263,290       966,737,758       6,522,336,001       756,066,512  

 

See accompanying notes to consolidated financial statements.

 

 
4

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)

 

 

   

2013

   

2012

 

Cash flows from operating activities:

               

Net Income (loss)

  $ 12,489,634     $ (6,021,628 )

(Income) Loss from discontinued operations

    (1,309,424 )     68,511  

Income (Loss) from continuing operations

    11,180,210       (5,953,117 )

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

               

Depreciation and amortization

    453,648       1,676,065  

Stock based payment for services

    273,182       2,265,939  

Gain from change in accounting estimate

    (6,071,700 )     -  

(Gain) from settlement of debt

    (356,765 )     -  

Loss on sale of note receivable

    156,710       -  

(Gain) on sale of assets

    (6,153,177 )     -  

Changes in operating assets and liabilities

               

Accounts receivable

    112,005       85,201  

Inventory

    55,404       (275,424 )

Prepaid expenses and other assets

    (105,287 )     79,810  

Accounts payable and accrued expenses

    (143,483 )     271,608  

Advance payments and billings in excess of costs

    -       (370,980 )
                 

Net cash flows from operating activities – continuing operations

    (599,253 )     (2,220,898 )

Net cash flows from operating activities – discontinued operations

    (1,309,424 )     -  

Net cash flows from operating activities

    (1,908,677 )     (2,220,898 )
                 

Cash flows from investing activities:

               

Proceeds from sale of assets

    9,547,580       -  

Proceeds from sale of note receivable

    250,000       -  

Purchase of property and equipment

    -       (1,000 )

Principle collections on note receivable

    3,831       -  
                 

Net cash flows from investing activities – continuing operations

    9,801,411       (1,000 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    9,801,411       (1,000 )
                 

Cash flows from financing activities:

               

Proceeds from sale of preferred shares

    20,000       -  

Repayment of Shareholder loans

    (244,488 )     (146,063 )

Increases in long term debt

    1,623,673       2,355,000  

Repayment of long term debt

    (9,277,836 )     (122,575 )
                 

Net cash flows from financing activities – continuing operations

    (7,878,651 )     2,086,362  

Net cash flows from financing activities – discontinued operations

    -       -  

Net cash flows from financing activities

    (7,878,651 )     2,086,362  
                 

Increase (decrease) in cash and cash equivalents

    14,083       (135,536 )

Cash and cash equivalents, beginning

    29,034       169,499  
                 

Cash and cash equivalents, ending

  $ 43,117     $ 33,963  
                 

Cash paid for interest

  $ 2,476     $ 72,094  
                 

Cash paid for taxes

  $ -     $ -  

 

 

 
5

 

 

Supplemental schedule of non-cash financing and investing activities:

 

 

October 2011, the Company issued 8,896,394 common shares issued as conversion of debt

  

 

October 2011, the Company issued 500,000 common shares for services

  

 

November 2011, the Company issued 10,268,342 common shares to various individuals

 

 

November 2011, the Company issued 5,352,941 common shares as conversion of debt

 

 

December 2011, the Company issued 12,831,591 common shares as conversion of debt

 

 

December 2011, the Company issued 90,000,000 common shares and authorized the issuance of an additional 60,000,000 shares as conversion of related party debt.

 

 

October 2012, the Company issued 150,807,692 common shares for services

 

 

October 2012, the Company issued 988,923,568 common shares as conversion of debt

 

 

November 2012, the Company issued 151,500,000 common shares for services

 

 

November 2012, the Company issued 183,029,958 common shares as conversion of debt

 

 

December 2012, the Company issued 99,249,999 common shares for services

 

 

January 2013, the Company issued 247,424,242 common shares as conversion of debt

 

 

January 2013, the Company issued 30,000,000 common shares associated with new debt

 

 

January 2013, the Company issued 41,000,000 common shares for services

 

 

February 2013, the Company issued 150,000,000 common shares as conversion of debt

 

 

February 2013, the Company issued 4,260,102,343 warrants associated with new debt

 

 

February 2013, the Company issued 4,117,996,250 warrants in exchange for subscription notes receivable of $66,000

 

 

February 2013, the Company issued 1,073,000,000 warrants for services

 

 

June 2013, the Company issued 150,000,000 common shares as conversion of debt

 

See accompanying notes to consolidated financial statements.

