PINX:BLVT Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012
 
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                             to                                            
 
Commission File Number 000-09358
 
BULOVA TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in its charter)
     
Florida
(State or other jurisdiction of
incorporation or organization)
 
83-0245581
(IRS Employer
Identification No.)
 
19337 U.S. Highway 19 North, Suite 525
Clearwater, Florida 33764
(Address of principal executive offices) (Zip Code)
 
(727) 536-6666
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $.001 par value
(Title of Class)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  þ
 
As of May 7, 2012 the Company had 882,242,638 shares of Common Stock and 2,000,000,000 shares of Preferred Stock issued and outstanding.
 
 
1

 
 
BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012
TABLE OF CONTENTS
 
             
       
Page
PART I – FINANCIAL INFORMATION
             
           
Item 1. Financial Statements
   
3
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
20
 
Item 4. Controls and Procedures
   
22
 
             
PART II – OTHER INFORMATION
             
Item 6. Exhibits
   
22
 
             
 
Signatures
   
23
 
 
 
 
2

 
PART I
 
Item 1. Consolidated Financial Statements
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
March 31,
       
   
2012
   
September 30,
 
   
(unaudited)
   
2011
 
ASSETS
               
                 
Cash and equivalents
 
$
93,261
   
$
169,499
 
Accounts receivable
   
148,920
     
228,085
 
Contract claim receivable
   
-
     
-
 
Inventory
   
799,993
     
685,226
 
Other current assets
   
40,283
     
130,826
 
             
Total current assets
   
1,082,457
     
1,213,636
 
                 
Property, plant and equipment
   
2,459,498
     
2,545,258
 
Investments
   
1,791,855
     
1,791,855
 
Other assets
   
42,617
     
107,618
 
                 
Total Assets
 
$
5,376,427
   
$
5,658,367
 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Accounts payable
 
$
580,026
   
$
203,769
 
Accrued expenses
   
6,427,536
     
6,416,831
 
Advance payments and billings in excess of cost
   
512,524
     
883,504
 
Current portion of long term debt
   
6,775,565
     
5,365,245
 
Current liabilities associated with discontinued operations
   
1,966,262
     
1,934,588
 
                 
Total current liabilities
   
16,261,913
     
14,803,937
 
                 
Shareholder loans and accrued interest
   
140,861
     
185,392
 
Long term debt, net of current portion
   
1,211,087
     
1,268,925
 
                 
Total liabilities
   
17,613,861
     
16,258,254
 
                 
Commitments and contingencies
   
-
     
-
 
                 
Shareholders’ deficit:
               
Preferred stock, $.00001 par, authorized 2,000,000,000 shares; 2,000,000,000 and -0- issued and outstanding at March 31, 2012 and September 30, 2011
   
20,000
     
-
 
Common stock, $.001 par; authorized 2,000,000,000 shares; 878,781,100 and 438,138,975 issued and outstanding at March 31, 2012 and September 30, 2011
   
878,781
     
438,139
 
Additional paid in capital in excess of par
   
20,009,609
     
18,065,442
 
Retained deficit
   
(33,145,824)
     
(29,103,468)
 
             
Total shareholders’ deficit
   
(12,237,434)
     
(10,599,887)
 
             
Total liabilities and shareholders’ equity
 
$
5,376,427
   
$
5,658,367
 
 
See accompanying notes to consolidated financial statements.
 
 
3

 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)
 
 
Three Months Ended
 
.Six Months Ended
 
 
March 31,
 
March 31
 
 
2012
 
2011
 
2012
   
2011
 
                   
Revenues
$ 638,849   $ 789,445   $ 1,921,742     $ 2,180,123  
Cost of revenues
  418,813     612,810     1,160,438       1,352,735  
                           
Gross profit
  220,036     176,635     761,304       827,388  
                           
Selling and administrative expense
  999,502     1,257,681     1,928,895       2,461,414  
Stock based compensation
  1,490,074     459,148     1,527,684       585,786  
Depreciation and amortization expense
  260,089     184,399     1,186,757       239,634  
Interest expense
  374,879     268,167     639,808       440,678  
                           
Total expenses
  3,124,544     2,169,395     5,283,144       3,727,512  
                           
Income (loss) from operations
  (2,904,508 )   (1,992,760 )   (4,521,840 )     (2,900,124 )
                           
Other income (expense)
                         
Other income
  525,000     -     525,158       1,190  
                           
Loss from continuing operations before Income taxes
  (2,379,508 )   (1,992,760 )   (3,996,682 )     (2,898,934 )
                           
Income tax expense
  -     -     -       -  
                           
Loss from continuing operations
  (2,379,508 )   (1,992,760 )   (3,996,682 )     (2,898,934 )
Income (loss) from discontinued operations, net of tax
  (22,837 )   845,889     (45,674 )     414,105  
                           
Net loss
$ (2,402,345 ) $ (1,146,871 ) $ (4,042,356 )   $ (2,484,829 )
                         
Basic and diluted net income (loss) per share
                         
Loss from continuing operations
$ (.003 ) $ (.014 ) $ (.006 )   $ (.022 )
Loss from discontinued operations
  -     .006     -       .003  
  $ (.003 ) $ (.008 ) $ (.006 )   $ (.019 )
                         
Weighted average shares used in computing basic and diluted net (loss) per common share   836,878,560     147,372,940     651,214,167      
133,002,893
 
 
See accompanying notes to consolidated financial statements.
 
