TIDMADID TIDMADIS
RNS Number : 3762U
Armor Designs, Inc.
23 June 2009
+------------------------------------+------------------------------------+
| Press Release | 23 June 2009 |
+------------------------------------+------------------------------------+
Armor Designs, Inc.
Preliminary Results for year ended 31 December, 2008
Armor Designs, Inc., ("Armor" or "the Company"), the developer of next
generation composite armour, today announces its preliminary unaudited results
for the year ended 31 December 2008.
+--------------+-------------------------------------------------------------------+
| Business Developments |
+----------------------------------------------------------------------------------+
| * | Ongoing transition from development company to commercial entity, |
| | with first international sales |
+--------------+-------------------------------------------------------------------+
| * | Introduction of a range of advanced personal protection body |
| | armour plates that are the lightest on the market |
+--------------+-------------------------------------------------------------------+
| * | Establishment of strategic alliance and creation of a focused R & |
| | D department "Scorpion Works" to prioritise and accelerate |
| | commercial exploitation of intellectual property ("IP") |
+--------------+-------------------------------------------------------------------+
| * | Commissioning of flexible large scale production facility |
+--------------+-------------------------------------------------------------------+
| Financial Developments |
+----------------------------------------------------------------------------------+
| * | Commencement of revenues in fourth quarter 2008 |
+--------------+-------------------------------------------------------------------+
| * | Sales of US$193,000 in first year of revenue generation |
+--------------+-------------------------------------------------------------------+
| * | Operating loss of US$15.3m, (US$10.9m after US$4.4m of non-cash |
| | items) in 2008 |
+--------------+-------------------------------------------------------------------+
| Post Balance Sheet Date Events |
+----------------------------------------------------------------------------------+
| * | Additional equity funding in 2009 of US$2.5m secured. Further |
| | fund-raising will be considered |
+--------------+-------------------------------------------------------------------+
| Management and Board changes 2009 |
+----------------------------------------------------------------------------------+
| * | Appointment of Philip A. Clement as Interim President & Chief |
| | Executive Officer |
+--------------+-------------------------------------------------------------------+
| * | Appointment of J. Craig Johnson as Acting Chief Financial Officer |
+--------------+-------------------------------------------------------------------+
| * | Appointment of William A Roper as non-executive director |
+--------------+-------------------------------------------------------------------+
Commenting on the results, Dr. James A. St. Ville, chairman of Armor Designs,
Inc., said: "The Company is beginning to capitalise on its knowledge-based
manufacturing expertise and the range of armour products developed in the last
12 months. We are quickly establishing a good reputation for providing leading
edge armour solutions using our proprietary IP know-how. We are confident that
our extensive pipeline of prototype applications spanning a range of military
and civil markets and the recognition of revenue in the first quarter 2009
position the company for a year of development and growth. The company is
well-placed to raise further equity funding as necessary, and this, coupled with
the strengthening of the board, positions us to move the business forward this
year."
The Chairman's statement and the financial report, which are contained below and
form part of this announcement, include further important information and
disclosures and the announcement should be read in its entirety.
For further information:
+-------------------------------------------+----------------------------+
| Armor Designs, Inc. | |
+-------------------------------------------+----------------------------+
| Dr James St Ville | Tel: +1 602 275 4633 |
+-------------------------------------------+----------------------------+
| James.St.Ville@armordesigns.com | www.armordesigns.com |
+-------------------------------------------+----------------------------+
Nominated advisor:
+-------------------------------------------+----------------------------+
| Zimmerman Corporate Finance Limited | |
+-------------------------------------------+----------------------------+
| Thilo Hoffman | Tel: +44 (0) 20 7398 2900 |
+-------------------------------------------+----------------------------+
| thiloh@zimmint.com | www.zimmint.com |
+-------------------------------------------+----------------------------+
Media enquiries:
+-------------------------------------------+----------------------------+
| Brunswick Group LLP | |
+-------------------------------------------+----------------------------+
| Michael Harrison/ Chris Blundell / | Tel: +44 (0) 20 7404 5959 |
| Camilla Gore | |
+-------------------------------------------+----------------------------+
| adi@brunswickgroup.com | www.brunswickgroup.com |
+-------------------------------------------+----------------------------+
Chairman's Statement
The Board is pleased to report Armor Designs' first full-year results as a
listed company. 2008 was a year of significant transition for the business,
during which Armor continued to move from being a development company toward a
fully established commercial entity. The year saw the commissioning of the
Company's dedicated manufacturing facilities in Phoenix, Arizona, the
development of Armor's first range of commercial body armour products and
prototype development in other sectors. The Company also completed the first
stage of its global distribution network; and recruited management and staff to
move the business forward. As a result, the Company achieved its objectives of
positioning the business for future commercial success, rather than near-term
financial performance.
Strategic and Operational Progress
The year also saw significant development of the Company's knowledge based
approach with the creation of a focused R & D department, "Scorpion Works", in
the second quarter and the formation of strategic partnerships with ipCapital
and Gauntlet Aviation to prioritise and accelerate the commercial exploitation
of Armor's IP. Through Scorpion Works the Company developed a number of
prototype products over the second half of the year, including body armour
plates for personal protection, rotorcraft armour material and future helmet
designs. The achievement of such a large number of product designs and
certifications in such a short time underscores the broad potential and wide
application of Volumetrically Controlled Manufacture (VCM). Moreover, the
products developed have consistently been verified as the lightest in their
respective markets while providing comparable or better protection than
competing products. VCM has quickly established itself as a strong
differentiator in our markets, and we are confident that such differentiation
will drive the Company's future success as it expands and matures.
During the first half of 2008 the Company began to build out its manufacturing
facilities and recruited a number of specialist engineering, manufacturing,
sales and administrative support staff required to move the business forward.
The first half also saw a number of distribution channels opened both
domestically and overseas with agents and distributors being appointed in
various markets, particularly in Latin America.
The second half of the year saw a step change in product development with eight
new body armour products being developed and marketed during the period. The
Company was also granted full registration as a defence industry exporter in
compliance with United States ITAR regulations allowing it to tender for sales
in a number of overseas countries. Anticipated revenues lagged, however, due in
part to the certification requirements of new armour plates, and the time taken
to obtain ITAR export clearances. As a result, overall revenues were only
US$193,000 for the year. Following the recruitment of a new Sales and Marketing
VP, Mark Pickett, towards the end of 2008 there has been a material step up in
revenue generation and sales orders in the first quarter of 2009.
Financial performance
The heavy investment needed to develop the Company's management and production
teams, establish the Scorpion Works division and build-out our production
facilities, coupled with minimal revenue resulted in Operating Losses of
US$(15.3)m in the year compared with US$(3.5)m 2007. The results were also
affected by significant non-cash charges relating to the grant of Restricted
Stock Units and Stock Appreciation Rights by the Company along with
Non-qualifying Stock Options and the award of shares by its majority
shareholder, Hawthorne and York International Ltd (HYI). These charges total
US$4.9 million of which US$3.6 million resulted from awards granted by HYI. Due
to HYI's majority ownership of the Company, US GAAP accounting rules (FAS 123R)
require the Company to reflect awards granted by HYI in its financial results.
These charges are non-cash items and, in the case of the HYI's awards, are
non-recurring charges.
The Balance Sheet reflects the inflow of equity and the significant capital
expenditure (US$ 5.8m) during the fiscal year with the net asset position at the
end of the period tempered by the ongoing operating losses sustained by the
business. Period end cash on hand was US$1.2m.
Fund Raising
In June 2008 the Company completed a secondary fund-raising of US$7.0 million
prior to expenses, with a number of existing and new investors subscribing for
shares. As previously announced, the Company raised US$16m (before fees and
expenses) in connection with its IPO in December, 2007. These funds have been
used to repay pre-IPO debt (US$2.9m), settle IPO fees and expenses (US$2.2m),
fund the necessary capital equipment required to establish the Company's
manufacturing capabilities (US$5.8m), and fund ongoing Working Capital needs
(US$10.0m). The Company at year-end 2008 was debt free with a positive cash
balance of US$1.2m.