 

 

 
6

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
NINE MONTHS ENDED JUNE30, 2013
(Unaudited)

   

Preferred Stock

   

Common Stock

                                 
   

Number of Shares

   

Amount

   

Number of Shares

   

Amount

   

Subscription Receivable

   

Additional Paid in Capital

   

Accumulated (deficit)

   

Total

 

Balances, October 1, 2012

    2,000,000,000     $ 20,000       1,658,327,831     $ 1,658,328             $ 20,223,672     $ (38,206,636 )   $ (16,304,636 )

Issuance of shares in satisfaction of debt

                    1,171,953,526       1,171,954               (966,954 )             205,000  

Issuance of convertible debt

                                            31,500               31,500  

Issuance of shares for services

                    401,557,691       401,557               (243,875 )             157,682  

Issuance of Warrants

                                    (66,000 )     66,000               -  

Sale of Stock

    2,000,000,000       20,000                                               20,000  

Issuance of shares in satisfaction of debt

                    547,424,242       547,424               (506,924 )             40,500  

Issuance of shares for new debt

                    30,000,000       30,000               (24,000 )             6,000  

Issuance of shares for services

                    41,000,000       41,000               (32,800 )             8,200  

Issuance of warrants associated with new debt

                                            426,010               426,010  

Issuance of warrants for services

                                            107,300               107,300  

Net income for the nine months ended June 30, 2013

                                                    12,489,634       12,489,634  

Balances, June 30, 2013

    4,000,000,000     $ 40,000       3,850,263,290     $ 3,850,263     $ (66,000 )   $ 19,079,929     $ (25,717,002 )   $ (2,812,810 )

 

See accompanying notes to consolidated financial statements.

 

 
7

 

 

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)

 

 

1.     Description of business:

 

Bulova Technologies Group, Inc. ("BLVT" or the "Company") was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”. During 2007, the Company divested itself of all assets and previous operations.  During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30. On January 1, 2009 the Company acquired the stock of 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 Tampa, Florida and its operating facilities were located in Mayo, Florida until the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in October 2012.

 

2.     Principles of consolidation and basis of presentation:

  

The accompanying consolidated balance sheet as of September 30, 2012, has been derived from audited financial statements.  

 

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

 

On January 1, 2009, the Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the 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 board products. 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. In October 2012, the Company sold substantially all of the assets of this subsidiary to an unrelated party. 

 

Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Tampa, 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. It markets the Mortar Exchange program, which it helped develop, to facilitate the needs of NATO members and allied countries. It leases office space in Frankfurt, Germany to promote this program. The subsidiary is also looking to take advantage of the offset opportunities around the world through a joint venture, focusing, initially in the UAE and is administering non-standard ammo and non-standard weapons contracts through its blanket purchase agreements  with the U.S. Government 

 

Bulova Technologies Machinery LLC – formed in July of 2013, Bulova Technologies Machinery LLC represents the Company’s entree into the machine tool business, and will import industrial machine tools and related equipment from recognized international sources, and establish a Distributor / Dealer network throughout the United States and Canada. This subsidiary has not yet begun its operations as of the date of this report.

 

 
8

 

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2013 and the results of operations and cash flows for the three and nine months ended June 30, 2013 and 2012. 

 

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

Subsequent Events

 

The Company has evaluated subsequent events through August 7, 2013, 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

 

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. 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.

 

 

 
9

 

 

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.

