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**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, 20****1****7**                           |

 

**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 337****71**(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, $.0****0****1 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  

 

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** 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.

 

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**BULOVA TECHNOLOGIES GROUP, INC****.****FORM 10-KFOR THE FISCAL YEAR ENDED****SEPTEMBER****30,****201****7**

 

**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 |   |
|          |                                                                                           |   |     |   |   |
|          | **P****ART 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 |   |

 

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**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.

 

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*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.

 

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**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 Ca******liber Ammunition Commercial Sales***

* *

*The Brokerage business is dependent en**tirely upon both a strong U.S. d**emand**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 manufacture**d**abroad could be affected by future**U.S.**regulation**s**.*

 

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 c**ompete**s**with much lar**ger 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 s**ubject to economic p**erturbations****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; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | • | 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.

 

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*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.

*** ***

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***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. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

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*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.

 

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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 |   |

 

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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.

 

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**Results of operations**** ****:**

** **

**For the****year ended September 30,****201****7****compared to the year ended September 30, 20****1****6****.**

 

**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.

 

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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.

 

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**Item 8. Consolidated Financial Statements**

 

** **

 

**BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIAR****IES**

 

**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     |   |

 

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**BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIAR****IES****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.

 

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Table of Contents

 

**BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIAR****IES****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.

 

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**BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIESCONSOLIDATED 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                                                                                       |   | $                         | -           |   |   | $ | - |   |

 

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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.

 

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Table of Contents

 

**BULOVA TECHNOLOGIES GROUP, IN****C. 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.

 

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| **BULOVA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**YEARS ENDED SEPTEMBER 30, 201****7****AND 201****6** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| **1.** | **Description of business:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | 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.  |
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| **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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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|   | *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. |
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|   | ● | 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. |
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|   | **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. |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|   | **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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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|   | **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. |
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|   | 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. |
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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. |
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|   | 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. |
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|                     |   | 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 *ASC**48**,**Accounting for Uncertainty in Income Taxes*, for reporting uncertain tax provisions. |
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|   | **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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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Table of Contents

 

|   | 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 |   |

 

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Table of Contents

 

|   | **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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

Table of Contents

 

|   | 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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

Table of Contents

 

|   | **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 |   |

 

----

Table of Contents

 

| 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 |   |

 

----

Table of Contents

 

|   | **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 |   |

 

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| 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | **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         |   |
| Loss recognized on failed joint venture                               |   |   | (534,771   | )      |
| Income from discontinued operations and deconsolidation of subsidiary |   |   | 10,763,015 |   |
| Change in fair value of derivative liability                          |   |   | 183,405    |   |
| Depreciation and interest expense                                     |   |   | (6,233,090 | )      |
|                                                                  |   |   |       |   |
| Total consolidated net loss                                           |   | $      | (500,296   | )      |
|                                                                  |   |   |       |   |
| Assets                                                                |   |   |       |   |
| Total assets for reportable segments                                  |   | $      | 14,723,206 |   |
| Goodwill                                                              |   |   | 5,344,533  |   |
| Corporate investments and other assets                                |   |   | 225,580    |   |
|                                                                  |   |   |       |   |
| Total consolidated assets                                             |   | $      | 20,293,319 |   |

 

 

|   | **11****. Commitments and Contingencies**

 

From time to time the Company may be a party to litigation matters involving claims against the Company.  Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | At September 30, 2017 Company no longer operates corporate and administrative offices in a facility that was leased by Ordnance, (a discontinued operation), from a non-affiliate in Tampa, Florida, approximating 5,000 square feet. The Tampa location was leased for a base monthly rental increased by a minimum of 2.5% each year through an expiration date of December 21, 2027. The Company is no longer a party to that lease. 

 

On August 27, 2014, Bulova Technologies Machinery LLC entered into a six-year lease for a facility which includes 29,000 square feet of office, showroom and warehouse space in Clearwater, Florida for $13,500 per month, and relocated all of its operations to this facility. This facility is leased from an entity controlled by shareholders of the Company. In September 2016, the property was sold, and the lease was cancelled.

 

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. BT-Twiss Transport LLC leases approximately 35,000 square feet of office, warehouse and maintenance space situated on approximately 10 acres in Largo, Florida, to facilitate all corporate operations as well as the trucking business of Twiss Transport, Inc. for $30,000 per month under a 20 year lease through November 1, 2035. Twiss Cold Storage, Inc. leases 132,055 square feet of refrigerated warehouse space in Tampa, Florida commencing with a base rental of $82,534 per month through June 30, 2016, and adjusted upward by 3% annually through June 30, 2020. Twiss Logistics, Inc. currently leases office space on a month to month basis.

 

Total rent expense for the years ended September 30, 2017 and 2016, was approximately $1,442,390 and $1,139,020 respectively.

