blvt20130930

10-K 1 blvt20130930_10k.htm FORM 10-K blvt20130930_10k.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K


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

	For the fiscal year ended September 30, 2013


☐	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.)

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:

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

Common Stock, $.001 par value

(Title of Class)

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

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

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

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

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

Large accelerated filer ☐

Accelerated filer ☐

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

Smaller reporting company ☑

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

As of January 6, 2014, the aggregate market value of the voting stock held by non-affiliates of the Company was $146,190 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, 2014, the Company had 22,126,316 shares of Common Stock issued and outstanding and 4,000,000,000 shares of Preferred Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

There are no documents incorporated by reference

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

		Page

PART I

Item 1.	Business	4
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Mine Safety Disclosures	8

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	32
Item 9A.	Controls and Procedures	32

PART III

Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	32
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35
Item 13.	Certain Relationships and Related Transactions and Director Independence	36
Item 14.	Principal Accountant Fees and Services	36

PART IV

Item 15.	Exhibits and Financial Statement Schedules	37

	Signatures	38

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

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 3Si Holdings, Inc. (“3Si”) a private company that was under common control and began operations in Florida. The Company operates as a government contractor and seller of machine tools and related equipment 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, which included the facilities in Mayo. Commencing in July 2013, the Company opened offices in Branchburg, New Jersey and Sanford, Florida to facilitate its new commercial operations through Bulova Technologies Machinery 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. Final settlement of a note payable occurred when all of the assets of Ordnance were sold in October 2012.

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 markets the Mortar Exchange program, which it helped develop, to facilitate the needs of NATO members and allied countries. This 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. In addition, this subsidiary also markets and sells commercial ammunition acquired through various suppliers worldwide. It leases office space in Frankfurt, Germany to promote and facilitate all of these programs.

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.

Segments

Commencing with the Company’s formation of Bulova Technologies Machinery LLC, the Company now operates in two business segments, government contracting and commercial sales.

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.

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, 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 to a large degree upon 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.

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 to certain countries. 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 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.

Commencing with our January 1, 2009 acquisition of 3Si Holdings, Inc., we assumed certain amounts of indebtedness associated with the business operations acquired. Subsequently, we incurred additional debt with high interest rates that have hindered the Company financially. At September 30, 2013, we had approximately $2.9 million in aggregate principal amount of outstanding debt related to continuing operations.

In October 2012, we sold substantially all of the assets of Bulova Technologies Ordnance Systems LLC, and used the proceeds to substantially reduce our indebtedness. In the future, we may need to increase our borrowings, subject to limitations imposed on us by our debt agreements. Further discussion concerning the sale of these assets and any remaining scheduled maturities 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.

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, 2013 the Company operated corporate and administrative offices in a leased facility in Tampa, Florida, approximating 5,000 square feet. The Company also leases, on a month to month basis, an office in Frankfurt Germany to facilitate its European program.

Commencing in July of 2013, Bulova Technologies Machinery LLC, the Company’s newest formed subsidiary, leases approximately 6,000 square feet of office, showroom and warehouse space in Sanford, Florida, and approximately 10,000 square feet of office, showroom and warehouse space in Branchburg, New Jersey to facilitate commercial sales of its new industrial machine tool business.

At September 30, 2012, our former government manufacturing business was located on 261 acres owned by the Company in Mayo, Florida, where we operated 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. This property was sold in October 2012.

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. Mine Safety Disclosures

Not applicable.

PART II

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

Our Common Stock is traded on the “OTCQB” operated by the OTC Markets Group, Inc., under the trading symbol “BLVT”. 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, 2011
$ 0.0190 $ 0.0030

March 31, 2012
0.0190 0.0026

June 30, 2012
0.0070 0.0006

September 30, 2012
0.0017 0.0002

December 31, 2012
$ 0.0008 $ 0.0001

March 31, 2013
0.0006 0.0001

June 30, 2013
0.0004 0.0001

September 30, 2013
0.0002 0.0001

The closing bid price of our Common Stock on January 6, 2014, was $.02

As of January 6, 2014, there were approximately 2,500 shareholders of record of our Common Stock, not including those persons who hold their shares in “street name”.