On 19 June 2009, the Company announced that it closed a fund-raising by which it
has raised US$2,500,000, before expenses, through a placing with investors of
166,667 new common shares. The net proceeds will be used for initial short term
working capital needs. The Company will consider undertaking further
fundraisings if necessary to provide for the implementation of its growth
strategy over the medium term (including longer term working capital, research
and development and international business development) which may or may not
take place over the next six months.
The Company has also recently established an accounts receivable financing
facility to contribute towards its working capital needs going forward. The
amount expected to be made available to the Company pursuant to this facility in
the next 12 months is approximately $2.0m.
Going Concern Disclosure required by US GAAP
US GAAP accounting rules require the Company to validate that it has sufficient
working capital either on hand, irrevocably pledged or reasonably secured
through ongoing operational activity. If there is any shortfall or material
uncertainty that the company may not have or generate the working capital it
requires for a minimum period of twelve months subsequent to the date of the
accounts, then the Company is required to disclose this in the footnotes to the
financial statements. The recently completed round of equity fund raising is not
sufficient to meet the company's capital requirements over the required period,
but the Board believes the company is well-positioned to secure sufficient funds
over the coming months and shall report its progress. The company has included a
formal disclosure note (Note 2) on its Going Concern situation. In addition, the
auditors report includes an explanatory paragraph concerning this uncertainty.
Board and Management
In April 2008, Dr. James A. St. Ville moved from Chief Executive Officer to
Chairman with the appointment of Charles Snyder as CEO. With the transition of
the business from a development company to a commercial entity, the Board has
concluded that new skills are needed to accelerate corporate growth and exploit
value in intellectual property which is not currently being utilized. On 19 June
2009, the company announced the appointment of Philip A. Clement as its Interim
President & Chief Executive Officer, effective 22 June 2009. Charles Snyder
resigned as a director and Chief Executive Officer of the Company effective 22
June 2009. The Board would like to take this opportunity to thank Charles for
his valuable contribution to the establishment of the business in 2008. The
company has commenced a search for a permanent Chief Executive Officer.
The Board has also accepted the resignation as Chief Financial Officer of David
Seaton who has decided to relocate back to the UK. Again, the board thanks him
for his significant contribution to the development of the business over the
past 12 months. David will be replaced on an interim basis by J. Craig Johnson,
who was previously Armor's Director of Finance. Mr Johnson was appointed Acting
Chief Financial Officer, effective 22 June 2009. Mr. Johnson has not been
appointed to the board at this time.
The Board has been further strengthened by the appointment of William A. Roper,
former Executive Vice President and CFO of SAIC, Inc. (Science Applications
International Corporation), a diversified technology services company, as a
non-executive director.
Outlook
2009 is expected to be another challenging year for Armor. In the first quarter
of 2009 the Company has already achieved some progress in revenue generation,
with a strong pipeline of tenders awaiting award. 2009 has seen the development
of products for markets other than personal protection, with armour solutions
for an aviation related tender already having been submitted. Subject to the
Company being able to raise a significant level of new funds the Board believes
the Company can take a material step forward towards achieving positive
operational cash flows.
Dr James St Ville
Chairman
23 June 2009
+--------------------------------------------------------------------------+
| Armor Designs, Inc. |
+--------------------------------------------------------------------------+
| CONSOLIDATED BALANCE SHEETS |
+--------------------------------------------------------------------------+
| (Unaudited) December 31, |
+--------------------------------------------------------------------------+
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
| | 2008 | 2007 |
+--------------------------------------+-----------------------+-------------------------------+
| | US$ | US$ |
+--------------------------------------+-----------------------+-------------------------------+
| ASSETS | | |
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
| CURRENT ASSETS | | |
+--------------------------------------+-----------------------+-------------------------------+
| Cash and cash equivalents | 1,199,179 | 13,521,453 |
+--------------------------------------+-----------------------+-------------------------------+
| Receivable from sale of stock | 1,189,922 | 3,304,000 |
+--------------------------------------+-----------------------+-------------------------------+
| Contracts and other Receivables | 176,642 | 7,763 |
+--------------------------------------+-----------------------+-------------------------------+
| Inventory | 456,194 | 0 |
+--------------------------------------+-----------------------+-------------------------------+
| Prepaid Expenses & Deposits | 194,816 | 67,389 |
+--------------------------------------+-----------------------+-------------------------------+
| Total Current Assets | 3,216,753 | 16,900,605 |
+--------------------------------------+-----------------------+-------------------------------+
| PROPERTY AND EQUIPMENT | | |
+--------------------------------------+-----------------------+-------------------------------+
| Net of accumulated Depreciation | 3,461,623 | 122,678 |
+--------------------------------------+-----------------------+-------------------------------+
| DEPOSITS | | |
+--------------------------------------+-----------------------+-------------------------------+
| Equipment | 2,374,359 | 1,005,477 |
+--------------------------------------+-----------------------+-------------------------------+
| Other | 116,940 | 49,000 |
+--------------------------------------+-----------------------+-------------------------------+
| Total Deposits | 2,491,299 | 1,054,477 |
+--------------------------------------+-----------------------+-------------------------------+
| Note Receivable | 830,000 | 0 |
+--------------------------------------+-----------------------+-------------------------------+
| TOTAL ASSETS | 9,999,675 | 18,077,760 |
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
| LIABILITIES AND EQUITY (DEFICIT) | | |
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
| CURRENT LIABILITIES | | |
+--------------------------------------+-----------------------+-------------------------------+
| Line of Credit - related party | 0 | 2,941,467 |
+--------------------------------------+-----------------------+-------------------------------+
| Accounts Payable | 289,351 | 1,376,889 |
+--------------------------------------+-----------------------+-------------------------------+
| Accrued Expenses | 861,527 | 1,109,553 |
+--------------------------------------+-----------------------+-------------------------------+
| Accounts Payable - related party | 202,584 | 111,266 |
+--------------------------------------+-----------------------+-------------------------------+
| Total Current Liabilities | 1,353,462 | 5,539,175 |
+--------------------------------------+-----------------------+-------------------------------+
| EQUITY (DEFICIT) | | |
+--------------------------------------+-----------------------+-------------------------------+
| Common Stock, 0.001 par value; | 26,625 | 25,923 |
+--------------------------------------+-----------------------+-------------------------------+
| Authorised shares 50,000,000 | | |
+--------------------------------------+-----------------------+-------------------------------+
| Issued Shares 26,524,300 and | | |
| 25,922,500 | | |
+--------------------------------------+-----------------------+-------------------------------+
| as of 2008 and 2007 respectively | | |
+--------------------------------------+-----------------------+-------------------------------+
| Additional Paid In Capital | 34,917,341 | 23,481,171 |
+--------------------------------------+-----------------------+-------------------------------+
| Deficit accumulated during | (26,297,753) | (10,968,509) |
| development stage | | |
+--------------------------------------+-----------------------+-------------------------------+
| TOTAL EQUITY | 8,646,213 | 12,538,585 |
+--------------------------------------+-----------------------+-------------------------------+
| TOTAL LIABILITIES AND EQUITY | 9,999,675 | 18,077,760 |
+--------------------------------------+-----------------------+-------------------------------+
| | | |
+--------------------------------------+-----------------------+-------------------------------+
The accompanying notes are an integral part of the financial statements.