 

The breakdown of inventory at June 30, 2013 and September 30, 2012 is as follows:

 

   

June 30,

   

September 30,

 
   

2013

   

2012

 

Finished goods

  $ -     $ -  

Work in process

    -       -  

Materials and supplies

    -       1,023,980  
                 

Total inventory

    -       1,023,980  

Less inventory classified as discontinued operations

    -       -  
                 

Total inventory of continuing operations

  $ -     $ 1,023,980  

 

 

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 June 30, 2013 and September 30, 2012

 

   

June 30,

   

September 30,

 
   

2013

   

2012

 

Land

  $ -     $ 1,225,000  

Buildings and improvements

    -       1,170,194  

Machinery and equipment

    -       752,554  

Funiture, fixtures and leasehold improvements

    45,735       45,735  
                 
      45,735       3,193,483  

Less accumulated depreciation

    (21,102 )     (718,555 )
                 

Net Property, plant and equipment

    24,633       2,474,928  

Less property, plant and equipment from discontinued operations

    -       -  
                 

Net property, plant and equipment of continuing operations

  $ 24,633     $ 2,474,928  

 

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”

 

 

 
10

 

 

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 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.

 

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. The Company did not incur any advertising expenses for the three and nine months ended June 30, 2013 and 2012. 

 

Shipping Costs 

 

The Company includes shipping costs in cost of goods sold.

 

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 FIN 48, 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 June 30, 2013, there were 9,671,098,593 common stock equivalents that were anti-dilutive and were not included in the calculaton for the three months ended June 30, 2013. 

 

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 June 30, 2013 through the date these financial statements were issued.

 

 

 
11

 

 

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 fully performed all of its obligations under these contracts.

 

On October 24, 2012, as a part of the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the Company negotiated and settled this dispute with Webster Business Credit Corporation.  

 

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 June 30 31, 2013 and September 30, 2012 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 PNL Newco II LLC to assist in the payment of the remaining obligation on the note payable to them.  

 

In October of 2012, the Company negotiated a settlement with PNL Newco II LLC for complete satisfaction of this debt for $625,000. The transaction resulted in a gain of $1,309,424.

 

 

 
12

 

 

Summarized operating resultes for discontinued operations is as follows:

 

   

NIne Months Ended

 
   

June 30,

 
   

2013

   

2012

 
                 

Revenue

  $ -     $ -  

Cost of Sales

    -       -  

Gross profit

    -       -  

Operating expenses

    -       (68,511 )

Other

    1,309,424       -  

Gain (Loss) to be recognized from discontinued operations

    1,309,424       (68,511 )

Income tax benefit

    -       -  

Gain (loss) to be recognized from discontinued operations, net of tax

  $ 1,309,424     $ (68,511 )

 

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

 

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

 

   

June 30,

   

September 30,

 
   

2013

   

2012

 
                 

Accounts receivable

  $ -     $ -  

Inventory

    -       -  

Other current assets

    -       -  

Total current assets held for sale

    -       -  

Property plant and equipment - net

    -       -  

Other assets

    -       -  

Total assets from discontinued operations

  $ -     $ -  
                 
                 

Accounts payable and accrued expenses

  $ -     $ 351,054  

Current portion of long-term debt

    -       1,660,883  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities associated with discontinued operations

    -       2,011,937  

Long term debt, net of current portion

    -       -  

Total liabilities associated with discontinued operations

  $ -     $ 2,011,937  

 

 

5.     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 had certain contracts with the U.S. Government that were 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 June 30, 2013 and September 30, 2012 are $0 and $666,490 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 June 30, 2013 and September 30, 2012.

 

 

 
13

 

 

6.     Long Term Debt 

 

Long term debt consisted of the following at:   

 

   

June 30, 2013

   

September 30, 2012

 

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 September 30, 2012.

  $ -     $ 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 September 30, 2012. Final payment is due on March 10, 2021.

    -       480,666  
                 

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 September 30, 2012. Final payment is due on December 1, 2020.

    -       776,116  
                 

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.

    -       54,880  
                 

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  
                 

Convertible Note payable to GovFunding, LLC, dated February 4, 2011, in the amount of $3,158,000 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 September 30, 2012. Final payment is due January 31, 2012.

    -       3,158,000  
                 

Convertible Note payable to GovFunding, LLC dated May 25, 2011 in the amount of $220,000, bearing interest at 18%. with a maturity date of April 30, 2012.

    -       220,000  
                 

Convertible Note payable to GovFunding LLC dated June 23, 2011 in the amount of $133,000, bearing interest at 18%. with a maturity date of June 30, 2012.

