10-K 1 blvt20140930_10k.htm FORM 10-K blvt20140930_10k.htm

Table Of Contents

  



 

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, 2014

 

OR

 

 

 

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

   
  For the transition period from                          to                       

 

Commission File Number 000-09358

 

BULOVA TECHNOLOGIES GROUP, INC

(Exact name of registrant as specified in its charter)

 

 

 

Florida

 

83-0245581

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

12645 49th Street North

Clearwater, Florida 33762
(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 December 31, 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 December 31, 2014, the Company had 62,093,518 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, 2014

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

 

 

PART I

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Business

 

 

4

 

Item 2.

 

Properties

 

 

9

 

Item 3.

 

Legal Proceedings

 

 

9

 

Item 4.

 

Mine Safety Disclosures

 

 

9

 

 

 

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity and Related Stockholder Matters

 

 

10

 

Item 7.

 

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

 

 

10

 

Item 8.

 

Consolidated Financial Statements

 

 

14

 

Item 9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

 

33

 

Item 9A.

 

Controls and Procedures

 

 

33

 

 

 

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance of the Registrant

 

 

34

 

Item 11.

 

Executive Compensation

 

 

35

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

36

 

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

 

 

37

 

Item 14.

 

Principal Accountant Fees and Services

 

 

37

 

 

 

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

 

38

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

39

 

 

  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 has three major areas of focus which it conducts through its subsidiaries. Historically, the Company was dependent upon the Department of Defense as a customer, supplying the DoD with weaponry, ammunition and systems integration. For the reasons herein after described, the Company is engaged in a transition from DoD military product contracting. More recently, the Company has evolved to become a seller of high precision industrial machine tools, primarily through its distribution network. Most recently, the Company has begun the incubation and marketing of innovative technology products for which it believes it can lend value because of its highly recognizable name brand and extensive marketing experience. The Company’s 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 (“BTM”). As of September 2014, BTM relocated all of its operations to a facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida to facilitate commercial sales of its industrial machine tool business, and to provide office space to its other facilities.

 

Bulova Technologies Machinery LLCFormed in July of 2013, and co-located with the Company’s headquarters, Bulova Technologies Machinery LLC represents the Company's entree into the machine tool business. This wholly-owned subsidiary employs five people and operates from a new facility and showroom located in Clearwater, Florida. It imports industrial machine tools and related equipment from recognized international sources and continues to establish a Distributor/Dealer Network throughout the United States from which such equipment primarily will be sold.

 

Bulova Technologies (Europe LLC). Co-located at the Company’s headquarters in Clearwater, Florida, this wholly-owned subsidiary (“Europe”), employing three people, was engaged in several related business, including the Mortar Exchange Program, the offsets program, the administration of the BPA awarded to Ordnance, and the brokerage of commercial, small caliber ammunition. Pursuit of the Mortar Exchange Program, an offering made by a joint venture with TriGas Oil and Trade S.A. (a Swiss company) to NATO countries whereby the joint venture proposed to sell new mortar rounds to such countries accepting, in partial payment, outdated mortar rounds for refurbishment, was halted during the course of the year so that Europe could concentrate on its commercial ammunition business. Similarly, pursuit of the offsets program, whereby the same joint venture partners offered to facilitate, for a fee, commercial entities in the U.S. with offsets (counter-purchases from friendly countries demanded by such countries in exchange for their purchases of U.S. made goods) was halted in 2013 for the same reason. Europe continues to administer the Ordnance BPA, though the contractual obligations are Ordnances, and broker the sale of Eastern European commercial small caliber ammunition to large U.S. customers on a wholesale basis and to small retail customers in the U.S. Europe entered the business of the commercial brokerage of small caliber ammunition in 2013 because of an increased U.S.-wide demand for such ammunitions combined with a lack of availability from U.S. manufacturers. Europe purchases such ammunition from Eastern European manufacturers and re-sells it to both large, wholesale dealers in such ammunition and directly to small retail customers. Europe currently has no backlog of sales of such ammunition, selling only upon the funding of orders. We do not believe our pending disputes with the U.S. Army will impact the operations of Europe because it does not have contract relations with the DoD, the Army or any other related armed forces agencies. However, if the DoD or the U.S. Army were to ultimately prevail in any claims against us, as the parent of Europe, then Europe, as our subsidiary, may also be adversely affected.

 

Bulova Technologies Advanced Products LLC

 

Newly created, and co-located at the Company’s headquarters in Clearwater, Florida, this subsidiary (“BTAP”) actively seeks technologically innovative products in industries in which the Bulova Technologies name and management team can bring value. Currently, BTAP is in the process of identifying several products in the healthcare and software areas which it may elect to pursue.

 

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. – Prior to discontinuance, its operations were located on 261 acres in Mayo, Florida Ordnance was a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade Controls (DDTC). It produced a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world. In October 2012, Ordnance sold substantially all of its assets to an unrelated party. The sale included both the right to perform Ordnance’s then-current contracts with the Department of Defense. As a result, the only remaining work with the DoD performed by Ordnance was the nominal performance of the contracts which were transferred (until a novation of the transferred contracts takes place) and a remaining blanket purchase agreement (BPA) with the DoD whereby the DoD may order non-standard (e.g. Eastern European) weapons for shipment to friendly forces abroad. The BPA, which is now administered by representatives of Bulova Technologies (Europe) LLC, remains in place but Ordnance has received no orders thereunder since 2011, nor has it sought any new contracts from the DoD since 2012. Ordnance is engaged currently in litigation with the DoD concerning the propriety of a termination of a similar BPA which took place in July, 2010. (See Item 3 Legal Proceedings)

 

 

Segments

 

Commencing with the Company’s formation of Bulova Technologies Machinery LLC, the Company operated in two business segments (i), government contracting and (ii) 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 discontinued government contracting and contract manufacturing operations represented a significant portion of our operating revenues. There is no assurance our current business activity will sustain our operations.

