UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014 |
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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)
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Florida |
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83-0245581 |
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 ☐ |
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 May 7, 2014 the Company had 42,688,209 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 MARCH 31, 2014
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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3 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20 | |||
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PART II – OTHER INFORMATION |
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Signatures | 21 |
Item 1. Consolidated Financial Statements
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, |
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2014 |
September 30, |
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(unaudited) |
2013 |
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ASSETS |
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Cash and equivalents |
$ | 32,747 | $ | 89,812 | ||||
Accounts receivable |
132,166 | 303,565 | ||||||
Inventory |
831,523 | 55,605 | ||||||
Other current assets |
77,936 | 13,649 | ||||||
Total current assets |
1,074,372 | 462,631 | ||||||
Property, plant and equipment |
82,051 | 92,709 | ||||||
Other assets |
7,000 | 103,295 | ||||||
Total Assets |
$ | 1,163,423 | $ | 658,635 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Accounts payable |
$ | 630,909 | $ | 514,892 | ||||
Accrued expenses |
707,029 | 1,053,267 | ||||||
Current portion of long term debt |
4,975,695 | 2,821,711 | ||||||
Total current liabilities |
6,313,633 | 4,389,870 | ||||||
Shareholder loans |
(65,414 | ) | (22,613 | ) | ||||
Long term debt, net of current portion |
37,982 | 112,629 | ||||||
Total liabilities |
6,286,201 | 4,479,886 | ||||||
Commitments and contingencies |
- | - | ||||||
Shareholders’ deficit: |
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Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 issued and outstanding at March 31, 2014 and September 30, 2013 |
40,000 | 40,000 | ||||||
Common stock, $.001 par; authorized 500,000,000 shares; 29,585,352 and 21,001,316 issued and outstanding at March 31, 2014 and September 30, 2013 |
29,585 | 21,001 | ||||||
Subscription receivable |
(66,000 | ) | (66,000 | ) | ||||
Additional paid in capital in excess of par |
23,262,607 | 23,174,191 | ||||||
Retained deficit |
(28,388,970 | ) | (26,990,443 | ) | ||||
Total shareholders’ deficit |
(5,122,778 | ) | (3,821,251 | ) | ||||
Total liabilities and shareholders’ equity |
$ | 1,163,423 | $ | 658,635 |
See accompanying notes to consolidated financial statements.
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
Three Months Ended |
Six Months Ended |
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March 31, |
March 31, |
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2014 |
2013 |
2014 |
2013 |
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Revenues |
$ | 947,820 | $ | 1,940,515 | $ | 3,237,916 | $ | 2,976,788 | ||||||||
Cost of revenues |
893,352 | 1,726,871 | 2,835,716 | 2,625,540 | ||||||||||||
Gross profit |
54,468 | 213,644 | 402,200 | 351,248 | ||||||||||||
Selling and administrative expense |
709,197 | 510,010 | 1,460,891 | 1,181,431 | ||||||||||||
Stock based compensation |
60,000 | 115,500 | 82,500 | 273,182 | ||||||||||||
Depreciation and amortization expense |
5,989 | 66,937 | 106,611 | 292,719 | ||||||||||||
Interest expense |
90,533 | 26,868 | 155,725 | 484,587 | ||||||||||||
Total expenses |
865,719 | 719,314 | 1,805,727 | 2,231,919 | ||||||||||||
Income (loss) from operations |
(811,251 | ) | (505,670 | ) | (1,403,527 | ) | (1,880,671 | ) | ||||||||
Other income (expense) |
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Other income |
- | 5,851,002 | 5,000 | 13,317,570 | ||||||||||||
Income (loss) from continuing operations before income taxes |
(811,251 | ) | 5,345,332 | (1,398,527 | ) | 11,436,899 | ||||||||||
Income tax expense |
- | - | - | - | ||||||||||||
Income (loss) from continuing operations |
(811,251 | ) | 5,345,332 | (1,398,527 | ) | 11,436,899 | ||||||||||
Income (loss) from discontinued operations, net of tax |
- | - | - | 1,309,424 | ||||||||||||
Net Income (loss) |
(811,251 | ) | 5,345,332 | $ | (1,398,527 | ) | $ | 12,746,323 | ||||||||
