Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Commission file number: 1-11376
THE ALLIED DEFENSE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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04-2281015 |
(State of incorporation)
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(I.R.S. Employer
Identification No.) |
120 E. Baltimore Street, Suite 2100
Baltimore, Maryland 21202
(Address of principal executive offices, including zip
code)
(410) 385-8155
(Registrants telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES þ NO o
The aggregate market value of the voting stock of the registrant held by non-affiliates as of
June 30, 2010, the last day of the registrants most recently completed second fiscal quarter, was
$29,471,514. For purposes of this determination, only our directors, including any indirect
holdings of such directors as reported in Item 11 of this Form 10-K, and executive officers have
been deemed affiliates.
The number of shares of registrants Common Stock outstanding as of February 28, 2011, was
8,235,195.
PART I
The Allied Defense Group, Inc. (Allied or the Company) previously conducted a
multinational defense business focused on the manufacture and sale of ammunition and ammunition
related products for use by the U.S. and foreign governments. Allieds business was conducted by
two wholly-owned subsidiaries: MECAR sprl, formerly MECAR S.A. (Mecar), and ADG Sub USA, Inc.,
formerly MECAR USA, Inc. (Mecar USA).
On June 24, 2010, the Company signed a definitive purchase and sale agreement (the
Agreement) with Chemring Group PLC (Chemring) pursuant to which Chemring agreed to acquire
substantially all of the assets of the Company for $59.56 million in cash and the assumption of
certain liabilities. On September 1, 2010, the Company completed the asset sale to Chemring
contemplated by the Agreement. Chemring acquired all of the capital stock of Mecar for $45.81
million in cash, and separately Chemring acquired substantially all of the assets of Mecar USA for
$13.75 million in cash and the assumption by Chemring of certain specified liabilities of Mecar
USA. A portion of the purchase price was paid through the repayment of certain intercompany
indebtedness owed to the Company that would otherwise have been cancelled at closing.
Approximately $15 million of the proceeds of the sale was deposited into escrow to secure the
Companys indemnification obligations under the Agreement.
In conjunction with the Agreement, the Board of Directors of the Company unanimously approved
the dissolution of the Company pursuant to a Plan of Complete Liquidation and Dissolution (Plan of
Dissolution). The Companys stockholders approved the Plan of Dissolution on September 30, 2010.
In response to concerns of certain of the Companys stockholders, the Company has agreed to delay
the filing of a certificate of dissolution with the Delaware Secretary of State so that the
stockholders may continue to transfer the Companys common stock while the Company attempts to
resolve the matters relating to the U.S. Department of Justice (DOJ) subpoena as described below.
The Company will delay the filing of a certificate of dissolution with the Delaware Secretary of
State until the earlier of August 31, 2011 or a resolution of all matters concerning the DOJ.
On September 2, 2010, the Company received a staff determination letter (the Staff
Determination) from NYSE Amex LLC (the Exchange). The Staff Determination stated that the
Exchange determined that the Company no longer complied with the requirements for continued listing
set forth in NYSE Amex LLC Company Guide Section 1003(c)(i) as a result of the sale of
substantially all of the Companys assets. On September 20, 2010, the Company announced that
trading of shares of the Companys common stock had been transferred from the NYSE Amex to the
OTCQB Marketplace. The Companys trading symbol is now ADGI.
In connection with the adoption of the Plan of Dissolution and the anticipated liquidation of
the Company, we adopted the liquidation basis of accounting effective close of business on
September 30, 2010, whereby assets are valued at their estimated net realizable cash values and
liabilities are stated at their estimated settlement amounts. Uncertainties as to the ultimate
amount of our liabilities make it impractical to predict the aggregate net value that may
ultimately be distributable to stockholders. Under the liquidation basis of accounting, we accrue
for the remaining costs to be incurred during liquidation, including compensation for remaining
directors, consultants, insurance costs, costs to settle remaining leases, fees for professional
service providers, income taxes, and miscellaneous other costs, partially offset by estimated
future interest earnings. Such net costs were estimated to be $3.6 million as of December 31,
2010. Our estimates are based on assumptions regarding our ability to settle outstanding
obligations to trade creditors, settle remaining leases and the ultimate timing of distributions to
our stockholders, but do not include any settlement amounts, fines or penalties, if any, that we
might incur as a result of the DOJ subpoena or any other legal proceedings.
The Company received a subpoena from the DOJ on January 19, 2010 requesting that the Company
produce documents relating to its dealings with foreign governments. The DOJ initially limited its
request of documents to those relating to an indicted former employee of Mecar USA. The DOJ has
subsequently advised the Company that it is conducting an industry-wide review, and therefore the
DOJs investigation of the Company will be expanded and ongoing. The Company has also received
inquiries from the Securities and Exchange Commission (SEC) as to this matter. We cannot predict
the settlement amounts, fines or penalties, if any, that we might incur as a result of the
foregoing. As a result, it is unlikely that any distributions to our stockholders will be made
until the matters relating to the DOJ subpoena have been resolved. The period of time required to
resolve these matters is uncertain but is expected to take in excess of one year. Furthermore,
under the Agreement, the Company has agreed to indemnify Chemring and certain of its related
parties from any losses, fines or
penalties arising out of, among other things, the completed contracts of Mecar and Mecar USA.
We have agreed to escrow $15 million of the cash consideration paid to the Company in the sale to
secure our indemnification obligations under the Agreement. These escrowed funds will not be
available to the Company for distribution to our stockholders, or otherwise, until released to the
Company pursuant to the terms of the Agreement.
3
Prior to September 2010, the Company operated within two operating segments: Mecar and Mecar
USA. Allied, the parent company, provided oversight and corporate services to its subsidiaries and
had no operating activities. With the completion of the September 2010 sale, Allied no longer has
operating segments. The Company is being managed by its two directors who are also serving as the
Companys Chief Executive Officer and Chief Financial Officer. The Company no longer has any
full-time employees. Allied no longer conducts any active business operations and is winding-up
its affairs and preparing to dissolve in accordance with the Plan of Dissolution as set forth
above.
Available Information
Our principal Internet address is www.allieddefensegroup.com. We make available
free of charge on www.allieddefensegroup.com our annual, quarterly and current reports, and
amendments to those reports, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. In addition, you may request a copy of these filings
(excluding exhibits) at no cost by writing or telephoning us at the following address or telephone
number:
The Allied Defense Group, Inc.
120 E. Baltimore Street, Suite 2100
Baltimore, Maryland 21202
(410) 385-8155
Not required for a smaller reporting company.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
Allieds principal executive offices are located at 120 E. Baltimore Street, Suite 2100,
Baltimore, Maryland 21202. Allied continues to lease its prior principal executive office,
consisting of approximately 6,400 square feet in Vienna, Virginia, which it is attempting to
sublease. The lease expires in February 2013.
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ITEM 3. |
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LEGAL PROCEEDINGS |
DOJ Subpoena
On January 19, 2010, the Company received a subpoena and communications from the U.S.
Department of Justice (DOJ) requesting the Company produce documents relating to its dealings
with foreign governments. The subpoena stated that it was issued in connection with an ongoing
criminal investigation. On the same day, the Company also became aware through a press release
issued by the DOJ that an employee of Mecar USA had been indicted by the DOJ for allegedly engaging
in schemes to bribe foreign government officials to obtain and retain business. The unsealed
indictment of this employee and the DOJs press release indicate that the alleged criminal conduct
was on behalf of a Decatur, Georgia company which is unrelated to the Company or Mecar USA. Mecar
USAs employment agreement with the employee provides that the employee shall not actively engage
in any other employment, occupation or consulting activity that conflicts with the interests of the
Company. In light of the employees apparent breach of his employment agreement, Mecar USA
terminated his employment on January 20, 2010.
4
According to the DOJs press release, the former employee was arrested on January 19, 2010,
along with twenty-one other individuals, after a large-scale undercover operation that targeted
foreign bribery in the military and law enforcement products industry. The indictments of the
twenty-two individuals allege that the defendants conspired to violate the Foreign Corrupt
Practices Act (FCPA), conspired to engage in money laundering and engaged in substantive
violations of the FCPA.
Subsequently, the Company received notice from the DOJ that indicated that it would request
additional documents and expand its review beyond matters relating to the indicted former employee
of Mecar USA. The Company understands that the DOJs expanded review was in connection with an
industry-wide review. The Company has also received inquiries from the SEC as to this matter.
The Company is cooperating with the DOJ and the SEC and complying with the DOJs subpoena and
the SECs requests for information. The Companys ongoing compliance with these matters is being
overseen by the Companys Board of Directors. The Board of Directors is being assisted in these
matters by independent outside counsel. The Company cannot predict the outcome of these matters or
the impact, if any, that they may have on our plan to return the net proceeds of the Chemring sale
to our stockholders.
Litigation Relating to Consulting Agreement
On April 19, 2010, a lawsuit was filed against the Company by Sterling Investors Group Limited
in the Circuit Court for Fairfax County, Virginia alleging breach of contract related to an
agreement the Company entered into with a loan brokerage firm in its attempt to seek a new bank
line of credit. The lawsuit seeks damages in the amount of $0.640 million. The Company is
finalizing a settlement which will result in a modest payment by the Company.
Litigation Initiated by Former Employee
A former executive employee of the Company has instituted a lawsuit in the Circuit Court for
Fairfax County, Virginia against the Company and others alleging fraud, constructive fraud, breach
of contract, unjust encroachment, tortuous interference with business expectancy and civil
conspiracy, all relating to the former executive employees change of control severance agreement.
The former executive employee seeks damages in excess of $6.0 million. The Company believes this
lawsuit is without merit and is vigorously defending it.
Litigation Relating to Consulting Agreement (MECAR)
A former consultant to MECAR has initiated a lawsuit in Belgium against MECAR and the Company
for unpaid consulting fees in excess of $0.75 million. The Company believes that any liability
with respect to this matter will be borne by MECAR and not the Company.
Indemnification provisions
The Company has sold its SeaSpace, Titan, the VSK Group, GMS and NSM subsidiaries in separate
transactions starting with the first transaction closing in 2007. In each transaction, the Company
agreed to indemnify the purchaser for periods subsequent to closing for losses arising from
breaches of representations, warranties and covenants. Indemnification periods varied based on the
particular representation, warranty or covenant covered, the vast majority of which have all
expired. As of December 31, 2010, the only remaining indemnification obligations relate to
representations and warranties concerning taxes, environmental matters, breaches of title, breaches
of authorization and fraud. For SeaSpace, Titan, the VSK Group, GMS and NSM, these indemnification
provisions have been capped at $1 million, $0.95 million, $6.8 million, $5.2 million and $0.863
million, respectively. At December 31, 2010, no amount has been accrued related to these
indemnifications as a liability is not deemed probable.
On June 24, 2010, the Company signed a definitive purchase and sale agreement with Chemring
Group PLC pursuant to which Chemring agreed to acquire substantially all of the assets of the
Company for $59.56 million in cash and the assumption of certain liabilities. The purchase and
sale agreement contains certain indemnification provisions pursuant to which the Company may be
required to indemnify the buyer for a period subsequent to the completion of the sale for any and
all losses directly or indirectly based upon, related to, arising out of or in connection with
Mecars completed contracts, Mecar USA liabilities retained by the Company and any failure by the
Company to satisfy all transaction related expenses. The Companys indemnification liability is
limited to, and capped at, the escrowed amount of $15 million plus the accumulated interest. The
Companys indemnification obligations expire upon the earlier of (i) June 30, 2015 and (ii) the
Companys entry into either a court or administrative order or a Chemring-approved settlement
agreement, in either case, finally resolving the matters relating to the DOJs subpoena. In the
absence of such final resolution, in certain circumstances, up to 50% of the escrowed funds may be
released as early as June 24, 2013. At December 31, 2010, no amount has been accrued related to
this indemnification as a liability is not deemed probable.
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ITEM 4. |
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(REMOVED AND RESERVED) |
5
PART II
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ITEM 5. |
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information. Allieds Common Stock was listed for trading on the NYSE Alternext
Exchange (formerly American Stock Exchange) until September 20, 2010. Since that date, the
Companys stock has traded in the over-the-counter market. Its trading symbol is ADGI. The table
below shows the high and low sales prices of Allieds Common Stock during 2010 and 2009:
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2010 |
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2009 |
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High |
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Low |
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High |
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Low |
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1st Quarter |
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$ |
7.25 |
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$ |
4.51 |
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$ |
7.15 |
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$ |
3.78 |
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2nd Quarter |
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$ |
7.25 |
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$ |
1.85 |
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$ |
4.84 |
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$ |
3.28 |
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3rd Quarter |
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$ |
3.72 |
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$ |
2.22 |
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$ |
5.26 |
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$ |
3.37 |
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4th Quarter |
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$ |
3.48 |
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$ |
2.30 |
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$ |
7.14 |
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$ |
4.72 |
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Stockholders. The number of holders of record of the Common Stock at March 1, 2011 was 751.
Dividends. There have been no dividends declared or paid by Allied since November 1992.
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ITEM 6. |
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SELECTED FINANCIAL DATA |
Not required for a smaller reporting company.
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ITEM 7. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (amounts in thousands of dollars,
other than share data) |
Overview
The Allied Defense Group Inc. (Allied or the Company), a Delaware corporation, previously
conducted a multinational defense business focused on the manufacture and sale of ammunition and
ammunition related products for use by the U.S. and foreign governments. Allieds business was
conducted by its two wholly owned subsidiaries: MECAR sprl, formerly Mecar S.A. (Mecar), and ADG
Sub USA, Inc., formerly Mecar USA, Inc. (Mecar USA).
On June 24, 2010, the Company signed a definitive purchase and sale agreement (the
Agreement) with Chemring Group PLC (Chemring) pursuant to which Chemring agreed to acquire
substantially all of the assets of the Company for $59,560 in cash and the assumption of certain
liabilities. On September 1, 2010, the Company completed the asset sale to Chemring contemplated
by the Agreement. Pursuant to the Agreement, Chemring acquired all of the capital stock of Mecar
for approximately $45,810 in cash, and separately Chemring acquired substantially all of the assets
of Mecar USA for $13,750 in cash and the assumption by Chemring of certain specified liabilities of
Mecar USA. A portion of the purchase price was paid through the repayment of certain intercompany
indebtedness owed to the Company that would otherwise have been cancelled at closing. $15,000 of
the proceeds of the sale was deposited into escrow to secure certain of the Companys
indemnification obligations under the Agreement.