 

The divestiture and discontinuation of the operations of BT Manufacturing Company LLC and Bulova Technologies Ordnance Systems LLC represented substantially all our revenues and assets at that time. While such discontinuances were deemed in our best interest because of the related reduction of substantial debts and liabilities, there is no assurance that our continuing operations will be successful.

 

Government Contracts.

 

With the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in October 2012, Ordnance has only one remaining DoD contract (the BPA) and at this time is not seeking additional work with DoD beyond that which may arise under the BPA. With regard to that BPA, the risk factors include:

 

The BPA’s orders 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). Previous to our de-emphasis upon DoD military product contracting, 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.

 

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.

 

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 are currently involved, through Ordnance, in legal proceedings involving the termination of a DoD contract which took place in July 2010. (See Part 3, Legal Proceedings).

 

We may not be able to win competitively awarded contracts or receive required licenses to export our products, which, previous to our de-emphasis upon DoD military product contracting, 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.

 


  

 

Brokerage of Small Caliber Ammunition Commercial Sales

 

The Brokerage business is dependent entirely upon both a strong U.S. demand and a lack of availability from U.S. manufacturers.

 

While the demand for small caliber commercial ammunition has been especially strong in the past 2-3 years in the U.S. and remains so, there can be no assurance that the market will continue to remain so. Without such demand, sales would drop precipitously. Similarly, should U.S. manufacturers increase production to a greater level and meet the increased U.S. demand, the import of Eastern European ammunition would also likely be affected adversely.

 

The importation of ammunition manufactured abroad could be affected by future U.S. regulations.

 

While Europe holds all licenses required to import ammunition from Eastern Europe, there can be no assurance that regulations might not be adopted in the future which could affect either the ability of Europe to import such ammunition or the price to Europe of such ammunition, in which case either Eastern European ammunition would become unavailable for import by Europe, or make such ammunition too costly to sell in the U.S.

 

Machine Tool Business Commercial Sales

 

BTM competes with much larger producers of machine tools products.

 

The machine tool product business is highly competitive and BTM competes against much larger entities with very strong resources and competitive pricing. There can be no assurance that BTM will succeed in its competition with such entities.

 

The machine tool business is subject to economic perturbations and foreign competition.

 

While there are more than 196,000 machine shops in the U.S. which utilize machine tool equipment, the businesses utilizing machine tools and, consequently, the sellers of machine tool equipment in the U.S. are subject to general economic perturbations as well as foreign competition. Consequently, factors such as the demand for products manufactured by machine tool shops, the availability of credit to machine tool purchasers and the competition machine tool manufacturer’s face from foreign manufacturers could adversely impact the sale of machine tools by BTM.

 

General Business Risks

 

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. We are currently involved, through Ordnance, in legal proceedings involving the termination of a DoD contract which took place in July 2011. (See Part 3, Legal Proceedings).

 

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

 

The markets for defense products, machine tool sales and brokerage of commercial ammunition are each 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, many 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, 2014, we had approximately $1.6 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 settled significant 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.

 

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.

 

The DTCC “Chill” May Have An Adverse Effect Upon the Company’s Ability to Raise Capital

 

A partial “chill” was placed upon the electronic exchange of the Company’s securities in Fall, 2012 by the Depository Trust and Clearing Corporation. This chill prevents the electronic exchange of the Company’s securities but does not extend to the manual purchase and sale of the Company’s securities. This chill could have an adverse effect on the Company’s ability to raise capital by limiting the number of potential investors. The Company is attempting to remove this chill.

  

 

Item 1B. Unresolved Staff Comments

 

Not applicable

 

Item 2. Property

 

At September 30, 2014 the Company operated corporate and administrative offices in a leased facility in Tampa, Florida, approximating 5,000 square feet. The Company also leased, on a month to month basis, an office in Frankfurt Germany to facilitate its European program, which has been terminated as of January 2015.

 

Commencing in July of 2013, Bulova Technologies Machinery LLC, leased 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. As of September 2014, BTM relocated all of its operations to a new facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida to facilitate commercial sales of its industrial machine tool business. This facility is leased for a period of 6 years at a rate of $13,500 per month.

 

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 which could have a material effect on our future financial position or results of operations.

 

In July 2010, the U.S. Army terminated a contract to which Bulova Technologies Ordnance Systems LLC was a party. Concurrently, the Army demanded repayment of approximately $12,000,000 of payments provided previously to Ordnance under that contract. Ordnance appealed the termination on October 26, 2010. Ordnance challenged this decision before the Armed Services Board of Contract Appeals (“ASBCA”). In January 2014 a decision was rendered by the ASBCA finding that the contract was partially terminated correctly and partially terminated without justification. Based on this decision, which recognized both that the Army had improperly terminated a portion of the contract, converting that portion of the contract to a termination for convenience (which entitles Ordnance to payment of its termination costs by the Army) and implicitly that the Army had delayed unreasonably in supplying contractually-required documents to Ordnance. Ordnance submitted a termination for convenience claim in excess of $1,400,000 to the Army in April 2014 and a delay claim in excess of $3,200,000 in October 2014, the principle reason Ordnance has been maintained as a legal entity. The Army will likely pursue Ordnance for the balance (plus interest and penalties). The assets of Ordnance were sold at arm’s length to an independent third party and virtually all of the proceeds distributed to secured and unsecured third party creditors. There can be no assurance that the Government will not seek to either reverse the sale of Ordnance’s assets or pursue Bulova Technologies Group as the parent corporation of Ordnance and, if such actions were successful, these actions could have a material adverse effect on Bulova Technologies Group.