Basic net income (loss) per share |
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Income (loss) from continuing operations |
$ | (.036 | ) | $ | .30 | $ | (.063 | ) | $ | .71 | ||||||
Income (loss) from discontinued operations |
- | - | - | .08 | ||||||||||||
Net income (loss) per share |
$ | (.036 | ) | $ | .30 | $ | (.063 | ) | $ | .79 | ||||||
Diluted net income (loss) per share |
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Income (loss)from continuing operations |
$ | (.036 | ) | $ | .13 | $ | (.063 | ) | $ | .34 | ||||||
Income (loss) from discontinued operations |
- | - | - | .04 | ||||||||||||
Net income (loss) per share |
$ | (.036 | ) | $ | .13 | $ | (.063 | ) | $ | .38 | ||||||
Weighted average shares outstanding |
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Basic |
22,640,846 | 17,840,477 | 22,235,836 | 16,022,150 | ||||||||||||
Diluted |
22,640,846 | 41,468,224 | 22,235,836 | 33,592,308 |
See accompanying notes to consolidated financial statements.
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIXMONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
2014 |
2013 |
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Cash flows from operating activities: |
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Net Income (loss) |
$ | (1,398,527 | ) | $ | 12,746,323 | |||
(Income) Loss from discontinued operations |
- | (1,309,424 | ) | |||||
Income (Loss) from continuing operations |
(1,398,527 | ) | 11,436,899 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
106,611 | 292,719 | ||||||
Stock based payment for services |
82,500 | 273,182 | ||||||
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 |
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Accounts receivable |
171,399 | 112,005 | ||||||
Inventory |
(775,918 | ) | 55,404 | |||||
Prepaid expenses and other assets |
(62,662 | ) | 21,398 | |||||
Accounts payable and accrued expenses |
(230,221 | ) | (301,793 | ) | ||||
Net cash flows from operating activities – continuing operations |
(2,106,818 | ) | (535,118 | ) | ||||
Net cash flows from operating activities – discontinued operations |
- | (1,309,424 | ) | |||||
Net cash flows from operating activities |
(2,106,818 | ) | (1,844,542 | ) | ||||
Cash flows from investing activities: |
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Acquisition of fixed assets |
(1,283 | ) | - | |||||
Proceeds from sale of assets |
- | 9,547,580 | ||||||
Proceeds from sale of note receivable |
- | 250,000 | ||||||
Principle collections on note receivable |
- | 3,831 | ||||||
Net cash flows from investing activities – continuing operations |
(1,283 | ) | 9,801,411 | |||||
Net cash flows from investing activities – discontinued operations |
- | - | ||||||
Net cash flows from investing activities |
(1,283 | ) | 9,801,411 | |||||
Cash flows from financing activities: |
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Proceeds from sale of preferred shares |
- | 20,000 | ||||||
Repayment of Shareholder loans |
(42,801 | ) | (270,800 | ) | ||||
Increases in long term debt |
2,109,349 | 1,250,870 | ||||||
Repayment of long term debt |
(15,512 | ) | (8,982,317 | ) | ||||
Net cash flows from financing activities – continuing operations |
2,051,036 | (7,982,247 | ) | |||||
Net cash flows from financing activities – discontinued operations |
- | - | ||||||
Net cash flows from financing activities |
2,051,036 | (7,982,247 | ) | |||||
Increase (decrease) in cash and cash equivalents |
(57,065 | ) | (25,378 | ) | ||||
Cash and cash equivalents, beginning |
89,812 | 29,034 | ||||||
Cash and cash equivalents, ending |
$ | 32,747 | $ | 3,656 | ||||
Cash paid for interest |
$ | 3,213 | $ | 2,222 | ||||
Cash paid for taxes |
$ | - | $ | - |
Supplemental schedule of non-cash financing and investing activities:
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October 2013, the Company issued 500 000 common shares for services |
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November 2013, the Company issued 625,000 common shares for services |
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February 2014, the Company issued 1,102,564 common shares in satisfaction of debt |
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February 2014, the Company issued 4,000,000 common shares for services |
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March 2014, the Company issued 2,356,472 common shares in satisfaction of debt |
See accompanying notes to consolidated financial statements.
