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, 2017

 

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.)

 

1501 Lake Avenue SE

Largo, Florida 33771
(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

(Do not check if a smaller reporting company)

 

 

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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 March 31, 2017, the aggregate market value of the voting stock held by non-affiliates of the Company was $2,675,811 which excludes voting stock held by directors, executive officers and holders of 5 percent or more of the voting power of the Company’s common stock (without conceding that such persons are “affiliates” of the Company for purposes of federal securities laws). The Company has no outstanding non-voting common equity.

 

As of January 10, 2018, the Company had 778,004,457 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  

 

 

 

 

  EXPLANATORY NOTE

 

As set forth in a Form 8-K filed on March 7, 2017, Stevenson & Company CPAs LLC, the Company’s former independent auditors resigned on March 3, 2017, and on March 6, 2017, the Company engaged the firm of Turner, Stone & Company, L.L.P. of Dallas, Texas, as our new independent registered public accounting firm for the fiscal year ending September 30, 2017. The reports of Stevenson & Company CPAs LLC on the Company's financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that substantial doubt was raised as to the Company's ability to continue as a going concern.

 

On December 19, 2017, the Public Company Accounting Oversight Board (PCAOB) censured Stevenson & Company CPAs LLC, revoking the Firm’s registration, suspending their privilege of appearing or practicing before the Securities and Exchange Commission, which suspension was unrelated to Stevenson & Company CPAs work with the Company. As a consequence of this suspension, the Company may not include audit reports or consents from Stevenson & Company CPAs LLC in our filings with the Commission on or after the date their registration was revoked. As a result, the Company is required, and has since engaged our current auditor to re-audit the prior year’s consolidated financial statements for the year ended September 30, 2016.

 

As a consequence of the Securities and Exchange Commission requirement to have the prior year audit redone, and the late date the Company became aware of this, the Company has not been able to have the auditor complete the audit of the financial statements for both years ended September 30, 2017 and 2016 in a timely manner.

 

The Company understands that the staff of the Securities and Exchange Commission (the "staff") has taken the position that this report is deficient because the annual financial statements contained in this report for the year ended September 30, 2017 and 2016 have not yet been audited by an independent registered public accountant as required by Rule 10-01(d) of Regulation S-X. Pursuant to the position taken by the staff, the Company is deemed not to be current in its filings required under the Securities Exchange Act of 1934, as amended. The Company understands that completion of an audit of its annual financial statements and the filing of an amendment will make this report current, although it will not be deemed timely for purposes of the rules governing eligibility to use registration statements on Forms S-2 and S-3.

 

When the audits are complete, the Company will file an amendment to this report which will include the independent auditors’ report on both years and the required certifications of the Company’s Principal Executive Officer and Principal Financial and Accounting Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act.

 

 

BULOVA TECHNOLOGIES GROUP, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 2017

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

 

 

PART I

 

 

 

 

 

 

 

 

 

 

Item 1.

Business

 

 

4

 

Item 2.

Properties

 

 

10

 

Item 3.

Legal Proceedings

 

 

10

 

Item 4.

Mine Safety Disclosures

 

 

11

 

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity and Related Stockholder Matters

 

 

11

 

Item 7.

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

 

 

12

 

Item 8.

Consolidated Financial Statements

 

 

15

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

 

40

 

Item 9A.

Controls and Procedures

 

 

40

 

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance of the Registrant

 

 

40

 

Item 11.

Executive Compensation

 

 

42

 

Item 12.

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

 

 

43

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

 

 

44

 

Item 14.

Principal Accountant Fees and Services

 

 

45

 

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

 

 

46

 

 

 

 

 

 

 

 

Signatures

 

 

46

 

 

 

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. ("BTGI" 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 assets and operations of 3Si at that time were 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).

 

From January 1, 2009, Bulova Technologies Group, Inc. operated in multiple business segments. Government Contracting was 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. In October 2012, this segment was discontinued through the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, with any remaining assets and liabilities associated with that operation being segregated and reported as a discontinued operation, until March 29, 2017, when the Company sold all of its ownership interests in Ordnance. Contract Manufacturing included the production of cable assemblies and circuit boards accounted for through BT Manufacturing Company LLC, a wholly owned subsidiary that was discontinued and disposed of in March 2011.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

In January 2016, the Company through a newly created joint venture, BT-Twiss Transport LLC, acquired 100% of the outstanding common stock of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc. and entered into the transportation and logistics industry of freight storage and movement. The joint venture agreement provides for Bulova’s 30% ownership interest. However, Bulova is fully responsible for operational management of the acquired entities, and is liable for approximately $4.6 million of convertible debt utilized to accomplish the acquisition. Accordingly, the joint venture financial statements have been consolidated with those of the Company.

 

In July 2017, the Company expanded its transportation segment through the acquisition of 100% of the outstanding common stock of Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc., a New Jersey based trucking operation with hubs in both Netcong, New Jersey and Chicago, Illinois.

 

We consolidate all entities we control by ownership of a majority voting interest and variable interest entities for which we have the power to direct activities and the obligation to absorb losses. Our judgment in determining if we consolidate a variable interest entity includes assessing which party if any has the power and benefits. Therefore, we evaluate which activities most significantly affect the variable interest entities economic performance, and determine whether we or another party have the power to direct these activities. The following is a listing of the entities we control, and the variable interest entity we have included in our consolidated financial statements:

 

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

 

Bulova Technologies Finance LLC - This subsidiary was created in 2015 to provide in-house financing to purchasers of BTM equipment. In August and September of 2015, the Company accomplished its first two finance activities through equipment leasing transactions.

 

Bulova Technologies (Europe) LLC – co-located at the Company’s headquarters in Largo, Florida, this wholly-owned subsidiary (“Europe”), has been engaged in several lines of related business, including a Mortar Exchange Program, the offsets program, the administration of the blanket purchase agreement awarded to Ordnance by the Government, and the brokerage of commercial, small caliber ammunition. Europe continues to pursue the brokerage of 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 - co-located at the Company’s headquarters in Largo, 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. The Company commenced operations in mid-2015 through Bulova Technologies Healthcare Products LLC and a joint venture relationship with Bulova Technologies Compliance and Security LLC.

 

Bulova Technologies Healthcare Products LLC -This subsidiary was formed in 2015 as the Company’s entrant into the health care field. This subsidiary has focused its attention initially on a technologically innovative and patented cast product for which it has certain U.S. distribution rights.

 

Bulova Technologies Compliance and Security LLC - co-located at the Company’s headquarters in Largo, Florida, this company is a joint venture. The Company’s ownership interest in this joint venture is 30 percent. The Company accounts for this joint venture interest using the equity method of accounting and does not consolidate its operations. At September 30, 2017 and 2016, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of September 30, 2017 and 2016 is $0. This company was established to market the Enterprise Content Management Library ("ECM Library"©) and the companion K-3 Data Encryption software to government agencies, banks, law firms and mid to large size businesses. The ECM Library© software system provides for advanced search capability, high demand security, protection notification alerts, and back-up repository maintenance. The software provides unique layers of security in the access to the stored data. These layers actively monitor access to repository data, download and transmission of confidential files, insertion of external memory devices, on-line searches that have been performed, web-sites visited, and e-mails sent or received using the repository content. At September 30, 2017, this joint venture has ceased operations.

 

Bulova Technologies Ordnance Systems LLC. - Prior to discontinuance, this operation was 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. 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 was to take place) and a remaining blanket purchase agreement (BPA) with the DoD whereby the DoD could have ordered non-standard (e.g. Eastern European) weapons for shipment to friendly forces abroad. The BPA expired in October 2015. Ordnance has not sought any new contracts from the DoD since 2012. On March 29, 2017, the Company sold all of its ownership interests in Ordnance.

 

BT Twiss Transport LLC – This Company is a joint venture. The Company’s ownership interest in this joint venture is 30 percent. The Company accounts for this joint venture interest as a variable interest entity, and consolidates its operations. This company was established to facilitate the acquisition on January 28, 2016 of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage, Inc.

 

 

Twiss Transport, Inc. is a full-service Truckload and LTL freight shipping company specializing in the transportation of Frozen, Chilled and Dry goods to and from anywhere within the Continental United States.

 

Twiss Logistics, Inc. is a Truckload Brokerage company that negotiates competitive rates and utilizes a network of reliable carriers other than Twiss Transport, to facilitate the movement of additional freight in and out of Florida and anywhere else in the Continental United States.

 

Twiss Cold Storage, Inc. operates a Cold Storage facility of 132,055 square feet of frozen and chilled warehouse space providing refrigeration service for perishable products in transit through multiple distribution channels, as well as those provided by Twiss Transport and Twiss Logistics.

 

As of September 30, 2017, the Company’s headquarters, which administer the operations of all of its subsidiaries, is co-located with the trucking business of Twiss Transport, Inc., on approximately 10 acres of land in Largo, Florida. This property includes approximately 35,000 square feet of office, warehouse and maintenance space. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida to facilitate its operations.

 

Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc – (“Big Red”) – Acquired in July 2017, these two entities together provide an expansion of the Company’s capabilities through its fleet of tractors and trailers transporting Frozen, Chilled and Dry goods from hubs located in Netcong, New Jersey and Chicago, Illinois. Corporate offices are maintained in Great Meadows, New Jersey.

