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, 2007
[ ] 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)
Florida 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .001 per share
---------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
TITLE OF EACH CLASS OF COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 2007
Common Stock, without par value 45,171,681
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, 2007 (unaudited) and June 30, 2007.................. 2
Unaudited Condensed Consolidated Statements of Operations
for the three ended September 30, 2007 and 2006
and cumulative from inception on October 29, 2003 through
September 30, 2007 (unaudited).................................... 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 2007 and 2006, and
cumulative from inception on October 29, 2003 through
September 30, 2007 (unaudited).................................... 4
Statements of Stockholders' equity for the period from inception
on October 29, 2003 through September 30, 2007 (unaudited)........ 5
Notes to Consolidated Financial Statements (unaudited)............ 6
Item 2. Management's Discussion and Analysis or Plan of Operation......... 12
Item 3. Controls and Procedures........................................... 16
Part II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 12
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.......................................................... 14
Signatures................................................................. 15
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
SEPTEMBER 30, JUNE 30,
2007 2007
--------------- ---------------
ASSETS (unaudited)
Current Assets
Cash in bank $ 728 $ 3,240
Prepaid expenses 5,000 8,993
--------------- ---------------
Total Current Assets $ 5,728 $ 12,233
=============== ===============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 9,657 $ 349
Shareholder advances 32,690 72,690
Accrued management compensation 152,376 132,220
Accrued liquidating damages - related parties 142,747 95,985
Accrued interest - related parties 146,136 89,551
Convertible debt - related parties 990,863 816,939
--------------- ---------------
Total Current Liabilities 1,474,469 1,207,734
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.001 par value, 10,000,000
shares authorized, none issued - -
Common stock, par value $.001, 100,000,000 shares
authorized, 45,171,681 issued and outstanding 45,171 45,171
Paid in capital 1,550,227 1,530,243
(Deficit) accumulated during the development stage (2,730,343) (2,437,119)
Shareholder - advance royalties (333,795) (333,795)
--------------- ---------------
Total Stockholders' (Deficit) (1,468,740) (1,195,499)
--------------- ---------------
$ 5,728 $ 12,233
=============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
CUMULATIVE
FROM
OCTOBER 29,
FOR THE THREE MONTHS ENDED 2003
SEPTEMBER 30, (INCEPTION) TO
------------------------------- SEPTEMBER 30,
2007 2006 2007
-------------- -------------- --------------
REVENUES $ - $ - $ -
EXPENSES
General and administrative:
Legal fees 3,210 13,802 103,926
Consulting fees - - 73,501
Management compensation 18,250 198,750
Other 24,612 30,117 296,283
Debt servicing costs and
expenses - related parties 227,271 14,969 818,055
Stock registration costs - - 56,377
Amortization of warrant valuations - 91,618 504,243
Research & development - - 679,207
-------------- -------------- --------------
Total expenses 293,224 168,756 2,730,343
-------------- -------------- --------------
NET (LOSS) $ (293,224) $ (168,756) $ (2,730,343)
============== ============== ==============
NET (LOSS) PER SHARE $ (0.01) *
============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 45,171,681 40,907,014
============== ==============
* less than $.01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CUMULATIVE
FROM
OCTOBER 29,
2003
FOR THE THREE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007
-------------- -------------- --------------
OPERATING ACTIVITIES
Net (loss) from operations $ (293,224) $ (168,756) $ (2,730,344)
Adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Amortization - warrant valuations - 91,617 504,244
Amortization - financing costs - 67,047
Services - stock registration 35,000
Contributions to capital 2,010 2,010 83,660
Stock options expense 17,974 37,149
Common Stock issued for services - 46,790 289,750
Changes in operating assets and liabilities:
Accounts payable - other 9,308 (87,110) (1,737)
Trust funds 553
Prepaid expenses 3,993 3,299 (5,000)
Accrued liquidating damages - related parties 46,762 - 190,987
Accrued interest - related parties 56,585 14,969 146,136
Convertible debt - principal increases 123,924 404,067
Accrued management compensation 20,156 18,250 142,376
-------------- -------------- --------------