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2014
(Unaudited)
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Preferred Stock |
Common Stock |
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Number of Shares |
Amount |
Number of Shares |
Amount |
Subscription Receivable |
Additional Paid in Capital |
Accumulated (deficit) |
Total |
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Balances, October 1, 2013 |
4,000,000,000 | $ | 40,000 | 21,001,316 | $ | 21,001 | $ | (66,000 | ) | $ | 23,174,191 | $ | (26,990,443 | ) | $ | (3,821,251 | ) | |||||||||||||||
Issuance of shares for services |
5,125,000 | 5,125 | 77,375 | 82,500 | ||||||||||||||||||||||||||||
Issuance of shares in satisfaction of debt |
3,459,036 | 3,459 | 11,041 | 14.500 | ||||||||||||||||||||||||||||
Net loss for the six months ended March 31, 2014 |
(1,398,527 | ) | (1,398,527 | ) | ||||||||||||||||||||||||||||
Balances, March 31, 2014 |
4,000,000,000 | $ | 40,000 | 29,585,352 | $ | 29,585 | $ | (66,000 | ) | $ | 23,262,607 | $ | (28,388,970 | ) | $ | (5,122,778 | ) |
See accompanying notes to consolidated financial statements.
BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2014 AND 2013
(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 3Si Holdings, Inc. (“3Si”) 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. 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:
The accompanying consolidated balance sheet as of September 30, 2013, 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). 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 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 commercially ammunition acquired through various suppliers worldwide. The Company 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 March 31, 2014 and September 30, 2013, and the results of operations and cash flows for the three and six months ended March 31, 2014 and 2013.
Subsequent Events
The Company has evaluated subsequent events through May 15, 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 and the expansion into commerical ammunition sales, the Company now operates in two business segments, government contracting and commercial sales.
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.
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 items held for resale and materials and supplies for sale and service.
The breakdown of inventory at March 31, 2014 and September 30, 2013 is as follows:
March 31, |
September 30, |
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2014 |
2013 |
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Inventory held for resale |
$ | 773,682 | $ | - | ||||
Materials and supplies |
57,841 | 55,605 | ||||||
Total inventory of continuing operations |
$ | 831,523 | $ | 55,605 |
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 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 March 31, 2014 and September 30, 2013
March 31, |
September 30, |
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2014 |
2013 |
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Funiture, fixtures and equipment |
118,863 | 117,580 | ||||||
118,863 | 117,580 | |||||||
Less accumulated depreciation |
(36,812 | ) | (24,871 | ) | ||||
Net property, plant and equipment |
$ | 82,051 | $ | 92,709 |
Depreciation expense for the six months ended March 31, 2014 and 2013 was $11,941 and $4,574 respectively.
Loan Costs
The Company account for costs incurred relative to the acquisition of new debt in other assets, and amortizes these costs over the life of the debt. The unamortized balance of loan costs at March 31, 2014 and September 30, 2013 were $0 and $94,670 respectively.
Amortization of loan costs for the six months ended March 31, 2014 and 2013 was $94,670 and $76,584 respectively.
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. A significant portion of the Company’s revenue have been 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 six months ended March 31, 2014 and 2013.
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.
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 March 31, 2014 through the date these financial statements were issued.
3. 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 October of 2012, the Company negotiated a settlement with PNL Newco II LLC for complete satisfaction of the only remaining debt associated with this discontinued operation for $625,000. The transaction resulted in a gain of $1,309,424.