 
4

 
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net loss
  $ (4,042,356 )   $ (2,484,829 )
(Income) Loss from discontinued operations
    45,674       (414,105
Loss from continuing operations
    (3,996,682 )     (2,898,934 )
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    1,378,421       239,635  
Stock based payment for services
    1,527,684       585,786  
Changes in operating assets and liabilities
               
Accounts receivable
    79,165       (69,759 )
Inventory
    (114,767 )     297,086  
Prepaid expenses and other assets
    90,543       87,694  
Accounts payable and accrued expenses
    386,962       190,737  
Advance payments and billings in excess of costs
    (370,980 )     (163,566 )
                 
Net cash flows from operating activities – continuing operations
    (1,019,654 )     (1,731,321 )
Net cash flows from operating activities – discontinued operations
    -       (99,330 )
Net cash flows from operating activities
    (1,019,654 )     (1,830,651 )
                 
Cash flows from investing activities:
               
Investments in multiple companies
    -       (25,000 )
Purchase of property and equipment
    -       (3,500 )
                 
Net cash flows from investing activities – continuing operations
    -       (28,500 )
Net cash flows from investing activities – discontinued operations
    -       -  
Net cash flows from investing activities
    -       (28,500 )
                 
Cash flows from financing activities:
               
Repayment of Shareholder loans
    (51,787 )     (113,668 )
Increases in long term debt
    1,080,000       1,542,000  
Repayment of long term debt
    (84,797 )     (78,971 )
Proceeds from sale of stock
    -       633,000  
                 
Net cash flows from financing activities – continuing operations
    943,416       1,982,361  
Net cash flows from financing activities – discontinued operations
    -       -  
Net cash flows from financing activities
    943,416       1,982,361  
                 
Increase (decrease) in cash and cash equivalents
    (76,238 )     123,210  
Cash and cash equivalents, beginning
    169,499       12,605  
                 
Cash and cash equivalents, ending
  $ 93,261     $ 135,815  
Cash paid for interest
  $ 48,205     $ 78,383  
Cash paid for taxes
  $ -     $ -  
 
Supplemental schedule of non-cash financing and investing activities:
 
October 2011, the Company issued 8,896,394 common shares issued as conversion of debt
 
October 2011, the Company issued 500,000 common shares for services
 
November 2011, the Company issued 10,268,342 common shares to various individuals
 
November 2011, the Company issued 5,352,941 common shares as conversion of debt
 
December 2011, the Company issued 12,831,591 common shares as conversion of debt
 
December 2011, the Company issued 90,000,000 common shares and authorized the issuance of an additional 60,000,000 shares as conversion of related party debt 50,000,000 of which were issued in the first quarter of 2012
 
January 2012, the Company issued 151,500,000 common shares for services
 
February 2012 , the Company issued 750,000 common shares for services
 
February 2012, the Company issued 95,000,000 common shares in association with new debt
 
February 2012, the Company issued 2,400,000 common shares as conversion of debt
 
March 2012, the Company issued 3,142,857 common shares as conversion of debt
 
See accompanying notes to consolidated financial statements.
 
 
5

 
 
BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
STATEMENT OFCHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2012
(Unaudited)
 
   
Preferred Stock
   
Common Stock
   
Additional
             
   
Number
of Shares
   
Amount
   
Number
of Shares
   
Amount
   
Paid in 
 Capital
   
Accumulated
(deficit)
   
Total
 
Balances, October 1, 2011
    -     $ -       438,138,975     $ 438,139     $ 18,065,442     $ (29,103,468 )   $ (10,599,887 )
Issuance of shares for services
    2,000,000,000       20,000       154,011,024       154,012       506,598               680,610  
Issuance of shares without consideration in completion of a prior year transaction
                    9,007,318       9,007       (9,007 )             -  
Issuance of shares in satisfaction of debt
                    182,623,783       182,623       648,377               831,000  
Issuance of convertible debt
                                    46,125               46,125  
Issuance of shares associated with new debt
                    95,000,000       95,000       570,000               665,000  
Issuance of common stock warrants
                                    182,074               182,074  
Net loss for the six months ended March 31, 2012
                                            (4,042,356 )     (4,042,356 )
Balances, March  31, 2012
    2,000,000,000     $ 20,000       878,781,100     $ 878,781     $ 20,009,609     $ (33,145,824 )   $ (12,237,434 )
 
See accompanying notes to consolidated financial statements.
 
 
6

 
 
BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)

 
1.              Description of business:
 
Bulova Technologies Group, Inc. ("BLVT" or the "Company") was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”.  During 2007, the Company divested itself of all assets and previous operations.  During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30.  On January 1, 2009 the Company acquired the stock of a private company that was under common control and began operations in Florida. The Company operates as a government contractor in the United States. Headquarter facilities are in Clearwater and Brandon, Florida and its operating facilities are located in Mayo, Florida.
 
2.              Principles of consolidation and basis of presentation:
 
The accompanying consolidated balance sheet as of September 30, 2011, has been derived from audited financial statements.
 
The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s latest Form 10-K.
 
On January 1, 2009, the Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the majority stockholder of the Company in exchange for 40,000,000 shares of its common stock. The assets and operations of 3Si have been accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (Europe) LLC (formerly Bulova Technologies Combat Systems LLC).
 
BT Manufacturing Company LLC – prior to discontinuance, its operations were located in Melbourne, Florida, in a 35,000 square foot facility where it assembled a wide range of printed circuit boards, including single sided through 14 layers, through-hole, surface mount and mixed. It manufactured cable assemblies and complete systems and offered value-add services such as direct-ship to end customers, depot repair and design assistance. In June 2010, the Company determined to dispose of BT Manufacturing Company LLC, and as such has accounted for this business segment as a discontinued operation. Final settlement and disposition of this segment was accomplished during the quarter ended March 31, 2011.
 
Bulova Technologies Ordnance Systems LLC. – located on 261 acres in Mayo, Florida is a load, assembly, and pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade Controls (DDTC). It produces a variety of pyrotechnic devices, ammunition and other energetic materials for the U. S. Government and other allied governments throughout the world.
 
Bulova Technologies (Europe) LLC – located in the Company’s corporate headquarters in Clearwater, Florida, this subsidiary was originally formed to administer an acquisition contract that Bulova Technologies Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009. The Company has since changed the name to Bulova Technologies (Europe) LLC and is developing a Mortar Exchange program to facilitate the needs of NATO member countries.
 
