SOURCE: American Defense Systems, Inc.

American Defense Systems, Inc.

May 17, 2010 08:00 ET

American Defense Systems Reports First Quarter 2010 Results

Q1 Revenues Increased 63% to Record $15.4 Million

HICKSVILLE, NY--(Marketwire - May 17, 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 first quarter ended March 31, 2010.

Q1 2010 Financial Results

Revenues from continuing operations in the first quarter of 2010 increased 63% to a record $15.4 million from $9.5 million in the same year-ago quarter. The increase in the first quarter of 2010 was primarily due to increased order fulfillment under TACOM and Marine Corps contracts. The improvement was also due to improvement in the physical security product business of the company's subsidiary, American Physical Security Group, LLC ("APSG"), which increased 247% to $3.3 million from $964,000 in the same period a year ago.

Gross margin as a percentage of revenue in the first quarter of 2010 was 35% as compared to 43% in the same year-ago quarter and compared to 26% for the 2009 fiscal year. While gross margin improved significantly over the average in fiscal 2009, the decrease in comparison to the first quarter of 2009 is primarily due to a higher gross margin product sales mix in that year-ago quarter. The company anticipates maintaining an historical gross margin range of 32%-35% through the remainder of the year.

Net loss in the first quarter of 2010 totaled $824,000 or $(0.02) per share, compared to a net loss of $1.7 million or $(0.04) per share in the same year-ago period.

Adjusted EBITDA income in the first quarter of 2010 was $1.2 million or $0.03 per basic and diluted share versus an adjusted EBITDA loss of $145,000 or $(0.00) 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 Quarter 2010 Operational Highlights

  • Received several orders from the U.S. Army's TACOM Life Cycle Management Command (LCMC) for new ADSI CPKs, spare parts and field services totaling approximately $9.8 million. The orders were received under the company's existing TACOM IDIQ contract, which was expanded to accommodate the new orders. The company began delivery of the CPKs at the beginning of February, with the order to be completed by mid-May.

  • Delivered six ADSI Foldable Transparent Ballistic Shields (FTBS) for use in dignitary protection and tactical operations by a foreign government's security forces. The large and robust shields were designed to provide security forces with the immediate ability to augment security for VIPs and dignitaries during public events on stages and podiums, in hotel suites, and any other location where a transparent armor solution is required.

  • Received follow-on order for CPKs from Caterpillar, the world's leading manufacturer of construction and mining equipment. The CPKs were custom designed for a new Caterpillar skid steer, and its unique features allow it to be easily attached and removed in the field. This flexibility allows a unit commander to decide the level of protection needed during mission operations.

  • Thomas Von Essen joined the company's advisory board. Von Essen was formerly the Commissioner of the Fire Department, City of New York ("FDNY") and was the senior campaign advisor for New York City Mayor Rudy Giuliani's presidential campaign.

  • Contract backlog at March 31, 2010 totaled $36 million, versus $60 million at March 31, 2009.

Management Commentary

"The record revenues we achieved in the first quarter demonstrated the strength of our business, the quality of our products, and our expanding relationships with our customers," said Anthony J. Piscitelli, chairman and CEO of American Defense Systems. "We have been operating more efficiently and effectively under a new expense structure we implemented at the end of 2009 and the new sales program we previously announced is also showing good traction. We expect to see more strong quarters ahead."

Fergal Foley, ADSI's chief operating officer, added: "We also anticipate further improvement in gross margins as our new North Carolina manufacturing facility comes fully online. As we mentioned previously, the success of our physical security business has provided the economies of scale to bring the manufacturing of our protective glass products in-house.

"In addition to producing APSG physical security products, this facility will also be able to produce the specialized glass used in our transparent armor solutions for military construction vehicles. This new facility is expected to provide other operational benefits as well, and help us continue to produce positive results over the coming quarters."

Guidance

The company expects to report second quarter 2010 revenue of approximately $12 million, and report income from operations between $0.01 and $0.03 per share.

Conference Call and Webcast

The company will hold a conference call to discuss its first quarter 2010 results tomorrow, May 18, 2010. Members of ADSI's executive management team will host the presentation, followed by a question and answer period.

Date: Tuesday, May 18, 2010
Time: 10:30 a.m. Eastern time (7:30 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 the Liolios Group at 1-949-574-3860.

A replay of the call will be available after 1:30 p.m. Eastern time on the same day and until June 18, 2010:

Toll-free replay number: 1-800-839-1180
International replay number: 1-402-220-0400
(No passcode required)

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); income tax expense (benefit), depreciation; unrealized (gain) loss on adjustment of fair value of its series a convertible preferred stock classified as a liability, loss (gain) on disposal of discontinued division, finance charge and unrealized (gain) loss 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)


                                                         Mar 31,   Mar 31,
                                                          2010      2009
                                                        --------  --------

GAAP net (loss)                                         $   (824) $ (1,708)

Reconciling items from GAAP to Adjusted EBITDA Income
 (Loss)
    Interest expense, net                                  1,020       709
    Depreciation                                             289       241
    Unrealized loss on adjustment of fair value
     Series A convertible preferred stock classified
     as a liability                                          646       694
    Income tax expense (benefit)                               -         -
    Loss (gain) on disposal of discontinued division           -         -
    Loss on deemed extinguishment of debt                      -         -
    Finance charge                                            80         -
    Unrealized (gain) loss on investor warrant
     liability                                                24       (81)
                                                        --------  --------

Adjusted EBITDA Income (Loss)                           $  1,235  $   (145)
                                                        ========  ========

Adjusted EBITDA Income (Loss) per common share:
    Basic and diluted                                   $   0.03  $  (0.00)
                                                        ========  ========

Weighted average common shares outstanding:
    Basic and diluted                                     46,798    39,586

About American Defense Systems, Inc.