Summarized operating results for discontinued operations is as follows:
Six months ended March 31, |
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2014 |
2013 |
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Revenue |
$ | - | $ | - | ||||
Cost of Sales |
- | - | ||||||
Gross profit |
- | - | ||||||
Operating expenses and interest |
- | - | ||||||
Other income |
- | 1,309,424 | ||||||
Income (loss) from operations |
- | 1,309,424 | ||||||
Loss on disposal of discontinued operations |
- | - | ||||||
Income tax benefit |
- | - | ||||||
Income (loss) from discontinued operations, net of tax |
$ | - | $ | 1,309,424 |
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.
As of March 31, 2014 and September 30, 2013, there are no remaining assets associated with this discontinued operation.
4. 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 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. The balances outstanding as of March 31, 2014 and September 30, 2013 are $0 and $0 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 March 31, 2014 and September 30, 2013.
5. Long Term Debt
Long term debt consisted of the following at:
March 31, 2014 |
September 30, 2013 |
|||||||
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 | ||||||
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 March 31, 2014. Final payment due upon delivery |
700,000 | 700,000 | ||||||
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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 |
813,819 | 560,819 | ||||||
Note payable to Ford Credit non-interest bearing payable at $904.34 monthly with a maturity date of September 14, 2018 |
48,834 | 54,261 | ||||||
Note payable to NFC III LLC bearing interest at 10% payable on demand |
75,000 | 75,000 | ||||||
Note payable to an individual dated September 10, 2013, bearing interest at 8% payable on demand |
125,000 | 75,000 | ||||||
Note payable to Shapiro Family Trust dated July 10, 2013, bearing interest at 8% payable on demand |
150,000 | 100,000 | ||||||
Note payable to Craigmore Machinery Company dated August 15, 2013, bearing interest at 8% payable on demand |
50,000 | 50,000 | ||||||
Note payable to Craigmore Machinery Company dated August 15, 2013 bearing interest at 8% payable on demand |
49,212 | 49,212 | ||||||
Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% payable on demand |
5,000 | 5,000 | ||||||
Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% payable on demand |
20,000 | - | ||||||
Note payable to SIII Associates Limited Partnership dated November 8, 2013 with a maximum amount of $1,435,000 bearing interest at 8% with a maturity date of March 31, 2014 |
1,406,688 | - | ||||||
Note payable to SV Associates Limited Partnership dated January 9, 2014 bearing interest at 8% payable on demand |
41,000 | - | ||||||
Note payable to Craigmore Machinery Company dated January 9, 2014 bearing interest at 8% payable on demand |
30,000 | - | ||||||
Note payable to an individual dated January 17, 2014 bearing interest at 8% payable on demand |
8,000 | - | ||||||
Note payable to Craigmore Machinery Company dated January 24, 2014 bearing interest at 8% payable on demand |
20,000 | - | ||||||
Note payable to Craigmore Machinery Company dated January 31, 2014 bearing interest at 8% payable on demand |
8,000 | - | ||||||
Note payable to Tropico Equity Partners LLC dated February 3, 2014 bearing interest at 8% payable on demand |
68,161 | - | ||||||
Note payable to Rachel E Shapiro Trust dated February 14, 2014 bearing interest at 6% payable on demand |
31,500 | - | ||||||
Note payable to Metro Bank dated February 14, 2014 with a maximum amount of $200,000 bearing interest at 4.65% with a maturity date of December 14, 2014 |
50,000 | - | ||||||
Note payable to an individual dated February 25, 2014 bearing interest at 8% payable on demand |
8,000 | - | ||||||
Note payable to Banyan Capital Finance dated March 12, 2014 bearing interest at 8% payable on demand |
15,000 | - | ||||||
Note payable to Capital Stack, LLC dated March 24, 2014 in the amount of $35,000 with no stipulated interest rate payable through 83 daily payments of $599 |
33,712 | - | ||||||
Note payable to Fast Advance Funding dated March 26, 2014 in the amount of $15,000 with no stipulated interest rate, payable through 83 daily payments of $256.45 |
14,667 | - | ||||||
5,013,677 | 2,934,340 | |||||||
Less current portion pertaining to continuing operations |
(4,975,695 | ) | (2,821,711 | ) | ||||
$ | 37,982 | $ | 112,629 |
Principal maturities of long term debt for the next five years and thereafter as of March 31, 2014 are as follows:
Period ended March 31, |
||||
2015 |
$ | 4,975,695 | ||
2016 |
10,852 | |||
2017 |
10,852 | |||
2018 |
10,852 | |||
2019 |
5,426 | |||
Thereafter |
- | |||
$ | 5,013,677 |
6. 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 Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2013 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 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.