Total adjustments 280,713 89,825 1,894,233
-------------- -------------- --------------
NET CASH (USED) BY OPERATING ACTIVITIES (12,511) (78,931) (836,111)
-------------- -------------- --------------
INVESTING ACTIVITIES:
(Increase) in financing costs - - (67,048)
Shareholder - advance royalties - - (333,796)
-------------- -------------- --------------
NET CASH (USED) BY INVESTING ACTIVITIES - - (400,844)
-------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from sale of common stock, net of costs - 55,000 666,436
Proceeds from shareholder loan 276,247
Proceeds from shareholder advances 10,000 150,000
Repayments of shareholder advances - (2,690) (120,000)
Proceeds from convertible debt - related parties 265,000
-------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,000 52,310 1,237,683
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (2,511) (26,622) 728
CASH, BEGINNING OF PERIOD 3,240 27,387 -
-------------- -------------- --------------
CASH, END OF PERIOD $ 728 $ 766 $ 728
============== ============== ==============
SUPPLEMENTAL CASH INFORMATION
Income taxes paid $ 1,600
==============
SUPPLEMENTAL NON-CASH INFORMATION
Financing costs paid with warrants - Granite $ 29,786
==============
Value of common stock escrowed for future legal services:
Escrow beginning balance 26,450 $ -
Value of shares transferred to escrow 27,000 122,250
Value of shares applied to legal services (46,790) (122,250)
-------------- --------------
Value of escrowed balance receivable $ 6,660 $ -
============== ==============
Granite convertible debt discount:
Beginning balance $ 216,362 $ -
Allocation of debt to warrant valuation 35,836 299,076
Amortization (31,051) (299,076)
-------------- --------------
Discount on debt - Granite balance $ 221,147 $ -
============== ==============
Pinstripe convertible debt discount:
Allocation of debt to warrant valuation $ 205,168 $ 205,168
Amortization (51,292) (205,168)
-------------- --------------
Discount on debt - Pinstripe balance $ 153,876 $ -
============== ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
ARMOR ELECTRIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Escrowed Shares
for legal services (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)
<Page>
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 6,030 6,030
Shares issued August 16, 2006 to
escrow @ $.09 per share 300,000 300 26,700 (300,000) (27,000) -
Shares issued from escrow,
September 30, 2006 456,000 46,790 46,790
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, 2006 28,278 28,278
Shares issued November 9, 2006 for
cash at $.10 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 23, 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 6,660 6,660
Shares issued January 10, 2007 to
escrow @ $.09 per share 150,000 150 13,350 (150,000) (13,500) -
Shares issued January 18, 2007 for
cash at $.10 per share, net of
warrant valuation 250,000 250 13,371 13,621
Warrant valuation on shares issued
on January 18, 2007 11,379 11,379
Shares issued February 5, 2007 for
cash at $.10 per share, net of
warrant valuation 250,000 250 - 250
Warrant valuation on shares issued
on February 5, 2007 24,750 24,750
Options valuation on Employee stock
options granted on March 25, 2007 1,001 1,001
Stock offering costs (13,169) (13,169)
Shareholder advance royalties (10,000) (10,000)
Shares issued April 23, 2007 for
consulting agreement @$.06 per share 250,000 250 14,750 15,000
Shares issued April 23, 2007 for
research and development services
@ $.06 per share 1,000,000 1,000 59,000 60,000
Shares issued May 17, 2007 to escrow
@ $.045 per share for future legal
services 450,000 450 19,800 (450,000) (20,250) -
Shares issued from escrow,
June 30, 2007 900,000 60,750 60,750
Contributed capital 8,040 8,040
Net (loss) for the year (1,377,327) (1,377,327)
----------- ------- ---------- ------ --------- -------- --------- ----------- -----------
BALANCE, JUNE 30, 2007
(UNAUDITED) 45,171,681 $45,171 1,530,243 $ - - $ - $(333,795) $(2,437,119)$(1,195,499)
Valuation of Employee Stock
options granted on March 26, 2007 17,974 17,974
Contributed capital 2,010 2,010
Net (loss) for the period (293,224) (293,224)
----------- ------- ---------- ------ --------- -------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 2007
(UNAUDITED) 45,171,681 $45,171 $1,550,227 $ - - $ - $(333,795) $(2,730,343)$(1,468,740)
=========== ======= ========== ====== ========= ======== ========= =========== ===========
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 September 30, 2007 and
the results of its operations and cash flows for the three months ended
September 30, 2007 and 2006 have been made. Operating results for the three
months ended September 30, 2007 are not necessarily indicative of the results
that may be expected for the year ended June 30, 2008.
