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American Defense Systems, Inc. “ADSI”
(AMEX: EAG), a provider of advanced transparent as well as opaque
armor, architectural hardening and security products for the defense and
homeland defense markets, today announced financial results for the
second quarter 2008, ended June 30, 2008.
Mr. Anthony J. Piscitelli, Chairman & Chief Executive Officer of
American Defense Systems, Inc., stated, “Our
second quarter performance reflects another solid quarter of execution
towards our strategic goals and full year 2008 financial guidance. First
and foremost, we continue to strengthen and expand our portfolio of
complementary military and homeland defense offerings including the
formal launch of our new T2 live fire tactical training offering in May
2008, which is seeing strong initial interest from a wide range of
audiences including federal and local law enforcement, as well as
domestic and international governmental agencies. I am also pleased to
announce the successful completion of ADSI’s
testing and certification process to qualify as a primary contractor for
new architectural hardening activities at U.S. State Department
facilities, which we believe will open up some excellent new
opportunities going forward.”
“Additionally, on the military side of the
business we are expanding our relationships with several large globally
positioned, heavy equipment manufacturers as well as expanding our
presence in international markets which we expect to provide new sales
channels for our military and homeland defense products. Looking
forward, we remain optimistic for ADSI’s
near-term and long-term prospects, including significant top line growth
as we upwardly adjust our minimum expectations for full year revenue
growth to a new range of between 34 percent and 48 percent. As we
execute towards this goal, and enter what we believe will be a stronger
half of our fiscal year 2008, we also see the long-term potential to
expand our footprint from our core armorized construction equipment
business to new segments of the market for military and war fighting
vehicles,” concluded Mr. Piscitelli.
Revenues for the second quarter of 2008 were $9.1 million, a decrease of
12 percent from the $10.4 million reported for the same period in 2007.
Revenues for the first six months of 2008 totaled $18.6 million, an
increase of 12 percent from the $16.6 million reported for the first six
months of 2007. Contract backlog as of June 30, 2008 totaled $45.0
million, up 41 percent year-over-year.
Gross margin as a percentage of revenue for the second quarter of 2008
was 31.0 percent as compared to 39.4 percent for the second quarter of
2007.
Notable cash expenditures during the quarter included $0.8 million
associated with the company’s final
allocation of expenses for its SEC registration and public exchange
listing initiative, a $0.3 million contribution to the Marine Corps-Law
Enforcement Foundation (MCLEF), $0.3 million in expense related to the
expanded build out of ADSI’s corporate
headquarters, $0.3 million in expenses related to the launch of the
company’s state-of-the-art T2 interactive
live-fire training system, and lastly a $0.3 million scheduled payment
in conjunction with the prior Tactical Applications Group (TAG)
acquisition.
Net income in accordance with Generally Accepted Accounting Principles
(GAAP) for the second quarter of 2008 was $3.8 million, or $0.09 per
basic and diluted share, compared to a GAAP net income for the second
quarter 2007 of $1.5 million, or $0.01 per basic and diluted share.
GAAP net income during the second quarter of 2008 also includes the
benefit of approximately $4.0 million in non-cash gains related to the
adjustment of fair value associated with the series A convertible
preferred stock and related warrants as well as stock based compensation
expense.
Excluding the $4.0 million in non-cash gains related to the adjustment
of fair value associated with the series A convertible preferred stock
and related warrants, as well as approximately $21,000 in stock based
compensation expense, the company reported a non-GAAP net loss for the
second quarter of 2008 of $0.02 million, or $(0.02) per basic and
diluted share. Refer to the "Use of Non-GAAP Measures" section and
accompanying financial table for a reconciliation of GAAP financial
information to non-GAAP.
Financial Guidance
Based on current business conditions and expectations, ADSI is raising
the company’s minimum revenue expectations of
its previously issued fiscal year 2008 revenue to reflect a new target
of between $49.0 million and $54.0 million, as compared to revenue of
$36.5 million reported for fiscal year 2007.
Conference Call and Webcast
On Monday, August 11, 2008 at 9:00 a.m. Eastern Time, ADSI management
will conduct a conference call to discuss the second quarter 2008
results which will be simultaneously Web cast. The call will feature
Anthony J. Piscitelli, Chairman and Chief Executive Officer, Gary
Sidorsky, Chief Financial Officer and Brigadier General Fergal Foley
(USA Ret.), Chief Operating Officer.
To access the second quarter 2008 earnings conference call, participants
should dial +1-800-399-0427 and international participants should dial
+1-706-643-1624. Investors are also invited to listen to the call live
via Web cast on the ADSI corporate Website at http://www.adsiarmor.com.
