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: December 31, 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 42,821,681
(Class) (Outstanding as of December 31, 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
December 31, 2006 (unaudited) and June 30, 2006 ................ 2
Unaudited Condensed Consolidated Statements of Operations
for the three and six months ended December 31, 2006 and 2005
and cumulative from inception on October 29, 2003 through
December 31, 2006 .............................................. 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 2006 and 2005, and
cumulative from inception on October 29, 2003 through
December 31, 2006 .............................................. 4
Statements of Stockholders' equity for the period from inception
on October 29, 2003 through December 31, 2006 (unaudited) ....... 5
Notes to Consolidated Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis or Plan of Operation....... 11
Item 3. Controls and Procedures......................................... 14
Part II OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 14
Item 3. Defaults upon Senior Securities................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signatures............................................................... 15
-1-
ITEM 1. FINANCIAL STATEMENTS
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
ALL ASSETS ARE COLLATERALIZED UNDER
CONVERTIBLE DEBENTURES AND SHAREHOLDER LOAN
DECEMBER 31, JUNE 30,
2006 2006
----------- -----------
ASSETS (unaudited)
------
Current Assets
Cash in bank $ 37,031 $ 27,387
Prepaid expenses 1,855 5,154
----------- -----------
Total Current Assets 38,886 32,541
Deferred financing costs, net 31,945 30,639
----------- -----------
$ 70,831 $ 63,180
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 5,432 $ 62,245
Accounts payable - related parties 33,086 49,404
Accrued liabilities 133,873 66,614
----------- -----------
Total Current Liabilities 172,391 178,263
LONG TERM LIABILITIES
Convertible debt - related parties, net of discount for
unamortized balance on warrant valuation of $216,362,
June 30, 2006, and $146,557, December 31, 2006 166,683 46,878
Advance on debt financing-related parties 50,000
Shareholder loan - unamortized balance on warrant
valuation of $102,586, December 31, 2006 170,971 276,247
----------- -----------
Total Liabilities 510,044 551,388
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, 42,821,681 issued and 42,521,681 issued and
outstanding, December 31, 2006 42,821 40,661
Paid in capital 1,353,148 881,168
(Deficit) accumulated during the development stage (1,474,387) (1,059,792)
Shareholder - advance royalties (333,795) (323,795)
Escrowed balance receivable (27,000) (26,450)
----------- -----------
Total Stockholders' Equity (Deficit) (439,212) (488,208)
----------- -----------
$ 70,831 $ 63,180
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
-2-
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
FROM
THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 29, 2003
DECEMBER 31, DECEMBER 31, (INCEPTION) TO
2006 2005 2006 2005 DECEMBER 31, 2006
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
EXPENSES
General and administrative:
Legal fees 22,581 16,623 36,383 55,766 65,853
Consulting fees -- -- 58,501
Other 62,385 15,330 110,752 56,696 331,280
Interest expense 15,790 30,759 40,640
Stock registration costs -- -- 56,377
Amortization 145,084 236,700 290,202
Liquidating damages -- -- 57,872
Research & development -- 4,085 -- 5,989 573,661
------------ ------------ ------------ ------------ ------------
Total expenses 245,841 36,038 414,595 118,451 1,474,387
------------ ------------ ------------ ------------ ------------
NET (LOSS) $ (245,841) $ (36,038) $ (414,595) $ (118,451) $ (1,474,387)
============ ============ ============ ============ ============
NET (LOSS) PER SHARE $ (0.01) * $ (0.01) *
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 42,149,014 40,371,681 41,528,014 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
SIX MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
2006 2005 2006
----------- ----------- -----------
OPERATING ACTIVITIES
Net (loss) from operations $ (414,595) $ (118,451) $(1,474,387)
Adjustments to reconcile net (loss) to net cash provided
(used) by operating activities:
Amortization 236,700 290,202
Services attributed to stock registration 35,000
Contributions to capital 4,020 2,100 77,630
Common Stock issued for services 53,450 155,001
Changes in operating assets and liabilities:
(Decrease) in state income tax payable (1,600)
Increase/ (decrease) in accounts payable (73,131) 10,282 37,992
Increase in trust funds 553
(Increase)/ decrease in prepaid expenses 3,299 (6,528) (1,855)
Increase in accrued liquidating damages 57,872
Increase in accrued interest 30,759 40,541
(Decrease) in accounts payable - related party (10,000) (10,868)
Increase in accrued payroll 36,500 12,600 73,700
----------- ----------- -----------
Total adjustments 291,598 6,854 755,769
----------- ----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (122,997) (111,597) (718,618)
----------- ----------- -----------
INVESTING ACTIVITIES:
(Increase) in financing costs (37,262)
