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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Armor Des Regs | LSE:ADIS | London | Ordinary Share | COM SHS USD0.001 (REGS) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 120.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
Hot Features
Premium
TIDMADID TIDMADIS
RNS Number : 4770O
Armor Designs, Inc.
30 June 2010
+------------------------------+------------------------------+
| Press Release | 30 June 2010 |
+------------------------------+------------------------------+
Armor Designs, Inc.
Results for year ended 31 December, 2009
Armor Designs, Inc., ("ADI", "Armor" or the "Company"), a knowledge-based
designer, developer and manufacturer of next generation composite protective
products, today announces its audited results for the year ended 31 December
2009.
+--------+----------------------------------------------------------+
| |
| Business Developments |
| |
+-------------------------------------------------------------------+
| · | Ongoing transition from development company to |
| | commercial entity |
+--------+----------------------------------------------------------+
| · | Introduction of the first U.S. NIJ .06 certified Stand |
| | Alone Level IV plate (advanced protection body armour |
| | plates); |
+--------+----------------------------------------------------------+
| · | First sales into U.S. government Homeland Security |
| | departments and governmental agencies in the Philippines |
| | and Korea; |
| · | Established design, manufacturing and distribution joint |
| | venture in Asia; |
| | |
+--------+----------------------------------------------------------+
| · ISO 9001:2008 Certification obtained for design |
| and manufacturing; and |
| |
| · Scorpion Works achievement of multiple |
| technology milestones and product certifications. |
| |
| Financial Developments |
| |
| · First full year of revenues generated from |
| commercial operations; |
| · Sales of US$1.05m for the year ended 31 |
| December 2009; |
| · Operating loss of US$11.7m, (US$9.1m after |
| US$2.6m of non-cash items) in 2009; |
| · Equity fundraising in 2009 of US$1.5m |
| closed; |
| · Reduced operating expenses by over 41% from |
| prior year levels, from US$15.8m in 2008 to US$9.2m in 2009; |
| · Established accounts receivable financing |
| facility with a credit capacity of US$0.25m; |
| · The Company continues its efforts to correct |
| and strengthen the balance sheet conditions previously announced |
| and described more fully in footnotes 2 and 16 to the financial |
| statements; and |
+-------------------------------------------------------------------+
| · Correction of an error, dating back to 2007, |
| in the fair value of stock based compensation (a non-cash item) |
| calculated for 2008, resulting in restatement of the financial |
| statements for the year ended 31 December 2008. The re-statement |
| had no impact on cash, other assets or any liabilities. |
| |
+--------+----------------------------------------------------------+
Post Balance Sheet Events
· As announced on 28 June 2010, closing of US$3.6m equity
fundraising; and
· Commitment for a US$10.0m line of credit as announced on 28
June 2010. Fulfillment of the commitment is subject to completion of due
diligence and execution of legal documents. Availability of funds to be
dependent on achievement of commercial and product development milestones.
Commenting on the results, Philip Clement, CEO of Armor Designs, Inc., said:
"2009 was a challenging year, but a year that brought us another step towards
achievement of our long term strategy. As a result of the significant expense
reductions made during the year, we have streamlined our cost structure and are
now well positioned for business development growth and profitability. We have
continued to build on the reputation which has set us apart for providing
leading edge armour solutions using our proprietary IP know-how. Our existing
products are meeting good acceptance in the market and our VCM technology is
leading customers to ask us for solutions to their problems. Now that we have
commitments to address the short term working capital requirements which
constrained us in 2009, we are confident that we can move forward to
commercially exploit our technology."
The Company confirms that copies of the annual report and accounts for the
period ended 31 December 2009 have been sent to shareholders and copies will
shortly be available on the Company's website www.armordesigns.com
The Chairman and Chief Executive's Statement and the financial report, which are
contained below and form part of this announcement, include further important
information and disclosures; the announcement should be read in its entirety.
For further information:
+------------------------------------+------------------------------+
| Armor Designs, Inc. | |
+------------------------------------+------------------------------+
| Philip Clement, Interim CEO | Tel: +1 (602) 275-4633 |
+------------------------------------+------------------------------+
| philip.clement@armordesigns.com | www.armordesigns.com |
+------------------------------------+------------------------------+
Nominated advisor:
+---------------------------------+------------------------------------+
| Shore Capital & Corporate | Tel: +44 (0) 20 7408 4090 |
| Ltd. | |
+---------------------------------+------------------------------------+
| Anita Ghanekar | www.shorecap.co.uk |
| anita.ghanekar@shorecap.co.uk | |
| Edward Mansfield | |
| Edward.mansfield@shorecap.co.uk | |
| | |
+---------------------------------+------------------------------------+
Media enquiries:
+------------------------------------+------------------------------+
| Brunswick Group LLP | |
+------------------------------------+------------------------------+
| Michael Harrison/ Chris Blundell / | Tel: +44 (0) 20 7404 5959 |
| Camilla Gore | |
+------------------------------------+------------------------------+
| adi@brunswickgroup.com | www.brunswickgroup.com |
+------------------------------------+------------------------------+
Chairman's and Chief Executive's Statement
The Board is pleased to report Armor Designs Inc. results for the year ended 31
December 2009. 2009 was the Company's initial year of commercial production,
realising its first sales to U.S. government Homeland Security Departments and
governmental agencies in the Philippines and Korea. Through a concerted effort,
the Company implemented a strategic cost reduction program resulting in improved
gross margin on product sales and better positioning the Company to take
advantage of future opportunities.
Strategic and Operational Progress
As expected, 2009 was challenging due to working capital constraints and weak
global business opportunities. During the year, the Company obtained improved
quality assurance through "ISO 9001:2008" certification for design and
manufacturing of ADI products. In late 2009, Armor was the first company to
certify a level-4 protection plate as per U.S. National Institute of Justice-06
(NIJ-06) standards. The Company also introduced its lightest NIJ certified
level-3 protection "Stand Alone" plate. The Company was selected to provide
solutions to U.S. Special Operations Command (SOCOM) for the development of
lighter plates. Currently, the plates from Armor Designs are being evaluated at
SOCOM.
In 2009, Scorpion Works, ADI's expanded research and development team, developed
a series of body armour plates, which can be integrated with the universal
level-3A protection vests or can be used as a stand-alone plate for foreign
markets. These designs were done in considerably less time than current
industry practices using ADI's VCM technology and IP know-how. The Company
believes the research and development efforts will generate significant
opportunities in 2010. In addition, the Company designed and delivered the
first batch of synthetic panels for the air lifts used in Afghanistan for
military applications.
Throughout 2009 the Company strengthened its manufacturing capabilities by
optimising its existing processes and implementing new process controls at every
critical operation step. The 6-sigma approach along with Continuous Improvement
Programs (CIP's), both recognised in industry as best practice, were introduced
and implemented during the later part of 2009. The results achieved via the
implementation of 6-sigma and CIP's were significant and helped contribute to
the reduction of the Company's monthly cash burn rate.
In 2009 the Company won several key new customers, and the Company continued to
build on the reputation which has set it apart for providing leading edge armour
solutions using its proprietary IP know-how. Although there was a limited
marketing and sales effort during the year, a number of new distribution
channels opened both domestically and overseas. In addition, the Company was
able to expand its International Traffic in Arms Regulations (ITAR) licenses as
a defence industry exporter in a number of overseas countries.
Financial
The Company generated US1.05 million in its full first year of commercial
operation. However, the fundamental infrastructure needed to execute the
transition from a development company to a commercial entity resulted in an
operating loss of US$(11.7) million (2008: US$(17.8) million, as restated). The
results continue to be affected by non-cash charges relating to the ongoing
expense associated with the grant of Restricted Stock Units and Stock
Appreciation Rights by the Company along with Non-qualifying Stock Options and
the award of shares by its majority shareholder, Hawthorne and York
International Ltd (HYI). Due to HYI's majority ownership of the Company, US GAAP
accounting rules require the Company to reflect awards granted by HYI in its
financial results. These charges are non-cash items and totaled US$1.7 million
in 2009.
In 2009, as part of moving the Company's transition from a development stage
company to full commercial operations, management reduced operating expenses and
associated cash expenditures by approximately 41% as compared to the same period
the prior year. As a result, during the year ended 31 December 2009, general and
administrative expenses decreased to US$6.9 million (2008: US$12.9 million, as
restated). Selling and marketing expenses increased to US$0.9 million (2008:
US$0.7 million) as a result of costs incurred to respond to longer term payoff
projects and to a lesser degree the establishment of an international
distribution network. Research and development costs for the period decreased to
US$1.4 million (2008: US$1.9 million).
During the year ended 31 December 2009, capital expenditures decreased to US$0.1
million as compared to US$5.0 million for 2008.
Subsequent to 2009, there continues to be improvement in order activity as
evidenced by a steady increase in monthly sales in the first five months of 2010
which are substantially above the run rate for the same period in 2009.