 

Business Segments

 

Commencing with the acquisition of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc., the Company began operating in two distinct business segments, Transportation services and commercial sales. The transportation segment provides freight handling as well as transport, and the commercial sales segment is involved in sales and distribution of industrial machines, ammunition, and healthcare products. Financial information by segment is presented in the notes to the financial statements.

 

 

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.

 

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 2-4 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. 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.

 

Transportation and Storage of Freight

 

We operate in a highly competitive industry, and our business will suffer if we are unable to adequately address potential downward pricing pressures and other factors that may adversely affect our operations and profitability.

 

Numerous competitive factors could impair our ability to maintain our current profitability. These factors include, but are not limited to, the following:

 

 

we compete with other transportation service providers of varying sizes, some of which may have more equipment, a broader global network, a wider range of services, greater capital resources or other competitive advantages;

 

 

some of our competitors may reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase prices or maintain revenue;

 

 

we may be unable to continue to collect fuel surcharges or our fuel surcharge program may become ineffective in mitigating the impact of fluctuating costs for fuel and other petroleum-based products;

 

 

many customers reduce the number of carriers they use by selecting “core carriers” as approved transportation service providers and we may not be selected;

 

 

many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors;

 

 

 

some shippers may choose to acquire their own trucking fleet or may choose to increase the volume of freight they transport if they have an existing trucking fleet;

 

 

some customers may choose to consolidate certain LTL shipments through a different mode of transportation, such as truckload, intermodal or rail;

 

 

a trend towards consolidation in the ground transportation industry may create other large carriers with greater financial resources and other competitive advantages relating to their size;

 

 

advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments; and

 

 

competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and ability to maintain sufficient pricing.

 

If we are unable to effectively compete with other LTL carriers, whether on the basis of price, service or otherwise, we may be unable to retain existing customers or attract new customers, either of which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, continued merger and acquisition activity in transportation and logistics could result in stronger or new competitors, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to compete successfully in an increasingly consolidated LTL industry and cannot predict with certainty how industry consolidation will affect our competitors or us.

 

If our employees were to unionize, our operating costs would increase and our ability to compete would be impaired.

 

None of our employees are currently represented under a collective bargaining agreement.  From time to time there may be efforts to organize our employees.  There is no assurance that our employees will not unionize in the future, particularly if legislation is passed that facilitates unionization, such as the Employee Free Choice Act.  The unionization of our employees could have a material adverse effect on our business, financial condition and results of operations because:

 

 

Some shippers have indicated that they intend to limit their use of unionized trucking companies because of the threat of strikes and other work stoppages;

 

Restrictive work rules could hamper our efforts to improve and sustain operating efficiency;

 

Restrictive work rules could impair our service reputation and limit our ability to provide next-day services;

 

A strike or work stoppage would negatively impact our profitability and could damage customer and employee relationships; and

 

An election and bargaining process could divert management’s time and attention from our overall objectives and impose significant expenses.

 

Insurance and claims expenses could significantly reduce our profitability.

 

We are exposed to claims related to cargo loss and damage, property, damage, personal injury, workers’ compensation, long-term disability and group health.  We have insurance coverage with third-party insurance carriers, but retain or self-insure a portion of the risk associated with these claims.  If the number or severity of claims increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely affected.  Insurance companies may require us to obtain letters of credit to collateralize our self-insured retention.  If these requirements increase, our borrowing capacity could be adversely affected.  Our future insurance and claims expense might exceed historical levels, which could reduce our earnings.  We expect our growth strategy to require a periodic reassessment or our insurance strategy, including self-insurance of a greater portion of our claims exposure resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as employees’ health insurance under pending federal legislation, which we are unable to predict.  We may also become responsible for our legal expenses relating to such claims.  With growth, we will be required to periodically evaluate and adjust our claims reserves to reflect our experience.  However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.  We maintain insurance above the amounts for which we self-insure with licensed insurance carriers.  Although we believe the aggregate insurance limits should be sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed our aggregate coverage limits.  Insurance carriers have raised premiums for many businesses, including trucking companies.  As a result, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed.  If these expenses increase, or if we experience a claim in excess of our coverage limits, or we experience a claim for which coverage is not provided, results of our operations and financial condition could be materially and adversely affected.

 

 

Our customers and suppliers’ business may be slow to recover from the most recent downturn in the world-wide economy and disruption of financial markets.  We cannot predict the impact on the national and worldwide economy of an economic downturn.

 

Our business is dependent on a number of general economic and business factors that may have a materially adverse effect on our results of operations, many of which are beyond our control, table terms, because of the disruptions to the capital and credit markets.  These customers represent a greater potential for bad debt losses, which may require us to increase our reserve for bad debt.  Economic conditions resulting in bankruptcies of one or more of our large customers could have a significant impact on our financial position, results of operations or liquidity in particular year or quarter.  Our suppliers’ business levels have also been and may continue to be adversely affected by current economic conditions or financial constraints, which could lead to disruptions in the supply and availability of equipment, parts and services critical to our operations.  A significant interruption in our normal supply chain could disrupt our operations, increase our costs and negatively impact our ability to serve our customers.

 

We may be adversely impacted by fluctuations in the price and availability of diesel fuel.

 

We require large amounts of diesel fuel to operate our tractors and to power the temperature-control units on our trailers.  Fuel is one of our largest operating expenses.  Fuel prices tend to fluctuate and prices and availability of all petroleum products are subject to political, economic and market factors that are beyond our control.  We do not hedge against the risk of diesel fuel price increases.  We depend primarily on fuel surcharges, auxiliary power units for our tractors, volume purchasing arrangements with truck stop chains and bulk purchases of fuel at our terminals to control and recover our fuel expenses.  We have no assurance that we will be able to collect fuel surcharges or enter into volume purchase agreements in the future.  An increase in diesel fuel prices or diesel fuel taxes, or any change in federal or state regulations that results in such an increase, could have a material adverse effect on our operating results, unless the increase is offset by increases in freight rates or fuel surcharges charged to our customers.  We continuously monitor the components of our pricing, including base freight rates and fuel surcharges, and address individual account profitability issues with our customers when necessary.  While we have historically been able to adjust our pricing to offset changes to the cost of diesel fuel, through changes to base rates and/or fuel surcharges, we cannot be certain that we will be able to do so in the future.  

 

Increased prices, reduced productivity, and restricted availability of new revenue equipment could cause our financial condition, results of operations and cash flows to suffer.

 

Prices for new tractors have increased over the past few years, primarily as a result of higher commodity prices, better pricing power among equipment manufacturers, and government regulations applicable to newly manufactured tractors and diesel engines.  We expect to continue to pay increased prices for revenue equipment and incur additional expenses and related financing costs for the foreseeable future.  Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers or if we have to pay increased prices for new revenue equipment.  

 

Seasonality and the impact of weather can adversely affect our profitability.

 

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments.  At the same time, operating expenses generally increase with harsh weather creating higher accident frequency, increased claims and more equipment repairs.  We can also suffer short-term impacts from weather-related events such as hurricanes, blizzards, ice-storms, and floods that could harm our results or make our results more volatile.

 

Shrinkage in the pool of eligible drivers could affect our profitability and ability to grow.

 

The ongoing Comprehensive Safety Analysis, often referred to as CSA 2010, is projected to reduce the driver pool. Every driver receives a score based upon his or her individual performance in six categories, which are then combined into a single score, and this score is compared to the scores of all other drivers to determine how “safe” the driver is. Drivers with lower scores are less hirable or not hirable. A shortage of qualified drivers from time to time could cause us to temporarily under-utilize our fleet, face difficulty in this seems aged a bit meeting shipper demands and increase our compensation levels for drivers.

 

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.

 

The USDOT and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements.  Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the USDOT, including those relating to drug and alcohol testing and hours-of-service.  We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours-of-service, ergonomics, or other matters affecting safety or operating methods.  Other agencies, such as the EPA and the Department of Homeland Security, or DHS, also regulate our equipment, operations, and drivers.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs.  Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.

 

Some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  From time to time, various federal, state, or local taxes are increased, including taxes on fuels.  We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our profitability.

 

 

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.

 

On July 14, 2017 a truck owned by Twiss Transport, Inc. (“Twiss”) and driven by a Twiss employee was involved in a fatal accident in Marion County, Florida. Twiss, BT Twiss and the Company have been sued in both federal court in Pennsylvania and state court in Florida by the injured parties and the estate of the deceased. No damages have yet been specified and the defendants are vigorously defending the claims. All three defendants have notified the applicable insurance carrier.

 

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

 

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.

 

In October 2012, we sold substantially all of the assets of Bulova Technologies Ordnance Systems LLC, and settled significant indebtedness.

 

In July of 2013, we entered into the machine tool business, importing industrial machine tools and related equipment from international sources. In establishing this new line of business, we incurred certain debt to facilitate the cultivation and marketing of a distributor / dealer network.

 

In January 2016 and again in July 2017, through significant acquisitions, we expanded into the freight transportation, logistics and storage businesses, making substantial investments and incurring significant amounts of debt for both equipment acquisitions and working capital.

 

At September 30, 2017, we have outstanding debt of approximately 38.6 million to support our operations and cash flow needs.

 

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.

 

Item 1B. Unresolved Staff Comments

 

Not applicable

 

Item 2. Property

 

As of September 30, 2017, the Company’s headquarters, which oversees the operations of all of its Florida subsidiaries, is co-located with the trucking business of Twiss Transport, Inc., on approximately 10 acres of land in Largo, Florida. This property includes approximately 35,000 square feet of office, warehouse and maintenance space. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida to facilitate its operations.