We have not paid any dividends on our Common Stock since our inception. We do not foresee that we will have the ability to pay a dividend on our Common Stock in the fiscal year ended September 30, 2014.

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

FORWARD LOOKING STATEMENTS

Overview:

Starting January 1, 2009, Bulova Technologies Group, Inc. had operations 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 was 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 was accounted for through BT Manufacturing Company, LLC, another of its wholly owned subsidiaries. In June of 2010, because of continuing losses in the 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. Commencing in July of 2013, the Company entered into the industrial machine tool business by forming Bulova Technologies Machinery LLC, which represents a new business segment.

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 :

For the year ended September 30, 2013 compared to the year ended September 30, 2012.

Discontinued Operations

The only activity to reflect as results from our discontinued operations for the year ended September 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 year ended September 30, 2012 was the accrual of interest expense on this debt in the amount of $91,347.

Continuing Operations

Revenue for continuing operations for the year ended September 30, 2013 of $6,437,773 is an increase of $3,295,711 when compared to the revenue for the year ended September 30, 2011 of $3,142,062.

Cost of revenues for continuing operations for the year ended September 30, 2013 of $5,500,730 is an increase of $3,210,679 when compared to the cost of revenues for the year ended September 30, 2012 of $2,290,051.

Gross profit for continuing operations for the year ended September 30, 2013 of $937,043 is an increase of $85,032 when compared to the gross profit for the year ended September 30, 2012 of $852,011.

Selling and administrative expenses for continuing operations for the year ended September 30, 2013 of $2,350,265 is a decrease of $1,263,714 when compared to selling and administrative expense for the year ended September 30, 2012 of $3,613,979.

Stock based compensation for continuing operations for the year ended September 30, 2013 of $538,182 is a decrease of $1,727,757 when compared to stock based compensation for the year ended September 30, 2012 of $2,265,939.

Depreciation and amortization expense for continuing operations for the year ended September 30, 2013 of $613,658 is a decrease of $1,194,207 when compared to depreciation and amortization expense for the year ended September 30, 2012 of $1,807,865.

Interest expense for continuing operations for the year ended September 30, 2013 of $729,739 is a decrease of $214,822 when compared to interest expense for the year ended September 30, 2012 of $944,561.

The Company’s other income for the year ended September 30, 2013 of $13,201,570 represents an increase of $14,433,058 as compared to ($1,231,488) for the year ended September 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 year ended September 30, 2013 of $9,906,769 is an increase of $18,918,590 when compared to the net loss from continuing operations for the year ended September 30, 2012 of (9,011,821).

Liquidity and capital resources:

As of September 30, 2013, the Company’s sources of liquidity were new debt and loans from shareholders.

As of September 30, 2013, we had $89,812 in cash and cash equivalents.

Cash flows used in operating activities was $858,518 for the year ended September 30, 2013, and was all used by continuing operations.

Cash flows from investing activities were $9,729,567, and consisted primarily of the proceeds from the sale of assets for the year ended September 30, 2013.

Cash flows used in financing activities were $7,500,847 for the year ended September 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, 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 on the small amount of debt remaining after the sale, or to pay interest on or to refinance our remaining 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 relative to its new commercial sales business segment 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, 2013, the Company had net operating loss carry forwards (NOLs) of approximately 12.4 million for federal income tax purposes that will begin to expire between the years of 2020 and 2033. These NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable. Section 382 of the Internal Revenue Code imposes limitations on a corporation's ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual limitation may be carried over to later years. We may be found to have experienced an ownership change under Section 382 as a result of events in the past or the issuance of shares of common stock upon a conversion of notes, or a combination thereof. If so, the use of our NOLs, or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of our NOLs before utilization.