 

Bulova Technologies Group, Inc. is not currently a party to any lease commitments. BT-Twiss Transport LLC, and its wholly owned subsidiaries, as identified above, have the following commitments for minimum lease payments, under these operating leases for the next five years and thereafter as of September 30, 2017 are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| Period ended September 30, |   |   |      |   |
|----------------------------|--------|--------|-----------|--------|
| 2018                       |   | $      | 1,418,609 |   |
| 2019                       |   |   | 1,450,367 |   |
| 2020                       |   |   | 917,359   |   |
| 2021                       |   |   | 360,000   |   |
| 2022                       |   |   | 360,000   |   |
| Thereafter                 |   |   | 4,806,000 |   |
|                       |   | $      | 9,312,335 |   |

 

|   | **1****2****. Related Party Transactions**

** **

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

 

The Company has received advances from major shareholders and related parties from time to time to facilitate the cash needs of the Company. These advances are generally for short term needs and do not bear interest. During 2016, Stephen L Gurba incurred an obligation of $800,000 on behalf of the Company relative to a corporate guaranty. The Company agreed to reimburse him for this expenditure. As of September 30, 2017, there is no balance remaining outstanding to Stephen L Gurba, a balance outstanding to Gary Shapiro of $82,500, and a balance outstanding to a company owned by Richard Welkowitz of $735,730, totaling $818,230. This amount is reported on the balance sheet as amounts due shareholders and related parties. 

 

Craigmore Machinery Company is the sole source supplier for the industrial machine tools and related equipment that are sold by Bulova Technologies Machinery LLC. Craigmore is owned by Gary Shapiro, a major shareholder of the Company. As of September 30, 2017, and 2016, the Company had a balance payable to Craigmore of $2,579,301 and $1,786,436 respectively, and these balances are reflected as accounts payable – related parties for each year.

 

During the year ended September 30, 2017, Bulova Technologies Compliance and Security LLC received various advances from the Company. 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.  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | Included within Long Term Debt are various notes payable to Gary L Shapiro and / or entities controlled by Gary L. Shapiro and / or his family members. As of September 30, 2017, and 2016, the total amount outstanding under these related party notes is $4,973,053 and $4,907,553 respectively. These notes are secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired, subordinated to the $4,000,000 Convertible Promissory Note payable to Richard Welkowitz dated February 6, 2015.

 

On February 6, 2015, the Company issued a $4,000,000 7% Convertible Promissory Note payable to Richard Welkowitz, with interest payable quarterly and a maturity date of February 15, 2021. The holder shall have the right at any time prior to June 30, 2017 to convert into common stock of the Company up to $250,000 of the debt in increments not less than $10,000 at 65% of the average of the lowest three trading prices during 10 days prior to conversion. The balance of the debt may be converted into common stock of the Company at the following exchange rate: year 1; $.10/share: year 2, $.20/share; year 3, $.30/share; year 4, $.40/share; and year 5, $.50/share. Additionally, as part of the financing agreement, the Company issued 12,000,000 warrants to purchase the common stock of the Company at a strike price of $.02 per share for a period of ten years. The value of these warrants has been accounted for as a debt discount in the initial amount of $779,999 and is being amortized over the six-year life of the loan. This note is secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired.

 

On January 28, 2016, the Company, in conjunction with the purchase of Twiss Transport, Twiss Logistics and Twiss cold storage, issued a $4,666,155 5% Convertible Promissory Note payable to Ron Damico Jr with interest payable quarterly, as well as 3,000,000 restricted common shares, and a ten-year warrant to buy 500,000 common shares. 

 

On May 12, 2017, the Company issued a 10% Promissory Note to Richard Welkowitz in the amount of $630,000, payable in twelve monthly payments of principal and interest, with a maturity of May 12, 2018.   Mr. Welkowitz advanced additional funds under the terms of this note leaving an outstanding balance as of September 30, 2017 of $793,396. 

 

On July 20, 2017, the Company issued a non-interest bearing Promissory Note to Michael and Constance Pryslak in the amount of $504,000 payable in eighty four monthly payments of $6,000, with a maturity of July 20, 2024. 

 

**1****3****.**** ****Stockholders’ Equity**

 

**Common Shares**

 

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

 

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

 

In June 2017, the Company filed Articles of Amendment to its Articles of Incorporation to increase the amount of authorized common shares to 900,000,000 at $0.001 par value per share 

 

During October 2015 the Company issued 75,000 common shares due to the exercise of 100,000 cashless warrants.

 

During December 2015 the Company issued 5,000,000 common shares for the benefit of Stephen L. Gurba.

 

During January 2016, the Company issued 5,100,000 common shares as a partial payment of debt.

 

During January 2016, the Company issued 3,000,000 common shares as a part of the purchase price of the BT Twiss Transport acquisitions. 

 

During March 2016, the Company issued 2,500,000 common shares for services.

