SOURCE: American Defense Systems, Inc.

American Defense Systems, Inc.

August 23, 2010 17:15 ET

American Defense Systems Reports Second Quarter 2010 Results

Six Months Ended June 30, 2010 Up 14% to a Record $26.9 Million

HICKSVILLE, NY--(Marketwire - August 23, 2010) - 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)
                        ===========  ===========  ===========  ===========

Contact Information

  • 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