American Defense Systems, Inc. (ADSI) (NYSE
Amex: EAG), a provider of advanced transparent and opaque armor,
architectural hardening and security products for Defense and
Homeland Security, reported financial results for the second
quarter ended June 30, 2010.
Q2 2010 Financial Results
Revenues from continuing operations in the second quarter of
2010 decreased 18.5% to $11.4 million from $14.0 million in the
same year-ago quarter. This decrease was due primarily to a
completed but unbilled contract of $2.9 million that is awaiting
customer acceptance. This was offset by increased sales of our
physical security products. The company's physical security product
business increased 173% to $3.0 million from revenues of $1.1
million in the same year-ago quarter.
Gross profit margin in the second quarter was 15.8% as compared
to 38.6% in the same year-ago quarter. The decrease was primarily
due to an increase in cost of sales from physical security product
business, and increased sales of certain crew protection kits
(CPKs), which have lower gross margins than other CPKs.
Net loss in the second quarter totaled $3.7 million or $(0.08)
per share, compared to a net loss of $2.6 million or $(0.06) per
share in the same year-ago period.
Adjusted EBITDA loss in the second quarter totaled $2.3 million
or $(0.05) per basic and diluted share, versus an adjusted EBITDA
gain of $1.2 million or $0.03 per basic and diluted share in the
same year-ago period (see the definition and important discussion
about the presentation of adjusted EBITDA, a non-GAAP term,
below).
First Half of 2010 Results
Revenues from continuing operations for the six months ended
June 30, 2010 increased 14.5% to a record $26.9 million, from $23.5
million in the comparable period in 2009. This increase was due
primarily to increased production under Department of Defense
contracts and increased sales of physical security products. For
the six months ended June 30, 2010, revenues from the company's
physical security product business increased 238% to $7.1 million
from $2.1 million in the comparable period in 2009.
The gross profit margin was 27.1% and 40% for the six months
ended June 30, 2010 and 2009, respectively. The decrease in gross
profit margin percentage from 2009 to 2010 resulted primarily from
a $2.9 million completed but unbilled contract, and an increase in
overall costs incurred during the six months ended June 30,
2010.
Net loss in the first half of 2010 totaled $4.5 million or
$(0.10) per share, compared to a net loss of $4.3 million or
$(0.10) per share in the same year-ago period.
Adjusted EBITDA loss in the first half totaled $1.0 million or
$(0.02) per basic and diluted share, versus an adjusted EBITDA gain
of $1.1 million or $0.03 per basic and diluted share in the same
year-ago period (see the definition and important discussion about
the presentation of adjusted EBITDA, a non-GAAP term, below).
Second Quarter 2010 Operational
Highlights
- ADSI received a five-year, $50 million Multiple Award Contract
(MAC), Indefinite Delivery Indefinite Quantity (IDIQ) Award from
the Naval Facilities Expeditionary Logistics Center (NFELC). ADSI
and two other companies were selected among seven proposals
received by the NFELC to submit bids under the MAC IDIQ Award,
which requires ADSI to be competitive in order to win the business
allotted under the award.
- American Physical Security Group, LLC, ADSI's physical security
subsidiary, completed the successful testing of its newly
introduced CRB 360, the most capable rising crash beam barrier in
APSG's federally-certified American Anti-Ram™ product line. The CRB
360 achieved a rating of M50-P1 under the ASTM F2656-07 Standard
Test Method for Vehicle Crash Testing of Perimeter Barriers, the
highest standard recognized by the United States Department of
State (DoS) for anti-ram barriers.
- Contract backlog at the end of the second quarter 2010 totaled
$38 million, an increase from $36 million at the end of the
previous quarter.
Management Commentary
"While the second quarter of 2010 came in slightly under our
expectations for revenue, we believe it does not reflect the
strength of our business or sales pipeline, especially when
compared to a record second quarter a year-ago," said Anthony J.
Piscitelli, chairman and CEO of American Defense Systems. "As with
some previous quarters, Q2 2010 demonstrated the challenges we face
as we pursue larger and more aggressive military contracts, and
where a brief delay in a single large order acceptance can make the
difference between a new record second quarter, as it was in this
instance in terms of revenue, and one that falls short of
expectations."
