SOURCE: American Defense Systems, Inc.

American Defense Systems, Inc.

November 17, 2010 14:59 ET

American Defense Systems Reports Third Quarter 2010 Results

HICKSVILLE, NY--(Marketwire - November 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 third quarter ended September 30, 2010.

Q3 2010 Financial Results

Revenues from continuing operations in the third quarter of 2010 decreased 31% to $8.7 million from $12.6 million in the same year-ago quarter. This decrease was primarily due to a slow-down in government orders. Revenues from the company's physical security product business was $1.2 million in the third quarter of 2010, consistent with revenues in the same year-ago period.

Revenues from continuing operations for the first nine months in 2010 declined 1.7% to $35.6 million from $36.2 million in the same year-ago period. For the nine months, revenues from the company's physical security product business increased 152% to $8.3 million (23% of revenues), from $3.3 million (9% of revenues) in the comparable period in 2009.

Gross profit margin in the third quarter of 2010 was 46.7%, an improvement from 20.9% in the same year-ago quarter. The increase in gross profit margin resulted primarily from contract billings of $3.3 million that were under audit by the government as of June 30, 2010 and were recognized as revenue upon approval during the third quarter of 2010. The total contract was for $6.2 million of which $2.9 million of revenue and related cost of sales was recorded in the second quarter of 2010. The gross profit margin was 31.9% and 33.3% for the first nine months of 2010 and 2009, respectively.

Net loss in the third quarter totaled $395,000 or $(0.01) per share, an improvement from a net loss of $3.6 million or $(0.08) per share in the same year-ago period. Net loss in the first nine months of 2010 totaled $4.9 million or $(0.10) per share, an improvement from a net loss of $7.9 million or $(0.19) per share in the same year-ago period.

Adjusted EBITDA gain in the third quarter totaled $833,000 or $0.02 per basic and diluted share, versus an adjusted EBITDA loss of $1.7 million or $(0.04) 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).

Adjusted EBITDA loss in the first nine months totaled $164,000 or $(0.00) per basic and diluted share, versus an adjusted EBITDA loss of $627,000 or $(0.01) per basic and diluted share in the same year-ago period.

Third Quarter 2010 Operational Highlights

  • ADSI introduced Cold Fire Tactical™, a new military-grade fire suppressant. Cold Fire is a unique, environmentally friendly wetting agent that breaks the chemical chain reaction of fire and cools 21 times faster than water. The product is being sold under license from Firefreeze Worldwide, Inc., which provides ADSI exclusive rights to market the product to the United States Marine Corps.

  • Contract backlog at the end of the third quarter 2010 totaled $31 million, reduced from $38 million at the end of the previous quarter. The company expects to reduce backlog by approximately $7 million in the fourth quarter of 2010.

Management Commentary

"Revenues in the third quarter of 2010 came in slightly above our expectations, "said Anthony J. Piscitelli, chairman and CEO of American Defense Systems, "with a strong gross margin largely due to the timing of the recognition of revenue, as well as a slowdown in crew protection kit orders resulting in decreased costs in the quarter. We see this slowdown continuing into the fourth quarter, which is also typically our slowest, and have adjusted our expectations for the amount of our $31 million backlog we expect to ship before year's end.

"To offset this, we are continuing to focus on expanding our product mix beyond our core CPK business, reflected in the introduction in Q3 of our newest product, Cold Fire Tactical. We see strong potential for this product based on an expressed need by the military for better fire suppression systems, and we are aggressively pursuing this opportunity. We have also been very active internationally, and expect anticipated government clearances will pave the way for a number of major deals in our pipeline.

"Although flat in Q3 2010 on a year-over-year basis, our physical security segment of our business was a strong performer in the first nine months, up more than 150%, and driven primarily by sales to the private sector. We have been expecting our physical security business to grow from about 10% of our business last year to more than 25% going forward, and this remains on track. We believe the various high ratings, certifications, and endorsements we've received for our security products over the course of the last year will help pave the way for a stronger 2011."

Guidance

The company expects to report fourth quarter 2010 revenue of approximately $5.5 million, assuming order acceptance of completed orders.

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 net interest expense, depreciation, unrealized loss on adjustment of fair value of its Series A convertible preferred stock classified as a liability, income tax expense (benefit), loss on deemed extinguishment of debt, finance charge and unrealized loss (gain) on 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  Nine Months Ended
                                      September 30,       September 30,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
GAAP net loss                       $   (395) $ (3,591) $ (4,912) $ (7,916)

Reconciling items from GAAP net
 loss to Adjusted EBITDA Income
 (Loss)
    Interest expense, net                810     1,114     2,710     2,636
    Depreciation                         291       278       870       798
    Unrealized loss on adjustment
     of fair value
    Series A convertible preferred
     stock classified as a liability      51       498       924     1,184
    Income tax expense (benefit)           -         -         -         -
    Loss on deemed extinguishment
     of debt                               -         -         -     2,614
    Finance charge                        92        41       269        41
    Unrealized loss (gain) on
     warrant liability                   (16)      (11)      (25)       16
                                    --------  --------  --------  --------

Adjusted EBITDA Income (Loss)       $    833  $ (1,671) $   (164) $   (627)
                                    ========  ========  ========  ========

Adjusted EBITDA Income (Loss) per
 common share:
    Basic and diluted               $   0.02  $  (0.04) $  (0.00) $  (0.01)
                                    ========  ========  ========  ========

Weighted average common shares
 outstanding:
    Basic and diluted                 49,394    45,514    48,033    42,388
                                    ========  ========  ========  ========

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 the mobile and fixed infrastructure physical security industry. For more information, visit the ADSI corporate Web site at 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. 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

