Item 1. Consolidated Financial Statements

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

Supplemental schedule of non-cash financing and investing activities:

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

BULOVA TECHNOLOGIES GROUP,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2013 AND 2012
(Unaudited)

1.     Description of business:

Bulova Technologies Group, Inc. ("BLVT" or the "Company") was originally incorporated in Wyoming in 1979 as “Tyrex Oil Company”. During 2007, the Company divested itself of all assets and previous operations.  During 2008, the Company filed for domestication to the State of Florida, and changed its name to Bulova Technologies Group, Inc. and changed its fiscal year from June 30 to September 30. On January 1, 2009 the  Company acquired the stock of a private company that was under common control and began operations in Florida. The Company operates as a government contractor in the United States. Headquarter facilities are in Tampa, Florida and its operating facilities were located in Mayo, Florida until the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC in October 2012.

2.       Principles of consolidation and basis of presentation:

The accompanying consolidated balance sheet as of September 30, 2012, has been derived from audited financial statements.   

The unaudited interim consolidated financial statements have been prepared pursuant to th e rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally  included in annual financial statements prepared in accordance with generally accepted  accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes  that the disclosures made are adequate to make the information not misleading. It is  suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the  notes thereto, included in the Company’s latest Form 10-K.   

On January 1, 2009, the  Company acquired the stock of 3Si Holdings, Inc. (“3Si”) a privately held Florida corporation controlled by the majority stockholder of the Company in exchange for 40,000,000 shares of its  common stock. The assets  and operations of 3Si have been accounted for in three operating subsidiaries, BT Manufacturing Company LLC, Bulova Technologies Ordnance Systems LLC, and Bulova Technologies (E urope) LLC (formerly  Bulova Technologies Combat Systems LLC). 

BT Manufacturing Company LLC  – prior to discontinuance, its operations were located in Melbourne, Florida, in a 35,000 square foot facility where it assembled a wide  range of printed circuit board products. In June  2010, the Company determined to dispose of BT Manufacturing Company LLC, and as such has accounted for this business segment as a discontinued operation. Final  settlement and disposition of this segment was  accomplished during the quarter ended March 31, 2011.  

Bulova Technologies Ordnance Systems LLC .  – located on 261 acres in Mayo, Florida is a load, assembly, and  pack facility specializing in fuzes, safe and arming devices and explosive simulators. Bulova Technologies  Ordnance Systems LLC is registered with the United States Department of State Directorate of Defense Trade  Controls (DDTC). It produces a variety of pyrotechnic devices, ammunition and other energetic materials  for the U. S. Government and other allied governments throughout the world. In October 2012, the Company  sold substantially all of the assets of this subsidiary to an unrelated party.  

Bulova Technologies (Europe) LLC   – located in the Company’s corporate headquarters in Tampa, Florida, this subsidiary was originally  formed to administer an acquisition contract that Bulova Technologies  Ordnance Systems LLC was awarded from the U.S. Department of Defense in January 2009. The Company has since changed the name to Bulova  Technologies (Europe) LLC. It markets the Mortar Exchange program,  which it helped develop, to facilitate the needs of NATO members and allied countries. It leases office space in Frankfurt, Germany to promote this  program. The subsidiary is also looking to take advantage of the offset opportunities around the world through a joint venture, focusing, initially in the UAE and is administering non-standard ammo and non-standard  weapons contracts through its blanket purchase agreements   with the U.S. Government  

Bulova Technologies Machinery LLC  – formed in July of 2013, Bulova Technologies Machinery LLC represents the Company’s  entree into the machine tool business, and will import industrial machine tools and related equipment from recognized international sources, and establish a Distributor / Dealer network throughout the United States  and Canada. This subsidiary has not yet begun its operations as of the date of this report.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2013 and the results of operations and cash flows for the three and nine months ended June 30, 2013 and 2012.  

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Subsequent Events

The Company has evaluated subsequent events through August 7, 2013, to assess the need for potential recognition or disclosure in this report.  Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.

Business Segments

Commencing with the Company’s acquisition of 3Si Holdings, Inc. in January of 2009, the Company operated in two business segments, government contracting and contract manufacturing.  With the Company’s disposal of BT Manufacturing Company LLC, the Company is no longer operating more than one business segment as all efforts of the company are now focused on Department of Defense contracting

Use of Estimates

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.  

Financial Instruments  

The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations were carried at cost, which approximated fair value due to the prevailing market rate for similar instruments.