6
In conjunction with the Agreement, the Board of Directors of the Company unanimously approved
the dissolution of the Company pursuant to a Plan of Complete Liquidation and Dissolution (Plan of
Dissolution). The Companys stockholders approved the Plan of Dissolution on September 30, 2010.
In response to concerns of certain of the Companys stockholders,
the Company has agreed to delay the filing of a certificate of dissolution with the Delaware
Secretary of State so that the stockholders may continue to transfer the Companys common stock
while the Company resolves the matters relating to the U.S. Department of Justice (DOJ) in which
the Company is required to produce documents relating to its dealings with foreign governments.
The Company will delay the filing of a certificate of dissolution with the Delaware Secretary of
State until the earlier of August 31, 2011 or a resolution of all matters concerning the DOJ.
On September 2, 2010, the Company received a staff determination letter (the Staff
Determination) from NYSE Amex LLC (the Exchange). The Staff Determination stated that the
Exchange has determined that the Company no longer complies with the requirements for continued
listing set forth in NYSE Amex LLC Company Guide Section 1003(c)(i) as a result of the sale of
substantially all of the Companys assets. On September 20, 2010, the Company announced that
trading of shares of the Companys common stock has been transferred from the NYSE Amex to the
OTCQB Marketplace effective Monday, September 20, 2010. The Companys trading symbol is now ADGI.
With the authorization of the Plan of Dissolution, the Company adopted the liquidation basis
of accounting effective as of close of business on September 30, 2010. The liquidation basis of
accounting will continue to be used by the Company until such time that the plan is terminated.
Under the liquidation basis of accounting, assets are stated at their estimated net realizable
value and liabilities are stated at their estimated settlement amounts, which estimates will be
periodically reviewed and adjusted as appropriate. Consolidated Statements of Net Assets in
Liquidation and Changes in Net Assets in Liquidation are the principal financial statements
presented under the liquidation basis of accounting. The valuations of assets at their net
realizable value and liabilities at their anticipated settlement amounts represent estimates, based
on present facts and circumstances, of the net realizable values of assets and the costs associated
with carrying out the Plan of Dissolution based on the assumptions set forth below. The actual
values and costs associated with carrying out the Plan of Dissolution are expected to differ from
the amounts shown herein because of the inherent uncertainty and will be greater than or less than
the amounts recorded. Such differences may be material. In particular, the estimates of the
Companys costs will vary with the length of time it operates under the Plan of Dissolution.
Accordingly, it is not possible to predict the aggregate amount or timing of future distributions
to stockholders, as long as the plan is in effect, and no assurance can be given that the amount of
liquidating distributions to be received will equal or exceed the estimate of net assets in
liquidation presented in the accompanying Statement of Net Assets in Liquidation.
Under the liquidation basis of accounting, the carrying amounts of assets as of the close
of business on September 30, 2010, the date of the authorization of the Plan of Dissolution by the
Company, were adjusted to their estimated net realizable values and liabilities, including the
estimated costs associated with implementing the Plan of Dissolution, were adjusted to estimated
settlement amounts. Such value estimates were updated by the Company as of December 31, 2010. The
majority of the net assets in liquidation at December 31, 2010 was highly liquid and did not
require adjustment as their estimated net realizable value approximates their current book value.
The Company is also required to estimate and accrue the costs associated with implementing and
completing the Plan of Dissolution under the liquidation basis of accounting. These amounts can
vary significantly due to, among other things, the costs of retaining personnel and others to
oversee the liquidation, including compensation for former employees and remaining directors,
insurance costs, costs to settle remaining leases, fees for legal and other professional service
providers, income taxes, and miscellaneous other costs, partially offset by estimated future
interest earnings on the Companys cash accounts. Such net costs were estimated to be $3.6 million
as of December 31, 2010. Such estimates are based on assumptions regarding the Companys ability
to settle outstanding obligations to creditors, resolve outstanding litigation, settle remaining
leases and the ultimate timing of distributions to its stockholders, but does not include any
settlement amounts, fines or penalties, if any, that the Company might incur as a result of the DOJ
subpoena or any other legal proceedings. These estimates will be adjusted from time to time as
projections and assumptions change.
For all periods preceding the authorization of the Plan of Dissolution, the Companys
financial statements are presented on the going concern basis of accounting. Such financial
statements reflect the historical basis of assets and liabilities and the historical results of
operations related to the Companys assets and liabilities for the period from January 1, 2010 to
September 30, 2010 and the year ended December 31, 2009.
Prior to September 2010, the Company operated within two operating segments: Mecar and Mecar
USA. Allied, the parent company, provided oversight and corporate services to its subsidiaries and
had no operating activities. With the completion of the September 2010 sale, Allied no longer has
operating segments. The Companys continuing operations include only those expenses incurred to
support the Companys corporate headquarters and its non-operating European subsidiaries. The
Company is being managed by its two directors who are also serving as the Companys Chief Executive
Officer and Chief Financial Officer.
7
Liquidity and Capital Resources
We assess liquidity primarily by the cash which we believe is necessary to fund the wind-down of
our operations and our remaining contractual obligations, as well as to allow for reasonable
contingencies identified in the liquidation process. Effective close of business on September 30,
2010 upon approval by the Companys stockholders of the Plan of Dissolution, we adopted the
liquidation basis of accounting. Upon adoption, we recorded a charge of $17 to adjust our assets
to their estimated net realizable cash values and our liabilities to their estimated settlement
amounts. As of September 30, 2010, we accrued $4,000 in net remaining costs we expect to incur
during liquidation. As of December 31, 2010, our estimate of net remaining costs was reduced to
$3,564. The following table summarizes the changes in estimated liquidation costs from September
30, 2010 to December 31, 2010:
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September 30, |
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Changes in |
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Costs Incurred |
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December 31, |
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2010 |
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Estimates |
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(Income Received) |
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2010 |
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Estimated net costs to be incurred during liquidation |
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Compensation for remaining employees and directors |
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$ |
930 |
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$ |
(443 |
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$ |
(89 |
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$ |
398 |
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Compliance and other costs |
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855 |
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863 |
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(488 |
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1,230 |
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Insurance Fees |
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580 |
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(122 |
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(107 |
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351 |
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Professional Fees |
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2,135 |
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(510 |
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(240 |
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1,385 |
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Income Taxes |
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350 |
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350 |
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Less: interest income on cash and investment balances |
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(500 |
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331 |
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19 |
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(150 |
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Total net costs to be incurred during liquidation |
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$ |
4,000 |
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$ |
469 |
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$ |
(905 |
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$ |
3,564 |
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The reduction is due to change in estimates and actual expenses incurred in the fourth quarter
of 2010. The $3,564 in net remaining costs to be incurred during liquidation consists of $398 in
compensation for former employees and remaining directors; $1,230 for compliance and other office
costs, including resident filing fees and costs to settle remaining leases; $351 for insurance; and
$1,385 in fees for professional service providers including legal representation relating to the
DOJ subpoena; offset by $150 estimated to be received on our cash and short-term investment
balances during liquidation. Income tax payments not to exceed $350 are anticipated in the
repatriation of cash balances held in foreign countries.
Estimated net costs to be incurred during liquidation were made at September 30, 2010 based on the
facts and circumstances at the time. Changes to the estimates as of December 31, 2010 are due to
the following: (i) compensation costs decreased due to reduced estimated severance costs including
life insurance policies canceled for former employees; (ii) compliance and other office costs
increased mainly due to the inability to sublease the office headquarters as previously
anticipated; (iii) estimated professional fees decreased due to reduced legal and professional fees
anticipated for the DOJ proceedings; and (iv) interest income decreased due to the adjustment of
the anticipated interest rate to a rate which is consistent with 2010 fourth quarter actual rates.
Net assets in liquidation at December 31, 2010 after accounting for the above liquidation basis
adjustments are $45,629 or $5.54 per share. Our estimates are based on the assumption that
liquidation will occur no later than December 31, 2012.
Results of Operations (Going Concern Basis)
For all periods preceding the authorization of the Plan of Dissolution, the Companys
financial statements are presented on the going concern basis of accounting. Such financial
statements reflect the historical basis of assets and liabilities and the historical results of
operations related to the Companys assets and liabilities for the period from January 1, 2010 to
September 30, 2010 and the year ended December 31, 2009. Accordingly, the following discussion of
the results of operations compares the nine months ended September 30, 2010 to the twelve months
ended December 31, 2009 as reflected in the Consolidated Statements of Operations.
With the September 2010 sale of both Mecar and Mecar USA, we will no longer generate revenue
from the sale of our
products. The Companys continuing operations include only those costs incurred to support
the Companys corporate headquarters and its non-operating European subsidiaries. The operating
results, prior to the sale of the business, for Mecar, Mecar USA, and NS Microwave Systems (NSM)
are reported as discontinued operations. The sale of NSM was completed in August 2009. The Mecar
and Mecar USA transactions closed on September 1, 2010.
8
Allied had a net loss from continuing operations of $8,807 for the nine months ended September
30, 2010 as compared to a net loss from continuing operations of $6,475 for the year ended December
31, 2009. For the nine months ended September 30, 2010, the Company had net income of $33,663 from
discontinued operations as compared to net loss of $1,832 for the year ended December 31, 2009.
Net income was $24,856 for the nine months ended September 30, 2010 as compared to net loss of
$8,307 for the year ended December 31, 2009. Results for 2010 were favorably impacted by the gains
recognized from the sale of both Mecar and Mecar USA, both of which occurred in the current period.
The table below sets forth certain condensed consolidated statement of operations data for the
nine months ended September 30, 2010 and twelve months ended December 31, 2009:
Results of Operations for the Nine Months Ended September 30, 2010 compared to the Twelve
Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
Selling and administrative corporate expenses |
|
|
7,469 |
|
|
|
6,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(7,469 |
) |
|
|
(6,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
|
38 |
|
|
|
31 |
|
Net gain (loss) on fair value of warrants |
|
|
(17 |
) |
|
|
299 |
|
Other-net |
|
|
(1,358 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
(1,337 |
) |
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(8,806 |
) |
|
|
(6,675 |
) |
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
|
1 |
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(8,807 |
) |
|
|
(6,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
Gain on sale of subsidiaries |
|
|
48,081 |
|
|
|
3,923 |
|
Loss from discontinued operations |
|
|
(14,418 |
) |
|
|
(5,755 |
) |
|
|
|
|
|
|
|
|
|
|
33,663 |
|
|
|
(1,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
24,856 |
|
|
$ |
(8,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(1.08 |
) |
|
$ |
(0.80 |
) |
Net earnings (loss) from discontinued operations |
|
|
4.12 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
|
Total earnings (loss) per share basic and diluted |
|
$ |
3.04 |
|
|
$ |
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
8,175,580 |
|
|
|
8,120,428 |
|
Diluted |
|
|
8,182,279 |
|
|
|
8,120,428 |
|
|
|
|
|
|
|
|
|
|
9
Selling and Administrative Expenses (Corporate Expenses)
Selling and Administrative (SA) expenses for the nine months ended September 30, 2010 and the year
ended December 31, 2009 was $7,469 and $6,837, respectively. This increase of $632 is due
primarily to severance payments made to Allied corporate employees who were terminated in
conjunction with the September 2010 sale of Mecar and Mecar USA offset by lower corporate costs in
the current period in anticipation of the sale transaction.
Net Interest Income (Expense). Interest income (expense) for the nine months ended September
30, 2010 was $38 as compared to $31 for the year ended December 31, 2009. This increase was a
result of having higher average cash levels in 2010, including the net proceeds of the sale.
Net Gain (Loss) on Fair Value of the Warrants. For the nine months ended September 30, 2010 and
the year ended December 31, 2009, the Company recognized a net gain (loss) of ($17) and $299,
respectively, related to the fair value of the warrants. See Note G for a description of Warrants.
Other Net. Other net for the nine months ended September 30, 2010 was a loss of $1,358 compared
to a loss of $168 in the year ended December 31, 2009. The losses were due to weakening of the U.S.
Dollar as compared to the Euro during the periods. A summary of the contents of this income
(expense) is provided in the Note J Other Net of the financial statements.
Income Taxes. The effective income tax rate for the nine months ended September 30, 2010 and
2009 was 0% and (3%) respectively. The Company did not record income tax expense from the September
2010 sale transaction as the gain was offset by the Companys existing net operating loss carry
forwards and foreign tax credits. The Companys interim accounting for income taxes is in
accordance with ASC 740, Accounting for Income Taxes in Interim periods.
Net Income (Loss) from Discontinued Operations. Net income (loss) from discontinued
operations consists of gain on the sale of subsidiaries and losses from the operations of these
discontinued businesses. See Note D for detail of the loss from discontinued operations.
The Company had a net gain from discontinued operations of $33,663 for the nine months ended
September 30, 2010 as compared to a net loss from discontinued operations of $1,832 for the year
ended December 31, 2009. In the current period, the Company sold its Mecar and Mecar USA
subsidiaries, as a result recognizing a gain on sale of $48,081. Discontinued operations of these
two subsidiaries resulted in a loss of $14,418 for the nine months ended September 30, 2010.
Off-Balance Sheet Arrangements. As part of our ongoing business, the Company does not participate
in transactions that generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose entities (SPEs),
which would have been established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As of September 30, 2010, the Company was not
involved in any material SPE transactions.
A substantial portion of the Companys cash balances are held outside the U.S. Most of the
amounts held outside the U.S. could be repatriated to the U.S., but, under current law, would be
subject to federal income taxes, less applicable foreign
tax credits. Repatriation of some foreign balances is restricted by local laws. Allied has
provided for the U.S. federal tax liability on these amounts for financial statement purposes,
except for foreign earnings that are considered indefinitely reinvested outside the U.S. The
Company expects to be able to repatriate the proceeds received from the sale of Mecar in 2011
without tax liability due to NOL carry forwards.