    -       133,000  

 

 

 
14

 

 

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  
                 

Convertible Note payable to GovFunding LLC dated August 1, 2011 in the amount of $128,000, bearing interest at 18%. with a maturity date of April 30, 2012.

    -       128,000  
                 

Convertible Note payable to GovFunding LLC dated August 9, 2011 in the amount of $250,000, bearing interest at 18%. with a maturity date of June 30, 2012.

    -       250,000  
                 

Convertible Note payable to GovFunding LLC dated August 30, 2011 in the amount of $110,000, bearing interest at 18%. with a maturity date of June 30, 2012.

    -       110,000  
                 

Convertible Note payable to Asher Enterprises, Inc. dated May 15, 2012 in the original amount of $22,500 net of discount of $0, bearing interest at 8% with a maturity date of February 21, 2013.

    -       25,032  
                 

Convertible Note payable to Asher Enterprises, Inc. dated July 16, 2012 in the original amount of $14,500 , bearing interest at 8% with a maturity date of April 19, 2013.

    14,500       21,888  
                 

Note payable to Keehan Trust Funding, LLC dated January 19, 2012 in the amount of $1,550,000, bearing interest at the rate of 10%. This note is secured by the assignment of the proceeds of a government contract with a value in excess of $4,700,000 as of December 31, 2012. Final payment due upon delivery

    700,000       1,550,000  
                 

Note payable to GovFunding LLC dated March 30, 2012 in the amount of $100,000, bearing interest at 18%. Final payment was due June 1, 2012

    -       100,000  
                 

Note payable to Keehan Trust Funding, LLC dated March 30, 2012 with a maximum amount of $653,731, bearing interest as the rate of 10%. This note is secured by the assignment of the proceeds of certain government contracts with a value in excess of $850,000 as of December 31, 2012

    -       285,000  
                 

Convertible Note payable to an individual dated May 4, 2012 in the amount of $25,000, bearing interest at 18% with a maturity date of July 31, 2012.

    -       25,000  
                 

Convertible Note payable to an individual dated May 4, 2012 in the amount of $25,000, bearing interest at 18% with a maturity date of July 31, 2012.

    -       25,000  
                 

Note payable to GovFunding LLC dated May 11, 2012 in the amount of $200,000, bearing interest at 12% with a maturity date of July 31, 2012

    -       200,000  

 

 

 
15

 

 

Convertible Note payable to an individual dated May 25, 2012 in the amount of $100,000, bearing interest at 18% with a maturity date of August 25, 2012.

    -       100,000  
                 

Note payable to Keehan Trust Funding, LLC, dated June 1, 2012 in the amount of $700,000, bearing interest at the rate of 10%. This note is secured by the assignment of the proceeds of certain government contracts with a value in excess of $2,400,000 as of December 31, 2012. Final payment due November 30, 2012.

    -       700,000  
                 

Convertible Note payable to an individual dated August 15, 2012 in the amount of $5,000 net of discount of $568, bearing interest at 18% with a maturity date of October 31, 2012.

    -       4,432  
                 

Convertible Note payable to an individual dated May 25, 2012 in the amount of $10,000 net of discount of $1,265, bearing interest at 18% with a maturity date of October 31, 2012.

    -       8,735  
                 

Note payable to GovFunding LLC dated August 7, 2012 in the amount of $245,000, bearing interest at 18%. Final payment due October 15, 2012

    -       245,000  
                 

Convertible Note payable to Asher Enterprises, Inc. dated November 7, 2012 in the original amount of $37,500 net of discount of $2,455, bearing interest at 8% with a maturity date of August 9, 2013.

    35,045       -  
                 

Note payable to GovFunding, LLC dated October 24, 2012 in the amount of $553,763, bearing interest at 8%, payable quarterly principal of $69,220.38 plus accrued interest, with a maturity of October 24, 2014.