 

Through the acquisition of Big Red, the Company has corporate offices co-located with its trucking and storage business in a warehouse with approximately 60,000 square feet of office, warehouse and maintenance space in Great Meadows, New Jersey.

 

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 of the $12,000,000 (plus interest and penalties). The assets of Ordnance were sold at arms-length to an independent third party and virtually all of the proceeds distributed to secured and unsecured third-party creditors.

 

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 government recognition of a novation of the contracts. In management’s opinion, these potential demands would not have any material adverse effect upon us because Ordnance, as a discontinued operation, has no assets to satisfy any such potential liabilities. However, there is 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 claims by the Army and Navy if any resulting from the terminations.

 

 

The four contracts discussed above were contracts W91CRB-09-C-0014, (awarded on January 9, 2011 (“Contract 1”)), W52P1J-06-D-0014 (awarded on May 5, 2006 (“Contract 2”)), and W52P1J-09-D-0066 (awarded on September 28, 2009 (“Contract 3”)), and N00164-12-D-JS87 (awarded on May 15, 2012 (“Contract 4”)).

 

The performance of Contract 1, involving the purchase by Ordnance of arms from Eastern European countries for importation into Afghanistan for friendly forces located there, was to take place between approximately July 2009 and January 2010, but was delayed, at least in part, due to the Government’s failure to produce proper documentation to permit performance by Ordnance. Monies were advanced by the Government, to be liquidated as weaponry was delivered. Ordnance delivered an amount of goods sufficient to liquidate a portion of the advances prior to termination, thus resulting in the Army’s demand for repayment referred to above, which amount is expected to be offset in part by the termination and delay claims filed by Ordnance. The termination provision contained in Contract 1 also permits the Army to claim excess re-procurement costs in buying replacement goods, but there is no evidence any such excess costs were incurred and the Army has, to date, claimed none.

 

The Army has terminated Contracts 2 and 3, which called for the delivery of Booby Trap Simulators with initial contract values of $13,495,520 and $5,310,565, respectively, during the period from May 2006 to approximately September 2014 as a result of the unwillingness of the Defense Contract Management Agency to recognize the novation of Contracts 2 and 3 to the purchaser of the assets of Ordnance. The termination provisions contained in Contract 2 and Contract 3 permit the Army to demand repayment of unliquidated advance payments and excess re-procurement fees, if any. No such demands have been made and Ordnance has received no advice that the simulators have been re-procured.

 

The Navy has terminated a contract, which originally called for the delivery of 11,085 Hand Held Signal Flares from May 2012 to approximately September 2014, as a result of the unwillingness of the Defense Contract Management Agency to recognize the novation of the contract to the purchaser of the assets of Ordnance.

 

No monies were advanced to Ordnance under the contract. The termination provision contained in the contract would permit the Navy to demand repayment of excess re-procurement costs, if any. Ordnance has received no advice that the flares have been re-procured.

 

In December 2013, the Army terminated Call Order #4 to the BPA. This Call Order required the delivery of weapons procured in Eastern Europe to friendly forces in Afghanistan. Ordnance appealed this decision to the Armed Services Board of Contract Appeals, and the matter is currently in litigation. The Government advanced no money to Ordnance under the Call Order and has not notified Ordnance as to whether it incurred excess costs n re-procuring the weaponry. Ordnance takes the position that due to the Government’s interference in the performance of the Call Order, the Call Order was improperly terminated. If Ordnance’s position is found to be correct, it would be entitled to a conversion of the termination for failing to perform, into a termination for convenience, and would entitle Ordnance to receipt from the Government of its reasonable costs incurred in performance of the Call Order plus a profit thereon.

 

On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

On July 14, 2017 a truck owned by Twiss Transport, Inc. (“Twiss”) and driven by a Twiss employee was involved in a fatal accident in Marion County, Florida. Twiss, BT Twiss and the Company have been sued in both federal court in Pennsylvania and state court in Florida by the injured parties and the estate of the deceased. No damages have yet been specified and the defendants are vigorously defending the claims. All three defendants have notified the applicable insurance carrier.

 

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.

 

Quarter Ending

 

High

   

Low

 
                 

December 31, 2015

  $ 0.0900     $ 0.0550  

March 31, 2016

    0.0800       0.0412  

June 30, 2016

    0.0500       0.0071  

September 30,2016

    0.0250       0.0020  
                 

December 31, 2016

  $ 0.0059     $ 0.0014  

March 31, 2017

    0.0043       0.0015  

June 30, 2017

    0.0094       0.0019  

September 30,2017

    0.0075       0.0021  

 

 

The closing bid price of our Common Stock on January 11, 2018, was $.0013.

 

As of January 11, 2017, there were approximately 2,500 shareholders of record of our Common Stock, not including those persons who hold their shares in “street name”.

 

We have not paid any dividends on our Common Stock since our inception. We do not foresee that we will have the ability to pay a dividend on our Common Stock in the fiscal year ended September 30, 2017.

 

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:

 

From January 1, 2009, Bulova Technologies Group, Inc. operated in multiple business segments. Government Contracting was 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. In October 2012, this segment was discontinued through the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, with any remaining assets and liabilities associated with that operation being segregated and reported as a discontinued operation, until March 29, 2017, when the Company sold all of its ownership interests in Ordnance. Contract Manufacturing included the production of cable assemblies and circuit boards accounted for through BT Manufacturing Company LLC, a wholly owned subsidiary that was discontinued and disposed of in March 2011.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

In January 2016, the Company through a newly created joint venture, BT-Twiss Transport LLC, acquired 100% of the outstanding common stock of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc. has entered into the transportation and logistics industry of freight storage and movement. The joint venture agreement provides for Bulova’s 30% ownership interest, however, Bulova is fully responsible for operational management of the acquired entities, and is liable for approximately 4.6 million of convertible debt utilized to accomplish the acquisition. Accordingly, the joint venture financial statements have been consolidated with those of the Company.

 

In July 2017, the Company expanded its transportation segment through the acquisition of 100% of the outstanding common stock of Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc., a New Jersey based trucking operation with hubs in both Netcong, New Jersey and Chicago, Illinois.

 

The Company continues to evaluate 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.

 

Application of critical accounting policies:

 

Management’s Discussion and Analysis of our Financial Condition and Results of Operations is based on the Company’s 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, 2017 compared to the year ended September 30, 2016.

 

Discontinued Operations

 

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.

 

On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC no longer has any activity to be included in the consolidated financial statements of the Company with the exception of comparative information for periods presented. 

 

Ordnance did not have any revenue for the years ended September 30, 2017 and 2016.

 

Ordnance did not incur any costs of revenues for the years ended September 30, 2017 and 2016.

 

Ordnance did not realize any gross profit for the years ended September 30, 2017 and 2016.

 

Operating expenses and interest for the discontinued operations of Ordnance for the year ended September 30, 2017 of $33,385 is a decrease of $458,168 when compared to operating expenses and interest for the year ended September 30, 2016 of $491,553, and is due primarily to legal costs, as well as additional interest costs incurred in the restructuring of the terms of certain debts associated with the discontinued operations of Ordnance.

 

The sale of Ordnance is accounted for as a deconsolidation of a subsidiary, whereby the net assets are valued at the date of the deconsolidation, and a gain or loss is recognized based on the value of the assets received. As of March 29, 2017, Ordnance had no assets, and a liability of $10,800,000 from a contract dispute with the US Government. The sale of 100% of the ownership interest in Ordnance, was to an unrelated party for a nominal amount, plus the issuance of 2,000,000 common shares. As of March 29, 2017, the fair value of the common shares was $0.0018, or $3,600. The resultant gain recognized on deconsolidation is $10,796,400. 

 

Continuing Operations

 

Revenue for continuing operations for the year ended September 30, 2017 of $25,150,112 is an increase of $6,429,350 when compared to the revenue for the year ended September 30, 2016 of $18,720,762, and is primarily due to the acquisition of the Transportation businesses in January 2016 and July 2017.

 

Cost of revenues for continuing operations for the year ended September 30, 2017 of $19,140,486 is an increase of $5,792,026 when compared to the cost of revenues for the year ended September 30, 2016 of $13,348,460, and is primarily due to the acquisition of the Transportation businesses in January 2016 and July 2017, and consists of the tractor, trailer and driver expenses associated with the transportation services.

 

Gross profit for continuing operations for the year ended September 30, 2017 of $6,009,626 is an increase of $637,324 when compared to the gross profit for the year ended September 30, 2016 of $5,372,302 for the reasons referred to above.

 

Selling and administrative expenses for continuing operations for the year ended September 30, 2017 of $7,940,919 is an increase of $698,102 when compared to selling and administrative expense for the year ended September 30, 2016 of $7,242,817. Stock based compensation of $3,100 for the year ended September 30, 2017 is a decrease of $1,945,324 when compared to stock based compensation for the year ended September 30, 2016 of $1,948,424.

 

Depreciation and amortization expense for continuing operations for the year ended September 30, 2017 of $1,765,758 is an increase of $785,817 when compared to depreciation and amortization expense for the year ended September 30, 2016 of $979,941.