Item 8. Consolidated Financial Statements

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	12

Consolidated Balance Sheets as of September 30, 2013 and 2012	13

Consolidated Statements of Operations for the Years Ended September 30, 2013 and 2012	14

Consolidated Statements of Cash Flows for the Years Ended September 30, 2013 and 2012	15

Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended September 30, 2013 and 2012	17

Notes to Consolidated Financial Statements	19

2451 N. McMullen Booth Road

Suite.308

Clearwater, FL 33759

Toll fee: 855.334.0934

Fax: 800.581.1908

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Bulova Technologies Group, Inc.

We have audited the accompanying consolidated balance sheets of Bulova Technologies Group, Inc. as of September 30, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficiency, 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 audit.

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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 control 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, 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 financial statements referred to above present fairly, in all material respects, the financial position of Bulova Technologies Group, Inc. as of September 30, 2013 and 2012, 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.

/s/ DKM Certified Public Accountants

DKM Certified Public Accountants

Clearwater, Florida

January 10, 2014

PCAOB Registered

AICPA Member

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,
	2013			2012

ASSETS

Cash and cash equivalents	$	89,812		$	29,034
Accounts receivable		303,565			112,005
Contract claim receivable		-			-
Inventory		55,605			1,023,980
Other current assets		13,649			48,334
Current assets from discontinued operations		-			-

Total Current Assets		462,631			1,213,353

Property, plant and equipment		92,709			2,474,928
Investments		-			-
Other assets		103,295			27,461
Non-current assets from discontinued operations		-			-

	$	658,635		$	3,715,742

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Accounts payable	$	514,892		$	423,102
Accrued expenses and other current liabilities		1,053,267			7,202,905
Advance payments and billings in excess of cost		-			666,490
Current portion of long term debt		2,821,711			8,386,675
Current liabilities from discontinued operations		-			2,011,937

Total current liabilities		4,389,870			18,691,109

Shareholder loans and accrued interest		(22,613	)		185,195
Long term debt, net of current portion–		112,629			1,144,074

		4,479,886			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 September 30, 2013 and 2012		40,000			20,000
Common stock, $.001 par; authorized 500,000,000 shares, 21,001,316 and 8,291,639 issued and outstanding at September 30, 2013 and 2012		21,001			8,292
Subscription receivable - warrants		(66,000	)		-
Additional paid in Capital in excess of par		23,174,191			21,873,708
Retained earnings (deficit)		(26,990,443	)		(38,206,636	)
		(3,821,251	)		(16,304,636	)
	$	658,635		$	3,715,742

See accompanying notes to consolidated financial statements.

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

	Years Ended September 30,
	2013			2012

Revenues	$	6,437,773		$	3,142,062
Cost of revenues		5,500,730			2,290,051
Gross profit		937,043			852,011

Selling and administrative expenses		2,350,265			3,613,979
Stock based compensation		538,182			2,265,939
Depreciation and amortization expense		613,658			1,807,865
Interest expense		729,739			944,561

Total expenses		4,231,844			8,632,344

Loss from operations		(3,294,801	)		(7,780,333	)
Other income (expense)
Other income (expense)		13,201,570			(1,231,488	)
Income (loss) from continuing operations before income taxes		9,906,769			(9,011,821	)

Income tax expense		-			-

Income (loss) from continuing operations		9,906,769			(9,011,821	)
Income (loss) from discontinued operations, net of tax		1,309,424			(91,347	)

Net income (loss)	$	11,216,193		$	(9,103,168	)

Basic net income (loss) per share
Income (loss) from continuing operations	$	.57		$	(1.98	)
Income (loss) from discontinued operations		.07			(.02	)
Net income (loss) per share	$	.64		$	(2.00	)

Diluted net income (loss) per share
Income (loss) from continuing operations	$	.23		$	(1.98	)
Income (loss) from discontinued operations		.03			(.02	)
Net income (loss) per share	$	.26		$	(2.00	)