 

In connection with the sale of substantially all of its assets to a third party in October 2012, Bulova Technologies Ordnance Systems LLC agreed to participate with the purchaser (the “Purchaser”) in the submission of a Novation Agreement to the U.S. Government in order to gain recognition by the U.S. Government of the transfer of certain Army and Navy contracts to the Purchaser. Bulova Technologies Ordnance Systems LLC completed its portion of the Novation Agreement in a timely way, but the Purchaser did not complete its portion of the Novation Agreement and submit it to the U.S. Government until April 2014. The U.S. Government refused to acknowledge the transfer of the three remaining, fixed-price uncompleted contracts in September 2014. Accordingly, while Ordnance has no facilities to perform these contracts, it remains liable for their performance and the Purchaser refused to perform without a novation of the contracts. The Army and the Navy chose to enforce the three remaining contracts and the two Army contracts were terminated. These terminations could subject Ordnance to demand for repayment of $135,153 in advance payments made by the Army and, potentially, excess reprocurement costs in an as-yet undetermined amount. There can be no assurance that the Army or Navy will not pursue us as the parent Company of Ordnance, which actions, if successful, could have a material adverse effect upon us. In the judgment of management, based upon discussions with relevant Government officials, the denial by the Government of the transfer of the contracts was caused by the delay in submission of the Novation Agreement by Purchaser and, accordingly, Bulova Technologies Ordnance Systems LLC is exploring a cause of action against Purchaser for any claims made by the Army and Navy resulting from terminations.

 

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 “BTGI”. 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.

 

On December 30, 2013, the Company effected a 1 for 200 reverse split of its common stock. The financial statements and other financial information set forth in this Form 10-K have been retroactively adjusted to reflect the effects of this reverse split. As a result the issued and outstanding common shares have been reduced from 438,138,975 to 2,190,695 as of September 30, 2011. Concurrently, the Company amended its Articles to reduce the amount of authorized common shares from 5,000,000,000 to 500,000,000 common shares.

 

 

Quarter Ending

  High      Low  
                 

December 31, 2012

  $ 0.1600     $ 0.0200  

March 31, 2013

    0.1200       0.0200  

June 30, 2013

    0.0800       0.0200  

September 30, 2013

    0.0400       0.0200  
                 

December 31, 2013

  $ 0.0250     $ 0.0100  

March 31, 2014

    0.0500       0.0010  

June 30, 2014

    0.0148       0.0041  

September 30, 2014

    0.0360       0.0030  

 

 

The closing bid price of our Common Stock on January 6, 2015, was $.012.

 

As of January 6, 2015, 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 paying a dividend on our Common Stock in the fiscal year ended September 30, 2015.

 

A partial “chill” was placed upon the electronic exchange of the Company’s securities in Fall, 2012 by the Depository Trust and Clearing Corporation. This chill prevents the electronic exchange of the Company’s securities but does not extend to the manual purchase and sale of the Company’s securities.

 

 

 

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

 

 

FORWARD LOOKING STATEMENTS

 

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

 

Overview:

 

Starting January 1, 2009, Bulova Technologies Group, Inc. 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, which the Company has exited, 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. In October 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party and discontinued operations. For reporting purposes, the Company has identified the assets and liabilities of BT Manufacturing Company LLC and Bulova Technologies Ordnance Systems LLC as pertaining to discontinued operations and has segregated their operating results and presented them separately as discontinued operations for all periods presented. Commencing in July of 2013, the Company entered into the commercial sales segment, to include the commercial ammunition sales market place and the industrial machine tool business by, in the latter case, forming Bulova Technologies Machinery LLC.

 

 

Application of critical accounting policies:

 

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s audited 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, 2014 compared to the year ended September 30, 2013.

 

Discontinued Operations

 

The Company is reporting results of operations of two discontinued operations for the years ended September 30, 2014 and 2013. The following summarizes these results by the two subsidiaries that have been discontinued.

 

BT Manufacturing Company LLC

 

The Company had no activity to report for this subsidiary for the year ended September 30, 2014, as the complete resolution of all outstanding items associated with the discontinuance of this subsidiary was accomplished by September 30, 2013. For the year ended September 30, 2013 the Company recognized a gain from discontinued operations of $1,309,424 in settling a guaranteed debt and accrued interest with a single payment of $625,000. This note balance had carried over after the disposition of all of the assets of BT Manufacturing Company LLC in 2011. The settlement of this debt is a troubled debt restructuring. The $625,000 payment was a complete and final settlement of the note balance including accrued interest. The Company negotiated this substantial discount, and has recognized a gain on the settlement of this debt. There have been no modifications to create any additional terms of payment and there are no remaining contingencies associated with this debt, or this subsidiary. 

 

Bulova Technologies Ordnance Systems LLC

 

In October 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party. The purchaser performed certain contracts remaining in the name of Ordnance as a subcontractor for the balance of the year ended September 30, 2013 and for a portion of the year ended September 30, 2014. The effect was a very small gross profit as most of the contract revenues were passed through to the purchaser for fulfillment.

