Latest Results
Results for year ended 31 December, 2009
Armor Designs, Inc., ("ADI", "Armor" or the "Company"), a knowledge-based designer, developer and manufacturer of next generation composite protective products, today announces its audited results for the year ended 31 December 2009.
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- Chairman's and Chief Executive's Statement
- Consolidated Balance Sheet
- Consolidated Statement of Operations
- Consolidated Statements of Changes in Equity
- Notes
Business Developments
- Ongoing transition from development company to commercial entity
- Introduction of the first U.S. NIJ .06 certified Stand Alone Level IV plate (advanced protection body armour plates);
- First sales into U.S. government Homeland Security departments and governmental agencies in the Philippines and Korea;
- Established design, manufacturing and distribution joint venture in Asia;
- ISO 9001:2008 Certification obtained for design and manufacturing; and
- Scorpion Works achievement of multiple technology milestones and product certifications.
Financial Developments
- First full year of revenues generated from commercial operations;
- Sales of US$1.05m for the year ended 31 December 2009;
- Operating loss of US$11.7m, (US$9.1m after US$2.6m of non-cash items) in 2009;
- Equity fundraising in 2009 of US$1.5m closed;
- Reduced operating expenses by over 41% from prior year levels, from US$15.8m in 2008 to US$9.2m in 2009;
- Established accounts receivable financing facility with a credit capacity of US$0.25m;
- The Company continues its efforts to correct and strengthen the balance sheet conditions previously announced and described more fully in footnotes 2 and 16 to the financial statements; and
- Correction of an error, dating back to 2007, in the fair value of stock based compensation (a non-cash item) calculated for 2008, resulting in restatement of the financial statements for the year ended 31 December 2008. The re-statement had no impact on cash, other assets or any liabilities.
Post Balance Sheet Events
- As announced on 28 June 2010, closing of US$3.6m equity fundraising; and
- Commitment for a US$10.0m line of credit as announced on 28 June 2010. Fulfillment of the commitment is subject to completion of due diligence and execution of legal documents. Availability of funds to be dependent on achievement of commercial and product development milestones.
Commenting on the results, Philip Clement, CEO of Armor Designs, Inc., said: "2009 was a challenging year, but a year that brought us another step towards achievement of our long term strategy. As a result of the significant expense reductions made during the year, we have streamlined our cost structure and are now well positioned for business development growth and profitability. We have continued to build on the reputation which has set us apart for providing leading edge armour solutions using our proprietary IP know-how. Our existing products are meeting good acceptance in the market and our VCM technology is leading customers to ask us for solutions to their problems. Now that we have commitments to address the short term working capital requirements which constrained us in 2009, we are confident that we can move forward to commercially exploit our technology."
The Company confirms that copies of the annual report and accounts for the period ended 31 December 2009 have been sent to shareholders and copies will shortly be available on the Company's website www.armordesigns.com
The Chairman and Chief Executive's Statement and the financial report, which are contained below and form part of this announcement, include further important information and disclosures; the announcement should be read in its entirety.
Chairman's and Chief Executive's Statement
The Board is pleased to report Armor Designs Inc. results for the year ended 31 December 2009. 2009 was the Company's initial year of commercial production, realising its first sales to U.S. government Homeland Security Departments and governmental agencies in the Philippines and Korea. Through a concerted effort, the Company implemented a strategic cost reduction program resulting in improved gross margin on product sales and better positioning the Company to take advantage of future opportunities.
Strategic and Operational Progress
As expected, 2009 was challenging due to working capital constraints and weak global business opportunities. During the year, the Company obtained improved quality assurance through "ISO 9001:2008" certification for design and manufacturing of ADI products. In late 2009, Armor was the first company to certify a level-4 protection plate as per U.S. National Institute of Justice-06 (NIJ-06) standards. The Company also introduced its lightest NIJ certified level-3 protection "Stand Alone" plate. The Company was selected to provide solutions to U.S. Special Operations Command (SOCOM) for the development of lighter plates. Currently, the plates from Armor Designs are being evaluated at SOCOM.
In 2009, Scorpion Works, ADI's expanded research and development team, developed a series of body armour plates, which can be integrated with the universal level-3A protection vests or can be used as a stand-alone plate for foreign markets. These designs were done in considerably less time than current industry practices using ADI's VCM technology and IP know-how. The Company believes the research and development efforts will generate significant opportunities in 2010. In addition, the Company designed and delivered the first batch of synthetic panels for the air lifts used in Afghanistan for military applications.