+--------------------------------------------------------------------------+
| Armor Designs, Inc. |
+--------------------------------------------------------------------------+
| CONSOLIDATED STATEMENT OF OPERATIONS |
+--------------------------------------------------------------------------+
| (Unaudited) Years ended December 31, |
+--------------------------------------------------------------------------+
+---------------------------------+---------------+--------------+-------------+
| | | | |
+---------------------------------+---------------+--------------+-------------+
| | From 5 | Year Ended | Year Ended |
| | October 2004 | 31 December | 31 |
| | to | | December |
| | 31 December | | |
+---------------------------------+---------------+--------------+-------------+
| | 2008 | 2008 | 2007 |
+---------------------------------+---------------+--------------+-------------+
| | US$ | US$ | US$ |
+---------------------------------+---------------+--------------+-------------+
| | | | |
+---------------------------------+---------------+--------------+-------------+
| REVENUE | 192,816 | 192,816 | 0 |
+---------------------------------+---------------+--------------+-------------+
| COST OF GOODS SOLD | 1,805,006 | 1,805,006 | 0 |
+---------------------------------+---------------+--------------+-------------+
| GROSS MARGIN | (1,612,190) | (1,612,190) | 0 |
+---------------------------------+---------------+--------------+-------------+
| OPERATING EXPENSES: | | | |
+---------------------------------+---------------+--------------+-------------+
| Research and development | 9,050,795 | 1,914,040 | 1,024,922 |
+---------------------------------+---------------+--------------+-------------+
| General and administrative | 12,495,463 | 10,485,710 | 1,453,823 |
+---------------------------------+---------------+--------------+-------------+
| Selling and marketing | 1,012,620 | 744,742 | 198,318 |
+---------------------------------+---------------+--------------+-------------+
| Other | 233,960 | 233,960 | 0 |
+---------------------------------+---------------+--------------+-------------+
| Total Operating Expenses | 22,792,838 | 13,378,452 | 2,677,063 |
+---------------------------------+---------------+--------------+-------------+
| OTHER INCOME/EXPENSES | | | |
+---------------------------------+---------------+--------------+-------------+
| Interest income / expense, net | 1,547,475 | (6,647) | 816,904 |
+---------------------------------+---------------+--------------+-------------+
| Loss on investment, net | 345,249 | 345,249 | 0 |
+---------------------------------+---------------+--------------+-------------+
| Total Other Income/Expenses | 1,892,724 | 338,602 | 816,904 |
+---------------------------------+---------------+--------------+-------------+
| Loss before income taxes | (26,297,753) | (15,329,244) | (3,493,967) |
+---------------------------------+---------------+--------------+-------------+
| Provision for income taxes | 0 | 0 | 0 |
+---------------------------------+---------------+--------------+-------------+
| Net loss | (26,297,753) | (15,329,244) | (3,493,967) |
+---------------------------------+---------------+--------------+-------------+
| Basic and diluted loss per | | (0.58) | (0.16) |
| share | | | |
+---------------------------------+---------------+--------------+-------------+
| Shares used in computation of | | | |
| basic | | | |
+---------------------------------+---------------+--------------+-------------+
| and diluted loss per share | | 26,233,893 | 22,509,377 |
+---------------------------------+---------------+--------------+-------------+
The accompanying notes are an integral part of the financial statements.
Armor Designs, Inc.
+--+-----------------------+-------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) |
+-----------------------------------------------------------------------------------------------------------------------------+
| (Unaudited) Years ended 31 December 2008 and 2007 |
+-----------------------------------------------------------------------------------------------------------------------------+
| |
+-----------------------------------------------------------------------------------------------------------------------------+
| |
+-----------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | Deficit | | |
+--+-------------------------------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | | | | | | | | | Accumulated | | |
+--+-------------------------------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | | | | | Additional | | During the | | |
+--+-------------------------------------+--+---------------------------+--+-------------+--+---------------+--+--------------+
| | | | Common Stock | | Paid-In | | Development | | |
+--+-------------------------------------+--+---------------------------+--+-------------+--+---------------+--+--------------+
| | | | Shares | | Amount | | Capital | | Stage | | Total |
| | | | | | | | | | | | |
+--+-------------------------------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | | | | | | | | | | | |
+--+-------------------------------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | | | US | | US | | US | | US |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 5 October 2004 | - | | - | | - | | - | | - |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Issuance of Common | | 22,500,000 | | 22,500 | | 727,900 | | - | | |
| | Stock | | | | | | | | | | |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Net loss | | - | | - | | - | | (1,854,065) | | (1,854,065) |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 31December 2004 | 22,500,000 | | 22,500 | | 727,900 | | (1,854,065) | | (1,103,665) |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Net loss | | - | | - | | - | | (3,220,019) | | (3,220,019) |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 31 December 2005 | 22,500,000 | | 22,500 | | 727,900 | | (5,074,084) | | (4,323,684) |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Member contributions | - | | - | | 100 | | - | | 100 |
+--+----------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Net loss | | - | | - | | - | | (2,400,458) | | (2,400,458) |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 31 December 2006 | 22,500,000 | | 22,500 | | 728,000 | | (7,474,542) | | (6,724,042) |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Issuance of common stock in exchange | | | | | | | | | |
+--+----------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | for convertible debt | 1,822,500 | | 1,823 | | 8,998,177 | | - | | 9,000,000 |
+--+----------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Issuance of common stock on London | 1,600,000 | | 1,600 | | 13,754,994 | | - | | 13,756,594 |
| | AIM, net of expenses of US2,243,406 | | | | | | | | | |
+--+----------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | Net loss | | - | | - | | - | | (3,493,967) | | (3,493,967) |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| | | | | | | | | | | | |
+--+-----------------------+----------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 31 December 2007 | 25,922,500 | | 25,923 | | 23,481,171 | | (10,968,509) | | 12,538,585 |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Issuance of common stock, | 701,800 | | 702 | | 6,527,513 | | - | | 6,528,215 |
| net of expenses of US489,786 | | | | | | | | | |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Issuance of common stock by | - | | - | | 3,614,985 | | - | | 3,614,985 |
| majority shareholder | | | | | | | | | |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Stock based compensation | - | | - | | 1,293,672 | | - | | 1,293,672 |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Net Loss | - | | - | | - | | (15,329,244) | | (15,329,244) |
+-------------------------------------------+--------------+--+---------+--+-------------+--+---------------+--+--------------+
| Balances, 31 December 2008 | 26,624,300 | | 26,625 | | 34,917,341 | | (26,297,753) | | 8,646,213 |
+--+-----------------------+-------------+--+--------------+--+---------+--+-------------+--+---------------+--+--------------+
The accompanying notes are an integral part of the financial statements.