Shareholder advances - advance royalties (10,000) (21,000) (333,796)
----------- ----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (10,000) (21,000) (371,058)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock, net of costs 145,331 35,000 588,150
Increase/ (decrease) in shareholder loan (2,690) 273,557
Increase in convertible debt - related parties 265,000
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 142,641 35,000 1,126,707
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 9,644 (97,597) 37,031
CASH, BEGINNING OF PERIOD 27,387 107,700 --
----------- ----------- -----------
CASH, END OF PERIOD $ 37,031 $ 10,103 $ 37,031
=========== =========== ===========
SUPPLEMENTAL CASH INFORMATION
Income taxes paid $ 1,600
===========
SUPPLEMENTAL NON-CASH INFORMATION
Accrued liquidating damages to shareholders $ 64,991
===========
Financing costs paid with warrants - Granite $ 29,786.00 $ 29,786.00
=========== ===========
Common stock escrowed for future legal services:
Escrow beginning balance $ 26,450 $ --
Shares transferred to escrow 54,000 88,500
Shares applied to legal services (53,450) (61,500)
----------- -----------
Escrowed balance receivable, 300,000 shares $ 27,000 $ 27,000
=========== ===========
Granite convertible debt discount:
Beginning balance $ 216,362 $ --
Allocation of debt to warrant valuation 35,836 299,076
Amortization (105,641) (152,519)
----------- -----------
Discount on debt - Granite balance $ 146,557 $ 146,557
=========== ===========
Pinstripe convertible debt discount:
Allocation of debt to warrant valuation $ 205,168 $ 205,168
Amortization (102,582) (102,582)
----------- -----------
Discount on debt - Pinstripe balance $ 102,586 $ 102,586
=========== ===========
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
Private Placement
Shares issued February 4, 2005 for
cash at $.10 per share, net of
warrant valuation 300,000 300 13,200 13,500
Shares issued February 8, 2005 for
cash at $.10 per share, net of
warrant valuation 1,050,000 1,050 59,200 60,250
Shares issued February 9, 2005 for
cash at $.10 per share, net of
warrant valuation 100,000 100 4,400 4,500
Shares issued February 16, 2005 for
cash at $.10 per share, net of
warrant valuation 350,000 350 15,590 15,940
Shares issued February 17, 2005 for
cash at $.10 per share, net of
warrant valuation 350,000 350 15,590 15,940
Shares issued February 18, 2005 for
cash at $.10 per share, net of
warrant valuation 100,000 100 4,400 4,500
Shares issued February 20, 2005 for
cash at $.10 per share, net of
warrant valuation 100,000 100 4,400 4,500
Shares issued February 22, 2005 for
cash at $.10 per share, net of
warrant valuation 2,600,000 2,600 148,118 150,718
Shares issued February 28, 2005 for
cash at $.10 per share, net of
warrant valuation 100,000 100 4,400 4,500
Shares issued March 4, 2005 for
cash at $.10 per share, net of
warrant valuation 40,000 40 1,760 1,800
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, net of
warrant valuation 100,000 100 4,400 4,500
Private placement
Warrant valuation on shares issued in
The private placement 238,353 238,353
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 4,020
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
September 30,2006
Discount on convertible debt
- - warrants 241,004 241,004
Warrant valuation on waiver
agreement 29,786 29,786
Shares issued September 18, 2006 for
Cash at $.10 per share, net of
warrant valuation 550,000 550 26,172 26,722
Warrant valuation on shares issued
On September 18, 2005 28,278 28,278
Shares issued November 9, 2006 for
Cash at $.01 per share, net of
Warrant valuation 10,000 10 125 135
Warrant valuation on shares issued
on November 9, 2006 865 865
Shares issued November 23, 2006 to
escrow @ $.09 per share 300,000 300 26,700 (300,000) (27,000) --
Shares issued November 30, 2006 for
Cash at $.10 per share, net of
warrant valuation 1,000,000 1,000 47,546 48,546
Warrant valuation on shares
issued on November 30, 2006 51,454 51,454
Shares issued from escrow,
December 31, 2006 74,000 6,600 6,660
Stock offering costs (10,669) (10,669)
Shareholder advance royalties (10,000) (10,000)
Net (loss) for three months (414,595) (414,595)
----------- ------- ---------- ------ --------- -------- --------- ----------- ---------
BALANCE, DECMEBER 31, 2006,
(UNAUDITED) 42,821,681 $42,821 $1,353,148 $ -- (300,000) $(27,000) $(333,795) $(1,474,387) $(439,212)
=========== ======= ========== ====== ========= ======== ========= =========== =========
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 condensed consolidated
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 December 31, 2006 and the
results of its operations and cash flows for the three and six months ended
December 31, 2006 and 2005 have been made. Operating results for the six months
ended December 31, 2006 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2007.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited 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 - GOING CONCERN
Our unaudited condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. We
have sustained operating losses since inception. As of December 31, 2006, we had
a deficit in working capital and stockholders' equity.