Bulovatech Labs, Inc., prior to its disposal was located in Clearwater, Florida. This entity was formed to incubate, develop and license commercial applications of technologies pertinent to the defense, alternative energy and healthcare industries. Subsequent to its formation Bulovatech Labs, Inc. made various loans and investments in both private and public companies. On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT)
 
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2012 and the results of operations and cash flows for the three months and six months ended March 31, 2012 and 2011.
 
 
7

 
 
The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
 
Subsequent Events
 
The Company has evaluated subsequent events through May 11, 2012, 2012 to assess the need for potential recognition or disclosure in this report.  Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.
 
Business Segments
 
Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operated in two business segments, government contracting and contract manufacturing.  With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting
 
Use of Estimates
 
The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

Financial Instruments

The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments.  Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.
 
Fair Value Measurement
 
All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements.  This value was evaluated on a recurring basis (at least annually).  Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs were used to measure fair value.
 
Level 1: Quotes market prices in active markets for identical assets or liabilities.
 
Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.
 
Level 3: Unobservable inputs that were not corroborated by market data.
 
Cash and Cash Equivalents
 
For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk.
 
Accounts receivable
 
Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company’s business segments.  The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts.
 
The majority of the Company’s revenues and accounts receivable pertain to contracts with the US Government.
 
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.  Market was generally considered to be net realizable value.  Inventory consisted of materials used to manufacture the Company’s products work in process and finished goods ready for sale.
 
 
8

 
 
The breakdown of inventory at March 31, 2012 and September 30, 2011 is as follows:
 
   
March 31,
   
September 30,
 
   
2012
   
2011
 
Finished goods
  $ -     $ -  
Work in process
    -       96,000  
Materials and supplies
    799,993       589,226  
                 
Total inventory
    799,993       685,226  
Less inventory classified as discontinued operations
    -       -  
                 
Total inventory of continuing operations
  $ 799,993     $ 685,226  
 
Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 10 to 20 years for buildings and improvements and 5 to 10 years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition are valued at fair value. Depreciation expense for the three and six months ended March 31, 2012 are $42,880 and $85,759, and for the three and six months ended March 31, 2011 are $41,254 and $82,450.
 
Property, plant and equipment are comprised of the following at March 31, 2012 and September 30, 2011
 
   
March 31,
   
September 30,
 
   
2012
   
2011
 
Land
  $ 1,225,000     $ 1,225,000  
Buildings and improvements
    1,170,194       1,170,194  
Machinery and equipment
    698,758       698,759  
Funiture, fixtures and leasehold improvements
    44,735       44,735  
                 
      3,138,687       3,138,688  
Less accumulated depreciation
    (679,189 )     (593,430 )
                 
Net Property, plant and equipment
    2,459,498       2,545,258  
Less property, plant and equipment from discontinued operations
    -       -  
                 
Net property, plant and equipment of continuing operations
  $ 2,459,498     $ 2,545,258  
 
Impairment of Long-Lived Assets
 
The Company evaluates the carrying value of its long-lived assets at least annually.  Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets’ carrying amount.   If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.

Discontinued Operations
In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations (“ASC 205-20”), we reported the results of BT Manufacturing Company LLC, our contract manufacturing segment as a discontinued operation. The application of ASC 205-20 is discussed in Note 5 “Discontinued Operations”
 
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:
 
 
9

 
 
Revenues on fixed-price type contracts are recognized using the Percentage-Of-Completion (POC) method of accounting as specified in government contract accounting standards and the particular contract.  Revenues earned on fixed-price production contracts under which units are produced and delivered in a continuous or sequential process are recognized as units are delivered based on their contractual selling prices (the “Units-of-Delivery” basis of determination).  Sales and profits on each fixed-price production contract under which units are not produced in a continuous or sequential process are recorded based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract revenue, less cumulative sales recognized in prior periods (the “Cost-to-Cost” basis of determination).  Under both types of basis for determining revenue earned, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year. The estimated total profit margin is evaluated on a periodic basis by management throughout the term of an individual contract to determine if the estimated total profit margin should be adjusted.
 
The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”.  Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items.  These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results.  As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances.
 
Cost of Revenues
 
The costs of revenues include direct materials and labor costs, and indirect labor associated with production and shipping costs.

Advertising Costs

The costs of advertising are expensed as incurred and are included in the Company’s operating expenses.  The Company did not incur any advertising expenses for the six months ended March 31, 2012 and 2011.

Shipping Costs

The Company includes shipping costs in cost of goods sold.
 
Income Taxes
 
Income tax benefits or provisions are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting.  Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities were recovered or settled.  Deferred tax assets were also recognized for operating losses that were available to offset future taxable income and tax credits that were available to offset future federal income taxes, less the effect of any allowances considered necessary. The Company follows the guidance provided by FIN 48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions.
 
Loss per Common Share

Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of March 31, 2012, there were 124,924,000 common stock equivalents that were dilutive but had no effect on loss per share.

Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents.

Effect of Recent Accounting Pronouncements

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to March 31, 2012 through the date these financial statements were issued.
 
 
10

 
 
3.              Contract Claim Receivable
 
The acquisition of 3Si Holdings, Inc. included the membership interest in Bulova Technologies Ordnance Systems LLC which had certain obligations to perform on then existing contracts with the US Government.  Bulova Technologies Ordnance Systems, LLC had received advance funding under these contracts by the US Government through Performance-Based-Payments, a method of financing designed by the government to provide working capital to small business contractors so they can purchase the materials needed to fulfill the contract.  At the time of the acquisition, the US Government had provided advance financing on the assumed contracts in the amount of $3,200,597.
 
In accordance with the provisions of Section 9-610 of the Uniform Commercial Code as enacted in the state of New York these cash funds amounting to $3,200,597 were retained by Webster Business Capital Corporation, the secured lender that had acquired the assets pursuant to the Section 9 foreclosure proceedings.  The Company has performed under the contract and is pursuing a claim against the secured lender, Webster Bank, for the recovery of these funds.
 
The Company is attempting to resolve this matter, and expects to be successful in recovering these amounts. However, as in all matters in litigation, the outcome is not certain and amounts recovered, if any, could be materially different than expected. These amounts, which are not carried as assets on the balance sheet, will be recorded as revenue if and when such claims are settled.
 