+---------------------------------------------+--------------+---------------+--------------+
| Armor Designs, Inc. |
+-------------------------------------------------------------------------------------------+
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
+-------------------------------------------------------------------------------------------+
| (Unaudited) Years ended December 31, |
| |
+-------------------------------------------------------------------------------------------+
| | From 5 | | |
| | October | | |
+---------------------------------------------+--------------+---------------+--------------+
| | 2004 to | Year Ended | Year Ended |
+---------------------------------------------+--------------+---------------+--------------+
| | 31 December | 31 December | 31 December |
+---------------------------------------------+--------------+---------------+--------------+
| | 2008 | 2008 | 2007 |
+---------------------------------------------+--------------+---------------+--------------+
| Cash flows from operating activities: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Net Loss | (26,297,753) | (15,329,244) | (3,493,967) |
+---------------------------------------------+--------------+---------------+--------------+
| Adjustments to reconcile net loss to net | | | |
| cash | | | |
+---------------------------------------------+--------------+---------------+--------------+
| used in operating activities | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Depreciation & Amortization | 300,912 | 296,630 | 4,282 |
+---------------------------------------------+--------------+---------------+--------------+
| Stock based compensation | 4,908,657 | 4,908,657 | 0 |
+---------------------------------------------+--------------+---------------+--------------+
| Changes in Assets & Liabilities | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Contracts and other receivables | (1,366,564) | 1,945,199 | (3,032,441) |
+---------------------------------------------+--------------+---------------+--------------+
| Inventory | (456,194) | (456,194) | 0 |
+---------------------------------------------+--------------+---------------+--------------+
| Prepaid Expenses & Deposits | (311,756) | (195,367) | (101,389) |
+---------------------------------------------+--------------+---------------+--------------+
| Notes Receivable | (830,000) | (830,000) | 0 |
+---------------------------------------------+--------------+---------------+--------------+
| Accounts Payable & Accrued Expense | 1,353,462 | (1,244,246) | 1,752,840 |
+---------------------------------------------+--------------+---------------+--------------+
| Net cash used in operating activities | (22,699,236) | (10,904,565) | (4,870,675) |
+---------------------------------------------+--------------+---------------+--------------+
| Cash flows from investing activities: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Purchase of Property & Equipment | (3,762,535) | (3,635,575) | (126,960 ) |
+---------------------------------------------+--------------+---------------+--------------+
| Deposits paid for property & equipment | (2,374,359) | (1,368,882) | (1,005,47) |
+---------------------------------------------+--------------+---------------+--------------+
| Net cash used in investing activities: | (6,136,894) | (5,004,457) | (1,132,437) |
+---------------------------------------------+--------------+---------------+--------------+
| Cash flows from financing activities: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Payments on Line of Credit - Related Party | (5,435,554) | (2,941,467) | (775,339) |
+---------------------------------------------+--------------+---------------+--------------+
| Borrowings on Line of Credit - Related | 5,435,554 | 0 | 451,689 |
| Party | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Proceeds from issuance of convertible bonds | 9,000,000 | 0 | 6,025,000 |
+---------------------------------------------+--------------+---------------+--------------+
| Proceeds from sale of common stock | 20,284,809 | 6,528,215 | 13,756,594 |
+---------------------------------------------+--------------+---------------+--------------+
| Members Contributions | 750,500 | 0 | 0 |
+---------------------------------------------+--------------+---------------+--------------+
| Net cash provided by financing activities | 30,035,309 | 3,586,748 | 19,457,944 |
+---------------------------------------------+--------------+---------------+--------------+
| Net increase (decrease) in cash | | | |
+---------------------------------------------+--------------+---------------+--------------+
| and cash equivalents | 1,199,179 | (12,322,274) | 13,454,832 |
+---------------------------------------------+--------------+---------------+--------------+
| Cash and cash equivalents: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Beginning | | 13,521,453 | 66,621 |
+---------------------------------------------+--------------+---------------+--------------+
| End of Period | | 1,199,179 | 13,521,453 |
+---------------------------------------------+--------------+---------------+--------------+
| Supplemental cash flow information: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Cash paid for interest | 1,391,011 | 6,776 | 721,259 |
+---------------------------------------------+--------------+---------------+--------------+
| Supplemental disclosure of non-cash | | | |
| investing and financing activities: | | | |
+---------------------------------------------+--------------+---------------+--------------+
| Conversion of bonds into common stock and | 9,000,000 | 0 | 9,000,000 |
| warrants | | | |
+---------------------------------------------+--------------+---------------+--------------+
The accompanying notes are an integral part of the financial statements.
NOTE 1 - NATURE OF BUSINESS
Armor Designs, Inc. (the Parent) was incorporated in Delaware on 30 March 2006.
On 1 January 2007, 100% of the membership interests of Armor Designs LLC (the
Subsidiary) were exchanged for common stock of the Parent.
The exchange does not meet the definition of a business combination, and, as
such, purchase accounting does not apply. For purposes of the statement of
changes in equity (deficit) and for computation of earnings per share, the
exchange (including the issuance of common stock) has been presented
retroactively.
The Subsidiary was organised in Delaware on 30 September 2004. The financial
statements prior to incorporation of the Parent represent activities of the
Subsidiary. The Parent and Subsidiary (collectively the Company) are engaged in
the business of developing, manufacturing and marketing innovative armour
products to the defense and law enforcement industries. The Company's focus is
primarily on introducing next generation armour based on patented Volumetrically
Controlled Manufacturing (VCM) technology.
The Company continued to focus on transitioning from a development stage entity
to commercialisation of its products,. The focus of the Company's efforts is the
generation, testing, manufacture and marketing of armour products. The Company's
success will depend on its ability to effectively develop, manufacture, obtain
certification and market innovative armour for military and law enforcement use.
The Company expects to exit the development stage during fiscal year 2009.
These financial statements have been prepared in accordance with accounting
policies generally accepted in the United States of America ("US GAAP"). These
financial statements are presented in US dollars, unless otherwise stated.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business as they become due.
For the year ended 31 December 2008, the Company incurred net losses from
operations of US$15.3 million and has accumulated US$26.3 million from
inception. Additionally, during the year ended 31 December 2008, the Company had
negative cash flows from operating activities of US$10.9 million. Historically,
The Company has relied, in part, upon debt financing, loans from related
entities and raising new capital to fund its operations. In the past, the
Company has been successful in obtaining the capital necessary to meet its
obligations; however, there are no assurances that the Company will be able
continue to raise the sufficient funds needed for working capital until such
time as the operations can provide positive cash flow.
The Company's ability to continue as a going concern is predicated upon its
ability to improve operating results and to continue to fund its cash needs.
Management is pursuing ways to improve operating results in order to generate
additional cash flow from operations. In addition, management has developed a
plan to raise additional capital, if necessary, through the issuance of its
common stock or other equity securities, as well as secure debt financing
collateralized by the company's assets. Management has the ability to curtail
spending and negotiate payments to third parties, in the event the next round of
funding takes longer than anticipated.
Subsequent to 31 December 2008, the Company has completed a borrowing facility
to finance its accounts receivables, secured short-term debt financing and has
entered into several subscription agreements with investors to purchase common
stock of the Company. As of 15 June 2009, the Company has received proceeds from
accounts receivable and debt financing of US$837,000, As of 15 June 2009, the
Company has received proceeds from the sale of common stock of US$0.1 million
and collected the US$1.0 million outstanding balance at 31 December 2008 on the
common stock receivable. In addition, the Company has received commitments
through executed subscription agreements for the purchase of the Company's
common stock of US$2.4 million.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result if the Company is unable to
operate as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as net sales and expenses reported for the
periods presented. The most significant estimates relate to revenue recognition,
inventory obsolescence, bad debts, long-lived assets, stock-based compensation,
and income taxes. The Company regularly assesses these estimates and, while
actual results may differ, management believes that the estimates are
reasonable.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all cash
balances with maturities of less than 90 days to be cash equivalents. While cash
held by financial institutions may at times exceed federally insured limits,
management believes that no material credit or market risk exposure exists due
to the high quality of the institutions. The Company invested a portion of the
proceeds from the Placing described in Note 4. in British gilt. As a result of
the general economic downturn during 2008, the Company realized a loss of
US$566,281 on that investment for the year ended 31 December 2008. The loss was
partially offset by other investment income of US$220,757. At 31 December 2008
the Company had no investment in British gilt.
Fair Value of Financial Instruments and Concentrations of Risk
Financial instruments, consisting of cash, contracts and other receivables,
accounts payable and accrued expenses, are recorded at cost, which approximates
fair value based on the short-term maturities of these instruments and the
current bond issue price.
Contracts and other receivables are derived from related party advances and
revenue due to the Company under a long-term contract. To date, the Company has
not experienced any material credit losses, and therefore has not recorded an
allowance for uncollectible accounts.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. Currently, the Company has no historical collection experience, and
therefore has not recorded an allowance for uncollectible accounts.
Inventory Valuation
Inventories are valued at the lower of cost or market with cost determined using
the First-In, First-Out (FIFO) method, with standard costs approximating actual
costs.
