Ahead of final negotiations for a merger, Pacific Safety Products Inc. (TSX-V:PSP) released first-quarter results showing a 43 per cent drop in sales year-over-year, as well as lower earnings.
Pacific Safety Products makes body armour similar to what this soldier, on exercise in Quebec, is wearing. (Photo courtesy DND)
For the quarter ending Sept. 30, sales were $4.3 million compared with $7.6 million in the first quarter of 2010.
PSP's adjusted earnings before interest, taxes, depreciation and amortization fell to a $400,000 loss over a $300,000 loss last year.
After years of losses and failed sales following its move to Ottawa, PSP is pursuing a merger with Zuni Holdings Inc. that would give the California firm 54.2 per cent ownership.
The arrangement met the approval of both firms' board of directors and will go before shareholders late next month.
PSP's bank is letting the firm operate under a forbearance agreement, and in a statement the company said the bank would not "take steps" to terminate it before Feb. 28, 2011.
"The company is renewing its momentum. The PSP-Zuni merger squarely addresses the path to achieve financial stability," added chief executive Doug Lucky in a statement.
"Combine that with the launch of our new NIJ.06-certified body armour product lines and customer wins – including the recent order worth over U.S. $2.0 million for tactical body armour – and you can see evidence the company is asserting itself in the market in order to create shareholder value."
PSP's operating expenses in Q1 fell to $1.6 million from $1.7 million last year, and working capital increased to $0.7 million from $0.3 million last quarter.
The soft-armour maker raised some cash this quarter through a $1 million private placement, and through selling the helmet liner portion of its headborne system to Revision Eyewear Inc. for $275,000 and a four per cent royalty on gross sales.
Revision bought the rest of the system for $100,000 a few days later, both deals vastly downgraded from an initial offer in May to buy all of PSP for $4.6 million.
Once the deal was turned down by shareholders, Revision downgraded its offer to $1.275 million for the headborne system, an offer that was also rebuffed.
PSP's chief financial officer and five board members left the company in August.