 

Interest expense for continuing operations for the year ended September 30, 2017 of $7,174,853 is an increase of $4,735,342 when compared to interest expense of $2,439,511 for the year ended September 30, 2016.

 

Liquidity and capital resources:

 

As of September 30, 2017, the Company’s sources of liquidity consisted of new debt as well as new sales reported in the commercial sales and service business segment along with the new sales in the transportation segment of the business.

 

As of September 30, 2017, we had $87,984 in cash and cash equivalents.

 

 

Cash flows used in operating activities was $4,584,490 for the year ended September 30, 2017.   

 

Cash flows provided by investing activities was 468,360 for the year ended September 30, 2017.

 

Cash flows provided by financing activities were 3,553,852 for the year ended September 30, 2017.

 

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 is actively negotiating significant discounts on debt through an exchange of debt for both preferred A and B shares as well as negotiated settlements for early payoffs resulting in significant debt reductions and future interest savings. While its current lenders continue to support the progress of the Company, the Company is exploring consolidation of its debt.

 

Management’s goal is to discontinue or sell all business units other than the transportation, thereby significantly reducing cost and reducing debt. This will not only reduce costs, but it will allow management to focus exclusively on building the transportation sector.

 

Along with, and similar to its recent acquisition of Big Red, the Company intends to continue to pursue additional acquisitions that add strategic synergies for its current hubs and customer base. The Company is also exploring strategic locations in the Northeast for its cold storage facility of approximately 150,000 square feet. These actions along with acquisitions made will allow for significant growth of sales and a return to profitability.

 

Management remains confident in its position in the transportation sector and believes we will continue to gain market share due to its recent acquisitions.

 

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 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 transportation and commercial sales segments will be sufficient to bring profitability and a positive cash flow to the Company, it is uncertain that these results can be achieved. Accordingly, the Company will, in all likelihood have to raise additional capital to operate. There can be no assurance that such capital will be available when needed, or that it will be available on satisfactory terms.

 

There are no off-balance sheet arrangements.

 

Our ability to utilize net operating loss carry forwards may be limited

 

As of September 30, 2017, the Company had net operating loss carry forwards (NOLs) of approximately 23 million for federal income tax purposes that will begin to expire between the years of 2022 and 2035. 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

 

 

 

 

 

 

         

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2017 and 2016 

 

 

16

 

 

 

 

 

 

Consolidated Statements of Operations for the Years Ended September 30, 2017 and 2016 

 

 

17

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Years Ended September 30, 2017 and 2016 

 

 

18

 

         

Consolidated Statement of Changes in Stockholders’ Deficit for the Years Ended September 30, 2017 and 2016

   

20

 
         

Notes to Consolidated Financial Statements

   

21

 

 

 

BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

   

September 30,

 
   

2017

   

2016

 
                 

ASSETS

               
                 

Cash and cash equivalents

  $ 87,984     $ 650,262  

Accounts receivable

    2,893,901       2,325,582  

Inventory

    97,000       421,331  

Other current assets

    824,475       353,203  

Current assets from discontinued operations

    -       -  
                 

Total Current Assets

    3,903,360       3,750,378  
                 

Fixed assets, net

    10,998,406       10,745,924  

Other assets

    47,020       113,215  

Goodwill

    5,344,533       4,789,772  

Non-current assets from discontinued operations

    -       -  
                 
    $ 20,293,319     $ 19,399,289  
                 
                 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

               
                 

Accounts payable

  $ 2,132,325     $ 1,598,445  

Accounts payable – related parties

    2,579,301       1,786,436  

Accrued expenses and other current liabilities

    440,691       413,720  

Accrued expenses and other current liabilities – related parties

    1,479,083       1,137,163  

Current portion of long term debt

    13,224,414       4,553,201  

Current portion of notes payable – related parties

    1,130,208       412,720  

Amounts due shareholders and related parties

    818,230       419,260  

Derivative liability

    224,864       269,538  

Current liabilities from discontinued operations

    -       1,111,962  
                 

Total current liabilities

    22,029,116       11,702,445  
                 

Long term debt, net of current portion

    9,000,811       8,078,716  

Notes payable – related parties, net of current portion

    15,284,594       14,862,451  

Long term liabilities from discontinued operations

    -       10,800,000  
                 

Total liabilities

    46,314,521       45,443,612  
                 

Commitments and contingencies (Note 11)

    -       -  
                 

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, 2017 and 2016

    40,000       40,000  

Common stock, $.001 par; authorized 900,000,000 shares, 608,240,490 and 343,752,151 issued and outstanding at September 30, 2017 and 2016

    608,241       343,752  

Subscription receivable

    (66,000 )     (66,000 )

Additional paid in capital in excess of par

    29,058,112       28,799,184  

Accumulated deficit

    (54,877,930 )     (55,419,392 )

Total Bulova Technologies Group, Inc. shareholders’ deficit

    (25,237,577 )     (26,302,456 )

Non-controlling interest in BT-Twiss Transport LLC

    (783,625 )     258,133  

Total shareholders’ deficit

    (26,021,202 )     (26,044,323 )
                 
    $ 20,293,319     $ 19,399,289  

 

See accompanying notes to consolidated financial statements.

 

 

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

 

   

Years Ended September 30,

 
   

2017

   

2016

 
                 

Revenues

  $ 25,150,112     $ 18,720,762  

Cost of revenues

    19,140,486       13,348,460  
                 

Gross profit

    6,009,626       5,372,302  
                 
                 

Selling and administrative expenses

    7,940,919       7,242,817  

Stock based compensation

    3,100       1,948,424  

Depreciation and amortization expense

    1,765,758       979,941  

Interest expense

    7,174,853       2,439,511  
                 

Total expenses

    16,884,630       12,610,693  
                 

Loss from operations

    (10,875,004 )     (7,238,391 )
                 

Other income (expense)

               

Derivative gain (loss)

    183,405       (269,538 )

Other income (loss)

    (571,712 )     188,730  
                 

Loss from continuing operations before income taxes

    (388,307 )     (7,319,199 )
                 

Income tax expense

    -       -  
                 

Loss from continuing operations

    (11,263,311 )     (7,319,199 )

Income (loss) from discontinued operations, net of tax

               

Operating expenses

    (33,385 )     (491,553 )

Gain on deconsolidation of subsidiary

    10,796,400       -  
                 

Total income (loss) from discontinued operations, net of tax

    10,763,015       (491,553 )
                 

Net loss

    (500,296 )     (7,810,752 )

Net income (loss) attributable to non-controlling interest in BT-Twiss Transport LLC

    (1,041,758 )     258,133  
                 

Net income (loss) attributable to Bulova Technologies Group, Inc.

  $ 541,462     $ (8,068,885 )
                 
                 

Basic and diluted net income (loss) per share

               

Loss from continuing operations

  $ (.023 )   $ (.068 )

Income (loss) from discontinued operations

    .022       (.005 )

Net loss per share

  $ (.001 )   $ (.073 )
                 
                 

Weighted average shares outstanding, basic and diluted

    484,351,164       107,466,765  

 

See accompanying notes to consolidated financial statements.

 

 

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

 

   

Years Ended September 30,

 
   

2017

   

2016

 
                 

Cash flows from operating activities:

               

Loss from continuing operations

  $ (11,263,311 )   $ (7,319,199 )

Income (Loss) from discontinued operations

    10,763,015       (491,553 )

Net loss

    (500,296 )     (7,810,752 )

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

               

Depreciation and amortization

    1,459,331       979,941  

Stock based payment for services

    3,100       1,948,424  

Amortization of debt discount

    306,427       196,689  

Interest expense from refinance transactions

    3,342,297          

(Gain) loss on sale and disposal of assets

    62,063       (71,910 )

Derivative expense

    -       269,538  

Gain on change in fair value of derivative liability

    (183,405 )     -  

Loss on inventory write-down

    -       253,195  

Changes in operating assets and liabilities

               

Accounts receivable

    2,432       (393,025 )

Inventory

    324,331       (414,885 )

Prepaid expenses and other assets

    (11,888 )     (112,631 )

Accounts payable and accrued expenses

    1,411,580       1,752,609  

Amounts due shareholders

    -       464,700  
                 

Net cash flows from operating activities – continuing operations

    6,215,972       (2,938,107 )

Net cash flows from operating activities – discontinued operations

    (10,800,462 )     (450,462 )

Net cash flows from operating activities

    (4,584,490 )     (2,487,645 )
                 

Cash flows from investing activities:

               

Acquisition of fixed assets

    (38,940 )     (11,681 )

Cash purchased with business acquisition

    48,741       196,229  

Proceeds from disposition of assets

    421,559       -  

Proceeds from sale of assets

    37,000       132,500  

Cash payments in business acquisition

    -       (5,166,155 )

Net cash flows from investing activities – continuing operations

    468,360       (4,849,107 )

Net cash flows from investing activities – discontinued operations

    -       -  

Net cash flows from investing activities

    468,360       (4,849,107 )
                 

Cash flows from financing activities

               

Advances from shareholders and related parties

    843,452       -  

Repayments to shareholders and related parties

    (444,482 )     -  

Increases in long term debt

    11,355,709       8,717,840  

Repayment of long term debt

    (8,777,727 )     (3,226,247 )

Increases in notes payable – related parties

    1,525,500       3,251,087  

Repayment of notes payable – related parties

    (921,100 )     (701,014 )
                 