+--------------------------+----------------------+-----------------------+
| Inventory | 2008 | 2007 |
+--------------------------+----------------------+-----------------------+
| | | |
+--------------------------+----------------------+-----------------------+
| Raw Materials | $264,548 | $0 |
+--------------------------+----------------------+-----------------------+
| Finished Goods | 187,921 | 0 |
+--------------------------+----------------------+-----------------------+
| Total Inventory | $456,194 | $0 |
+--------------------------+----------------------+-----------------------+
Property and Equipment
Depreciation is provided using the straight-line method over an estimated useful
life of three years for computer equipment and seven years for capital
equipment. Leasehold Improvements are amortized over the remaining life of the
lease as of the date the asset is placed in service.
+------------------------------+----------------------+----------------------+
| | 2008 | 2007 |
+------------------------------+----------------------+----------------------+
| Depreciation Expense | $230,096 | $4,282 |
+------------------------------+----------------------+----------------------+
| Amortization Expense | $66,534 | $0 |
+------------------------------+----------------------+----------------------+
Revenue Recognition
The Company sells its armour products primarily to the defense and law
enforcement industries. A portion of the Company's products are also sold
through distributors or resellers. The Company recognizes revenue on product
sales when persuasive evidence of an arrangement with the customer exists, title
to the product passes to the customer (usually occurs at the time of shipment),
the sales price is fixed or determinable, and collectability of the related
billing is reasonably assured. Advance payments from customers are deferred and
recognized when the related products are shipped.
Shipping Costs
Shipping costs include charges associated with delivery of goods from the
Company's facilities to its customers and are reflected in cost of goods sold.
Shipping costs paid to the Company by our customers only for amounts that are a
direct reimbursement for shipping are classified as an offset to cost of goods
sold.
Product Warranties
Estimated future warranty obligations related to certain products will be
provided by charges to operations in the period in which the related revenue is
recognized. The Company has not established a reserve for warranty obligations.
Research and Development
Research and development costs are expensed as incurred and are detailed in Note
7.
Stock-Based Compensation
The Company records stock-based compensation in accordance with SFAS 123(R),
Share-Based Payment. SFAS 123(R) requires the measurement and recognition of
compensation expense in the financial statements for all share-based awards to
employees based on estimated fair values. This statement was adopted using the
modified prospective method. Under this method, compensation expense includes
the estimated fair value of equity awards vested during the reported period. The
Company's first issuance of stock-based compensation occurred 31 December 2007.
+------------------------------------+----------------+------------------+
| Compensation Expense | 2008 | 2007 |
+------------------------------------+----------------+------------------+
| Restricted Stock Units (RSUs) | $878,397 | $0 |
+------------------------------------+----------------+------------------+
| Stock Appreciation Rights (SARs) | $223,458 | $0 |
+------------------------------------+----------------+------------------+
| Non-Qualified Stock Options | $191,817 | $0 |
+------------------------------------+----------------+------------------+
A summary of the Company's stock option activity for fiscal years 2007 and 2008
follows:
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| | RSUs | SARs | Stock Options |
+----------------+-----------------------+-----------------------+--------------------------+
| | | Weighted | | Weighted | | Weighted |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| | | Average | | Average | | Average |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| | Shares | Exercise | Shares | Exercise | Shares Under | Exercise |
| | Under | Price per | Under | Price per | Option | price |
| | Option | Share US$ | Option | Share US$ | | per |
| | | | | | | Share US$ |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| 31 December | - | - | - | - | - | - |
| 2006 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| Granted in | 438,500 | - | 69,400 | 10.00 | - | - |
| 2007 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| 31 December | 438,500 | - | 69,400 | 10.00 | - | - |
| 2007 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| Granted in | 205,000 | - | 103,000 | 10.00 | 2,600,000 | 10.00 |
| 2008 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| Forfeited in | (100,000) | - | (6,300) | 10.00 | - | 10.00 |
| 2008 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
| 31 December | 543,500 | - | 166,100 | 10.00 | 2,600,000 | 10.00 |
| 2008 | | | | | | |
+----------------+-----------+-----------+-----------+-----------+--------------+-----------+
The Company recognises compensation expense using the straight-line method for
stock option awards that vest ratably over the vesting period. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
+-------------------------------------------+--------------+--------------+
| | Year ended | Year ended |
+-------------------------------------------+--------------+--------------+
| | 31 December | 31 December |
+-------------------------------------------+--------------+--------------+
| | 2008 | 2007 |
+-------------------------------------------+--------------+--------------+
| Expected options term (years) | 5.9 | 10.0 |
+-------------------------------------------+--------------+--------------+
| Risk free interest rate | 2.03% | 3.29% |
+-------------------------------------------+--------------+--------------+
| Dividend yield | - | - |
+-------------------------------------------+--------------+--------------+
| Volatility | 1.79% | 3.00% |
+-------------------------------------------+--------------+--------------+
The table above is based on the Company's use of (i) the expected life of the
awards representing the weighted-average period the awards are expected to
remain outstanding; (ii) the risk-free interest rate assumption based upon
observed interest rates appropriate for the weighted average expected option
life of the Company's employee stock options; (iii) the dividend yield
assumption based on the Company's history and expectation of dividend payouts;
and (iv) historical volatility of the selected peer group as the expected
volatility in the Black-Scholes model.
Income Taxes
The Company accounts for income taxes using the asset and liability method
recognising temporary differences between the financial reporting and tax bases
of its assets and liabilities as set forth in SFAS 109, Accounting for Income
Taxes and Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109. This method results in deferred income
tax assets and liabilities at the balance sheet date measured by the statutory
tax rates in effect as enacted. The Company's deferred income tax assets include
certain future income tax benefits net of appropriate valuation allowances.
Recognition of deferred tax assets is limited to amounts considered by the
Company to be more likely than not realisable in future periods with all tax
benefits associated with losses incurred having been reserved.
Principles of Consolidation
The financial statements include the accounts of Armor Designs, Inc. and Armor
Designs, LLC. All material intercompany balances and transactions have been
eliminated in consolidation.
NOTE 4 - PUBLIC OFFERING AND STOCK SPLIT
On 20 December 2007, the Company effected a 450 for 1 stock split. Each holder
of record as of that date received four hundred fifty shares for each share of
common stock held. The par value of US$0.001 per share did not change with the
stock split. The accompanying financial statements reflect this transaction
retroactively.
On 31 December 2007, the common shares of the Company were admitted to trading
on the AIM Market of the London Stock Exchange ("Admission"). Upon Admission,
Capita Registrars (Jersey) Limited began serving as the Registrar of the
Company.
The Company raised US$16,000,000, before expenses, by issuing 1,600,000 common
shares at a price of US$10 per share pursuant to a placing (the "Placing") in
conjunction with the Admission. These shares constitute approximately 6.0
percent of the Company's share capital at 31 December 2007. At admission, the
Company had 25,922,500 common shares in issue and a market capitalisation of
US$259,225,000 at the placing price of US$10.
The Placing shares were not registered under the US Securities Act of 1933. The
shares were only offered (i) outside the United States to non-US persons in
reliance on Regulation S under the Securities Act and (ii) within the US to
Accredited US investors in reliance on Regulation D under the Securities Act. Of
the 1,600,000 common shares issued in connection with the Admission 1,275,000
were issued in reliance on Regulation S and 325,000 were issued in reliance on
Regulation D.
The Company raised US$7,018,000, before expenses, during the period ended
December 2008 by issuing 701,800 common shares at a price of US$10 per share
pursuant to Market Demand Arrangements put in place in conjunction with the
Admission. These shares constitute approximately 2.6 percent of the Company's
share capital at 31 December 2008. Funds in the amount of US$5,810,078 were
collected from the sale of common stock as of 31 December 2008. Funds in the
amount of US$1,189,922 were included in the Balance Sheet as a receivable from
the sale of stock as of 31 December 2008. The remaining receivable balance was
collected in full subsequent to year end.