Fair Value Measurement  

All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value.

Level 1: Quotes market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.

Level 3: Unobservable inputs that were not corroborated by market data.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk.

Accounts receivable

Accounts receivable represent amounts due from customers in the ordinary course of business. The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable.   The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts.

The majority of the Company’s revenues and accounts receivable pertain to contracts with the US Government.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market. Market was generally considered to be net realizable value. Inventory consisted of materials used to manufacture the Company’s products work in process and finished goods ready for sale.

The breakdown of inventory at June 30, 2013 and September 30, 2012 is as follows:

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying principally the straight-line method to the estimated useful lives of the related assets. Useful lives range from 10 to 20 years for buildings and improvements and 5 to 10 years for machinery, equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition are valued at fair value.

Property, plant and equipment are comprised of the following at June 30, 2013 and September 30, 2012

Impairment of Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets’ carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell.  

Discontinued Operations

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

Revenue Recognition

Sales revenue is generally recognized upon the shipment of product to customers or the acceptance by customers of the product. Allowances for sales returns, rebates and discounts are recorded as a component of net sales in the period the allowances were recognized. The majority of the Company’s revenue is generated under various fixed and variable price contracts as follows:

Revenues on fixed-price type contracts are recognized using the Percentage-Of-Completion (POC) method of accounting as specified in government contract accounting standards and the particular contract. Revenues earned on fixed-price production contracts under which units are produced and delivered in a continuous or sequential process are recognized as units are delivered based on their contractual selling prices (the “Units-of-Delivery” basis of determination). Sales and profits on each fixed-price production contract under which units are not produced in a continuous or sequential process are recorded based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract revenue, less cumulative sales recognized in prior periods (the “Cost-to-Cost” basis of determination). Under both types of basis for determining revenue earned, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year. The estimated total profit margin is evaluated on a periodic basis by management throughout the term of an individual contract to determine if the estimated total profit margin should be adjusted.

The Company has certain contracts with the U.S. Government that are funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances.

Cost of Revenues

The costs of revenues include direct materials and labor costs, and indirect labor associated with production and shipping costs.  

Advertising Costs  

The costs of advertising are expensed as incurred and are included in the Company’s operating expenses. The Company did not incur any advertising expenses for the three and nine months ended June 30, 2013 and 2012.  

Shipping Costs  

The Company includes shipping costs in cost of goods sold.

Income Taxes

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

Loss per Common Share  

Basic net loss per share includes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of June 30, 2013, there were 9,671,098,593 common stock equivalents that were anti-dilutive and were not included in the calculaton for the three months ended June 30, 2013.  

Effect of Recent Accounting Pronouncements  

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to June 30, 2013 through the date these financial statements were issued.

3.     Contract Claim Receivable

The acquisition of 3Si Holdings, Inc . included the membership interest in Bulova Technologies Ordnance Systems LLC which had certain obligations to perform on then existing contracts with the US Government.   Bulova Technologies Ordnance Systems, LLC had received advance funding under these contracts by the US Government through Performance-Based-Payments, a method of financing designed by the government to provide working capital to small business contractors so they can purchase the materials needed to fulfill the contract. At the time of the acquisition, the US Government had provided advance financing on the assumed contracts in the amount of $3,200,597.

In accordance with the provisions of Section 9-610 of the Uniform Commercial Code as enacted in the state of New York these cash funds amounting to $3,200,597 were retained by Webster Business Capital Corporation, the secured lender that had acquired the assets pursuant to the Section 9 foreclosure proceedings. The Company has fully performed all of its obligations under these contracts.

On October 24, 2012, as a part of the sale of substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the Company negotiated and settled this dispute with Webster Business Credit Corporation.   

4.     Discontinued Operations  

In June of 2010, because of continuing losses in our contract manufacturing business segment, the Company announced management’s decision to market BT Manufacturing Company LLC for sale. BT Manufacturing Company LLC, a wholly owned subsidiary of the Company represented our contract manufacturing segment. As a result of the decision to sell this business segment, the Company has identified the assets and liabilities of BT Manufacturing Company LLC as pertaining to discontinued operations at June 30 31, 2013 and September 30, 2012 and has segregated its operating results and presented them separately as a discontinued operation for all periods presented.   