    553,763       -  
                 

Note payable to an individual dated December 21, 2012 in the amount of $60,000, bearing interest at 8%, with a maturity date of February 1, 2013

    60,000       -  
                 

Note payable to NFC III LLC dated February 25, 2013 in the amount of $400,000 bearing interest at 10%, with a maturity date of November 25, 2013

    400,000       -  
                 

Note payable to an individual dated January 25, 2013 in the amount of $50,000 bearing interest at 7%, with a maturity of June 30, 2013

    50,000       -  
                 

Note payable to GovFunding LLC dated January 1, 2013 in the amount of $30,000, bearing interest at 8%, with a maturity date of December 31, 2013.

    30,000       -  
                 

Note payable to GovFunding LLC dated January 1, 2013 in the amount of $24,552 bearing interest at 8%, with a maturity of December 31, 2013

    24,552       -  
                 

Convertible Note payable to Asher Enterprises, Inc. dated February 28, 2013 in the original amount of $32,500 net of discount of $9,839, bearing interest at 8% with a maturity date of December 4, 2013

    22,661       -  
                 

Note payable to an individual dated April 30, 2013 in the amount of $60,000 non-interest bearing with a maturity of December 31, 2013

    60,000       -  

 

 

 
16

 

 

Note payable to an individual dated April 30, 2013 in the amount of $26,269, non-interest bearing with a maturity of July 31, 2013

    26,269       -  
                 

Note payable to Yellowstone Capital dated June 19, 2013 in the amount of $30,000 with no stipulated interest rate, payable through 80 daily payments of $500.

    30,000       -  
                 

Revolving credit line payable to NFC III LLC bearing interest at 10%, payable on demand

    312,803       -  
      2,319,593       11,191,632  

Less current portion pertaining to continuing operations

    (2,181,152 )     (8,386,675 )

Less current portion associated with discontinued operations

    -       (1,660,883 )
    $ 138,441     $ 1,144,074  

 

Principal maturities of long term debt for the next five years and thereafter as of June 30, 2013 are as follows:  

 

Period ended June 30,

       

2014

  $ 2,181,152  

2015

    138,441  

2016

    -  
2017     -  

2018

    -  

Thereafter

    -  
    $ 2,319,593  

 

7.     Income Taxes 

 

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

 

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 tax free reorganization under the provisions of Section 368A of the Internal Revenue Code. 3SI Holdings had various net operating loss carryovers. Because of the change in ownership of 3SI Holdings, the net operating loss 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.  

 

The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2012 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, 2012 the Company had federal net operating loss carry forwards of approximately $24,160,000 and Florida net operating loss carry forwards of approximately $23,926,000. The federal net operating loss carry forwards will expire in 2020 through 2032 and state net operating loss carry forwards that will expire in 2028 through 2032.  

 

 
17

 

 

 

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

 

Continuing Operations

 

6/30/13

   

9/30/2012

 
                 

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

  $ -     $ -  

 

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, 2012, the tax returns for the Company for the years ending 2009 through 2011remain 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.

 

8.     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.

 

At June 30, 2013 the Company operated corporate and administrative offices in a facility leased from a non-affiliate in Tampa, Florida, approximating 5,000 square feet. The Tampa location is leased for a base monthly rental increased by a minimum of 2.5% each year through the expiration date of December 21, 2027. The Company also leases on a month to month basis, an office in Frankfurt, Germany to facilitate its European program.

 

Total rent expense for the nine months ended June 30, 2013, was approximately $211,000.

 

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of June 30, 2013 are as follows:  

 

Period ended June 30,

       

2014

  $ 254,096  

2015

    260,448  

2016

    266,959  

2017

    273,633  

2018

    280,474  

Thereafter

    3,099,663  
    $ 4,435,273  
 

 

 
18

 

 

9.     Related Party Transactions 

 

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

 

The Company has received loans from two (2) major shareholders which were 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 them to a maximum of $5,000,000. All shareholder interest is accruing interest. As of June 30, 2013, the only remaining debt associated with these notes is a balance due to Stephen L. Gurba and Evelyn R. Gurba in the amount of $202,035.