During the audit of the results to December 2009, an error was discovered,
discussed further below, that required the Company to restate its financial
statements for the year ended 31 December 2008, the re-statement had no impact
on cash, other assets or any liabilities.
During the audit of the results to December 2009, it was determined that the
calculation of expected volatility, the expected life of the options and the
number of options granted in 2008 were incorrect resulting in an error in the
estimated fair value of the options granted in 2008 (See Notes 3 and 5 of the
footnotes to the financial statements). As a result, the fair value of stock
based compensation for the year ended 31 December 2008 was understated. Stock
options granted in 2008 were previously reported as 2,600,000 have been revised
and presented as 1,300,000 in the accompanying consolidated financial
statements. The fair value of the stock awards has been recomputed and reflected
in the accompanying consolidated financial statements. The correction had the
effect of increasing the net loss by US$2,427,217 or US$(0.10) per share for the
year ended 31 December 2008, with an offsetting increase in additional paid in
capital. As such, there was no impact on cash or other assets or any
liabilities. The deficit accumulated during development stage increased by
US$2,427,217 as of 31 December 2008. There was no impact to the deficit
accumulated during development stage for 31 December 2007 or prior periods.
Fund Raising
On 28 June 2010 the Company announced it had completed a secondary fund-raising
of US$3.6 million prior to expenses, through a placing with a number of existing
and new investors of 238,335 new common shares at a placing price of US$15 per
new common share. The net proceeds were used for short term working capital
requirements.
In addition, on 28 June 2010, the Company announced that it has received a
letter of commitment from a boutique U.S. based investment fund, specialising in
debt financing for companies in the knowledge-based or intellectual property
sectors. The letter of commitment is in the form of a US$10.0 million Senior
Debt Facility (the "Facility") in the form of a line of credit. The availability
of the Facility is subject to completion of due diligence and execution of legal
documents, with an anticipated close on or around July 15, 2010. The Facility is
expected to include an immediate advance of US$4.0 million with follow-on
advances, up to a cumulative total of US$10.0 million, made available based on
the Company's achievement of certain operational and financial milestones. The
Facility has a proposed 5-year term, two warrant provisions (with strike prices
of US$22.50 and US$24.00, respectively), conversion rights (at US$15 per share)
and is collateralized, in part, by the Company's intellectual property. In
addition, the Company will be expected to maintain certain usual and customary
Covenants during the term of the Facility.
The Company will update the market, on our around July 15th, 2010, as to the
status of the close of the Credit Facility.
As previously disclosed, the Company announced that it closed a fund-raising by
which it has raised US$1.5 million, before expenses, through a placing with
investors of 100,000 new common shares. In the second quarter 2009, the Company
established an accounts receivable financing facility to contribute towards its
working capital needs. The amount expected to be made available to the Company
pursuant to this facility in the next 12 months is approximately $0.25 million.
US GAAP accounting rules require the Company to validate that it has sufficient
working capital either on hand, irrevocably pledged or reasonably secured
through ongoing operational activity. If there is any shortfall or material
uncertainty that the Company may not have or generate the working capital it
requires for a minimum period of twelve months subsequent to the date of the
accounts, then the Company is required to disclose this in the footnotes to the
financial statements. The recently completed round of equity fund raising is
insufficient to meet the Company's capital requirements over the required period
and so the Company has included a formal disclosure note (Note 2) on its Going
Concern situation. The note refers to certain events and circumstances which
give rise to funding uncertainties. However, the Directors believe that Armor
has adequate resources and financing options available to support the going
concern basis.
Board, Management, Nominated Advisor and Broker
As previously announced, during the second quarter 2009 the Board accepted the
resignations of Charles Snyder, CEO and David Seaton, CFO. The Company appointed
a new CEO, Philip A. Clement (interim) and CFO, J. Craig Johnson to strengthen
the management team. In addition, William A. Roper, an experienced corporate
executive, was brought onto the Board as a non executive director.
The Company also announced that following completion of the Annual General
Meeting of the Company, on 29 September 2009, Sir Richard Johns and Nicholas
Smith had retired as directors of the Company. The board thanked each of them
for their significant contributions to the development of the business during
their respective terms of office.
In addition, the Company appointed Shore Capital and Corporate Limited as
Nominated Adviser ("Nomad") and Shore Capital Stockbrokers Limited as broker to
the Company and accepted the resignations of ZAI Corporate Finance Limited as
its Nomad and Alexander David Securities Limited as its broker.
Outlook
We expect 2010 to be the year during which Armor completes the transition from
the development stage to full commercial operations. Securing a commitment for
debt financing has put the Company in a position to move forward on the
important product development opportunities that exist in vehicle,
infrastructure and energy installation protection as well as rounding out
Armor's body armour plate offering. Armor's products have gained considerable
acceptance and management believes the Company will be able to capitalise on
that acceptance by increasing unit sales and average revenue per unit. There are
a number of significant opportunities that Armor is pursuing and several of
these opportunities have sales potential that is in excess of the total sales
achieved since inception. Also, the Company is now in a position to establish
the appropriate capital structure expected for a knowledge based company.
James A. St. Ville
Philip A. Clement
Chairman
Chief Executive Officer (Interim)
30 June 2010
30 June 2010
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| CONSOLIDATED BALANCE SHEET |
+---------------------------------------------------------------------------------------------------------------------------------------------+
| 31 December |
+---------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | 2009 | | 2008 | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | US$ | | US$ | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| ASSETS | | | | | As revised - | |
| | | | | | see Note 17 | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| CURRENT ASSETS | | | | | | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | Cash and cash equivalents | | $ | | $ | |
| | | | 21,435 | | 1,199,179 | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Receivable from sale of common | | | 1,189,922 | |
| | stock | - | | | |
+----------+----------------------------------------------+------------------------------+----------+------------------------------+----------+
| | Accounts receivable, net | | 139,168 | | 176,642 | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Inventory | | | 237,794 | | 456,194 | |
+----------+--------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | Prepaid expenses and | | 119,700 | | 181,140 | |
| | deposits | | | | | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | Total | 518,097 | | 3,203,077 | |
| | | | current | | | | |
| | | | assets | | | | |
+----------+----------+---------+-------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| NOTES RECEIVABLE, RELATED PARTY | 277,552 | | 830,000 | |
+---------------------------------------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| PROPERTY AND EQUIPMENT, NET | 4,937,302 | | 3,461,623 | |
+---------------------------------------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| DEPOSITS | | | | | | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | Equipment | | | | | 2,374,359 | |
| | | | | - | | | |
+----------+--------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | Other | | | 130,616 | | 130,616 | |
+----------+--------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| Total deposits | | | 130,616 | | 2,504,975 | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| TOTAL ASSETS | | | $ | | $ | |
| | | | 5,863,567 | | 9,999,675 | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| LIABILITIES AND EQUITY (DEFICIT) | | | | |
+---------------------------------------------------------+------------------------------+----------+------------------------------+----------+
| CURRENT LIABILITIES | | | | | |
+--------------------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Accounts payable | | $ | | $ | |
| | | | 1,718,559 | | 289,351 | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Accounts payable, related party | 896,897 | | 202,584 | |
+----------+----------------------------------------------+------------------------------+----------+------------------------------+----------+
| | Accrued expenses | | 498,480 | | 861,527 | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Accrued expenses, related party | 312,000 | | | |
| | | | | - | |
+----------+----------------------------------------------+------------------------------+----------+------------------------------+----------+
| | Notes payable, related | | 510,000 | | | |
| | party | | | | - | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Notes payable | | | 358,956 | | | |
| | | | | | | - | |
+----------+--------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | Total | 4,294,892 | | 1,353,462 | |
| | | | current | | | | |
| | | | liabilities | | | | |
+----------+----------+---------+-------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| Commitments and contingencies (Note 9) | | | | |
| | - | | - | |
+---------------------------------------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| EQUITY (DEFICIT) | | | | | |
+--------------------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Common stock, $0.001 par value; | 26,787 | | 26,625 | |
+----------+----------------------------------------------+------------------------------+----------+------------------------------+----------+
| | | Authorized | 50,000,000 | | | | |
| | | shares | | | | | |
+----------+----------+----------------------+------------+------------------------------+----------+------------------------------+----------+
| | | Issued | 2009 | 2008 | | | | |
| | | Shares: | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | 26,786,801 | 26,524,300 | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| | Additional paid-in | | 41,966,160 | | 37,344,558 | |
| | capital | | | | | |
+----------+---------------------------------+------------+------------------------------+----------+------------------------------+----------+
| | Deficit accumulated during | (40,424,272) | | (28,724,970) | |
| | development stage | | | | |
+----------+----------------------------------------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| TOTAL EQUITY | | | 1,568,675 | | 8,646,213 | |
+-------------------------------+------------+------------+------------------------------+----------+------------------------------+----------+
| | | | | | | | | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
| TOTAL LIABILITIES AND EQUITY | $ | | $ | |
| | 5,863,567 | | 9,999,675 | |
+----------+----------+---------+------------+------------+------------------------------+----------+------------------------------+----------+
The accompanying notes are an integral part of the financial statements.