In September 2010, the Company estimated a loss in the amount of $2,650,000 to be realized upon completion of the disposal of this business segment, as well as an estimated operating loss of $900,000 to be incurred during the phase-out period. During March 2011, the Company finalized its negotiations relative to the disposition of the assets of this operation with an effective date of December 31, 2010. As a part of this settlement, the buyer that acquired the operations has provided an earn out agreement to PNL Newco II LLC to assist in the payment of the remaining obligation on the note payable to them.   

In October of 2012, the Company negotiated a settlement with PNL Newco II LLC for complete satisfaction of this debt for $625,000. The transaction resulted in a gain of $1,309,424.

Summarized operating resultes for discontinued operations is as follows:

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

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

5.     Advance Payments and Billings in Excess of Cost

Advance payments and billings in excess of costs represents liabilities of the Company associated with contracts in process as of the balance sheet date, and consist of the following:  

Advance Payments - The Company had certain contracts with the U.S. Government that were funded through “Performance-Based-Payments”. Performance-based-payments are a method of financing designed by the  Government to facilitate the accomplishment of the terms of the contract, and are not payments for accepted items. These financing payments are designed as a funding mechanism to facilitate production and may be made based on performance measured by objective, the accomplishment of defined events, or other quantifiable measures of results. As units are delivered and invoiced, the U.S. Government withholds 90% of the invoiced amount as repayment of the contract financing advances. On January 1, 2009, with the acquisition of 3Si Holdings, Inc. and membership interest of Bulova Technologies Ordnance Systems LLC, the Company assumed certain obligations to perform contracts with the US Government with an outstanding balance at the date of acquisition of $3,200,597. The balances outstanding as of June 30, 2013 and September 30, 2012 are $0 and $666,490 respectively.

Billings in Excess of Cost plus Earnings on Uncompleted Contracts  – The Company accounts for fixed-price production contracts under which units are not produced in a continuous or sequential process based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract price. The Company did not have any billings on uncompleted contracts in excess of the costs incurred plus estimated earnings calculated on this percentage of completion method as of June 30, 2013 and September 30, 2012.

6.     Long Term Debt  

Long term debt consisted of the following at:      

Principal maturities of long term debt for the next five years and thereafter as of June 30, 2013 are as follows:    

7.     Income Taxes  

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

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

The Company has previously recognized an income tax benefit for its operating losses generated since inception through September 30 2012 based on uncertainties concerning its ability to generate taxable income in future periods. Based on current events management has re-assessed the valuation allowance and the recognition of the deferred tax assets attributable to the net operating losses and other assets. Based on the Company’s history of losses and other negative evidence, the Company has determined that the valuation allowance should be increased accordingly to offset the entire deferred tax asset.   

As of September 30, 2012 the Company had federal net operating loss carry forwards of approximately $24,160,000 and Florida net operating loss carry forwards of approximately $23,926,000. The federal net operating loss carry forwards will expire in 2020 through 2032 and state net operating loss carry forwards that will expire in 2028 through 2032.   

The income tax rate computed using the federal statutory rates is reconciled to the reported effective income tax rate as follows:   

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, 2012, the tax returns for the Company for the years ending 2009 through 2011remain open to examination by the Internal Revenue Service and Florida Department of Revenue. In addition the tax returns related to 3SI remain open to federal and state examination for the periods ending June 2005 through 2008. The Company and its subsidiaries are not currently under examination for any period.  

The Company has adopted a policy to recognize interest and penalties accrued related to unrecognized tax benefits in its income tax provision. The Company has evaluated its unrecognized tax benefits and determined that due to the NOL carry forwards, that no accrual of interest and penalties is required in the current period.

8.     Commitments and Contingencies

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

U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors General routinely audit and investigate costs and performance on contracts, as well as accounting and general business practices of contractors Based on the results of such audits, the U.S. Government may adjust contract related costs and fees, including allocated indirect costs. None of the Company’s contracts are currently the subject of any government audits.

At June 30, 2013 the Company operated corporate and administrative offices in a facility leased from a non-affiliate in Tampa, Florida, approximating 5,000 square feet. The Tampa location is leased for a base monthly rental increased by a minimum of 2.5% each year through the expiration date of December 21, 2027. The Company also leases on a month to month basis, an office in Frankfurt, Germany to facilitate its European program.

Total rent expense for the nine months ended June 30, 2013, was approximately $211,000.

