Pacific Safety Products Inc.
TSX VENTURE : PSP

Pacific Safety Products Inc.

November 29, 2010 21:53 ET

Pacific Safety Products Inc. Reports First Quarter of Fiscal 2011

KANATA, ONTARIO--(Marketwire - Nov. 29, 2010) - Pacific Safety Products Inc. (TSX VENTURE:PSP) ("PSP" or the "Company"), today reported financial results for the three month period ended September 30, 2010.

Highlights:

  • Sales for the first quarter were $4.3 million, approximately 43.6% lower than first quarter of the prior year of $7.6 million.

  • The gross margin percentage for the first quarter was 22.1%, up 7.0% from 15.1% for the first quarter of the prior year, but on lower sales this represented a decrease of approximately $0.2 million or 17.3%.

  • Operating expenses for the first quarter of $1.6 million decreased $0.1 million or 5.8% from the first quarter of the prior year.

  • Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")1 was a loss of $0.4 million for the first quarter compared to a loss of $0.3 million in the first quarter of the prior year.

  • Working capital improved from $0.3 million for the year ended June 30, 2010 to $0.7 million for the first quarter.

  • On August 17, 2010, the Company issued $1.0 million of unsecured convertible debentures in favour of a group of investors.

  • On August 18, 2010, the Company sold certain of PSP's headborne system assets, in particular, the helmet liner capability, to Revision Eyewear Inc. ("Revision") for $275,000 and a 4% royalty on gross sales over a 5 year period. On September 14, 2010 Revision exercised an option to purchase the remainder of the headborne systems for an additional $100,000 and a 2.5% royalty on gross sales over a 5 year period.

  • Subsequent Event: On October 20, 2010, the Company announced that it had signed a letter of intent to complete a business combination by way of a court approved plan of arrangement of Zuni Holdings Inc. ("Zuni"), an NEX listed company, subject to certain conditions. PSP and Zuni entered into an arrangement agreement as of November 17, 2010.

Chief Executive Officer, Doug Lucky, observed, "The Company is renewing its momentum. The PSP Zuni merger squarely addresses the path to achieve financial stability. Combine that with the launch of our new NIJ.06-certified body armour product lines and customer wins including the recent order worth over U.S. $2.0 million for tactical body armour, and you can see evidence the Company is asserting itself in the market in order to create shareholder value."

Financial Covenant Update:

The Company signed a forbearance agreement (the "Forbearance Agreement") with its principal Canadian Bank (the "Bank") on August 17, 2010. Under the terms of the Forbearance Agreement, additional general and financial covenants have been placed on the Company. The Bank has agreed, pursuant to the Forbearance Agreement, not to take steps to realize under the facility prior to February 28, 2011 (the "Forbearance Period") unless a terminating event as defined in the Forbearance Agreement occurs.

Subsequent Event

On October 20, 2010, the Company announced that it had signed a letter of intent (the "LOI") to complete a business combination ("Merger") by way of a court approved plan of arrangement of Zuni Holdings Inc., an NEX listed company. Under the LOI, PSP has agreed to acquire all of the outstanding common shares of Zuni in exchange for PSP common shares at an agreed exchange ratio of one PSP common share for each Zuni common share. Following completion of the Merger, PSP will be owned 45.8% by current PSP shareholders and 54.2% by current Zuni shareholders, based on the current shares issued and outstanding. On a partially diluted basis, assuming exercise or conversion of all outstanding warrants and debentures of PSP, PSP will be owned 55.7% by current PSP shareholders and 44.3% by current Zuni shareholders. On November 18, 2010 PSP and Zuni announced the signing of an arrangement agreement (the "Arrangement Agreement") to complete the Merger. The Ontario Superior Court of Justice issued an interim order authorizing Zuni to call a special meeting of Zuni shareholders (the "Zuni Meeting") for December 22, 2010 to approve the Plan of Arrangement. PSP will hold an annual and special meeting of PSP shareholders (the "PSP Meeting") on December 22, 2010 to approve the issuance of PSP common shares in connection with the Merger and the continuance of PSP under the Canada Business Corporations Act. Subject to certain closing conditions, and non-solicitation and termination provisions, the Merger is currently expected to close on or about December 31, 2010. PSP believes this transaction will solidify its capital position and allow it to take advantage of significant growth opportunities that are available to the Company.

About PSP

The mission statement of Pacific Safety Products Inc. is ...we bring everyday heroes home safely™. PSP is an established industry leader in the production, distribution and sale of high-performance and high-quality safety products for the defence and security market. These products include body armour to protect against ballistic, stab and fragmentation threats, ballistic blankets to reduce blast effects, and protective products against chemical and biological hazards. PSP is the largest body armour manufacturer in Canada, directly supplying the Canadian Department of Defence, Federal Government Agencies and major Canadian law enforcement organizations. The Company also provides specialized law enforcement and safety products through APS Distributors, a division of PSP that services law enforcement and public safety agencies across the country. The Company, through its U.S. subsidiary Sentry Armor Systems Inc., provides body armour products to U.S. based law enforcement and private security firms. The Company also produces tactical clothing. Pacific Safety Products is a reporting issuer in British Columbia, Alberta and Ontario, Canada and publicly trades under the symbol PSP on the TSX Venture Exchange.

For complete consolidated financial statements with notes and management discussion and analysis, refer to SEDAR (www.sedar.com).

Forward-Looking Statements: This news release contains forward-looking statements based on management's expectations, estimates and projections. All statements that address expectations or projections about the future, including statements about the Company's growth strategy, product development, market position, expected expenditures and financial results are forward-looking statements. Some of the forward-looking statements may be identified by words like "expects," "anticipates," "plans," "intends," "projects," "indicates," and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in documents which may be filed with the British Columbia Securities Commission, the Alberta Securities Commission, the Ontario Securities Commission, the TSX Venture Exchange, as well as others, could cause results to differ materially from those stated. These factors include, but are not limited to, the possible failure to successfully plan and execute business improvement strategies, restrictions on covenants contained in the Company's credit agreement and the existence of defaults under such covenants, failure to consummate the proposed merger, the potential impact of the current economic downturn on the Company's business, the unpredictability of purchasing patterns by governmental agencies, the possibility of a deterioration in the Company's working capital position, the impact that changes in supplier payment terms or slow payment of accounts receivable could have on the Company's liquidity, the unavailability of or increase in price of external capital to finance the Company's research, development and growth initiatives, changes in the laws, regulations, policies and economic conditions, including inflation, interest and foreign currency exchange rate fluctuations of countries in which the Company does business, competition in the Company's markets, successful integration of structural changes or downsizing initiatives, including restructuring plans, acquisitions, divestitures and alliances, cost of raw material, the uncertainty associated with the outcome of research and development of new products, including regulatory approval and market acceptance, and seasonality of sales in some products.

1 Adjusted EBITDA consists of earnings before interest expense, income taxes, stock based compensation, amortization, and other one-time charges and gains. PSP believes EBITDA is a useful measure in the evaluation of performance. EBITDA is not a measure recognized under Generally Accepted Accounting Principles ("GAAP") and does not have a standardized meaning as prescribed by GAAP. Therefore, EBITDA may not be comparable to similar measures presented by other entities. Investors are cautioned that EBITDA should not be construed as an alternative to net loss determined in accordance with GAAP.

Contact Information

  • Pacific Safety Products Inc.
    Douglas Lucky
    Chief Executive Officer
    (613) 254-9488
    www.pacsafety.com