 

During April 2016, the Company issued 669,643 common shares as a partial payment of debt.

 

During June 2016, the Company issued 3,510,811 common shares due to the exercise of 9,362,161 cashless warrants.

 

During June 2016, the Company issued 850,000 common shares for services.

 

During June 2016, the Company issued 8,494,191 common shares as a partial payment of debt. 

 

During July 2016, the Company issued 18,208,460 common shares as partial payment of debt

 

During August 2016, the Company issued 158,715,038 common shares as partial payment of debt. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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Table of Contents

 

|   | During September 2016, the Company issued 29,535,490 common shares as partial payment of debt.

 

During September 2016, the Company issued 39,000,000 common shares due to the exercise of warrants

 

During October 2016, the Company issued 6,561,299 common shares as partial payment of debt.

 

During October 2016, the Company issued 7,500,000 common shares due to the exercise of warrants.

 

During October 2016, the Company issued 26,041,667 common shares as payment on a settlement 

 

During December 2016, the Company issued 67,000,000 common shares to Craigmore, a related party, as payment on behalf of Bulova Technologies Machinery LLC for inventory.

 

During December 2016, the Company issued 27,803,571 common shares as partial payment of debt

 

During January 2017, the Company issued 20,000,000 common shares as partial payment of debt.

 

During February 2017, the Company issued 1,000,000 common shares for services.

 

During July 2017, the Company issued 45,372,528 common shares as partial payment of debt.

 

During August 2017, the Company issued 17,200,000 common shares as partial payment of debt.

 

During September 2017, the Company issued 46,009,274 common shares as partial payment of debt.

 

**Preferred shares**

 

In November 2011, the Company amended its Articles of Incorporation to create a Preferred Shares class of stock, initially authorizing the Company to issue up to 2,000,000,000 preferred shares, with a par value of $.00001 per share, all of which were issued to our Chairman of the Board.

 

In September 2012, the Company amended its Articles of Incorporation to increase its authorization to issue preferred shares to 5,000,000,000 at a par value of $.00001.

 

February 25, 2013, the Company sold 2,000,000,000 preferred shares.

 

In June 2017, the Company filed Articles of Amendment to its Articles of Incorporation to stipulate three (3) classes of Preferred Shares respectively, Preferred Stock (“Preferred Stock”), Preferred Stock A (“Preferred Stock A”) and Preferred Stock B (“Preferred Stock B”). The Company is authorized to issue 5,000,000,000 shares of “Preferred Stock” at a par value of $0.000001 per share, 50,000,000 shares of “Preferred Stock A” at no par value, and 50,000,000 shares of “Preferred Stock B” at no par value. 

 

The preferred shares classified as Preferred Stock have co-voting rights with the outstanding common shares, so that the common shares and the Preferred Stock shall vote as though, together they were a single class of stock.  The preferred shares classified as Preferred Stock have no dividend rights, liquidation preferences, redemption rights, conversion rights or other preferences.   The preferred shares classified as Preferred Stock A and Preferred Stock B have no voting rights. The rights, preferences and limitations of both Preferred Stock A and Preferred Stock B shall be set from time to time by resolution of the Board. These shares are not listed on any exchange.

 

**Subscription receivable**

 

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

 

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Table of Contents

 

|   | **Common Stock Warrants**

 

The following table represents common stock warrant activity as of and for the year ended September 30, 2017: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                                               |   | Number of

Shares |        |   | Weighted

Average

Exercise Price |   |   | Weighted

Average

Remaining

Contractual

Life (in years) |   |   | Aggregate

Intrinsic

Value |   |
|----------------------------------------------------|--------|-------------------|-------------|--------|-----------------------------------|--------|--------|------------------------------------------------------------|--------|--------|-----------------------------|--------|
| Warrants Outstanding - October 1, 2016             |   |              | 140,780,832 |   |                              | $      | 0.02   |                                                       |   |   | 8.6                         |   |   | $ | - |   |
| Granted / Vested                                   |   |              | 1,000,000   |   |                              | $      | 0.05   |                                                       |   |   |                        |   |   |   |   |   |
| Exercised                                          |   |              | -           |   |                              |   | -      |                                                       |   |   |                        |   |   |   |   |   |
| Forfeited/expired/cancelled                        |   |              | -           |   |                              |   |   |                                                       |   |   |                        |   |   |   |   |   |
|                                               |   |              |        |   |                              |   |   |                                                       |   |   |                        |   |   |   |   |   |
| Warrants Outstanding – September 30, 2017    |   |              | 141,780,832 |   |                              | $      | 0.02   |                                                       |   |   | 8.8                         |   |   | $ | 0.04 |   |
|                                               |   |              |        |   |                              |   |   |                                                       |   |   |                        |   |   |   |   |   |
| Outstanding Exercisable – October 1, 2016    |   |              | 140,780,832 |   |                              | $      | 0.02   |                                                       |   |   | 8.6                         |   |   | $ | - |   |
| Outstanding Exercisable – September 30, 2017 |   |              | 141,780,832 |   |                              | $      | 0.02   |                                                       |   |   | 8.8                         |   |   | $ | 0.04 |   |

 

 

|   | **1****4****. Subsequent Events**

** **

During October 2017, the Company issued 43,000,000 common shares as partial payment of debt pursuant to contract terms on convertible debt.