As of 31 December 2008, the Company had 26,524,300 common shares in issue and a
market capitalisation of US$213,255,372 based on the Company's closing stock
price of US$8.04 (trading price of GBP5.50 converted utilizing an exchange rate
of 1.4619) on 31 December 2008. At admission on 31 December 2007, the Company
had 25,922,500 common shares in issue and a market capitalisation of
US$259,225,000 at the placing price of US$10.00.
Upon admission to AIM, the conversion features of outstanding convertible bonds
were triggered (see Note 5). Each convertible bond unit issued converted to
2.025 shares of Common Stock and 2.025 warrants to purchase one share of Common
Stock in the Company. Each warrant granted entitled the holder to purchase one
Common Share at a price per share of 125 percent of the placing price of $US10,
or US$12.50, exercisable on or before the second anniversary of admission or the
date of any secondary issue of Common Shares by the Company following admission.
All Bond Warrants expire if they are not exercised on the Warrant Exercise Date.
A total of 1,822,500 common shares and 1,822,500 warrants were issued as a
result of the conversion.
NOTE 5 - CONVERTIBLE BONDS
During 2007, the Company issued 10% series A convertible bonds. Through 31
December 2007, the Company raised US$6,025,000 from the sale of these bonds at
par. The bonds carried an original maturity date of 31 March 2011. Interest was
payable semi-annually in May and November. Interest expense related to the
convertible bonds amounts to US$0 and US$525,755 for the years ended 31 December
2008 and 2007, respectively. All convertible bonds have been converted into
common stock effective 31 December 2007. As such, no interest charges have been
accrued during the period.
The bonds were automatically convertible into shares of the Company's common
stock in the event that any of the following occur: the consummation of an
initial public offering or substantial private investment, the sale of all or
substantially all of the assets of the Subsidiary or holding company, or an
optional conversion event in which the Subsidiary has the option to call the
bonds at par value, plus any accrued and unpaid interest after 31 December 2007.
The conversion rate of the bonds was dependent on the type of conversion event
noted above. The bonds expressed that each share of converted stock would carry
a warrant to purchase another share of stock at 125% of a price to be
determined. Upon Admission to AIM on 31 December 2007, the above conversion
features were triggered and all convertible bond units were converted into
common shares (see Note 4). Upon conversion, bondholders received 20,250 common
shares for each US$100,000 bond unit held. The same rate was used for the
issuance of the warrants. A total of 1,822,500 common shares and 1,822,500
warrants were issued upon conversion.
NOTE 6 - WARRANTS AND OPTIONS
Warrants for 1,822,500 shares of Common Stock and Restricted Stock Units (RSUs)
/ Stock Appreciation Rights (SARs) for 507,900 shares of Common Stock were
outstanding at the time of the Admission. Exercise of any of these warrants or
options would have a commensurately dilutive effect on the holdings of the
previously issued Common Shares.
Beginning with the year ended 31 December 2007, the Company issued stock awards
to various advisors and key employees as a means of attracting and retaining
quality personnel. The award holders have the right to purchase a stated number
of shares at the exercise price determined in the agreement. These options are
issued under the Armor Designs, Inc 2007 Omnibus Incentive Plan (Plan). The Plan
allows the Company to issue RSUs, SARs and Non-Qualified Stock Options (Stock
Options). Awards may be made under the Plan over shares of common stock not to
exceed 10% of the issued share capital of the Company at the date of the award.
A summary of the Company's option activity and related full grant date fair
value is as follows:
+------------------+-----------+-----------+----------+----------+-----------+----------+
| | RSUs | SARs | Stock Options |
+------------------+-----------------------+---------------------+----------------------+
| | Shares | | Shares | | Shares | |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| | Under | US$ | Under | US$ | Under | US$ |
| | Option | | Option | | Option | |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| 31 December 2006 | - | - | - | - | - | - |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| Granted in 2007 | 438,500 | 4,381,836 | 69,400 | 193,233 | - | - |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| 31 December 2007 | 438,500 | 4,381,836 | 69,400 | 193,233 | - | - |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| Granted in 2008 | 205,000 | 1,682,282 | 103,000 | 180,008 | 2,600,000 | 191,817 |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| Forfeited in | (100,000) | (999,278) | (6,300) | (17,541) | - | - |
| 2008 | | | | | | |
+------------------+-----------+-----------+----------+----------+-----------+----------+
| 31 December 2008 | 543,500 | 5,064,840 | 166,100 | 355,700 | 2,600,000 | 191,817 |
+------------------+-----------+-----------+----------+----------+-----------+----------+
The aggregate intrinsic value represents the total pretax intrinsic value, based
on the Company's closing stock price of US$8.04 (trading price of GBP5.50
converted utilizing an exchange rate of 1.4619) on 31 December 2008, the last
day of trading in the fiscal year, as a result, there were no in-the-money
options exercisable at 31 December 2008.
A summary of the Company's option activity and related vesting value is as
follows
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| | RSUs | SARs | Stock options |
+------------------------+-------------------------+---------------------+-------------------------+
| | Shares | | Shares | | Shares | |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| | Under | US$ | Under | US$ | Under | US$ |
| | Options | | Options | | Options | |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| 31 December 2006 | - | - | - | - | - | - |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Granted in 2007 | 438,500 | 4,381,836 | 69,400 | 193,233 | - | - |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Vested in 2007 | - | - | - | - | - | - |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Nonvested at 31 | 438,500 | 4,381,836 | 69,400 | 193,233 | - | - |
| December 2007 | | | | | | |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Granted in 2008 | 205,000 | 1,682,282 | 103,000 | 180,008 | 2,600,000 | 191,817 |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Vested in 2008 | (133,625) | (1,335,286) | (40,775) | (88,782) | (2,600,000) | (191,917) |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Forfeited in 2008 | (100,000) | (999,278) | (6,300) | (17,541) | - | - |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
| Nonvested at 31 | 409,875 | 3,729,554 | 125,325 | 266,918 | - | - |
| December 2008 | | | | | | |
+------------------------+-----------+-------------+----------+----------+-------------+-----------+
A compensation expense of US$878,397 for RSU's and US$223,404 for SAR's was
recognised during 2008 as the first vesting period occurred in 2008.
Compensation expense per FAS 123R requirements will be recognised rateably over
the four-year period. Additional awards were made during the period ended 31
December 2008 in the form of Stock Options. The Non-Qualified Stock Options were
fully vested when issued and resulted in a compensation expense of $191,817
recognised at 31 December 2008.
The following table shows unrecognised compensation expense related to unvested
RSUs and SARs outstanding as of 31 December 2008. This table does not include an
estimate for future grants that may be issued.
+------------------------------------+------------------+
| Fiscal Year Ended 31 December: | Amount |
+------------------------------------+------------------+
| | US$ |
+------------------------------------+------------------+
| 2009 | 1,306,323 |
+------------------------------------+------------------+
| 2010 | 1,306,323 |
+------------------------------------+------------------+
| 2011 | 1,306,323 |
+------------------------------------+------------------+
| 2012 | 4,382 |
+------------------------------------+------------------+
| | |
+------------------------------------+------------------+
| Total | 3,923,351 |
+------------------------------------+------------------+
As outlined in the Placing Document, Hawthorne & York International, Ltd.
("HYI"), principal shareholder in ADI, has gifted 3.4 million shares of its ADI
shareholding, equal to 13% of the total shares outstanding in the Company, for
distribution to a number of individuals who have primarily assisted HYI in the
years prior to bringing ADI to market. The shares gifted have been transferred
into an irrevocable trust controlled by an independent trustee that will be used
to distribute awards to the recipients in tranches over the coming years. The
gifted shares will be distributed to individuals via the irrevocable trust in
the form of 450,000 shares, and, 2,950,000 share equivalents (non-qualified
stock options and restricted stock units). As of 31 December 2008, 450,000
shares have been distributed.