Please go to the site at least 15 minutes earlier to register, download,
and install any necessary audio software. A Web cast replay of the call
will be available on the Website approximately two hours after the
conference call is completed.
Use of Non-GAAP Measures
The non-GAAP financial measures discussed in the text of this press
release and accompanying non-GAAP supplemental information represent
financial measures used by American Defense Systems’
management to evaluate the operating performance of the company and to
conduct its business operations. Non-GAAP financial measures discussed
in this press release exclude non-cash charges related to stock-based
compensation expense, gains or losses associated with adjustments from
cost to fair value for the company’s series A
convertible preferred stock and gains or losses associated with
adjustments to fair value for the related warrants. Management uses the
non-GAAP financial measures for planning purposes, including the
preparation of operating budgets and to determine appropriate levels of
operating and capital investments. Management also believes that the
non-GAAP financial measures provide additional insight for investors in
evaluating ADSI’s financial and operational
performance. However, these non-GAAP financial measures are not intended
to be an alternative to financial measures prepared in accordance with
GAAP and should not be considered in isolation from the company’s
GAAP results of operations. A detailed reconciliation between the company’s
GAAP and non-GAAP financial results is provided in this press release
and investors are advised to carefully review and consider this
information as well as the GAAP financial results that are disclosed in
the company’s SEC filings.
About American Defense Systems, Inc.
(ADSI)
American Defense Systems, Inc. “ADSI”
(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 about American Defense Systems, Inc. please visit
the corporate Web site at http://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” 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 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 registration
statement on Form 10. Statements in this press release should be
evaluated in light of these important factors.
American Defense Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the three months and six months ended June 30
For the three months ended June 30,
For the six months ended June 30,
2008
2007
2008
2007
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Contract revenues earned
$
9,136,078
$
10,403,510
$
18,556,198
$
16,567,366
Cost of revenues earned
6,301,895
6,303,969
11,768,573
9,612,296
Gross profit
2,834,183
4,099,541
6,787,625
6,955,070
Operating expenses
Research and development expense
203,956
97,972
369,152
235,625
Marketing expense
727,260
609,488
1,359,567
1,279,683
General and administrative expense
728,099
828,101
2,656,407
1,419,234
General and administrative salaries expense
1,097,243
747,147
2,254,651
1,473,569
Depreciation
147,666
91,008
282,435
174,979
Settlement of litigation
-
2,400
57,377
85,587
Loss on disposal of fixed assets
-
-
-
136
Total operating expenses
2,904,224
2,376,116
6,979,589
4,668,813
Income (loss) from operations
(70,041
)
1,723,425
(191,964
)
2,286,257
Other income and (expense):
Gain on adjustment of fair value
Series A convertible preferred stock classified as a liability
2,605,159
-
1,176,494
-
Gain on investor warrant liability
1,421,432
-
1,313,843
-
Other income (expense)
10,159
33,387
(3,423
)
33,387
Interest expense
(243,780
)
(3,716
)
(310,167
)
3,716
Interest income
48,305
65,542
90,081
(65,542
)
Total other income (expense)
3,841,275
95,213
2,266,828
(28,439
)
Net income before income taxes
3,771,234
1,818,638
2,074,864
2,257,818
Provision for income taxes
-
283,638
-
283,638
Net income
$
3,771,234
$
1,535,000
$
2,074,864
$
1,974,180
Net income per share – basic and diluted
$
0.09
$
0.01
$
0.04
$
0.01
Weighted average number of shares outstanding
During the year – basic and diluted
39,204,753
37,300,000
39,069,337
37,300,000
American Defense Systems, Inc. and Subsidiaries
Reconciliation of GAAP Financial Information to Non-GAAP
For the three months and six months ended June 30
Three Months
Six Months
Ended
Ended
June 30, 2008
June 30, 2008
GAAP income (loss)
$
3,771,234
$
2,074,864
(Gain) loss on adjustment of fair value Series
A convertible preferred stock classified as a liability
(2,605,159
)
(1,176,494
)
(Gain) loss on investor warrant liability
(1,421,432
)
(1,313,843
)
Stock based compensation
20,612
54,297
Non-GAAP loss
$
(234,745
)
$
(361,176
)
