The contract will allow the Municipal and Provincial agencies, including all advisory, adjudicative, regulatory and operational service agencies and other entities falling within the Public Service, to purchase the Company’s NIJ 0101.06 certified HeliX male and female armour and carriers. The products will be manufactured at the Company’s Arnprior, Ontario facility. The contract has commenced effective January 16, 2012 with new orders and deliveries.

According to Doug Lucky, CEO, “PSP has won this Contract in a fair, open and transparent competitive process, and the selection of the Company by this customer reflects well on the quality of our products, services we provide, and customer value we deliver.”

Customers of PSP include Defence, Security and Law Enforcement agencies. For reasons associated with the unique role our customers play in protecting citizens, the Company is not always at liberty to disclose their identity. Pacific Safety Products has been a trusted supplier of protective armour solutions to law enforcement in Canada for over 20 years.

Faced with a challenging operating environment, management and the board of directors of the Company have concluded the Sale Transaction is in the best interests of the Company and its stakeholders.

If the Sale Transaction closes, it is expected that the Company will have no operating assets, the Company will cease to be a manufacturing company and the Company’s common shares will be transferred to the NEX board of the TSX Venture Exchange while it formulates a strategic direction to maximize value for shareholders.

COMPLETION OF THE PROPOSED SALE TRANSACTION IS SUBJECT TO A NUMBER OF CONDITIONS, INCLUDING BUT NOT LIMITED TO TSX VENTURE EXCHANGE ACCEPTANCE AND SHAREHOLDER APPROVAL. THE SALE TRANSACTION CANNOT CLOSE UNTIL THE REQUIRED SHAREHOLDER APPROVAL IS OBTAINED. THERE CAN BE NO ASSURANCE THAT THE SALE TRANSACTION WILL BE COMPLETED AS PROPOSED OR AT ALL. THERE IS ALSO NO ASSURANCE THAT THE NET PROCEEDS OF SUCH A TRANSACTION WILL REPRESENT A PREMIUM TO THE CURRENT TRADING PRICE OF THE COMPANY’S SECURITIES.
INVESTORS ARE CAUTIONED THAT, EXCEPT AS DISCLOSED IN THE MANAGEMENT INFORMATION CIRCULAR WHICH IS TO BE MAILED TO SHAREHOLDERS, ANY INFORMATION RELEASED OR RECEIVED WITH RESPECT TO THE PROPOSED SALE TRANSACTION MAY NOT BE ACCURATE OR COMPLETE AND SHOULD NOT BE RELIED UPON. TRADING IN THE SECURITIES OF THE COMPANY SHOULD BE CONSIDERED HIGHLY SPECULATIVE.

Highlights:

• The Company is reporting under International Financial Reporting Standards (“IFRS”) for the three month period ended September 30, 2011 including the restatement of comparative figures.
• Sales for the first quarter were $3.5 million being approximately $0.8 million or 19.7% lower than first quarter of the prior year of $4.3 million which includes revenue from the Company’s former distribution business.
• The gross margin percentage for the first quarter was 24.3%, an improvement over the gross margin of 21.9% for the first quarter of the prior year. The increase in gross margin percentage, offset by lower sales, represented a decrease of $0.1 million in gross margin dollars or 10.7% compared to the prior year.
• Operating expenses for the first quarter were $1.3 million, approximately 12.9% lower than first quarter of the prior year of $1.5 million.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)^[1] was a loss of $0.4 million for the first quarter compared to a loss of $0.4 million in the first quarter of the prior year.
• Working capital declined from $2.9 million at June 30, 2011 to $2.8 million at September 30, 2011. The working capital ratio at September 30, 2011 was 1.76 and improved compared to 1.69 at June 30, 2011, and the debt to tangible net worth ratio at September 30, 2011 was 1.68 and improved compared to 1.87 at June 30, 2011 and 25.9 at July 1, 2010.

“Our primary focus is adding value for our customers in conjunction with revenue stability and growth”, says Chief Executive Officer, Doug Lucky, “and in order to further strengthen the Company, we continue to consider and evaluate on an ongoing basis, all alternatives available to us including seeking additional sources of financing, identifying and pursuing strategic partnerships, and other value enhancing opportunities.”

About PSP:

The mission statement of Pacific Safety Products Inc. is …we bring everyday heroes home safely®. PSP is an established industry leader in the production, distribution and sale of high-performance and high-quality safety products for the defence and security market. These products include body armour to protect against ballistic, stab and fragmentation threats, ballistic blankets to reduce blast effects, tactical clothing, and protective products against chemical and biological hazards. PSP is the largest body armour manufacturer in Canada, directly supplying the Canadian Department of National Defence, Federal Government Agencies and major Canadian law enforcement organizations. The Company, through its U.S. subsidiary Sentry Armor Systems Inc., provides body armour products under the GH Armor Systems® brand to U.S. based law enforcement and private security firms. The Company also produces tactical clothing. Pacific Safety Products is a reporting issuer in British Columbia, Alberta and Ontario, Canada and publicly trades under the symbol PSP on the TSX Venture Exchange.

For complete consolidated financial statements with notes and management discussion and analysis, refer to SEDAR (www.sedar.com).

Pacific Safety Products has been the trusted supplier of protective armour solutions to DND for over 20 years including the Fragmentation Protective Vest (FPV) and the Level IIIA Patrol Vest for the Military Police.

About PSP

The mission statement of Pacific Safety Products Inc. is …we bring everyday heroes home safely®. PSP is an established industry leader in the production, distribution and sale of high-performance and high-quality safety products for the defence and security market. These products include body armour to protect against ballistic, stab and fragmentation threats, ballistic blankets to reduce blast effects, and protective products against chemical and biological hazards. PSP is the largest body armour manufacturer in Canada, directly supplying the Canadian Department of National Defence, Federal Government Agencies and major Canadian law enforcement organizations. The Company, through its U.S. subsidiary Sentry Armor Systems Inc., provides body armour products under the GH Armor Systems® brand to U.S. based law enforcement and private security firms. The Company also produces tactical clothing. Pacific Safety Products is a reporting issuer in British Columbia, Alberta and Ontario, Canada and publicly trades under the symbol PSP on the TSX Venture Exchange.

Forward-Looking Information: This news release contains certain statements which may constitute “forward-looking information” within the meaning of applicable securities laws. These statements relate to anticipated or assumed events or results including, without limitation, with respect to the anticipated delivery date of the products and expected increase in value of the contracts, and are based on management’s expectations, estimates and projections. Although the Company believes that the expectations conveyed by the forward-looking information are reasonable based on information currently available to it, these statements are not guarantees and involve a number of risks, uncertainties and assumptions. Many factors could cause results to differ materially from those stated including delays in receiving or shortages in the supplies necessary to manufacture the products, possible changes to the product orders, constraints on purchasing budgets, as well various other factors which are discussed in the Company’s filings with applicable securities regulatory authorities at www.sedar.com. The Company assumes no obligation to update forward-looking information should circumstances or management’s estimates or opinions change, except as required by applicable law.

In conjunction with the head office relocation, the Company also announced that it has successfully subleased its former head office space in Kanata, Ontario, and has settled a lease obligation for a redundant plant location inherited pursuant to its merger with Zuni Holdings Inc. The Company estimates that it will save approximately $930,000 in rent and common costs over the remaining terms of the two subject leases.

“Having our people physically working together in our Arnprior, Ontario and Dover, Tennessee locations strengthens our culture and makes us more effective. Exiting redundant lease obligations allow us to put the cash savings to work elsewhere in the business to create value”, says Chief Executive Officer, Doug Lucky.