4.              Investments
 
Investments represent various loans and investments in both private and public companies through Bulovatech Labs.  Loans are reported at cost and equity investments are valued at fair value.  Equity investments are primarily in technology development companies and are not held for resale.
 
On June 25, 2010, the Company sold all of its interest in Bulovatech Labs in exchange for 200,000,000 shares of Growth Technologies International, Inc. (GRWT).
 
At March 31, 2012 the cost and fair values of the investments were as follows:
 
Investments
                       
                         
   
Cost
   
Gain
   
Loss
   
Fair Value
 
Level 1 Equity Investments
  $ -     $ -     $ -     $ -  
Level 2 Equity Investments
    184,500       -       -       184,500  
Level 2 Loans
    1,607,355       -       -       1,607,355  
                                 
    $ 1,791,855     $ -     $ -     $ 1,791,855  
 
5.              Discontinued Operations

In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. BT Manufacturing Company LLC, a wholly owned subsidiary of the Company represented our contract manufacturing segment. As a result of the decision to sell this business segment, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations at June 30, 2011 and September 30, 2010 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.  

In September 2010, the Company estimated a loss in the amount of $2,650,000 to be realized upon completion of the disposal of this business segment, as well as an estimated operating loss of $900,000 to be incurred during the phase-out period.  For the nine months ended June 30, 2011 the Company incurred actual operating losses associated with this discontinued segment of $598,728.  During March 2011, the Company finalized its negotiations relative to the disposition of the assets of this operation with an effective date of December 31, 2010.  As a part of this settlement, the buyer that acquired the operations has provided an earn out agreement to Sovereign Bank to assist in the payment of the remaining obligation on the note payable to them.  This balance is carried as a liability from discontinued operations on our consolidated balance sheet.
 
 
11

 
 
Summarized operating resultes for discontinued operations is as follows:
 
   
Six Months Ended
 
   
March 31,
 
   
2012
   
2011
 
             
Revenue
  $ -     $ 254,004  
Cost of Sales
    -       (152,403 )
Gross profit
    -       101,601  
Operating expenses
    (45,674 )     (497,127 )
Other
    -       809,631  
Gain (Loss) to be recognized from discontinued operations
    (45,674 )     414,105  
Income tax benefit
    -       -  
Gain (loss) to be recognized from discontinued operations, net of tax
  $ (45,674 )   $ 414,105  
 
The gain (loss) from discontinued operations above do not include any income tax effect as the Company was not in a taxable position due to its continued losses and a full valuation allowance
 
Summary of assets and liabilities of discontinued operations is as follows:
 
   
March 31,
   
September 30,
 
   
2012
   
2011
 
             
Accounts receivable
  $ -     $ -  
Inventory
    -       -  
Other current assets
    -       -  
Total current assets held for sale
    -       -  
Property plant and equipment - net
    -       -  
Other assets
    -       -  
Total assets from discontinued operations
  $ -     $ -  
                 
                 
Accounts payable and accrued expenses
  $ 305,379     $ 273,705  
Current portion of long-term debt
    1,660,883       1,660,883  
Provision for loss on disposal of business segment
    -       -  
Total current liabilities associated with discontinued operations
    1,966,262       1,934,588  
Long term debt, net of current portion
    -       -  
Total liabilities associated with discontinued operations
  $ 1,966,262     $ 1,934,588  
 
6.              Advance Payments and Billings in Excess of Cost
 
Advance payments and billings in excess of costs represents liabilities of the Company associated with contracts in process as of the balance sheet date, and consist of the following:
 
Advance Payments - The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”.  Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items.  These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results.  As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances.  On January 1, 2009, with the acquisition of 3Si Holdings, Inc. and membership interest of Bulova Technologies Ordnance Systems LLC, the Company assumed certain obligations to perform contracts with the US Government with an outstanding balance at the date of acquisition of $3,200,597.  The balances outstanding as of March 31, 2012 and September 30, 2011 are $512,524 and $883,504 respectively.
 
Billings in Excess of Cost plus Earnings on Uncompleted Contracts – The Company accounts for fixed-price production contracts under which units are not produced in a continuous or sequential process based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract price.  The Company did not have any billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of March 31, 2012 and September 30, 2011.
 
 
12

 
 
7.               Long Term Debt

 Long term debt consisted of the following at:
 
   
March 31,
2012
   
September 30,
2011
 
Promissory note payable to Webster Business Capital Corporation, dated December 16, 2008, in the original amount of $825,000 payable in full on June 30, 2009, with interest at 4.5% annually.  This note was not repaid and is still outstanding as of the issuance of these financial statements. This note is secured by a lien on real estate, timber rights and certain equipment with net carrying values of approximately $2,000,000 at March 31, 2012.
  $ 825,000     $ 825,000  
                 
Mortgage payable to Bank of America, dated March 10, 2006, in the original amount of $840,000 payable in monthly fixed principal payments of $4,667 plus variable interest at 2.5% plus the banks index rate, secured by real estate with carrying values of approximately $1,500,000 at March 31, 2012.  Final payment is due on March 10, 2021.
    508,666       532,000  
                 
Note payable to Harold L. and Helene M. McCray, dated October 19, 2005, in the original amount of $1,070.000, bearing interest at 8% per annum, payable in monthly installments of $10,225.48 secured by land and buildings with carrying values of approximately $1,500,000 at March 31, 2012.  Final payment is due on December 1, 2020.
    769,246       799,283  
                 
Note payable to Edward Viola, dated October 19, 2005, in the original amount of $80,000, bearing interest at 8% per annum, payable in monthly installments of $764.52. Final payment is due on December 1, 2020.
    57,218       59,463  
                 
Note payable to PNL Newco II, LLC, dated December 22, 2009, in the original amount of $2,000,000, payable in monthly fixed principal payments of $42,000 plus variable interest at LIBOR plus 5% with a minimum rate of 5.5%, secured by an earn out agreement with the party that acquired all of the personal property of the discontinued operations of BT Manufacturing Company, LLC.  Final balloon payment is due December 22, 2011.  This loan is currently in default.
    1,660,883       1,660,883  
                 