 

During November 2017, the Company issued 37,897,406 common shares as partial payment of debt pursuant to contract terms on convertible debt.

 

During December 2017, the Company issued 54,491,561 common shares as partial payment of debt pursuant to contract terms on convertible debt.

 

During January 2018, the Company issued 34,375,000 as partial payment of debt pursuant to contract terms on convertible debt. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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Table of Contents

 

**Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

 

There were no changes in, or disagreements with, accountants on accounting or financial disclosure as defined by Item 304 of Regulation S-K.

 

**Item 9A. Controls and Procedures**

 

| **Evaluation of Disclosure Controls and Procedures**

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and the Company’s principal officer.

 

Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at September 30, 2016 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.

 

**Internal Control over Financial Reporting**

 

*Management’s Report on Internal Control over Financial Reporting*

 

Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is a process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The management of Bulova Technologies Group, Inc. is responsible for establishing and maintaining adequate internal control over our financial reporting.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the *Internal Control – Integrated Framework*developed by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting was** **not effective as of September 30, 2017.

 

*Changes in Internal Control over Financial Reporting*

* *

There were no changes in our internal controls over financial reporting, that occurred during the fourth quarter of the fiscal year ended September 30, 2017 that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**PART III**

 

**Item 10. Directors, Executive Officers and Corporate Governance**

 

The executive officers, directors of the Company, and their ages and positions, are as follows as of September 30, 2017:

 

 

| Name                                                                                                                  |   | Age    |                                               | Office Held |   |                                                                                                                                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Stephen L. Gurba

 

Craig Schnee

 

William McMillen.

 

David Shapiro

 

Michael J. Perfetti |   |   | 61

 

69

 

74

 

31

 

59 |        |   | Chairman of the Board. Chief Executive Officer and President

 

Director, Secretary and General Counsel

 

Director and Chief Financial Officer (1)

 

Director

 

Chief Financial Officer (1) |   |   |   |   |

 

|   | (1) | On October 6, 2014 William McMillen resigned as Chief Financial Officer and Michael J. Perfetti was appointed as the new Chief Financial Officer as of that date. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

Table of Contents

 

Our bylaws provide that the number of members of our board of directors shall have up to (5) members. Our current number of directors is four (4). Directors are elected by the shareholders at the annual meeting and serve until their successors are duly elected and qualified. Directors are elected for a term of one (1) year. All of our officers serve at the discretion of our board of directors

 

The following is a biographical summary of the business experience of our directors and executive officers:

 

Stephen L. Gurba is Chairman of the Board, Chief Executive Officer and President. Mr. Gurba has over 35 years of experience in the design, development, production, and management of complex systems for the defense ammunition industry as well as commercial products. His experience has included responsibility for companies with sales of up to $300 million annually and employing as many as 2000 employees. Mr. Gurba has previously held the position of Senior Vice President of General Defense Corporation, Vice President of Marketing for Olin Ordnance, President of Valentec International Corporation, President and CEO of National Manufacturing Corporation, and President, CEO, and Sole Member of Bulova Technologies LLC. Mr. Gurba received an AA in Biology in 1976 from County College of Morris, a BA in Mathematics & Natural Science in 1978 from William Patterson College, an MBA in Executive Management and Administration in 1988 and a PhD in Business Administration in 1991 from Century University.

 

William E. McMillen is a board member, our Treasurer and Chief Financial Officer. Mr. McMillen is a highly experienced financial professional. He has served successfully as a principal, board member, chief executive officer and chief financial officer in his more than 40-year career in business in a variety of industries, to include manufacturing, merchant banking, private equity investment, commercial distribution and service. His activities and involvement have run the gamut from the formation of start-up companies, acquisition of existing entities, improved management of newly acquired companies and divestitures. 

 

Craig Schnee is a board member, our Secretary and General Counsel. Mr. Schnee has served as a Senior Executive for Mr. Gurba's Management Team for more than two decades, holding the positions of Secretary, General Counsel, Senior Vice President of the Parent Company, and President of several operating subsidiaries engaged in Defense, Commercial and Retail Sales, respectively. He holds a J.D. from the University of Virginia and an MBA from the University of Pennsylvania. 

 

David Shapiro is a board member. He is a graduate of Prescott College. He is author of several published books and owns and operates a publishing business. He is the son of Gary L. Shapiro, a major stockholder of the Company. 