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| CONSOLIDATED STATEMENT OF OPERATIONS |
+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| |
+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | Unaudited | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | From 30 Sept. | | Years ended 31 December, |
| | | | | | 2004 | | |
| | | | | | (Inception) | | |
| | | | | | to 31 Dec. | | |
| | | | | | 2009 | | |
+---+---------+---------------+--+---+ +---------------+-------------------------------------------------------------------------------------+
| | | | | | | | 2009 | | 2008 |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | US$ | | US$ | | US$ |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | As revised - |
| | | | | | | | | | see Note 17 |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| REVENUE | | | | $ | | $ | | $ |
| | | | | 1,237,923 | | 1,045,107 | | 192,816 |
+-------------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| COST OF GOODS SOLD | | | 5,239,647 | | 3,434,641 | | 1,805,006 |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| GROSS MARGIN | | | (4,001,724) | | (2,389,534) | | (1,612,190) |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| OPERATING | | | | | | | |
| EXPENSES: | | | | | | | |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | Research and | | | 10,468,468 | | 1,417,673 | | 1,914,040 |
| | development | | | | | | | |
+---+-------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | General and | | | 21,790,286 | | 6,867,606 | | 12,912,927 |
| | administrative | | | | | | | |
+---+-------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | Selling and | | | 1,884,889 | | 872,269 | | 744,742 |
| | marketing | | | | | | | |
+---+-------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | Other | | | | 317,003 | | 83,042 | | 233,960 |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | Total | | 34,460,646 | | 9,240,590 | | 15,805,669 |
| | | operating | | | | | | |
| | | expenses | | | | | | |
+---+---------+------------------+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| OTHER | | | | | | | |
| INCOME/EXPENSE | | | | | | | |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | Interest | | (1,616,653) | | (69,178) | | 6,647 |
| | income/(expense), | | | | | | |
| | net | | | | | | |
+---+----------------------------+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | Loss on | | | (345,249) | | | | (345,249) |
| | investment, | | | | | - | | |
| | net | | | | | | | |
+---+-------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | Total | | (1,961,902) | | (69,178) | | (338,602) |
| | | other | | | | | | |
| | | income/(expense) | | | | | | |
+---+---------+------------------+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | Loss | | (40,424,272) | | (11,699,302) | | (17,756,461) |
| | | before | | | | | | |
| | | income | | | | | | |
| | | taxes | | | | | | |
+---+---------+------------------+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| Provision for | | | | | | | |
| income taxes | | | - | | - | | - |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| NET LOSS | | | | $ | | (11,699,302) | | $ |
| | | | | (40,424,272) | | | | (17,756,461) |
+-------------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| Basic and diluted | | | | | $ | | $ |
| loss per share | | | | | (0.44) | | (0.68) |
+-----------------------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | | | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| Shares used in | | | | | | |
| computation of basic | | | | | | |
+--------------------------------+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
| | and diluted | | | | | 26,646,428 | | 26,233,893 |
| | loss per share | | | | | | | |
+---+---------+---------------+--+---+---------------------------------+---------------+---------------------------+----------------+----------------------------------------+
The accompanying notes are an integral part of the financial statements.
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) |
+---------------------------------------------------------------------------------------------------------------------------------------------------------------+
| As revised - see Note 17 |
+---------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | Common | | Common | | Additional | | Deficit | | Total |
| | | | Stock | | Stock | | Paid-In | | Accumulated | | |
| | | | Shares | | Amount | | Capital | | During the | | |
| | | | | | | | | | Development | | |
| | | | | | | | | | Stage | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | US$ | | US$ | | US$ | | US$ |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 30 September 2004 | - | | $ | | $ | | $ | | $ |
| | | | - | | - | | - | | - |
+-------------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Issuance of Common | 22,500,000 | | 22,500 | | 727,900 | | | | 750,400 |
| | Stock | | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | - | | - | | | | (1,854,065) | | (1,854,065) |
| | | | | | | | - | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2004 | | 22,500,000 | | 22,500 | | 727,900 | | (1,854,065) | | (1,103,665) |
+--------------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | - | | - | | | | (3,220,019) | | (3,220,019) |
| | | | | | | | - | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2005 | | 22,500,000 | | 22,500 | | 727,900 | | (5,074,084) | | (4,323,684) |
+--------------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Member | - | | | | 100 | | | | 100 |
| | contributions | | | - | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | - | | - | | | | (2,400,458) | | (2,400,458) |
| | | | | | | | - | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2006 | | 22,500,000 | | 22,500 | | 728,000 | | (7,474,542) | | (6,724,042) |
+--------------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Issuance of common | | | | | | | | | |
| | stock in exchange | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | for convertible | 1,822,500 | | 1,823 | | 8,998,177 | | | | 9,000,000 |
| | debt | | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Issuance of common | | | | | | | | | |
| | stock on London | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | AIM, net of | 1,600,000 | | 1,600 | | 13,754,994 | | | | 13,756,594 |
| | expenses of | | | | | | | - | | |
| | US$2,243,406 | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | - | | | | | | (3,493,967) | | (3,493,967) |
| | | | | | - | | - | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2007 | | 25,922,500 | | 25,923 | | 23,481,171 | | (10,968,509) | | 12,538,585 |
+--------------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Issuance of common | | | | | | | | | |
| | stock on London | | | | | | | | | |
| | AIM | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | net of expenses of | 601,800 | | 602 | | 6,527,613 | | | | 6,528,215 |
| | US $489,786 | | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Issuance of common | | | | | | | | | |
| | stock | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | by majority | - | | - | | 3,614,985 | | | | 3,614,985 |
| | shareholder | | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Stock based | | | | | 3,720,889 | | | | 3,720,889 |
| | compensation | - | | - | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | | | | | | | (17,756,461) | | (17,756,461) |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2008 | | 26,524,300 | | 26,525 | | 37,344,658 | | (28,724,970) | | 8,646,213 |
+--------------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Private placement | 215,000 | | 215 | | 1,499,785 | | | | 1,500,000 |
| | of common stock | | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Capital stock | - | | - | | 1,350,000 | | | | 1,350,000 |
| | subscribed, not | | | | | | | - | | |
| | issued | | | | | | | | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Exercise of | 47,501 | | 47 | | (47) | | | | |
| | restricted stock | | | | | | | - | | - |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Stock based | | | - | | 1,771,764 | | | | 1,771,764 |
| | compensation | - | | | | | | - | | |
+----+--------------------+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | Net loss | | - | | | | | | (11,699,302) | | (11,699,302) |
| | | | | | - | | - | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| | | | | | | | | | | | |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
| 31 December 2009 | | 26,786,801 | | $ | | $ | | $ | | $ |
| | | | | 26,787 | | 41,966,160 | | (40,424,272) | | 1,568,675 |
+----+---------------+----+--------------------+----+-----------------------+----+-----------------------+----+-------------------+----+------------------------+
The accompanying notes are an integral part of the financial statements.