Net cash flows from financing activities – continuing operations

    3,581,352       8,041,667  

Net cash flows from financing activities – discontinued operations

    (27,500 )     (125,000 )

Net cash flows from financing activities

    3,553,852       7,916,667  
                 

Increase (decrease) in cash and cash equivalents

    (562,278 )     579,915  

Cash and cash equivalents, beginning

    650,262       70,347  
                 

Cash and cash equivalents, ending

  $ 87,984     $ 650,262  
                 

Cash paid for interest

  $ 3,170,857     $ 2,308,346  
                 

Cash paid for taxes

  $ -     $ -  

 

 

Supplemental schedule of non-cash financing and investing activities:

 

October 2016, issuance of 6,561,299 common shares as a true up to a prior conversion of debt

  $ -     $ -  

October 2016, issuance of 7,500,000 common shares from exercise of warrants

  $ 14,250     $ -  

December 2016, issuance of 26,041,667 as partial payment on a settlement

  $ 25,000     $ -  

December 2016, issuance of 67,000,000 common shares as partial payment of account payable to a related party

  $ 207,700     $ -  

December 2016, issuance of 27,803,571 common shares as conversion of debt

  $ 10,000     $ -  

January 2017, issuance of 20,000,000 common shares as conversion of debt

  $ 7,500     $ -  

February 2017, issuance of 1,000,000 common shares for services

  $ 3,100     $ -  

Financed the acquisition of new equipment

  $ 1,248,345     $ -  

Satisfaction of debt on sale of assets

  $ 16,444     $ -  

Principal and interest payments through refinanced debt

  $ 6,433,00     $ -  

 

See accompanying notes to consolidated financial statements.

 

 

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

 

   

Total Bulova Technologies Group, Inc. Stockholders' Deficit

                 
   

Preferred Stock

   

Common Stock

                                         
   

Number of

Shares

   

Amount

   

Number of

Shares

   

Amount

   

Subscription

Receivable

   

Additional Paid-

In Capital

   

Accumulated

Deficit

   

Non-

Controlling

Interest

   

Total

 
                                                                         

Balances, October 1, 2015

    4,000,000,000     $ 40,000     $ 69,093,518     $ 69,093     $ (66,000 )   $ 26,231,658     $ (47,350,507 )   $ -     $ (21,075,756 )

Issuance of shares from the exercise of warrants

                    75,000       75               (75 )                     -  

Issuance of warrants associated with settlement of debt

                                            26,228                       26,228  

Issuance of shares for services

                    5,000,000       5,000               317,500                       322,500  

Issuance of warrants for services

                                            1,380,999                       1,380,999  

Issuance of shares for services

                    2,500,000       2,500               110,000                       112,500  

Issuance of shares as part of acquisition

                    3,000,000       3,000               154,500                       157,500  

Issuance of warrants as part of acquisition

                                            26,250                       26,250  

Issuance of shares as partial settlement of debt

                    5,100,000       5,100               300,900                       306,000  

Issuance of shares from the exercise of warrants

                    3,510,811       3,511               (3,511 )                     -  

Issuance of shares for services

                    850,000       850               18,275                       19,125  

Issuance of shares for debt conversion

                    9,163,834       9,164               45,836                       55,000  

Issuance of shares for debt conversion

                    206,458,988       206,459               116,324                       322,783  

Issuance of shares from the exercise of warrants

                    39,000,000       39,000               74,300                       113,300  

Net loss for the year ended September 30, 2016

                                                    (8,068,885 )     258,133       (7,810,752 )
                                                                         

Balances, September 30, 2016

    4,000,000,000     $ 40,000       343,752,151     $ 343,752     $ (66,000 )   $ 28,799,184     $ (55,419,392 )   $ 258,133     $ (26,044,323 )

Issuance of shares for debt conversion

                    6,561,299       6,561               (6,561 )                     -  

Issuance of shares from the exercise of warrants

                    7,500,000       7,500               6,750                       14,250  

Issuance of shares for a settlement

                    26,041,667       26,042               (1,042 )                     25,000  

Issuance of shares as partial satisfaction of an account payable to a related party

                    67,000,000       67,000               140,700                       207,700  

Issuance of shares for debt conversion

                    27,803,571       27,804               (17,804 )                     10,000  

Issuance of shares for debt conversion

                    20,000,000       20,000               (12,500 )                     7,500  

Issuance of shares for services

                    1,000,000       1,000               2,100                       3,100  

Issuance of shares for debt conversion

                    108,581,802       108,582               44,814                       153,396  

Derivative liability adjustment - satisfaction of debt

                                            102,471                       102,471  

Net loss for the year ended September 30, 2017

                                                    541,462       (1,041,758 )     (500,296 )
                                                                         

Balances, September 30, 2017

    4,000,000,000     $ 40,000       608,240,490     $ 608,241     $ (66,000 )   $ 29,058,112     $ (54,877,930 )   $ (783,625 )   $ (26,021,202 )

 

See accompanying notes to consolidated financial statements.

 

 

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

YEARS ENDED SEPTEMBER 30, 2017 AND 2016

 

1.

Description of business:

   

 

Bulova Technologies Group, Inc. ("BTGI" 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 assets and operations of 3Si at that time were 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). 

 

From January 1, 2009, Bulova Technologies Group, Inc. operated in multiple business segments. Government Contracting was 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. In October 2012, this segment was discontinued through the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, with any remaining assets and liabilities associated with that operation being segregated and reported as a discontinued operation. Contract Manufacturing included the production of cable assemblies and circuit boards accounted for through BT Manufacturing Company LLC, a wholly owned subsidiary that was discontinued and disposed of in March 2011. More recently, the Company engaged in Commercial Sales that have included the brokering of Eastern European small caliber ammunition to large U.S. customers on a wholesale basis and to small retail customers in the U.S. accounted for through Bulova Technologies (Europe) LLC.

 

In July of 2013, the Company began the sale of high precision industrial machine tools through a distributor network accounted for through Bulova Technologies Machinery LLC, a newly formed subsidiary.

 

In January 2016, the Company through a newly created joint venture, BT-Twiss Transport LLC, acquired 100% of the outstanding common stock of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc. has entered into the transportation and logistics industry of freight storage and movement. The joint venture agreement provides for Bulova’s 30% ownership interest, however, Bulova is fully responsible for operational management of the acquired entities, and is liable for approximately 4.6 million of convertible debt utilized to accomplish the acquisition. Accordingly, the joint venture financial statements have been combined with those of the Company.

 

In July 2017, the Company expanded its transportation segment through the acquisition of 100% of the outstanding common stock of Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc., a New Jersey based trucking operation with hubs in both Netcong, New Jersey and Chicago, Illinois. 

   

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, 2017 and 2016. All material intercompany transactions have been eliminated.

 

We consolidate all entities we control by ownership of a majority voting interest and variable interest entities for which we have the power to direct activities and the obligation to absorb losses. Our judgment in determining if we consolidate a variable interest entity includes assessing which party if any has the power and benefits. Therefore we evaluate which activities most significantly affect the variable interest entities economic performance, and determine whether we or another party have the power to direct these activities. The following is a listing of the entities we control, and the variable interest entity we have included in our consolidated financial statements:

 

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 establishes a Distributor/Dealer Network throughout the United States and Canada.

 

Bulova Technologies Finance LLC - This subsidiary was created in 2015 to provide in-house financing to purchasers of BTM equipment.

 

 

 

Bulova Technologies (Europe) LLC – co-located at the Company’s headquarters in Clearwater, Florida, this wholly-owned subsidiary (“Europe”), has been engaged in several lines of related business, including a Mortar Exchange Program, the offsets program, the administration of the blanket purchase agreement awarded to Ordnance by the Government, and the brokerage of commercial, small caliber ammunition. Europe continues to pursue the brokerage of 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 - 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. The Company commenced operations in mid-2015 through Bulova Technologies Healthcare Products LLC and a joint venture relationship with Bulova Technologies Compliance and Security LLC.

 

Bulova Technologies Healthcare Products LLC -This subsidiary was formed in 2015 as the Company’s entrant into the health care field. This subsidiary has focused its attention initially on a technologically innovative and patented cast product for which it has certain U.S. distribution rights.

 

Bulova Technologies Compliance and Security LLC - co-located at the Company’s headquarters in Clearwater, Florida, this company is a joint venture. The Company’s ownership interest in this joint venture is 30 percent. The Company accounts for this joint venture interest using the equity method of accounting and does not consolidate its operations. At September 30, 2017, the operations of the joint venture reflect a loss in excess of the Company’s investment. As a result, the amount carried on the balance sheet as of September 30, 2017 is $0. This company was established to market the Enterprise Content Management Library ("ECM Library"©) and the companion K-3 Data Encryption software to government agencies, banks, law firms and mid to large size businesses. The ECM Library© software system provides for advanced search capability, high demand security, protection notification alerts, and back-up repository maintenance. The software provides unique layers of security in the access to the stored data. These layers actively monitor access to repository data, download and transmission of confidential files, insertion of external memory devices, on-line searches that have been performed, web-sites visited, and e-mails sent or received using the repository content. At September 30, 2017, this joint venture has ceased operations.

 

Bulova Technologies Ordnance Systems LLC. - Prior to discontinuance, this operation was 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.  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 was to take 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 expired in October 2015. Ordnance has not sought any new contracts from the DoD since 2012.  On March 29, 2017, the Company sold all of its ownership interests in Ordnance.

