American Defense Systems Reports Record Second Quarter 2009 Financial Results

HICKSVILLE, NY--(Marketwire - August 12, 2009) - American Defense Systems, Inc. (ADSI) (NYSE Amex: EAG), a leading provider of advanced transparent and opaque armor, architectural hardening and security products for Defense and Homeland Security, reported financial results for the second quarter ended June 30, 2009.

Q2 2009 Highlights

• Revenues totaled a record $14.0 million, up 52% vs. Q2 2008
• Income from operations totaled $1.3 million vs. $45,000 in Q2 2008
• Contract backlog reached $48 million

Q2 2009 Financial Results

Revenues for the second quarter of 2009 increased 48% to a record $14.0 million from $9.5 million in the previous quarter, and increased 52% from $9.2 million in the same year-ago quarter.

Gross margin as a percentage of revenue for the second quarter was 38%, as compared to 43% in the previous quarter and 35% for the second quarter of 2008. The quarterly variation in gross margin is due primarily to the different mix of armor products sold in a particular quarter.

Income from operations totaled $1.3 million, an improvement from $40,000 in the previous quarter and $45,000 in the same period a year-ago.

Net loss totaled $2.6 million or $(0.07) per share, compared to a loss of $1.3 million or $(0.03) per share in the previous quarter, and net income of $3.4 million or $0.09 per basic and diluted share in the same year-ago period.

Adjusted EBITDA for the quarter was $1.1 million or $0.03 per basic and diluted share, an improvement from a loss of $94,000 or $(0.00) per basic and diluted share in the previous quarter and a loss of $313,000 or $(0.01) 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).

Contract backlog at June 30, 2009 totaled $48 million, down 20% from $60 million at the end of the previous quarter and up 7% from $45 million at June 30, 2008.

Q2 2009 Operational Highlights

ADSI advanced in a number of areas during the second quarter of 2009, which are highlighted below:

• Received a $3.3 million contract from JCB Construction Equipment, the world's largest privately-owned producer of construction machinery, for armored Crew Protection Kits (CPKs). The order is in fulfillment of new major U.S. Army and New Zealand Army contracts awarded to JCB. ADSI plans to deliver the order to JCB by October 2009.
  
  
• The $3.3 million JCB contract was in addition to a $10 million revenue expectation from JCB. ADSI announced this award on December 8, 2008 based on a $230 million procurement contract JCB was awarded by the US Army to equip approximately 800 JCB HMEEs. During the second quarter of 2009, ADSI received and began processing an initial JCB order that represents approximately one-third of this $10 million revenue expectation, and plans to complete the order by the third quarter of 2009. On June 4, 2009, JCB announced the first nine of these 800 JCB HMEEs were deployed to Afghanistan by the U.S. Army (see: http://www.jcbna.com/news_and_events.htm?newsID=25). According to the JCB announcement, from this point forward, at least six HMEEs will be delivered every two weeks to various military installations around the globe.
  
  
• U.S. Marine Corps awarded ADSI a $30 million firm fixed price, indefinite delivery, indefinite quantity, three-year, sole-source contract to provide Add-on-Armor (AoA) CPKs and spare parts for various types of construction vehicles used in U.S. Marine Corps military operations.
  
  
• Awarded a three-year, $9.9 million, indefinite delivery, indefinite quantity, sole source contract by the U.S. Marine Corps Systems Command to install CPKs on Terex MAC-50 cranes, as well as supply spare parts and field service representatives (FSRs).
  
  
• ADSI's physical security subsidiary, American Physical Security Group (APSG), received the highest level designation of Qualified Anti-Terrorism Technology for its Hi-Threat product line from the U.S. Department of Homeland Security (DHS). The Hi-Threat technology supports a product line of specially crafted doors, windows, louvers, and security stations designed to resist physical forced entry and bullets. The DHS designation also applies to APSG's supervision of general contractor-provided installation services. The designation serves to reduce insurance costs and limit potential liabilities for the company, as well as its contractors and customers under the Safety Act.