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | Unaudited | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | From 30 | | Years ended 31 December |
| | September | | |
| | 2004 | | |
| | (Inception) | | |
+---------------------------------+---------------------------------+------+--------------------------------------------------------------------------------+
| | to 31 | | 2009 | | 2008 |
| | December | | | | |
| | 2009 | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Cash flows from operating | US$ | | US$ | | US$ |
| activities: | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | As revised |
| | | | | | - see Note |
| | | | | | 17 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Net loss | $ | | $ | | $ |
| | (40,424,272) | | (11,699,302) | | (17,756,461) |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Adjustments to reconcile net | | | | | |
| loss to net | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| cash provided by (used in) | | | | | |
| operating activities: | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Depreciation and Amortization | 1,091,216 | | 790,304 | | 296,630 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Stock based compensation | 9,107,638 | | 1,771,764 | | 7,335,874 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Changes in assets and | | | | | |
| liabilities: | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Accounts receivable and other | (139,168) | | 1,227,396 | | 1,945,199 |
| receivables | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Inventory | (237,794) | | 218,400 | | (456,194) |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Prepaid expenses and deposits | (43,879) | | 267,877 | | (195,367) |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Notes receivable, related party | (642,552) | | 187,448 | | (830,000) |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Forgiveness of note receivable, | 365,000 | | 365,000 | | - |
| related party | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Accounts payable and accrued | 3,425,936 | | 2,072,474 | | (1,244,246) |
| expense | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Net cash used in operating | (27,497,875) | | (4,798,639) | | (10,904,565) |
| activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Cash flows from investing | | | | | |
| activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Purchase of property and | (6,234,955) | | (98,061) | | (5,004,457) |
| equipment | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Net cash (used in) investing | (6,234,955) | | (98,061) | | (5,004,457) |
| activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Cash flows from financing | | | | | |
| activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Payments on line of credit - | (5,435,554) | | - | | (2,941,467) |
| related party | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Borrowings on line of credit - | 5,435,554 | | - | | - |
| related party | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Note payable payments - related | (113,000) | | (113,000) | | - |
| party | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Note payable proceeds - related | 623,000 | | 623,000 | | - |
| party | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Note payable payments | (201,057) | | (201,057) | | - |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Note payable proceeds | 560,013 | | 560,013 | | |
| | | | | | - |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Proceeds from issuance of | 9,000,000 | | - | | - |
| convertible bonds | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Proceeds from the sale of | 23,134,809 | | 2,850,000 | | 6,528,215 |
| common stock and stock | | | | | |
| subscriptions | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Members contributions | 750,500 | | - | | - |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Net cash provided by financing | 33,754,265 | | 3,718,956 | | 3,586,748 |
| activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Net increase (decrease) in cash | 21,435 | | (1,177,744) | | (12,322,274) |
| and cash equivalents | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Cash and cash equivalents: | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Beginning | - | | 1,199,179 | | 13,521,453 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Ending | $ | | $ | | $ |
| | 21,435 | | 21,435 | | 1,199,179 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Supplemental cash flow | | | | | |
| information | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Cash paid for interest | 1,460,189 | | 69,178 | | 6,776 |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Supplemental disclosure of | | | | | |
| non-cash investing | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| and financing activities | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Conversion of bonds into common | 9,000,000 | | - | | - |
| stock and warrants | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
| Application of deposits to | - | | 2,374,359 | | - |
| purchases of equipment | | | | | |
+---------------------------------+---------------------------------+------+--------------------------------+------+----------------------------------------+
The accompanying notes are an integral part of the financial statements.
NOTE 1 - NATURE OF BUSINESS
Armor Designs, Inc. (the Parent) was incorporated in Delaware on 30 March 2006.
On 1 January 2007, 100% of the membership interests of Armor Designs LLC (the
Subsidiary) were exchanged for common stock of the Parent.
The Subsidiary was organised in Delaware on 30 September 2004. The financial
statements prior to incorporation of the Parent represent activities of the
Subsidiary. The Parent and Subsidiary (collectively the Company) are engaged in
the business of developing, manufacturing and marketing innovative armour
products to the defense and law enforcement industries. The Company's focus is
primarily on introducing next generation armour based on patented Volumetrically
Controlled Manufacturing (VCM) technology.
The Company continued to focus on transitioning from a development stage entity
to commercialisation of its products. The focus of the Company's efforts is the
generation, testing, manufacture and marketing of armour products. The
Company's success will depend on its ability to effectively develop,
manufacture, obtain certification, and market innovative armour for military and
law enforcement use.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP"). These
financial statements are presented in US dollars, unless otherwise stated.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realisation of assets and the satisfaction of
liabilities in the normal course of business as they become due.
For the year ended 31 December, 2009, the Company incurred net losses from
operations of approximately US$11.7 million and has accumulated approximately
US$40.4 million in net losses from 30 September 2004 to 31 December 2009.
Additionally, during the year ended 31 December, 2009, the Company had negative
cash flows from operating activities of approximately US$4.8 million. The
Company's current liabilities exceed its current assets by approximately US $3.8
million as of 31 December 2009. Historically, the Company has relied, in part,
upon debt financing, loans from related entities and raising new capital to fund
its operations. In the past, the Company has been successful in obtaining the
capital necessary to meet its obligations; however, there are no assurances that
the Company will be able to continue to raise the sufficient funds needed for
working capital until such time as the operations can provide positive cash
flow.
The Company's ability to continue as a going concern is predicated upon its
ability to improve operating results and to continue to fund its cash needs.
Management is pursuing ways to improve operating results in order to generate
additional cash flow from operations. The Company will consider undertaking
further equity fundraisings to provide for working capital. The Company may also
consider other forms of non-equity fundraisings for the same purpose which may
include secured debt financing collateralised by the Company's assets.
Management has the ability to curtail spending and negotiate payments to third
parties, in the event that future funding takes longer than anticipated. There
can be no assurance that the Company will be able to raise capital needed to
fund its operations or implement management's plans.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result if the Company is unable to
operate as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (See Note 17)
Accounting Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as net sales and expenses reported for the
periods presented. The most significant estimates relate to inventory
obsolescence, long-lived assets, stock-based compensation, and income taxes. The
Company regularly assesses these estimates and actual results may differ
significantly from these estimates.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all cash balances with original maturities of less than 90
days to be cash equivalents. While cash held by financial institutions may at
times exceed federally insured limits, management believes that no material
credit or market risk exposure exists due to the high quality of the
institutions. The Company has not experienced any losses on such accounts.
Fair Value of Financial Instruments and Concentrations of Risk
Financial instruments, consisting of cash, accounts receivables, accounts
payable, accrued expenses, and fixed rate short term debt are recorded at cost,
which approximates fair value based on the short term maturities of these
instruments at 31 December 2009 and 2008.
Guidance establishes a fair value hierarchy that prioritizes observable and
unobservable inputs to valuation techniques used to measure fair value. These
levels, in order of highest to lowest priority are described below:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities at the measurement date.
Level 2 - Observable price that are based on inputs not quoted on active
markets, but corroborated by market data.
Level 3- Prices that are unobservable for the asset or liability and are
developed based on the best information available in the circumstances which
might include the company's own data.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. Based on historical experience and a review of individual customer
balances the Company has recorded an allowance for uncollectible accounts as of
31 December 2009 and 2008 of $11,651 and $0, respectively.
Inventory Valuation
Inventories are valued at the lower of cost or market with cost determined using
the First-In, First-Out (FIFO) method. Inventory balances at 31 December 2009
and 2008 were as follows:
+--------------+------------------+----------+------------------+
| | 2009 | | 2008 |
+--------------+------------------+----------+------------------+
| | US$ | | US$ |
+--------------+------------------+----------+------------------+
| Raw Material | | | |
| | $35,777 | | $264,548 |
+--------------+------------------+----------+------------------+
| Work in | 84,550 | | 3,725 |
| Process | | | |
+--------------+------------------+----------+------------------+
| Finished | 117,467 | | 187,921 |
| Goods | | | |
+--------------+------------------+----------+------------------+
| Total | | | |
| Inventory | $237,794 | | $456,194 |
+--------------+------------------+----------+------------------+
Property and Equipment
Depreciation is provided using the straight-line method over an estimated useful
life of three years for computer equipment and seven years for capital
equipment. Leasehold improvements are amortised using the straight-line method
over the remaining term of the facility lease. Depreciation and amortisation
expense for the years ended 31 December 2009 and 2008 were as follows:
+--------------+-----------------+----------+-----------------+
| | 2009 | | 2008 |
+--------------+-----------------+----------+-----------------+
| | US$ | | US$ |
+--------------+-----------------+----------+-----------------+
| Depreciation | | | |
| | $510,691 | | $230,096 |
+--------------+-----------------+----------+-----------------+
| Amortisation | 279,613 | | 66,534 |
+--------------+-----------------+----------+-----------------+
| | | | |
| | $790,304 | | $296,630 |
+--------------+-----------------+----------+-----------------+
Revenue Recognition
The Company sells its armour products primarily to the defence and law
enforcement industries. A portion of the Company's products are also sold
through third party distributors or resellers. The Company recognises revenue on
product sales when persuasive evidence of an arrangement with the customer
exists, title to the product passes to the customer (usually occurs at the time
of shipment), the sales price is fixed or determinable, and collectability of
the related billing is reasonably assured. Advance payments from customers are
deferred and recognised when the related products are shipped and all other
recognition criteria have been met.
Shipping Costs
Shipping costs include charges associated with delivery of goods from the
Company's facilities to its customers and are reflected in cost of goods sold.
Shipping costs paid to the Company by our customers only for amounts that are a
direct reimbursement for shipping are classified as an offset to cost of goods
sold.
+--------------------------------------------------------------------------------+
| Product Warranties |
+--------------------------------------------------------------------------------+
Estimated future warranty obligations related to certain products will be
provided by charges to operations in the period in which the related revenue is
recognized. The Company has not established a reserve for warranty obligations
as warranty claims have been insignificant.
Research and Development
Research and development costs are expensed as incurred and are detailed in Note
6.