Critical Accounting Policies
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, sales, and expenses, and related disclosure of contingent assets
and liabilities. The Company re-evaluates its estimates on an on-going basis. The Companys
estimates and judgments are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates or judgments under different assumptions or conditions.
10
The Company believes the following are its critical accounting policies which affect its more
significant judgments and estimates used in the preparation of its consolidated financial
statements:
|
|
|
Foreign Currency Translations. The assets and liabilities of the Companys foreign
subsidiaries are translated into U.S. dollars at year-end exchange rates. The resulting
translation gains and losses are accumulated in a separate component of stockholders
equity. Income and expense items are converted into U.S. dollars at average rates of
exchange prevailing during the year. Foreign currency transaction gains and losses are
credited or charged directly to operations. |
|
|
|
Valuation of deferred income taxes and income tax reserves. Under the going concern
method of accounting, income taxes were provided based on the liability method for
financial reporting purposes. Under this method, deferred and prepaid taxes are provided
for on temporary differences in the basis of assets and liabilities which are recognized in
different periods for financial and tax reporting purposes. Valuation allowances are
provided if, based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. Where it is not more likely
than not that the Companys tax position will be sustained, the Company records its best
estimate of the resulting tax liability and interest in the consolidated financial
statements. It is the Companys policy to record interest and penalties, if any, related to
unrecognized tax benefits as part of income tax expense for financial reporting purposes. |
|
|
|
Estimates of expenses incurred and interest income received during liquidation. Under
the liquidation basis of accounting, the Company accrues for the remaining costs to be
incurred during liquidation, including compensation for remaining directors, consultants,
insurance costs, costs to settle remaining leases, fees for professional service providers
and miscellaneous other costs, partially offset by estimated future interest earnings.
These estimates are undiscounted for present value and are based on the assumption that
liquidation will occur no later than December 31, 2012. |
Recent Accounting Pronouncements
In the first quarter of 2010, the Financial Accounting Standards Board (FASB) updated
Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements. This guidance amends FASB ASC Topic 855,
Subsequent Events, so that SEC filers no longer are required to disclose the date through which
subsequent events have been evaluated in originally issued and revised financial statements. SEC
filers must evaluate subsequent events through the date the financial statements are issued.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 requires new disclosures concerning transfers into and out of Level 1 and
Level 2 of the fair value measurement hierarchy and a roll forward of the activity of assets and
liabilities measured in Level 3 of the hierarchy. In addition, ASU 2010-06 clarifies existing
disclosure requirements to require fair value measurement disclosures for each class of assets and
liabilities and disclosure regarding the valuation techniques and inputs used to measure Level 2 or
Level 3 fair value measurements on a recurring and nonrecurring basis. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009 except for the roll forward
of activity for Level 3 fair value measurements, which is effective for fiscal years beginning
after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the
Companys consolidated financial statements.
On January 1, 2010, the Company adopted ASU 2009-17, Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amended the
consolidation guidance applicable to variable interest entities and required additional disclosures
concerning an enterprises continuing involvement with variable interest entities. The Company does
not have variable interest entities; therefore, this ASU had no impact on the Corporations
consolidated financial statements.
In May 2009, the FASB issued accounting standards under ASC 855 Subsequent Events and an
amendment in February 2010, which provides guidance to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855, as amended, specifically requires an
SEC filer to evaluate and disclose subsequent events through the date that the financial statements
are issued. The new standards were effective for interim and annual periods ended after June 15,
2009 and the amendment is effective for interim or annual periods ending after June 15, 2010. The
Company evaluated subsequent events through the financial statements issuance date and did not
identify any events which require disclosure or would have a material effect on the Companys
financial position as of December 31, 2010.
Forward-Looking Statements
This Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that are based on current expectations, estimates and projections about
the Company. These statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecast in such forward-looking
statements. The Company undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
11
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not required for a smaller reporting company.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary financial information and data required by
this Item are set forth in the pages indicated in Item 15(a) (1) and (2). See Note M of the
consolidated financial statements for supplementary quarterly financial data required by this item.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
There were no disagreements on any matter of accounting principles, financial statement
disclosure or auditing scope or procedure to be reported under this item. BDO USA, LLP was the
Companys independent registered public accounting firm for both 2010 and 2009.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Overview
As a result of the sale of Mecar and Mecar USA and the adoption by the stockholders of the
Plan of Dissolution, the Company has terminated all employees. During the third quarter of 2010
the Company reduced its corporate staff to one (1) person who left the Company in mid-November,
2010. The Companys Officers/Board of Directors continue to oversee and review the Companys
system of financial reporting.
Disclosure Controls and Procedures
Subject to the provisions set forth in the Overview section above, under the direction
and with the participation of the Companys management, including the Companys Chief Executive
Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of
the design and operation of its disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15 as of the end of the period covered by the report. Based on this
evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that
these disclosure controls and procedures are effective as of December 31, 2010.
Managements Report on Internal Control over Financial Reporting
The management of The Allied Defense Group, Inc. is responsible for establishing and
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. The Companys internal control system
was designed to provide reasonable assurance to the Companys management and board of directors
regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2010. In making this assessment, it used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on our assessment, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys internal controls over financial reporting are
effective as of December 31, 2010.
12
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to SEC rules
that permits the Company to provide only managements report in this annual report.
Changes in Internal Control Over Financial Reporting
During the fiscal year quarter ended December 31, 2010, subject to the provisions set forth in
the Overview section above, there was no significant change made in our internal control over
financial reporting that has materially affected or is reasonably likely to materially affect,
internal control over financial reporting.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
There was no information required to be disclosed in a report on Form 8-K during the fourth
quarter of 2010 which was not so disclosed.
13
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The following are the directors of Allied:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year in which first |
|
|
|
|
|
|
Name of Nominee |
|
elected a director |
|
|
Age |
|
|
Principal business occupation for past five years and other directorships |
|
|
|
|
|
|
|
|
|
|
|
John G. Meyer, Jr.
|
|
2003 |
|
|
66 |
|
|
Consultant; Chief Executive Officer of RedX Defense, Inc., a provider of
explosive detection devices from July 2009 to September 2009; serves as
a director of Heckler & Koch since 2005; Chief Executive Officer of
Heckler & Koch, a defense contractor, from June 2005 August 2007;
Chief Executive Officer of the Company from June 2003 June, 2005;
President of the Company from January 2003 June 2005; Chief Operating
Officer of the Company from January 2001 May 2003; Executive Vice
President of the Company from January 2001 January 2003; retired from
United States Army having served as its most senior Public Affairs
Officer. Mr. Meyer has proven business acumen, having served as the
chief executive officer of several defense industry companies including
serving as the Chief Executive Officer of the Company from 2003 to 2005.
His military background provides the Board with relevant industry
experience. Mr. Meyer currently serves on the board of three other
non-public companies. |
|
|
|
|
|
|
|
|
|
|
|
Charles S. Ream
|
|
2006 |
|
|
67 |
|
|
Retired as the Executive Vice President and Chief Financial Officer of
Anteon International Corporation, having served in that capacity from
2003-2006; Senior Vice President and Chief Financial Officer of Newport
News Shipbuilding Inc. from 2000-2001; Senior Vice President of Finance
and Strategic Initiatives of Raytheon Systems Company from 1998-2000.
Also currently a director of Aeroflex Holdings Corp., Vangent, Inc., and
previously a director of DynCorp International (2006-2010), Stanley,
Inc. (2006-2010), and Stewart & Stevenson (2004-2006). Mr. Reams
experience brings to the Board a strong understanding of public company
governance and operations. Mr. Ream has extensive financial experience
as having served as a chief financial officer at several industry
related companies. Mr. Ream is a certified public accountant (inactive). |
Executive Officers
Mr. Meyer serves as Chief Executive Officer of Allied and Mr. Ream serves as Chief
Financial Officer of Allied. Neither is a full-time salaried employee.
Code of Ethics
Allied has adopted a code of business conduct and ethics for directors and officers (including
Allieds principal executive officer and principal financial officer). Stockholders may request a
free copy of the code of ethics from the Companys website at
http://www.allieddefensegroup.com or
at:
Allied Defense Group, Inc.
120 E. Baltimore Street
Suite 2100
Baltimore, Maryland 21202
(410) 385-8155
14
Procedure for Board Recommendations
There have been no material changes to the procedures by which the Companys stockholders may
recommend nominees to the Companys Board of Directors.
Audit Committee
The Company does not have a separately-designated standing audit committee as Messrs. Meyer
and Ream, constituting the entire board of directors of the Company, act as the Companys audit
committee. The board of directors has determined that Mr. Ream qualifies as an audit committee
financial expert as defined under Securities and Exchange Commission rules.
Section 16(a) Beneficial Ownership Regarding Compliance
Section 16(a) of the Securities Exchange Act of 1934 (Exchange Act) requires the Companys
Directors and Executive Officers, and anyone who beneficially owns ten percent (10%) or more of the
Companys common stock, to file with the Securities and Exchange Commission initial reports of
beneficial ownership and reports of changes in beneficial ownership of common stock. Such persons
are required by regulations of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of a copy of the Section 16(a) filing received by the Company
during or with respect to 2010, the Company believes that each filing required to be made pursuant
to Section 16(a) of the Exchange Act and with respect to 2010 was filed in a timely manner.
15
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
SUMMARY COMPENSATION TABLE
As Of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
All Other |
|
|
|
|
Name and Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
Compensation on |
|
|
|
|
Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Awards ($) |
|
|
Awards ($) |
|
|
Compensation ($) |
|
|
Earnings ($) |
|
|
($) |
|
|
Total ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Marcello, |
|
|
2010 |
|
|
$ |
216,695 |
|
|
$ |
691,075 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,408 |
(2) |
|
$ |
923,178 |
|
Chief Executive
Officer until
September 1, 2010 |
|
|
2009 |
|
|
$ |
303,850 |
|
|
|
|
|
|
|
|
|
|
$ |
36,030 |
(4) |
|
|
|
|
|
|
|
|
|
$ |
28,500 |
(3) |
|
$ |
368,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John G. Meyer, Jr., |
|
|
2010 |
|
|
$ |
54,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive
Officer from and after
September 1, 2010 |
|
|
2009 |
|
|
$ |
54,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Paid pursuant to Mr. Marcellos change of control agreement. |
|
(2) |
|
Payment to Mr. Marcellos 401(k) plan account. |
|
(3) |
|
Payment to Mr. Marcellos 401(k) plan account and also includes a payment of $4,000 for premium for a life insurance policy for Mr. Marcello. |
|
(4) |
|
The amounts in this column reflect the aggregate grant date fair value, in accordance with FASB ASC 718, of option grants made under the
2001 Equity Incentive Plan in 2009. Assumptions used in the calculation of these amounts are included in Footnote A to the Companys audited
financial statements included in this Form 10-K. |
16
COMPENSATION OF DIRECTORS
Each director is compensated for service at the annual rate of $54,000. Compensation for
the first six (6) months of 2010 was made solely in shares of the Companys stock and compensation
for periods from and after July 1, 2010 was made solely in cash. Prior to September 1, 2010,
General Peay, as Chairman of the Board, received an additional $1,000 per month and a reimbursement
of annual premiums paid on a $1 million life insurance policy, together with all applicable income
taxes. All directors except Messrs. Meyer and Ream resigned on September 1, 2010 and the Company
terminated its Outside Directors Deferred Compensation Plan on said date. The Company also
reimburses directors for out-of-pocket expenses incurred in connection with their service.
DIRECTOR COMPENSATION FOR 2010
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
Deferred |
|
|
All Other |
|
|
|
|
|
|
or Paid in |
|
|
Stock |
|
|
Option |
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
Name |
|
Cash ($) |
|
|
Awards |
|
|
Awards ($) |
|
|
($) |
|
|
Earnings(2) |
|
|
($)1 |
|
|
Total ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. H. Binford Peay, III |
|
$ |
17,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,100 |
|
|
$ |
104,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John G. Meyer, Jr. |
|
$ |
27,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
$ |
130,539 |
(3) |
|
|
|
|
|
$ |
184,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald H. Griffith |
|
$ |
9,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gilbert F. Decker |
|
$ |
9,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
$ |
145,861 |
(3) |
|
|
|
|
|
$ |
181,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles S. Ream |
|
$ |
27,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
54,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick G. Wasserman |
|
$ |
9,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tassos D. Recachinas |
|
$ |
9,000 |
|
|
$ |
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,000 |
|
|
|
|
(1) |
|
Annual payment for a $1 million life insurance policy including the gross-up for taxes. |
|
(2) |
|
Deferred compensation paid following termination of Outside Directors Deferred Compensation Plan. |
|
(3) |
|
Cash payments representing director fees previously deferred by Messrs. Meyer ($62,000) and
Decker ($71,000) plus Company stock representing directors fees previously deferred by Messrs.