Weighted average shares outstanding
Basic		17,464,286			4,550,081
Diluted		43,110,597			4,550,081

See notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended September 30,

2013

2012

Cash flows from operating activities:

Net Income (Loss)
$ 11,216,193 $ (9,103,168 )

(Income) Loss from discontinued operations
(1,309,424 ) 91,347

Income (Loss) from continuing operations
9,906,769 (9,011,821 )

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

Depreciation and amortization
613,658 1,807,865

Gain from change in accounting estimate
(6,071,700 ) -

Gain from settlement of debt
(356,765 ) -

Loss on sale of note receivable
156,710

Loss recognized on investments
- 1,746,857

(Gain ) Loss on sale of assets
(6,153,177 ) 9,897

Stock based payment for services
538,182 2,265,939

Changes in operating assets and liabilities

Accounts receivable
(191,560 ) 116,080

Inventory
(201 ) (338,754 )

Prepaid expenses and other assets
28,060 82,492

Accounts payable and accrued expenses
671,506 1,065,407

Advance payments and billings in excess of costs
- (217,014 )

Net cash flows from operating activities – continuing operations
(858,518 ) (2,473,052 )

Net cash flows from operating activities – discontinued operations
(1,309,424 ) -

Net cash flows from operating activities
(2,167,942 ) (2,473,052 )

Cash flows from investing activities:

Proceeds from sale of assets
9,547,580 -

Proceeds from sale of note receivable
250,000 -

Principal collections on note receivable
3,831 -

Purchase of property and equipment
(71,844 ) (89,725 )

Net cash flows from investing activities – continuing operations
9,729,567 (89,725 )

Net cash flows from investing activities – discontinued operations
- -

Net cash flows from investing activities
9,729,567 (89,725 )

Cash flows from financing activities

Repayment of Shareholder loans
(469,136 ) (91,943 )

Increases in long term debt
2,280,161 2,625,000

Repayment of long term debt
(9,331,872 ) (110,745 )

Proceeds from sale of preferred shares
20,000 -

Net cash flows from financing activities – continuing operations
(7,500,847 ) 2,422,312

Net cash flows from financing activities – discontinued operations
- -

Net cash flows from financing activities
(7,500,847 ) 2,422,312

Increase (decrease) in cash and cash equivalents
60,778 (140,465 )

Cash and cash equivalents, beginning
29,034 169,499

Cash and cash equivalents, ending
$ 89,812 $ 29,034

Cash paid for interest
$ 10,964 $ 51,115

Cash paid for taxes
$ - $ -

Supplemental schedule of non-cash financing and investing activities:

●

October 2011, the Company issued 44,482 common shares issued as conversion of debt

●

October 2011, the Company issued 2,500 common shares for services

●

November 2011, the Company issued 51,342 common shares to various individuals

●

November 2011, the Company issued 26,765 common shares as conversion of debt

●

December 2011, the Company issued 64,158 common shares as conversion of debt

●

December 2011, the Company issued 450,000 common shares and authorized the issuance of an additional 300,000 shares as conversion of related party debt 250,000 of which were issued in the first quarter of 2012

●

January 2012, the Company issued 757,500 common shares for services

●

February 2012 , the Company issued 3,750 common shares for services

●

February 2012, the Company issued 475,000 common shares in association with new debt

●

February 2012, the Company issued 12,000 common shares as conversion of debt

●

March 2012, the Company issued 15,714 common shares as conversion of debt

●

April 2012, the Company issued 17,308 common shares as conversion of debt

●

April 2012, the Company issued 100,000 common shares for services

●

May 2012, the Company issued 127,064 common shares for services

●

May 2012, the Company issued 31,800 common shares as conversion of debt

●

May 2012, the Company issued 175,000 common shares in association with new debt

●

June 2012, the Company issued 375,000 common shares in association with new debt

●

June 2012, the Company issued 70,423 common shares as conversion of debt

●

June 2012, the Company issued 154,394 common shares for services

●

June 2012, the Company issued 109,155 common shares as conversion of debt

●

July 2012, the Company issued 841,446 common shares in association with new debt

●

August 2012, the Company issued 91,904 common shares as interest payment on debt

●

August 2012, the Company issued 969,231 common shares in association with new debt