Throughout 2009 the Company strengthened its manufacturing capabilities by optimising its existing processes and implementing new process controls at every critical operation step. The 6-sigma approach along with Continuous Improvement Programs (CIP's), both recognised in industry as best practice, were introduced and implemented during the later part of 2009. The results achieved via the implementation of 6-sigma and CIP's were significant and helped contribute to the reduction of the Company's monthly cash burn rate.
In 2009 the Company won several key new customers, and the Company continued to build on the reputation which has set it apart for providing leading edge armour solutions using its proprietary IP know-how. Although there was a limited marketing and sales effort during the year, a number of new distribution channels opened both domestically and overseas. In addition, the Company was able to expand its International Traffic in Arms Regulations (ITAR) licenses as a defence industry exporter in a number of overseas countries.
Financial
The Company generated US1.05 million in its full first year of commercial operation. However, the fundamental infrastructure needed to execute the transition from a development company to a commercial entity resulted in an operating loss of US$(11.7) million (2008: US$(17.8) million, as restated). The results continue to be affected by non-cash charges relating to the ongoing expense associated with the grant of Restricted Stock Units and Stock Appreciation Rights by the Company along with Non-qualifying Stock Options and the award of shares by its majority shareholder, Hawthorne and York International Ltd (HYI). Due to HYI's majority ownership of the Company, US GAAP accounting rules require the Company to reflect awards granted by HYI in its financial results. These charges are non-cash items and totaled US$1.7 million in 2009.
In 2009, as part of moving the Company's transition from a development stage company to full commercial operations, management reduced operating expenses and associated cash expenditures by approximately 41% as compared to the same period the prior year. As a result, during the year ended 31 December 2009, general and administrative expenses decreased to US$6.9 million (2008: US$12.9 million, as restated). Selling and marketing expenses increased to US$0.9 million (2008: US$0.7 million) as a result of costs incurred to respond to longer term payoff projects and to a lesser degree the establishment of an international distribution network. Research and development costs for the period decreased to US$1.4 million (2008: US$1.9 million).
During the year ended 31 December 2009, capital expenditures decreased to US$0.1 million as compared to US$5.0 million for 2008.
Subsequent to 2009, there continues to be improvement in order activity as evidenced by a steady increase in monthly sales in the first five months of 2010 which are substantially above the run rate for the same period in 2009.
During the audit of the results to December 2009, an error was discovered, discussed further below, that required the Company to restate its financial statements for the year ended 31 December 2008, the re-statement had no impact on cash, other assets or any liabilities.
During the audit of the results to December 2009, it was determined that the calculation of expected volatility, the expected life of the options and the number of options granted in 2008 were incorrect resulting in an error in the estimated fair value of the options granted in 2008 (See Notes 3 and 5 of the footnotes to the financial statements). As a result, the fair value of stock based compensation for the year ended 31 December 2008 was understated. Stock options granted in 2008 were previously reported as 2,600,000 have been revised and presented as 1,300,000 in the accompanying consolidated financial statements. The fair value of the stock awards has been recomputed and reflected in the accompanying consolidated financial statements. The correction had the effect of increasing the net loss by US$2,427,217 or US$(0.10) per share for the year ended 31 December 2008, with an offsetting increase in additional paid in capital. As such, there was no impact on cash or other assets or any liabilities. The deficit accumulated during development stage increased by US$2,427,217 as of 31 December 2008. There was no impact to the deficit accumulated during development stage for 31 December 2007 or prior periods.
Fund Raising
On 28 June 2010 the Company announced it had completed a secondary fund-raising of US$3.6 million prior to expenses, through a placing with a number of existing and new investors of 238,335 new common shares at a placing price of US$15 per new common share. The net proceeds were used for short term working capital requirements.
In addition, on 28 June 2010, the Company announced that it has received a letter of commitment from a boutique U.S. based investment fund, specialising in debt financing for companies in the knowledge-based or intellectual property sectors. The letter of commitment is in the form of a US$10.0 million Senior Debt Facility (the "Facility") in the form of a line of credit. The availability of the Facility is subject to completion of due diligence and execution of legal documents, with an anticipated close on or around July 15, 2010. The Facility is expected to include an immediate advance of US$4.0 million with follow-on advances, up to a cumulative total of US$10.0 million, made available based on the Company's achievement of certain operational and financial milestones. The Facility has a proposed 5-year term, two warrant provisions (with strike prices of US$22.50 and US$24.00, respectively), conversion rights (at US$15 per share) and is collateralized, in part, by the Company's intellectual property. In addition, the Company will be expected to maintain certain usual and customary Covenants during the term of the Facility.