Convertible Note payable to GovFunding, LLC, dated February 4, 2011, in the amount of $3,158,000, bearing interest at 18.  Final payment is due January 31, 2012.
    3,158,000       2,955,646  
                 
Convertible Note payable to Asher Enterprises, Inc. dated February 28, 2011 in the original amount of $75,000, current balance net of debt discount of $6,141, bearing interest at 8%. with a maturity date of December 2, 2011.
    -       41,859  
                 
Insurance premium financing agreement with First Insurance Funding Corp. dated January 21, 2011 in the original amount of $75,043, bearing interest at 9.9%,  payable in monthly installments of $8,693 per month, final payment due  October 21, 2011
    -       7,924  
 
 
13

 
 
                 
Note payable to The David J Keehan Trust dated June 30, 2011 in the amount of $500,000, bearing interest at the rate of 10% payable interest only through maturity.  Final payment due September 30, 2011.
    -       500,000  
                 
Convertible Note payable to Asher Enterprises, Inc. dated March 31, 2011 in the amount of $42,500 net of debt discount of $5,703, bearing interest at 8%. with a maturity date of January 4, 2012.
    -       36,797  
                 
Convertible Note payable to Asher Enterprises, Inc. dated May 26, 2011 in the amount of $35,000 net of debt discount of $7,459, bearing interest at 8%. with a maturity date of March 1, 2012.
    -       27,541  
                 
Convertible Note payable to GovFunding, LLC dated May 25, 2011 in the amount of $220,000 net of debt discount of $10,342, bearing interest at 18%. with a maturity date of April 30, 2012.
    209,658       146,573  
                 
Convertible Note payable to GovFunding LLC dated June 23, 2011 in the amount of $133,000 net of debt discount of $17,952, bearing interest at 18%. with a maturity date of June 30, 2012.
    115,048       78,946  
                 
Note payable to GovFunding LLC dated July 14, 2011 in the amount of $105,000, bearing interest at 18%. with a maturity date of August 1, 2011.
    105,000       105,000  
                 
Insurance premium financing agreement with Flat Iron Capital dated July 26, 2011 in the original amount of $14,224, bearing interest at 7.4%,  payable in monthly installments of $1,251 per month, final payment due  May 26, 2012
    2,480       9,737  
                 
Convertible Note payable to GovFunding LLC dated August 1, 2011 in the amount of $128,000 net of debt discount of $9,266, bearing interest at 18%. with a maturity date of April 30, 2012.
    118,734       62,208  
                 
Convertible Note payable to GovFunding LLC dated August 9, 2011 in the amount of $250,000 net of debt discount of $45,545, bearing interest at 18%. with a maturity date of June 30, 2012.
    204,455       112,865  
                 
Convertible Note payable to Asher Enterprises, Inc. dated August 19, 2011 in the original amount of $43,000, with a current principal balance of $20,000 net of debt discount of $3,632, bearing interest at 8%. with a maturity date of May 22, 2012
    16,368       26,584  
                 
Note payable to The David J Keehan Trust dated July 11, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity.  Final payment due September 30, 2011.
    -       100,000  
                 
Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $100,000, bearing interest at the rate of 10% payable interest only through maturity.  Final payment due September 30, 2011.
    -       100,000  
                 
Note payable to The David J Keehan Trust dated August 5, 2011 in the amount of $50,000, bearing interest at the rate of 10% payable interest only through maturity.  Final payment due September 30, 2011.
    -       50,000  
                 
Convertible Note payable to GovFunding LLC dated August 30, 2011 in the amount of $110,000 net of debt discount of $17,687, bearing interest at 18%. with a maturity date of June 30, 2012.
    92,313       56,744  
                 
Convertible Note payable to Asher Enterprises, Inc. dated December 2, 2011 in the original amount of $35,000 net of debt discount of $9,512, bearing interest at 8%. with a maturity date of September 30, 2012
    25,488       -  
 
 
14

 
 
                 
Convertible Note payable to Asher Enterprises, Inc. dated December 30, 2011 in the original amount of $35,000 net of debt discount of $10,979, bearing interest at 8%. with a maturity date of October 31, 2012
    24,021       -  
                 
Convertible Note payable to Asher Enterprises, Inc. dated February 21, 2012 in the original amount of $32,500 net of discount of $12,543 bearing interest at 8% with a maturity date of November 21, 2012
    19,957       -  
                 
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 $4,500,000 as of March 31, 2012.  Final payment due May 1, 2012.
    1,550,000       -  
                 
Note payable to GovFunding LLC dated March 30 2012 in the amount of $100,000, bearing interest at 18%, with a maturity date of June 1, 2012.
    100,000       -  
                 
Note payable to Keehan Trust Funding, LLC dated March 30, 2012 with a maximum amount of $653,731, bearing interest at the rate of 10%.  This note is secured by the assignment of the proceeds of certain government contracts with a value in excess of $700,000 as of March 31, 2012.  Final payment due August 1, 2012.
    85,000      
-
 
      9,647,535       8,295,053  
Less current portion pertaining to continuing operations
    (6,775,565 )     (5,365,245 )
Less current portion associated with discontinued operations
    (1,660,883 )     (1,660,883 )
    $ 1,211,087       1,268,925  

Principal maturities of long term debt for the next five years and thereafter as of March 31, 2012 are as follows:
 
Period ended March 31,      
2013
  $ 8,436,448  
2014
    129,694  
2015
    135,811  
2016
    142,435  
2017
    149,609  
Thereafter
    653,538  
    $ 9,647,535  
 
8.               Income Taxes

Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry forwards. The Company evaluates temporary differences resulting from the different treatment of items for tax and accounting purposes and records deferred tax assets and liabilities on the balance sheet using the tax rates expected when the temporary differences reverse.
 
