UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: 000-32249
ARMOR ELECTRIC INC.
(Exact name of small business issuer as specified in its charter)
Nevada 65-0853784
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
201 Lomas Santa Fe, Suite #420, Solana Beach, CA 92075
(Address of principal executive offices)
(858) 720-0123
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $0.001 par value 46,151,681
(Class) (Outstanding as of November 6, 2006)
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
Part I Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2006 (unaudited) and June 30, 2006................ 2
Unaudited Condensed Consolidated Statements of Operations
for the three months ended September 30, 2006 and 2005
and cumulative from inception on October 29, 2003 through
September 30, 2006.............................................. 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 2006 and 2005, and
cumulative from inception on October 29, 2003 through
September 30, 2006.............................................. 4
Statements of Stockholders' equity for the period from from
inception on October 29, 2003 through September 30, 2006........ 5
Notes to Consolidated Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis or Plan of Operation....... 10
Item 3. Controls and Procedures......................................... 13
Part II OTHER INFORMATION
Item 1. Legal Proceedings............................................... 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 13
Item 3. Defaults upon Senior Securities................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 5. Other Information............................................... 13
Item 6. Exhibits and Reports on Form 8-K................................ 13
Signatures............................................................... 14
ITEM 1. FINANCIAL STATEMENTS
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006
ALL ASSETS ARE COLLATERALIZED UNDER
CONVERTIBLE DEBENTURES AND SHAREHOLDER LOAN
SEPTEMBER 30, JUNE 30,
2006 2006
----------- -----------
ASSETS (unaudited)
------
Current Assets
Cash in bank $ 766 $ 27,387
Prepaid expenses 1,855 5,154
----------- -----------
Total Current Assets 2,621 32,541
Deferred financing costs, net 21,363 30,639
----------- -----------
$ 23,984 $ 63,180
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 5,433 $ 62,245
Accounts payable - related parties 19,106 49,404
Accrued liabilities 99,833 66,614
----------- -----------
Total Current Liabilities 124,372 178,263
LONG TERM LIABILITIES
Convertible debt - related parties, net of
discount for unamortized balance on
warrant valuation of $216,362, June 30,
2006, unamortized
balance on warrant valuation of $221,147, September 30, 2006 92,093 46,878
Advance on debt financing-related parties 50,000
Shareholder loan - unamortized balance on warrant
valuation of $153,876, September 30, 2006 119,681 276,247
----------- -----------
Total Liabilities 293,782 551,388
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, 10,000,000
shares authorized, none issued -- --
Common stock, par value $.001, 100,000,000 shares
authorized, 40,661,681 issued and 40,431,681 issued
and outstanding, June 30, 2006, 41,511,681 issued and
41,437,681 issued and outstanding, September 30, 2006 41,511 40,661
Paid in capital 1,205,331 881,168
(Deficit) accumulated during the development stage (1,228,549) (1,059,792)
Shareholder - advance royalties (323,795) (323,795)
Escrowed balance receivable (6,660) (26,450)
----------- -----------
Total Stockholders' Equity (Deficit) (312,162) (488,208)
----------- -----------
$ 23,984 $ 63,180
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unauditied)
CUMULATIVE
FROM
THREE MONTHS ENDED OCTOBER 29, 2003
SEPTEMBER 30, (INCEPTION) TO
2006 2005 SEPTEMBER 30, 2006
------------ ------------ ------------
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
General and administrative:
Legal fees 13,802 43,272
Consulting fees -- 58,501
Other 48,367 80,508 268,895
Interest expense 14,969 24,850
Stock registration costs -- 56,377
Amortization 91,618 145,120
Liquidating damages -- 57,872 57,872
Research & development -- 1,904 573,661
------------ ------------ ------------
Total expenses 168,756 140,284 1,228,548
------------ ------------ ------------
NET (LOSS) $ (168,756) $ (140,284) $ (1,228,548)