Fergal Foley, ADSI's chief operating officer, commented: "As we
announced in Q1, the strong growth of our physical security
business has provided the economies of scale to bring the
manufacturing of our protective glass products and transparent
armor solutions in-house. We expect improvement in gross margins as
the new North Carolina manufacturing facility comes online, as well
as improved margins from a greater proportionate of higher-margin
CPKs to be shipped in the third quarter. We expect the growth of
the physical security segment of our business, particularly sales
to the private sector, to eventually help provide smoother revenue
results over time, since they are based on smaller order flows than
large military contracts. We believe our physical security business
could grow from about 10% of our business last year to more than
25% going forward."
Added Piscitelli: "Given these factors, we believe the best
current measure of our performance is based on a longer-term view,
as represented in our first half 2010 results. We produced record
revenue in this period as compared to the first half of 2009. Our
trailing twelve month revenue at June 30, 2010 was also a record at
$49.2 million, exceeding the same period in 2009 by 20%. We expect
to ship the bulk of our current $38 million backlog by year's end,
and assuming no similar delays in order acceptance, this puts us on
course for another record revenue year."
Guidance
The company expects to report third quarter 2010 revenue of at
least $8 million, assuming order acceptance of completed
orders.
Conference Call and Webcast
The company will hold a conference call to discuss its second
quarter 2010 results, tomorrow, August 24, 2010 at 11:00 a.m.
Eastern time. Members of ADSI's executive management team will host
the presentation, followed by a question and answer period.
Date: Tuesday, August 24, 2010
Time: 11:00 a.m. Eastern time (8:00 a.m. Pacific time)
Dial-In Number: 1-800-894-5910
International: 1-785-424-1052
Conference ID#: 7DEFENSE
The conference call will be broadcast simultaneously and
available for replay via the investor section of the company's Web
site at www.adsiarmor.com.
Please call the conference telephone number 5-10 minutes prior
to the start time. An operator will register your name and
organization and ask you to wait until the call begins. If you have
any difficulty connecting with the conference call, please contact
Liolios Group at 1-949-574-3860.
A replay of the call will be available after 2:00 p.m. Eastern
time on the same day and until September 24, 2010:
Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay Pin Number: 11921
Use of Non-GAAP Financial Information
Adjusted EBITDA is not a financial measure calculated and
presented in accordance with U.S. generally accepted accounting
principles ("GAAP") and should not be considered as an alternative
to net income, operating income or any other financial measures so
calculated and presented, nor as an alternative to cash flow from
operating activities as a measure of the company's liquidity. ADSI
defines adjusted EBITDA as net income/(loss) before interest (net),
depreciation, unrealized loss (gain) on adjustment of fair value of
its Series A convertible preferred stock classified as a liability,
income tax expense (benefit), loss (gain) on disposal of
discontinued division, loss (gain) on deemed extinguishment of
debt, finance charge and unrealized loss (gain) on investor warrant
liability. Other companies (including the company's competitors)
may define adjusted EBITDA differently. The company presents
adjusted EBITDA because it believes it to be an important
supplemental measure of performance that is commonly used by
securities analysts, investors and other interested parties in the
evaluation of companies in a similar industry. Management also uses
this information internally for forecasting and budgeting. It may
not be indicative of the historical operating results of ADSI nor
is it intended to be predictive of potential future results.
Investors should not consider adjusted EBITDA in isolation or as a
substitute for analysis of results as reported under GAAP. See
"Reconciliation of GAAP (Loss) to adjusted EBITDA Income (Loss)"
below for further information on this non-GAAP measure and
reconciliation of adjusted EBITDA to GAAP net loss for the periods
indicated.
American Defense Systems, Inc. and Subsidiaries
Reconciliation of GAAP Loss to Adjusted EBITDA Income (Loss)
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2010 2009 2010 2009
------- ------- ------- -------
GAAP net (loss) $(3,717) $(2,615) $(4,542) $(4,323)
Reconciling items from GAAP to Adjusted
EBITDA Income (Loss)
Interest expense, net 881 813 1900 1531
Depreciation 290 278 579 519
Unrealized loss (gain) on
adjustment of fair value
Series A convertible preferred
stock classified as a liability 227 (9) 873 685
Income tax expense (benefit)
Loss (gain) on disposal of
discontinued division
Loss on deemed extinguishment of
debt 2614 2614
Finance charge 97 177
Unrealized loss (gain) on investor
warrant liability (34) 107 (10) 26
------- ------- ------- -------
Adjusted EBITDA Income (Loss) $(2,256) $ 1,188 $(1,023) $ 1,052
======= ======= ======= =======
Adjusted EBITDA Income (Loss) per
common share:
Basic and diluted $ (0.05) $ 0.03 $ (0.02) $ 0.03
======= ======= ======= =======
Weighted average common shares
outstanding:
Basic and diluted 47,879 41,484 47,341 41,484
About American Defense Systems, Inc.