●

September 2012, the Company issued 885,010 common shares in association with new debt

●

October 2012, the Company issued 754,038 common shares for services

●

October 2012, the Company issued 4,944,618 common shares as conversion of debt

●

November 2012, the Company issued 757,500 common shares for services

●

November 2012, the Company issued 915,150 common shares as conversion of debt

●

December 2012, the Company issued 496,250 common shares for services

●

January 2013, the Company issued 1,237,121 common shares as conversion of debt

●

January 2013, the Company issued 150,000 common shares associated with new debt

●

January 2013, the Company issued 205,000 common shares for services

●

February 2013, the Company issued 750,000 common shares as conversion of debt

●

February 2013, the Company issued 21,300,512 warrants associated with new debt

●

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

●

February 2013, the Company issued 5,365,000 warrants for services

●

June 2013, the Company issued 750,000 common shares as conversion of debt

●

July 2013, the Company issued 750,000 common shares in association with the extension of terms on existing debt

●

September 2013, the Company issued 1,000,000 common shares for services

●

September 2013, the Company issued 10,500,000 warrants associated with debt

See notes to consolidated financial statements.

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

	Preferred Stock				Common Stock
	Number of Shares		Amount		Number of Shares			Amount			Subscription Receivable			Additional Paid in Capital			Accumulated (deficit)			Total
Balances, September 30, 2011 – as previously stated		-	$	-		438,138,975		$	438,139		$	-		$	18,065,442		$	(29,103,468	)	$	(10,599,887	)
Adjustment to reflect reverse split of 1 for 200 common shares						(435,948,280	)		(435,948	)					435,948						-
Balances, September 30, 2011 – as restated		-		-		2,190,695			2,191						18,501,390			(29,103,468	)		(10,599,887	)
Issuance of shares for services		2,000,000,000		20,000		1,243,417			1,243						935,292						956,535
Issuance of shares without consideration in completion of a prior year transaction						45,037			45						(45	)					-
Issuance of shares in satisfaction of debt						3,837,491			3,837						971,263						975,100
Issuance of convertible debt															142,380						142,380
Issuance of shares associated with new debt						1,025,000			1,025						1,001,475						1,002,500
Issuance of common stock warrants															366,904						366,904
Cancellation of previously authorized shares not issued						(50,000	)		(50	)					(44,950	)					(45,000	)
Net loss for the year ended September 30. 2012																		(9,103,168	)		(9,103,168	)
Balances, September 30, 2012		2,000,000,000	$	20,000		8,291,639		$	8,292		$	-			21,873,708		$	(38,206,636	)	$	(16,304,636	)
Issuance of shares in satisfaction of debt						5,859,768			5,860						199,140						205,000
Issuance of convertible debt															31,500						31,500
Issuance of shares for services						2,007,788			2,008						155,674						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						2,737,121			2,737						37,763						40,500
Issuance of shares for new debt						150,000			150						5,850						6,000
Issuance of shares for services						205,000			205						7,995						8,200
Issuance of Warrants associated with new debt															426,010						426,010
Issuance of Warrants for services															107,300						107,300
Issuance of shares associated with extension of debt						750,000			750						14,250						15,000
Issuance of shares for services						1,000,000			1,000						39,000						40,000
Issuance of Warrants															210,000						210,000
Net income for the year ended September 30, 2013																		11,216,193			11,216,193
Balances, September 30, 2013		4,000,000,000	$	40,000		21,001,316		$	21,001		$	(66,000	)	$	23,174,191		$	(26,990,443	)	$	(3,821,251	)

See notes to consolidated financial statements.