On 5 December 2008, HYI gifted 450,000 shares of Company Stock to an individual
from the irrevocable trust described above. In accordance with SFAS 123R
requirements, the Company must recognize an expense associated with the gift. As
a result, the company expensed the fair value of US$3,614,985 based on the
Company's closing stock price of US$8.033 (trading price of GBP5.50 converted
utilizing an exchange rate of 1.4606) on 5 December 2008.
HYI has transferred 3,000,000 of its remaining ADI shares, equal to 11% of the
total shares outstanding in the Company, into a securities investment portfolio
account. The securities investment portfolio account into which the shares have
been transferred enables borrowing against all shares within this portfolio
account and, therefore, from time-to-time, some or all of the shares within this
portfolio account, including some ADI shares, could be subject to creditor
liability. HYI has not divested any shares.
NOTE 7 - RESEARCH & DEVELOPMENT COSTS
Expenditures for research activities relating to product development are charged
to expense as incurred. During the year ended 31 December 2007 an existing
contract entered into by the Subsidiary to provide additional product testing
expired. During the year ended 31 December 2008, there was no activity under the
contract to net against research and development cost incurred of US$1,914,032.
For the period ended 31 December 2007 the Subsidiary earned US$551,892 which was
netted against the gross research and development cost incurred of US$1,340,248.
NOTE 8 - RELATED PARTY TRANSACTIONS
Since inception, the Subsidiary, Armor Designs, LLC, has conducted business
through transactions with a related corporation, Hawthorne & York International,
Ltd. (HYI), owned by James A. St Ville, HYI owns approximately 71 percent of
Armor Designs, Inc. at 31 December 2008..
During 2004, the Subsidiary entered into a services agreement with the related
party whereby the related party provides interim research and development
services, including labour, subcontracting, consulting, equipment and technical
upgrades, materials, and other related research and development activities.
The services agreement, as it relates to research and development activities, is
structured in the form of a Line of Credit with interest on unpaid invoices for
services charged at an annual rate of 9%. The outstanding balance of the Line
of Credit as of 31 December 2008 and 2007 was US$0 and US$2,941,467 and accrued
interest totalled US$0 and US$ 22,061, respectively.
Billings from the related party for general and administrative expenses, use of
third party licensed technology, and research and development services conducted
on behalf of the Subsidiary were as follows:
+---------------------------------------------+------------+--+------------+
| | 2008 | | 2007 |
+---------------------------------------------+------------+--+------------+
| Period ended 31 December | US$714,174 | | US$494,642 |
+---------------------------------------------+------------+--+------------+
Included in the accompanying consolidated balance sheets is accounts payable of
US$202,584 and US$111,266 due to the related party at 31 December 2008 and 2007
resepctively, for billings related to general and administrative and research
and development activities, as well as US$47,038 for employee health premiums
paid by the related party during the year ended 31 December 2007.
Interest expense to the related party was as follows:
+---------------------------------------------+------------+-------------+
| Period ended 31 December 2008 and 31 | US$ 0 | US$288,986 |
| December 2007 | | |
+---------------------------------------------+------------+-------------+
The Subsidiary paid rent and other facility occupancy costs on behalf of the
related party for the periods ended 31 December 2008 and 2007.
Facility Occupancy costs incurred on behalf of the related party were as
follows:
+---------------------------------------------+------------+--------------+
| Period ended 31 December 2008 and 31 | US$35,886 | US$28,267 |
| December 2007 | | |
+---------------------------------------------+------------+--------------+
Receivables due from the related party were as follows:
+---------------------------------------------+------------+---------------+
| Period ended 31 December 2008 and 31 | US$30,426 | US$7,763 |
| December 2007 | | |
+---------------------------------------------+------------+---------------+
The Company maintains independent management and human resources. The Company
has also entered into a lease of independent facilities. The Company continues
to utilise the related party for select research and development activities, and
the Line of Credit remains open.
On 3 July 2008 the Company executed a Multiple Advance Revolving Credit Note
with Mr. Charles Snyder, Chief Executive Officer of the Company. The Note
provides Mr. Snyder the ability to borrow up to US$1,000,000 at a Stated
Interest Rate of 1% per annum. The Note is secured by a Deed of Trust,
Assignment of Rents, Security Agreement, Fixture Filing and Stock Pledge
Agreement. The Note may be prepaid at any time without penalty. The total
outstanding balance is due and payable on 2 July 2012 or in the event of
termination or cessation of employment for any reason. As of 31 December 2008,
the outstanding balance due the Company was US$730,000.
On 3 December 2008 the Company loaned Mr. Robert McConnell, Vice President of
the Company, US$100,000. The Company has received a non-interest bearing
Promissory Note reflecting the commitment to repay the loan in full by 30 June
2009. The Note provides the Company the ability to offset the amount of the loan
against the stock in the Company held by the Mr. McConnell.
NOTE 9 - INCOME TAXES
For Fiscal 2008 and 2007, the Company recorded no current or deferred income tax
provision expense for state or federal taxes.
The provision for income taxes for the years ended 31 December 2008 and 2007
differ from the amount computed by applying the statutory U.S. federal and state
income tax rates to pre-tax loss as a result of the following:
+--------------------------------------------------+-------------+----------+
| | US$ | % |
+--------------------------------------------------+-------------+----------+
| Computed tax benefit | (5,917,000) | 38.6 |
+--------------------------------------------------+-------------+----------+
| Increases (reductions) in tax expense resulting | | |
| from: | | |
+--------------------------------------------------+-------------+----------+
| Permanent items | 1,422,000 | 9.3 |
+--------------------------------------------------+-------------+----------+
| Credits | (205,000) | (1.3) |
+--------------------------------------------------+-------------+----------+
| Change in valuation allowance for deferred tax | 4,700,000 | 30.6 |
| assets | | |
+--------------------------------------------------+-------------+----------+
| Provision for income taxes - | | - |
+--------------------------------------------------+-------------+----------+
The Company provides deferred income taxes which reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at 31 December 2008 and
2007 were as follows:
+----------------------------------------------+--------------+-------------+
| Deferred tax assets: | 2008 | 2007 |
+----------------------------------------------+--------------+-------------+
| | US$ | US$ |
+----------------------------------------------+--------------+-------------+
| Non-current | | |
+----------------------------------------------+--------------+-------------+
| Net operating loss carryforwards | 5,370,000 | 1,571,000 |
+----------------------------------------------+--------------+-------------+
| Depreciation and amortisation | (11,000) | 12,000 |
+----------------------------------------------+--------------+-------------+
| Research & development tax credits | 329,000 | 96,000 |
+----------------------------------------------+--------------+-------------+
| Total Non-current | 5,688,000 | 1,679,000 |
+----------------------------------------------+--------------+-------------+
| Current deferred tax assets (liabilities) | | |
+----------------------------------------------+--------------+-------------+
| Accruals | 697,000 | 21,000 |
+----------------------------------------------+--------------+-------------+
| Prepaid expenses | 0 | (15,000) |
+----------------------------------------------+--------------+-------------+
| Total current | 697,000 | 6,000 |
+----------------------------------------------+--------------+-------------+
| Total deferred tax assets | 6,385,000 | 1,685,000 |
+----------------------------------------------+--------------+-------------+
| Valuation allowance | (6,385,000) | (1,685,000) |
+----------------------------------------------+--------------+-------------+
| Net deferred tax assets | - | - |
+----------------------------------------------+--------------+-------------+
The Company has available at 31 December 2008, unused federal and state net
operating loss carryforwards of approximately US$13,913,000 and state net
operating loss carryforwards of approximately US$13,897,000, which may be
applied against future taxable income expiring in 2027 and 2012, respectively.