 

*Audit Committee*

 

The functions of an audit committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not have an audit committee financial expert on our Board of Directors. As we do not currently compensate our Directors, we have been unable to attract a person who qualifies as a financial expert to serve on our Board of Directors.   

 

*Code of Ethics:*

 

The Company has adopted a Code of Ethics which applies to all directors, officers and employees of the Company and its subsidiaries including the Principal Executive Officer and the Principal Financial Officer, which meets the requirement of a “code of ethics” as defined in Item 406 of Regulation S-K. The Company will provide a copy of the Code to shareholders pursuant to any request directed to the Company’s principal offices. 

 

----

Table of Contents

 

**Item 11. Executive Compensation**

 

The following summary compensation table sets forth certain information concerning compensation paid to our Principal Executive Officer, Secretary and Principal Financial Officer. We have no other executive officers that received compensation in excess of $100,000 for the years ended September 30, 2017 and 2016.

 

| **SUMMARY COMPENSATION TABLE - YEARS ENDED SEPTEMBER 30, 2017 AND 2016** |
|--------------------------------------------------------------------------|

 

|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    | Non-Equity Incentive |                    |   | Change in Pension Value and non Qualified Deferred |                    |   |   |   |   |   |   |    |
|------------------------------------------|--------|--------|--------|--------|-----------|--------|--------|--------|--------|---------------|--------|--------|----------------|--------|--------|--------------------|---------|----------------------|-------------------------|--------|----------------------------------------------------|-------------------------|--------|--------|--------|--------|--------|--------|---------|
| Name and Principal Position              |   | Year   |   | Salary |      |   | Bonus  |   |   | Stock

Awards |   |   | Option

Awards |   |   | Plan

Compensation |    |                 | Compensation 

Earnings |   |                                               | All Other

Compensation |   |   | Total  |   |
|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    |                 |                    |   |                                               |                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Stephen L. Gurba, Chairman of the Board, |   | 2016   |   | $      | 386,000   |   |   | $      | -      |          |   | $      | 322,500        |   |   | $                  | -       |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | 400,000 |   |   | $ | 1,108,500 |   |
| Chief Executive Officer and President    |   | 2017   |   | $      | 386,000   |   |   | $      | -      |          |   | $      | -              |   |   | $                  | -       |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | -       |   |   | $ | 386,000 |   |
|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    |                 |                    |   |                                               |                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Craig S Schnee                           |   | 2016   |   | $      | 130,000   |   |   | $      | -      |          |   | $      | -              |   |   | $                  | 130,000 |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | -       |   |   | $ | 260,000 |   |
| Secretary and General Counsel            |   | 2017   |   | $      | 130,000   |   |   | $      | -      |          |   | $      | -              |   |   | $                  | -       |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | -       |   |   | $ | 130,000 |   |
|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    |                 |                    |   |                                               |                    |   |   |   |   |   |   |    |   |   |   |   |   |
| Michael J. Perfetti                      |   | 2016   |   | $      | 150,000   |   |   | $      | -      |          |   | $      | -              |   |   | $                  | 65,000  |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | -       |   |   | $ | 215,000 |   |
| Chief Financial Officer                  |   | 2017   |   | $      | 150,000   |   |   | $      | -      |          |   | $      | 3,100          |   |   | $                  | -       |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | -       |   |   | $ | 153,100 |   |
|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    |                 |                    |   |                                               |                    |   |   |   |   |   |   |    |   |   |   |   |   |
|                                     |   |   |   |   |      |   |   |   |   |          |   |   |           |   |   |               |    |                 |                    |   |                                               |                    |   |   |   |   |   |   |    |   |   |   |   |   |
|                                     |   |   |   | $      | 1,332,000 |   |   | $      | -      |          |   | $      | 325,600        |   |   | $                  | 195,000 |                 |                    | $      | -                                                  |                    |   | $      | -      |   |   | $      | 400,000 |   |   | $ | 2,252,600 |   |

 

 

 

The following table summarizes the Company’s Outstanding Equity Awards at fiscal year ended September 30, 2016

 

| **OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END** |
|--------------------------------------------------|

 