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, 2007.
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 September 30, 2007 we had
a deficit in working capital and stockholders' equity, and are technically
insolvent. Since April, 2007 we are in default on interest payments on five
convertible debentures as more fully described in Note 5 below.
Our ability to continue in existence is dependent on our ability to develop
additional sources of capital, and to achieve profitable operations.
Management's plan is to pursue the relationship with NuPow'r, the R&D vendor
utilized by Armor for the electric propulsion development and sale of products
pursuant to our marketing rights. We plan to pursue additional private
placements of our common stock until we are able to achieve profitable
operations. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NOTE 3 - RELATED PARTY TRANSACTIONS
On September 5, 2007, a shareholder loaned us $10,000 and we issued a
non-negotiable promissory note. The note is unsecured, has no specified
repayment date unless certain events occur and bears interest at 10% per annum.
Subsequent to the period ending September 30, 2007, a company owned by our
President advanced us an additional $10,000 as a short term unsecured advance.
6
NOTE 4 - CONTRIBUTED CAPITAL
Capital contributed by a shareholder during the current period ended September
30, 2007 of $2,010 for office overhead was based on the fair value of such
services.
NOTE 5 - DEFAULTS ON DEBT AND EQUITY FINANCING
Below is a table containing summary information about the five defaulted
convertible debentures:
Granite Granite Pinstripe
Convertible Convertible Convertible
Debt#s 1-3 Debt #4 Debt Totals
-------------- -------------- -------------- --------------
TOTAL AMOUNTS DUE AND PAYABLE
AS OF JUNE 30, 2007:
Principal and principal penalties $ 449,688 $ 67,150 $ 367,252 $ 884,090
Accruals:
Interest 46,213 6,747 36,638 89,597
Interest on interest 1,137 - - 1,137
Liquidated damages 54,144 8,000 41,841 103,985
Interest on damages 3,441 420 2,122 5,983
-------------- -------------- -------------- --------------
TOTAL DUE AS OF JUNE 30, 2007 554,623 82,316 447,852 1,084,792
CURRENT QUARTER ACCRUALS:
Additional principal on July 1, 2007 - 16,500 90,274 106,774
Accruals for the current quarter:
Interest 20,461 3,026 16,554 40,041
Interest on interest 2,103 307 1,667 4,077
Liquidated damages 13,185 3,990 21,587 38,762
Interest on damages 2,699 420 2,182 5,301
-------------- -------------- -------------- --------------
TOTAL DUE AS OF SEPTEMBER 30, 2007 $ 593,071 $ 106,559 $ 580,117 1,279,747
============== ============== ============== ==============
SHAREHOLDER ADVANCE - GRANITE
On June 30, 2006, we received an advance from one the debt holders of the
convertible debentures. Since we were not aware of any debenture documents until
recently, we treated this obligation as an unsecured, non-interest bearing
shareholder advance for the year ended June 30, 2007.
7
In November 2007, we were presented with applicable loan documents, and have,
therefore, retroactively, accrued all associated amounts with the debt including
interest, liquidated damages and penalty interest totaling $22,909 from July 1,
2006 through September 30, 2007. The advance which is now considered to be a
10.25% secured convertible debenture, is convertible into shares of our common
stock at $.10 per share at the holder's option. Interest is to be accrued daily
at 10.25% and is payable on the anniversary date of the debenture. In the event
of default, which occurred on November 4, 2006, the interest rate will become
18%, and all interest will have a penalty interest of 18% accrued on the amounts
payable. On the first year anniversary date of the note, July 1, 2007, the
principal amount will increase from $50,000 to $66,500 if not paid by then.