Management Commentary

"This was another quarter of solid performance," said Anthony J. Piscitelli, chairman and CEO of American Defense Systems, "which brought our revenues to a new record. Before the non-cash charges related to warrants and preferred stock dividends, we also posted a net profit as the result of generating the highest income from operations as a public company."

"During the quarter, we finally received and began processing the first CPK orders from the world's largest privately-owned producer of construction machinery, JCB Construction, in accordance with their contract with the U.S. Army. With this initial order, we're more than a third of the way toward the $10 million revenue expectation we announced last November, and given their announced delivery ramp up, our revenue expectation will likely be increased over time."

"While the military armor segment of our business has been strong, our American Physical Security Group subsidiary also began to realize significant revenue in the second quarter from its backlog of more than $8 million in architectural security-related orders. The new designation issued by DHS reflects that our APSG products and services have received thorough and rigorous testing by DHS in order to meet their highest standards. Along with the reduced insurance costs, we expect this to encourage more extensive adoption of APSG's architectural hardening products and related services."

Added Piscitelli, "Our progress year-to-date and strong order backlog keeps us well on track to exceed our original 2009 revenue goal of more than $52 million."

Conference Call and Webcast

The company will hold a conference call today at 4:30 p.m. Eastern time to discuss its second quarter performance. Members of ADSI's executive management team will host the presentation, followed by a question and answer period.

Date: Wednesday, August 12, 2009
Time: 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time)
Dial-In Number: 1-800-862-9098
International: 1-785-424-1051
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 the Liolios Group at 1-949-574-3860.

A replay of the call will be available after 7:30 p.m. Eastern time on the same day and until September 12, 2009:

Toll-free replay number: 1-800-677-6124
International replay number: 1-402-220-0664
(No passcode required)

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; taxes; depreciation; and unrealized (gain) loss on adjustment of fair value series a convertible preferred stock classified as a liability and unrealized (gain) loss 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 Income (Loss) to adjusted EBITDA (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. Reconciliation of GAAP Income (Loss) to EBITDA (Loss) (in thousands, except per share amounts) (unaudited) June 30, March 31, June 30, 2009 2009 2008 -------- --------- -------- GAAP net income (loss) $ (2,647) $ (1,297) $ 3,370 Reconciling items from GAAP to Adjusted EBITDA (loss) Interest expense, net 302 282 196 Income tax provision (benefit) 500 - - Depreciation 278 241 148 Unrealized (gain) loss on adjustment of fair value Series A convertible preferred stock classified as a liability 279 694 (2,605) Unrealized (gain) loss on investor warrant liability 2,435 (14) (1,421) -------- --------- -------- Adjusted EBITDA (loss) $ 1,146 $ (94) $ (313) ======== ========= ======== Adjusted EBITDA (loss) per common share: Basic and diluted $ 0.03 $ (0.00) $ (0.01) ======== ========= ======== Weighted average common shares outstanding: Basic and diluted 41,484 39,586 39,205

About American Defense Systems, Inc.

American Defense Systems, Inc. ("ADSI") 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.

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 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. There also can be no assurance that ADSI will obtain a sufficient number of orders from JCB to generate more than $10 million in revenue or that such orders will be placed during the two year period referenced in the ADSI press release announced on November 8, 2008. Accordingly, ADSI revenues in connection with the matters referenced herein could be significantly less than the $10 million and may not be realized during such two year period.

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, and its registration statement on Form S-1 filed with the SEC on August 6, 2009. Statements in this press release should be evaluated in light of these important factors.