Meyer (29,416 shares at $2.33 per share) and Decker (32,129 shares at $2.33 per share). |
17
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information with respect to the shares of the Companys
common stock which is held by the only persons known to the Company to be the beneficial owners of
more than 5% of such common stock based upon the most recent filings made by the undersigned with
the Securities and Exchange Commission and other information obtained by the Company:
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner |
|
Shares Beneficially Owned |
|
|
Percent of Class(1) |
|
Water Island Capital, LLC(2) |
|
|
689,203 |
|
|
|
8.4 |
% |
AQR Capital Management, LLC(3) |
|
|
555,790 |
|
|
|
6.7 |
% |
Dimensional Fund Advisors LP(4) |
|
|
547,056 |
|
|
|
6.6 |
% |
Gabelli Funds, LLC(5) |
|
|
420,247 |
|
|
|
5.1 |
% |
|
|
|
(1) |
|
Based upon 8,235,195 shares of common stock outstanding as of December 31, 2010. |
|
(2) |
|
Ownership information based on information contained in a Schedule 13G filed with the
SEC on December 10, 2010 by Water Island Capital, LLC (Water Island). Water Island
possesses sole voting power of 689,203 shares or our common stock and sole investment
power of 689,203 shares of our common stock. The principal business address of the
reporting person is 41 Madison Ave., Suite 2802, New York, NY 10010. ADG and Water Island
have determined that Water Islands purchases of our common stock following the public
announcement of the Fourth Rights Agreement Amendment on June 24, 2010, would, without a
determination by our board of directors that Water Island is an Exempt Person under the
Rights Agreement, result in Water Island becoming an Acquiring Person under the Rights
Agreement. On July 22, 2010, after consulting with our financial and legal advisors, and
contingent on Water Island agreeing not to purchase additional shares of our common stock,
our board of directors exercised its discretionary authority under the Rights Agreement to
determine that Water Island is an Exempt Person under the Rights Agreement based on the
determination that Water Islands current beneficial ownership of our common stock would
not jeopardize, endanger or limit (in timing or amount) the availability to ADG of its tax
benefits. That same day, Water Island entered into an agreement with ADG pursuant to which
Water Island agreed not to acquire, and to cause its affiliates not to acquire, beneficial
ownership to any additional shares of our common stock while the Rights Agreement remains
in effect. |
|
(3) |
|
Ownership information as of December 31, 2010, based on information contained in a
Schedule 13G/A filed with the SEC on February 11, 2011 by AQR Capital Management, LLC
(AQR). AQR possesses shared voting power of 555,790 shares of our common stock and
shared investment power of 555,790 shares of our common stock. The principal business
address of AQR is Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830. |
|
(4) |
|
Ownership information as of December 31, 2010, based on information contained in a
Schedule 13G/A filed with the SEC on February 11, 2011 by Dimensional Fund Advisors LP
(Dimensional). Dimensional possess sole voting power of 540,056 shares of our common
stock and sole investment power of 547,019 shares of our common stock. Dimensional, an
investment adviser registered under Section 203 of the Investment Advisors Act of 1940, as
amended, furnishes investment advice to four investment companies registered under the
Investment Company Act of 1940, as amended, and serves as investment manager to certain
other commingled group trusts and separate accounts (such investment companies, trusts and
accounts, collectively referred to as the Dimensional Funds). In certain cases,
subsidiaries of Dimensional may act as an adviser or sub-adviser to certain Dimensional
Funds. In its role as investment adviser, sub-adviser and/or manager, neither Dimensional
nor its subsidiaries possesses voting and/or investment power over our securities that are
owned by the Dimensional Funds, and may be deemed to be the beneficial owner of our shares
of common stock held by the Dimensional Funds. However, all shares reported on
Dimensionals Schedule 13G/A are owned by the Dimensional Funds. Dimensional disclaims
beneficial ownership of such securities. The principal business address of Dimensional is
Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746. |
|
(5) |
|
Ownership information, based on information contained in a Schedule 13D filed with the
SEC on December 13, 2010 by Gabelli Funds, LLC (Gabelli). Gabelli possesses shared
voting power of 420,247 shares of our common stock and shared investment power of 420,247
shares of our common stock. The principal business address of Gabelli is One Corporate
Center, Rye, New York 10580-1435. |
18
The following information is furnished as of December 31, 2010, with respect to the
beneficial ownership by management of the Companys common stock:
|
|
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Amount and Nature of |
|
|
|
Title of Class |
|
Beneficial Owner |
|
Beneficial Owner |
|
Percent of Class |
|
|
|
|
|
|
|
|
|
|
Common |
|
John G. Meyer, Jr. |
|
102,800 Owned directly |
|
|
1.25 |
% |
|
|
|
|
|
|
|
|
|
Common |
|
Charles S. Ream |
|
36,214 Owned directly |
|
|
* |
|
|
|
|
|
|
|
|
|
|
Common |
|
All executive officers and directors as a group(2) |
|
139,014 Owned directly |
|
|
1.69 |
% |
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE. |
Procedures for Approval of Related Party Transactions
Our Board of Directors is charged with reviewing and approving all potential related party
transactions. All such related party transactions must then be reported under applicable SEC rules.
We have not adopted other procedures for review, or standards for approval, of such transactions,
but instead review them on a case-by-case basis.
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTING FEES AND SERVICE. |
The following table sets forth the fees billed to the Company to BDO USA, LLP (BDO) for
audit and other services provided for 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Audit fees |
|
$ |
332 |
|
|
$ |
633 |
|
Audit-related fees |
|
|
|
|
|
|
|
|
Tax fees |
|
|
|
|
|
|
|
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
332 |
|
|
$ |
633 |
|
|
|
|
|
|
|
|
Audit fees include work in connection with quarterly reviews. The above fees are accrued
in the same fiscal year as the audited periods. Unpaid fees as of period-end are recorded as an
accrued expense.
The Board of Directors considered whether the provision of services referenced above is
compatible with maintaining independence and concluded the provision of services to be independent.
The Board of Directors policy is to pre-approve all audit and permissible non-audit
services provided by the independent registered public accounting firm. These services may include
audit services, audit-related services, tax services and other services. Pre-approval is generally
provided for up to one year. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
19
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
|
|
|
|
|
Exhibit No. |
|
Description of Exhibits |
|
|
2.1 |
|
|
Stock and Asset Purchase Agreement, dated as of June 24, 2010, between The Allied Defense
Group, Inc., Mecar USA, Inc., ARC Europe, S.A. and Chemring Group PLC (Filed as Exhibit 2.1
to Form 8-K filed on June 24, 2010, and incorporated herein by reference). |
|
3.1 |
|
|
Certificate of Incorporation, as amended (Incorporated by reference from Form 10-Q filed
in August 2002). |
|
3.2 |
|
|
Amended and Restated By-Laws (Incorporated by reference from Form 10-Q filed in August
2004). |
|
3.3 |
|
|
Plan of Complete Liquidation And Dissolution of The Allied Defense Group, Inc.
(Incorporated by reference from Proxy Statement filed on July 28, 2010). |
|
4.1 |
|
|
Rights Agreement between Allied and Mellon Investor Services, LLC (Incorporated by
reference from Form 8-K filed in June 2001). |
|
4.2 |
|
|
First Amendment To Rights Agreement, dated as of June 15, 2006 (incorporated by reference
from Form 8-A/A filed on June 21, 2006). |
|
4.3 |
|
|
Second Amendment To Rights Agreement, dated as of November 30, 2006 (incorporated by
reference from Form 8-K filed on December 7, 2006). |
|
4.4 |
|
|
Third Amendment To Rights Agreement, dated as of January 18, 2010 (incorporated by
reference from Form 8-K filed on January 19, 2010). |
|
4.5 |
|
|
Fourth Amendment To Rights Agreement, dated as of June 24, 2010 (Filed as Exhibit 4.5 to
Form 8-K filed on June 24, 2010, and incorporated herein by reference). |
|
10.1 |
|
|
Employment Agreement between Allied and John J. Marcello (Incorporated by reference from Form 10-Q filed in August 2005). |
|
10.2 |
|
|
Employment Agreement between Allied and Deborah F. Ricci (Incorporated by reference from Form 10-Q filed in May 2007). |
|
10.3 |
|
|
Employment Agreement between Allied and Monte L. Pickens (Incorporated by reference from Form 8-K filed in April 2003). |
|
10.4 |
|
|
Employment Agreement letter amendment between Allied and Monte L. Pickens (Incorporated by
reference from Form 10-Q filed in August 2004). |
|
10.5 |
|
|
Employment Agreement between Allied and Wayne F. C. Hosking, Jr. (Incorporated by
reference from Form 8-K filed in April 2004). |
|
10.6 |
|
|
2001 Equity Incentive Plan, as amended (Incorporated by reference from Proxy Statements
filed in April 2001, April 2002 and May 2005). |
|
10.7 |
|
|
8% Convertible Debenture, Series A and related documents (Incorporated by reference from Form 8-K filed in July 2002). |
|
10.8 |
|
|
Credit Agreement for MECAR S.A. (Incorporated by reference from Form 10-Q filed in August 2002). |
|
10.9 |
|
|
Employee Stock Purchase Plan, as amended (Incorporated by reference from Form 10-Q filed in November 2002). |
|
10.10 |
|
|
Lease Agreement, as amended (Incorporated by reference from Form 10-Q filed in November 2002). |
|
10.11 |
|
|
Amendment to Lease Agreement (Incorporated by reference from Form 10-Q filed in November 2002). |
|
10.12 |
|
|
Form of Indemnity Agreement for Directors and Executive Officers (Incorporated by
reference from Form 10-Q filed in November 2002). |
|
10.13 |
|
|
Amended and Restated International Distribution Agreement (Incorporated by reference from
Form 10-Q filed in November 2008). |
|
10.14 |
|
|
Deferred Compensation Plan for Non-Employee Directors (Incorporated by reference from Form 10-Q filed in August 2004). |
|
10.15 |
|
|
Stock Option Agreement-Employee Form
(Incorporated by reference from Form 10-Q filed in
November 2004) |
|
10.16 |
|
|
Directors Stock Option Agreement-Director Form (Incorporated by reference from Form 10-Q filed in November 2004) |
|
10.17 |
|
|
Restricted Stock Agreement (Incorporated by reference from Form 10-Q filed in May 2005) |
|
10.18 |
|
|
7.5% Senior Subordinated Convertible Notes and related documents (Incorporated by reference from 8-K filed in March 2006). |
|
10.19 |
|
|
Amended and Restated Securities Purchase Agreement, dated as of June 19, 2007, between
The Allied Defense Group, Inc. and the Purchasers (Incorporated by reference from Form 8-K
filed June 20, 2007). |
|
10.20 |
|
|
Form of Notes (Incorporated by reference from Form 8-K filed June 20, 2007). |
|
10.21 |
|
|
Form of Amended and Restated Registration Rights Agreement (Incorporated by reference from Form 8-K filed June 20, 2007). |
|
10.22 |
|
|
MECAR Certificate dated July 11, 2007 (Incorporated by reference from Form 8-K filed July 12, 2007). |
|
10.23 |
|
|
Stock Purchase Agreement, dated as of September 6, 2007 between Ving Holdings (Belgium)
BVBA in incorporation (in oprichting), as purchaser and ARC Europe SA, as seller
(Incorporated by reference from Form 8-K filed September 10, 2007). |
|
10.25 |
|
|
Asset Purchase Agreement, dated as of August 19, 2008, among The Allied Defense Group,
Inc., Global Microwave Systems, Inc., GMS Cobham, Inc. and DTC Communications, Inc.
(Incorporated by reference from Form 8-K filed on August 20, 2008). |
|
10.26 |
|
|
Stock Purchase Agreement, dated as of August 7, 2009, between The Allied Deefense Group,
Inc., .and 3DRS International, Inc. to complete the sale of NS Microwave Systems, Inc.,
(Incorporated by reference from Form 8-K filed on August 10, 2009). |
|
10.27 |
|
|
Secured Promissory Note, between The Allied Defense Group, Inc. and Chemring Group PLC
(Filed as Exhibit 10.27 to Form 8-K filed on June 24, 2010, and incorporated herein by
reference). |
|
10.28 |
|
|
Secured Promissory Note, between ARC Europe, S.A. and Chemring Group PLC (Filed as
Exhibit 10.28 to Form 8-K filed on June 24, 2010, and incorporated herein by reference). |
|
21 |
|
|
List of Subsidiaries (a) |
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm (a) |
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (a) |
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (a) |
|
32 |
|
|
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(a). |
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Allied has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
The Allied Defense Group, Inc.
By:
|
|
|
|
|
/s/ John G. Meyer, Jr.
John G. Meyer, Jr., Chief Executive Officer and President
|
|
|
|
Date: March 16, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Allied and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Chief Financial Officer
|
|
Date: March 16, 2011 |
Charles S. Ream |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Date: March 16, 2011 |
Charles S. Ream |
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Date: March 16, 2011 |
John G. Meyer, Jr. |
|
|
|
|
21
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
FORMING A PART OF
ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
OF
The Allied Defense Group, Inc.
F - 1
The Allied Defense Group Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
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Page |
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|
|
F - 3 |
|
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|
F - 4 |
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|
F - 5 |
|
|
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|
F - 6 |
|
|
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|
F - 7 |
|
|
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|
F - 8 |
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F - 9 |
|
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|
F - 11 |
|
F - 2
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
The Allied Defense Group, Inc.
Vienna, Virginia
We have audited the accompanying consolidated statement of net assets in liquidation (liquidation
basis) of The Allied Defense Group, Inc. and subsidiaries (the Company), as of December 31, 2010,
and the related consolidated statement of changes in net assets in liquidation (liquidation basis)
for the period from October 1, 2010 to December 31, 2010. We have also audited the consolidated
balance sheet of the Company as of December 31, 2009, and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss), and cash flows for the period
from January 1, 2010 to September 30, 2010 and the year ended December 31, 2009. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note C to the consolidated financial statements, the shareholders of The Allied
Defense Group, Inc. approved a plan of liquidation on September 30, 2010. As a result, the Company
changed its basis of accounting effective October 1, 2010, from the going-concern basis to a
liquidation basis.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated net assets in liquidation (liquidation basis) of The Allied
Defense Group, Inc. and subsidiaries as of December 31, 2010, the consolidated changes in net
assets in liquidation (liquidation basis) for the period from October 1, 2010 to December 31, 2010,
the consolidated financial position as of December 31, 2009, and the consolidated results of its
operations and its cash flows for the period from January 1, 2010 to September 30, 2010 and for the
year ended December 31, 2009, in conformity with accounting principles generally accepted in the
United States of America applied on the bases described in the preceding paragraph.
/s/ BDO USA, LLP
Bethesda, Maryland
March 16, 2011
F - 3
The Allied Defense Group, Inc.