The Company will update the market, on our around July 15th, 2010, as to the status of the close of the Credit Facility.
As previously disclosed, the Company announced that it closed a fund-raising by which it has raised US$1.5 million, before expenses, through a placing with investors of 100,000 new common shares. In the second quarter 2009, the Company established an accounts receivable financing facility to contribute towards its working capital needs. The amount expected to be made available to the Company pursuant to this facility in the next 12 months is approximately $0.25 million.
US GAAP accounting rules require the Company to validate that it has sufficient working capital either on hand, irrevocably pledged or reasonably secured through ongoing operational activity. If there is any shortfall or material uncertainty that the Company may not have or generate the working capital it requires for a minimum period of twelve months subsequent to the date of the accounts, then the Company is required to disclose this in the footnotes to the financial statements. The recently completed round of equity fund raising is insufficient to meet the Company's capital requirements over the required period and so the Company has included a formal disclosure note (Note 2) on its Going Concern situation. The note refers to certain events and circumstances which give rise to funding uncertainties. However, the Directors believe that Armor has adequate resources and financing options available to support the going concern basis.
Board, Management, Nominated Advisor and Broker
As previously announced, during the second quarter 2009 the Board accepted the resignations of Charles Snyder, CEO and David Seaton, CFO. The Company appointed a new CEO, Philip A. Clement (interim) and CFO, J. Craig Johnson to strengthen the management team. In addition, William A. Roper, an experienced corporate executive, was brought onto the Board as a non executive director.
The Company also announced that following completion of the Annual General Meeting of the Company, on 29 September 2009, Sir Richard Johns and Nicholas Smith had retired as directors of the Company. The board thanked each of them for their significant contributions to the development of the business during their respective terms of office.
In addition, the Company appointed Shore Capital and Corporate Limited as Nominated Adviser ("Nomad") and Shore Capital Stockbrokers Limited as broker to the Company and accepted the resignations of ZAI Corporate Finance Limited as its Nomad and Alexander David Securities Limited as its broker.
Outlook
We expect 2010 to be the year during which Armor completes the transition from the development stage to full commercial operations. Securing a commitment for debt financing has put the Company in a position to move forward on the important product development opportunities that exist in vehicle, infrastructure and energy installation protection as well as rounding out Armor's body armour plate offering. Armor's products have gained considerable acceptance and management believes the Company will be able to capitalise on that acceptance by increasing unit sales and average revenue per unit. There are a number of significant opportunities that Armor is pursuing and several of these opportunities have sales potential that is in excess of the total sales achieved since inception. Also, the Company is now in a position to establish the appropriate capital structure expected for a knowledge based company.
| James A. St. Ville Chairman 30 June 2010 |
Philip A. Clement Chief Executive Officer (Interim) 30 June 2010 |
CONSOLIDATED BALANCE SHEET
31 December
| 2009 | 2008 | ||||||||
| US$ | US$ | ||||||||
| ASSETS | As revised - see Note 17 | ||||||||
| CURRENT ASSETS | |||||||||
| Cash and cash equivalents | $ | 21,435 | $ | 1,199,179 | |||||
| Receivable from sale of common stock | - | 1,189,922 | |||||||
| Accounts receivable, net | 139,168 | 176,642 | |||||||
| Inventory | 237,794 | 456,194 | |||||||
| Prepaid expenses and deposits | 119,700 | 181,140 | |||||||
| Total current assets | 518,097 | 3,203,077 | |||||||
