This excerpt taken from the ADG 10-Q filed Nov 9, 2007.
WE MAY NOT BE ABLE TO TIMELY REPAY OUR OUTSTANDING INDEBTEDNESS.
In June and July 2007, we issued $42,580 of Notes and 1,288,000 shares of common stock in exchange for $30,000 of Notes that were previously issued in March 2006, $1,204 of unpaid accrued interest and penalties, and $15,376 of new funds. The Notes mature on June 26, 2010 and are subject to the right of the purchasers to demand payment eighteen months after the closing, or December 26, 2008 for the notes issued on June 26, 2007 or January 19, 2009 for the notes issued on July 19, 2007. On October 4 and 9, 2007, the Company redeemed $19,949 of the Notes using proceeds received from the sale of The VSK Group. Also, on October 2 and 10, 2007, two of the purchasers elected to convert a portion of their respective Notes into shares of the Companys common stock. On those dates, $264 and $1,144 of the Notes were converted into 28,200 and 122,300 shares of the Companys common stock. As of October 15, 2007, the outstanding balance of senior secured convertible notes was $20,357 as compared to $41,713 at September 30, 2007. Our ability to repay these Notes is dependent on improved operations and profitability and possible future divestitures of operating units. We may not be able to repay these obligations in a timely manner.
In addition, we have been in default of the loan covenants with MECARs credit facility at September 30, 2007 and December 31, 2006 due to a violation of financial performance covenants. MECARs banking group has been working to restructure the terms of the facility as MECAR has been reorganizing its business to return to profitability although at several times in the past months, MECARs funds have been frozen by the bankgroup as MECAR plans for its operational turnaround. MECAR, based on substantial orders received in July 2007, will require working capital funding in excess of the line of credit provided by the facility. MECAR is expecting over the next several weeks to receive local Belgian government-backed financing for an additional 6,000 Euros for a working capital line of credit facility and effective July 1, 2007 a local Belgian government-backed credit facility to provide for up to 50% of MECARs credit requirements relative to performance bonds and advance payment guarantees, to reduce the exposure of the existing bank group. If we are not successful in obtaining this financing, we will look to other potential lenders thereby delaying performance on the contract.
This excerpt taken from the ADG 10-Q filed Aug 14, 2007.
WE MAY NOT BE ABLE TO TIMELY REPAY OUR OUTSTANDING INDEBTEDNESS
In June and July 2007, the Company issued $42,580 of senior secured convertible notes and 1,288,000 shares of its common stock in exchange for $30,000 of convertible notes that were previously issued in March 2006, $1,204 of unpaid accrued interest and penalties owed to the note holders and $15,376 of new funds. The new senior secured convertible notes mature on June 26, 2010 and are subject to the right of the purchasers to demand payment eighteen months after the closing or December 26, 2009. The Companys ability to repay these notes is dependent on improved operations and profitability and possible future divestitures of operating units overtime. The Company may not be able to repay these obligations in a timely manner.
This excerpt taken from the ADG 10-K filed Mar 23, 2007.
WE MAY NOT BE ABLE TO TIMELY REPAY OUR OUTSTANDING INDEBTEDNESS.
In March 2006, we issued $30,000 of convertible notes. We may be unable to repay these loans.
In conjunction with the $30,000 of convertible notes, the Company signed an agreement that required the Company to register the underlying shares of common stock with the SEC. The agreement required the Company to file a Form S-1 registration statement with the SEC no later than September 30, 2006. The Company was delayed by the late filing of its Form 10-K for 2005 and did not make the filing deadline. The Company filed its Form S-1 on November 7, 2006. Consequently, the Company paid a total of $1,003 in the fourth quarter of 2006 in late fees and penalties associated with that late filing. The agreement additionally required that the Company have the registration statement declared effective by the SEC by January 28, 2007. Since the initial Form S-1 registration statement is still under review by the SEC, the registration statement is not yet effective. As a result, the Company is paying a penalty of 1% of the $30,000 outstanding balance ($300) per month until the shares are registered. In conjunction with the terms of the notes, the Company may be in default and the notes will become callable if the shares are not registered by March 29, 2007. If these notes become callable, the holders are entitled to the face value of the notes of $30,000, and a 25% redemption premium of $7,500 in addition to accruing interest at the default rate of 12.5% per annum versus the current rate of 7.5%.