 

BT Twiss Transport LLC – This company is a joint venture. The Company’s ownership interest in this joint venture is 30 percent. The Company accounts for this joint venture interest as a variable interest entity, and consolidates its operations. This company was established to facilitate the acquisition on January 28, 2016 of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage, Inc.

 

 

Twiss Transport, Inc. is a full-service Truckload and LTL freight shipping company specializing in the transportation of Frozen, Chilled and Dry goods to and from anywhere within the Continental United States.

 

Twiss Logistics, Inc. is a Truckload Brokerage company that negotiates competitive rates and utilizes a network of reliable carriers other than Twiss Transport, to facilitate the movement of additional freight in and out of Florida and anywhere else in the Continental United States.

 

Twiss Cold Storage, Inc. operates a Cold Storage facility of 132,055 square feet of frozen and chilled warehouse space providing refrigeration service for perishable products in transit through multiple distribution channels, as well as those provided by Twiss Transport and Twiss Logistics.

 

 

Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc – (“Big Red”) – Acquired in July 2017, these two entities together provide an expansion of the Company’s capabilities through its fleet of tractors and trailers transporting Frozen, Chilled and Dry goods from hubs located in Netcong, New Jersey and Chicago, Illinois. Corporate offices are maintained in Great Meadows, New Jersey.

 

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, 2017 and 2016, and the results of operations and cash flows for the years ended September 30, 2017 and 2016.

 

 

 

Subsequent Events

 

The Company has evaluated subsequent events through the date of filing this Form 10-K 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 acquisition of Twiss Transport, Inc., Twiss Logistics, Inc. and Twiss Cold Storage, Inc., the Company began operating in two distinct business segments, Transportation services and commercial sales. The transportation segment provides freight handling as well as transport, and the commercial sales segment is involved in sales and distribution of industrial machines, ammunition, and healthcare products. Financial information by segment is presented in the notes to the financial statements.

 

Concentrations – Major Customers

 

For the year ended September 30, 2017, approximately 40% of the revenue accounted for within the Company’s transportation business segment was provided by three customers, one representing approximately 26% and the other two approximately 7% each.

 

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.

   
 

Equity method of accounting – Joint Venture

 

The Company accounts for its joint venture interest in Bulova Technologies Compliance and Security LLC using the equity method of accounting. The Company’s ownership interest in this joint venture is 30 percent. As of September 30, 2017, Compliance ceased all operations, and the write off of the full amount of the Company's advances and investment in Compliance resulted in the recognition of a loss in the amount of $534,771 recorded as a loss in other expense for the year ended September 30, 2017.

 

Variable Interest Entities

 

Through the formation of BT Twiss Transport LLC, the Company is now a 30% owner in this new joint venture, which was utilized to acquire the three transportation services companies described in Note 4. To accomplish this acquisition, the Company provided approximately $4.6 million of the financing necessary through the issuance of convertible debt. Through a joint venture operating agreement, the Company has full power to direct the activities most significant to the economic performance of this joint venture. As a result, the Company is the primary beneficiary, and the joint venture has been consolidated in the Company’s consolidated financial statements.

 

 

 

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.  At September 30, 2017 and 2016 the Company has provided an allowance for doubtful accounts of $120,823 and $11,468 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, 2017 and 2016 is as follows:

 

   

September 30,

   

September 30,

 
   

2017

   

2016

 

Finished goods

  $ 47,000     $ 371,331  

Materials and supplies

    50,000       6,396  
                 

Total inventory of continuing operations

  $ 97,000     $ 377,727  

 

 

 

Other current assets

 

Other current assets are comprised of the following at September 30, 2017 and 2016

 

   

September 30,

2017

   

September 30,

2016

 
                 

Prepaid expenses and deposits

  $ 824,475     $ 353,203  
                 
    $ 824,475     $ 353,203  

 

 

 

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, 2017 and September 30, 2016 

 

   

September 30,

   

September 30,

 
   

2017

   

2016

 
                 

Funiture, fixtures and equipment

  $ 495,705     $ 476,350  

Tractors and trailers

    11,290,873       9,936,769  

Capital lease assets

    1,368,223       1,336,243  

Vehicle and other

    35,000       39,654  
      13,189,801       11,789,016  

Less accumulated depreciation

    (2,191,395 )     (1,043,092 )
                 

Net property, plant and equipment

  $ 10,998,406     $ 10,745,924  

 

Other assets

 

Other assets are comprised of the following at September 30, 2017 and September 30, 2016

 

   

September 30,

   

September 30,

 
   

2017

   

2016

 

Advances - Bulova Technologies Compliance & Security

  $ -     $ 85,729  

Refundable deposits

    47,020       27,486  
                 
    $ 47,020     $ 113,215  

 

 

 

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.

 

Derivative Financial Instruments

 

The fair value of an embedded conversion option that is convertible into a variable amount of shares that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, since “down-round protection” is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

 

As a result of entering into a convertible credit facility during the year ended September 30, 2017, for which such instrument contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation.

 

 

  The Black-Scholes option valuation model was used to estimate the fair value of the conversion option. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the conversion option. The Company used the following Black-Scholes assumptions in arriving at the fair value of this conversion as of September 30, 2017 in the amount of $224,864.

 

   

September 30,

 
   

2016

 
         

Expected Life in Years

    0.5  

Risk-free Interest Rates

    1.20 %

Volatility

    240.68 %

Dividend Yield

    0 %

 

 

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 3 “Discontinued Operations”

 

Revenue Recognition

 

Commercial 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.

 

Revenue from rental payments received on equipment operating leases is recognized on a straight-line basis over the term of the lease.

 

The Company recognizes transportation related revenues on the date the shipments are delivered to the customer. Revenue includes transportation revenue, fuel surcharges, loading and unloading activities, equipment detention, and other accessorial services. Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as the Company acts as a principal with substantial risks as primary obligor.

 

Cost of Revenues

 

The costs of revenues relative to our Commercial Sales segment include direct materials and labor costs, and indirect labor associated with production and shipping costs.

 

The cost of revenues relative to our Transportation Services segment include tractor and trailer maintenance and operational costs as well as the costs associated with drivers.

 

Advertising Costs

 

The costs of advertising are expensed as incurred and are included in the Company’s operating expenses. The Company incurred advertising expenses of $7,292 for the year ended September 30, 2017 as compared to $45,266 for the year ended September 30, 2016.

 

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, 2017, there were 141,780,832 common stock equivalents that were anti-dilutive and were not included in the calculation.

 

Effect of Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.

 

ASU Update 2014-09 Revenue from Contracts with Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on recognizing revenue in contracts with customers on an effective date after December 31, 2017 will be evaluated as to impact and implemented accordingly.

 

ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines managements responsibility to evaluate whether there is a substantial doubt about an organizations ability to continue as a going concern. The additional disclosure required is effective after December 31, 2016 and will be evaluated as to impact and implemented accordingly.

 

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Cost. The guidance requires an entity to present debt issuance costs in the balance sheet as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts, rather than as an asset. Amortization of debt issuance costs will continue to be reported as interest expense. Debt issuance costs related to revolving credit arrangements, however, will continue to be presented as an asset and amortized ratably over the term of the arrangement. ASU 2015-03 is effective for reporting periods beginning after December 15, 2015 including interim periods within those annual periods.

 

In July 2015, the FASB issued ASU 2015-11, Inventory, which simplifies the measurement principle of inventories valued under the First-In, First-Out ("FIFO") or weighted average methods from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-1 1 is effective for reporting periods beginning after December 15, 2016 including interim periods within those annual periods. We do not expect the standard to have a material impact on our Consolidated Financial Statements.

 

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that defe1Ted tax assets and liabilities be classified as non-current on the consolidated balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an interim or annual reporting period. Upon adoption, ASU 2015-17 may be applied either prospectively or retrospectively. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, to improve financial reporting about leasing transactions. This ASU will require organizations that lease assets ("lessees") to recognize a lease liability and a right-of-use asset on its balance sheet for all leases with terms of more than twelve months. A lease liability is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset represents the lessee's right to use, or control use of, a specified asset for the lease term. The amendments in this ASU simplify the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. This ASU leaves the accounting for the organizations that own the assets leased to the lessee ("lessor") largely unchanged except for targeted improvements to align it with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

 

The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is evaluating the potential impact of ASU 2016-02 on its Consolidated Financial Statements.

 

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 raise substantial doubt regarding the Company's ability to continue as a going concern.

