Allen-Vanguard announces financial results for second quarter of fiscal 2009



    OTTAWA, May 14 /CNW Telbec/ - Allen-Vanguard Corporation (the "Company"
or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada reported today its financial
results for the second quarter of fiscal 2009 ("Q2 2009"), which ended March
31, 2009. All figures are in Canadian dollars, except where noted.

    Summary of Q2 results

    Revenue was $56.6 million in Q2 2009, compared to revenue of $91.3
million in Q2 2008. EBITDA(1) was $8.6 million in Q2 2009, versus EBITDA of
$21.6 million in Q2 2008. Net loss was $19.6 million, or $(0.18) cents per
share, compared to a net loss of $34.2 million, or $(0.32) per share in Q2
2008. The loss in fiscal 2009 included impairment of goodwill and intangible
assets of $6.0 million and an unrealized foreign exchange loss of $6.7
million.
    Cash flow from operations was $1.9 million in the quarter ended March 31,
2009, and after changes in working capital, cash used in operating activities
was $3.8 million. The Company repaid $3.4 million in bank indebtedness net of
proceeds in the quarter, and at March 31, 2009 is fully compliant with all of
the covenants and terms of its credit facility. At March 31, 2009, $4.2
million was drawn under the new revolving facility of $16.0 million under that
credit facility. Net debt was $239.5 million at March 31, 2009.
    "The lower revenue reported in Q2 partly reflects the over-performance
from accelerated shipments in Q1 of this fiscal year," said David E. Luxton,
President and CEO. "On the expense side we continue to track to our reduced
target cost base as a result of the reduction measures announced at the end of
fiscal 2008, with scope for additional operating efficiencies in the remainder
of the year."
    In the six months ended March 31, 2009, revenue was $129.3 million,
EBITDA was $23.6 million and net loss was $53.6 million, or $(0.49) per share.
This compares to the first half of fiscal 2008 when revenue was $231.6
million, EBITDA was $66.0 million and the net loss was $27.4 million or
$(0.26) per share.
    While macro conditions for Allen-Vanguard products and services remain
favorable with the new U.S. defense budget emphasis on counter-insurgency, the
post-U.S. presidential election budget process created a pronounced pause in
order approval and processing Thus, considering this and the current global
economic instability, the Company has decided to suspend revenue guidance for
the time being. Order backlog at the end of Q2 2009 stood at approximately
$88.0 million vs. $45.0 million at the end of Q2 F08. This order backlog
represented increases in all three business lines: Electronic Systems was 20.6
million compared to 12 million a year ago; PPS was 42.4 million compared to
22.3 million a year ago and S&S which was 25 million compared to 10.8 million
a year ago.
    "Our jammer business is currently in transition as our legacy Chameleon
product reduces to sustainment levels while we ramp up for Symphony program
requirements, which now have much stronger visibility, and as we introduce our
next-generation Equinox platform," continued Mr. Luxton. "Equinox is a
leap-ahead technology with applications far beyond jamming, and early
indications are that there is a receptive international market which we expect
will drive significant growth commencing in 2010."
    The Company added that its traditional Personal Protection Systems
business is also evolving, with a changing sales mix as it introduces new
products, in particular its family of blast protection seats. "This new
product has already surpassed our revenue expectations for this fiscal year,"
said Mr. Luxton. "This partially offsets a pause in our bomb disposal program
where we upgraded technology and relocated manufacturing, which slowed the
pace of robot deliveries against plan."
    The Company reported that its Systems and Services business continues to
track well to plan, anchored by a significant multi-year Program-of-Record to
provide training to U.S. forces, plus ongoing requirements for field service
representatives overseas.

    Events subsequent to Q2 2009

    On April 6, 2009 Allen-Vanguard announced the termination of its
arrangement agreement with Tailwind Financial Inc. and that it had entered
into an exclusivity agreement with an unrelated U.S. investor for a period of
three weeks ending April 24, 2009, which was subsequently extended. The
investor is undertaking discussions with Allen-Vanguard's stakeholders and
performing due diligence with the objective of entering into a binding
agreement pursuant to which Allen-Vanguard would be taken private. Any such
transaction would be subject to the approval of Allen-Vanguard shareholders
and other customary conditions.
    On April 30, 2009 the Company announced that it had elected to issue
16,496,000 warrants exercisable at $0.2114 per share for a period of five
years to certain members of its lending syndicate, under the terms of the
credit facility entered into on December 29, 2008.