                                                September 30,
                                                    2010      December 31,
                        ASSETS                   (Unaudited)      2009
                                                ------------- -------------
CURRENT ASSETS
Cash                                            $   2,012,351 $           -
Accounts receivable, net of allowance for
 doubtful accounts of $327,448 and $222,448 as
 of September 30, 2010 and December 31, 2009,
 respectively                                       2,059,895     2,288,666
Accounts receivable factoring                         441,314       199,876
Tax receivable                                        333,258       108,741
Costs in excess of billings on uncompleted
 contracts, net                                     2,937,325     7,762,836
Prepaid expenses and other current assets             369,354       330,381
Deferred tax assets                                         -           521
                                                ------------- -------------

TOTAL CURRENT ASSETS                                8,153,497    10,691,021

Property and equipment, net                         2,436,074     3,078,724
Deferred financing costs, net                         636,636     1,547,551
Notes receivable, net                                 400,000       400,000
Intangible assets                                     634,450       606,000
Goodwill                                              812,500       660,000
Deposits                                              652,137       407,137
Other assets                                                -       138,001
                                                ------------- -------------

TOTAL ASSETS                                    $  13,725,294 $  17,528,434
                                                ============= =============



       LIABILITIES AND SHAREHOLDERS' DEFICIENCY


CURRENT LIABILITIES
Accounts payable                                $  4,834,541  $  6,695,712
Cash overdraft                                             -        48,573
Accrued expenses                                     426,292       498,795
Warrant liability                                      9,915        35,413
                                                ------------  ------------

TOTAL CURRENT LIABILITIES                          5,270,748     7,278,493

LONG TERM LIABILITIES
Mandatory redeemable Series A convertible
 preferred stock (cumulative), 15,000 shares
 authorized issued and outstanding                13,966,268    12,429,832
Deferred rent                                        198,243             -
Deferred tax liability                                     -           521
                                                ------------  ------------

TOTAL LIABILITIES                                 19,435,259    19,708,846
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIENCY

Common stock, $0.001 par value, 100,000,000
 shares authorized, 51,971,685 and 46,611,457
 shares issued and outstanding as of September
 30, 2010 and December 31, 2009, respectively         51,971        46,611
Additional paid-in capital                        16,088,766    14,712,414
Accumulated deficit                              (21,850,702)  (16,939,437)
                                                ------------  ------------

TOTAL SHAREHOLDERS' DEFICIENCY                    (5,709,965)   (2,180,412)
                                                ------------  ------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY  $ 13,725,294  $ 17,528,434
                                                ============  ============




       American Defense Systems, Inc. and Subsidiaries
       Condensed Consolidated Statements of Operations
                        (Unaudited)

                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                         -----------------------  ------------------------
                            2010         2009         2010         2009
                         ----------  -----------  -----------  -----------
CONTRACT REVENUES EARNED $8,725,874  $12,643,488  $35,610,715  $36,166,765

COST OF REVENUES EARNED
 (exclusive of
 depreciation shown
 separately below)        4,653,974    9,999,606   24,243,958   24,112,580
                         ----------  -----------  -----------  -----------

GROSS PROFIT              4,071,900    2,643,882   11,366,757   12,054,185
                         ----------  -----------  -----------  -----------

OPERATING EXPENSES
   General and
    administrative
    expenses              1,357,833    1,939,163    4,729,578    5,143,716
   General and
    administrative
    salaries                870,384    1,051,214    2,687,891    3,146,617
   Sales and marketing      431,140      560,231    1,565,749    2,017,804
   T2 expenses              206,511      154,766      629,838      392,438
   Research and
    development             274,750      117,268      548,464      320,495
   Settlement of
    litigation                    -            -            -       63,441
   Depreciation             290,868      278,264      870,120      797,676
   Professional fees         99,463      471,098    1,369,660    1,563,876
                         ----------  -----------  -----------  -----------
TOTAL OPERATING EXPENSES  3,530,949    4,572,004   12,401,300   13,446,063
                         ----------  -----------  -----------  -----------

OPERATING INCOME (LOSS)     540,951   (1,928,122)  (1,034,543)  (1,391,878)
                         ----------  -----------  -----------  -----------

OTHER INCOME (EXPENSE)
   Unrealized loss on
    adjustment of fair
    value Series A
    convertible
    preferred stock
    classified as a
    liability               (50,594)    (498,407)    (923,609)  (1,183,719)
   Unrealized gain
    (loss) on warrant
    liability                15,923       10,674       25,498      (15,676)
   Loss on deemed
    extinguishment of
    debt                          -            -            -   (2,613,630)
   Other income (expense)         -      (21,040)           -      (33,770)
   Interest expense        (434,621)    (663,524)  (1,585,111)  (1,444,675)
   Interest expense -
    mandatorily
    redeemable preferred
    stock dividends        (375,000)    (450,000)  (1,125,000)  (1,200,000)
   Interest income                -            -            -        8,859
   Finance charge           (91,930)     (41,025)    (268,793)     (41,025)
                         ----------  -----------  -----------  -----------
TOTAL OTHER INCOME
 (EXPENSE)                 (936,222)  (1,663,322)  (3,877,015)  (6,523,636)
                         ----------  -----------  -----------  -----------

LOSS BEFORE INCOME TAXES   (395,271)  (3,591,444)  (4,911,558)  (7,915,514)

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

NET LOSS                 $ (395,271) $(3,591,444) $(4,911,558) $(7,915,514)
                         ==========  ===========  ===========  ===========

Weighted Average Shares
 Outstanding (Basic and
 Diluted)                49,393,679   45,513,965   48,033,067   42,388,377
                         ==========  ===========  ===========  ===========

NET LOSS per Share -
 Basic and Diluted       $    (0.01) $     (0.08) $     (0.10) $     (0.19)
                         ==========  ===========  ===========  ===========

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