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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 Company’s common stock. On those
dates, $264 and $1,144 of the Notes were converted into 28,200
and 122,300 shares of the Company’s 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
MECAR’s credit facility at September 30, 2007 and
December 31, 2006 due to a violation of financial
performance covenants. MECAR’s 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, MECAR’s 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 MECAR’s 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 Company’s 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
Company’s 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 Company’s
Belgian subsidiary, VSK Electronics, (ii) deficiencies in
the accounting for foreign currency exchange contracts of the
Company’s foreign operations, (iii) deficiencies in
accounting for contract costs at the Company’s Belgian
subsidiary, MECAR SA, (iv) deficiencies in accounting for
inventory costs at certain of the Company’s
U.S. subsidiaries, (v) the lack of documentation and
testing of the Company’s IT general controls, and
(vi) the Company’s 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 Company’s convertible notes, asserting
events of default very similar to those asserted by King’s
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 MECAR’s 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. MECAR’s 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 MECAR’s
anticipated contract with its largest customer and the
Company’s 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 MECAR’s banking
group to come up with a long-term credit solution including an
increased facility to accommodate the anticipated contract from
MECAR’s 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.
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