 

 

 

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. Discontinued Operations

 

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, 2017 and September 30, 2016 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,

 
   

2017

   

2016

 
                 

Revenue

  $ -     $ -  

Cost of Sales

    -       -  

Gross profit

    -       -  

Operating expenses and interest

    (33,385 )     (491,553 )

Other income (expense)

    -       -  

Income (loss) from operations

    (33,385 )     (491,553 )

Gain on deconsolidation of subsidiary

    10,796,400       -  

Income tax benefit

    -       -  

Income (loss) from discontinued operations, net of tax

  $ 10,763,015     $ (491,553 )

 

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

 

 

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

 

   

As of September 30,

 
   

2017

   

2016

 
                 

Cash

  $ -     $ -  

Accounts receivable

    -       -  

Inventory

    -       -  

Other current assets

    -       -  

Total current assets from discontinued operations

    -       -  

Property plant and equipment - net

    -       -  

Other assets

    -       -  

Total assets from discontinued operations

  $ -     $ -  
                 
                 

Accounts payable and accrued expenses

  $ -     $ 462  

Current portion of long-term debt

    -       1,111,500  

Provision for loss on disposal of business segment

    -       -  

Total current liabilities from discontinued operations

    -       1,111,962  

Deferred revenue - contract dispute

    -       10,800,000  

Total liabilities from discontinued operations

  $ -     $ 11,911,962  

 

 

 

4. Business Combination – Variable Interest Entity and Intangibles

 

BT-Twiss Transport, LLC

 

As discussed in Note 1, on January 28, 2016, the Company, through its joint venture entity, BT-Twiss Transport LLC, closed on the acquisition of 100% of the outstanding stock of Twiss Transport, Inc., Twiss Logistics, Inc., and Twiss Cold Storage, Inc. in a transaction accounted for as a variable interest entity. The determination to include a variable interest entity in the consolidated financial statements of the Company is based on an evaluation of the benefits and obligations associated with the Company’s active role in the entity’s design and involvement in its ongoing activities. More specifically, was the determination that the Company is established as the primary beneficiary based on possessing both of the following:

 

 

Power to direct the activities of the VIE that most significantly impact the entity’s economic performance through an operating agreement entrusting full operational control and assets to Bulova.

 

 

An exposure to absorb losses of the entity that could potentially be significant to the VIE through the provision of approximately $4.6 million dollars of financing to complete the acquisition through convertible debt.

   
 

Accordingly, the results of BT-Twiss Transport LLC are included in the accompanying consolidated financial statements only from the acquisition date through September 30, 2016. The recorded cost of this acquisition was based upon the fair market value of the Company’s acquired based on an independent valuation. An intangible asset for goodwill has been recorded in the amount of $4,789,772. Generally accepted accounting principles do not allow the amortization of goodwill, but instead require an annual evaluation of the amount for impairment.

 

The total purchase price of the three companies is calculated as follows:

 

Cash consideration

  $ 5,166,155  

Convertible promissory note

    4,666,155  

3,000,000 restricted common shares

    157,500  

Warrants to purchase 500,000 common shares

    26,250  
         

Total purchase price

  $ 10,016,060  

 

  Goodwill is calculated by comparing the total purchase price to the fair values of assets acquired and liabilities assumed in connection with this acquisition by the Company’s joint venture, as follows:

 

Total Purchase Price

  $ 10,016,060  
         

Fair Value of Assets and Liabilities

       

Cash

  $ 196,229  

Accounts receivable

    1,671,342  

Inventory

    50,000  

Prepaid expenses and other assets

    216,905  

Property and equipment

    11,001,267  

Other assets

    23,648  

Less current liabilities assumed

    (1,326,652 )

Less long-term debt assumed

    (6,606,451 )
      5,226,288  
         

Calculated Goodwill

  $ 4,789,772  

 

 

5.  Business Combination – Wholly Owned Subsidiary and Intangibles

 

As discussed in Note 1, on July 17, 2017, the Company acquired 100% of the outstanding common stock of both Big Red LTL Transport, Inc. and CIN-SAN Leasing, Inc., jointly referred to as Big Red.

 

Accordingly, the results of Big Red are included in the accompanying consolidated financial statements only from the acquisition date through September 30, 2017. The recorded cost of this acquisition was based upon the fair market value of the Company’s acquired based on Management's estimate. An intangible asset for goodwill has been recorded in the amount of $554,761. Generally accepted accounting principles do not allow the amortization of goodwill, but instead require an annual evaluation of the amount for impairment.

 

 

  The total purchase price of the two companies is calculated as follows:

 

Promissory note

    504,000  
         

Total purchase price

  $ 504,000  

 

  Goodwill is calculated by comparing the total purchase price to the fair values of assets acquired and liabilities assumed in connection with this acquisition as follows:

 

Total Purchase Price

  $ 504,000  
         

Fair Value of Assets and Liabilities

       

Cash accounts

  $ 48,741  

Accounts receivable

    570,751  

Prepaid expenses and other assets

    393,189  

Property and equipment

    1,380,794  

Less current liabilities assumed

    (531,006 )

Less long-term debt assumed

    (1,913,230 )
      (50,761 )
         

Calculated Goodwill

  $ 554,761  

 

 

6.  Contract Dispute - Discontinued Operations

 

At September 30, 2016, and through March 29, 2017, the Company included in liabilities of discontinued operations the amount of $10,800,000 relative to a contract performance dispute of its then wholly owned subsidiary, Bulova Technologies Ordnance Systems LLC, with the US Government. This amount represented deferred revenue arising from the percentage of completion accounting applied to a contract that was terminated prior to its completion. Ordnance asserted various claims in this dispute and, consequently, carried this amount as long term pending resolution of the counter claims. On March 29, 2017, the Company sold 100% of its ownership interest in Ordnance, and recognized a gain on the deconsolidation of this subsidiary. Consequently, Bulova Technologies Ordnance Systems LLC is no longer included in the consolidated financial statements of the Company.

 

 

 

7. Long Term Debt

 

Long term debt consisted of the following at:

 

   

September 30,

2017

   

September 30,

2016

 
                 

Note payable to Keehan Trust Funding, LLC as amended on February 16, 2016 in the amount of $1,600,000. This note is secured by the assignment of potential proceeds from a claim against a terminated government contract with a value in excess of $4,700,000.

    1,041,500       1,111,500  
                 

Note payable to Ford Credit dated October 1, 2014 in the amount of $32,929 payable in 48 monthly installments of $744, secured by a vehicle

    -       17,187  
                 

Capital lease obligation dated July 16, 2015, bearing interest at 8%, payable at 3,355 monthly with a final payment due June 16, 2020, secured by equipment.

    99,914       131,495  
                 

Various notes payable to EIN CAP in various amounts with no stipulated interest rate, and various maturity dates, unsecured, totaling $57,058 net of discount of $15,578 and $102,335 net of discount of $29,975.

    41,480       72,360  
                 

Various notes payable to Complete Business Solutions in various amounts, with no stipulated interest rate, and various maturity dates, unsecured, totaling $5,149,612 net of discount of $1,102,761 and $1,173,521 net of discount of $185,046 respectively.

    4,046,851       988,475  
                 

Various notes payable to Yellowstone Capital in various amounts with no stipulated interest rate, and various maturity dates, unsecured, totaling $0 and $212,382 net of discount of $66,944 respectively.

    -       145,438  
                 

Note payable to Sunshine Bank dated January 28, 2016 as a revolving credit line, bearing interest at Prime plus 1%, with a maturity of January 31, 2021, secured by the assets of BT Twiss Transport LLC.

    2,000,000       1,163,853  
                 

Note payable to Sunshine Bank dated January 28, 2016 in the amount of $2,000,000, bearing interest at 4.75%, with a maturity date of January 31, 2021, net of unamortized loan costs of $29,594 and $38,472 respectively, secured by the assets of BT-Twiss Transport, LLC.

    1,577,368       1,820,594  
                 

Various notes payable to Power Up Lending Group, LTD in various amounts, with no stipulated interest rate, and various maturity dates, unsecured, totaling $239,523 net of discount of $48,726 and $454,752 net of discount of 89,601.

    190,797       365,151  
                 

Financing agreements for the purchase of insurance through Bank Direct payable in monthly installments

    233,498       21,500  
                 

Note payable to Sunshine Bank dated September 30, 2016 as a revolving credit line, bearing interest at Prime plus 1%, with a maturity of January 31, 2021, secured by the assets of Twiss Transport, Inc. net of unamortized loan costs of $42,919 and $54,769 respectively.

    4,089,787       6,408,431  
                 

Various equipment financing contracts for Transport Tractors and Trailers, with various terms and interest rates, secured by equipment

    1,921,496       409,820  
                 

Various capital lease obligations for Transport Tractors, with various payment terms, secured by equipment

    736,567       1,087,613  
                 

Various notes payable to Ace Funding in various amounts, with no stipulated interest rate, and various maturity dates, unsecured, totaling $202,345 net of discount of $58,964.

    143,381       -  
                 

Note payable to Cardinal Funding with no stipulated interest rate, unsecured, totaling $940,000 net of discount of $257,445.

    682,555       -  
                 

Note payable to Cash Village NY LLC with no stipulated interest rate, unsecured, totaling $78,865 net of discount of $24,145.

    54,720       -  
                 

Note payable to Caymus Funding, Inc., with no stipulated interest rate, unsecured, totaling $140,392 net of discount of $18,720.

    121,672       -  
                 

Convertible promissory note payable to Crown Bridge Partners, LLC, bearing interest at 12% per annum, with a maturity date of August 3, 2018, in the amount of $50,000, net of discount of $41,667.

    8,333       -  
                 

Convertible promissory note payable to Crown Bridge Partners, LLC bearing interest at 8%, unsecured

    27,665       -  
                 

Convertible promissory note payable to Power Up Lending Group LTD, bearing interest at 12% per annum, with a maturity date of October 28, 2017. In the amount of $78,590, net of discount of $43,662,

    34,928       -  
                 

Note payable to Fast Advance Funding with no stipulated interest rate, unsecured, totaling $267,500 net of discount of $59,167.

    208,333       -  
                 

Note payable to ML Factors Funding LLC with no stipulated interest rate, unsecured, totaling $75,767 net of discount of $23,067.