CONSOLIDATED STATEMENT OF NET ASSETS (Liquidation Basis)
(Thousands of Dollars, except per share and share data)
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
$ |
14,462 |
|
Short-term investments |
|
|
18,801 |
|
Prepaid and other current assets |
|
|
606 |
|
Notes receivable |
|
|
875 |
|
Property and Equipment, net |
|
|
2 |
|
Funds held in escrow |
|
|
15,003 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
49,749 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Estimated net costs to be incurred during liquidation |
|
|
3,564 |
|
Accounts payable |
|
|
68 |
|
Accrued liabilities |
|
|
399 |
|
Income taxes payable |
|
|
2 |
|
Other liabilities |
|
|
87 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
4,120 |
|
|
|
|
|
|
|
|
|
|
NET ASSETS IN LIQUIDATION |
|
$ |
45,629 |
|
|
|
|
|
|
|
|
|
|
NUMBER OF SHARES OUTSTANDING |
|
|
8,235,195 |
|
NET ASSETS IN LIQUIDATION PER SHARE |
|
$ |
5.54 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 4
The Allied Defense Group, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Liquidation Basis)
(Thousands of Dollars, except per share and share data)
|
|
|
|
|
|
|
October 1, |
|
|
|
2010 to |
|
|
|
December 31, |
|
|
|
2010 |
|
|
|
|
|
|
Shareholders equity at September 30, 2010 (going concern basis) |
|
$ |
49,671 |
|
|
|
|
|
|
Liquidation basis adjustments upon adoption |
|
|
|
|
Adjust net assets to fair value |
|
|
(17 |
) |
Accrue estimated costs to be incurred during liquidation |
|
|
(4,500 |
) |
Estimated interest income earned during liquidation |
|
|
500 |
|
|
|
|
|
|
|
|
|
|
Net assets on liquidation basis as of September 30, 2010 |
|
|
45,654 |
|
|
|
|
|
|
Changes in fair value of net assets in liquidation September 30, 2010 to December 31, 2010 |
|
|
|
|
Adjust net assets to fair value |
|
|
168 |
|
Adjust accrued estimated costs to be incurred during liquidation |
|
|
138 |
|
Adjust estimated income to be earned during liquidation |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
Net assets on liquidation basis as of December 31, 2010 |
|
$ |
45,629 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 5
The Allied Defense Group, Inc.
CONSOLIDATED BALANCE SHEET (Going Concern Basis)
(Thousands of Dollars, except per share and share data)
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
3,475 |
|
Restricted cash |
|
|
234 |
|
Prepaid and other current assets |
|
|
400 |
|
Assets held for sale |
|
|
95,414 |
|
|
|
|
|
Total current assets |
|
|
99,523 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
Note receivable |
|
|
1,075 |
|
|
|
|
|
Total other assets |
|
|
1,075 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
100,629 |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
Current maturities of long-term debt |
|
$ |
5 |
|
Accounts payable |
|
|
696 |
|
Accrued liabilities |
|
|
2,937 |
|
Income taxes payable |
|
|
495 |
|
Liabilities held for sale |
|
|
69,220 |
|
|
|
|
|
Total current liabilities |
|
|
73,353 |
|
|
|
|
|
|
|
|
|
|
LONG TERM OBLIGATIONS |
|
|
|
|
Long-term debt, less current maturities and unamortized discount |
|
|
2 |
|
Other long-term liabilities |
|
|
263 |
|
|
|
|
|
Total long-term obligations |
|
|
265 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
73,618 |
|
|
|
|
|
|
|
|
|
|
CONTINGENCIES AND COMMITMENTS |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
Preferred stock, no par value; authorized 1,000,000 shares; none issued |
|
|
|
|
Common stock, par value, $.10 per share; authorized 30,000,000 shares; issued and outstanding 8,175,480 shares |
|
|
818 |
|
Capital in excess of par value |
|
|
56,490 |
|
Accumulated deficit |
|
|
(46,658 |
) |
Accumulated other comprehensive income |
|
|
16,361 |
|
|
|
|
|
Total stockholders equity |
|
|
27,011 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
100,629 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 6
The Allied Defense Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Going Concern Basis)
(Thousands of Dollars, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
Selling and administrative corporate expenses |
|
|
7,469 |
|
|
|
6,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(7,469 |
) |
|
|
(6,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
Net interest income (expense) |
|
|
38 |
|
|
|
31 |
|
Net gain (loss) on fair value of warrants |
|
|
(17 |
) |
|
|
299 |
|
Other-net |
|
|
(1,358 |
) |
|
|
(168 |
) |
|
|
|
|
|
|
|
|
|
|
(1,337 |
) |
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(8,806 |
) |
|
|
(6,675 |
) |
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
|
1 |
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(8,807 |
) |
|
|
(6,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
|
|
Gain on sale of subsidiaries |
|
|
48,081 |
|
|
|
3,923 |
|
Loss from discontinued operations |
|
|
(14,418 |
) |
|
|
(5,755 |
) |
|
|
|
|
|
|
|
|
|
|
33,663 |
|
|
|
(1,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
24,856 |
|
|
$ |
(8,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(1.08 |
) |
|
$ |
(0.80 |
) |
Net earnings (loss) from discontinued operations |
|
|
4.12 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
|
Total earnings (loss) per share basic and diluted |
|
$ |
3.04 |
|
|
$ |
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
8,175,580 |
|
|
|
8,120,428 |
|
Diluted |
|
|
8,182,279 |
|
|
|
8,120,428 |
|
See accompanying notes to consolidated financial statements.
F - 7
The Allied Defense Group, Inc.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(LOSS)
(Going Concern Basis)
(Thousands of Dollars, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Preferred |
|
|
Common Stock |
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
stock, no |
|
|
|
|
|
|
$.10 Par |
|
|
Excess of |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Par Value |
|
|
Shares |
|
|
value |
|
|
Par value |
|
|
(Deficit) |
|
|
Income |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009 |
|
$ |
|
|
|
|
8,079,509 |
|
|
$ |
808 |
|
|
$ |
55,912 |
|
|
$ |
(38,351 |
) |
|
$ |
16,082 |
|
|
$ |
34,451 |
|
Common stock awards |
|
|
|
|
|
|
78,490 |
|
|
|
8 |
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
334 |
|
Retired stocks |
|
|
|
|
|
|
(1,502 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Employee stock purchase plan purchases |
|
|
|
|
|
|
18,983 |
|
|
|
2 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
86 |
|
Issue of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
71 |
|
Directors deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
103 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,307 |
) |
|
|
|
|
|
|
(8,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
|
|
|
|
8,175,480 |
|
|
$ |
818 |
|
|
$ |
56,490 |
|
|
$ |
(46,658 |
) |
|
$ |
16,361 |
|
|
$ |
27,011 |
|
Common stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
138 |
|
Forfeited stocks |
|
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired stocks |
|
|
|
|
|
|
(830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Directors deferred stock compensation |
|
|
|
|
|
|
61,545 |
|
|
|
6 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
43 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,856 |
|
|
|
|
|
|
|
24,856 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,410 |
) |
|
|
(2,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
|
|
|
|
8,235,195 |
|
|
$ |
824 |
|
|
$ |
56,698 |
|
|
$ |
(21,802 |
) |
|
$ |
13,951 |
|
|
$ |
49,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 8
The Allied Defense Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Going Concern Basis)
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
24,856 |
|
|
$ |
(8,307 |
) |
Less: Gain on sale of subsidiaries |
|
|
(48,081 |
) |
|
|
(3,923 |
) |
Loss from discontinued operations, net of tax |
|
|
14,418 |
|
|
|
5,755 |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(8,807 |
) |
|
|
(6,475 |
) |
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities, net of divestitures: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
13 |
|
|
|
328 |
|
Loss on sale of fixed assets |
|
|
1 |
|
|
|
|
|
Net (gain) loss related to fair value of notes and warrants |
|
|
17 |
|
|
|
(299 |
) |
Common stock and stock option awards |
|
|
171 |
|
|
|
417 |
|
Deferred director stock awards |
|
|
43 |
|
|
|
103 |
|
(Increase) decrease in operating assets and increase (decrease) in liabilities, net
of effects from discontinued businesses |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
160 |
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
1 |
|
Prepaid and other current assets |
|
|
88 |
|
|
|
632 |
|
Accounts payable and accrued liabilities |
|
|
(62 |
) |
|
|
697 |
|
Deferred compensation |
|
|
(156 |
) |
|
|
5 |
|
Income taxes |
|
|
(363 |
) |
|
|
(290 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities continuing operations |
|
|
(8,895 |
) |
|
|
(4,881 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities discontinued operations |
|
|
|
|
|
|
1,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(8,895 |
) |
|
|
(3,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Net proceeds from sale of subsidiaries |
|
|
54,446 |
|
|
|
4,213 |
|
Funds deposited in escrow |
|
|
(15,000 |
) |
|
|
|
|
Net cash used for short-term investment transactions |
|
|
(20,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities continuing operations |
|
|
19,446 |
|
|
|
4,213 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities discontinued operations |
|
|
|
|
|
|
(1,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
19,446 |
|
|
|
2,813 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 9
The Allied Defense Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Going Concern Basis)
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net principal payments on long term debt and capital lease obligations |
|
|
(1 |
) |
|
|
(934 |
) |
Proceeds from Employee Stock Purchase |
|
|
|
|
|
|
73 |
|
Retirement of Stock |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities continuing operations |
|
|
(1 |
) |
|
|
(867 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities discontinued operations |
|
|
|
|
|
|
(737 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1 |
) |
|
|
(1,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate on cash |
|
|
850 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
11,400 |
|
|
|
(2,188 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
3,475 |
|
|
|
5,663 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
14,875 |
|
|
$ |
3,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Supplemental Disclosures of Cash Flow information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
18 |
|
Taxes |
|
$ |
373 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Capital leases |
|
$ |
|
|
|
$ |
22 |
|
See accompanying notes to consolidated financial statements.
F - 10
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
NOTE A DESCRIPTION OF BUSINESS
Business Operations
The Allied Defense Group Inc. (Allied or the Company), a Delaware corporation, previously
conducted a multinational defense business focused on the manufacture and sale of ammunition and
ammunition related products for use by the U.S. and foreign governments. Allieds business was
conducted by its two wholly owned subsidiaries: MECAR sprl, formerly Mecar S.A. (Mecar), and ADG
Sub USA, Inc., formerly Mecar USA, Inc. (Mecar USA).
Plan of Dissolution and Liquidation
On June 24, 2010, the Company signed a definitive purchase and sale agreement (the
Agreement) with Chemring Group PLC (Chemring) pursuant to which Chemring agreed to acquire
substantially all of the assets of the Company for $59,560 in cash and the assumption of certain
liabilities. On September 1, 2010, the Company completed the asset sale to Chemring contemplated
by the Agreement. Pursuant to the Agreement, Chemring acquired all of the capital stock of Mecar
for approximately $45,810 in cash, and separately Chemring acquired substantially all of the assets
of Mecar USA for $13,750 in cash and the assumption by Chemring of certain specified liabilities of
Mecar USA. A portion of the purchase price was paid through the repayment of certain intercompany
indebtedness owed to the Company that would otherwise have been cancelled at closing.
Approximately $15,000 of the proceeds of the sale was deposited into escrow to secure the Companys
indemnification obligations under the Agreement.
In conjunction with the Agreement, the Board of Directors of the Company unanimously approved
the dissolution of the Company pursuant to a Plan of Complete Liquidation and Dissolution (Plan of
Dissolution). The Companys stockholders approved the Plan of Dissolution on September 30, 2010.
In response to concerns of certain of the Companys stockholders, the Company has agreed to delay
the filing of a certificate of dissolution with the Delaware Secretary of State so that the
stockholders may continue to transfer the Companys common stock while the Company resolves the
matters relating to the U.S. Department of Justice (DOJ) subpoena as described below in Note B
DOJ Legal Proceedings. The Company will delay the filing of a certificate of dissolution with the
Delaware Secretary of State until the earlier of August 31, 2011 or a resolution of all matters
concerning the DOJ.
On September 2, 2010, the Company received a staff determination letter (the Staff
Determination) from NYSE Amex LLC (the Exchange). The Staff Determination stated that the
Exchange determined that the Company no longer complies with the requirements for continued listing
set forth in NYSE Amex LLC Company Guide Section 1003(c)(i) as a result of the sale of
substantially all of the Companys assets. On September 20, 2010, the Company announced that
trading of shares of the Companys common stock had been transferred from the NYSE Amex to the
OTCQB Marketplace effective Monday, September 20, 2010. The Companys trading symbol is now ADGI.
NOTE B DOJ LEGAL PROCEEDINGS
On January 19, 2010, the Company received a subpoena and communications from the U.S. Department of
Justice (DOJ) requesting the Company produce documents relating to its dealings with foreign
governments. The subpoena stated that it was issued in connection with an ongoing criminal
investigation. On the same day, the Company also became aware through a press release issued by
the DOJ that an employee of Mecar USA had been indicted by the DOJ for allegedly engaging in
schemes to bribe foreign government officials to obtain and retain business. The unsealed
indictment of this employee and the DOJs press release indicate that the alleged criminal conduct
was on behalf of a Decatur, Georgia company which is unrelated to the Company or Mecar USA. Mecar
USAs employment agreement with the employee provides that the employee shall not actively engage
in any other employment, occupation or consulting activity that conflicts with the interests of the
Company. In light of the employees breach of his employment agreement, Mecar USA terminated his
employment on January 20, 2010.
According to the DOJs press release, the former employee was arrested on January 19, 2010,
along with twenty-one other individuals, after an undercover operation that targeted foreign
bribery in the military, and small arms and ammunition industries. The indictments of the
twenty-two individuals allege that the defendants conspired to violate the Foreign Corrupt
Practices Act (FCPA), conspired to engage in money laundering and engaged in substantive
violations of the FCPA.
F - 11
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Subsequently, the Company received notice from the DOJ that indicated that it would request
additional documents and expand its review beyond matters relating to the indicted former employee
of Mecar USA. The Company understands that the DOJs expanded review was in connection with an
industry-wide review. The Company has also received inquiries from the SEC on this matter.