-6-
Our ability to continue in existence is dependent on its ability to develop
additional sources of capital, and to achieve profitable operations.
Management's plan is to pursue the completion of a joint venture with NuPowr,
the R&D vendor utilized by Armor for the electric propulsion development and
sale of products pursuant to its marketing rights. In the event it is unable to
achieve profitable operations in the near term, it plans to pursue additional
private placements of its common stock. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 3 - RELATED PARTY TRANSACTIONS
In addition to related party transactions included elsewhere, one shareholder's
law firm, which is our SEC legal and general corporate counsel, was issued on
November 23, 2006 an additional 300,000 free trading shares pursuant to a form
S-8 filing on February 16, 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 December 31, 2006, and are not used in the computation of loss per share.
During the current period ending December 31, 2006, the law firm redeemed 74,000
escrowed shares with a value of $6,660 leaving a balance in escrow of $27,000
relating to the escrowed 300,000 shares as of December 31, 2006.
We valued all issuances of escrowed shares at market on the date of issuance,
and created a contra equity account to provide for the amount receivable there
from. As escrowed shares are sold into the open market by the law firm, we
reduce the originally assigned value of the shares from contra equity account,
and apply that amount as a reduction of the amount owing to the law firm. Any
gain or loss on the sale of the escrowed shares is considered a gain or loss by
the law firm, since they were in control of the sale of the escrowed shares, not
us.
During the quarter ended December 31, 2006, the law firm billed $20,640 for
legal services. The outstanding balance owed to the law firm as of December 31,
2006, which is shown as accounts payable-related party, was $30,396.
In addition to the amortization referred to in Note 6, we amortized $9,275 in
the quarter ended December 31, 2006 and $18,550 in the six months ended December
31, 2006, of previously capitalized legal fees of $37,262. 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.
-7-
NOTE 3 - COMMON STOCK WARRANTS
The following are warrant activities during the six month period ended December
31, 2006
Total Warrants at $.15 Warrants at $.16
----- ---------------- ----------------
Total outstanding, June 30, 2006 7,481,667 5,690,000 1,791,667
Additional issuances during the period:
2006 private placement, September 18, 2006 550,000 550,000
2006 convertible debentures, Granite 416,667 416,667
2006 convertible debentures, Pinstripe 2,279,642 2,279,642
2006 private placement, November 9, 2006 10,000 10,000
2006 private placement, November 30, 2006 1,000,000 1,000,000
2006 waiver agreement, October 1, 2006, Granite 312,500 312,500
---------- ---------- ----------
Total additional warrants for period 4,568,809 1,560,000 3,008,809
---------- ---------- ----------
Total outstanding, December 31, 2006 12,050,476 7,250,000 4,800,476
========== ========== ==========
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 for the private placement further described in Note 7 above which expire
in two (2) years.
NOTE 4 - CONTRIBUTED CAPITAL
Capital contributed during the period ended December 31, 2006 of $4,020 for
office overhead was based on the fair value of such services.
NOTE 5 - 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 current quarter.
-8-
NOTE 6 - DEBT AND EQUITY FINANCING
GRANITE FINANCIAL GROUP WAIVER AGREEMENT
- ----------------------------------------
On October 1, 2006, we entered into a waiver agreement with a member of the
Granite Financial Group. In exchange for the waiving of a closing requirement
for their second installment, they were granted an additional 312,500 warrants.