    
    Financial Highlights of Q2 2009

    Revenue

    - Allen-Vanguard's revenue was $56.6 million in Q2 2009, compared to
      $91.3 million in Q2 2008.
    - Revenue from Electronic Services ("ES") products represented 51% of
      revenue in Q2 2009, compared to 81% in Q2 2008. Q2 and YTD 2008 ES
      revenues are on track with current US Department of Defense program
      expenditures expectations, augmented by equipment sales into other
      markets.
    - Revenue from Personal Protection Systems ("PPS") products accounted for
      35% of Q2 2009 revenue, compared to 13% in Q2 2008. Sales in fiscal
      2009 included ballistic protection products, demining, cooling systems
      and EOD search and tactical equipment as well as initial shipments of
      blast protection seats.
    - Revenue from Systems & Services accounted for 14% of Q2 2009 revenue,
      compared to 6% in Q2 2008, with most of the increase relating to the
      award of a new services contract in Q2 2009.
    - Customers based in the United States continue to generate a significant
      majority of Allen-Vanguard's revenue. Revenue generated in the United
      States comprised 74% of Q2 2009 revenue, compared to 89% of Q2 2008
      revenue.

    Gross margin

    - Overall gross margin was 37% in Q2 2009, compared to 40% in both Q1
      2009 and Q2 2008. ES gross margin was relatively stable at 39% in Q2
      2009. PPS gross margin was 37% in Q2 2009, up from 30% in Q1 2009, and
      down from 44% in Q2 2008. Services gross margin was 34% in Q2 2009,
      down from 45% in Q1 2009 and a sharp turnaround from 9% in Q2 2008,
      reflecting the impact of increased sales over a fixed cost base.

    Overheads

    - Selling and administration expenses were $7.9 million in Q2 2009 a
      sharp reduction from $11.0 million in Q1 2009 and $10.6 million in Q2
      2008. The reduction reflects savings realized as a result of
      restructuring initiatives announced in Q4 2008, as well as company-wide
      operational efficiencies.
    - Research and development expenses, net of grants received and
      investment tax credits, were $4.5 million in Q2 2009, compared to
      $4.7 million in Q2 2008.

    Acquisition and financing-related charges, amortization and foreign
    exchange

    - Allen-Vanguard incurred acquisitions and financing-related charges and
      amortization of $7.2 million in Q2 2009, a decrease from $54.9 million
      recorded in Q2 2008.
    - The Company recorded an unrealized foreign exchange loss of
      $6.7 million in Q2 2009 and $36.9 million in YTD 2009. These were
      non-cash charges and were primarily due to the increase in the Canadian
      dollar equivalent value of the US$ denominated term loan during the
      periods. The company carries its debt in US$ because of its strong
      US$ denominated revenue stream.

    Earnings measures

    - EBITDA(1) was $8.6 million in Q2 2009, representing 15.3% of revenue.
      This compares to EBITDA of $15.0 million or 20.6% of revenue in Q1 2009
      and EBITDA of $21.6 million or 23.7% of revenue in Q2 2008, reflecting
      the decline in revenue and gross profit in the quarter offset by lower
      selling and administration costs.
    - Net loss was $19.6 million or $(0.18) per share in Q2 2009. Of this
      loss, $12.7 million was attributable to the combination of an
      unrealized foreign exchange loss and an impairment of goodwill and
      intangible assets. This compared to a net loss of $34.2 million or
      $(0.32) per share in Q2 2008. At March 31, 2009, Allen-Vanguard had
      common shares outstanding of approximately 109.2 million (approximately
      148.2 million fully diluted).

    Liquidity and cash flow

    - Allen-Vanguard's cash and cash equivalents totaled $6.6 million at the
      end of Q2 2009, a decrease of $8.7 million from the beginning of the
      quarter.
    - Operating cash flow, defined as net earnings before adjustment for
      changes in non-cash operating working capital items, was $1.9 million
      in Q2 2009, compared to operating cash flow of $2.3 million in Q2 2008.
    - Changes in non-cash working capital items used cash of $5.7 million in
      Q2 2009, compared to generating cash of $58.9 million in Q2 2008.
    - Purchases of capital and intangible assets totaled $1.0 million in Q2
      2009, consisting primarily of demonstration equipment and computer
      equipment.