7. 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 March 31, 2014 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 six months ended March 31, 2014 and 2013, was approximately $184,735 and $140,000 respectively.
The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of March 31, 2014 are as follows:
Period ended March 31 |
||||
2015 |
$ | 258,841 | ||
2016 |
265,312 | |||
2017 |
271,944 | |||
2018 |
278,743 | |||
2019 |
285,712 | |||
Thereafter |
2,884,935 | |||
$ | 4,245,487 |
8. 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. As of March 31, 2014 and 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 $65,414 and $22,316 respectively.
9. 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 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 shares of its common stock as conversion of debt
January 2013 – the Company issued 150,000 shares of its common stock in association with new debt
January 2013 – the Company issued 205,000 common shares for services
February 2013 – the Company issued 750,000 common shares of its common stock as conversion of debt
June 2013 – the Company issued 750,000 common shares of its common stock 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
October 2013 - the Company issued 500 000 common shares for services
November 2013 - the Company issued 625,000 common shares for services
February 2014, the Company issued 1,102,564 common shares as conversion of debt
February 2014, the Company issued 4,000,000 common shares for services
March 2014, the Company issued 2,356,472 common shares 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.
Subscription receivable
In February 2013, the Company issued 20,589,981 warrants in exchange for subscription notes receivable of $66,000.
10. 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, during the quarter ended March 31, 2013, 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.
11. Subsequent Events
April 25, 2014, the Company sold 12,000,000 common shares for $142,800.
May 2014 the Company issued 1,102,857 common shares as conversion of debt
12. Segment Information
With Bulova Technologies (Europe) LLC beginning to diversify into product sales to non US Government customers in the quarter ended December 31, 2013 and Bulova Technologies Machinery LLC commencing the sale and service of its products commercially, the Company now operates in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the U.S. Government and other allied governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC and Bulova Technologies (Europe) LLC. The Commercial Sales segment is focused on the sale and service of commercial products to non-government customers consisting of ammunition and industrial business machines, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies (Europe) LLC and Bulova Technologies Machinery LLC.
(UNAUDITED)
SEGMENT INFORMATION FOR THE SIX MONTHS ENDED MARCH 31, 2014 IS AS FOLLOWS:
Government Contracting |
Commercial Sales & Service |
Total |
||||||||||
Revenue |
$ | 1,413,546 | $ | 1,824,370 | $ | 3,237,916 | ||||||
Cost of Sales |
1,403,971 | 1,431,745 | 2,835,716 | |||||||||
Gross profit |
9,575 | 392,625 | 402.200 | |||||||||
Selling, general and administrative expenses |
144 | 656,790 | 656,934 | |||||||||
Depreciation and interest expense |
33,102 | 17,517 | 50,619 | |||||||||
Income (loss) from operations |
(23,671 | ) | (281,682 | ) | (305,353 | ) | ||||||
Other income (expense) |
5,000 | - | 5,000 | |||||||||
Net Income (loss) |
$ | (18,671 | ) | $ | (281,682 | ) | $ | (300,353 | ) | |||
Total Assets |
$ | 62,614 | $ | 1,076,678 | $ | 1,139,292 |
Reconciliation of Segment Amounts Reported to Condensed Consolidated Amounts |
Revenue |
||||
Total revenues for reportable segments |
$ | 3,237,916 | ||
Total consolidated revenue |
$ | 3,237,916 | ||
Net loss |
||||
Total loss for reportable segments |
$ | (300,353 | ) | |
Unallocated amounts relating to corporate operations |
||||
Selling, general and administrative expenses |
(803,957 | ) | ||
Stock based compensation |
(82,500 | ) | ||
Amortization of loan costs |
(94,670 | ) | ||
Depreciation and interest expense |
(117,047 | ) | ||
Total consolidated net loss |
$ | (1,398,527 |
) | |
Assets |
||||
Total assets for reportable segments |
$ | 1,139,292 | ||
Corporate investments and other assets |
24,131 | |||
Total consolidated assets |
$ | 1,163,423 |
|
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 Governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC., and Bulova Technologies (Europe) LLC. The Contract Manufacturing segment produced cable assemblies, circuit boards as well as complete systems, and 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 March 31, 2014 compared to the three months ended March 31, 2013.