============ ============ ============
NET (LOSS) PER SHARE * *
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 40,907,014 40,371,681
============ ============
* less than $.01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE FROM
OCTOBER 29,
2003
THREE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006
----------- ----------- -----------
OPERATING ACTIVITIES
Net (loss) from operations $ (168,756) $ (140,284) $(1,228,548)
Adjustments to reconcile net (loss) to net cash provided (used) by
operating activities:
Amortization 91,617 145,119
Services attributed to stock registration 35,000
Contributions to capital 2,010 1,050 75,620
Common Stock issued for services 46,790 148,341
Changes in operating assets and liabilities:
(Decrease) in state income tax payable (1,600)
Increase/ (decrease) in accounts payable (87,110) 1,796 24,013
Increase in trust funds 553
(Increase)/ decrease in prepaid expenses 3,299 (3,432) (1,855)
Increase in accrued liquidating damages 57,872 57,872
Increase in accrued interest 14,969 24,751
(Decrease) in accounts payable - related party (10,000) (10,868)
Increase in accrued payroll 18,250 6,300 55,450
----------- ----------- -----------
Total adjustments 89,825 51,986 553,996
----------- ----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (79,931) (88,298) (674,552)
----------- ----------- -----------
INVESTING ACTIVITIES:
(Increase) in financing costs (37,262)
Shareholder advances - advance royalties (21,000) (323,796)
----------- ----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES -- (21,000) (361,058)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock 55,000 35,000 497,819
Increase/ (decrease) in shareholder loan (2,690) 273,557
Increase in convertible debt - related parties 265,000
----------- ----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES 52,310 35,000 1,036,376
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (26,622) (74,298) 765
CASH, BEGINNING OF PERIOD 27,387 107,700 --
----------- ----------- -----------
CASH, END OF PERIOD $ 766 $ 33,401 $ 766
=========== =========== ===========
SUPPLEMENTAL CASH INFORMATION
Income taxes paid $ 1,600
===========
SUPPLEMENTAL NON-CASH INFORMATION
Common stock escrowed for future legal services:
Escrow beginning balance $ 26,450 $ 34,500
Shares transferred to escrow 27,000 27,000
Shares applied to legal services (46,790) (54,840)
----------- -----------
Escrowed balance receivable, 74,000 shares $ 6,660 $ 6,660
=========== ===========
Granite convertible debt discount:
Beginning balance $ 216,362 $ 263,240
Increase in discount on debt - Granite 35,836 35,836
Amortization (31,051) (77,929)
----------- -----------
Discount on debt - Granite balance $ 221,147 $ 221,147
=========== ===========
Pinstripe convertible debt discount:
Increase in discount on debt - Granite $ 205,168 $ 205,168
Amortization (51,292) (51,292)
----------- -----------
Discount on debt - Granite balance $ 153,876 $ 153,876
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Escrowed Shares (Deficit) Total
Common Stock Common ------------------ Accumulated Stock-
------------------- Stock Number Shareholder During holders'
Paid-in Subscription of Balance Advanced Development Equity
Shares Amount Capital Receivable Shares Receivable Royalty Stage (Deficit)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
Inception, Oct 30, 2003, Stock
issued for services @ $.001 per
share 1,000 $ 1 $ -- $ -- -- $ -- $ -- $ -- $ 1
April 21, 2004
Stock issued for services @
$0.001 per share 20,999,000 20,999 1 21,000
Contributed Capital 15,232 15,232
Net (Loss), for the period ended
April 27, 2004 (37,033) (37,033)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, APRIL 27, 2004 21,000,000 21,000 15,233 (37,033) (800)
Recapitalization, April 27, 2004 13,717,333 13,717 (34,558) -- (20,841)
Contributed Capital 3,308 3,308
Net (loss) for period (9,308) (9,308)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, JUNE 30, 2004 34,717,333 34,717 (16,017) (46,341) (27,641)
Shares issued October 15, 2004 @
$0.25 for marketing consulting
services 150,000 150 37,350 37,500
Shares issued February 16, 2005 to
escrow @ $0.115 per share 300,000 300 34,200 (300,000) (34,500) --
Shares issued January 21, 2005 @
$.115 per share for legal services
provided 304,348 304 34,696 35,000
Shares issued February 4, 2005 for