|                 |   | OPTION AWARDS                                                     |      |   | STOCK AWARDS                                                        |   |
|----------------------|--------|-------------------------------------------------------------------|-----------|--------|---------------------------------------------------------------------|--------|
| Name                 |   | Number of Securities Underlying Unexercised Optons, # Exercisable |      |   | Number of Securities Underlying Unexercised Optons, # Unexercisable |   |   | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |   |   | Option Exercise Price ($) |   | Option Expiration Date |   | Number of Shares or Units of Stock That Have Not Vested (#) |   |   | Market Value of Shares or Units of Stock That Have Not Vested ($) |   |   | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |   |   | Equity Incentive Plan Awards: Marketor Payout Value of  Unearned Shares, Units or Other Rights That Have Not Vested (#) |   |
|                 |   |                                                              |      |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stephen L. Gurba (1) |   |                                                              | 5,000,000 |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 2/5/25 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| Craig Schnee         |   |                                                              | 250,000   |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 2/15/22 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| Craig Schnee         |   |                                                              | 250,000   |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 5/17/22 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| Craig Schnee         |   |                                                              | 3,113,920 |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 2/27/23 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| William McMillen     |   |                                                              | 3,166,667 |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 8/31/23 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |
| Lynn Shapiro         |   |                                                              | 3,961,702 |   |                                                                |   | - |   |   |   | - |   |   | $ | 0.02 |   | 2/27/23 |   |   | - |   |   | $ | - |   |   |   | - |   |   |   | - |   |

 

| (1) - includes 5,000,000 warrants owned by his spouse |
|-------------------------------------------------------|

 

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Table of Contents

 

| **DIRECTOR COMPENSATION** |
|---------------------------|

 

| Name and Principal Position |   | Fees Earned or Paid

in Cash ($) |   |   | Stock

Awards |   |   | Option

Awards |   |   | Non-Equity Incentive Plan

Compensation |   |   | Change in Pension Value and non Qualified Deferred Compensation 

Earnings ($) |   |   | All Other

Compensation ($) |   |   | Total  |   |
|-----------------------------|--------|----------------------------------|--------|--------|---------------|--------|--------|----------------|--------|--------|-----------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|--------|-----------------------------|--------|--------|--------|--------|
|                        |   |                             |   |   |          |   |   |           |   |   |                                    |   |   |                                                                           |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Stephen L. Gurba            |   | $                                | -      |   |          |   | -      |           |   |   | -                                       |   |   |                                                                           | -      |   |                        | $      | -      |   |   | $ | - |   |   | $ | - |   |
| Craig Schnee                |   | $                                | -      |   |          |   | -      |           |   |   | -                                       |   |   |                                                                           | -      |   |                        | $      | -      |   |   | $ | - |   |   | $ | - |   |
| William E McMillen          |   | $                                | -      |   |          |   | -      |           |   |   | -                                       |   |   |                                                                           | -      |   |                        | $      | -      |   |   | $ | - |   |   | $ | - |   |
| David Shapiro               |   | $                                | -      |   |          |   | -      |           |   |   | -                                       |   |   |                                                                           | -      |   |                        | $      | -      |   |   | $ | - |   |   | $ | - |   |

 

We maintain a policy whereby our directors may be compensated for out of pocket expenses incurred by each of them in the performance of their relevant duties. Directors do not receive any form of compensation.

 

Stephen L. Gurba has a three year employment contract with the Company dated February 25, 2013, providing for an annual salary of $386,000 and various fringe benefits, to include use of an automobile, corporate country club membership not to exceed $12,000 annually, and term life, disability and health insurance. He also is eligible for up to a $200,000 bonus annually based upon meeting certain sales and EBITDA goals. There was no bonus paid during the years ended September 30, 2017 and 2016.

 

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

 

The table below lists the beneficial ownership of our voting securities by each person known by us to be the beneficial owner of more than 5% of such securities, as well as by each of our directors and officers as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown. 

 

The information reflected in the following table was furnished by the persons listed therein. The calculations of the percent of shares beneficially owned are based on 608,240,490 shares of common stock and 4,000,000,000 shares of preferred stock issued and outstanding on September 30, 2017, as well as 141,780,832 warrants. 

 

| Name and Address of Beneficial Owner  |   |  Amount and Nature of Beneficial Ownership (1)                                                                                                                           |   | Percent of Class |
|---------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|
|                                  |   |                                                                                                                                                                               |   |             |
| Stephen L. and Evelyn Gurba (2)       |   |                       2,006,230,000                                       |   | 42.24%           |
| 12645 49th Street North               |   |                                                                                                                                                                               |   |             |
| Clearwater, Fl 33762                  |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| Gary L. Shapiro (3)                   |   |                          919,295,036                       |   | 19.35%           |
| 2R Judiths Fancy                      |   |                                                                                                                                                                               |   |             |
| Christiansted, USVI 00824             |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| Harold J. Hoodwin (4)                 |   |                          600,500,000                       |   | 12.64%           |
| Houston, TX 77096                     |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| David Goose (5)                       |   |                          601,500,000                       |   | 12.66%           |
| 189 Hammock Oak Circle                |   |                                                                                                                                                                               |   |             |
| Debary, Fl 32713                      |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| William McMillen (6)                  |   |                              5,166,667 |   | 0.11%            |
| 22107 Martella Avenue                 |   |                                                                                                                                                                               |   |             |
| Boca Raton, Fl 33433                  |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| David Shapiro (7)                     |   |                              2,000,000 |   | 0.04%            |
| 1410 SE 53rd Avenue                   |   |                                                                                                                                                                               |   |             |
| Portland, OR 97215                    |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| Craig Schnee (8)                      |   |                              8,613,920 |   | 0.18%            |
| 12645 49th Street North               |   |                                                                                                                                                                               |   |             |
| Clearwater, Fl 33762                  |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| Michael J Perfetti (9)                |   |                              4,500,000 |   | 0.09%            |
| 1035 Eniswood Parkway                 |   |                                                                                                                                                                               |   |             |
| Palm Harbor, Fl 34683                 |   |                                                                                                                                                                               |   |             |
|                                  |   |                                                                                                                                                                               |   |             |
| All Officers and Directors as a group |   |                       2,026,510,587                                       |   | 42.66%           |