 

Revenue for the discontinued operations of Ordnance for the year ended September 30, 2014 of $1,580,488 is a decrease of $4,836,474 when compared to the revenue for the year ended September 30, 2013 of $6,416,962.

 

Cost of revenues for the discontinued operations of Ordnance for the year ended September 30, 2014 of $1,570,912 is a decrease of $3,923,981 when compared to the cost of revenue for the year ended September 30, 2013 of $5,494,893.

 

Gross profit for the discontinued operations of Ordnance for the year ended September 30, 2014 of $9,576 is a decrease of $912,493 when compared to the gross profit for the year ended September 30, 2013 of $922,069.

 

Operating expenses and interest for the discontinued operations of Ordnance for the year ended September 30, 2014 of $102,680 is a decrease of $663,418 when compared to operating expenses and interest for the year ended September 30, 2013 of $766,098.

 

Other income for the discontinued operations of Ordnance for the year ended September 30, 2014 of $4,451 represents a decrease of $6,195,232 as compared to $6,199,683 for the year ended September 30, 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 to an unrelated party in the amount of $7,257,719 which occurred on October 24, 2012.

  

 

Continuing Operations

 

Revenue for continuing operations for the year ended September 30, 2014 of $3,162,543 is an increase of $3,141,732 when compared to the revenue for the year ended September 30, 2013 of $20,811. This increase consists of $1,550,668 from Bulova Technologies Machinery’s first year of sales combined with $1,611,875 from sales of ammunition by Bulova Technologies (Europe). All of the revenue for the year ended September 30, 2013 was from the start of new commercial sales.

 

Cost of revenues for continuing operations for the year ended September 30, 2014 of $2,617,810 is an increase of $2,611,973 when compared to the cost of revenues for the year ended September 30, 2013 of $5,837.

 

Gross profit for continuing operations for the year ended September 30, 2014 of $544,733 is an increase of $529,759 when compared to the gross profit for the year ended September 30, 2013 of $14,974.

 

Selling and administrative expenses for continuing operations for the year ended September 30, 2014 of $3,408,144 is an increase of $1,096,928 when compared to selling and administrative expense for the year ended September 30, 2013 of $2,311,216.

 

Stock based compensation for continuing operations for the year ended September 30, 2014 of $342,749 is a decrease of $146,833 when compared to stock based compensation for the year ended September 30, 2013 of $489,582.

 

Depreciation and amortization expense for continuing operations for the year ended September 30, 2014 of $109,172 is a decrease of $480,816 when compared to depreciation and amortization expense for the year ended September 30, 2013 of $589,988.

 

Interest expense for continuing operations for the year ended September 30, 2014 of $313,124 is an increase of $257,986 when compared to interest expense for the year ended September 30, 2013 of $74,961.

 

The Company’s net loss from continuing operations for the year ended September 30, 2014 of $3,672,156 is an increase of $1,151,571 when compared to the net loss from continuing operations for the year ended September 30, 2013 of $2,520,585.

 

 

Liquidity and capital resources:

 

As of September 30, 2014, the Company’s sources of liquidity were new debt and loans from shareholders.

 

As of September 30, 2014, we had $9,522 in cash and cash equivalents.

 

Cash flows used in operating activities by continuing operations was $3,177,909 for the year ended September 30, 2014. Cash flows used in operating activities by discontinued operations was $80,492.  

 

Cash flows used in investing activities by continuing operations was $46,465 for the year ended September 30, 2014. There were no cash flows from investing activities by discontinued operations for the year ended September 30, 2014.

 

Cash flows from financing activities by continuing operations was $3,228,908 for the year ended September 30, 2014. Cash flows from financing activities by discontinued operations was $1,289.

 

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 its expanded 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 need 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, 2014, 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

 

 

15

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2014 and 2013

 

 

16

 

 

 

 

 

 

Consolidated Statements of Operations for the Years Ended September 30, 2014 and 2013

 

 

17

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Years Ended September 30, 2014 and 2013

 

 

18

 

         

Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended September 30, 2014 and 2013

   

20

 
         

Notes to Consolidated Financial Statements

   

21

 

 

 

 

 

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 balance sheets of Bulova Technologies Group, Inc. as of September 30, 2014 and 2013, and the related statement 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, 2014 and 2013, 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, 2015

 

 

 

PCAOB Registered

AICPA Member

  

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

September 30,

 
   

2014

   

2013

 
                 

ASSETS

               
                 

Cash and cash equivalents

  $ 9,522     $ 84,191  

Accounts receivable, net

    353,951       6,004  

Inventory

    363,520       55,605  

Other current assets

    119,838       13,649  

Current assets from discontinued operations

    4,085       303,182  
                 

Total Current Assets

    850,916       462,631  
                 

Fixed assets, net

    65,302       34,436  

Other assets

    2,000       103,295  

Non-current assets from discontinued operations

    -       58,273  
    $ 918,218     $ 658,635  
                 
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 1,119,870     $ 73,563  

Accrued expenses and other current liabilities

    364,298       561,879  

Current portion of long term debt

    398,184       1,617,852  

Current liabilities from discontinued operations

    1,812,632       2,136,576  
                 

Total current liabilities

    3,694,984       4,389,870  
                 

Shareholder loans and accrued interest

    21,830       (22,613 )

Long term debt, net of current portion

    4,238,215       -  

Long term liabilities from discontinued operations

    6,071,700       6,184,329  
      14,026,729       10,551,586  
                 

Commitments and contingencies

    -       -  
                 

Shareholders’ deficit

               

Preferred stock, $.00001 par, authorized 5,000,000,000 shares; 4,000,000,000 and 4,000,000,000 issued and outstanding at September 30, 2014 and 2013

    40,000       40,000  

Common stock, $.001 par; authorized 500,000,000 shares, 59,280,068 and 21,001,316 issued and outstanding at September 30, 2014 and 2013

    59,280       21,001  

Subscription receivable - warrants

    (66,000 )     (66,000 )

Additional paid in Capital in excess of par

    23,681,161       23,174,191  

Retained earnings (deficit)

    (36,822,952 )     (33,062,143 )
      (13,108,511 )     (9,892,951 )
    $ 918,218     $ 658,635  

 

See accompanying notes to consolidated financial statements.