American Defense Systems, Inc. (ADSI) (NYSE Amex: EAG), offers
advanced solutions in the design, fabrication, and installation of
transparent and opaque armor, security doors, windows and curtain
wall systems for use by military, law enforcement, homeland defense
and corporate customers. ADSI engineers also specialize in
developing innovative, functional and aesthetically pleasing
security applications for mobile and fixed infrastructure physical
security. For more information about American Defense Systems, go
to www.adsiarmor.com.
Important Cautions Regarding Forward-Looking
Statements
Some of the statements made by American Defense Systems, Inc.
("ADSI" or the "Company") in this press release, including, without
limitation, statements regarding ADSI's anticipated future growth
and expense reductions, are forward-looking in nature. ADSI intends
that any forward-looking statements shall be covered by the safe
harbor provisions for such statements contained in the Private
Securities Litigation Reform Act of 1995. Statements that are
predictive in nature, that depend upon or refer to future events or
conditions, and include words such as "may," "will," "should,"
"expects," "anticipates," "intends," "plans," "believes,"
"estimates," "predicts," "potential," "continues," "projects," and
variations of such words or similar expressions, are
forward-looking statements, but the absence of such words does not
mean that the statement is not forward-looking. Statements made in
this press release that are forward-looking include, but are not
limited to statements made by Mr. Sidorsky that ADSI expects
improvement in gross margins as its new North Carolina
manufacturing facility comes online, as well as improved margins
from a greater proportionate of higher-margin CPKs to be shipped in
the third quarter, and ADSI's third quarter 2010 revenue to come in
at approximately $8 million. This also includes statements by Mr.
Piscitelli that the growth of ADSI's physical security segment,
particularly sales to the private sector, are expected to
eventually help provide smoother revenue results over time; ADSI's
physical security business could grow to more than 25% of the
Company's business going forward; and ADSI expects to ship the bulk
of its $38 million backlog by the end of 2010, putting the Company
on course for another record revenue year. ADSI cautions you that
forward-looking statements are not guarantees of performance. ADSI
undertakes no obligation and disclaims any obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Forward-looking
statements involve known and unknown risks and uncertainties that
may cause ADSI's actual future results to differ materially from
those projected or contemplated in the forward-looking statements.
ADSI believes that these risks include, but are not limited to:
ADSI's reliance on the U.S. government for a substantial amount of
its sales and growth; decreases in U.S. government defense
spending; ADSI's ability to contract further with the U.S.
Department of Defense; ADSI's ability to comply with complex
procurement laws and regulations; competition and other risks
associated with the U.S. government bidding process; changes in the
U.S. government's procurement practices; ADSI's ability to obtain
and maintain required security clearances; ADSI's ability to
realize the full amount of revenues reflected in its backlog;
ADSI's ability to finance the redemption of ADSI's Series A
convertible preferred stock in accordance with the terms of such
stock and ADSI's settlement agreement with the holders of stock;
ADSI's reliance on certain suppliers; and intense competition and
other risks associated with the defense industry in general and the
security-related defense sector in particular.
Additional information concerning these and other important risk
factors can be found under the heading "Risk Factors" in ADSI's
filings with the Securities and Exchange Commission, including,
without limitation, its most recent annual report on Form 10-K and
quarterly report on Form 10-Q. Statements in this press release
should be evaluated in light of these important factors.