 

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Table of Contents

 

|   | (1) | Beneficial ownership is determined in accordance with Commission rules and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants and preferred stock currently exercisable or convertible within sixty (60) days, would be counted as outstanding for computing the percentage of the person holding such options or warrants.. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (2) | Includes 2,000,000,000 preferred shares and 1,230,000 common shares owned jointly with his spouse and 5,000,000 warrants owned by his spouse exercisable until February 2025. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (3) | Includes 800,000,000 preferred shares owned by Fieldstone Associates LLC, an entity owned by Gary Shapiro, 67,000,000 common shares owned by Craigmore Machinery Company, an entity owned by Gary Shapiro, 6,000,000 common shares owned through individual retirement accounts of Gary Shapiro and his spouse and 46,295,036 warrants owned through individual retirement accounts of Gary Shapiro and his spouse, exercisable until March 2025 |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (4) | Includes 600,000,000 preferred shares and 1,500,000 warrants exercisable until February 2023 |
|--------|-----|----------------------------------------------------------------------------------------------|

 

|   | (5) | Includes 600,000,000 preferred shares and 500,000 warrants exercisable until February 2023 |
|--------|-----|--------------------------------------------------------------------------------------------|

 

|   | (6) | Includes 2,000,000 common shares owned through individual through individual retirement accounts of William McMillen and his spouse and 3,166,667 warrants exercisable until August 2023. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | (7) | Includes 2,000,000 common shares owned through individual retirement accounts of David Shapiro |
|--------|-----|------------------------------------------------------------------------------------------------|

 

|   | (8) | Includes 3,000,000 common shares and 5,613,920 warrants exercisable until December 2025 |
|--------|-----|-----------------------------------------------------------------------------------------|

 

|   | (9) | Includes 3,500,000 common shares and 1,000,000 warrants exercisable until December 2025 |
|--------|-----|-----------------------------------------------------------------------------------------|

 

**Item 13. Certain Relationships and Related Transactions and Director Independence**

 

The Company has received advances from major shareholders and related parties from time to time to facilitate the cash needs of the Company. These advances are generally for short term needs and do not bear interest. During 2016, Stephen L Gurba incurred an obligation of $800,000 on behalf of the Company relative to a corporate guaranty. The Company agreed to reimburse him for this expenditure. As of September 30, 2017, there is no balance remaining outstanding to Stephen L Gurba, a balance outstanding to Gary Shapiro of $82,500, and a balance outstanding to a company owned by Richard Welkowitz of $735,730, totaling $818,230. This amount is reported on the balance sheet as amounts due shareholders and related parties. 

 

Craigmore Machinery Company is the sole source supplier for the industrial machine tools and related equipment that are sold by Bulova Technologies Machinery LLC. Craigmore is owned by Gary Shapiro, a major shareholder of the Company. As of September 30, 2017, and 2016, the Company had a balance payable to Craigmore of $2,579,301 and $1,786,436 respectively, and these balances are reflected as accounts payable – related parties for each year.

 

During the year ended September 30, 2017, Bulova Technologies Compliance and Security LLC received various advances from the Company. 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. 

 

Included within Long Term Debt are various notes payable to Gary L Shapiro and / or entities controlled by Gary L. Shapiro and / or his family members. As of September 30, 2017, and 2016, the total amount outstanding under these related party notes is $4,973,053 and $4,907,553 respectively. These notes are secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired, subordinated to the $4,000,000 Convertible Promissory Note payable to Richard Welkowitz dated February 6, 2015.

 

On February 6, 2015, the Company issued a $4,000,000 7% Convertible Promissory Note payable to Richard Welkowitz, with interest payable quarterly and a maturity date of February 15, 2021. The holder shall have the right at any time prior to June 30, 2017 to convert into common stock of the Company up to $250,000 of the debt in increments not less than $10,000 at 65% of the average of the lowest three trading prices during 10 days prior to conversion. The balance of the debt may be converted into common stock of the Company at the following exchange rate: year 1; $.10/share: year 2, $.20/share; year 3, $.30/share; year 4, $.40/share; and year 5, $.50/share. Additionally, as part of the financing agreement, the Company issued 12,000,000 warrants to purchase the common stock of the Company at a strike price of $.02 per share for a period of ten years. The value of these warrants has been accounted for as a debt discount in the initial amount of $779,999 and is being amortized over the six-year life of the loan. This note is secured by a security interest and pledge of all of the assets of the Company presently owned or hereinafter acquired.