AMERICAN DEFENSE SYSTEMS, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 ----------- ---------- ----------- ----------- CONTRACT REVENUES EARNED $14,033,575 $9,224,451 $23,523,277 $17,959,361 COST OF REVENUES EARNED 8,659,865 6,009,447 14,112,974 11,344,483 ----------- ---------- ----------- ----------- GROSS PROFIT 5,373,710 3,215,004 9,410,303 6,614,878 ----------- ---------- ----------- ----------- OPERATING EXPENSES General and administrative expenses 2,009,767 993,429 3,658,245 2,367,680 General and administrative salaries 1,022,366 1,097,243 2,095,403 2,254,651 Marketing 603,779 727,260 1,337,573 1,359,567 T2 expenses 124,070 - 237,672 - Research and development 16,841 203,956 203,227 369,152 Settlement of litigation 63,441 - 63,441 57,377 Depreciation 278,083 147,666 519,412 282,435 ----------- ---------- ----------- ----------- Total operating expenses 4,118,347 3,169,554 8,114,973 6,690,862 ----------- ---------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS 1,255,363 45,450 1,295,330 (75,984) ----------- ---------- ----------- ----------- OTHER INCOME (EXPENSE) Unrealized gain (loss) on adjustment of fair value Series A convertible preferred stock classified as a liability (278,507) 2,605,159 (972,961) 1,176,494 Unrealized gain (loss) on investor warrant liability (2,434,725) 1,421,432 (2,420,671) 1,313,843 Other income (expense) (12,730) 10,159 (12,730) (3,423) Interest expense (301,857) (244,264) (592,177) (310,651) Interest income 10 48,305 8,856 90,081 Finance charge - - - - ----------- ---------- ----------- ----------- Total other income (expense) (3,027,809) 3,840,791 (3,989,683) 2,266,344 ----------- ---------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,772,446) 3,886,241 (2,694,353) 2,190,360 INCOME TAX PROVISION 500,000 - 500,000 - ----------- ---------- ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS (2,272,446) 3,886,241 (3,194,353) 2,190,360 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES Loss from operations of discontinued division - (115,007) - (115,496) Loss from disposal of discontinued division - - - - ----------- ---------- ----------- ----------- - (115,007) - (115,496) ----------- ---------- ----------- ----------- NET INCOME (LOSS) (2,272,446) 3,771,234 (3,194,353) 2,074,864 PREFERRED STOCK DIVIDENDS ACCRUED (375,000) (401,252) (749,380) (401,252) ----------- ---------- ----------- ----------- NET INCOME (LOSS) ALLOCATED TO COMMON SHAREHOLDERS $(2,647,446) $3,369,982 $(3,943,733) $ 1,673,612 =========== ========== =========== =========== Basic and Fully Diluted Net Income (Loss) Per Share $ (0.064) $ 0.086 $ (0.095) $ 0.043 =========== ========== =========== =========== Weighted Average Shares Outstanding 41,484,307 39,204,753 41,484,307 39,069,337 =========== ========== =========== =========== EARNINGS PER SHARE - Basic Income from continuing operations $ (0.06) $ 0.10 $ (0.08) $ 0.06 =========== ========== =========== =========== (Loss) from discontinued operations $ - $ (0.00) $ - $ (0.00) =========== ========== =========== =========== Net income (loss) $ (0.07) $ 0.09 $ (0.10) $ 0.04 =========== ========== =========== =========== AMERICAN DEFENSE SYSTEMS, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 2009 2008 ------------ ------------- ASSETS (Unaudited) (Audited) CURRENT ASSETS Cash $ 348,662 $ 374,457 Accounts receivable, net 8,610,578 4,981,150 Inventory 837,597 621,048 Prepaid expenses and other current assets 4,933,040 3,144,601 Costs in excess of billings on uncompleted contracts 8,292,995 7,143,089 Deposits 309,685 437,496 ------------ ------------- TOTAL CURRENT ASSETS 23,332,557 16,701,841 PROPERTY and EQUIPMENT, net 3,524,693 3,743,936 DEFERRED FINANCING COSTS, net 979,917 1,277,833 NOTES RECEIVABLE 925,000 925,000 GOODWILL 450,000 450,000 ADVANCES for FUTURE ACQUISITIONS 159,560 159,560 DEFERRED TAX ASSET 1,167,832 1,167,832 ASSETS of DISCONTINUED OPERATIONS - 736,613 ------------ ------------- TOTAL ASSETS $ 30,539,559 $ 25,162,615 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,519,987 $ 2,480,652 Accrued payroll 485,431 - Accrued expenses 412,732 755,615 Loan payable 55,490 - Line of credit 1,429,789 