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Share Name | Share Symbol | Market | Type |
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American Defense Systems, Common Stock | AMEX:EAG | AMEX | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.00 | - |
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
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) =========== =========== =========== ===========
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
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