 
15

 

On January 1, 2009 the Company acquired for stock of 3SI Holdings in exchange for shares of the Company's common stock.  For income tax purposes this transaction has been treated as tax free reorganization under the provisions of Section 368A of the Internal Revenue Code.  3SI Holdings had various net operating loss carryovers. Because of the change in ownership of 3SI Holdings, the net operating loss carry-overs will transfer to the Company. The transferred net operating losses are subject to an annual limitation under the provisions of Section 382 of the Internal Revenue Code to offset future taxable income of the Company. These net operating loss carry-overs are included in the deferred tax asset of the Company.

The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2009 based on uncertainties concerning its ability to generate taxable income in future periods. Based on current events management has re-assessed the valuation allowance and the recognition of the deferred tax assets attributable to the net operating losses and other assets. Based on the Company’s history of losses and other negative evidence, the Company has determined that the valuation allowance should be increased accordingly to offset the entire deferred tax asset.

As of September 30, 2011 the Company had federal net operating loss carry forwards of approximately $17,344,000 and Florida net operating loss carry forwards of approximately $17,245,000. The federal net operating loss carry forwards will expire in 2020 through 2030 and state net operating loss carry forwards that will expire in 2028 through 2030.

The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:
 
Continuing Operations
 
3/31/2012
   
9/30/2011
 
             
Expected provision at US statutory rate
    34.00 %     34.00 %
State income tax net of federal benefit
    3.63 %     3.63 %
Permanent and Other Differences
    -       -  
Valuation Allowance
    (37.63 )%     (37.63 %)
Effective Income Tax Rate
  $ -     $ -  

The Company files income tax returns on a consolidated basis in the United States federal jurisdiction and the State of Florida. As of September 30, 2010, the tax returns for the Company for the years ending 2008 and 2009 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. In addition the tax returns related to 3SI remain open to federal and state examination for the periods ending June 2005 through 2008. The Company and its subsidiaries are not currently under examination for any period.

The Company has adopted a policy to recognize interest and penalties accrued related to unrecognized tax benefits in its income tax provision. The Company has evaluated its unrecognized tax benefits and determined that due to the NOL carry forwards, that no accrual of interest and penalties is required in the current period.
 
9.               Commitments and Contingencies
 
From time to time the Company may be a party to litigation matters involving claims against the Company.  Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
 
U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors General routinely audit and investigate costs and performance on contracts, as well as accounting and general business practices of contractors  Based on the results of such audits, the U.S. Government may adjust contract related costs and fees, including allocated indirect costs.  None of the Company’s contracts are currently the subject of any government audits.
 
The Company operates corporate and administrative offices in two leased facilities, one in Clearwater, Florida, and the other in Brandon, Florida, and an apartment in Frankfurt, Germany on a month to month basis.  During the quarter ended December 31, 2011, the Clearwater location was leased for a monthly base rent of $6,717, increased by 3% each year through the expiration date of April 30, 2012  The Brandon location is leased for a monthly rental of $17,275 with an expiration date of December 21, 2027.
 
 
16

 
 
Total rent expense for the six months ended March 31, 2012, was approximately $178,000.
 
The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of March 31, 2012 are as follows:
 
Period ended March 31      
2013
  $ 214,017  
2014
    207,300  
2015
    207,300  
2016
    207,300  
2017
    207,300  
Thereafter
    2,228,475  
     
$3,271,692
 
 
10.            Related Party Transactions

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

Bulova Technologies Ordnance Systems LLC had a Marketing Firm Agreement with Ramal Management Co. (“Ramal”), a related company owned by Stephen L Gurba, our Chief Executive Officer which expired on January 1, 2011.  Pursuant to the terms of the agreement, Ramal received a marketing fee for services of 4% of net sales generated through contracts of Bulova Technologies Ordnance Systems LLC.  Subsequent to the expiration of this marketing agreement, the marketing fee of 4% is now paid to Stephen Gurba as a part of his compensation package.

The Company has received loans from the two (2) major shareholders totaling $425,766 and $1,160,053 as of March 31, 2012 and September 30, 2011 respectively.  These loans are supported by notes bearing interest at 5% annually with restricted conversion features and no repayment schedule.  The notes were originally issued for $1,500,000 for each shareholder then subsequently raised to a maximum of $5,000,000.  All shareholder debt is accruing interest. During the six months ended March 31, 2012, the Company issued 150,000,000 shares of common stock in exchange for $682,500 of shareholder loans.

On October 29, 2010 the Company issued each of the two major shareholders 22,500,000 shares of stock as payment on interest accrued to date and for an estimate of the interest that will accrue on their respective loans through 2011.
 
11.            Stockholders’ Equity

On October 7, 2010,the Company issued 6,659,181 shares in exchange for related party debt

On October 8, 2010 the Company issued 932,284 shares for services in the amount of $42,885.

On October 29, 2010 the Company issued 1,395,872 shares for services in the amount of $83,752.

On October 29, 2010 the Company sold 5,379,385 shares to various individuals

On October 29, 2010 the Company issued 22,500,000 shares to its Chief Executive Officer in payment of past due interest accrued on a convertible promissory note over the balance of 2010 and prospectively through 2011.

On October 29, 2010 the Company issued 22,500,000 shares to its Chairman of the Board in payment of past due interest accrued on a convertible promissory note over the balance of 2010 and prospectively through 2011.

On November 5, 2010 the Company issued debt in the amount of $250,000 with detachable warrants.  These warrants provide for the purchase of 1,600,000 shares of the Company’s stock at $.05 per share for a period of 5 years.  The warrants had a fair value of $77,160 at the time of issuance, which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.

On January 27, 2011 the Company sold 2,400,000 shares to various individuals.
 
 
17

 

On January 27, 2011 the Company issued 2,550,000 shares for services in the amount of $204,000.

On February 2, 2011 the Company issued 480,000 shares for services in the amount of $43,200.

On February 3, 2011 the Company amended its articles of incorporation to increase its authorized shares to 1,000,000,000 (one billion)

On February 4, 2011 the Company issued convertible debt in the amount of $3,158,000 with detachable warrants.  These warrants provide for the purchase of 1,000,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $593,783 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.