cash at $.10 per share 300,000 300 29,700 30,000
Shares issued February 8, 2005 for
cash at $.10 per share 1,050,000 1,050 103,950 105,000
Shares issued February 9, 2005 for
cash at $.10 per share 100,000 100 9,900 10,000
Shares issued February 16, 2005 for
cash at $.10 per share 350,000 350 34,650 35,000
Shares issued February 17, 2005 for
cash at $.10 per share 350,000 350 34,650 35,000
Shares issued February 18, 2005 for
cash at $.10 per share 100,000 100 9,900 10,000
Shares issued February 20, 2005 for
cash at $.10 per share 100,000 100 9,900 10,000
Shares issued February 22, 2005 for
cash at $.10 per share 2,600,000 2,600 257,400 260,000
Shares issued February 28, 2005 for
cash at $.10 per share 100,000 100 9,900 10,000
Shares issued March 4, 2005 for
cash at $.10 per share 40,000 40 3,960 4,000
Common stock subscribed, March 4,
2005 at $.10 per share 10,000 10 990 1,000
Shares issued May 20, 2005 for
cash at $.10 per share 100,000 100 9,900 10,000
Common stock subscription receivable (1,000) (1,000)
Stock offering costs (76,182) (76,182)
Shareholder advance royalties (264,795) (264,795)
Contributed capital 48,970 48,970
Net (loss) for period (189,352) (189,352)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, JUNE 30, 2005 40,671,681 40,671 577,818 (1,000) (300,000) (34,500) (264,795) (235,693) 82,501
5a
(continued)
Escrowed Shares (Deficit) Total
Common Stock Common ------------------ Accumulated Stock-
------------------- Stock Number Shareholder During holders'
Paid-in Subscription of Balance Advanced Development Equity
Shares Amount Capital Receivable Shares Receivable Royalty Stage (Deficit)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
Cancelled common stock subscribed,
March 4, 2005 at $.10 per share (10,000) (10) (990) 1,000 --
Contributed capital 6,100 6,100
Correction to stock offering
costs-prior year 35,000 35,000
Shares issued from escrowed shares 70,000 8,050 8,050
Discount on convertible debt
- - warrants 263,240 263,240
Shareholder advance royalties (59,000) (59,000)
Net (loss) for the year (824,099) (824,099)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, JUNE 30, 2006 40,661,681 40,661 881,168 -- (230,000) (26,450) (323,795) (1,059,792) (488,208)
(UNAUDITED)
Contributed capital 2,010 2,010
Shares issued August 16, 2006 to
escrow @ $0.09 per share 300,000 300 26,700 (300,000) (27,000) --
Shares issued from escrow 456,000 46,790 46,790
Discount on convertible debt
- - warrants 241,004 297,250
Shares issued September 18, 2006
for cash at $.10 per share 550,000 550 54,450 55,000
Net (loss) for three months (168,756) (168,756)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, SEPTEMBER 30, 2006,
(UNAUDITED) 41,511,681 $41,511 $1,261,578 $ -- (74,000) $ (6,660) $(323,795) $ (1228,549) $(312,161)
=========== ======= ========== ====== ========= ======== ========= =========== =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5b
ARMOR ELECTRIC, INC.
Notes to Financial Statements (unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's financial position as of September 30, 2006 and
the results of its operations and cash flows for the three months ended
September 30, 2006 and 2005 have been made. Operating results for the three
months ended September 30, 2006 are not necessarily indicative of the results
that may be expected for the year ended June 30, 2007.
These consolidated condensed financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's Form
10-KSB for the year ended June 30, 2006.
On April 27, 2004 Armor acquired all of the issued and outstanding shares of
common stock of Nova Electric, Inc. (Nova, or the Company) a development stage
Nevada Corporation, formed October 29, 2003, in exchange for 21 million
restricted shares of common stock of Armor, pursuant to Section 368 (a) (1) (B)
of the Internal Revenue Code, which provides for a tax-free exchange under that
reorganization provision.
This stock exchange transaction, which is treated as a recapitalization of Nova
for accounting purposes, resulted in a change of control wherein the financial
statements included herein are those of the acquired company, Nova, the
accounting parent, consolidated with, Armor, Nova's accounting subsidiary, as
required for proper financial presentation purposes only. For legal purposes,
Armor is the parent and Nova is the subsidiary.