1. Description of business:

The Company operates as a government contractor and sells machine tools and related equipment 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. In July of 2013 the Company formed Bulova Technologies Machinery LLC, a new subsidiary to generate sales of industrial tool machines commercially, with locations in Branchburg, New Jersey and Sanford, 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, 2013 and 2012. 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). In July of 2013, the Company formed its newest subsidiary, Bulova Technologies Machinery 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. The settlement and disposition of this segment was accomplished during the quarter ended March 31, 2011, with the exception of a note payable, whose final settlement occurred when all of the assets of Ordnance were sold in October 2012.

Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Tampa, Florida, this subsidiary markets the Mortar Exchange program, which it helped develop, to facilitate the needs of NATO members and allied countries. This 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. In addition, this subsidiary also markets and sells commercially ammunition acquired through various suppliers worldwide. It leases office space in Frankfurt, Germany to promote and facilitate all of these programs.

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.

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, 2013 and 2012, and the results of operations and cash flows for the years ended September 30, 2013 and 2012.

Subsequent Events

The Company has evaluated subsequent events through January 6, 2014 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 formation of Bulova Technologies Machinery LLC, the Company now operates in two business segments, government contracting and commercial sales. As the commercial sales segment of the Company is in its initial start-up phase and its operations through September 30, 2013 are not material, the Company has determined not to present financial information by segment.

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.

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

	September 30, 2013		September 30, 2012
Finished goods	$	-	$	-
Work in process		-		-
Materials and supplies		55,605		1,023,980

Total inventory of continuing operations	$	55,605	$	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 September 30, 2013 and 2012

	As of September 30,
	2013			2012
Land	$	-		$	1,225,000
Buildings and improvements		-			1,170,194
Machinery and equipment		-			752,554
Funiture and fixtures		117,580			45,735

		117,580			3,193,483
Less accumulated depreciation		(24,871	)		(718,555	)

Net property, plant and equipment	$	92,709		$	2,474,928

Impairment of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value, less costs to sell.

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 4 “Discontinued Operations”

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. The Company did not incur any advertising expenses for the years ended September 30, 2013 and 2012.

Shipping Costs

The Company includes shipping costs in cost of revenues.

Income Taxes

Income tax benefits or provisions are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled. Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The Company follows the guidance provided by ASC48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.

Income (Loss) per Common Share

Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of September 30, 2013, there were 58,855,493 common stock equivalents that were anti-dilutive and were not included in the calculation.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to September 30, 2012 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 Credit 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 September 30, 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.

Summarized operating results for discontinued operations is as follows:

	Year Ended September 30,
	2013		2012

Revenue	$	-	$	-
Cost of Sales		-		-
Gross profit		-		-
Operating expenses and interest		-		(91,347	)
Other income		1,309,424		-
Income (loss) from operations		1,309,424		(91,347	)
Loss on disposal of discontinued operations		-		-
Income tax benefit		-		-
Income (loss) from discontinued operations, net of tax	$	1,309,424	$	(91,347	)

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,
	2013		2012

Accounts receivable	$	-	$	-
Inventory		-		-
Other current assets		-		-
Total current assets from discontinued operations		-		-
Property plant and equipment - net		-		-
Other assets		-		-
Total assets from discontinued operations	$	-	$	-


Accounts payable and accrued expenses	$	-	$	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 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, 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 September 2013 and September 30, 2012.