Earning (Loss) Per Share - basic and diluted
Weighted average number of shares outstanding
39,204,753
39,069,337
Net income (loss) per share - basic and diluted
Non-GAAP
$
(0.02
)
$
(0.02
)
GAAP
$
0.09
$
0.04
American Defense Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2008
December 31, 2007
ASSETS
(Unaudited)
(Audited)
Current Assets:
Cash
$
6,613,517
$
1,479,886
Accounts receivable, net
5,491,623
6,711,161
Inventory
1,271,365
737,458
Prepaid expenses and other current assets
2,940,532
1,856,236
Deferred tax asset
4,136,982
4,136,982
Costs in excess of billings on uncompleted contracts
8,462,308
5,011,974
Deposits
656,430
608,020
Total current assets
29,572,757
20,541,718
-
Property and equipment, net
3,151,815
1,194,676
Deferred financing cost
1,721,131
-
Goodwill
1,950,000
1,680,361
Advances for future acquisitions
525,350
138,000
Total assets
$
36,921,053
$
23,554,754
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
3,827,283
$
4,381,930
Accrued payroll
374,847
205,230
Accrued expenses
329,914
599,258
Dividends payable
401,252
-
Due to Tactical Applications Group
250,000
1,512,741
Deferred tax liability
3,965,150
3,965,150
Short term notes payable
142,903
64,947
Total current liabilities
9,291,349
10,729,256
Long term notes payable
-
27,670
Mandatorily redeemable Series A Convertible
Preferred Stock (cumulative). 5,000,000 shares authorized, 15,000
shares issued and outstanding
12,437,584
-
Investor warrant liability
265,604
-
Total liabilities
21,994,537
10,756,926
Stockholders' equity:
-
Common stock, $0.001 par value, 100,000,000 shares authorized,
39,349,050 and 38,957,950 shares issued and outstanding as of June
30, 2008 and December 31, 2007
49,055
48,379
Additional paid-in capital
10,219,832
9,765,432
Retained earnings
4,657,629
2,984,017
Total stockholders' equity
14,926,516
12,797,828
Total liabilities and stockholders' equity
$
36,921,053
$
23,554,754
American Defense Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30
2008
2007
(Unaudited)
(Unaudited)
Cash flows from operating activities:
Net income
$
2,074,864
$
1,974,180
Adjustments to reconcile net income to net cash used in operating
activities:
Change in fair value associated with
preferred stock and warrants
(2,490,337
)
-
Stock based compensation expense
54,297
-
Amortization of deferred financing costs
147,747
-
Discount on Series A preferred stock
154,604
-
Depreciation and amortization
282,435
145,986
Changes in operating assets and liabilities:
Restricted cash
-
216,101
Accounts receivable
1,219,538
(2,119,473
)
Inventories
(533,907
)
18,050
Deposits and other assets
(48,410
)
-
Cost in excess of billing on uncompleted contracts
(3,450,334
)
(1,747,650
)
Prepaid expenses and other assets
(1,485,548
)
(725,324
)
Deferred financing costs
(416,886
)
-
Advances for future acquisitions
(387,350
)
-
Investment in affiliate
(1,669,350
)
(40,000
)
Accounts payable and accrued expenses
(604,801
)
(515,308
)
Accrued liabilities
169,617
617,114
Due to related party
262,741
-
Net cash used in operating activities
(6,721,080
)
(2,176,324
)
Cash flows from investing activities:
Purchase of equipment
(2,239,575
)
(436,067
)
Cash paid for acquisition in excess of cash received
(100,000
)
-
Net cash used in investing activities
(2,339,575
)
(436,067
)
Cash flows from financing activities:
Proceeds from notes payable
62,970
140,859
Repayments of short term financing
(12,684
)
(11,396
)
Proceeds from the sale of common stock
194,000
260,000
Proceeds from sale of Series A Convertible
Preferred Shares, net of
of capitalization costs of $270,000
13,950,000
-
Net cash provided by financing activities
14,194,286
389,463
NET INCREASE (DECREASE) IN CASH
5,133,631
(2,222,928
)
CASH AT BEGINNING OF YEAR
1,479,886
4,951,302
CASH AT END OF PERIOD
$
6,613,517
$
2,728,374
American Defense Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30
(Continued)
2008
2007
(Unaudited)
(Unaudited)
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
$
7,816
$
787
Cash paid for taxes
$
-
$
-
Supplemental disclosure of non-cash financing activities
Stock options issued in lieu of compensation
$
54,297
$
-
Dividends payable
$
401,252
$
-
Fair value of placement agent warrants
$
374,933
$
-
Assets and liabilities received in acquisition of American Anti-Ram,
Inc.
Fixed assets
$
30,000
$
-
Inventory
$
120,000
$
-
Goodwill
$
280,000
$
-
Accounts payable and accrued expense
$
(30,000
)
$
-
Shares issuable in connection with acquisition
$
(200,000
)
$
-
Cash paid to American Anti-Ram, Inc.
$
(100,000
)
$
-
Amounts due to American Anti-Ram, Inc.
$
(100,000
)
$
-
Amounts due to American Anti-Ram, Inc.
$
(100,000
)
$
-