The Company’s commitments for minimum lease payments under these operating leases for the next five years and thereafter as of June 30, 2013 are as follows:    

9.     Related Party Transactions  

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

The Company has received loans from two (2) major shareholders which were supported by notes bearing interest at 5% annually with restricted conversion features and no repayment schedule. The notes were originally issued for $1,500,000 for each shareholder then subsequently raised them to a maximum of $5,000,000. All shareholder interest is accruing interest. As of June 30, 2013, the only remaining debt associated with these notes is a balance due to Stephen L. Gurba and Evelyn R. Gurba in the amount of $202,035.

10.   Stockholders’ Equity   

Common Shares

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

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

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

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

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

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

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

In November 2011, the Company increased its authorization of common shares to 2,000,000,000.

In January 2012, the Company issued 151,500,000 common shares for services

In February 2012 , the Company issued 750,000 common shares for services

In February 2012, the Company issued 95,000,000 common shares in association with new debt

In February 2012, the Company issued 2,400,000 common shares as conversion of debt in the amount of $12,000.

In February 2012 the Company issued ten year warrants to purchase 100,000,000 shares of its common stock with an exercise price of $.05 per share.

In March 2012, the Company issued 3,142,857 common shares as conversion of debt in the amount of $11,000.

In April 2012, the Company issued 3,461,538 common shares as conversion of debt in the amount of $9,000.

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

In April 2012, the Company issued 20,000,000 common shares for services

In May 2012, the Company issued ten year warrants to purchase 170,000,000 shares of its common stock with an exercise price of $.01 per share.

In May 2012, the Company issued 25,412,821 common shares for services

In May 2012, the Company issued 6,360,000 common shares as conversion of debt in the amount of $11,000.

In May 2012, the Company issued 35,000,000 common shares in association with new debt

In June 2012, the Company issued 75,000,000 common shares in association with new debt

In June 2012, the Company issued 14,084,507 common shares as conversion of debt in the amount of $10,000.

In June 2012, the Company issued 30,878,777 common shares for services

In June 2012, the Company issued 21,830,956 common shares as conversion of related party debt

July 2012, the Company issued 168,289,206 common shares in association with new debt  

August 2012, the Company issued 18,380,744 common shares as payment for interest on debt  

August 2012, the Company issued 193,846,154 common shares in association with new debt  

September 2012, the Company issued 177,002,028 common shares in association with new debt  

On September 26, 2012 the Company amended its Articles of Incorporation to increase its authorization to issue its common shares to 5,000,000,000 at a par value of $.001, and to increase its authorization to issue its preferred shares to 5,000,000,000 at a par value of $.00001.  

October 2012, the Company issued 150,807,692 common shares for services  

October 2012, the Company issued 988,923,568 common shares as conversion of debt  

November 2012, the Company issued 151,500,000 common shares for services  

November 2012, the Company issued 183,029,958 common shares as conversion of debt  

December 2012, the Company issued 99,249,999 common shares for services

January 2013 – the Company issued 247,424,242 shares of its common stock as conversion of debt  

January 2013 – the Company issued 30,000,000 shares of its common stock in association with new debt  

January 2013 – the Company issued 41,000,000 common shares for services  

February 2013 – the Company issued 150,000,000 common shares of its common stock as conversion of debt  

June 2013 – the Company issued 150,000,000 common shares of its common stock as conversion of debt    

Preferred Shares  

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

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

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

The preferred shares have co-voting rights with the outstanding common shares on a one to one basis, so that the common shares and the preferred shares shall vote as though, together they were a single class of stock. The shares are redeemable by the Corporation at any time, with the permission of the Preferred Shareholders, at 1/1,000,000 of a cent per preferred share. These preferred shares have no conversion rights, no dividend rights, nor any liquidation preferences. These shares are not listed on any exchange .

11.   Change in Accounting Estimate  

The Company had previously included an amount of $6,071,700 in accrued expenses that was a result of percentage of completion accounting on a single contract that was terminated by the US Government before completion. The Company is disputing the termination, and has maintained this balance in anticipation of a resolution. In October 2012, The Company sold substantially all of the assets of Bulova Technologies Ordnance Systems LLC, the subsidiary that was a party to that specific contract, and has determined that the contract will never be completed. Therefore, the Company is recognizing in other income the full amount previously deferred. This change is a change in the way the revenue on this contract was estimated to be realized.

12.   Subsequent Event  

On July 11, 2013 the Company issued 150,000,000 common shares in association with current debt