76,832 ------------ ------------- TOTAL CURRENT LIABILITIES 8,903,429 3,313,099 LONG TERM LIABILITIES Preferred stock, $.001 par value, 5,000,000 shares authorized, 15,000 shares designated as mandatorily redeemable Series A Convertible Preferred Stock (cumulative), 15,000 shares issued and outstanding 12,223,642 10,981,577 Investor warrant liability - 90,409 Liabilities of discontinued operations - 736,613 ------------ ------------- TOTAL LIABILITIES 21,127,071 15,121,698 ------------ ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common Stock, $.001 par value: 100,000,000 shares authorized, 45,281,000 and 39,585,960 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively 45,281 39,586 Additional paid in capital 12,844,845 9,534,616 Retained earnings (accumulated deficit) (3,477,638) 466,715 ------------ ------------- TOTAL SHAREHOLDERS' EQUITY 9,412,488 10,040,917 ------------ ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 30,539,559 $ 25,162,615 ============ ============= AMERICAN DEFENSE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 2009 2008 ------------ ------------ Cash flows from operating activities: Net income (loss) $ (3,194,972) $ 2,074,864 Adjustments to reconcile net loss to net cash used in continuing operating activities: Change in fair value associated with preferred stock and warrants 3,662,736 (2,490,337) Stock based compensation expense 54,845 54,297 Amortization of deferred financing costs 297,916 147,747 Discount on Series A preferred stock 269,104 154,604 Depreciation and amortization 519,412 282,435 Issuance of stock toward payment of accrued dividends 750,000 Changes in operating assets and liabilities: Accounts receivable (3,581,870) 1,219,538 Inventories (216,549) (533,907) Deposits and other assets 127,811 (48,410) Cost in excess of billing on uncompleted contracts (1,149,906) (3,450,334) Prepaid expenses and other assets (1,788,439) (1,485,548) Deferred tax assets - - Deferred financing costs - (416,886) Advances for future acquisitions - (387,350) Accounts payable and accrued expenses 3,651,280 (604,801) Accrued payroll - - Accrued liabilities (342,883) 169,617 Investment in affiliate - (1,669,350) Due to related party (47,558) 262,741 ------------ ------------ Net cash used in operating activities (989,073) (6,721,080) ------------ ------------ Cash flows from continuing investing activities: Purchase of equipment (300,169) (2,239,575) Increase in deferred financing costs (145,000) - Cash paid for acquisition in excess of cash received - (100,000) ------------ ------------ Net cash used in investing activities (445,169) (2,339,575) ------------ ------------ Cash flows from continuing financing activities: Proceeds from notes payable - 62,970 Proceeds from line of credit 1,352,957 - Proceeds from sale of stock - 194,000 Repayments of short term financing 55,490 (12,684) Proceeds from sale of Series A Convertible Preferred Shares, net of capitalization costs of $270,000 - 13,950,000 ------------ ------------ Net cash provided by financing activities 1,408,447 14,194,286 ------------ ------------ Discontinued operations Cash used in operating activities - - ------------ ------------ Net cash used in discontinued operations - - ------------ ------------ NET INCREASE (DECREASE) IN CASH (25,795) 5,133,631 CASH AT BEGINNING OF YEAR 374,457 1,479,886 ------------ ------------ CASH AT END OF PERIOD $ 348,662 $ 6,613,517 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 25,157 $ - ============ ============ Cash paid for taxes $ - $ - ============ ============ Supplemental disclosure of non-cash financing activities Stock options issued in lieu of cash for compensation $ 54,845 $ - ============ ============ Common stock issued as payment toward accrued and future dividends $ 1,125,000 $ - ============ ============ Common stock issued in connection with investor warrants $ 2,550,000 $ - ============ ============ 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) Notes payable $ - $ - Shares issuable in connection with acquisition $ - $ (200,000) Cash paid in connection with acquisition $ - $ (100,000) Amounts due to American Anti-Ram, Inc. $ - $ (100,000)