| NOTES RECEIVABLE, RELATED PARTY | 277,552 | 830,000 | |||||||
| PROPERTY AND EQUIPMENT, NET | 4,937,302 | 3,461,623 | |||||||
| DEPOSITS | |||||||||
| Equipment | - | 2,374,359 | |||||||
| Other | 130,616 | 130,616 | |||||||
| Total deposits | 130,616 | 2,504,975 | |||||||
| TOTAL ASSETS | $ | 5,863,567 | $ | 9,999,675 | |||||
| LIABILITIES AND EQUITY (DEFICIT) | |||||||||
| CURRENT LIABILITIES | |||||||||
| Accounts payable | $ | 1,718,559 | $ | 289,351 | |||||
| Accounts payable, related party | 896,897 | 202,584 | |||||||
| Accrued expenses | 498,480 | 861,527 | |||||||
| Accrued expenses, related party | 312,000 | - | |||||||
| Notes payable, related party | 510,000 | - | |||||||
| Notes payable | 358,956 | - | |||||||
| Total current liabilities | 4,294,892 | 1,353,462 | |||||||
| Commitments and contingencies (Note 9) | - | - | |||||||
| EQUITY (DEFICIT) | |||||||||
| Common stock, $0.001 par value; | 26,787 | 26,625 | |||||||
| Authorized shares | 50,000,000 | ||||||||
| Issued Shares: | 2009 | 2008 | |||||||
| 26,786,801 | 26,524,300 | ||||||||
| Additional paid-in capital | 41,966,160 | 37,344,558 | |||||||
| Deficit accumulated during development stage | (40,424,272) | (28,724,970) | |||||||
| TOTAL EQUITY | 1,568,675 | 8,646,213 | |||||||
| TOTAL LIABILITIES AND EQUITY | $ | 5,863,567 | $ | 9,999,675 | |||||
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
| Unaudited | ||||||||||||
| From 30 Sept. 2004 (Inception) to 31 Dec. 2009 |
Years ended 31 December, | |||||||||||
| 2009 | 2008 | |||||||||||
| US$ | US$ | US$ | ||||||||||
| As revised - see Note 17 | ||||||||||||
| REVENUE | $ | 1,237,923 | $ | 1,045,107 | $ | 192,816 | ||||||
| COST OF GOODS SOLD | 5,239,647 | 3,434,641 | 1,805,006 | |||||||||
| GROSS MARGIN | (4,001,724) | (2,389,534) | (1,612,190) | |||||||||
| OPERATING EXPENSES: | ||||||||||||
| Research and development | 10,468,468 | 1,417,673 | 1,914,040 | |||||||||
| General and administrative | 21,790,286 | 6,867,606 | 12,912,927 | |||||||||
| Selling and marketing | 1,884,889 | 872,269 | 744,742 | |||||||||
| Other | 317,003 | 83,042 | 233,960 | |||||||||
| Total operating expenses | 34,460,646 | 9,240,590 | 15,805,669 | |||||||||
| OTHER INCOME/EXPENSE | ||||||||||||
| Interest income/(expense), net | (1,616,653) | (69,178) | 6,647 | |||||||||
| Loss on investment, net | (345,249) | - | (345,249) | |||||||||
| Total other income/(expense) | (1,961,902) | (69,178) | (338,602) | |||||||||
| Loss before income taxes | (40,424,272) | (11,699,302) | (17,756,461) | |||||||||
| Provision for income taxes | - | - | - | |||||||||
| NET LOSS | $ | (40,424,272) | (11,699,302) | $ | (17,756,461) | |||||||
| Basic and diluted loss per share | $ | (0.44) | $ | (0.68) | ||||||||
| Shares used in computation of basic | ||||||||||||
| and diluted loss per share | 26,646,428 | 26,233,893 | ||||||||||
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
As revised - see Note 17
| Common Stock Shares |
Common Stock Amount |
Additional Paid-In Capital |
Deficit Accumulated During the Development Stage |
Total | |||||||||||
| US$ | US$ | US$ | US$ | ||||||||||||
| 30 September 2004 | - | $ | - | $ | - | $ | - | $ | - | ||||||
| Issuance of Common Stock | 22,500,000 | 22,500 | 727,900 | - | 750,400 | ||||||||||
| Net loss | - | - | - | (1,854,065) | (1,854,065) | ||||||||||
| 31 December 2004 | 22,500,000 | 22,500 | 727,900 | (1,854,065) | (1,103,665) | ||||||||||
| Net loss | - | - | - | (3,220,019) | (3,220,019) | ||||||||||
| 31 December 2005 | 22,500,000 | 22,500 | 727,900 | (5,074,084) | (4,323,684) | ||||||||||
| Member contributions | - | - | 100 | - | 100 | ||||||||||
| Net loss | - | - | - | (2,400,458) | (2,400,458) | ||||||||||
| 31 December 2006 | 22,500,000 | 22,500 | 728,000 | (7,474,542) | (6,724,042) | ||||||||||
| Issuance of common stock in exchange | |||||||||||||||
| for convertible debt | 1,822,500 | 1,823 | 8,998,177 | - | 9,000,000 | ||||||||||
| Issuance of common stock on London | |||||||||||||||
| AIM, net of expenses of US$2,243,406 | 1,600,000 | 1,600 | 13,754,994 | - | 13,756,594 | ||||||||||