  

 

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

 

   

Years Ended September 30,

 
   

2014

   

2013

 
                 

Revenues

  $ 3,162,543     $ 20,811  

Cost of revenues

    2,617,810       5,837  

Gross profit

    544,733       14,974  
                 
                 

Selling and administrative expenses

    3,408,144       2,311,216  

Stock based compensation

    342,749       489,582  

Depreciation and amortization expense

    109,172       589,988  

Interest expense

    313,124       74,961  
                 

Total expenses

    4,173,189       3,465,747  

Loss from operations

    (3,628,456 )     (3,450,773 )
                 

Other income (expense)

               

Other income (expense)

    (43,700 )     930,188  
                 

Income (loss) from continuing operations before income taxes

    (3,672,156 )     (2,520,585 )
                 

Income tax expense

    -       -  
                 

Income (loss) from continuing operations

    (3,672,156 )     (2,520,585 )

Income (loss) from discontinued operations, net of tax

    (88,653 )     7,665,078  
                 

Net income (loss)

  $ (3,760,809 )   $ 5,144,493  
                 

Basic net income (loss) per share

               

Income (loss) from continuing operations

  $ (.099 )   $ (.15 )

Income (loss) from discontinued operations

    (.002 )     .44  

Net income (loss) per share

  $ (.101 )   $ .29  
                 

Diluted net income (loss) per share

               

Income (loss) from continuing operations

  $ (.099 )   $ (.06 )

Income (loss) from discontinued operations

    (.002 )     .18  

Net income (loss) per share

  $ (.101 )   $ .12  
                 

Weighted average shares outstanding

               

Basic

    35,980,640       17,464,286  

Diluted

    35,980,640       43,110,597  

 

See accompanying notes to consolidated financial statements.

  

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   

Years Ended September 30,

 
   

2014

   

2013

 
                 

Cash flows from operating activities:

               

Net Income (Loss)

  $ (3,672,156   $ 5,144,493  

(Income) Loss from discontinued operations

    (88,653     (7,665,078 )

Income (Loss) from continuing operations

    (3,760,809     (2,520,585

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

               

Depreciation and amortization

    109,172       589,988  

(Gain) Loss on sale of assets

    1,098       -  

Stock based payment for services

    342,749       489,582  

Changes in operating assets and liabilities

               

Accounts receivable

    (347,947     (6,004

Inventory

    (307,915     (55,605

Prepaid expenses and other assets

    (77,968     129  

Accounts payable and accrued expenses

    863,711       535,649  
                 

Net cash flows from operating activities – continuing operations

    (3,177,909     (966,846

Net cash flows from operating activities – discontinued operations

    (80,492     1,076,904  

Net cash flows from operating activities

    (3,258,401     110,058  
                 
                 

Cash flows from investing activities:

               

Purchase of property and equipment

    (46,465     (12,585

Net cash flows from investing activities – continuing operations

    (46,465     (12,585

Net cash flows from investing activities – discontinued operations

    -       1,743,550  

Net cash flows from investing activities

    (46,465     1,730,965  
                 

Cash flows from financing activities

               

Increase (decrease) in shareholder loans

    44,443       (469,136

Increases in long term debt

    3,131,598       1,644,044  

Repayment of long term debt

    (89,933     (1,074,036

Proceeds from sale of common shares

    142,800       -  

Proceeds from sale of preferred shares

    -       20,000  
                 

Net cash flows from financing activities – continuing operations

    3,228,908       120,872  

Net cash flows from financing activities – discontinued operations

    1,289       (1,877,490

Net cash flows from financing activities

    3,230,197       (1,756,618
                 

Increase (decrease) in cash and cash equivalents

    (74,669     84,405  

Cash and cash equivalents, beginning

    84,191       (214
                 

Cash and cash equivalents, ending

  $ 9,522     $ 84,191  
    $ 56,273     $ 10,964  

Cash paid for interest

               
    $ -     $ -  

Cash paid for taxes

               

 

 

 

Supplemental schedule of non-cash financing and investing activities:

 

 

 

On October 24, 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party and discontinued operations. At the closing of the sale, the buyer assumed approximately $5,000,000 of secured debt, and approximately $3,500,000 of secured debt was paid directly through the escrow account of the closing agent.