Discontinued Operations
There is no activity from discontinued operations for the three months ended March 31, 2014 or 2013.
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 March 31, 2014 of $947,820 is a decrease of $992,695 when compared to the Company’s revenue for the three months ended March 31, 2013 of $1,940,515.
The Company’s cost of sales for continuing operations for the three months ended March 31, 2014 of $893,352 is a decrease of $833,519 when compared to the Company’s cost of sales for the three months ended March 31, 2013 of $1,726,871.
The Company’s gross profit for continuing operations for the three months ended March 31, 2014 of $54,468 is a decrease of $159,176 when compared to the Company’s gross profit for the three months ended March 31, 2013 of $213,644.
The Company’s expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization of loan costs, and interest for the three months ended March 31, 2014 of $805,719 is an increase of $201,905 when compared to the same expenses of $603,814 for the three months ended March 31, 2013. This is due primarily to the ramp up of the new industrial machine business segment. |
The Company’s stock based compensation for continuing operations for the three months ended March 31, 2014 was $60,000, and represents a decrease of $55,500 as compared to the stock based compensation of $115,500 for the three months ended March 31, 2013.
The Company did not have any other income for the three months ended March 31, 2014 which represents a decrease of $5,851,002 as compared to $5,851,002 for the three months ended March 31, 2013. This decrease is comprised primarily of the change in accounting estimate.
The Company’s net loss from continuing operations for the three months ended March 31, 2014 of $811,251 is a decrease of 6,156,583 when compared to the net income from continuing operations of $5,345,332 for the three months ended March 31, 2013, which again relates to the large net gain on the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC.
For the six months ended March 31, 2014 compared to the six months ended March 31, 2013.
Discontinued Operations
There is no activity from discontinued operations for the six months ended March 31, 2014. The only activity to reflect as results from our discontinued operations for the six months ended March 31, 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.
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 six months ended March 31, 2014 of $3,237,916 is an increase of $261,128 when compared to the Company’s revenue for the six months ended March 31, 2013 of $2,976,788. This net increase is due primarily to sales of ammunition and industrial machine sales and service.
The Company’s cost of sales for continuing operations for the six months ended March 31, 2014 of $2,835,716 is an increase of $210,176 when compared to the Company’s cost of sales for the six months ended March 31, 2013 of $2,625,540.
The Company’s gross profit for continuing operations for the six months ended March 31, 2014 of $402,200 is an increase of $50,952 when compared to the Company’s gross profit for the six months ended March 31, 2013 of $351,248.
The Company’s expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization of loan costs, and interest for the six months ended March 31, 2014 of $1,723,227 is a decrease of $235,510 when compared to the same expenses of $1,958,737 for the six months ended March 31, 2013. This is due primarily to the elimination of those costs associated with the operations that have been sold.
The Company’s stock based compensation for continuing operations for the six months ended March 31, 2014 was $82,500, and represents a decrease of $190,682 as compared to the stock based compensation of $273,182 for the six months ended March 31, 2013.
The Company’s other income for the six months ended March 31, 2014 consists of a $5,000 settlement with a vendor and is a decrease of $13,312,570 as compared to $13,317,570 for the six months ended March 31, 2013. This decrease is comprised primarily of 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 and the change in accounting estimate.