At the date of the stock exchange, all of the net assets of Armor were acquired
by Nova at fair value which equaled Armor's book value. Nova's fiscal year end
is June 30.
NOTE 2 - RELATED PARTY TRANSACTIONS
An affiliate owned by the President of the Company loaned $276,247 to the
Company as of June 30, 2006. Subsequently, in the current quarter, this was
transferred to a convertible debt of $273,557 and the balance of $2,690 was
reclassed to accounts payable - related party. The proceeds of this loan, of
which all but $12,000 was provided during the year ended June 30, 2006, were
used solely to finance the Company's R&D technology. This debt is collateralized
by a second position on all of the assets of the Company and is payable with
interest at 10.25 percent per annum on July 1, 2008. The convertible note has
provisions that are fully described in Note 3 below.
6
The same affiliate also loaned the Company in the current period ended September
30, 2006, $55,000. On September 18, 2006 this new loan was paid in full with the
issuance of 550,000 units, which includes one share of the Company's common
stock and one warrant to purchase an additional share of common stock. The
shares were valued at $ 0.10 per share, and the warrants have a conversion price
of $0.15 per share with an expiration date of September 18, 2008
In addition to related party transactions included elsewhere, one shareholder's
law firm, which is the Company's SEC legal and general corporate counsel, was
issued on February 16, 2005, 300,000 free trading shares pursuant to filing a
Form S-8 in January 21, 2005, to be held in escrow by him against future
services. These shares were issued at a value of $34,500, but not considered
outstanding as of June 30, 2006 or 2005, for purposes of computing loss per
share. During the current period ending September 30, 2006 this same law firm
redeemed the remaining June 30, 2006, balance of 230,000 shares with a value of
$26,450.
On August 16, 2006, this same law firm was issued an additional 300,000 free
trading shares pursuant to a form S-8 filing on January 21, 2005 to be held in
escrow by him for future services. These shares were issued at a value of
$27,000, but not considered outstanding as of September 30, 2006. During the
current period ending September 30, 2006, the law firm redeemed 226,000 escrowed
shares with a value of $20,340 leaving a balance in escrow of $6,660 or 74,000
shares as of September 20, 2006.
During the quarter ended September 30, 2006, the law firm billed $13,802 for
legal services. The outstanding balance owed to the law firm as of September 30,
2006, which is shown as accounts payable-related party, was $16,416.
As of September 30, 2006, the Company amortized $9,275 of previously capitalized
legal fees of $37,262, resulting in an unamortized balance of $21,363 of
deferred financing costs at September 30, 2006. The previously capitalized legal
fees related to the Granite Financial convertible debentures dated April 24,
2006, included $19,262 of legal fees charged by the related party law firm.
NOTE 3 - DEBT FINANCING
CONVERTIBLE DEBENTURE-AFFILIATE
- -------------------------------
On July 1, 2006, the Company formalized an agreement with the affiliate referred
to in Note 2 above. The affiliate is entitled, at its option, to convert, and
sell on the same day, at any time and from time to time, until payment in full
of the Debenture, or any part of the principal amount of the Debenture is
converted into shares of the Company's common stock, par value $.001 per share,
at the price per share of $0.12. The Company shall make annual interest payments
to the affiliate, on each conversion date (as to the principal amount being
converted) and on the maturity date. The interest shall be calculated on a 360
day basis and will accrue daily. The Debenture holder was granted a warrant to
purchase 2,279,642shares of the Company's Common Stock at the share price of
$0.16.
7
The Company has determined that the detachable warrant qualifies as a derivative
valued at $205,168 using Black-Scholes option pricing model using the following
assumptions: stock price volatility of 114.00%, risk free rate of return of
5.05%; dividend yield of 0% and a 7.0 year term. The face amount of the
convertible debenture of $273,557 was proportionately allocated to the debenture
and the warrants in the amount of $68,389 and $205,168, respectively.
The total warrant value of $205,168 has been accounted for as a debt discount
which is being amortized and treated as interest expense over the period of
expected repayment of the debentures- a twelve month period, not the term of the
convertible debenture of 24 months, on a straight line basis. For the period
ended September 30, 2006, the amortization was $51,292.