Stock-Based Compensation
The Company records stock-based compensation expense for all share-based awards
to employees and others based on estimated fair values. Compensation expense
includes the estimated fair value of equity awards vested during the reported
period. For the period ended 31 December 2009 and 2008, the Company has
recorded stock-based compensation expense as follows:
+--------------------------+-----------------+------------------------------------------+-----------------+
| | 2009 | | 2008 |
+--------------------------+-----------------+------------------------------------------+-----------------+
| | US$ | | US$ |
+--------------------------+-----------------+------------------------------------------+-----------------+
| | | | (as |
| | | | revised) |
+--------------------------+-----------------+------------------------------------------+-----------------+
| Restricted Stock Units | 1,520,476 | | 878,397 |
| (RSUs) | | | |
+--------------------------+-----------------+------------------------------------------+-----------------+
| Stock Appreciation | 190,692 | | 381,672 |
| Rights (SARs) | | | |
+--------------------------+-----------------+------------------------------------------+-----------------+
| Non-Qualified Stock | 60,596 | | 2,460,820 |
| Options | | | |
+--------------------------+-----------------+------------------------------------------+-----------------+
| Issuance of common stock | - | | 3,614,985 |
| by majority shareholder | | | |
+--------------------------+-----------------+------------------------------------------+-----------------+
| | 1,771,764 | | 7,335,874 |
+--------------------------+-----------------+------------------------------------------+-----------------+
A summary of the Company's activity for restricted stock, stock appreciation
rights, and non-qualified stock options for the years ended 31 December 2009 and
2008 follows:
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| | | | | | |
| | RSUs | | SARs | | Stock Options |
+----------------+-------------------------+--------------+-------------------------------------+--------------+-------------------------------------------+
| | Shares |Weighted | | Shares | Weighted | | Shares | Weighted |
| | Under | Average | | Under | Average | | Under | Average |
| | Option |Exercise | | Option | Exercise | | Option | Exercise |
| | | Price | | | Price | | | Price |
| | | per | | | per | | | per |
| | | Share | | | Share | | | Share |
| | | US$ | | | US$ | | | US$ |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| 31 December | 438,500 | | | 69,400 | 10.00 | | | |
| 2007 | | - | | | | | - | - |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| Granted in | 205,000 | | | 103,000 | 10.00 | | 1,300,000 | 10.00 |
| 2008 (as | | - | | | | | | |
| revised) | | | | | | | | |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| Forfeited in | (100,000) | | | (6,300) | 10.00 | | | |
| 2008 | | - | | | | | - | - |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| 31 December | 543,500 | | | 166,100 | 10.00 | | 1,300,000 | 10.00 |
| 2008 | | - | | | | | | |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| Granted in | 41,505 | | | 56,000 | 8.05 | | 23,385 | 8.05 |
| 2009 | | - | | | | | | |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| Exercised in | (47,501) | | | | | | | |
| 2009 | | - | | - | - | | - | - |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| Forfeited in | (150,000) | | | | | | - | - |
| 2009 | | - | | - | - | | | |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
| 31 December | 387,504 | | | 222,100 | 9.51 | | 1,323,385 | 9.97 |
| 2009 | | - | | | | | | |
+----------------+--------------+----------+--------------+---------------+---------------------+--------------+---------------+---------------------------+
The Company recognises compensation expense using the straight-line method for
stock option awards that vest ratably over the vesting period. Forfeitures are
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
+-----------------+----------+----------+----------+
| | Year | | Year |
| | ended | | ended |
| | 31 | | 31 |
| |December | |December |
| | 2009 | | 2008 |
+-----------------+----------+----------+----------+
| | | | (as |
| | | |revised) |
+-----------------+----------+----------+----------+
| Expected | 5 | | 5 |
| options term | | | |
| (years) | | | |
+-----------------+----------+----------+----------+
| Risk free | 1.62% | | 2.03% |
| interest rate | | | |
+-----------------+----------+----------+----------+
| Dividend yield | | | |
| | - | | - |
+-----------------+----------+----------+----------+
| Volatility | 33.75% | | 33.75% |
+-----------------+----------+----------+----------+
The table above is based on the Company's use of (i) the expected life of the
awards representing the weighted-average period the awards are expected to
remain outstanding; (ii) the risk-free interest rate assumption based upon
observed interest rates appropriate for the weighted average expected option
life of the Company's employee stock options; (iii) the dividend yield
assumption based on the Company's history and expectation of dividend payouts;
and (iv) historical volatility of the selected peer group as the expected
volatility in the Black-Scholes model.
Income Taxes
The Company accounts for income taxes using the asset and liability method
recognising temporary differences between the financial reporting and tax bases
of its assets and liabilities. This method results in deferred income tax
assets and liabilities at the balance sheet date measured by the statutory tax
rates in effect as enacted. The Company's deferred income tax assets include
certain future income tax benefits net of appropriate valuation allowances.
Recognition of deferred tax assets is limited to amounts considered by the
Company to be more likely than not realisable in future periods with all tax
benefits associated with losses incurred having been reserved. The Company has
no unrecognized tax benefits.
Principles of Consolidation
The financial statements include the accounts of Armor Designs, Inc. and Armor
Designs, LLC. All material intercompany balances and transactions have been
eliminated in consolidation.
Accounting Developments
In May 2009, the Financial Accounting Standards Board (FASB) issued
authoritative guidance intended to establish general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires
disclosure of the date through which an entity has evaluated subsequent events
and the basis for selecting that date, that is, whether that date represents the
date the financial statements were issued or were available to be issued. We
have evaluated subsequent events through June 29, 2010, which is the date the
financial statements were issued.
NOTE 4 - PUBLIC OFFERING AND STOCK SPLIT
On 20 December 2007, the Company effected a 450 for 1 stock split. Each holder
of record as of that date received four hundred fifty shares for each share of
common stock held. The par value of US$0.001 per share did not change with the
stock split. The accompanying financial statements reflect this transaction
retroactively.
On 31 December 2007, the common shares of the Company were admitted to trading
on the AIM Market of the London Stock Exchange ("Admission"). The Company raised
US$16,000,000, before expenses, by issuing 1,600,000 common shares at a price of
US$10 per share pursuant to a placing (the "Placing") in conjunction with the
Admission. These shares constitute approximately 6.0 percent of the Company's
share capital at 31 December 2007. At admission, the Company had 25,922,500
common shares in issue and a market capitalisation of US$259,225,000 at the
placing price of US$10.
The Placing shares were not registered under the US Securities Act of 1933. The
shares were only offered (i) outside the United States to non-US persons in
reliance on Regulation S under the Securities Act and (ii) within the US to
Accredited US investors in reliance on Regulation D under the Securities Act. Of
the 1,600,000 common shares issued in connection with the Admission 1,275,000
were issued in reliance on Regulation S and 325,000 were issued in reliance on
Regulation D.
Upon admission to AIM, the conversion features of outstanding convertible bonds
were triggered. Each convertible bond unit issued converted to 2.025 shares of
Common Stock and 2.025 warrants to purchase one share of Common Stock in the
Company. Each warrant granted entitled the holder to purchase one Common Share
at a price per share of 125 percent of the placing price of US$10, or US$12.50,
exercisable on or before the second anniversary of admission or the date of any
secondary issue of Common Shares by the Company following admission. All Bond
Warrants expire if they are not exercised on the Warrant Exercise Date. In
December 2009, our Board of Directors agreed to extend the exercise term of the
warrants to 31 December 2010. There was no material impact to our financial
statements as a result of extending the warrant exercise term. A total of
1,822,500 common shares and 1,822,500 warrants were issued as a result of the
conversion.
During the period ended 31 December 2008 the Company received subscriptions for
701,800 common shares at a price of US$10 per share pursuant to Market Demand
Arrangements put in place in conjunction with the Admission. These shares
constituted approximately 2.6 percent of the Company's share capital at 31
December 2008. As of 31 December 2008, funds in the amount of US$5,810,078 were
collected from this sale of common stock and 601,800 shares were issued. Funds
in the amount of US$1,189,922 were included in the Balance Sheet as a receivable
from the sale of stock as of 31 December 2008. The amounts outstanding as of 31
December 2008 were collected during the year ended 31 December 2009 and the
remaining 100,000 shares were issued.
During the period ended 31 December 2009 the Company raised $1,500,000 by
issuing 100,000 common shares at a price of US$15 pursuant to a private
placement. In addition, during the period ended 31 December 2009, the Company
collected $1,350,000 related to shares subscribed but not issued as of 31
December 2009. These shares were issued subsequent to 31 December 2009 as
described in Note 16.
As of 31 December 2009, the Company had 26,786,801 common shares in issue and a
market capitalization of US$192,061,363 based on the Company's closing stock
price of US$7.17 (trading price of GBP4.50 converted utilising an exchange rate
of 1.593) on 31 December 2009.
NOTE 5 - WARRANTS AND OPTIONS (See Note 17)
Warrants for 1,822,500 shares of Common Stock were outstanding at 31 December
2009 and 2008. Each warrant entitles the holder to purchase one Common Share at
a price per share of US$12.50, with an original expiration date of 31 December
2009. On 31 December 2009 the Company's Board of Directors extended the exercise
term of these warrants from 31 December 2009 to 31 December 2010.