 

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

 

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 in satisfaction of debt

 

February 2014, the Company issued 4,000,000 common shares for services

 

March 2014, the Company issued 2,356,472 common shares in satisfaction of debt

 

May 2014, the Company issued 3,231,118 common shares in satisfaction of debt

 

May 2014, the Company issued 1,100,000 warrants for services

 

June 2014, the Company issued 3,000,000 warrants for services

 

June 2014, the Company issued 4,255,534 common shares in satisfaction of debt

 

June 2014, the Company issued 1,000,000 common shares as part of a judgment settlement

 

July 2014, the Company issued 2,129,032 common shares in satisfaction of debt

 

July 2014, the Company issued 2,129,032 common shares in satisfaction of debt

 

August 2014, the Company issued 25,700,000 warrants for services

 

August 2014, the Company issued 1,700,000 common shares in satisfaction of debt

 

August 2014, the Company issued 2,500,000 common shares for services

 

August 2014, the Company issued 750,000 common shares for costs associated with settlement of debt

 

September 2014, the Company issued 10,187,500 warrants for services

 

See accompanying 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, October 1, 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

                                                    5,144,493       5,144,493  

Balances, September 30, 2013

    4,000,000,000     $ 40,000       21,001,316     $ 21,001     $ (66,000 )   $ 23,174,191     $ (33,062,143 )   $ (9,892,951 )

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  

Sale of common shares

                    12,000,000       12,000               130,800               142,800  

Issuance of shares in satisfaction of debt

                    7,486,652       7,487               13,183               20,670  

Issuance of shares for settlement

                    1,000,000       1,000               6,700               7,700  

Issuance of shares in satisfaction of debt

                    5,958,064       5,958               10,872               16,830  

Issuance of shares for services

                    3,250,000       3,250               14,750               18,000  

Issuance of warrants

                                            242,249               242,249  

Net loss for the year ended September 30, 2014

                                                    (3,760,809 )     (3,760,809 )

Balances, September 30, 2014

    4,000,000,000     $ 40,000       59,280,068     $ 59,280     $ (66,000 )   $ 23,681,161     $ (36,822,952 )   $ (13,108,511 )

 

See accompanying notes to consolidated financial statements.

  

 

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

YEARS ENDED SEPTEMBER 30, 2014 AND 2013

 

 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.

 

At September 30, 2014 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 subsidiary, leased 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. As of September 2014, BTM relocated all of its operations to a new facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida to facilitate commercial sales of its industrial machine tool business.

 

At September 30, 2012, our former government manufacturing business was located on 261 acres owned by Ordnance in Mayo, Florida, where Ordnance 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 when Ordnance sold substantially all of its assets and discontinued operations.

 

The Company has three major areas of focus which it conducts through its subsidiaries. Historically, the Company was dependent upon the Department of Defense as a customer, supplying the DoD with weaponry, ammunition and systems integration. For the reasons herein after described, the Company is engaged in a transition from DoD military product contracting. More recently, the Company has evolved to become a seller of high precision industrial machine tools, primarily through its distribution network. Most recently, the Company has begun the incubation and marketing of innovative technology products for which it believes it can lend value because of its highly recognizable name brand and extensive marketing experience.

 

 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, 2014 and 2013. 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.

 

Bulova Technologies Machinery LLC - Formed in July of 2013, Bulova Technologies Machinery LLC represents the Company's entree into the machine tool business, and imports industrial machine tools and related equipment from recognized international sources and establish a Distributor/Dealer Network throughout the United States and Canada.

 

 

Bulova Technologies (Europe) LLC – co-located at the Company’s headquarters in Tampa, Florida, this wholly-owned subsidiary (“Europe”), employing three people, was engaged in several lines of related business, including the Mortar Exchange Program, the offsets program, the administration of the BPA awarded to Ordnance, and the brokerage of commercial, small caliber ammunition. Pursuit of the Mortar Exchange Program, an offering made by a joint venture together with the TriGas Oil and Trade S.A. (a Swiss company) to NATO countries whereby the joint venture would sell new mortar rounds to such countries accepting, in partial payment, outdated mortar rounds for refurbishment, was halted during the course of the year so that Europe could concentrate on its commercial ammunition business. Similarly, pursuit of the offsets program, whereby the same joint venture partners offered to facilitate commercial entities in the U.S. with offsets (counter-purchases from friendly countries demanded by such countries in exchange for their purchases of U.S. made goods) was halted in 2013 for the same reason. Europe continues to administer the Ordnance BPA and broker the sale of Eastern European commercial small caliber ammunition to large U.S. customers on a wholesale basis and to small retail customers in the U.S.

 

Bulova Technologies Advanced Products LLC

 

Newly created, and co-located at the Company’s headquarters in Clearwater, Florida, this subsidiary (“BTAP”) actively seeks technologically innovative products in industries in which the Bulova Technologies name and management team can bring value. Currently, BTAP is in the process of identifying several products in the healthcare and software areas which it may elect to pursue.

 

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 that had carried over from the disposition was negotiated and settled at a discount in October 2012.

 

Bulova Technologies Ordnance Systems LLC. - Prior to discontinuance, its operations were located on 261 acres in Mayo, Florida Ordnance was a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade Controls (DDTC). It produced a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world. In October 2012, Ordnance sold substantially all of its assets to an unrelated party. The sale included both the right to perform Ordnance’s then-current contracts with the Department of Defense. As a result, the only remaining work with the DoD performed by Ordnance was the nominal performance of the contracts which were transferred (until a novation of the transferred contracts takes place) and a remaining blanket purchase agreement (BPA) with the DoD whereby the DoD may order non-standard (e.g. Eastern European) weapons for shipment to friendly forces abroad. The BPA, which is now administered by representatives of Bulova Technologies (Europe) LLC, remains in place but Ordnance has received no orders thereunder since 2011, nor has it sought any new contracts from the DoD since 2012. Ordnance is engaged currently in litigation with the DoD concerning the propriety of a termination of a similar BPA which took place in July, 2010. (See Item 3 Legal Proceedings)

 

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, 2014 and 2013, and the results of operations and cash flows for the years ended September 30, 2014 and 2013.