We defaulted on the payment of interest on July 1, 2007, and have accrued the
default penalty of $17,150 or 30% of the total amounts due on the event date in
addition to the aforementioned $16,500 penalty. We also increased the interest
rate to 18% and accrued at this higher percentage since the default date, and
accrued liquidated damages of 2% per month to a maximum of 24% on the principal
amounts due totaling $11,990, because we failed to have an effective
Registration Statement (Form SB2) within 125 days of funding of the debt in
accordance with the associated registration rights agreement. In November 2007,
we received a default notice from the debt holder demanding payment of all
amounts outstanding.
DEFAULT ON ALL FIVE CONVERTIBLE DEBENTURES
Since April 26, 2007, we have been in default on the payment of accrued interest
totaling $76,054 on three Granite outstanding convertible debentures as required
in the loan documents, and have not cured this delinquency. These obligations
may become due and payable immediately at the option of the note holders, and we
received notices of default from all three note holders as further discussed
below. The loans provided for penalty interest of 18% per annum to commence 5
days after the event of default, and we have accrued for this interest. On a
fourth convertible debenture (referenced above as SHAREHOLDER ADVANCE -
GRANITE), we are in default on the payment of accrued interest totaling $7,167
as July1, 2007 and have not cured this delinquency. On the fifth convertible
debenture, to Pinstripe Financial, LLC, we are in default of total accrued
interest of $38,759 as of July 1, 2007 and have not cured this delinquency
either.
All of our assets were pledged as collateral on these obligations. Because of
default on the payment of the interest, all amounts due including the note
balances, accrued interest, penalties, penalty interest and liquidated damages
are payable in cash at the holders' election. These convertible debentures are
guaranteed by an affiliate owned by our president.
THREATENED LITIGATION
On July 20, 2007, we received a Notice of Default from one of the Granite
convertible note holders, and demand for payment of all outstanding amounts,
including a "mandatory default amount," plus liquidating damages, an increased
interest rate and late fees. As of September 30, 2007, total mounts due are
$197,690 including principal, interest, liquidated damages, and penalties.
On September 11, 2007, we received a Notice of Default letter from the law firm
representing the other two Granite note holders. Among other items discussed in
the letter were the noteholders' claim to certain penalties and interest that
was at their discretion to demand. Among these are a "mandatory default amount,"
liquidating damages, increased interest percentage and late fees. A demand for
payment was included in the letter, as well as the threat of litigation. We have
responded to their concerns and are waiting for a response from them.
NOTE 6 - EMPLOYEE STOCK OPTION PLAN
There were no changes in the stock options outstanding during the current
quarter. As of July 1, 2007, we had an unamortized beginning balance of $125,617
for stock option compensation. We amortized in the current quarter $17,974,
leaving a remaining unamortized balance of $107,643, as of September 30, 2007.
8
NOTE 7 - SUBSEQUENT EVENTS
LAWSUIT DATED NOVEMBER 2, 2007
On November 16, 2007, we received a "Request for Judicial Intervention" filed on
behalf of the same noteholder referenced above, (Threatened Litigation) whose
notice of default was rendered on July 20, 2007, along with the Granite note 4
(Shareholder advance-Granite, discussed in Note 5) requesting a "Summary
Judgment in Lieu of Complaint" We are required to answer to the "Notice of
Motion" and to supply certain supporting documents to the plaintiff's attorney
on or before December 12, 2007. The debt holder is requesting a summary judgment
as of November 2, 2007 for $312,091, plus attorney's fee of $3,065. We have
accrued as of September 30, 2007, $304,249 for these two obligations. We are in
the process of preparing a response to this summons.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS INTRODUCTION
AND NOTE ON FORWARD LOOKING STATEMENTS
You should keep in mind the following as you read this Quarterly Report on Form
10-KSB:
o the terms "we", "us", "our", "Armor", "Armor Electric", or the "Company"
refer to Armor Electric Inc. and its subsidiary; and
o our fiscal year ends on June 30; references to fiscal 2007 and fiscal 2006
and similar constructions refer to the fiscal year ended on June 30 of the
applicable year.
