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)
========== =========== =========== ===========
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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