CONVERTIBLE DEBENTURE - GRANITE
- -------------------------------
On July 1, 2006, we received an additional $50,000 on a convertible debenture,
from Granite Financial that was disclosed in the period ended June 30, 2006,
making the total debt $265,000. The debt holder is entitled, at its option, to
convert, and sell on the same day, at any time and from time to time, until
payment in full of the Debenture, or any part of the principal amount of the
Debenture is converted into shares of the Company's common stock, par value
$.001 per share, at the price per share of $0.12. The Company shall make annual
interest payments to the affiliate, on each conversion date (as to the principal
amount being converted) and on the maturity date. The interest shall be
calculated on a 360 day basis and will accrue daily. The debenture also has a
condition that if the loan is not paid in full in one year its principal will
increase to $66,500. The Debenture holder was granted a warrant to purchase
416,667 shares of the Company's Common Stock at the share price of $0.16 for
this $50,000 of additional debt.
The Company has determined that the detachable warrant qualifies as a derivative
valued at $35,836 using Black-Scholes option pricing model using the following
assumptions: stock price volatility of 114.00%, risk free rate of return of
5.05%; dividend yield of 0% and a 7.0 year term. The face amount of the
additional installment of the convertible debenture of $50,000 was
proportionately allocated to the debenture and the warrants in the amount of
$14,164 and $35,836, respectively
The total warrant value of $35,836 has been accounted for as a debt discount
which is being amortized and treated as interest expense over the period of
expected repayment of the debentures- a twelve month period, not the term of the
convertible debenture of 24 months, on a straight line basis. For the period
ended September 30, 2006, the amortization was $8,934.
8
NOTE 4 - COMMON STOCK WARRANTS
The following are warrant activities during the period ended September 30, 2006
and June 30, 2006:
Total outstanding, June 30, 2006 7,481,667
Additional issuances during the quarter:
2006 private placement 550,000
2006 convertible debentures 2,696,309
-----------
Total outstanding, September 30, 2006 10,727,976
===========
All of The warrants have "piggy-back" and demand registration rights and shall
survive for seven (7) years from the Closing Date, except for the warrants
issued to the affiliate as further described in Note 2 above which shall expire
in two (2) years.
NOTE 5 - CONTRIBUTED CAPITAL
Capital contributed during the period ended September 30, 2006 of $2,010 for
office overhead was based on the fair value of such services.
NOTE 6 - JOINT VENTURE
We are still negotiating with, Nu Pow'r LLC to establish an acceptable Joint
Venture with us in which to enable the further development of our technology and
related contracts. No further research and development expense was incurred
during the quarter. We did pay $56,068 to Nu Pow'r LLC during the current
quarter to reduce the outstanding liability to them of $61,500 as of June 30,
2006.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion contains forward-looking statements that are subject to
significant risks and uncertainties. There are several important factors that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements. The
Company has sought to identify the most significant risks to its business, but
cannot predict whether or to what extent any of such risks may be realized nor
can there be any assurance that the Company has identified all possible risks
that might arise. Investors should carefully consider all of such risks before
making an investment decision with respect to the Company's stock.
OVERVIEW
- ---------
The Company is considered a development stage company in the business of
developing and marketing electronic propulsion and battery power systems for
electric powered vehicles. The costs and expenses associated with the
preparation and filing of this quarterly report and other operations of the
Company have been paid for by private placement financing and loans from
shareholders and officers of the Company.
PLAN OF OPERATION
- ------------------
The Company has had no operations since inception and is financially dependent
on its shareholders, who have financed its existence to date.
The Company's plan of operation for the next twelve months is to develop the
rights owned by Nova Electric Systems Inc., ("Nova"). The Company acquired all
the issued and outstanding shares of Nova through an stock exchange agreement
dated effective April 27, 2004. Nova is in the business of developing and
marketing electronic propulsion and battery power systems for electric powered
vehicles. Under the stock exchange agreement with Nova, the Company issued
21,000,000 Common Shares in the capital stock of the Company in exchange for the
21,000,000 shares of Nova outstanding. Under the agreement, the Company also
agreed to pay, upon obtaining financing, $650,000 USD as an advance on royalties
to Nu Age pursuant to an agreement between Nova and Nu Age.