 

On January 28, 2016, the Company, in conjunction with the purchase of Twiss Transport, Twiss Logistics and Twiss cold storage, issued a $4,666,155 5% Convertible Promissory Note payable to Ron Damico Jr with interest payable quarterly, as well as 3,000,000 restricted common shares, and a ten-year warrant to buy 500,000 common shares. 

 

On May 12, 2017, the Company issued a 10% Promissory Note to Richard Welkowitz in the amount of $630,000, payable in twelve monthly payments of principal and interest, with a maturity of May 12, 2018.   Mr. Welkowitz advanced additional funds under the terms of this note leaving an outstanding balance as of September 30, 2017 of $793,396. 

 

On July 20, 2017, the Company issued a non-interest bearing Promissory Note to Michael and Constance Pryslak in the amount of $504,000 payable in eighty-four monthly payments of $6,000, with a maturity of July 20, 2024.

 

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Table of Contents

 

**Item 14. Principal Accountant Fees and Services**

 

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. 

 

 **(1) Audit Fees**

 

 The aggregate fees billed for each of the last two fiscal years for professional services to be rendered by our new audit firm; the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:

 

|   | 2017  | $ | 70,000 |   |   |
|--------|------------|---|--------|--------|--------|
|   | 2016       | $ | 70,000 |   |   |

 

 

**(2) Audit-Related Fees**

 

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the aforementioned firm; the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:

 

|   | 2017       | $ | 0.00 |   |   |
|--------|------------|---|------|--------|--------|
|   | 2016  | $ | 0.00 |   |   |

 

**(3) Tax Fees**

 

The aggregate fees billed in each of the last two fiscal years for professional services rendered; the principal accountant for tax compliance, tax advice, and tax planning was:

 

|   | 2017       | $ | 0.00 |   |   |
|--------|------------|---|------|--------|--------|
|   | 2016  | $ | 0.00 |   |   |

 

 **(4) All Other Fees**

 

 The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:

 

|   | 2017       | $ | 0.00 |   |   |
|--------|------------|---|------|--------|--------|
|   | 2016  | $ | 0.00 |   |   |

 

 **(5)** Our audit committee’s pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

 

 **(6)** The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was 0%. 

 

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Table of Contents

 

**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules**

|            |                                                               |          |   |                                                                                                                                                                      |
|-----------------|--------------------------------------------------------------------|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(a) and (c)** | The consolidated financial statements are included in Item 8. |
|            |                                                               |          |   |                                                                                                                                                                      |
| **(b)**         |                                                               | **Exhibits:** |   |
|            |                                                               |          |   |                                                                                                                                                                      |
|            |                                                               | **31****.1**  |   | Rule 13a-14(a) Certification of Principal Executive Officer*                                                                                                         |
|            |                                                               |          |   |                                                                                                                                                                      |
|            |                                                               | **31.2**      |   | Rule 13a-14(a) Certification of Principal Financial and Accounting Officer*                                                                                          |
|            |                                                               |          |   |                                                                                                                                                                      |
|            |                                                               | **32.1**      |   | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*           |
|            |                                                               |          |   |                                                                                                                                                                      |
|            |                                                               | **32.2**      |   | Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |

 

* to be filed or furnished by amendment

 

 

**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

|   | Bulova Technologies Group, Inc. |                        |
|--------|---------------------------------|-----------------------------|
|   |                            |                        |   |
|   | By                              | /s/ Stephen L. Gurba        |   |
|   |                            | Stephen L. Gurba            |   |
|   |                            | Principal Executive Officer |   |

 

 

 

DATED: January 16, 2018

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and on the dates indicated.

 

| /s/ Stephen L. Gurba

                                |   | January 16, 2018 |
|------------------------------------------------------------|--------|------------------|
| Stephen L. Gurba

Director and Principal Executive Officer |   |             |

 

| /s/ Michael J. Perfetti

                             |   | January 16, 2018 |
|-----------------------------------------------------------------|--------|------------------|
| Michael J. Perfetti

Principal Financial and Accounting Officer |   |             |

 

| /s/ William E. McMillen

  |   | January 16, 2018 |
|---------------------------------|--------|------------------|
| William E. McMillen

Director   |   |             |
|                            |   |             |
| /s/ Craig Schnee

         |   | January 16, 2018 |
| Craig Schnee

Director          |   |             |
|                            |   |             |
| /s/ David Shapiro

        |   | January 16, 2018 |
| David Shapiro

Director         |   |             |

 

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