 

Subsequent Events

 

The Company has evaluated subsequent events through January 7, 2015 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 ammunition and commercial machine tool sales.  As the only income from government contracting for the year ended September 30, 2014 was included in discontinued operations, 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 has provided an allowance for doubtful accounts as of September 30, 2014 and 2013 of $200,000 and $0 respectively.

 

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, 2014 and 2013 is as follows:

 

   

September 30,

   

September 30,

 
   

2014

   

2013

 

Finished goods

  $ 351,460     $ -  

Materials and supplies

    12,060       55,605  
                 

Total inventory of continuing operations

  $ 363,520     $ 55,605  

 

Fixed Assets

 

Fixed assets 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.

 

Fixed assets are comprised of the following at September 30, 2014 and 2013

 

   

As of September 30,

 
   

2014

   

2013

 
                 

Funiture and fixtures

  $ 103,083     $ 117,580  
                 
      103,082       117,580  

Less accumulated depreciation

    (37,780 )     (24,871 )
                 

Net fixed assets

  $ 65,302     $ 92,709  
                 

Net fixed assets - continuing operations

  $ 65,302     $ 34,436  

Net fixed assets - discontinued operations

  $ -     $ 58,273  

  

 

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 and Bulova Technologies Ordnance Systems LLC, our government contracting segment as discontinued operations. 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 incurred advertising expenses for the years ended September 30, 2014 and 2013 of $43,275 and $0 respectively. 

 

Shipping Costs 

 

The Company includes shipping costs in cost of revenues.

 

Income Taxes

 

Income tax benefits or provisions are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled. Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The Company follows the guidance provided by 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, 2014, there were 98,842,933 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, 2014 through the date these financial statements were issued.

 

Going concern matters

 

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

 

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

 

3.   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.  

 

In October of 2012, Bulova Technologies Ordnance Systems LLC sold substantially all of its assets to an unrelated party, and discontinued operations. As a result of the decision to sell these assets, the Company has identified the assets and liabilities of Ordnance as pertaining to discontinued operations at 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.

  

 

Summarized operating results for discontinued operations is as follows:

 

   

Year ended September 30, 2014

   

Year ended September 30, 2013

 
   

Ordnance

   

BT Mfg

   

Totals

   

Ordnance

   

Bt Mfg

   

Totals

 
                                                 

Revenue

    1,580,488       -       1,580,488       6,416,962       -       6,416,962  

Cost of Sales

    (1,570,912 )     -       (1,570,912 )     (5,494,893 )     -       (5,494,893 )

Gross profit

    9,576       -       9,576       922,069       -       922,069  

Operating expenses and interest

    (102,680 )     -       (102,680 )     (766,098 )     -       (766,098 )

Other income (expense)

    4,451       -       4,451       (1,058,036 )     1,309,424       251,388  

Income (loss) from operations

    (88,653 )     -       (88,653 )     (902,065 )     1,309,424       407,359  

Gain on disposal of discontinued operations

    -       -       -       7,257,719       -       7,257,719  

Income tax benefit

    -       -       -               -       -  

Income (loss) from discontinued operations, net of tax

    (88,653 )     -       (88,653 )     6,355,654       1,309,424       7,665,078  

 

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:

 

   

As of September 30, 2014

   

As of September 30, 2013

 
   

Ordnance

   

BT Mfg

   

Totals

   

Ordnance

   

BT Mfg

   

Totals

 
                                                 

Cash

    4,085               4,085       5,621               5,621  

Accounts receivable

    -       -       -       297,561       -       297,561  

Inventory

    -       -       -       -       -       -  

Other current assets

    -       -       -       -       -       -  

Total current assets from discontinued operations

    4,085       -       4,085       303,182       -       303,182  

Property plant and equipment - net

    -       -       -       58,273       -       58,273  

Other assets

    -       -       -       -       -       -  

Total assets from discontinued operations

    4,085       -       4,085       361,455       -       361,455  
                                                 
                                                 

Accounts payable and accrued expenses

    543,690       -       543,690       932,718       -       932,718  

Current portion of long-term debt

    1,268,942       -       1,268,942       1,203,858       -       1,203,858  

Provision for loss on disposal of business segment

    -       -       -       -       -       -  

Total current liabilities from discontinued operations

    1,812,632       -       1,812,632       2,136,576       -       2,136,576  
Deferred revenue - contract dispute     6,071,700       -       6,071,700       6,071,700       -       6,071,700  

Long term debt, net of current portion

    -       -       -       112,629       -       112,629  

Total liabilities from discontinued operations

    7,884,332       -       7,884,332       8,320,905       -       8,320,905  

 

 

5.  Contract Dispute - Discontinued Operations

 

At September 30, 2014 and 2013, the Company has included in liabilities of discontinued operations, the amount of $6,071,700 relative to a contract performance dispute of its wholly owned subsidiary, Bulova Technologies Ordnance Systems LLC with the US Government. This amount represents deferred revenue arising from the percentage of completion accounting applied to a contract that was terminated prior to its completion. The Company has asserted various claims in this dispute and consequently is carrying this amount as long term pending resolution of the counter claims. There can be no assurance with respect to the outcome of this dispute. (See Item 3. Legal Proceedings)

 

 
26 

Table Of Contents
 

  

6.  Long Term Debt

 

Long term debt consisted of the following at:

 

 

   

September 30,

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 June 30, 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  
                 