6. Long Term Debt

Long term debt consisted of the following at:

September 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

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

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, bearing interest at 8% with a maturity date of August 9, 2013.
37,500 -

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 -

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 -

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.
8,464 -

Revolving credit line payable to NFC III LLC bearing interest at 10%, payable on demand
560,819 -

Note payable to Ford Credit non-interest bearing payable at $904.34 monthly with a maturity date of September 14, 2018
54,261 -

Note payable to NFC III LLC bearing interest at 10% payable on demand
75,000 -

Note payable to an individual dated September 10, 2013, bearing interest at 8% payable on demand
75,000 -

Note payable to Shapiro Family Trust dated July 10, 2013, bearing interest at 8% payable on demand
100,000 -

Note payable to Craigmore Machinery Company dated August 15, 2013, bearing interest at 8% payable on demand
50,000 -

Note payable to Craigmore Machinery Company dated August 15, 2013 bearing interest at 8% payable on demand
49,212 -

Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% payable on demand
5,000 -

2,934,340 11,191,632

Less current portion pertaining to continuing operations
(2,821,711 ) (8,386,675 )

Less current portion associated with discontinued operations
- (1,660,883 )

$ 112,629 $ 1,144,074

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

Period ended September 30,
2014	$	2,821,711
2015		80,073
2016		10,852
201		10,852
2018		10,852
Thereafter		-
	$	2,934,340

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 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 2013 and 2012:

9/30/2013

9/30/2012

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, 2013 the Company had federal net operating loss carry forwards of approximately $12,406,000 and Florida net operating loss carry forwards of approximately $11,174,000. The federal net operating loss carry forwards will expire in 2020 through 2033 and state net operating loss carry forwards that will expire in 2028 through 2033.

The components of deferred tax assets and liabilities as of September 30, 2013 and 2012 is as follows:

Current

Non-Current

Deferred tax assets:

NOL and contribution carry forwards
$ - $ 4,673,886

Capital Loss Carry Over
- 657,342

Property & Equipment
- (7,485 )

Accrued Comp
- 225,780

Accrued Interest
15,574 -

Accrued Marketing Fee
18,254 -

Share based Compensation
- 2,631,730

Accrued fee
169,335

33,828 8,350,588

Valuation Allowance
(33,828 ) (8,350,588 )

Net Deferred Tax Asset
$ - $ -

Deferred tax (liabilities):

- -

Net Deferred Tax Liability
- -

Net deferred tax asset (liability)
$ - $ -

The change in the valuation allowance is as follow:

September 30, 2012
$ 11,450,741

September 30, 2013
8,384,416

Decrease in valuation allowance
$ (3,066,325 )

The Company decreased the valuation allowance by approximately $3,066,000 in the period ending September 30, 2013. The valuation allowance was decreased to offset the current year net operating loss carry over 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

9/30/2013

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
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, 2013, the tax returns for the Company for the years ending 2010 through 2012 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. The Company and its subsidiaries are not currently under examination for any period.

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

8. Commitments and Contingencies

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 September 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 leases approximately 6,000 square feet of office, showroom and warehouse space in Sanford, Florida on a month to month basis, and approximately 10,000 square feet of office, showroom and warehouse space in Branchburg, New Jersey for a period of two years, with two, two year options at the same rate. These two locations are to facilitate the commercial sales of Bulova Technologies Machinery LLC.

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 year ended September 30, 2013, was approximately $310,000.

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

Period ended September 30

2014
$ 278,414

2015
262,056

2016
268,607

2017
275,323

2018
282,206

Thereafter
3,028,678

$ 4,395,284

9. Related Party Transactions

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

The Company has received loans from 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 September 30, 2013, the only remaining debt associated with these notes is a temporary balance due from Stephen L. Gurba and Evelyn R. Gurba in the amount of $22,613. There is no balance due at September 30, 2013.

10. Stockholders’ Equity

Common Shares

On December 30, 2013, the Company affected a 1 for 200 reverse split of its common stock. The financial statements have been retroactively adjusted to reflect the effects of this reverse split. All equity issuances relative to common shares are presented as post reverse quantities (1/200), as compared to filings prior to the reverse.

Concurrently, the Company amended its articles to reduce the amount of authorized common shares from 5,000,000,000 to 500,000,000.

October 2011, the Company issued 44,482 common shares issued as conversion of debt

October 2011, the Company issued 2,500 common shares for services

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.