The Company issued stock awards to various advisors and key employees as a means
of attracting and retaining quality personnel. The award holders have the right
to purchase a stated number of shares at the exercise price determined in the
agreement. These options are issued under the Armor Designs, Inc 2007 Omnibus
Incentive Plan (Plan). The Plan allows the Company to issue RSUs, SARs and
Stock Options. Awards may be made under the Plan over shares of common stock
not to exceed 10% of the issued share capital of the Company at the date of the
award.
A summary of the Company's option activity and related full grant date fair
value is as follows:
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| | | | | | Stock |
| | RSUs | | SARs | | Options |
+----------------+---------------------------------+--------------+-----------------------------------+--------------+--------------------------------------+
| | Shares | US$ | | Shares | US$ | | Shares | US$ |
| | Under | | | Under | | | Under | |
| | Option | | | Option | | | Option | |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Granted in | 438,500 | 4,381,836 | | 69,400 | 245,144 | | | |
| 2007 | | | | | | | - | - |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| 31 December | 438,500 | 4,381,836 | | 69,400 | 245,144 | | | |
| 2007 | | | | | | | - | - |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Granted in | 205,000 | 1,682,282 | | 103,000 | 332,039 | | 1,300,000 | 2,460,820 |
| 2008 (as | | | | | | | | |
| revised) | | | | | | | | |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Forfeited in | (100,000) | (999,278) | | (6,300) | (22,254) | | | |
| 2008 | | | | | | | - | - |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| 31 December | 543,500 | 5,064,840 | | 166,100 | 554,929 | | 1,300,000 | 2,460,820 |
| 2008 | | | | | | | | |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Granted in | 41,505 | 380,296 | | 56,000 | 145,108 | | 23,385 | 60,596 |
| 2009 | | | | | | | | |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Exercised in | (47,501) | (430,150) | | | | | | |
| 2009 | | | | - | - | | - | - |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| Forfeited in | (150,000) | (1,230,938) | | | | | | |
| 2009 | | | | - | - | | - | - |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
| 31 December | 387,504 | 3,784,048 | | 222,100 | 700,037 | | 1,323,385 | 2,521,416 |
| 2009 | | | | | | | | |
+----------------+--------------+------------------+--------------+---------------+-------------------+--------------+----------------+---------------------+
Based on the Company's closing stock price of US$7.17 (trading price of GBP4.50
converted utilising an exchange rate of 1.593) on 31 December 2009, the last day
of trading in period, there were no in-the-money options exercisable at 31
December 2009.
A summary of the Company's option activity and related value of grant date
vesting is as follows
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| | | | | | | | | |
| | RSUs | | | SARs | | | Stock | |
| | | | | | | | Options | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| | Shares | US$ | | Shares | US$ | | Shares | US$ |
| | Under | | | Under | | | Under | |
| | Option | | | Option | | | Option | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Granted in | 438,500 | 4,381,836 | | 69,400 | 245,144 | | - | |
| 2007 | | | | | | | | - |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Vested in 2007 | - | - | | - | | | - | |
| | | | | | - | | | - |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Nonvested at | 438,500 | 4,381,836 | | 69,400 | 245,144 | | | |
| 31 December | | | | | | | - | - |
| 2007 | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Granted in | 205,000 | 1,682,282 | | 103,000 | 332,039 | | 1,300,000 | 2,460,820 |
| 2008 (as | | | | | | | | |
| revised) | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Vested in 2008 | (134,625) | (1,256,183) | | (40,775) | (137,130) | | (1,300,000) | (2,460,820) |
| (as revised) | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Forfeited in | (100,000) | (999,278) | | (6,300) | (22,254) | | - | |
| 2008 | | | | | | | | - |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Nonvested at | 408,875 | 3,808,657 | | 125,325 | 417,799 | | | |
| 31 December | | | | | | | - | - |
| 2008 | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Granted in | 41,505 | 380,296 | | 56,000 | 145,108 | | 23,385 | 60,596 |
| 2009 | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Vested in 2009 | (119,057) | (1,169,299) | | (147,525) | (446,656) | | (23,385) | (60,596) |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Forfeited in | (150,000) | (1,231,629) | | - | | | | |
| 2009 | | | | | - | | - | - |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Nonvested at | 181,323 | 1,788,025 | | 33,800 | 116,251 | | | |
| 31 December | | | | | | | - | - |
| 2009 | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
| Available to | 206,181 | | | 188,300 | | | 1,323,385 | |
| be Exercised | | | | | | | | |
| at 31 December | | | | | | | | |
| 2009 | | | | | | | | |
+----------------+-----------------+-----------------+--------------+------------------+-----------------+--------------+------------------+------------------+
The following table shows unrecognised compensation expense related to unvested
RSUs and SARs outstanding as of 31 December 2009. This table does not include an
estimate for future grants that may be issued.
+------------------+------------+
| | Amount |
+------------------+------------+
| | US$ |
+------------------+------------+
| 2010 | |
| | $946,323 |
+------------------+------------+
| 2011 | |
| | $946,323 |
+------------------+------------+
| 2012 | |
| | $11,630 |
+------------------+------------+
| | |
+------------------+------------+
| Total | |
| | $1,904,276 |
+------------------+------------+
As outlined in the Placing Document, Hawthorne & York International, Ltd. (HYI),
the principal shareholder in ADI, has gifted 3.4 million shares of its ADI
shareholding, for distribution to a number of individuals who have primarily
assisted HYI in the years prior to bringing ADI to market. This equity
compensation plan is separate from the 2007 Omnibus Incentive Plan approved by
security holders. The shares gifted have been transferred into an irrevocable
trust controlled by an independent trustee that will be used to distribute
awards to the recipients. Of the 3.4 million total shares, 450,000 have been
issued in the form of shares of common stock, 1.3 million have been awarded in
the form of non-qualified stock options, 100,000 have been awarded in the form
of SARs, and 1,550,000 remain available for future issuance as share equivalents
(non-qualified stock options and restricted stock units).
During the year ended 31 December 2008, HYI transferred 3,000,000 of its ADI
shares into a securities investment portfolio account. The securities investment
portfolio account into which the shares have been transferred enables borrowing
against all shares within this portfolio account and, therefore, from
time-to-time, some or all of the shares within this portfolio account, including
some ADI shares, could be subject to creditor liability. As of 31 December 2009,
HYI has not divested any shares.
NOTE 6 - RESEARCH & DEVELOPMENT COSTS
Expenditures for research activities relating to product development are charged
to expense as incurred. Research and development costs for the periods ended 31
December 2009 and 2008 were US$1,417,673 and US$1,914,040, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
Hawthorne & York International, Ltd
Since inception, the Subsidiary, Armor Designs, LLC, has conducted business
through transactions with a related corporation, Hawthorne & York International,
Ltd. (HYI), owned by James A. St. Ville. HYI owns approximately 81 percent of
Armor Designs, Inc. as of 31 December 2009, including 11 percent held in an
irrevocable trust.
During 2004, the Subsidiary entered into a services agreement with HYI whereby
HYI provides interim research and development services, including labour,
subcontracting, consulting, equipment and technical upgrades, materials, and
other related research and development activities.
Also during 2004, the Subsidiary, entered into a contract with HYI for use of
certain licensed technological products and processes, as described in Note 9 of
these consolidated financial statements. Billings from the related party for the
use of licensed technology, and research and development services conducted on
behalf of the Subsidiary were as follows:
Periods ended 31 December 2009 and 2008
US$1,285,707 US$714,174
Included in the accompanying consolidated balance sheets is accounts payable of
US$515,588 and US$202,584 due to the related party at 31 December 2009 and 2008,
respectively, for billings related to the use of licensed technology and
research and development activities.
The Subsidiary paid rent and other facility occupancy costs on behalf of the
related party for the periods ended 31 December 2009 and 2008. Facility
occupancy costs incurred on behalf of the related party for the periods ended 31
December 2009 and 2008 were US$50,262 and US$35,886, respectively. Costs paid
on behalf of the related party are reimbursed in full by the related party.
The Company maintains independent management and human resources. The Company
has also entered into a lease for independent facilities. The Company continues
to utilise the related party for select research and development activities.
In May 2009 the Company entered a US$185,000 note payable with a related party,
Hawthorne & York International, Ltd. This note bears interest on unpaid
principal balances at a rate of 8% per annum. As of 31 December 2009 the
outstanding balance on this note was US$185,000.