Financing for the above additional consideration was arranged during the first
calendar quarter of 2005 through two private placements of the Company's common
stock totaling $520,000. Substantial stock offering and legal fees in connection
with this financing were also incurred. Subsequent to that, we received
additional debt financing from related parties which was used mainly to continue
the technology process. The Company continues to seek additional debt and/or
equity financing as it is in a critical development stage in which the
technology has been developed for an initial 200 unit contract for a battery
operated vehicle to be used in Mexico, however, the Joint Venture partner, Nu
Pow'r is in the process of finalizing with us a commitment to go forward with
the relationship we required to produce the vehicles.
Development of Nova's Rights
- ----------------------------
Through an agreement with NuAge Electric Inc., Nova holds the rights for the use
of certain proprietary technology to install electric propulsion systems on a
variety of electric powered vehicles to include, but not limited to, mountain
bikes, regular cycles, children's cycle toys and riding vehicles, recreation ATV
units, scooters, motorcycles, go-karts, NEV (Neighborhood Electric Vehicle)
cars, race cars, regular passenger cars, buses and all other types of two and
three wheeled vehicles, water craft and in addition, a wide variety of other
vehicles and products.
Nova has also acquired the rights from NuAge Electric Inc., to certain
agreements between NuAge and the bicycle manufacturer Hero Cycles in India, for
the joint venture to manufacture and distribute many of the electric powered two
and three wheel vehicles in India and for distribution from the Hero
manufacturing facilities worldwide. The Agreement between Nova and Nu Age was
filed as an Exhibit to the Company's amended report on Form 8K filed on August
12, 2005.
The Nova Business Plan details a number of electric powered vehicles built as
prototype working models at the Las Vegas facility and it is the intent of Nova
to work closely with their strategic partner, NuAge to continue to develop a
wide variety of commercially viable vehicles and products there.
As previously disclosed in the Company's Form 8-K filed on April 27, 2006, the
Company entered into a Joint Venture Agreement with Nu Pow'r on January 17,
2006, to form a Joint Venture Company (JVC) to make and distribute Electric
Propulsion systems.
The formation agreement includes commitments for contributions from both
Companies. Although interim financial reporting by the Company gave effect to
the completion and operation of the JVC, in fact, the operating agreement and
other attributes were never formalized or agreed to and a bank account for the
JVC was never established. Accordingly, the parties have recently agreed to
ignore the existence of the JVC retroactive to its inception, and to operate
without it until such time as a formal operating agreement is established and
all other issues are resolved satisfactorily.
10
As a result, the Company has no formal interest in any contracts, technology or
prototypes for which the Company paid/or incurred over $500,000 during the
current year to obtain. The $250,000 of the initial funding required under the
terms of the JVC, which was paid directly to Nu Pow'r by the Company as a "vend
in fee" to establish a 25% interest in the JVC, was considered a research and
develop expense despite the verbal agreement by Nu Pow'r that it will allow this
amount as the Company's equity in the JVC when the JVC is eventually
operational.
OFF BALANCE SHEET ARRANGEMENTS
- ------------------------------
The Company has no off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the Company's financial condition,
change in financial condition, revenues or expenses, result of operations or
liquidity. The Company anticipates that the current convertible note and
debentures being registered pursuant to this registrations statement will
satisfy the Company's financing needs until profitability.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -----------------------------------------------
The Company has incurred operating losses since its inception related primarily
to development amortization and general administration costs. During the three
months ended September 30, 2006, the Company posted a loss of $168,756compared
to a loss of $140,284 for the three months ended September 30, 2005 and the
Company has posted a cumulative loss of $1,228,548 since inception.
The Company's main focus during the three months ended September 30, 2006 has
been the continued development of the marketing rights owned by Nova Electric
Systems Inc. and financing of the Agreement used to obtain those rights.