 

10.   Stockholders’ Equity  

 

Common Shares

 

In October 2011, the Company issued 8,896,394 shares issued as conversion of debt in the amount of $48,000 

 

In October 2011, the Company issued 500,000 shares issued for services 

 

In November 2011, the Company issued 10,268,342 shares to various individuals 

 

In November 2011, the Company issued 5,352,941 shares as conversion of debt in the amount of $27,000 

 

In December 2011, the Company issued 12,831,591 shares as conversion of debt in the amount of $50,000 

 

In December 2011, the Company issued 90,000,000 shares and authorized an additional 60,000,000 shares issued as conversion of related party debt in the amount of $682,500 

 

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.

 

In January 2012, the Company issued 151,500,000 common shares for services

 

In February 2012 , the Company issued 750,000 common shares for services

 

In February 2012, the Company issued 95,000,000 common shares in association with new debt

 

In February 2012, the Company issued 2,400,000 common shares as conversion of debt in the amount of $12,000.

 

In February 2012 the Company issued ten year warrants to purchase 100,000,000 shares of its common stock with an exercise price of $.05 per share.

 

In March 2012, the Company issued 3,142,857 common shares as conversion of debt in the amount of $11,000.

 

In April 2012, the Company issued 3,461,538 common shares as conversion of debt in the amount of $9,000.

 

In April 2012 – the Company filed and S-8 registration for 80,000,000 common shares to be issued as the Company determines pursuant to the terms of its 2012 Equity Incentive Plan 

 

In April 2012, the Company issued 20,000,000 common shares for services

 

In May 2012, the Company issued ten year warrants to purchase 170,000,000 shares of its common stock with an exercise price of $.01 per share.

 

In May 2012, the Company issued 25,412,821 common shares for services

 

In May 2012, the Company issued 6,360,000 common shares as conversion of debt in the amount of $11,000.

 

In May 2012, the Company issued 35,000,000 common shares in association with new debt

 

In June 2012, the Company issued 75,000,000 common shares in association with new debt

 

 

 
19

 

 

In June 2012, the Company issued 14,084,507 common shares as conversion of debt in the amount of $10,000.

 

In June 2012, the Company issued 30,878,777 common shares for services

 

In June 2012, the Company issued 21,830,956 common shares as conversion of related party debt

 

July 2012, the Company issued 168,289,206 common shares in association with new debt 

 

August 2012, the Company issued 18,380,744 common shares as payment for interest on debt 

 

August 2012, the Company issued 193,846,154 common shares in association with new debt 

 

September 2012, the Company issued 177,002,028 common shares in association with new debt 

 

On September 26, 2012 the Company amended its Articles of Incorporation to increase its authorization to issue its common shares to 5,000,000,000 at a par value of $.001, and to increase its authorization to issue its preferred shares to 5,000,000,000 at a par value of $.00001. 

 

October 2012, the Company issued 150,807,692 common shares for services 

 

October 2012, the Company issued 988,923,568 common shares as conversion of debt 

 

November 2012, the Company issued 151,500,000 common shares for services 

 

November 2012, the Company issued 183,029,958 common shares as conversion of debt 

 

December 2012, the Company issued 99,249,999 common shares for services

 

January 2013 – the Company issued 247,424,242 shares of its common stock as conversion of debt 

 

January 2013 – the Company issued 30,000,000 shares of its common stock in association with new debt 

 

January 2013 – the Company issued 41,000,000 common shares for services 

 

February 2013 – the Company issued 150,000,000 common shares of its common stock as conversion of debt 

 

June 2013 – the Company issued 150,000,000 common shares of its common stock as conversion of debt  

 

Preferred Shares 

 

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

 

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

 

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

 

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

 

11.   Change in Accounting Estimate 

 

The Company had previously included an amount of $6,071,700 in accrued expenses that was a result of percentage of completion accounting on a single contract that was terminated by the US Government before completion. The Company is disputing the termination, and has maintained this balance in anticipation of a resolution. In October 2012, The Company sold substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the subsidiary that was a party to that specific contract, and has determined that the contract will never be completed. Therefore, the Company is recognizing in other income the full amount previously deferred. This change is a change in the way the revenue on this contract was estimated to be realized.