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  
                 

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 30, 2015

    400,000       400,000  
                 

Note payable to an individual dated January 25, 2013 and amended on August 1, 2014 in the amount of $50,000 payable at $4,000 monthly for eleven months and a final payment of $6,000 on July 10, 2015

    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

    35,000       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 8%, with a maturity of November 30, 2015

    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

    -       54,261  
                 

Note payable to NFC III LLC dated September 30, 2013 bearing interest at 8% with a maturity of November 30, 2015

    75,000       75,000  
                 

Note payable to an individual dated September 10, 2013, bearing interest at 8% with a maturity of November 30, 2015

    125,000       75,000  
                 

Note payable to Shapiro Family Trust dated July 10, 2013, bearing interest at 8% with a maturity of November 30, 2015

    150,000       100,000  
                 

Note payable to Craigmore Machinery Company dated August 15, 2013, bearing interest at 8% with a maturity of November 30, 2015

    50,000       50,000  
                 

Note payable to Craigmore Machinery Company dated August 15, 2013 bearing interest at 8% with a maturity of November 30, 2015

    49,212       49,212  
                 

Note payable to Craigmore Machinery Company dated September 1, 2013 bearing interest at 8% with a maturity of November 30, 2015

    5,000       5,000  
                 

Note payable to Craigmore Machinery Company dated December 27, 2013 bearing interest at 8% with a maturity of November 30, 2015

    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 of November 30, 2015

    1,341,755       -  
                 

Note payable to SV Associates Limited Partnership dated January 9, 2014 bearing interest at 8% with a maturity of November 30, 2015

    41,000       -  
                 

Note payable to Craigmore Machinery Company dated January 9, 2014 bearing interest at 8% with a maturity of November 30, 2015

    30,000       -  
                 

Note payable to an individual dated January 17, 2014 bearing interest at 8% with a maturity of November 30, 2015

    8,000       -  
                 

Note payable to Craigmore Machinery Company dated January 24, 2014 bearing interest at 8% with a maturity of November 30, 2015

    20,000       -  
                 

Note payable to Craigmore Machinery Company dated January 31, 2014 bearing interest at 8% with a maturity of November 30, 2015

    8,000       -  
                 

Note payable to Tropico Equity Partners LLC dated February 3, 2014 bearing interest at 8% with a maturity of November 30, 2015

    68,161       -  
                 

Note payable to Rachel E Shapiro Trust dated February 14, 2014 bearing interest at 6% with a maturity of November 30, 2015

    51,500       -  
                 

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

    200,000       -  
                 

Note payable to Banyan Capital Finance dated March 12, 2014 bearing interest at 8% with a maturity of November 30, 2015

    23,000       -  
                 

Note payable to Capital Stack, LLC dated July 7, 2014 in the amount of $35,000 with no stipulated interest rate payable through 83 daily payments of $599

    11,220       -  
                 

Note payable to Fast Advance Funding dated July 3, 2014 in the amount of $35,000 with no stipulated interest rate, payable through 66 daily payments of $689.39

    3,959       -  
                 

Note payable to Colleen Stacy Shapiro 2007 Trust, dated April 23, 2014 in the amount of $160,000, bearing interest at 6%, with a maturity of November 30, 2015

    160,000       -  
                 

Subordinated Promissory Note payable to The Shapiro Family D1 Trust dated April 29, 2014 in the amount of $400,000, bearing interest at 6%, with a maturity of April 28,2017

    400,000       -  
                 

Note payable to an individual dated May 1, 2014 in the amount of $67,286, bearing interest at 4%, with a maturity date of April 1, 2019

    67,286       -  
                 

Note payable to SIII Associates Limited Partnership dated May 8, 2014 in the amount of $100,000 bearing interest at 6% with a maturity of November 30, 2015

    100,000       -  
                 

Note payable to Craigmore Machinery Company dated July 10,, 2014 bearing interest at 8% with a maturity of November 30, 2015

    43,000       -  
                 

Note payable to Craigmore Machinery Company dated July 15, 2014 bearing interest at 8% with a maturity of November 30, 2015

    75,000       -  
                 

Note payable to Craigmore Machinery Company dated August 12, 2014 bearing interest at 8% with a maturity of November 30, 2015

    60,000       -  
                 

Note payable to Westfield Bank for insurance finance agreement, dated August 1, 2014 bearing interest at 4%, final payment due May 1,2015

    25,845       -  
                 

Note payable to NFC III LLC dated September 5, 2014 in the amount of $60,000 with a maturity date of November 30, 2015

    60,000       -  
                 
      5,905,341       2,934,340  

Less current portion pertaining to continuing operations

    (398,184 )     (1,617,852 )

Less current portion pertaining to discontinued operations

    (1,268,942 )     (1,203,859 )

Less long term portion associated with discontinued operations

    -       (112,629 )
    $ 4,238,215     $ -  

  

 

Principal maturities of long term debt for the next five years and thereafter as of September 30, 2014 are as follows:

 

Period ended September 30,

       

2015

  $ 1,667,126  

2016

    3,793,541  

2017

    416,749  

2018

    17,431  

2019

    10,494  

Thereafter

    -  
    $ 5,905,341  

 

 

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 2014 and 2013:

 

 

   

9/30/2014

   

9/30/2013

 

Current

               

Federal

  $ -     $ -  

State

    -       -  
                 

Deferred - Continuing Operations

               

Federal

    -       -  

State

    -       -  
    $ -     $ -  
                 

Deferred - Discontinued Operations