10-K 1 d281089d10k.htm 10-K 10-K
Table of Contents

 

 

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, 2011

Commission file number: 1-11376

 

 

THE ALLIED DEFENSE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   04-2281015
(State of incorporation)  

(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

(Registrant’s 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  ¨     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  ¨    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  ¨

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  þ    No  ¨

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 registrant’s 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.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     YES  þ    NO  ¨

The aggregate market value of the voting stock of the registrant held by non-affiliates as of June 30, 2011, the last day of the registrant’s 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 registrant’s Common Stock outstanding as of February 29, 2012, was 8,235,195.

 

 

 


Table of Contents

INDEX

 

PART I

  

Item 1. Business

     3   

Item 1A. Risk Factors

     4   

Item 1B. Unresolved Staff Comments

     4   

Item 2. Properties

     4   

Item 3. Legal Proceedings

     4   

Item 4. Mine Safety Disclosures

     5   

PART II

  

Item  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     6   

Item 6. Selected Financial Data

     6   

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     6   

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     13   

Item 8. Financial Statements and Supplementary Data

     13   

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     13   

Item 9A. Controls and Procedures

     14   

Item 9B. Other Information

     14   

PART III

  

Item 10. Directors, Executive Officers and Corporate Governance

     15   

Item 11. Executive Compensation

     17   

Item 12. Security Ownership of Certain Beneficial Owners, Management  & Related Stockholder Matters

     18   

Item 13. Certain Relationships and Related Transactions, and Director Independence

     19   

Item 14. Principal Accountant Fees and Services

     19   

PART IV

  

Item 15. Exhibits, Financial Statement Schedules

     20   

 

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Table of Contents

PART I

 

ITEM 1. BUSINESS

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. Allied’s 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. $15 million of the proceeds of the sale was deposited into escrow to secure the Company’s 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 Company’s stockholders approved the Plan of Dissolution on September 30, 2010. In response to concerns of certain of the Company’s stockholders, the Company agreed to delay the filing of a certificate of dissolution with the Delaware Secretary of State. The Company filed a certificate of dissolution with the Delaware Secretary of State on August 31, 2011. In connection with this filing, our stock transfer agent has ceased recording transfers of our stock and our stock is no longer publicly traded.

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 $2.688 million as of December 31, 2011. 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 Department of Justice (“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 DOJ’s 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 remaining 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.

Based on advice from our Foreign Corrupt Practices Act (“FCPA”) outside counsel, we are now estimating that we may not be able to conclude the DOJ/SEC inquiries and make final distribution to stockholders until 2013. As a result, our estimate of net costs to be incurred during liquidation includes our estimate of costs through December 31, 2013.

 

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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 Company’s 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 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

 

ITEM 1A. RISK FACTORS

Not required for a smaller reporting company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

Allied’s 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, and the lease expires in February 2013. Allied has subleased this space to an unaffiliated third party through the term of the lease.

 

ITEM 3. 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 DOJ’s 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 USA’s 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 employee’s apparent breach of his employment agreement, Mecar USA terminated his employment on January 20, 2010.

According to the DOJ’s 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.

 

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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 DOJ’s expanded review is 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 has been complying with the DOJ’s subpoena and the SEC’s requests for information. The Company’s response to the DOJ and SEC inquiries is being overseen by the Company’s Board of Directors. The Board of Directors is being assisted in these matters by 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 (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. This lawsuit was settled in the fourth quarter of 2011 without any payment by the Company.

Other Litigation

In 2010 and 2011, the Company settled lawsuits filed against the Company by a former service provider and by a former executive officer of the Company. The Company paid approximately $0.230 million to settle these lawsuits.