American Defense Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
----------- -----------
June 30, December 31,
ASSETS 2010 2009
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 16,330 $ -
Accounts receivable, net of allowance for
doubtful accounts of $312,448 and $222,448 as of
June 30, 2010 and December 31, 2009,
respectively 5,745,131 2,288,666
Accounts receivable-factoring 237,488 199,876
Tax receivable 108,741 108,741
Costs in excess of billings on uncompleted
contracts, net 4,408,818 7,762,836
Prepaid expenses and other current assets 618,195 540,381
Deferred tax assets - 521
----------- -----------
TOTAL CURRENT ASSETS 11,134,703 10,901,021
Property and equipment, net 2,658,252 3,078,724
Deferred financing costs, net 870,498 1,547,551
Notes receivable, net 400,000 400,000
Intangible Assets 634,450 606,000
Goodwill 602,500 450,000
Deposits 471,187 407,137
Other Assets - 138,001
----------- -----------
TOTAL ASSETS $16,771,590 $17,528,434
=========== ===========
----------- -----------
June 30, December 31,
2010 2009
LIABILITIES AND SHAREHOLDERS' DEFICIENCY ----------- -----------
CURRENT LIABILITIES
Accounts payable $ 6,943,030 $ 6,695,712
Cash overdraft 967,457 48,573
Accrued expenses 699,929 498,795
Warrant liability 25,838 35,413
----------- -----------
TOTAL CURRENT LIABILITIES 8,636,254 7,278,493
LONG TERM LIABILITIES
Mandatory redeemable Series A Convertible
Preferred Stock (cumulative), 15,000 shares
authorized issued and outstanding 13,716,542 12,429,832
Deferred rent 176,583 -
Deferred tax liability - 521
----------- -----------
TOTAL LIABILITIES 22,529,379 19,708,846
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common stock, $0.001 par value, 100,000,000
shares authorized, 49,357,454 and 46,611,457
shares issued and outstanding as of June 30,
2010 and December 31, 2009, respectively 49,357 46,611
Additional paid-in capital 15,673,573 14,712,414
Accumulated Deficit (21,480,719) (16,939,437)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIENCY (5,757,789) (2,180,412)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $16,771,590 $17,528,434
=========== ===========
American Defense Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
CONTRACT REVENUES
EARNED $11,438,765 $14,033,575 $26,884,309 $23,523,277
COST OF REVENUES EARNED
(exclusive of
depreciation shown
separately below) 9,610,274 8,659,865 19,596,952 14,112,974
----------- ----------- ----------- -----------
GROSS PROFIT 1,828,491 5,373,710 7,287,357 9,410,303
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative
expenses 1,528,758 1,610,723 3,392,047 3,097,252
General and
administrative
salaries 933,288 1,022,366 1,817,507 2,095,403
Sales and Marketing 571,800 723,779 1,134,609 1,457,573
T2 expenses 204,479 124,070 423,327 237,672
Research and
development 151,997 16,841 273,714 203,227
Settlement of
litigation - 63,441 - 63,441
Depreciation 290,423 278,083 579,252 519,412
Professional fees 694,163 612,613 1,267,683 1,200,079
----------- ----------- ----------- -----------
TOTAL OPERATING
EXPENSES 4,374,908 4,451,916 8,888,139 8,874,059
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (2,546,417) 921,794 (1,600,782) 536,244
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Unrealized (loss)
gain on adjustment
of fair value Series
A convertible
preferred stock
classified as a
liability (226,915) 9,142 (873,015) (685,312)
Unrealized gain
(loss) on warrant
liability 34,004 (107,022) 9,575 (26,350)
Loss on deemed
extinguishment of
debt - (2,613,630) - (2,613,630)
Other income (expense) - (12,730) - (12,730)
Interest expense (505,761) (438,421) (1,150,490) (781,151)
Interest expense -
Mandatorily
redeemable preferred
stock dividends (375,000) (374,380) (750,000) (749,380)
Interest income - 10 - 8,856
Finance charge (97,082) - (176,863) -
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSE) (1,170,754) (3,537,031) (2,940,793) (4,859,697)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME
TAXES (3,717,171) (2,615,237) (4,541,575) (4,323,453)
INCOME TAX PROVISION - - - -
----------- ----------- ----------- -----------
NET LOSS $(3,717,171) $(2,615,237) $(4,541,575) $(4,323,453)
=========== =========== =========== ===========
Weighted Average Shares
Outstanding (Basic and
Diluted) 47,878,737 41,484,307 47,341,485 41,484,307
=========== =========== =========== ===========
NET LOSS per Share -
Basic and Diluted: $ (0.08) $ (0.06) $ (0.10) $ (0.10)
=========== =========== =========== ===========
Company Contacts: Roger Ward V.P. of Marketing & Investor
Relations American Defense Systems, Inc. Tel 516-390-5300, x326
Email Contact Investor Relations: Ron Both Managing Director
Liolios Group, Inc. Tel 949-574-3860 Email Contact
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