This Quarterly Report on Form 10-QSB contains statements which, to the extent
they do not recite historical fact, constitute "forward looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can identify
these statements by the use of words like "may," "will," "could," "should,"
"project," "believe," "anticipate," "expect," "plan," "estimate," "forecast,"
"potential," "intend," "continue," and variations of these words or comparable
words. Forward looking statements do not guarantee future performance and
involve risks and uncertainties. Actual results may differ substantially from
the results that the forward looking statements suggest for various reasons,
including those discussed under the caption "Risks Related to Our Business."
These forward looking statements are made only as of the date of this Quarterly
Report on Form 10-QSB. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any statement is based. This discussion should be read together with the
financial statements and other financial information included in this Form
10-QSB.
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 a development stage company in the business of developing and
marketing electronic propulsion and battery power systems for electric powered
vehicles.
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.
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The Company's plan of operation for the next twelve months is to continue
develop the rights and technology owned by Nova Electric Systems Inc., its
wholly-owned subsidiary ("Nova"). Nova is in the business of developing and
marketing electronic propulsion and battery power systems for electric powered
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 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 its strategic partner, NuAge, to continue to develop a wide
variety of commercially viable vehicles and products there.
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 us
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
In March 2007, we executed a license agreement with Nu Pow'r under which we
received an exclusive, perpetual license to market and manufacture certain
products of Nu Pow'r. The agreement does not convey the intellectual property
associated with the Nu Pow'r electric propulsion systems or energy storage
systems. We also agreed to pay Nu Pow'r a 15 percent royalty on the net profit
of any of the vehicles covered by the license arrangement. In general, Nu Pow'r
will receive 65% of the net profits and Armor will receive 35%. With respect to
vehicle frames, Armor is to receive 85% and Nu Pow'r is to receive 15% of net
profits.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The Company has incurred operating losses since its inception related primarily
to development, amortization and general administrative costs. During the first
quarter of 2008 the Company lost $293,224, compared with a loss of $ 168,756
during the corresponding period in fiscal 2007, and during the 2007 fiscal year
the Company posted a loss of $1,337,327, compared to a loss of $824,099 for the
2006 fiscal year. The Company has posted a cumulative loss of $2,730,343 since
inception.
General and administrative expenses (including legal and consulting fees and
management compensation) were $65,952 during the quarter, compared to $62,229
for the corresponding quarter in the preceding fiscal year. Debt servicing costs
and expenses were $227,271, compared to $14,969 for the corresponding period,
attributable to higher debt levels and the accrual of penalties and default
interest during the current period.
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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 (current assets less current liabilities) of $ 1,468,741 as
of September 30, 2007.
The Company's capital requirements have not been significant in the past but the
Company anticipates they will increase if development and product launch begins.
In April 2006, we entered into an agreement with three private investors which
provides, among other things, that we were to receive bridge financing of
$600,000 in three installments, for issuance of 10.25%, secured convertible
debentures (the "Convertible Debentures"). Of that total, $215,000 was received
26, 2006. These first installment obligations are payable April 26, 2008,
however, if not paid by April 26, 2007, the principal amount will increase by
$70,953, for a total of principal due of $334,193 plus accrued interest. The
second amount of $150,000 was to be funded no later than five days after the
Company completes a Registration Statement (Form SB-2), and provides reasonable
proof that a specified purchase order has been achieved.
On the second installment, $50,000 was received. The third amount of $235,000
was to be received no later than five days after a Registration Statement
covering the securities was declared effective, but was never received.
The Convertible Debentures are collateralized by a lien on all of our assets.
The Convertible Debenture holders are entitled, at their option, to convert all
or any part of the principal amount of the Convertible Debenture into shares of
the Company's common stock, at the price per share of $0.12. The Company was to
make annual interest payments to each holder, on each conversion date (as to the
principal amount being converted) and on the maturity date. Each Convertible
Debenture holder was granted a warrant to purchase shares of our Common Stock
equal in amount to the loan value received divided by the share price of $0.12.