Since the Company is a development stage entity in the reporting period and
future revenues are unpredictable, a valuation allowance equal to net deferred
tax benefits associated with the above items has been provided. The valuation
allowance increased by US$4,700,000 in 2008.
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT
The Company policy is to capitalise all equipment, either moveable or fixed,
with a unit acquisition cost of US$2,500 or greater and a useful life of two
years or more. Acquisition value includes the cost of the equipment and any
associated costs incurred to make the equipment usable for the purpose for which
it was intended, including installation costs.
As of 31 December 2008, the Company capitalised and was depreciating fixed
assets per the following schedule:
+---------------------------------------+----------------+------------------+
| | Life | Book Value |
+---------------------------------------+----------------+------------------+
| | | US$ |
+---------------------------------------+----------------+------------------+
| | | |
+---------------------------------------+----------------+------------------+
| Computer equipment | 3 | 107,828 |
+---------------------------------------+----------------+------------------+
| Computer software | 3 | 130,113 |
+---------------------------------------+----------------+------------------+
| Equipment | 7 | 2,026,529 |
+---------------------------------------+----------------+------------------+
| Production Molds | 3 | 309,769 |
+---------------------------------------+----------------+------------------+
| Furniture & Fixtures | 7 | 34,121 |
+---------------------------------------+----------------+------------------+
| Leaseholds | (Lease) | 1,154,176 |
+---------------------------------------+----------------+------------------+
| Subtotal: | | 3,762,536 |
+---------------------------------------+----------------+------------------+
| Less: accumulated depreciation and | | (300,912) |
| amortisation | | |
+---------------------------------------+----------------+------------------+
| Total: | | 3,461,624 |
+---------------------------------------+----------------+------------------+
During the year ended 31 December 2008 the Company paid US$2,374,358 in deposits
towards the purchase of production equipment. The deposits are recorded as other
assets and will be converted to fixed assets and depreciated once the equipment
is placed in service.
NOTE 11 - COMMITMENTS, LEASE RENEWAL AND PURCHASE OPTIONS
In December 2007, the Company entered into an operating lease agreement for its
facility located at 4645 S. 35th Street in Phoenix, Arizona. Under the
agreement, the Company is required to pay rent through December 2012 as follows:
+-----------------------------------------+----------------------------------+
| Periods ending December 31, | US$ |
+-----------------------------------------+----------------------------------+
| | |
+-----------------------------------------+----------------------------------+
| 2008 | 530,807 |
+-----------------------------------------+----------------------------------+
| 2009 | 539,368 |
+-----------------------------------------+----------------------------------+
| 2010 | 547,930 |
+-----------------------------------------+----------------------------------+
| 2011 | 565,052 |
+-----------------------------------------+----------------------------------+
| 2012 | 582,175 |
+-----------------------------------------+----------------------------------+
| | |
+-----------------------------------------+----------------------------------+
| | 2,765,332 |
+-----------------------------------------+----------------------------------+
In December 2007, the Company entered into an Option Agreement to purchase the
facility located at 4645 S. 35th Street in Phoenix, Arizona. Under the
agreement, the Company was granted the exclusive right and option to purchase
the property. The option became effective at the signing of the lease and
continues until the earliest to occur of: (a) one hundred twenty (120) days
after the Commencement Date under the Lease; or (b) the date the Lease is
terminated if such Lease is terminated prior to Company purchasing the property.
The purchase price for the property under the option was US$7,500,000.00. During
the year ended 31 December 2008, the purchase option was triggered but not
completed resulting in a forfeit fee of US$200,000. The option has since
expired.
Effective 13 September 2004, the Subsidiary, Armor Designs, LLC, entered into a
contract with Hawthorne & York International, Ltd., a company owned by James A.
St Ville (71% ownership of the Company), for use of certain licensed
technological products and processes owned by the related party, until September
13, 2009, at such time the contract will automatically renew for five-year
terms. The Subsidiary is obligated to pay 4% of gross sales on a quarterly basis
to the related party subject to a maximum amount payable of US$7,000 per quarter
for the first 18 months after the Company commences production or sub-licences.
In addition, the Subsidiary entered into a contract on the same date with Aztec
IP, a company owned by James A. St Ville for use of licensed patents owned by
the related party. Under this contract, the Subsidiary is obligated to pay the
related entity 2% of gross sales on a quarterly basis subject to a maximum
amount payable of US$3,000 per quarter for the first 18 months after the Company
commences production or sub-licences. This contract has the same expiration and
renewal dates.
NOTE 12 - RETIREMENT PLAN
Employees of the Company that meet certain age and service requirements are
eligible to participate in the Armor Designs, Inc. 401(k) and Profit Sharing
Plan (formerly the James A. St. Ville, M.D. Savings and Profit Sharing Plan).
Employer profit sharing and matching contributions to the 401(k) component of
the plan and profit sharing contributions may be made at the discretion of the
Company's management. The Company did not make matching or profit sharing
contributions for the years ended 31 December 2008 or 2007.
NOTE 13 - EARNINGS PER SHARE
The Company accounts for income (loss) per share in accordance with SFAS No. 128
"Earnings Per Share". Basic income per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
periods presented. Diluted income per share reflects the potential dilution that
could occur if outstanding stock options were exercised utilising the treasury
stock method. The calculation of the weighted average number of shares
outstanding and earnings per share are as follows:
+--+----------------------------+-----+-----------------+----------------+
| Basic Earnings Per Share | | 31 Dec 2008 | 31 Dec 2007 |
+-------------------------------+-----+-----------------+----------------+
| | | | |
+-------------------------------+-----+-----------------+----------------+
| Net loss after tax | |US$(15,329,244) |US$(3,493,967) |
+-------------------------------+-----+-----------------+----------------+
| Divided by weighted average | | 26,233,893 | 22,509,377 |
| shares | | | |
+-------------------------------+-----+-----------------+----------------+
| | Basic loss per share | | US$(0.58) | US$(0.16) |
+--+----------------------------+-----+-----------------+----------------+
| | | | |
+-------------------------------+-----+-----------------+----------------+
| | Diluted loss per share | | US$(0.58) | US$(0.16) |
+--+----------------------------+-----+-----------------+----------------+
| | | | |
+--+----------------------------+-----+-----------------+----------------+
For 2008 and 2007, because of our reported net loss, all potentially diluted
securities were excluded from the per share computations due to their
anti-dilutive effect.
NOTE 14 - COMMON STOCK
The Company shareholders passed a resolution at the annual Meeting held on Sept
23, 2008, that empowers the Board to repurchase or otherwise acquire shares of
the Company's Common Stock in the open market or in private transactions, with
such repurchases not to exceed US$5,000,000 in the aggregate. The resolution
states that no such repurchase shall be made when the capital of the Company is
impaired or when such purchase or acquisition would cause any impairment of the
capital of the Company.
NOTE 15 - SUBSEQUENT EVENT
On 11 June 2009, the Board accepted the resignation of Charles Snyder as a
director and Chief Executive Officer of the Company effective 22 June 2009. At
the time of his separation, Mr. Snyder had a balance outstanding of US$730,000
on a personal loan from the Company. The terms of his separation provided 50% of
the outstanding balance to be forgiven with the remaining balance if US$365,000
to be paid back within six months of his separation date.
On 11 June 2009, the Board also accepted the resignation of David Seaton as a
director and Chief Financial Officer effective 22 June 2009.
On 19 June 2009, the Company announced the appointment of Philip A. Clement as
its Interim President & Chief Executive Officer, and J. Craig Johnson, as
Interim Chief Financial Officer, both effective 22 June 2009.
In addition, The Board appointed William A. Roper as a non-executive director.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EALKDASLNEFE
Armor Des Regs (LSE:ADIS)
Historical Stock Chart
From Jun 2024 to Jul 2024
Armor Des Regs (LSE:ADIS)
Historical Stock Chart
From Jul 2023 to Jul 2024