Aztec IP, LLC
The Subsidiary entered into a contract on 13 September 2004 with Aztec IP, LLC,
a company owned by James A. St. Ville, for use of licensed patents as described
in Note 9 of these consolidated financial statements. Billings from the related
party for the use of this licensed technology were US$14,200 and US$0 for the
year ended 31 December 2009 and 2008, respectively. Included in the accompanying
consolidated balance sheets is accounts payable of US$14,200 and US$0 due to
Aztec IP at 31 December 2009 and 2008, respectively
Philip A. Clement
In December 2009 the Company entered a US$325,000 secured note payable with
Philip A. Clement, Interim CEO of the Company. This note bears interest on
unpaid principal balances at a simple interest rate of 1% per month, has a
maturity date of 31 January 2010, and contains certain affirmative covenants.
As of 31 December 2009 the outstanding balance on this note was US$325,000 and
the Company was in compliance with all covenants. Effective 31 January 2010 the
Company entered an agreement with Phillip A. Clement to extend the maturity date
of this loan to 31 December 2010. In addition to this note payable and included
in the accompanying consolidated balance sheets is accounts payable of
US$180,910 due to Mr. Clement related to services performed as Interim CEO of
the Company.
James A. St. Ville
Included in the accompanying consolidated balance sheets is accounts payable of
US$115,678 and US$0 due to James A. St Ville for billings related to general and
administrative expenses at 31 December 2009 and 2008, respectively.
Charles Snyder
On 3 July 2008 the Company executed a Multiple Advance Revolving Credit Note
with Mr. Charles Snyder, former Chief Executive Officer of the Company. The Note
provided Mr. Snyder the ability to borrow up to US$1,000,000 at a Stated
Interest Rate of 1% per annum. The Note is secured by a Deed of Trust,
Assignment of Rents, Security Agreement, Fixture Filing and Stock Pledge
Agreement. Following Mr. Snyder's resignation from the Company in June 2009, 50
percent of the outstanding balance on the note totaling $730,000 was forgiven by
the Company and is included as compensation cost in general and administrative
expenses. As of 31 December 2009, the outstanding balance to the Company was
US$365,000 and was due from Mr. Snyder on 22 December 2009. This balance is
reflected on our balance sheet as of 31 December 2009 as a note receivable, net
of amounts due to Mr. Snyder relating to outstanding salary and bonus of
$187,448.
Robert McConnell
On 3 December 2008 the Company loaned Mr. Robert McConnell, Vice President of
the Company, US$100,000. The Company has received a non-interest bearing
Promissory Note reflecting the commitment to repay the loan in full by 30 June
2009. The Note provides the Company the ability to offset the amount of the loan
against the stock in the Company held by Mr. McConnell. As of 31 December 2009
this loan remains outstanding. Effective 24 June 2010 the Company entered an
agreement with Robert McConnell to extend the maturity date of this loan to 3
January 2012.
David Seaton
Included on the Company's consolidated balance sheet as of 31 December 2009 is a
liability of $312,000 relating to accrued fees for David Seaton, former contract
CFO.
Other Related Parties
The remaining balance of $70,521 in accounts payable - related party relates to
reimbursable expenses or fees due to Directors incurred during the year.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
The Company policy is to capitalise all equipment, either moveable or fixed,
with a unit acquisition cost of US$1,000 or greater and a useful life of two
years or more. Acquisition value includes the cost of the equipment and any
associated costs incurred to make the equipment usable for the purpose for which
it was intended, including installation costs.
As of 31 December 2009, the Company capitalised and was depreciating fixed
assets per the following schedule:
+---------------------+---------------------+----------------------+--------------------+
| | | | |
+ +---------------------+----------------------+--------------------+
| | | | |
+---------------------+---------------------+----------------------+--------------------+
| | | US$ | US$ |
+---------------------+---------------------+----------------------+--------------------+
| | Expected | 2009 | 2008 |
| | life, in | | |
| | years | | |
+---------------------+---------------------+----------------------+--------------------+
| Computer equipment | 3 | | |
| | | $107,828 | $107,828 |
+---------------------+---------------------+----------------------+--------------------+
| Computer software | 3 | 138,425 | 130,113 |
+---------------------+---------------------+----------------------+--------------------+
| Equipment | 7 | 4,446,864 | 2,026,528 |
+---------------------+---------------------+----------------------+--------------------+
| Production Molds | 3 | 309,769 | 309,769 |
+---------------------+---------------------+----------------------+--------------------+
| Furniture & | 7 | 34,121 | 34,121 |
| Fixtures | | | |
+---------------------+---------------------+----------------------+--------------------+
| Leaseholds | 3 to | 991,511 | 1,154,176 |
| | 5 | | |
+---------------------+---------------------+----------------------+--------------------+
| Subtotal: | | 6,028,518 | 3,762,535 |
+---------------------+---------------------+----------------------+--------------------+
| Less: accumulated | | | |
| depreciation and | | | |
| amortisation | | | |
+ + +----------------------+--------------------+
| | | (1,091,216) | (300,912) |
+---------------------+---------------------+----------------------+--------------------+
| Total: | | | |
| | | $4,937,302 | $3,461,623 |
+---------------------+---------------------+----------------------+--------------------+
NOTE 9 - COMMITMENTS
In December 2007, the Company entered into an operating lease agreement for its
facility located at 4645 S. 35th Street in Phoenix, Arizona. Rental expense for
the periods ending 31 December 2009 and 2008 were US$539,490 and US$530,807,
respectively. Under the agreement, the Company is required to pay rent through
December 2012 as follows:
+---------------------+-----------+
| Years ending 31 | US$ |
| December, | |
+---------------------+-----------+
| | |
+---------------------+-----------+
| | |
+---------------------+-----------+
| | |
+---------------------+-----------+
| 2010 | 547,930 |
+---------------------+-----------+
| 2011 | 565,052 |
+---------------------+-----------+
| 2012 | 582,175 |
+---------------------+-----------+
| | |
+---------------------+-----------+
| | 1,695,157 |
+---------------------+-----------+
Effective 13 September 2004, the Subsidiary, Armor Designs, LLC, entered into a
contract with Hawthorne & York International, Ltd. for use of certain licensed
technological products and processes owned by the related party, until September
13, 2009, at such time the contract will automatically renew for five-year
terms. The Subsidiary is obligated to pay 4% of gross sales on a quarterly
basis to the related party subject to a maximum amount payable of US$7,000 per
quarter for the first 18 months after the Company commences production or
sub-licenses. Beginning April 1, 2010 this contract provides for a guaranteed
minimum fee to Hawthorne & York International of US$250,000 per quarter.
In addition, the Subsidiary entered into a contract on the same date with Aztec
IP, a company owned by James A. St Ville for use of licensed patents owned by
the related party. Under this contract, the Subsidiary is obligated to pay the
related entity 2% of gross sales on a quarterly basis subject to a maximum
amount payable of US$3,000 per quarter for the first 18 months after the Company
commences production or sub-licenses. Beginning April 1, 2010 this contract
provides for a guaranteed minimum fee of US$125,000 per quarter. This contract
has the same expiration and renewal dates. The following table summarizes the
amounts due under these contracts.
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| Years ending 31 | Hawthorne & | | Aztec IP |
| December | York | | US$ |
| | International, | | |
| | Ltd. US$ | | |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| 2010 | | | |
| | $750,000 | | $375,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| 2011 | 1,000,000 | | 500,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| 2012 | 1,000,000 | | 500,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| 2013 | 1,000,000 | | 500,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| 2014 | 750,000 | | 375,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
| | | | |
| | $4,500,000 | | $2,250,000 |
+--------------------+--------------------------------+--------------------------------+--------------------------------+
NOTE 10 - Notes Payable
In February 2009 the Company executed a Commercial Loan Agreement with Republic
Bank and Trust for a Commercial Revolving Draw Loan of up to US$400,000. The
loan accrues interest at 6.00% per annum and has a maturity date of 19 February
2010. The loan is guaranteed by Hawthorne and York International, Ltd., which
also provided security in the form of a deposit/share account. As of 31 December
2009 the outstanding balance on this loan was US$309,440. Effective 19 February
2010 the Company entered an agreement with Republic Bank and Trust to extend the
maturity date of this loan to 19 February 2011.
In March 2009 the Company executed a US$200,000 note payable with Arizona
Business Bank with an original maturity date of 10 May 2009. The note bears
interest on unpaid principal balances at a rate of 7.00% per annum, subject to
certain adjustments. This note is secured by substantially all of our tangible
and intangible assets. During the year ended 31 December 2009 the terms of the
note were changed to extend the maturity date to 10 January 2010. Subsequent to
31 December 2009 the maturity date of this note was extended to 10 July 2010.
As of 31 December 2009 the outstanding balance on this note was US$49,516.
In May 2009 The Company entered a US$185,000 note payable with Hawthorne & York
International, Ltd. This note has a maturity date of 31 December 2010 and bears
interest on unpaid principal balances at a rate of 8.00% per annum. As of 31
December, 2009 the outstanding balance on this note was US$185,000.
In December 2009 the Company entered a US$325,000 secured note payable with
Philip A. Clement, Interim CEO of the Company. This note bears interest on
unpaid principal balances at a simple interest rate of 1% per month, has a
maturity date of 31 January 2010, and contains certain affirmative covenants.