 

 
20

 

 

12.   Subsequent Event 

 

On July 11, 2013 the Company issued 150,000,000 common shares in association with current debt

 

 
21

 

 

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

 

 

FORWARD LOOKING STATEMENTS

  

 

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

 

1 .    Overview:

 

Since 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 Governmentsthroughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies OrdnanceSystems LLC., and Bulova Technologies (Europe) LLC. The Contract Manufacturing segment produced cable assemblies, circuit boards as well as complete systems, and was 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. 

 

Application of critical accounting policies:

 

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

 

2 .    Results of operations:

 

For the three months ended June 30, 2013 compared to the three months ended June 30, 2012. 

 

Discontinued Operations

 

There is no activity to report from discontinued operations for the three months ended June 30, 2013. The only activity for the three months ended June 30, 2012 was the accrual of interest expense on this debt in the amount of $22,837. 

 

Continuing Operations

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the contracts that were being performed at the Mayo, Florida location are in the process of being novated to the buyer of the facilities. This process conveys the rights to the contracts conveyed, and also releases our Company from the obligation to perform. Until this process is completed, the contracts remain in the name of Bulova Technologies Ordnance Systems LLC, and our Company is still legally responsible for their fulfillment. As a consequence, the Company is subcontracting the performance to the buyer of the facilities, and passing all monies on those specific contracts straight through. The effect on our financial statements will be to show revenue with very little gross profit as pertaining only to those contracts that are in the process of novation.

 

The Company’s revenue for continuing operations for the three months ended June 30, 2013 of $2,248,509 is an increase of $1,631,638 when compared to the Company’s revenue for the three months ended June 30, 2012 of $616,871.

 

The Company’s cost of sales for continuing operations for the three months ended June 30, 2013 of $1,802,895 is an increase of $1,398,386 when compared to the Company’s cost of sales for the three months ended June 30, 2012 of $404,509.

 

The Company’s gross profit for continuing operations for the three months ended June 30, 2013 of $445,614 is an incecrease of $233,252 when compared to the Company’s gross profit for the three months ended June 30, 2012 of $212,362.

 

 
22

 

 

 

The Company’s operating expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization, and interest for the three months ended June 30, 2013 of $702,304 is a decrease of $698,344 when compared to the same expenses of $1,400,648 for the three months ended June 30, 2012. This is due primarily to the elimination of costs associated with the operations that have been sold.

 

The Company’s did not have any stock based compensation for continuing operations for the three months ended June 30, 2013  as compared to the stock based compensation of $738,255 for the three months ended June 30, 2012.

 

The Company did not have any other income for the three months ended June 30, 2013 as compared to other income of $106 for the three months ended June 30, 2012.

 

The Company’s net loss  from continuing operations for the three months ended June 30, 2013 of $256,690 is a decrease of $1,699,745 when compared to the Company’s net loss for continuing operations for the three months ended June 30, 2012 of $1,956,435.

 

For the nine months ended June 30, 2013 compared to the nine months ended June 30, 2012. 

 

Discontinued Operations

 

The only activity to reflect as results from our discontinued operations for the nine months ended June 30, 2013 is the final settlement of the note balance that carried over after the disposition of all of the assets of BT Manufacturing Company LLC. The Company negotiated a substantial discount of approximately $1.3 million in settling almost $2 million of guaranteed debt and accrued interest. The only activity for the nine months ended June 30, 2012 was the accrual of interest expense on this debt in the amount of $68,511.

 

Continuing Operations

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the contracts that were being performed at the Mayo, Florida location are in the process of being novated to the buyer of the facilities. This process conveys the rights to the contracts conveyed, and also releases our Company from the obligation to perform. Until this process is completed, the contracts remain in the name of Bulova Technologies Ordnance Systems LLC, and our Company is still legally responsible for their fulfillment. As a consequence, the Company is subcontracting the performance to the buyer of the facilities, and passing all monies on those specific contracts straight through. The effect on our financial statements will be to show revenue with very little gross profit as pertaining only to those contracts that are in the process of novation.

 

The Company’s revenue for continuing operations for the nine months ended June 30, 2013 of $5,225,297 is an increase of $2,686,684 when compared to the Company’s revenue for the nine months ended June 30, 2012 of $2,538,613.