The Company is cooperating with the DOJ and the SEC and complying with the DOJs subpoena and
the SECs requests for information. The Companys ongoing compliance with the DOJ subpoena is being
overseen by the Companys Board of Directors. The Board of Directors is being assisted in these
matters by independent outside counsel. The Company cannot predict the outcome of these matters or
the impact, if any, that they may have on the plan to return the net proceeds of the Chemring sale
to its stockholders. As a result of the DOJ subpoena, it is unlikely that any distributions to the
Companys stockholders will be made until the matters relating to the DOJ subpoena have been
resolved. The period of time required to resolve these matters is uncertain but is expected to take
in excess of one year. Furthermore, under the Agreement, the Company has agreed to indemnify
Chemring and certain of its related parties from any losses, fines or penalties arising out of,
among other things, the completed contracts of Mecar and Mecar USA. We have agreed to escrow
$15,000 of the cash consideration paid to the Company in the sale to secure our maximum
indemnification obligations under the Agreement. These escrowed funds will not be available to the
Company for distribution to our stockholders, or otherwise, until released to the Company pursuant
to the terms of the Agreement.
For additional disclosures surrounding other legal contingencies, refer to Note H Contingencies
and Commitments.
NOTE C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Liquidation Basis of Accounting
With the authorization of the Plan of Dissolution, the Company adopted the liquidation basis
of accounting effective as the close of business on September 30, 2010. The liquidation basis of
accounting will continue to be used by the Company until such time that the plan is terminated.
Under the liquidation basis of accounting, assets are stated at their estimated net realizable
value and liabilities are stated at their estimated settlement amounts, which estimates will be
periodically reviewed and adjusted as appropriate. Consolidated Statements of Net Assets in
Liquidation and Changes in Net Assets in Liquidation are the principal financial statements
presented under the liquidation basis of accounting. The valuations of assets at their net
realizable value and liabilities at their anticipated settlement amounts represent estimates, based
on present facts and circumstances associated with carrying out the Plan of Dissolution based on
the assumptions set forth below. The actual values and costs associated with carrying out the Plan
of Dissolution are expected to differ from the amounts shown herein because of the inherent
uncertainty and will be greater than or less than the amounts recorded. Such differences may be
material. In particular, the estimates of the Companys costs will vary with the length of time it
operates under the Plan of Dissolution. Accordingly, it is not possible to predict the aggregate
amount or timing of future distributions to stockholders, as long as the plan is in effect, and no
assurance can be given that the amount of liquidating distributions to be received will equal or
exceed the estimate of net assets in liquidation presented in the accompanying Statement of Net
Assets in Liquidation.
Under the liquidation basis of accounting, the carrying amounts of assets as of the close
of business on September 30, 2010, the date of the authorization of the Plan of Dissolution by the
Company, were adjusted to their estimated net realizable values and liabilities, including the
estimated costs associated with implementing the Plan of Dissolution. Such value estimates were
updated by the Company as of December 31, 2010. The majority of net assets in liquidation at
December 31, 2010 were highly liquid and did not require adjustment as their estimated net
realizable value approximates their current book value.
F - 12
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
The Company is also required to estimate and accrue the costs associated with implementing and
completing the Plan of Dissolution under the liquidation basis of accounting. These amounts can
vary significantly due to, among other things, the costs of retaining personnel and others to
oversee the liquidation, including compensation for remaining directors, consultants, insurance
costs, costs to settle remaining leases, fees for legal and other professional service providers,
income taxes, and miscellaneous other costs, partially offset by estimated future interest earnings
on the Companys cash accounts. Such net costs were estimated to be $3,564 as of December 31,
2010. The $3,564 in net remaining costs to be incurred during liquidation consists of $398 in
compensation for former employees and remaining directors; $1,230 for compliance and other office
costs, including resident filing fees and costs to settle remaining leases; $351 for insurance;
$1,385 in fees for professional service providers including legal representation relating to the
DOJ subpoena; and income tax payments not to exceed $350 for the repatriation of cash balances held
in foreign countries as of December 31, 2010; offset by $150 estimated to be received on our cash
and short-term investment balances during liquidation. Such estimates are based on assumptions
regarding the Companys ability to settle outstanding obligations to creditors, resolve outstanding
litigation, settle remaining leases and the ultimate timing of distributions to its stockholders,
but does not include any settlement amounts, fines or penalties, if any, that the Company might
incur as a result of the DOJ subpoena or any other legal proceedings. These estimates will be
adjusted from time to time as projections and assumptions change.
Going Concern Basis of Accounting
For all periods preceding the authorization of the Plan of Dissolution, the Companys
financial statements are presented on the going concern basis of accounting. Such financial
statements reflect the historical basis of assets and liabilities and the historical results of
operations related to the Companys assets and liabilities for the period from January 1, 2010 to
September 30, 2010 and the year ended December 31, 2009.
Principles of Consolidation
As of December 31, 2010, the consolidated financial statements of the Company include the
accounts of Allied and its wholly-owned subsidiaries, which are as follows:
|
|
|
ARC Europe, a Belgian company, |
|
|
|
|
Allied Research BV (BV), a Dutch company, |
|
|
|
|
Allied Research Cooperative (Coop) and, |
|
|
|
|
ADG Sub USA, Inc. (USA) |
On September 1, 2010, as discussed in Note A, Chemring acquired the assets of Mecar USA and
the stock of Mecar, a wholly owned subsidiary of ARC Europe. As a result of the acquisition, the
net assets of Mecar USA and Mecar have been reclassified to Assets held for sale as of December
31, 2009. Additionally, the Net Income (Loss) for Mecar and Mecar USA has been reclassified to Net
income (loss) from discontinued operations on the Statement of Operations for the period from
January 1, 2010 to September 30, 2010 and for the year ended December 31, 2009.
Significant intercompany transactions have been eliminated in the consolidation.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted
in the United States of America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Foreign Currency Translation
The assets and liabilities of the Companys foreign subsidiaries are translated into U.S.
dollars at period-end exchange rates. The resulting translation gains and losses are accumulated in
a separate component of stockholders equity. Income and expense items are converted into U.S.
dollars at average rates of exchange prevailing during the period. Foreign currency transaction
gains and losses are credited or charged directly to operations.
F - 13
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Cash and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
Short-term investments
The Company has invested in high-quality, fixed income securities which have a maturity of
less than 12 months and are accounted for at fair value. These investments are classified as
trading and are presented as short-term investments on the Statement of Net Assets and Balance
Sheet. Unrealized gains or losses are recorded in other income (expense) on the Statement of
Operations.
Property and equipment
Under the liquidation method of accounting, property and equipment are stated at the estimated
value the Company is expected to recover from the assets. Under the going concern method of
accounting, property and equipment were stated at cost, less accumulated depreciation and
amortization. Depreciation was calculated on a straight-line basis over the estimated useful lives
of the respective assets as follows:
|
|
|
|
|
Buildings and improvements |
|
20 - 30 years |
Machinery and equipment |
|
3 - 10 years |
Demonstration inventory |
|
3 - 7 years |
Leasehold improvements are amortized over the shorter of the lease term or their
estimated useful lives. Maintenance and repairs are charged to expense as incurred; additions and
betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation
of the disposed assets are removed and any resulting gain or loss is credited or charged to
operations.
Assets under capital lease obligations are recorded at the lesser of the present value of
the minimum lease payments or the fair market value of the leased asset, at the inception of the
lease. Amortization of assets acquired under capital lease obligations is recorded in depreciation
expense.
Impairment of Long-Lived Assets
Under the going concern method of accounting, the Company reviewed long-lived assets for
impairment whenever events or changes in circumstances indicated that the carrying amount of the
asset may not be recoverable in accordance with ASC 360, Accounting for the Impairment or Disposal
of Long-Lived Assets. Impairment losses, where identified, were determined as the excess of the
carrying value over the estimated fair value of the long-lived asset. The Company recorded $0 and
$181 in impairment charges for long-lived assets for the nine months ended September 30, 2010 and
the twelve months ended December 31, 2009, respectively.
Income Taxes
Under the going concern method of accounting, income taxes were provided based on the
liability method for financial reporting purposes. Under this method, deferred and prepaid taxes
are provided for on temporary differences in the basis of
assets and liabilities which are recognized in different periods for financial and tax
reporting purposes. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. Where it is not more likely than not that the Companys tax position will be sustained,
the Company records its best estimate of the resulting tax liability and interest in the
consolidated financial statements. It is the Companys policy to record interest and penalties, if
any, related to unrecognized tax benefits as part of income tax expense for financial reporting
purposes.
F - 14
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Earnings Per Common Share
Under the going concern method of accounting, basic earnings per share amounts have been
computed based on the weighted average number of common shares outstanding. Diluted earnings per
share reflects the increase in weighted average common shares outstanding that would result from
the assumed exercise of outstanding options, warrants, and convertible debt calculated using the
treasury stock method, unless they are anti-dilutive.
Stock-Based Compensation
Under the going concern method of accounting, the Company has adopted the provisions of ASC
718, Accounting for Stock Compensation, and the related SEC rules included in Staff Accounting
Bulletin No. 107, on a modified prospective basis. ASC 718 requires all share-based payments to
employees, including grants of stock options and the compensatory elements of employee stock
purchase plans, to be recognized in the statement of operations based upon their fair values.
Share-based employee compensation cost is recognized as a component of selling, general and
administrative expense in the consolidated statements of operations.
Allieds principal Equity Incentive Plan (the Plan), which was approved by the Board of
Directors and stockholders in 2001 authorizes the Compensation Committee of the Board of Directors
to grant up to 990,000 stock options, stock appreciation rights, restricted (non-vested) stock,
performance shares and cash awards. Each type of grant places certain requirements and restrictions
upon the Company and grantee. The options for common shares generally are exercisable over a one to
five year period and expire up to five years from the date of grant and are valued at the closing
market price on the date of grant. Restricted shares generally vest over periods of one to five
years from the date of award and are also valued at the closing market price on the date of grant.
The Company used the modified prospective transition method to adopt the provisions of
ASC 718 in 2006. Under this method, employee compensation cost recognized in 2010 and 2009 include:
(1) compensation cost for all share-based payments granted after the effective date that have met
the requisite service requirement and (2) compensation cost for the portion of awards that have met
the requisite service period on or after the effective date based on the grant-date fair value of
those awards. In accordance with ASC 718, the fair value of options grants is estimated on the date
of grant using the Black-Scholes option pricing model.
The Company granted 100,000 stock options during the year ended December 31, 2009. No
stock options were granted in 2010. The fair value of each option granted was estimated on the date
of grant using the Black-Scholes options pricing model. The weighted-average fair values of each
option at the dates of grant during the year ended December 31, 2009 was $1.20. The weighted
average assumptions used in the model for the years ended December 31, 2009 were as follows:
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
Risk free interest rate |
|
|
0.80 |
% |
Expected volatility rate |
|
|
70.71 |
% |
Expected lives years |
|
|
1 |
|
Divided yield |
|
|
|
|
The risk free interest rate is equal to the U.S. Treasury Bill rate for the auction
closest to period end. The expected volatility is calculated from the Companys weekly closing
stock price starting with the period end date and going back four years. The expected lives in
years is the vesting period for most of the stock option grants in the period with vesting periods
based on the assumption and on general Company experience that the options will be exercised upon
vesting. All options outstanding as of December 31, 2009 were forfeited in 2010.
Concentrations of Credit Risk
Financial instruments and related items which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments. Cash and cash equivalents are
maintained at financial institutions and, at times, balances may exceed federally insured limits.
The Company has never experienced any losses related to these balances.
F - 15
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Restricted and unrestricted cash balances in foreign banks at December 31, 2009 were $93. Changes
in the value of the U.S. dollar and other currencies affect the Companys financial position since
the Company has assets in Belgium.
Reportable segments
Prior to September 2010, the Company operated within two operating segments: Mecar and Mecar
USA. In September 2010, the Company completed the divesture of Mecar and Mecar USA and in August
2009, the Company completed the divestiture of NSM. As a result, Allied no longer has operating
segments. The Companys continuing operations include only those expenses incurred to support the
Companys corporate headquarters and its non-operating European subsidiaries.
Recent Accounting Pronouncements
In the first quarter of 2010, the Financial Accounting Standards Board (FASB) updated
Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements. This guidance amends FASB ASC Topic 855,
Subsequent Events, so that SEC filers no longer are required to disclose the date through which
subsequent events have been evaluated in originally issued and revised financial statements. SEC
filers must evaluate subsequent events through the date the financial statements are issued.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 requires new disclosures concerning transfers into and out of Level 1 and
Level 2 of the fair value measurement hierarchy and a roll forward of the activity of assets and
liabilities measured in Level 3 of the hierarchy. In addition, ASU 2010-06 clarifies existing
disclosure requirements to require fair value measurement disclosures for each class of assets and
liabilities and disclosure regarding the valuation techniques and inputs used to measure Level 2 or
Level 3 fair value measurements on a recurring and nonrecurring basis. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009 except for the roll forward
of activity for Level 3 fair value measurements, which is effective for fiscal years beginning
after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the
Companys consolidated financial statements.
On January 1, 2010, the Company adopted ASU 2009-17, Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amended the
consolidation guidance applicable to variable interest entities and required additional disclosures
concerning an enterprises continuing involvement with variable interest entities. The Company does
not have variable interest entities; therefore, this ASU had no impact on the Corporations
consolidated financial statements.
In May 2009, the FASB issued accounting standards under ASC 855 Subsequent Events and an
amendment in February 2010, which provides guidance to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC 855, as amended, specifically requires an
SEC filer to evaluate and disclose subsequent events through the date that the financial statements
are issued. The new standards were effective for interim and annual periods ended after June 15,
2009 and the amendment is effective for interim or annual periods ending after June 15, 2010. The
Company evaluated subsequent events through the financial statements issuance date and did not
identify any events which require disclosure or would have a material effect on the Companys
financial position as of December 31, 2010.
Under the liquidation basis of accounting, the Company does not expect any recent accounting
pronouncements to impact the Consolidated Statement of Net Assets.