As of 31 December 2009 the outstanding balance on this note was US$325,000 and
the Company was in compliance with all covenants. Effective 31 January 2010 the
Company entered an agreement with Phillip A. Clement to extend the maturity date
of this loan to 31 December 2010.
NOTE 11 - RETIREMENT PLAN
Employees of the Company that meet certain age and service requirements are
eligible to participate in the Armor Designs, Inc. 401(k) and Profit Sharing
Plan (formerly the James A. St. Ville, M.D. Savings and Profit Sharing Plan).
Employer profit sharing and matching contributions to the 401(k) component of
the plan and profit sharing contributions may be made at the discretion of the
Company's management. The Company did not make matching or profit sharing
contributions for the years ended 31 December 2009 and 2008.
NOTE 12 - LOSS PER SHARE
The income (loss) per share accounting guidance provides for the calculation of
basic and diluted income (loss) per share. Basic income per share includes no
dilution and is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the periods presented. Diluted
income per share reflects the potential dilution that could occur if outstanding
stock options were exercised utilising the treasury stock method. The effect of
dilutive securities is not included in the weighted average number of shares
outstanding when inclusion would increase the earnings per share or decrease the
loss per share. The computation of diluted income (loss) per share equals the
basic calculation for the years ended 31 December 2009 and 2008 because all
potentially dilutive securities were excluded from the per share computations
due to their anti-dilutive effect. The calculation of the weighted average
number of shares outstanding and earnings per share are as follows:
+--------------------------+---+-----------------+-----------------+
| Basic Earnings Per Share | | 31 | 31 |
| | | December | December |
| | | 2009 | 2008 |
+--------------------------+---+-----------------+-----------------+
| | | | |
+--------------------------+---+-----------------+-----------------+
| Net loss after tax | |US$(11,699,302) |US$(17,756,461) |
+--------------------------+---+-----------------+-----------------+
| Divided by weighted | | 26,646,428 | 26,233,893 |
| average shares | | | |
+--------------------------+---+-----------------+-----------------+
| Basic loss per share | | US$(0.44) | US$(0.68) |
+--------------------------+---+-----------------+-----------------+
| | | | |
+--------------------------+---+-----------------+-----------------+
| Diluted loss per | | US$(0.44) | US$(0.68) |
| share | | | |
+--------------------------+---+-----------------+-----------------+
| | | | |
+--------------------------+---+-----------------+-----------------+
NOTE 13- Financing Arrangements
Effective April 9, 2009, the Company entered an agreement to assign
substantially all of its trade accounts receivable to a commercial factor.
Under the terms of the factoring agreement, the factor remits invoiced amounts
to the Company, up to a maximum credit limit established by the factor for each
customer. All accounts sold to the factor are with recourse to the Company.
Amounts paid under this agreement, included in the Consolidated Statement of
Operations as interest expense, totaled US$36,093 and US$0 for the years ended
31 December 2009 and 2008, respectively. As of 31 December 2009 and 2008 the
Company had accrued $63,907 and $0 for accounts receivable sold with full
recourse, respectively.
NOTE 14 - Common Stock
The Company shareholders passed a resolution at the Annual Meeting held on 23
September, 2008, that empowered the Board to repurchase or otherwise acquire
shares of the Company's Common Stock in the open market or in private
transactions, with such repurchases not to exceed US$5,000,000 in the aggregate.
The resolution states that no such repurchase shall be make when the capital of
the Company is impaired or when such purchase or acquisition would cause any
impairment of the capital of the Company. The authority granted by this
resolution remains in effect as of 31 December 2009. As of 31 December 2009 the
Company has not repurchased any shares of the Company's Common Stock.
NOTE 15 - INCOME TAXES
For Fiscal 2009 and 2008, the Company recorded no current or deferred income tax
provision expense for state or federal taxes.
The provision for income taxes for the years ended December 31, 2009 differ from
the amount computed by applying the statutory U.S. federal income tax rate to
pre-tax loss as a result of the following:
US$ %
Computed tax benefit
(4,516,000 ) (38.6)
Permanent items
9,000
.1
Credits
(128,000 )
(1.1 )
Change in valuation allowance for deferred tax assets
4,635,000 39.6
Provision for income taxes
_-
-
The Company provides deferred income taxes which reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at 31 December 2009 and
2008 were as follows:
2009 2008
Deferred tax assets:US$ US$
(As revised)
Non-current deferred tax assets (liabilities):
Net operating loss carryforwards
9,420,000 5,370,000
Depreciation and amortization
(110,000 ) (11,000 )
Research and development tax credits
457,000 329,000
Total non-current
9,767,000 5,688,000
Current deferred tax assets (liabilities):
Accruals
2,189,000
1,633,000
Total current
2,189,000 1,633,000
Total deferred tax assets
11,956,000 7,321,000
Valuation allowance
(11,956,000 ) (7,321,000 )
Net deferred tax assets
-
-
The Company has available at December 31, 2009, unused federal net operating
loss carryforwards of approximately US$24,407,000 and state net operating loss
carryforwards of approximately US$24,390,000 which may be applied against future
taxable income. The carryforwards begin expiring in 2027 and 2012,
respectively.
Since the Company is a development stage entity in the reporting period and
future revenues are unpredictable, a valuation allowance equal to net deferred
tax benefits associated with the above items has been provided. The valuation
allowance increased by US$4,635,000 in 2009.
The Company accounts for uncertain tax positions by recognizing the financial
statement effects of a tax position only when, based upon the technical merits
of the position, it is "more-likely-than-not" that the tax position will be
sustained upon examination. As of 31 December 2009, all of the uncertain tax
positions reported by the Company meet the "more-likely-than-not" test;
therefore, the Company has not provided for any unrecognized tax benefits.
The Company and its subsidiaries are subject to the following significant
jurisdictions: US Federal and Arizona. The statute of limitations for a
particular tax year for examination by the Internal Revenue Service is three
years, and four years in its state jurisdiction. Accordingly, there are
multiple years open to examination.
NOTE 16 - SUBSEQUENT EVENTS
Subsequent to 31 December 2009 the Company closed (the "Closing") a fundraising
(the "Fundraising") by which the Company has raised US$3,575,000, before
expenses, through a placing with investors of 238,335 new common shares of
US$0.001 each in the Company (the "Placing Shares"). The Closing has been
completed at a price of US$15 per Placing Share (the "Placing Price"). As part
of the Closing the Company has agreed with the investors that in the event the
Company issues any shares in the capital of the Company as part of a fundraising
prior to 31 December 2010 at a price less than the Placing Price (the "Lower
Price") the investors will have the option to subscribe at par (being US$0.001
per share), for such number of additional shares as they would have received had
the subscription price per share at Closing been the Lower Price rather than the
Placing Price. The net proceeds of the Closing totaled US$3,575,000 and were
used for initial short term working capital needs.
Subsequent to 31 December 2009 the Company has received a letter of commitment
from a boutique U.S. based investment fund, specialising in debt financing for
companies in the knowledge-based or intellectual property sectors. The letter of
commitment is in the form of a US$10.0 million Senior Debt Facility (the
"Facility") in the form of a line of credit. The availability of the Facility is
subject to completion of due diligence and execution of legal documents, with an
anticipated close on or around July 15, 2010. The Facility is expected to
include an immediate advance of US$4.0 million with follow-on advances, up to a
cumulative total of US$10.0 million, made available based on the Company's
achievement of certain operational and financial milestones. The Facility has a
proposed 5-year term, two warrant provisions (with strike prices of US$22.50 and
US$24.00, respectively), conversion rights (at US$15 per share) and is
collateralized, in part, by the Company's intellectual property. In addition,
the Company will be expected to maintain certain usual and customary Covenants
during the term of the Facility.
NOTE 17 - CORRECTION OF ERROR
During 2010, an error was discovered that required the Company to restate its
financial statements for the year ended 31 December 2008. The Company determined
that its calculation of expected volatility, the expected life of options and
the number of options granted in 2008 were incorrect, resulting in an error in
the estimated fair value of options granted in 2008 (See Notes 3 and 5). As a
result, the fair value of stock based compensation for the year ended 31
December 2008 was understated. Stock options granted in 2008 were previously
reported as 2,600,000 and have been revised and presented as 1,300,000 in the
accompanying consolidated financial statements. The fair value of the stock
awards has been recomputed and reflected in the accompanying consolidated
financial statements. The correction had the effect of increasing the net loss
by US$2,427,217 or $(.10) per share for the year ended 31 December 2008, with
an offsetting increase in additional paid in capital. As such, there was no
impact on cash or other assets and liabilities. The deficit accumulated during
development stage increased by US$2,427,217 as of 31 December 2008. There was
no impact to deficit accumulated during development stage for 31 December 2007
or prior periods.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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