 

The Company’s cost of sales for continuing operations for the nine months ended June 30, 2013 of $4,428,434 is an increase of $2,863,487 when compared to the Company’s cost of sales for the nine months ended June 30, 2012 of $1,564,947.

 

The Company’s gross profit for continuing operations for the nine months ended June 30, 2013 of $796,863 is a decrease of $176,803 when compared to the Company’s gross profit for the nine months ended June 30, 2012 of $973,666.

 

The Company’s operating expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization, and interest for the nine months ended June 30, 2013 of $2,661,041 is a decrease of $2,525,067 when compared to the same expenses of $5,186,108 for the nine months ended June 30, 2012. This is due primarily to the elimination of costs associated with the operations that have been sold. T

 

The Company’s stock based compensation for continuing operations for the nine months ended June 30, 2013 was $273,182, and represents a decrease of $1,992,757 as compared to the stock based compensation of $2,265,939 for the nine months ended June 30, 2012.

 

The Company’s other income for the nine months ended June 30, 2013 of $13,317,570 represents an increase of $12,792,306 as compared to $525,264 for the nine months ended June 30, 2012. This increase is comprised of two major events. The first is the net gain on the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in the amount of $7,257,719 which occurred on October 24, 2012. With the sale on October 24, 2012, the Company has determined effective January 1, 2013 to recognize $6,071,700 as a change in accounting estimate. This amount was derived through a percentage of completion accounting on a contract prior to it being terminated by the US Government. The Company has disputed this termination, and is pursuing a course to have the termination for default changed to a termination for convenience. Since the contracting entity in this matter is the subsidiary which sold substantially all of its assets, the Company has determined that the opportunity to perform under this contract is past, and is therefore changing the estimate of revenue to be recognized to take into income the full amount that had previously been reserved.

 

The Company’s net income from continuing operations for the nine months ended June 30, 2013 of $11,180,210 is an increase of $17,133,327 when compared to the Company’s net loss for continuing operations for the nine months ended June 30, 2012 of $5,953,117.

 

3.     Liquidity and capital resources:

  

As of June 30, 2013, the Company’s sources of liquidity consisted of the proceeds from the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, as well as new debt and the current active contracts with the U.S. Army. 

 

As of June 30, 2013, we had $43,1174 in cash and cash equivalents.  

 

Cash flows used in operating activities was $1,908,677 for the nine months ended June 30, 2013.  

 

 

 
23

 

 

 

Cash flows from investing activities were $9,801,411, and consisted primarily of the proceeds from the sale of assets for the nine months ended June 30, 2013, 

 

Cash flows used in financing activities were $7,878,651 for the nine months ended June 30, 2013, and consisted primarily of the repayment of long term debt afforded by the sale of assets. 

 

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

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal 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 June 30, 2013 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.  

 

Changes in Internal Control over Financial Reporting 

 

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

 

 

 

 

PART II – OTHER INFORMATION

 

Item 6. Exhibits

 

(b)

 

Exhibits:

 

 

 

31.1

 

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

 

 

 

31.2

 

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

 

 

 

32.1

 

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

 

 

 

32.2

 

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

       

101.INS*

XBRL Instance

  

  

101.SCH*

XBRL Taxonomy Extension Schema

  

  

101.CAL*

XBRL Taxonomy Extension Calculation

  

  

101.DEF*

XBRL Taxonomy Extension Definition

  

  

101.LAB*

XBRL Taxonomy Extension Labels

  

  

101.PRE*

XBRL Taxonomy Extension Presentation

   

*

XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

 
24

 

 

SIGNATURE

 

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

 

 

 

 

 

 

 

 

 

BULOVA TECHNOLOGIES GROUP, INC.

 

 

 

 

 

 

 

 

 

 

 

By

 

/s/ Stephen L Gurba

 

 

       

 Stephen L Gurba

   

 

 

 

 

Principal Executive Officer

 

 

 

 

 

 

 

 

 

 

 

By

 

/s/ William McMillen

 

 

 

 

 

 

William McMillen

 

 

 

 

 

 

Principal Financial and Accounting Officer

 

 

 

     DATED: August 14, 2013