GENERAL & ADMINISTRATIVE EXPENSES
- ----------------------------------
General and administrative expenses were $13,802 during the three months ended
September 30, 2006, compared to $0 for the three months ended September 30,
2005. The increase in 2006 is due to the increased operations within the
Company.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Since inception, the Company has financed its operations from private financing.
The company has suffered recurring losses from operations and has a working
capital deficiency of $$121,751 (current assets less current liabilities) as of
September 30, 2006.
FINANCING
- ----------
The Company's capital requirements have not been significant in the past but the
Company anticipates it will increase as development and product launch begins.
DEBT FINANCING
- --------------
Convertible Debenture - Affiliate
As of June 30, 2006, an affiliate owned by the president of the Company loaned
$276,247 to the Company and subsequently during the three months September 30,
2006, it was transferred to a convertible debt of $273,557 and the balance of
$2,690 was re-classed to accounts payable of related party. To proceeds of this
loan, of which all but $12,000 was provided during the year ended June 30, 2006,
were solely to finance the Company's R & D technology. The debt is
collateralized by a second position on all of the assets of the Company and is
payable with interest at 10.25% per annum on July 1, 2008.
11
On July 1, 2006, The Company formalized an agreement with the affiliate and the
affiliate is entitled, at its option, to convert, and sell on the same day, at
any time and from time to time, until payment paid in full of the Debenture, or
any part of the principal amount of the Debenture is converted into shares of
the Company's common stock, par value $.001 per share, at a price of $0.12 per
share. The Company shall make annual interest payments to the affiliate, on each
conversion date (as to the principal amount being converted) and on the maturity
date. The interest shall be calculated on a 360 day basis and will accrue daily.
The Debenture holder was granted a warrant to purchase 2,279,642shares of the
Company's common stock at a price of $0.16.
Convertible Debenture - Granite
On July 1, 2006, the Company received an additional $50,000 on a convertible
debenture, from Granite Financial that was disclosed in the period ended June
30, 2006, making the total debt $265,000. The debt holder is entitled, at its
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of the Debenture, or any part of the principal amount of
the Debenture is converted into shares of the Company's common stock, par value
$.001 per share, at the price per share of $0.12. The Company shall make annual
interest payments to the affiliate, on each conversion date (as to the principal
amount being converted) and on the maturity date. The interest shall be
calculated on a 360 day basis and will accrue daily. The debenture also has a
condition that if the loan is not paid in full in one year its principal will
increase to $66,500. The Debenture holder was granted a warrant to purchase
416,667 shares of the Company's Common Stock at the share price of $0.16 for
this $50,000 of additional debt.
COMMON STOCK WARRANTS
- ---------------------
The following are warrant activities during the period ended September 30, 2006
and June 30, 2006:
Total outstanding, June 30, 2006 7,481,667
Additional issuances during the quarter:
2006 private placement 550,000
2006 convertible debentures 2,696,309
-----------
Total outstanding, September 30, 2006 10,727,976
===========
All of The warrants have "piggy-back" and demand registration rights and shall
survive for seven (7) years from the Closing Date, except for the warrants
issued to the affiliate as further described in Note 2 above which shall expire
in two (2) years.
CASH REQUIREMENTS AND NEED FOR ADDITIONAL FUNDS
- -----------------------------------------------
In order to develop the Company's marketing strategy, the Company anticipates it
will require approximately $750,000in the coming year for general and
administrative expenses and research and development which could be provided
through additional financing by way of private placements such as the Company
has done in the past.
RELATED PARTY TRANSACTIONS
- --------------------------
On August 16, 2006, the Company issued 300,000 free trading shares to Thomas A.
Braun Law Corporation pursuant to a Form S-8 filed with SEC on January 21, 2005.
The shares will be held in escrow by the law firm for its future legal services.
The shares issued at a value of $27,000.
On September 18, 2006, the Company issued 550,000 units, which includes one
share of the Company's common stock and one warrant to purchase an additional
share of common stock as full payment for a loan of $55,000 to an affiliate
owned by the president of the Company. The shares were valued at $0.10 per
share, and the warrants have a conversion price of $0.15 per share with an
expiration date of September 18, 2008.