These warrants have a price of $ .16 per share and have an expiration date of
October 1, 2013. The warrant qualifies as a derivative valued at $29,786 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 warrant valuation is considered a financing cost for the second installment
of Convertible Debt from the Granite Financial Group, since this was granted for
them waiving a closing requirement for a portion of the second installment. The
warrant was valued as indicated above and the amount was recorded as deferred
financing costs, which are being amortized over the remaining expected debt
repayment period of 9 months beginning October 1, 2006. The amortization for
the three month period ending December 31, 2006, is $9,929.
PRIVATE PLACEMENTS
- ------------------
We had a placement of 1,000,000 units for $.10 per unit on November 30, 2006,
each unit consisting of one share of common stock and one stock purchase warrant
entitling the owner to acquire one share each per warrant at an exercise price
of $.15 per share. The warrants expire on November 30, 2008. As of December 22,
2006, the gross proceeds received were $100,000, less offering costs of $10,669,
resulting in net proceeds of $89,331. The stock offering costs comprised of a
finders fee to a major shareholder of $10,000 and the balance paid to the same
law office mentioned in Note 2. We have reserved shares of unissued common stock
for warrant exercises. These shares also have restrictions attached to them on
their resale, pursuant to the Stock Purchase Agreement, along with certain
restrictions for subsequently issued shares. The detachable warrant qualifies as
a derivative valued at $51,454 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, and has been
included in paid in capital as an allocation of the proceeds attributed to the
sale of the related common stock.
In addition to the above, we had a second placement of 10,000 units for $.10 per
unit on November 9, 2006, each unit consisting of one share of common stock and
one stock purchase warrant entitling the owner to acquire one share each per
warrant at an exercise price of $.15 per share. The warrants expire on November
9, 2008. As of December 31, 2006, the gross proceeds received were $1,000. We
have reserved shares of unissued common stock for warrant exercises. These
shares also have restrictions attached to them on their resale, pursuant to the
Stock Purchase Agreement, along with certain restrictions for subsequently
issued shares. The detachable warrant qualifies as a derivative valued at $865
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, and has been included in paid in capital as an
allocation of the proceeds attributed to the sale of the related common stock.
-9-
CONVERTIBLE DEBENTURES - LETTER OF ADJUSTMENT
- ---------------------------------------------
On December 4, 2006, we also adjusted the Convertible debentures in force at
this time to reflect the above referenced private placement. A condition of all
the convertible debentures is that if stock is sold for a price less than the
conversion price on the face of the note, the conversion price will be adjusted
to reflect the last sale price. As a result of this, the convertible notes'
terms have changed to an exercise price of $0.10 per share instead of $0.12, and
all other terms and conditions remain in force. This change had no effect on the
valuation of the derivatives associated with the underlying warrants.
NOTE 7 - TRANSACTION FEE AGREEMENT
On November 27, 2006 we entered into an agreement with Epoch Financial Group,
Inc. (Epoch) to provide us with consulting services. Epoch will identify and
solicit potential shareholder investors for us and introduce them for
finalization of the sale of stock. As part of the agreement Epoch will be paid
an amount equal to ten percent of the total consideration from the shareholder's
purchase. The term of the agreement is for six months and will expire on May 27,
2007, and the agreement can be terminated with a ten day notice to either party.
NOTE 8 - SUBSEQUENT EVENTS
On January 10, 2007 the Company's SEC legal and general corporate counsel, was
issued an additional 150,000 free trading shares pursuant to a form S-8 filing
on February 16, 2005 to be held in escrow by him for future services. These
shares were issued at a value of $13,500, but not considered outstanding as of
that date.
-10-
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.
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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 the registration statement currently
being filed 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 December 31, 2006, the Company posted a loss of $245,841 compared
to a loss of $36,038 for the three months ended December 31, 2005 and the
Company has posted a cumulative loss of $1,474,387 since inception.