On February 20, 2007, the Company received a letter from Kings Road Investments, Ltd. (Kings Road), one of the holders of notes, asserting events of default under the note. The letter states that Kings Road is electing to accelerate and redeem the note in its entirety. Kings Road seeks payment of the $12,500 principal amount plus a premium of approximately $3,125 and default interest of approximately $500. The letter demanded payment within five business days of receipt of the notice. The terms of the notes provide that if a note holder is not timely paid upon an event of default, at any time before it receives such payment, it may rescind its redemption demand and reclaim
its note with a new conversion price, which may be the lowest closing price since the date of the initial redemption notice. The conversion price of the notes is presently $25.85 per common share.
Kings Road alleges that events of default under its note have occurred arising from alleged breaches of representations and warranties by the Company contained in the note. These representations and warranties relate to the adequacy of the Companys internal accounting and disclosure controls and its disclosures in its financial statements and filings with the SEC. Kings Road cites certain disclosures by the Company in its Form 10-K/A filed November 7, 2006 for the period ended December 31, 2005, that, among other things, the Company has identified material weaknesses in its internal controls over financial reporting, including, without limitation, (i) deficiencies in the design of controls in place relating to estimate for warranty reserves at the Companys Belgian subsidiary, VSK Electronics, (ii) deficiencies in the accounting for foreign currency exchange contracts of the Companys foreign operations, (iii) deficiencies in accounting for contract costs at the Companys Belgian subsidiary, MECAR SA, (iv) deficiencies in accounting for inventory costs at certain of the Companys U.S. subsidiaries, (v) the lack of documentation and testing of the Companys IT general controls, and (vi) the Companys inadequate financial reporting processes. The Company disputes the alleged events of default. The Company is currently in discussions with Kings Road and other note holders in an attempt to resolve these issues.
On March 19, 2007 and March 20, 2007, the Company received letters from Portside Growth and Opportunity Fund (Portside) and LBI Group, Inc. (LBI), two other holders of the Companys convertible notes, asserting events of default very similar to those asserted by Kings Road. Both letters seek to accelerate and redeem the notes in their entirety. Portside seeks immediate payment of $7,500 principal amount plus a redemption premium of $1,875 and default interest of approximately $545. LBI seeks immediate payment of $4,000 principal amount plus a redemption premium of $1,000 and default interest of approximately $284. The Company strongly disputes the alleged events of default. The Company is currently in discussions with Portside and LBI in an attempt to resolve these issues. The Company has not received a similar default notice from the one remaining holder of the convertible notes. Each of the notes contains cross-default provisions, which would cause an event of default under one note to be deemed a default under each of the other notes.
In addition, the Company has been in default of the loan covenants with MECARs credit facility at December 31, 2006 and 2005 due to violations of financial performance covenants for which it has received waivers for each of the reporting periods. MECARs banking group has been working with the Company to restructure the terms of the facility as MECAR has been restructuring its business to return to profitability. On February 27, 2007 MECAR received notification from its banks that they were temporarily suspending availability under the existing lines of credit until a meeting could be held to review the status of MECARs anticipated contract with its largest customer and the Companys operating plans and lending requirements for the balance of 2007. Based on the meeting held on March 5, 2007, the temporary suspension was lifted on March 8, 2007. The Company is continuing to work with MECARs banking group to come up with a long-term credit solution including an increased facility to accommodate the anticipated contract from MECARs principal customer.
In the event some or all of the notes are called, the Company will not have sufficient cash to meet its obligations to redeem the notes. Should any significant combination of the other risks materialize, we could deplete our cash reserves as early as second quarter of 2007.