NOTE D DISCONTINUED OPERATIONS
The Consolidated Financial Statements and related note disclosures reflect NSM, Mecar and
Mecar USA as Long-Lived
Assets to be Disposed of by Sale at December 31, 2009 in accordance with ASC 360, Property,
Plant, and Equipment. Accordingly, our results of operations for all periods presented have been
reclassified to reflect NSM, Mecar and Mecar USA as discontinued operations in the consolidated
statement of operations for all periods presented.
F - 16
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Mecar and Mecar USA
On June 24, 2010, the Company signed a definitive purchase and sale agreement with Chemring
Group PLC pursuant to which Chemring agreed to acquire substantially all of the assets of the
Company for $59,560 in cash and the assumption of certain liabilities. On September 1, 2010, the
Company completed the asset sale to Chemring contemplated by the Agreement. Pursuant to the
Agreement, Chemring acquired all of the capital stock of Mecar for approximately $45,810 in cash,
and separately Chemring acquired substantially all of the assets of Mecar USA for $13,750 in cash
and the assumption by Chemring of certain specified liabilities of Mecar USA. A portion of the
purchase price was paid through the repayment of certain intercompany indebtedness owed to the
Company that would otherwise have been cancelled at closing. Approximately $15,000 of the proceeds
of the sale was deposited into escrow to secure the Companys indemnification obligations under the
Agreement. Such amounts are included in Funds held in escrow on the Statement of Net Assets
(Liquidation Basis). In conjunction with sale, the Company paid $1,637 in legal fees, $3,177 in
investment banking fees and $300 in retention and incentive plans for the management of Mecar and
Mecar USA. As a result, the sale generated net proceeds of $54,446, and the Company recorded a
gain of $48,081. The Company did not record a significant tax expense from this transaction as the
gain is expected to be offset by the Companys existing net operating loss carry forwards and
foreign tax credits.
NS Microwave Systems, Inc.
On August 7, 2009, the Company entered into a Purchase Agreement to sell NSM for $400 in cash
and a promissory note in the amount of $1,325 at closing. The note is due 24 months after closing
and is subject to a reduction based on certain terms as defined in the Purchase Agreement. On
December 31, 2009 and again on June 30, 2010, the Company wrote-off $250, for a total write-off of
$500, against the receivable as it was unlikely that one of the Purchase Agreement conditions would
be met. As of December 31, 2010, the outstanding amount of the note receivable was $825. The note
bears interest at a rate of one-year London Interbank Offered Rate plus 5% subject to a maximum
interest cap of 8%.
The following is a summary of assets and the liabilities held for sale at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Mecar |
|
|
Mecar USA |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
5,546 |
|
|
$ |
|
|
|
$ |
5,546 |
|
Restricted cash |
|
|
5,364 |
|
|
|
|
|
|
|
5,364 |
|
Accounts receivable, net |
|
|
21,786 |
|
|
|
7,124 |
|
|
|
28,910 |
|
Costs and accrued earnings on
uncompleted contracts |
|
|
14,402 |
|
|
|
|
|
|
|
14,402 |
|
Contract in progress |
|
|
|
|
|
|
179 |
|
|
|
179 |
|
Inventories, net |
|
|
18,633 |
|
|
|
949 |
|
|
|
19,582 |
|
Prepaid and other current assets |
|
|
3,942 |
|
|
|
337 |
|
|
|
4,279 |
|
Property, Plant and Equipment, net |
|
|
14,124 |
|
|
|
2,391 |
|
|
|
16,515 |
|
Other assets |
|
|
636 |
|
|
|
1 |
|
|
|
637 |
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
|
$ |
84,433 |
|
|
$ |
10,981 |
|
|
$ |
95,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdraft facility |
|
$ |
2,635 |
|
|
$ |
|
|
|
$ |
2,635 |
|
Accounts payable |
|
|
13,084 |
|
|
|
3,649 |
|
|
|
16,733 |
|
Accrued liabilities |
|
|
18,889 |
|
|
|
632 |
|
|
|
19,521 |
|
Customer deposits |
|
|
15,589 |
|
|
|
385 |
|
|
|
15,974 |
|
Other liabilities |
|
|
5,517 |
|
|
|
|
|
|
|
5,517 |
|
Long-term debt |
|
|
8,804 |
|
|
|
36 |
|
|
|
8,840 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale |
|
$ |
64,518 |
|
|
$ |
4,702 |
|
|
$ |
69,220 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, there were no assets and liabilities held for sale for NSM as the
transaction had been completed in August 2009.
F - 17
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
The following summarizes the results of discontinued operations for the nine months ended
September 30, 2010 and twelve months ended December 31, 2009 for NSM, Mecar and Mecar USA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2010 |
|
|
For the Year Ended December 31, 2009 |
|
|
|
Mecar |
|
|
Mecar USA |
|
|
NSM |
|
|
Total |
|
|
Mecar |
|
|
Mecar USA |
|
|
NSM |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
38,477 |
|
|
$ |
9,342 |
|
|
$ |
|
|
|
$ |
47,819 |
|
|
$ |
86,207 |
|
|
$ |
56,216 |
|
|
$ |
2,894 |
|
|
$ |
145,317 |
|
Income (loss) before taxes |
|
|
(14,122 |
) |
|
|
(287 |
) |
|
|
|
|
|
|
(14,409 |
) |
|
|
(7,903 |
) |
|
|
3,825 |
|
|
|
(1,675 |
) |
|
|
(5,753 |
) |
Income (loss), net of tax |
|
|
(14,122 |
) |
|
|
(296 |
) |
|
|
|
|
|
|
(14,418 |
) |
|
|
(7,903 |
) |
|
|
3,827 |
|
|
|
(1,679 |
) |
|
|
(5,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations,
net of tax |
|
$ |
(14,122 |
) |
|
$ |
(296 |
) |
|
$ |
|
|
|
$ |
(14,418 |
) |
|
$ |
(7,903 |
) |
|
$ |
3,827 |
|
|
$ |
(1,679 |
) |
|
$ |
(5,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E PROPERTY & EQUIPMENT
Under the liquidation basis of accounting, the Company has reduced the value of its
property and equipment to $2, which is the amount that management believes is likely be recoverable
via sale or in liquidation.
Under the going concern basis, property and equipment at December 31, 2009 was comprised as
follows:
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
Land |
|
$ |
|
|
Buildings and improvements |
|
|
94 |
|
Machinery and equipment |
|
|
1,870 |
|
Demonstration Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,964 |
|
Less: Accumulated depreciation |
|
|
(1,933 |
) |
|
|
|
|
|
|
|
|
|
Total Propert and Equipment, net |
|
$ |
31 |
|
|
|
|
|
Depreciation expense was $13 and $328 for the nine months ended September 30, 2010 and
twelve months ended December 31, 2009, respectively.
Capital Leases. The Company leases equipment under various capital leases, with lease
terms ending in 2011. The economic substance of the leases is that the Company is financing the
acquisition of the assets through the leases, and accordingly, they are recorded in the Companys
assets and liabilities.
The following is an analysis of the leased property under capital leases included in
property and equipment as of December 31, 2009:
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
Leased equipment |
|
$ |
14 |
|
Less: Accumulated amortization |
|
|
(7 |
) |
|
|
|
|
Total Leased Equipment, net |
|
$ |
7 |
|
|
|
|
|
In 2009, the Company recorded $181 in impairment charges for long-lived assets. The
impairment related to the Companys Enterprise Reporting Package (ERP) computer. As the Company
decided to no longer utilize its current ERP system in 2009, the Company determined that the
carrying value of the ERP system exceeded its fair value. The fair value of the ERP system was
determined based on replacement cost.
F - 18
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
NOTE F FAIR VALUE MEASUREMENTS
The Company values its assets and liabilities using the methods of fair-value as described in
ASC 820, Fair Value Measurements and Disclosures. In accordance with ASC 820, the Company
determines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The
Company generally applies the income approach to determine fair value. This method uses valuation
techniques to convert future amounts to a single present amount. The measurement is based on the
value indicated by current market expectations about those future amounts.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to active markets for identical assets and
liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurement). We classify fair value balances based on the observability of those inputs. The
three levels of the fair value hierarchy are as follows:
|
|
|
Level 1 Observable inputs such as quoted prices in active markets for identical assets
or liabilities. |
|
|
|
Level 2 Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities
in markets that are not active and amounts derived from valuation models where all
significant inputs are observable in active markets.
|
|
|
|
Level 3 Unobservable inputs that reflect managements assumptions. |
For disclosure purposes, assets and liabilities are classified in their entirety in the fair
value hierarchy level based on the lowest level of input that is significant to the overall fair
value measurement. Our assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the placement within the fair value hierarchy levels.
The following table sets forth the assets and liabilities measured at fair value on a
recurring basis, by input level, in the consolidated balance sheet at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
Markets for Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
|
|
|
December 31, 2009 |
|
or Liabilities (level 1) |
|
|
(level 2) |
|
|
(Level 3) |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,475 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,475 |
|
Restricted cash |
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,709 |
|
|
$ |
(24 |
) |
|
$ |
|
|
|
$ |
3,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Companys warrants disclosed above are derived from
valuation models where significant inputs such as historical price and volatility of the Companys
stock as well as U.S. Treasury Bill rates are observable in active markets.
NOTE G WARRANTS
On March 6, 2006, in conjunction with the issuance of convertible notes, the Company issued
detachable warrants to the purchasers exercisable for an aggregate of 226,800 shares of Allied
common stock. The warrants are exercisable for a term of five years at an exercise price of $27.68
per share, subject to anti-dilution provisions and expire on March 9, 2011. The original
exercisable shares of 226,800 and exercise price of $27.68 was adjusted to 349,297 and $17.97,
respectively, to account for the December 2006 Private Placement and the Amendment Agreement.
F - 19
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Under the going concern basis of accounting, the warrants did not meet the requirement for
equity classification in accordance with ASC 815 Derivatives and Hedging, mainly because the
warrants are required to settle in registered shares
of the Companys common stock. The warrants were recorded as other current liabilities,
presented as derivative instruments on the balance sheet, and were recorded and carried at the fair
value of the instrument. At December 31, 2010 under the liquidation basis of accounting and at
December 31, 2009 under the going concern basis of accounting, the Company determined the fair
value of the warrants was $0 and $24, respectively.
NOTE H CONTINGENCIES AND COMMITMENTS
DOJ Subpoena
On January 19, 2010, the Company received a subpoena and communications from the U.S.
Department of Justice (DOJ) requesting the Company produce documents relating to its dealings
with foreign governments. The subpoena stated that it was issued in connection with an ongoing
criminal investigation. See Note B for additional information regarding the DOJ proceedings.
Employee Severance Payments
The Company entered into employment agreements with certain management personnel at the
Companys subsidiaries and with certain domestic management personnel. These agreements provided
for severance payments in the event of termination under certain conditions. In September 2010,
the Company paid $1,650 in satisfaction of its severance obligations to the Companys management
personnel. Employment agreements with employees at Mecar and Mecar USA were assigned as part of
the sale transactions.
Leases
The Company leases domestic office space and equipment under operating leases which expire at
various dates through 2013. The lease also includes escalation provisions for taxes and operating
costs.
Litigation Relating to Consulting Agreement
On April 19, 2010, a lawsuit was filed against the Company by Sterling Investors Group Limited
in the Circuit Court for Fairfax County, Virginia alleging breach of contract related to an
agreement the Company entered into with a loan brokerage firm in its attempt to seek a new bank
line of credit. The lawsuit seeks damages in the amount of $640. The Company is finalizing a
settlement which will result in a modest payment by the Company.
Litigation Initiated by Former Employee
A former executive employee of the Company has instituted a lawsuit in the Circuit Court for
Fairfax County, Virginia against the Company and others alleging fraud, constructive fraud, breach
of contract, unjust encroachment, tortuous interference with business expectancy and civil
conspiracy, all relating to the former executive employees change of control severance agreement.
The former executive employee seeks damages in excess of $6.0 million. The Company believes this
lawsuit is without merit and is vigorously defending it.
Litigation Relating to Consulting Agreement (MECAR)
A former consultant to MECAR has initiated a lawsuit in Belgium against MECAR and the Company
for unpaid consulting fees in excess of $0.75 million. The Company believes that any liability
with respect to this matter will be borne by MECAR and not the Company.
F - 20
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
Indemnification provisions
The Company has sold its SeaSpace, Titan, the VSK Group, GMS and NSM subsidiaries in separate
transactions starting with the first transaction closing in 2007. In each transaction, the Company
agreed to indemnify the purchaser for periods subsequent to closing for losses arising from
breaches of representations, warranties and covenants. Indemnification periods varied based on the
particular representation, warranty or covenant covered, the vast majority of which have all
expired. As of December 31, 2010, the only remaining indemnification obligations relate to
representations and warranties concerning taxes, environmental matters, breaches of title, breaches
of authorization and fraud. For SeaSpace, Titan, the VSK Group, GMS and NSM, these indemnification
provisions have been capped at $1,000, $950, $6,806 (5,000), $5,200 and $863,
respectively. At December 31, 2010, no amount has been accrued related to these indemnifications
as a liability is not deemed probable.
On June 24, 2010, the Company signed a definitive purchase and sale agreement with Chemring
Group PLC pursuant to which Chemring agreed to acquire substantially all of the assets of the
Company for $59,560 in cash and the assumption of certain liabilities. The purchase and sale
agreement contains certain indemnification provisions pursuant to which the Company may be required
to indemnify the buyer for a period subsequent to the completion of the sale for any and all losses
directly or indirectly based upon, related to, arising out of or in connection with Mecars
completed contracts, Mecar USA liabilities retained by the Company and any failure by the Company
to satisfy all transaction related expenses. The Companys indemnification liability is limited to,
and capped at, the escrowed amount of $15,000 plus the accumulated interest. The Companys
indemnification obligations expire upon the earlier of (i) June 30, 2015 and (ii) the Companys
entry into either a court or administrative order or a Chemring-approved settlement agreement, in
either case, finally resolving the matters relating to the DOJs subpoena. In the absence of such
final resolution, in certain circumstances, up to 50% of the escrowed funds may be released as
early as June 24, 2013. At December 31, 2010, no amount has been accrued related to this
indemnification as a liability is not deemed probable.