12
ITEM 3. CONTROLS AND PROCEDURES
The registrant's Principal executive officers and principal financial officer,
based on their evaluation of the registrant's disclosure controls and procedures
(as defined in Rules 13a-14 (c) of the Securities Exchange Act of 1934) as of
September 30, 2006 have concluded that the registrants' disclosure controls and
procedures are adequate and effective to ensure that material information
relating to the registrants and their consolidated subsidiaries is recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms, particularly during the period in which this quarterly
report has been prepared.
The registrants' principal executive officers and principal financial officer
have concluded that there were no significant changes in the registrants'
internal controls or in other factors that could significantly affect these
controls subsequent to September 30, 2006 the date of their most recent
evaluation of such controls, and that there was no significant deficiencies or
material weaknesses in the registrant's internal controls.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2006, the Company has issued the
following unregistered securities:
On September 18, 2006, the Company issued 550,000 units, which includes one
share of the Company's common stock and one warrant to purchase an additional
share of common stock to an affiliate owned by the president of the Company as
full payment for a loan of $55,000. The shares were valued at $0.10 per share,
and the warrants have a conversion price of %0.15 per share with an expiration
date of September 18, 2008.
During the three months ended September 30, 2006, the Company has issued the
following convertible debentures:
On July 1, 2006, the Company formalized an agreement with the affiliate referred
to in Note 2 above. The affiliate is entitled, at its option, to convert, and
sell on the same day, at any time and from time to time, until payment in full
of the Debenture, or any part of the principal amount of the Debenture is
converted into shares of the Company's common stock, par value $.001 per share,
at the price per share of $0.12. The Company shall make annual interest payments
to the affiliate, on each conversion date (as to the principal amount being
converted) and on the maturity date. The interest shall be calculated on a 360
day basis and will accrue daily. The Debenture holder was granted a warrant to
purchase 2,279,642shares of the Company's Common Stock at the share price of
$0.16.
On July 1, 2006, the Company received an additional $50,000 on a convertible
debenture, from Granite Financial that was disclosed in the period ended June
30, 2006, making the total debt $265,000. The debt holder is entitled, at its
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of the Debenture, or any part of the principal amount of
the Debenture is converted into shares of the Company's common stock, par value
$.001 per share, at the price per share of $0.12. The Company shall make annual
interest payments to the affiliate, on each conversion date (as to the principal
amount being converted) and on the maturity date. The interest shall be
calculated on a 360 day basis and will accrue daily. The debenture also has a
condition that if the loan is not paid in full in one year its principal will
increase to $66,500. The Debenture holder was granted a warrant to purchase
416,667 shares of the Company's Common Stock at the share price of $0.16 for
this $50,000 of additional debt
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company is still negotiating with, Nu Pow'r LLC to establish an acceptable
Joint Venture in which to enable the further development of the Company's
technology and related contracts. No further research and development expense
was incurred during the quarter. The Company has paid $56,068 to Nu Pow'r LLC
during the three months ended September 30, 2006 to reduce the outstanding
liability to them of $61,500 as of June 30, 2006.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1.1(1) Articles of Incorporation dated June 5, 1998
3.1.2(1) Articles of Amendment dated August 31, 1999
3.1.3(2) Articles of Amendment dated June 4, 2004
3.2(1) Bylaws
10.1 Joint Venture Agreement between Armor Enterprises, Inc. and NU
POW'R LLC dated effective January 17, 2006.
10.2 Agreement between Nova Electric Systems and Nu Age Electric
Systems dated effective April 19, 2004
31.1 Section 302 Certification
32.1 Section 906 Certification of CEO
32.2 Section 906 Certification of CFO
- ------------------------------------
(1) Previously filed as an exhibit to the Company's Form 10-SB as filed on
January 6, 2003
(2) Previously filed as an exhibit to the Company's Form 10-KSB as filed on
October 15, 2004
(b) Reports on Form 8-K filed during the three months ended September 30,
2006.
On August 21, 2006, the Company filed Form 8-K/A under Item 1.01 with respect to
the Company's share exchange agreement with Nova Electric Systems Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 20, 2006 ARMOR ELECTRIC INC.
/s/ Merrill Moses
------------------------------------
Merrill Moses
President