The Company's main focus during the three months ended December 31, 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 $84,966 during the three months ended
December 31, 2006, compared to $31,953 for the three months ended December 31,
2005. The increase in 2006 is due to increases in accounting and legal fees, and
payroll expenses. The increase in accounting and legal are due to us pursuing a
form SB-2 filing as well as our normal filings. In addition, we have had
increases in accrued payroll due to more time being devoted by the principals of
the Company. We anticipate that these expenses will stay at the same levels, and
increase as development and product launch begins
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 $133,505 (current assets less current liabilities) as of
December 31, 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 Debentures
On December 4, 2006, we adjusted the Convertible debentures in force at this
time to reflect private placements completed during the quarter. A condition of
all the convertible debentures is that if stock is sold for a price less than
the conversion price on the face of the note, the conversion price will be
adjusted to reflect the last sale price. As a result of this, the convertible
notes' terms have changed to an exercise price of $0.10 per share instead of
$0.12, and all other terms and conditions remain in force. This change had no
effect on the valuation of the derivatives associated with the underlying
warrants.
TRANSACTION FEE AGREEMENT
- -------------------------
On November 27, 2006 we entered into an agreement with Epoch Financial Group,
Inc. (Epoch) to provide us with consulting services. Epoch will identify and
solicit potential shareholder investors for us and introduce them for
finalization of the sale of stock. As part of the agreement Epoch will be paid
an amount equal to ten percent of the total consideration from the shareholder's
purchase. The term of the agreement is for six months and will expire on May 27,
2007, and the agreement can be terminated with a ten day notice to either party.
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COMMON STOCK WARRANTS
- ---------------------
The following are warrant activities during the six months ended December 31,
2006:
Total Warrants at $.15 Warrants at $.16
----- ---------------- ----------------
Total outstanding, June 30, 2006 7,481,667 5,690,000 1,791,667
Additional issuances during the period:
2006 private placement, September 18, 2006 550,000 550,000
2006 convertible debentures, Granite 416,667 416,667
2006 convertible debentures, Pinstripe 2,279,642 2,279,642
2006 private placement, November 9, 2006 10,000 10,000
2006 private placement, November 30, 2006 1,000,000 1,000,000
2006 waiver agreement, October 1, 2006, Granite 312,500 312,500
---------- ---------- ----------
Total additional warrants for period 4,568,809 1,560,000 3,008,809
---------- ---------- ----------
Total outstanding, December 31, 2006 12,050,476 7,250,000 4,800,476
========== ========== ==========
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 for the private placement further described in Note 7 above which 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 $750,000 in 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 November 23, 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 February 16,
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.
Subsequent to the quarter ending December 31, 2006, we issued an additional
150,000 free trading shares to Thomas A. Braun Law Corporation pursuant to a
Form S-8 filed with SEC on February 16, 2005. The shares will be held in escrow
by the law firm for its future legal services. The shares issued at a value of
$13,500.
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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 December 31, 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 December 31, 2006, we issued the following
unregistered securities:
On October 1, 2006, we entered into a waiver agreement with a member of the
Granite Financial Group. In exchange for the waiving of a closing requirement
for their second installment, they were granted an additional 312,500 warrants.
These warrants have a price of $.16 per share and have an expiration date of
October 1, 2013.
On November 9, 2006, we had a private placement of 10,000 units for $.10 per
unit, each unit consisting of one share of common stock and one stock purchase
warrant entitling the owner to acquire one share each per warrant at an exercise
price of $.15 per share. The warrants expire on November 9, 2008. As of December
31, 2006, the gross proceeds received were $1,000. We have reserved shares of
unissued common stock for warrant exercises. These shares also have restrictions
attached to them on their resale, pursuant to the Stock Purchase Agreement,
along with certain restrictions for subsequently issued shares.
On November 30, 2006 we had a private placement of 1,000,000 units for $.10 per
unit, each unit consisting of one share of common stock and one stock purchase
warrant entitling the owner to acquire one share each per warrant at an exercise
price of $.15 per share. The warrants expire on November 30, 2008. As of
December 22, 2006, the gross proceeds received were $100,000, less offering
costs of $10,669, resulting in net proceeds of $89,331. The stock offering costs
comprised of a finders fee to a major shareholder of $10,000 and the balance
paid to the our corporate counsel. We have reserved shares of unissued common
stock for warrant exercises. These shares also have restrictions attached to
them on their resale, pursuant to the Stock Purchase Agreement, along with
certain restrictions for subsequently issued shares.
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 six months ended December 31, 2006 to reduce the outstanding
liability to them of $61,500 as of December 31, 2006.
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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: February 14, 2007 ARMOR ELECTRIC INC.
/s/ Merrill Moses
------------------------------------
Merrill Moses
President
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