NOTE I STOCKHOLDERS EQUITY
Rights Agreement
The Board of Directors adopted a Rights Agreement in 2001 and has subsequently amended the
agreement. The Rights Agreement expires at the close of business on May 31, 2011. Each right under
the Rights Agreement entitles a stockholder to acquire at a purchase price of $50, one-hundredth of
a share of preferred stock which carries voting and dividend rights similar to one share of common
stock. Alternatively, a right holder may elect to purchase for $50 an equivalent number of common
shares (or in certain circumstances, cash, property or other securities of the Company) at a price
per share equal to one-half of the average market price for a specified period. In lieu of the
purchase price, a right holder may elect to acquire one-half of the common shares available under
the second option. The purchase price and the preferred share fractional amount are subject to
adjustment for certain events as described in the Agreement.
Rights also entitle the holder to receive a specified number of shares of an acquiring
companys common stock in the event that the Company is not the surviving corporation in a Merger
or if 50% or more of the Companys assets are sold or transferred.
At the discretion of a majority of the Board and within a specified time period, the Company
may redeem all of the rights at a price of $.01 per right. The Board may also amend any provision
of the Agreement prior to exercise of the rights.
Share based compensation
Under the going concern basis of accounting, total share-based compensation was $214 and $520
(including outside directors compensation of $394) for the nine months ended September 30, 2010 and
the year ended December 31, 2009, respectively. The share-based compensation expense for the
period includes costs associated with stock options, restricted stock grants, and the compensatory
element of the Employee Stock Purchase Plan.
In conjunction with the Companys signing a definitive Merger Agreement on January 18,
2010, all equity compensation plans were suspended pending the Companys merger. As such, no new
equity awards have been made. With the June 24, 2010 signing of the definitive Sale Agreement, the
original Merger Agreement was terminated.
F - 21
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
In conjunction with the Companys signing the Rights Agreement on June 24, 2010, all equity
compensation plans were suspended pending the Companys Merger. As such, no equity awards were made
during the year ended December 31, 2010. Since the exercise price for all of the options
exercisable at December 31, 2009 remained below the share price in 2010, no options were exercised
and all options were forfeited in 2010.
The following table summarizes option activity for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of the year |
|
|
330,000 |
|
|
$ |
14.78 |
|
Options granted |
|
|
100,000 |
|
|
|
4.30 |
|
Options exercised |
|
|
|
|
|
|
|
|
Options forfeited |
|
|
|
|
|
|
|
|
Options expired |
|
|
(40,000 |
) |
|
|
20.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year |
|
|
390,000 |
|
|
$ |
11.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year |
|
|
284,000 |
|
|
|
|
|
Weighted-average fair value of options, granted during the year |
|
$ |
1.20 |
|
|
|
|
|
The following table summarizes options outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted Average |
|
|
|
|
|
|
Average |
|
Number |
|
|
Range of Exercise |
|
|
Average Exercise |
|
|
Remaining |
|
|
Number of |
|
|
Exercise |
|
Outstanding |
|
|
Prices |
|
|
Prices |
|
|
Contractural Term |
|
|
Options |
|
|
Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
$ |
4.30 |
|
|
$ |
4.30 |
|
|
2.23 Years |
|
|
|
|
|
$ |
|
|
|
20,000 |
|
|
|
7.44 |
|
|
|
7.44 |
|
|
0.17 Years |
|
|
20,000 |
|
|
|
7.44 |
|
|
100,000 |
|
|
|
8.63 |
|
|
|
8.63 |
|
|
1.00 Years |
|
|
100,000 |
|
|
|
8.63 |
|
|
170,000 |
|
|
$ |
15.05 to $23.95 |
|
|
|
17.94 |
|
|
2.13 Years |
|
|
164,000 |
|
|
|
18.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,000 |
|
|
$ |
4.30 to $23.95 |
|
|
$ |
11.52 |
|
|
|
|
|
|
|
284,000 |
|
|
$ |
13.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For outstanding options, the closing share price on December 31, 2009 exceeded the exercise
price for only the 100,000 options issued on March 23, 2009. The intrinsic value for these options
is $47,000. The market value of our stock was $4.77 per share at December 31, 2009.
F - 22
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
The following table summarizes restricted stock (nonvested) shares outstanding as of December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
|
|
Date Fair |
|
Restricted Stock |
|
Shares |
|
|
Value |
|
Restricted at January 1, |
|
|
16,668 |
|
|
$ |
15.43 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(10,668 |
) |
|
|
17.20 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares at December 31, |
|
|
6,000 |
|
|
$ |
12.29 |
|
|
|
|
|
|
|
|
As of December 31, 2009, there was approximately $9 of total unrecognized compensation
cost related to restricted share based compensation arrangements granted under the Plan. As of
December 31, 2009, there was approximately $98 of total unrecognized compensation cost related to
stock options based compensation arrangements granted under the Plan. As of December 31, 2009, the
cost is expected to be recognized over a weighted average period of 1.77 years.
NOTE J OTHER NET
Other income (expense) included in the Companys consolidated statements of operations at
for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009 is
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Net currency transaction gains (losses) |
|
$ |
(1,368 |
) |
|
$ |
1,630 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
(181 |
) |
Miscellaneous income (losses) net |
|
|
10 |
|
|
|
(1,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net |
|
$ |
(1,358 |
) |
|
$ |
(168 |
) |
|
|
|
|
|
|
|
Miscellaneous net includes subsidies, penalties, non deductible value added taxes,
sublease rent and sale of materials.
NOTE K INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the consolidated financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined based on the
difference between the consolidated financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse.
Loss before income taxes from continuing operations are comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Twelve Months Ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
(6,523 |
) |
|
$ |
(4,543 |
) |
Foreign |
|
|
(2,283 |
) |
|
|
(2,132 |
) |
|
|
|
|
|
|
|
|
|
$ |
(8,806 |
) |
|
$ |
(6,675 |
) |
|
|
|
|
|
|
|
F - 23
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
The Companys provision for income taxes from continuing operations is comprised of:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current (Benefit) Provision |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1 |
|
|
$ |
1 |
|
Foreign |
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
|
Total Current (Benefit) Provision |
|
|
1 |
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Provision |
|
|
|
|
|
|
|
|
Domestic |
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (benefit) provision |
|
$ |
1 |
|
|
$ |
(200 |
) |
|
|
|
|
|
|
|
The Companys provision for income taxes differs from the anticipated United States
federal statutory rate. Differences between the statutory rate and the Companys provision are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Taxes at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
State taxes, net of federal benefit |
|
|
|
|
|
|
|
|
Impact of international operations |
|
|
(0.1 |
) |
|
|
33.6 |
|
Other permanent differences |
|
|
44.1 |
|
|
|
37.3 |
|
Valuation allowance |
|
|
(78.0 |
) |
|
|
(101.9 |
) |
|
|
|
|
|
|
|
Income taxes |
|
|
|
% |
|
|
3.0 |
% |
|
|
|
|
|
|
|
The components of the deferred taxes as of December 31, 2009 are comprised as follows:
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
Deferred tax assets |
|
|
|
|
Compensation accruals |
|
|
24 |
|
Accrued expenses |
|
|
176 |
|
Business tax credits |
|
|
458 |
|
Deferred compensation |
|
|
341 |
|
Depreciation and amortization |
|
|
61 |
|
Foreign tax credit carryforwards |
|
|
14,776 |
|
Net operating loss carryforwards US |
|
|
9,165 |
|
Net operating loss carryforwards Foreign |
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset |
|
|
26,554 |
|
Valuation allowance |
|
|
(26,554 |
) |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets (Liabilities) |
|
$ |
|
|
|
|
|
|
F - 24
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
At December 31, 2009, the Company had a U.S. net operating loss carryforward of $15,972, which
will begin to expire in 2026 and foreign NOL of approximately $4,568 which may be carried forward
indefinitely. The Company had US capital loss carryforwards of $11,673 that begin to expire in
2013. The Company had foreign tax credits of approximately $14,776 at December 31, 2009. In
addition, the Company had alternative minimum tax credits of approximately $458 at December 31,
2009. The foreign tax credits will begin to expire in 2012 and the alternative minimum tax credits
do not expire.
The Company regularly reviews the recoverability of its deferred tax assets and establishes a
valuation allowance as deemed appropriate. Realization of deferred tax assets is dependent upon
generation of sufficient income by the Company in the jurisdictions in which it has operations and,
in some cases, by specific office locations. Because the Company experienced losses in previous
years and continued losses in the current year, management recorded a valuation allowance of
approximately $26,554 against the Companys net deferred tax asset as of December 31, 2009.
As of December 31, 2009, the Company had no unrecognized tax benefits, nor did it have any
that would have an effect on the effective tax rate. Income taxes are provided based on the
liability method for financial reporting purposes. For the year ended December 31, 2009, there
were no interest or penalties recorded or included in tax expense.
In Belgium, the Company is still open to examination by the Belgian tax authorities from 2007
forward. In the United States, the Company is still open to examination from 2007 forward,
although carryforward tax attributes that were generated prior to 2007 may still be adjusted upon
examination by the U.S. tax authorities if they either have been or will be utilized.
As of December 31, 2010, the Company has provided for U.S. tax on foreign earnings of
approximately $25,475 that is expected to be repatriated in 2011. In anticipation of the
repatriation, the NOL carryforwards are no longer included in the deferred tax assets. Income
taxes related to repatriation of cash held in foreign countries is not expected to exceed $350 as
included in the estimated costs for liquidation. As of December 31, 2010, the fair value of net
deferred tax assets is zero due to full valuation allowance.
As of December 31, 2010, the Company has reviewed all available information and has determined
that there does not appear to have been an ownership change within the meaning of Section 382 of
the Internal Revenue Code. If the Company has a change prior to the repatriation of foreign
earnings, the Companys ability to utilize its net operating loss and foreign tax credit carryovers
to offset U.S. tax on the foreign earnings may be significantly limited.
F - 25
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
NOTE L LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS
Under the going concern basis of accounting, basic loss per share from continuing operations
excludes potential common shares and is computed by dividing net loss by the weighted average
number of common shares outstanding for the period. The computation of diluted loss per share from
continuing operations excludes the effects of stock options, warrants, restricted stock (unvested
stock awards) and convertible debentures, if such effect is anti-dilutive. The table below shows
the calculation of basic and diluted loss per share from continuing operations for the nine months
ended September 30, 2010 and the year ended December 31, 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
Year |
|
|
|
Ended |
|
|
Ended |
|
Loss: |
|
9/30/2010 |
|
|
12/31/2009 |
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
|
$ |
(8,807 |
) |
|
$ |
(6,475 |
) |
Effect of dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss from continuing operations |
|
$ |
(8,807 |
) |
|
$ |
(6,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
8,175,580 |
|
|
|
8,120,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share from continuing operations |
|
$ |
(1.08 |
) |
|
$ |
(0.80 |
) |
|
|
|
|
|
|
|
For the year ended December 31, 2009, the Company has excluded warrants,
unvested stock awards and stock options of 411,593, 6,000 and 10,921 shares, respectively, from the
calculation of loss per share from continuing operations since their effect would be anti-dilutive.
For the nine months ended September 30, 2010, the Company excluded 6,699 stock options from the
calculation of loss per share since their effect would be anti-dilutive.
NOTE M QUARTERLY FINANCIAL DATA
(UNAUDITED)
The following table is the Companys quarterly financial data under the going concern basis of
accounting. The fourth quarter of 2010 was prepared under the liquidation basis of accounting and
is not presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
|
|
2010 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax |
|
|
(825 |
) |
|
|
303 |
|
|
|
(8,285 |
) |
|
|
(8,807 |
) |
Income (loss) from discontinued operations, net of tax |
|
|
(4,330 |
) |
|
|
(9,693 |
) |
|
|
47,686 |
|
|
|
33,663 |
|
Net income (loss) |
|
|
(5,155 |
) |
|
|
(9,390 |
) |
|
|
39,401 |
|
|
|
24,856 |
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
(0.10 |
) |
|
$ |
0.04 |
|
|
$ |
(1.02 |
) |
|
$ |
(1.08 |
) |
Net earnings (loss) from discontinued operations |
|
|
(0.53 |
) |
|
|
(1.19 |
) |
|
|
5.84 |
|
|
|
4.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net earnings (loss) per share |
|
$ |
(0.63 |
) |
|
$ |
(1.15 |
) |
|
$ |
4.82 |
|
|
$ |
3.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 26
The Allied Defense Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
|
2009 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net
of tax |
|
|
1,047 |
|
|
|
(1,330 |
) |
|
|
(1,070 |
) |
|
|
(5,122 |
) |
|
|
(6,475 |
) |
Income (loss) from discontinued operations,
net of tax |
|
|
(3,476 |
) |
|
|
4,601 |
|
|
|
(2,558 |
) |
|
|
(399 |
) |
|
|
(1,832 |
) |
Net income (loss) |
|
|
(2,429 |
) |
|
|
3,271 |
|
|
|
(3,628 |
) |
|
|
(5,521 |
) |
|
|
(8,307 |
) |
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
0.12 |
|
|
$ |
(0.16 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.63 |
) |
|
$ |
(0.80 |
) |
Net earnings (loss) from discontinued
operations |
|
|
(0.43 |
) |
|
|
0.57 |
|
|
|
(0.31 |
) |
|
|
(0.05 |
) |
|
|
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net earnings (loss) per share |
|
$ |
(0.31 |
) |
|
$ |
0.41 |
|
|
$ |
(0.44 |
) |
|
$ |
(0.68 |
) |
|
$ |
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 27
EXHIBIT INDEX
|
|
|
|
|
|
|
Number |
|
Description of Exhibit |
|
Page |
|
21 |
|
|
List of Subsidiaries
|
|
E-2 |
|
23 |
|
|
Consent of Independent Registered Public Accounting Firm
|
|
E-3 |
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated March
16, 2011
|
|
E-4 |
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated March
16, 2011
|
|
E-5 |
|
32 |
|
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002, dated March 16, 2011
|
|
E-6 |
E - 1