    52,700       -  
                 

Note payable to New Era Lending, LLC, with no stipulated interest rate, unsecured, totaling $212,919 net of discount of $63,771.

    149,148       -  
                 

Note payable to Nexgen Capital LLC with no stipulated interest rate, unsecured, totaling $39,880 net of discount of $13,409.

    26,471       -  
                 

Note payable to Queen Funding LLC with no stipulated interest rate, unsecured, totaling $124,863 net of discount of $39,179.

    85,684       -  
                 

Note payable to RAM Capital, with no stipulated interest rate, unsecured, totaling $72,981 net of discount of $31,419.

    41,562       -  
                 

Note payable to TVT Capital, LLC with no stipulated interest rate, unsecured, totaling $94,421 net of discount of $35,532.

    58,889       -  
                 

Note payable to PeoplesBank, dated July 18, 2017 in the amount of $2,400,000, bearing interest at 4.375%, payable $44,963 monthly, with a maturity date of July 18, 2022, net of unamortized loan costs of $22,268, secured by the assets of Big Red LTL Transport, Inc.

    2,350,036       -  
                 

Note payable to PeoplesBank, dated July 6, 2017 in the amount of $500,000 bearing interest at 4.625%, payable $9,365 monthly, with a maturity date of July 5, 2022, net of unamortized loan costs of $2,907.

    482,189       -  
                 

Note payable to Wells Fargo in the form of a credit line, in the amount of $728,000 payable interest only.

    728,000       -  
                 

Financing agreements for the purchase of insurance through IPFS Corporation, payable in monthly installments

    172,491       -  
                 

Note payable to Ford Credit dated December 18, 2013 in the amount of $31,475 payable in 60 monthly installments of $621, secured by a vehicle

    8,908       -  
                 

Various equipment financing contracts for Transport Tractors, Trailers and Forklifts, with various terms and interest rates, secured by equipment

    806,044       -  
                 

Note payable to Allianz with no stipulated interest rate, unsecured

    2,258       -  
      22,225,225       13,743,417  

Less current portion pertaining to continuing operations

    (13,224,414 )     (4,553,201 )

Less current portion pertaining to discontinued operations

    -       (1,111,500 )

Less long-term portion associated with discontinued operations

    -       -  
    $ 9,000,811     $ 8,078,716  

 

 

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

 

Period ended September 30,

       

2018

  $ 13,224,414  

2019

    2,515,628  

2020

    2,503,464  

2021

    3,147,682  

2022

    834,037  

Thereafter

    -  
    $ 22,225,225  

 

 

 

8. Notes Payable – Related Parties

 

Notes payable related parties consisted of the following at:

 

   

September 30,

2017

   

September 30,

2016

 
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to NFC III LLC bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    1,356,819       1,356,819  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to SIII Associates Limited Partnership bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    1,341,755       1,341,755  
                 

Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible promissory note payable to SIII Associates Limited Partnership bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    100,000       100,000  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to SV Associates Limited Partnership bearing interest at 8%. These notes mature and all principal and interest is due and payable on September 15, 2017 for $3,500 and the balance of $116,000 on March 31, 2020

    119,500       119,500  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Craigmore Machinery Company bearing interest at 8%. These notes mature and all principal and interest is due and payable on September 15, 2017 for $155,000 and the balance of $403,712 on March 31, 2020

    558,712       556,212  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Gary Shapiro bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    205,000       205,000  
                 

Promissory note payable to Craigmore DB Plan dated November 9, 2015 bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    186,000       165,000  
                 

Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible promissory note payable to Tropico Equity Partners LLC bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    68,161       68,161  
                 

Convertible promissory note payable to Tropico Management LP bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    10,606       10,606  
                 

Convertible promissory notes payable to SF NextGen bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    192,000       180,000  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Banyan Capital Finance bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    23,000       23,000  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    160,000       160,000  
                 

Convertible promissory note payable to Colleen Stacy Shapiro 2007 Trust bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31, 2020

    20,000       20,000  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Rachel E Shapiro Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    51,500       51,500  
                 

Various promissory notes as of September 30, 2014 exchanged on January 1, 2015 for Convertible promissory notes payable to Shapiro Family D1 Trust bearing interest at 8%. These notes mature and all principal and interest is due and payable on March 31, 2020

    180,000       150,000  
                 

Promissory note as of September 30, 2014 exchanged on January 1, 2015 for a Convertible Promissory Note payable to The Shapiro Family D1 Trust dated bearing interest at 8%. This note matures and all principal and interest is due and payable on March 31,2020

    400,000       400,000  
                 

Convertible promissory note dated February 6, 2015 in the original amount of $4,000,000 bearing interest at 7%, interest payable quarterly, with a maturity date of February 5, 2021, net of discount of $433,333 and $563,333 respectively

    2,952,025       2,834,294  
                 

Convertible promissory note dated January 28, 2016 in the amount of $4,666,155 bearing interest at 5%, interest payable quarterly, convertible at $.10 per share, with a maturity date of January 28, 2020.

    4,560,368       4,666,155  
                 

Promissory note dated January 28, 2016 in the amount of $2,400,000 bearing interest at 4.24% with a maturity date of January 29, 2021, net of unamortized loan costs of $23,391 and $30,408 respectively.

    2,243,960       2,282,746  
                 

Promissory note dated February 3, 2011 in the amount of $229,755 bearing interest at 8% payable on demand

    -       34,423  
                 

Promissory note dated April 26, 2016 in the amount of $400,000 bearing interest 5%, with a maturity date of April 26, 2018, unsecured.

    400,000       400,000  
                 

Short term advance in the amount of $150,000, non-interest bearing, payable on demand.

    -       150,000  
                 

Promissory note dated May 12, 2017 bearing interest at 10%, with a maturity date of May 12, 2018, unsecured.

    793,396       -  
                 

Promissory note, dated July 20, 2017 bearing no interest, with a maturity date of July 20, 2024, payable at $6000 per month for 84 months, unsecured

    492,000       -  
      16,414,802       15,275,171  

Less current portion pertaining to continuing operations

    1,130,208       412,720  

Less current portion pertaining to discontinued operations

    -       -  

Less long-term portion associated with discontinued operations

    -       -  
    $ 15,284,594     $ 14,862,451  

 

 

Principal maturities of notes payable – related parties for the next five years and thereafter are as follows:

 

Period ended September 30,

       

2017

  $ 1,130,208  

2018

    551,914  

2019

    4,940,226  

2020

    9,588,454  

2021

    72,000  

Thereafter

    132,000  
    $ 16,414,802  

 

 

 

As of September 30, 2017, and 2016 there is an amount of accrued interest on related party notes payable of $1,479,083 and $1,137,163 respectively included in accrued expenses – related party for each year.

 

9. Income Taxes

 

The Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized.

 

The Company has estimated net operating losses of approximately $29,450,000 and $28,950,000 as of September 30, 2017, and 2016 respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. The net operating loss carryforwards will expire in 2022 through 2037.

 

The income tax provision consists of the following for the years ending September 30 2017 and 2016:

 

   

September 30,

   

September 30,

 
   

2017

   

2016

 
                 

Net Operating Losses

  $ 29,450,000     $ 28,950,000  

Statutory Tax Rate

    35 %     35 %

Effective Tax Rate

    -       -  
                 

Deferred Tax Asset

    10,307,500       10,132,500  

Valuation Allowance

    (10,307,500 )     (10,132,500 )

Net Deferred Tax Asset

  $ -     $ -  

 

  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, 2017, the tax returns for the Company for the years ending 2012 through 2016 remain open to examination by the Internal Revenue Service and Florida Department of Revenue. The Company and its subsidiaries are not currently under examination for any period.

 

 

 

10. Segment reporting

 

Commencing with the Company’s acquisitions through its joint venture entity, BT-Twiss Transport LLC, in January 2016, the Company now operates in two business segments. The Commercial Sales segment is focused on sales of Industrial Machinery, ammunition, software and healthcare products. The Transportation segment provides for freight storage and movement throughout the Continental United States.

 

SEGMENT INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 2017 IS AS FOLLOWS:

 

   

Commercial

Sales

   

Transportation

   

Total

 
                         

Revenue

  $ 1,402,455     $ 23,747,657     $ 25,150,112  

Cost of Sales

    1,562,401       17,578,085       19,140,486  
                         

Gross profit

    (159,946 )     6,169,572       6,009,626  

Selling, general and administrative expenses

    664,931       5,085,703       5,750,634  

Depreciation and interest expenses

    184,928       2,522,593       2,707,521  
                         

Income (loss) from operations

    (1,009,805 )     (1,438,724 )     (2,448,529 )

Other income (expense)

    (5,756 )     (31,226 )     (36,982 )
                         

Net loss

  $ (1,015,561 )   $ (1,469,950 )   $ (2,485,511 )
                         

Total Assets

  $ 229,138     $ 14,494,068     $ 14,723,206  

 

Reconciliation of Segment Amounts Reported to Consolidated Amounts

 

Total revenues for reportable segments

  $ 25,150,112  

Unallocated amounts relating to corporate operations

    -  
         

Total consolidated revenue

  $ 25,150,112  
         

Net loss

       

Total loss for reportable segments

  $ (2,485,511 )

Unallocated amounts relating to corporate operations

       

Selling, general and administrative expenses

    (2,190,285 )

Stock based compensation

    (3,100 )

Other income

    41