| Net loss | - | - | - | (3,493,967) | (3,493,967) | ||||||||||
| 31 December 2007 | 25,922,500 | 25,923 | 23,481,171 | (10,968,509) | 12,538,585 | ||||||||||
| Issuance of common stock on London AIM | |||||||||||||||
| net of expenses of US $489,786 | 601,800 | 602 | 6,527,613 | - | 6,528,215 | ||||||||||
| Issuance of common stock | |||||||||||||||
| by majority shareholder | - | - | 3,614,985 | - | 3,614,985 | ||||||||||
| Stock based compensation | - | - | 3,720,889 | - | 3,720,889 | ||||||||||
| Net loss | (17,756,461) | (17,756,461) | |||||||||||||
| 31 December 2008 | 26,524,300 | 26,525 | 37,344,658 | (28,724,970) | 8,646,213 | ||||||||||
| Private placement of common stock | 215,000 | 215 | 1,499,785 | - | 1,500,000 | ||||||||||
| Capital stock subscribed, not issued | - | - | 1,350,000 | - | 1,350,000 | ||||||||||
| Exercise of restricted stock | 47,501 | 47 | (47) | - | - | ||||||||||
| Stock based compensation | - | - | 1,771,764 | - | 1,771,764 | ||||||||||
| Net loss | - | - | - | (11,699,302) | (11,699,302) | ||||||||||
| 31 December 2009 | 26,786,801 | $ | 26,787 | $ | 41,966,160 | $ | (40,424,272) | $ | 1,568,675 | ||||||
The accompanying notes are an integral part of the financial statements.
| Unaudited | ||||||||
| From 30 September 2004 (Inception) |
Years ended 31 December | |||||||
| to 31 December 2009 | 2009 | 2008 | ||||||
| Cash flows from operating activities: | US$ | US$ | US$ | |||||
| As revised - see Note 17 | ||||||||
| Net loss | $ | (40,424,272) | $ | (11,699,302) | $ | (17,756,461) | ||
| Adjustments to reconcile net loss to net | ||||||||
| cash provided by (used in) operating activities: | ||||||||
| Depreciation and Amortization | 1,091,216 | 790,304 | 296,630 | |||||
| Stock based compensation | 9,107,638 | 1,771,764 | 7,335,874 | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable and other receivables | (139,168) | 1,227,396 | 1,945,199 | |||||
| Inventory | (237,794) | 218,400 | (456,194) | |||||
| Prepaid expenses and deposits | (43,879) | 267,877 | (195,367) | |||||
| Notes receivable, related party | (642,552) | 187,448 | (830,000) | |||||
| Forgiveness of note receivable, related party | 365,000 | 365,000 | - | |||||
| Accounts payable and accrued expense | 3,425,936 | 2,072,474 | (1,244,246) | |||||
| Net cash used in operating activities | (27,497,875) | (4,798,639) | (10,904,565) | |||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (6,234,955) | (98,061) | (5,004,457) | |||||
| Net cash (used in) investing activities | (6,234,955) | (98,061) | (5,004,457) | |||||
| Cash flows from financing activities | ||||||||
| Payments on line of credit - related party | (5,435,554) | - | (2,941,467) | |||||
| Borrowings on line of credit - related party | 5,435,554 | - | - | |||||
| Note payable payments - related party | (113,000) | (113,000) | - | |||||
| Note payable proceeds - related party | 623,000 | 623,000 | - | |||||
| Note payable payments | (201,057) | (201,057) | - | |||||
| Note payable proceeds | 560,013 | 560,013 | - | |||||
| Proceeds from issuance of convertible bonds | 9,000,000 | - | - | |||||
| Proceeds from the sale of common stock and stock subscriptions | 23,134,809 | 2,850,000 | 6,528,215 | |||||
| Members contributions | 750,500 | - | - | |||||
| Net cash provided by financing activities | 33,754,265 | 3,718,956 | 3,586,748 | |||||
| Net increase (decrease) in cash and cash equivalents | 21,435 | (1,177,744) | (12,322,274) | |||||
| Cash and cash equivalents: | ||||||||
| Beginning | - | 1,199,179 | 13,521,453 | |||||
| Ending | $ | 21,435 | $ | 21,435 | $ | 1,199,179 | ||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | 1,460,189 | 69,178 | 6,776 | |||||
| Supplemental disclosure of non-cash investing | ||||||||
| and financing activities | ||||||||
| Conversion of bonds into common stock and warrants | 9,000,000 | - | - | |||||
| Application of deposits to purchases of equipment | - | 2,374,359 | - | |||||
The accompanying notes are an integral part of the financial statements.
Notes
Notes to the financial statement are available in the pdf download
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