In the first installment, we granted warrants to each entity for the purchase of
597,222 shares or a total of 1,791,667 shares.
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 which expire in two (2)
years.
The Company has received notices of default from the Convertible Debenture
holders, and one of the holders has commenced an action against the Company.
STOCK OPTIONS
On March 26, 2007, the board of directors granted to our President, Vice
President, and a director, 3,100,000 options to purchase from the company a
share of stock for $.07 per share with an expiration date of April 12, 2017. As
of September 30, 2006, there were no shares exercised and all remain outstanding
options as of that date.
The stock options have been valued at $143,791 using the Black-Scholes option
pricing model using the following assumptions: stock price volatility of
117.36%, risk free rate of return of 4.54%; dividend yield of 0% and a 10 year
term, and has an estimated exercise term of two years. The value of these
options have been allocated over the two years and in the current quarter ended
September 30, 2007, we recorded a compensation expense of $1,001, which has been
reflected in paid in capital as an allocation separate from common stock. The
balance of compensation of $142,790 will be recorded over the remaining two year
term ending March 25, 2009.
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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.
RELATED PARTY TRANSACTIONS
On January 10, 2007, we issued 150,000 shares to a shareholder's law firm. The
shares were issued pursuant to a Registration Statement on form S-8, and are to
be held in escrow for future services. These shares were issued at a value of
$13,500, but not considered outstanding as of September 30, 2007, and are not
used in the computation of loss per share. During the current period ending
September 30, 2007, the law firm did not redeem any of the escrowed shares,
leaving a balance in escrow of $40,500 relating to the escrowed 450,000 shares
as of September 30, 2007.
During the quarter ended September 30, 2007, the law firm billed $4,690 for
legal services. The outstanding balance owed to the law firm as of September 30,
2007, which is shown as accounts payable-related party, was $34,786.
A company owned by our President and a shareholder each loaned us $10,000 on
short term non-interest bearing, unsecured promissory notes on March 27, 2007.
Another company owned by our President refunded to us an overpayment from the
previous quarter of $5,000, as a result of a double payment for office expenses
paid by them for our benefit.
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer 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
not 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. The principal deficiency noted is the lack of a system for maintaining
documentation of equity-based transactions.
The registrants' principal executive officers and principal financial officer
have concluded that there were no other significant changes in the registrants'
internal controls or in other factors that could significantly affect these
controls subsequent to June 30, 2007 the date of their most recent evaluation of
such controls, and that, except as noted, there were no significant deficiencies
or material weaknesses in the registrant's internal controls.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 9, 2007 the Company received a Summons and Notice of Motion for
Summary Judgment in Lieu of Complaint filed in the Supreme Court of New York.
The action was filed by Schreiber Living Trust, holder of Convertible Debentures
issued by the Company. The Motion alleges that the amount due under the
Convertible Debentures is $312,090, and seeks recovery of that amount, plus
interest and attorneys' fees.
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The Company intends to vigorously contest the action.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Since April 26, 2007, we have been in default on the payment of accrued interest
totaling $76,054 on three Granite outstanding convertible debentures as required
in the loan documents, and have not cured this delinquency. These obligations
may become due and payable immediately at the option of the note holders, and we
received notices of default from all three note holders as further discussed
below. The loans provided for penalty interest of 18% per annum to commence 5
days after the event of default, and we have accrued for this interest. On a
fourth convertible debenture, we are in default on the payment of accrued
interest totaling $7,167 as July1, 2007 and have not cured this delinquency. On
the fifth convertible debenture, to Pinstripe Financial, LLC, we are in default
of total accrued interest of $38,759 as of July 1, 2007 and have not cured this
delinquency either.
All of our assets were pledged as collateral on these obligations. Because of
default on the payment of the interest, all amounts due including the note
balances, accrued interest, penalties, penalty interest and liquidated damages
are payable in cash at the holders' election. These convertible debentures are
guaranteed by an affiliate owned by our president.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certificate of Acting Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certificate of Acting Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
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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 19, 2007 ARMOR ELECTRIC INC.
/S/ MERRILL MOSES
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MERRILL MOSES
PRESIDENT
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