    (1) EBITDA means earnings before interest, income taxes, depreciation,
        amortization, stock-based compensation, foreign exchange, goodwill
        impairment, intangible asset impairment, restructuring and
        acquisition and financing-related charges and amortization

    Filing and conference call details

    Financial Statements and the Management Discussion and Analysis for the
second quarter ended March 31, 2009 will be filed on www.sedar.com by May 15,
2009.
    The Company will be hosting an investor and analyst conference call at
9:00 am on Friday May 15, 2009. This will be followed by a question and answer
period with analysts. The call-in details are as follows:

    Date:                 Friday, May 15, 2009
    Time:                 9:00 a.m. ET
    Dial-in numbers:      1-800-590-1817
                          1-416-644-3422

    Web access:
    http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2666840

    For those unable to listen to the call live, a replay will be available
for a two week period beginning at 11:00 a.m. ET on May 15, 2009. The replay
phone number is 877-289-8525 and the access code is 21305913 (pound key).
    

    Forward looking statements

    This press release may contain forward-looking statements, which reflect
Allen-Vanguard's current expectations regarding future events, its strategy,
expected performance and condition. Forward-looking statements include
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"plans," "believes," "estimates" or negative versions thereof and similar
expressions. In addition, any statement that may be made concerning future
performance, strategies or prospects, and possible future acquisitions or
dispositions, is also a forward-looking statement. Forward-looking statements
are based on current expectations and projections about future events and are
inherently subject to, among other things, risks, uncertainties and
assumptions about the Company and economic factors. Forward-looking statements
are not promises or guarantees of future performance, and actual events and
results could differ materially from those expressed or implied in any
forward-looking statements made about the Company. Any number of important
factors could contribute to these digressions, including, but not limited to,
general economic, political and market factors in North America and
internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings, and
catastrophic events. We stress that the above-mentioned list of important
factors is not exhaustive. We encourage you to consider these and other
factors carefully before making any investment decision and we urge you to
avoid placing undue reliance on forward-looking statements. Further, you
should be aware that the Company disclaims any obligation to publicly update
or revise any such forward-looking statements whether as a result of new
information, future events or otherwise, prior to the release of the next
Management Discussion and Analysis to be released by the Company or except as
required by law.

    About Allen-Vanguard

    Allen-Vanguard Corporation supports the mission of military and homeland
security forces around the world with leading proprietary solutions for
protection and counter-measures against hazardous devices of all kinds,
whether chemical, biological, radiological or explosive ("CBRNE"), including
improvised explosive devices (IEDs) and remotely controlled IEDs ("RCIED"s).
Allen-Vanguard equipment is in service in more than 120 countries. Products
include Electronic Counter-Measures ("ECM") equipment for jamming remote
detonation of terrorist devices, specialty security equipment for Explosive
Ordnance Disposal ("EOD"), remote intervention robots for hazardous
applications, and personal protective wear for use in dealing with explosive
and bio-chemical agents. Allen-Vanguard is the developer and/or sole,
worldwide licensee of proprietary technologies such as the Med-Eng bomb suit,
the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal
Containment System and CASCAD Foam system for blast mitigation and
decontamination of bio-chemical warfare agents. Professional services
encompass counter-IED intelligence, training and advisory services, including
the Triton(TM) Report on terrorist incidents around the world. The Company
operates globally through its wholly-owned subsidiaries under the names
"Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office
operations are located in Ottawa, Ontario, Canada, with manufacturing
operations in Pembroke, Ontario; Ogdensburg, New York; and Tewkesbury, U.K..
The Company has professional services operations in Shrivenham, UK, Canada and
in the U.S. in Arlington, Virginia, plus sales offices in Canada, the U.S.,
the U.K. and Asia. Allen-Vanguard's shares are listed on The Toronto Stock
Exchange (TSX) under the symbol "VRS".
    To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our
website at www.allen-vanguard.com.
    %SEDAR: 00018026E




For further information:

For further information: Robin Sundstrom, Allen-Vanguard Corporation,
(647) 822-8111, ir@allenvanguard.com

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ALLEN-VANGUARD CORPORATION

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