On February 25, 2011 the Company issued 1,124,444 shares for services and a negotiated settlement in the amount of $98,389.

On February 25, 2011 the Company sold 1,188,889 shares to various individuals.

On February 28, 2011, the Company issued convertible debt in the amount of $75,000.  The beneficial conversion feature of this note had a fair value of $27,000 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months

On March 15, 2011 the Company issued 1,086,000 shares for services in the amount of $92,310.

On March 15, 2011 the Company sold 6,500,000 shares to various individuals.

On March 22, 2011 the Company issued debt in the amount of $65,000 with detachable warrants.  These warrants provide for the purchase of 1,300,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $41,759 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is one month.

On March 31, 2011 the Company sold 3,333,333 shares to an individual

On March 31, 2011 the Company issued 6,000,000 shares to satisfy a debt in the amount of $125,000.

On April 4, 2011, the Company issued 746,775 shares to various individuals for service

On April 27, 2011 the Company issued 195,895,376 shares as a conversion of related party debt in the amount of $1,958,953

On April 27, 2011 the Company issued 30,020,000 shares various individuals for services.

On April 28, 2011 the Company issued 10,000,000 shares as stock based compensation for the purpose of securitizing debt.

On May 9, 2011 the Company issued 3,500,000 shares as a conversion of related party debt in the amount of $35,000.

On May 16, 2011 the Company issued 9,000,000 shares in conjunction with new debt

On May 25, 2011 the Company issued convertible debt in the amount of $220,000 with detachable warrants.  These warrants provide for the purchase of 3,000,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $117,552 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.

On May 26, 2011, the Company issued convertible debt in the amount of $35,000.  The beneficial conversion feature of this note had a fair value of $16,650 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months

On June 23, 2011 the Company issued convertible debt in the amount of $133,000 with detachable warrants.  These warrants provide for the purchase of 1,800,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $73,584 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 12 months.

On July 14, 2011 the Company issued debt in the amount of $105,000 with detachable warrants.  These warrants provide for the purchase of 2,300,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $54,861 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 1 month.
 
 
18

 

On August 1, 2011 the Company issued convertible debt in the amount of $128,000 with detachable warrants.  These warrants provide for the purchase of 3,000,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $84,325 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 9 months.

On August 9, 2011 the Company issued convertible debt in the amount of $250,000 with detachable warrants.  These warrants provide for the purchase of 5,850,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants and the beneficial conversion feature of this note had a fair value of $163,161 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 12 months.

On August 9, 2011 the Company issued debt in the amount of $110,000 with detachable warrants.  These warrants provide for the purchase of 2,574,000 shares of the Company’s stock at $.01 per share for a period of 5 years.  The warrants had a fair value of $59,282 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months.

On August 19, 2011, the Company issued convertible debt in the amount of $43,000.  The beneficial conversion feature of this note had a fair value of $19,350 at the time of issuance which is accounted for as a discount to the debt and amortized over the life of the debt which is 10 months

On August 19, 2011 the Company issued 20,000,000 shares as a conversion of related party debt in the amount of $200,000.

On September 7, 2011 the Company issued 652,174 shares as a conversion of debt in the amount of $12,000

On September 23, 2011 the Company issued 2,142,857 shares as a conversion of debt in the amount of $15,000

Subsequent to September 30, 2011, the Company issued additional shares of its common stock as follows:

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

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

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

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

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

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

In November 2011, the Company amended its Articles of Incorporation to create a class of Preferred Stock with an authorization of 2,000,000,000 shares, all of which were issued to our Chairman of the Board.

In November 2011, the Company increased its authorization of common shares to 2,000,000,000.
 
In January 2012, the Company issued 151,500,000 common shares for services
 
In February 2012 , the Company issued 750,000 common shares for services
 
In February 2012, the Company issued 95,000,000 common shares in association with new debt
 
In February 2012, the Company issued 2,400,000 common shares as conversion of debt
 
In February 2012 the Company issued ten year warrants to purchase 100,000,000 shares of its common stock with an exercise price of $.05 per share.
 
In March 2012, the Company issued 3,142,857 common shares as conversion of debt

12.            Subsequent Events

April 2012 – the Company issued 3,461,538 shares of its common stock as conversion of debt

April 2012 – the Company filed and S-8 registration for 80,000,000 common shares to be issued as the Company determines pursuant to the terms of its 2012 Equity Incentive Plan
 
 
19

 

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


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

1 .              Overview:
 
Since January 1, 2009, Bulova Technologies Group, Inc. has operated in two business segments. The Government Contracting segment is focused on the production and procurement of military articles for the US. Government and other Allied Governments throughout the world, and is accounted for through two of the Company’s wholly owned subsidiaries, Bulova Technologies Ordnance Systems LLC., and Bulova Technologies (Europe) LLC, The Contract Manufacturing segment produces cable assemblies, circuit boards as well as complete systems, and is accounted for through BT Manufacturing Company, LLC, another of its wholly owned subsidiaries. In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. During the quarter ended March 31, 2011, the Company accomplished this disposition.  For reporting purposes, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations and has segregated its operating results and presented them separately as a discontinued operation for all periods.
 
Application of critical accounting policies:
 
Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and corresponding disclosures at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we continue to evaluate our estimates which in large part are based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

2 .              Results of operations:
 
For the three months ended March 31, 2012 compared to the three months ended March 31, 2011.

Discontinued Operations
 
The only activity to reflect as results from operations of BT Manufacturing Company LLC for the three months ended March 31, 2012 is the accrual of interest on the note that the Company is negotiating to resolve.as there was no other activity relative to this disposed segment during this quarter.
 
Continuing Operations
 
The Company’s revenue for continuing operations for the three months ended March 31, 2012 of $638,849 is a decrease of $150,596 when compared to the Company’s revenue for the three months ended March 31, 2011 of $789,445.
 