The Company’s net loss from continuing operations for the six months ended March 31, 2014 of $1,398,527 is a decrease of $10,038,372 when compared to the net income from continuing operations of $11,436,899 for the six months ended March 31, 2013, which again relates to the large net gain on the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC. | ||
3. |
|
Liquidity and capital resources: |
|
||
|
|
As of March 31, 2014, the Company’s sources of liquidity consisted of new debt as well as new sales reported in the commercial sales and service business segment.
As of March 31, 2014, we had $32,747 in cash and cash equivalents.
Cash flows used in operating activities was $2,106,818 for the six months ended March 31, 2014.
Cash flows used in investing activities was $1,283 for the six months ended March 31, 2014,
|
Cash flows provided from financing activities were $2,051,036 for the six months ended March 31, 2014, and consisted primarily of new debt in the amount of $2,109,349.
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 and new commercial sales, 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 March 31, 2014 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: |
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31.1 |
|
Rule 13a-14(a) Certification of Principal Executive Officer |
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31.2 |
|
Rule 13a-14(a) Certification of Principal Financial Officer |
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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 |
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32.2 |
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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* | XBRLTaxonomy Txtension 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. |
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.
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BULOVA TECHNOLOGIES GROUP, INC. |
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By |
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/s/ Stephen L Gurba |
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Stephen L Gurba | |||||
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Principal Executive Officer |
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By |
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/s/ William McMillen |
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William McMillen |
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Principal Financial and Accounting Officer |
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DATED: May 20, 2014
21
Exhibit 31.1
BULOVA TECHNOLOGIES GROUP, INC.
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Stephen L Gurba, Principal Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bulova Technologies Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that was materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 20, 2014
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/s/ Stephen L Gurba |
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Stephen L Gurba |
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Principal Executive Officer |
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Exhibit 31.2
BULOVA TECHNOLOGIES GROUP, INC.
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, William McMillen Principal Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bulova Technologies Group, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant’s as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that was materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 20, 2014
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/s/ William McMillen |
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William McMillen |
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Principal Financial Officer |
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Exhibit 32.1
BULOVA TECHNOLOGIES GROUP, INC.
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Bulova Technologies Group, Inc. (the Company) on Form 10-Q for the quarterly period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I Stephen L Gurba, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||||
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | ||||
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/s/ Stephen L Gurba |
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Stephen L Gurba |
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Principal Executive Officer |
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Exhibit 32.2
BULOVA TECHNOLOGIES GROUP, INC.
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Bulova Technologies Group, Inc. (the Company) on Form 10-Q for the quarterly period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William McMillen, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||||
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(2) |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | ||||
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/s/ William McMillen |
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William McMillen |
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Principal Financial Officer |
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Note 7 - Commitments and Contingencies (Details) (USD $)
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6 Months Ended | |
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Mar. 31, 2014
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Mar. 31, 2013
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Note 7 - Commitments and Contingencies (Details) [Line Items] | ||
Operating Leases, Rent Expense, Net (in Dollars) | $ 184,735 | $ 140,000 |
Tampa, Florida [Member]
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Note 7 - Commitments and Contingencies (Details) [Line Items] | ||
Area of Real Estate Property | 5,000 | |
Operating Leases of Lessee, Contingent Rentals, Basis Spread on Variable Rate | 2.50% | |
Sanford, Florida [Member]
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Note 7 - Commitments and Contingencies (Details) [Line Items] | ||
Area of Real Estate Property | 6,000 | |
Branchburg, New Jersey [Member]
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Note 7 - Commitments and Contingencies (Details) [Line Items] | ||
Area of Real Estate Property | 10,000 | |
Lessee Leasing Arrangements, Operating Leases, Term of Contract | 2 years | |
Lessee Leasing Arrangements, Operating Leases, Renewal Term | 2 years | |
Number of Units in Real Estate Property | 2 |
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