American Defense Systems, Inc. ("ADSI") 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 the mobile and fixed infrastructure physical security industry. For more information, visit the ADSI corporate Web site at www.adsiarmor.com.

Some of the statements made by American Defense Systems, Inc. ("ADSI") in this press release, including, without limitation, statements regarding ADSI's anticipated future growth, 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, or that include words such as "may," "will," "should," "expects," "anticipates," "intends," "plans," "believes," "estimates," "predicts," "potential," "continues," "projects" and similar expressions are forward-looking statements. 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; 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. Statements in this press release should be evaluated in light of these important factors.

              AMERICAN DEFENSE SYSTEMS, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                               (unaudited)


                                                  March 31,   December 31,
                    ASSETS                          2010          2009
                                                ------------  ------------

CURRENT ASSETS
Cash                                            $     87,971  $          -
Accounts receivable, net of allowance for
 doubtful accounts of $267,448 and $222,448 as
 of March 31, 2010 and December 31, 2009,
 respectively                                      4,284,950     2,288,666
Accounts receivable-factoring                        346,095       199,876
Tax receivable                                       108,741       108,741
Costs in excess of billings on uncompleted
 contracts, net                                    6,048,444     7,762,836
Prepaid expenses and other current assets            601,730       540,381
Deferred tax assets                                        -           521
                                                ------------  ------------

TOTAL CURRENT ASSETS                              11,477,931    10,901,021

Property and equipment, net                        2,840,600     3,078,724
Deferred financing costs, net                      1,160,662     1,547,551
Deferred Offering Costs                                    -             -
Notes receivable, net                                400,000       400,000
Intangible Assets                                    606,000       606,000
Goodwill                                             450,000       450,000
Deposits                                             457,137       407,137
Other Assets                                               -       138,001
                                                ------------  ------------

TOTAL ASSETS                                    $ 17,392,330  $ 17,528,434
                                                ============  ============

     LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable                                $  5,583,762  $  6,695,712
Cash overdraft                                        72,860        48,573
Accrued expenses                                     653,178       498,795
Line of Credit                                             -             -
Warrant liability                                     59,842        35,413
                                                ------------  ------------

TOTAL CURRENT LIABILITIES                          6,369,642     7,278,493

LONG TERM LIABILITIES
Mandatory redeemable Series A Convertible
 Preferred Stock (cumulative), 15,000 shares
 authorized issued and outstanding                13,330,189    12,429,832
Deferred rent                                        204,309             -
Deferred tax liability                                     -           521
                                                ------------  ------------

TOTAL LIABILITIES                                 19,904,140    19,708,846
                                                ------------  ------------

SHAREHOLDERS' DEFICIENCY

Common stock, $0.001 par value, 100,000,000
 shares authorized, 47,858,957 and 46,611,457
 shares issued and outstanding as of March 31,
 2010 and December 31, 2009, respectively             47,859        46,611
Additional paid-in capital                        15,204,174    14,712,414
Accumulated Deficit                              (17,763,843)  (16,939,437)
                                                ------------  ------------
TOTAL SHAREHOLDERS' DEFICIENCY                    (2,511,810)   (2,180,412)
                                                ------------  ------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY  $ 17,392,330  $ 17,528,434
                                                ============  ============




              AMERICAN DEFENSE SYSTEMS, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Unaudited)


                                                    Three Months Ended
                                                        March 31,
                                                --------------------------
                                                    2010          2009
                                                ------------  ------------

CONTRACT REVENUES EARNED                        $ 15,445,544  $  9,489,702

COST OF REVENUES EARNED                            9,986,679     5,453,109
                                                ------------  ------------


GROSS PROFIT                                       5,458,865     4,036,593
                                                ------------  ------------

OPERATING EXPENSES
  General and administrative expenses              1,863,289     1,486,529
  General and administrative salaries                884,218     1,073,037
  Sales and Marketing                                562,809       733,794
  T2 expenses                                        218,848       113,602
  Research and development                           121,717       186,386
  Depreciation                                       288,830       241,329
  Professional fees                                  573,520       587,466
                                                ------------  ------------
          TOTAL OPERATING EXPENSES                 4,513,231     4,422,143
                                                ------------  ------------

OPERATING INCOME (LOSS)                              945,634      (385,550)
                                                ------------  ------------

OTHER INCOME (EXPENSE)

  Unrealized loss on adjustment of fair value
   Series A convertible preferred stock
   classified as a liability                        (646,100)     (694,454)
  Unrealized (loss) gain on warrant liability        (24,429)       80,672
  Other income                                           264             -
  Interest expense                                  (644,729)     (342,730)
  Interest expense - Mandatorily redeemable
   preferred stock dividends                        (375,000)     (375,000)
  Interest income                                          -         8,646
  Finance charge                                     (80,045)            -
                                                ------------  ------------
          TOTAL OTHER INCOME (EXPENSE)            (1,770,039)   (1,322,866)
                                                ------------  ------------

LOSS BEFORE INCOME TAXES                            (824,405)   (1,708,416)

INCOME TAX PROVISION                                       -             -
                                                ------------  ------------


NET LOSS                                        $   (824,405) $ (1,708,416)
                                                ============  ============

Weighted Average Shares Outstanding (Basic and
 Diluted)                                         46,798,263    39,585,960
                                                ============  ============


LOSS per Share - Basic and Diluted:

NET LOSS                                        $      (0.02) $      (0.04)
                                                ============  ============

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