The Company’s cost of sales for continuing operations for the three months ended March 31, 2012 of $418,813 is a decrease of $193,997 when compared to the Company’s cost of sales for the three months ended March 31, 2011 of $612,810.
 
The Company’s gross profit for continuing operations for the three months ended March 31, 2012 of $220,036 is an increase of $43,401 when compared to the Company’s gross profit for the three months ended March 31, 2011 of $176,635.
 
The Company’s operating expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization, and interest for the three months ended March 31, 2012 of $1,634,470 is a decrease of $75,777 when compared to the same expenses of $1,710,247 for the three months ended March 31, 2011.  This is due primarily to the management of expenses.  Selling and administrative expenses actually decreased by $258,179 for the three months ended March 31, 2012 when compared to the three months ended March 31, 2011.
 
The Company’s stock based compensation for continuing operations for the three months ended March 31, 2012 was $1,490,074, and represents an increase of $1,030,926 as compared to the stock based compensation of $459,148 for the three months ended March 31, 2011.
 
 
20

 
 
The Company recognized other income in the amount of $525,000 for the three months ended March 31, 2012 pertaining to certain contract settlements negotiated during the quarter..
 
The Company’s net loss for continuing operations for the three months ended March 31, 2012 of $2,379,508 is an increase of $386,748 when compared to the Company’s net loss for for continuing operations for the three months ended March 31, 2011 of $1,992,760.
 
For the six months ended March 31, 2012 compared to the six months ended March 31, 2011.

Discontinued Operations
 
The only activity to reflect as results from operations of BT Manufacturing Company LLC for the six months ended March 31, 2012 is the accrual of interest on the note that the Company is negotiating to resolve.as there was no other activity relative to this disposed segment during this quarter.
 
Continuing Operations
 
The Company’s revenue for continuing operations for the six months ended March 31, 2012 of $1,921,742 is a decrease of $258,381 when compared to the Company’s revenue for the six months ended March 31, 2011 of $2,180,123.
 
The Company’s cost of sales for continuing operations for the six months ended March 31, 2012 of $1,160,438 is a decrease of $192,297 when compared to the Company’s cost of sales for the six months ended March 31, 2011 of $1,352,735
 
The Company’s gross profit for continuing operations for the six months ended March 31, 2012 of $761,304 is a decrease of $66,084 when compared to the Company’s gross profit for the six months ended March 31, 2011 of $827,388.
 
The Company’s operating expenses for continuing operations consisting of selling, general and administrative, depreciation, amortization, and interest for the six months ended March 31, 2012 of $3,755,460 is an increase of $613,734 when compared to the same expenses of $3,141,726 for the six months ended March 31, 2011.  This is due primarily to the large amortization cost associated with debt discounts and beneficial conversion features on debt..  Selling and administrative expenses actually decreased by $532,519 for the six months ended March 31, 2012 when compared to the six months ended March 31, 2011.
 
The Company’s stock based compensation for continuing operations for the six months ended March 31, 2012 was $1,527,684, and represents an increase of $941,898 as compared to the stock based compensation of $585,786 for the six months ended March 31, 2011.
 
The Company recognized other income in the amount of $525,158 for the six months ended March 31, 2012, which includes two amounts totaling $525,000 pertaining to certain contract settlements negotiated during the six months ended March 31, 2012.
 
The Company’s net loss for continuing operations for the six months ended March 31, 2012 of $3,996,682 is an increase of $1,097,748 when compared to the Company’s net loss for continuing operations for the six months ended December 31, 2011 of $2,898,934.
 
3.               Liquidity and capital resources:
 
As of March 31, 2012, the Company’s sources of liquidity were new debt and loans from shareholders.

As of March 31, 2012, we had $93,261 in cash and cash equivalents.

Cash flows used in operating activities was $1,019,654 for the six months ended March 31, 2012.

The Company did not use any resources for investing activities for the six months ended March 31, 2012,

Cash flows from financing activities were $943,416 for the six months ended March 31, 2012.  Cash flows provided by continuing operations consisted primarily of new debt in the amount of $1,080,000.

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

The Company‘s business may not generate cash flows at sufficient levels, and it is possible that currently anticipated contract awards may not be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, refinance all or a portion of our existing debt as well as our operating needs, or obtain additional financing and we may not be able to do so on a timely basis, on satisfactory terms, or at all. Our ability to make scheduled principal payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the U.S. defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.
 
 
21

 

While the Company believes that anticipated revenues resulting from additional contract awards accompanied by its efforts will be sufficient to bring profitability and a positive cash flow to the Company, it is uncertain that these results can be achieved. Accordingly, the Company will, in all likelihood have to raise additional capital to operate. There can be no assurance that such capital will be available when needed, or that it will be available on satisfactory terms.

There are no off-balance sheet arrangements.
 
Item 4.     Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
s required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal officer.
 
Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were effective at March 31, 2012 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.  The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure. 
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

 
PART II – OTHER INFORMATION
Item 6.     Exhibits

(b)             Exhibits:
 
31.1
Rule 13a-14(a) Certification of Principal Executive Officer
   
31.2
Rule 13a-14(a) Certification of Principal Financial Officer
   
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS** XBRL Instance
   
101.SCH** XBRL Taxonomy Extension Schema
   
101.CAL** XBRL Taxonomy Extension Calculation
   
101.DEF** XBRL Taxonomy Extension Definition
   
101.LAB** XBRL Taxonomy Extension Labels
   
101.PRE** XBRL Taxonomy Extension Presentation
 
** XBRL
information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
22

 

SIGNATURE
 
In accordance with the requirements of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
BULOVA TECHNOLOGIES GROUP, INC.
   
             
   
By
 
/s/ Stephen L Gurba                                           
Stephen L Gurba
   
       
Principal Executive Officer
   
             
   
By
 
/s/ Frank W. Barker, Jr.                                       
   
       
Frank W. Barker, Jr.
   
       
Principal Financial and Accounting Officer
   
DATED: May 15, 2012

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PINX:BLVT Quarterly Report 10-Q Filing - 3/31/2012
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