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, 2011, 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, $6.5 million, $5.2 million and $0.863 million, respectively. At December 31, 2011, 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 Mecar’s completed contracts, Mecar USA liabilities retained by the Company and any failure by the Company to satisfy all transaction related expenses. The Company’s indemnification liability is limited to, and capped at, the escrowed amount of $15 million plus the accumulated interest. The Company’s indemnification obligations expire upon the earlier of (i) June 30, 2015 and (ii) the Company’s entry into either a court or administrative order or a Chemring-approved settlement agreement, in either case, finally resolving the matters relating to the DOJ’s 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, 2011, no amount has been accrued related to this indemnification as a liability is not deemed probable.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information. Allied’s Common Stock was listed for trading on the NYSE Alternext Exchange (formerly American Stock Exchange) until September 20, 2010. From that date through the end of August, 2011, the Company’s stock traded in the over-the-counter market under the trading symbol ADGI. The Company’s stock ceased trading after the Company filed a certificate of dissolution in Delaware on August 31, 2011. The table below shows the high and low sales prices of Allied’s Common Stock during 2011 and 2010:

 

September 30, September 30, September 30, September 30,
       2011        2010  
       High        Low        High        Low  

1st Quarter

     $ 3.75         $ 3.25         $ 7.25         $ 4.51   

2nd Quarter

     $ 3.58         $ 3.15         $ 7.25         $ 1.85   

3rd Quarter

     $ 3.50         $ 2.97         $ 3.72         $ 2.22   

4th Quarter

       N/A           N/A         $ 3.48         $ 2.30   

Stockholders. The number of holders of record of the Common Stock at August 31, 2011 was 725. We closed our stock transfers on August 31, 2011.

Dividends. There have been no dividends declared or paid by Allied since November 1992.

 

ITEM 6. SELECTED FINANCIAL DATA

Not required for a smaller reporting company.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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. Allied’s 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 $59.6 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 $45.8 million in cash, and separately Chemring acquired substantially all of the assets of Mecar USA for $13.8 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. $15 million of the proceeds from the sale was deposited into escrow to secure the Company’s 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 Company’s stockholders approved the Plan of Dissolution on September 30, 2010. In response to concerns of certain of the Company’s stockholders, the Company agreed to delay the filing of a Certificate of Dissolution with the Delaware Secretary of State. The Company filed a Certificate of Dissolution with the Delaware Secretary of State on August 31, 2011. In connection with this filing, our stock transfer agent has ceased recording transfers of our stock and our stock is no longer publicly traded.

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 and sublease payments. Such net costs were estimated to be $2.688 million as of December 31, 2011. Our estimates are based on assumptions regarding our ability to settle outstanding obligations 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.

 

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The Company received a subpoena from the Department of Justice (“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 DOJ’s 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. 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 escrowed $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.

In late February, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. The Company has subsequently requested that the DOJ consider the Company’s status in its investigation so that the Company may move forward with distributions to Company stockholders. No distributions to stockholders are expected prior to resolution of the DOJ and SEC inquiries and completion of the Delaware dissolution process which includes notice to creditors and publication of the dissolution, followed by a petition to the Delaware courts.

Based on advice from our Foreign Corrupt Practices Act (“FCPA”) outside counsel, we are now estimating that we may not be able to conclude the DOJ/SEC inquiries, complete the Delaware dissolution process and make final distribution to stockholders until 2013. As a result, our estimate of net costs to be incurred during liquidation includes our estimate of costs through December 31, 2013.

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 Company’s 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 as set forth above.

Net Assets in Liquidation

Net assets in liquidation at December 31, 2011 are $44.333 million compared to $45.629 million at December 31, 2010. The change in net assets in liquidation is due to: (i) adjustments of assets to fair value, (ii) income earned on investments, and (iii) adjustments to estimated costs to be incurred during liquidation. The net assets in liquidation per share as of December 31, 2011 has been adjusted to $5.38 as compared to $5.54 as of December 31, 2010 and March 31, 2011, $5.40 as of June 30, 2011 and $5.37 as of September 30, 2011.

We expect to use all of our net assets to complete our Plan of Dissolution, which includes settling existing claims against the Company, including current liabilities and accrued expenses, and making cash liquidating distributions to our shareholders. Net assets available for liquidating distributions to shareholders may vary if we incur greater than estimated operating expenses associated with executing the Plan of Dissolution, any actual settlement costs for existing claims against the Company (as we have not accrued any amounts for resolution of the DOJ/SEC matter or any other existing claim), or if there are existing, but unknown claims made against us in the future.

 

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Changes in Net Assets in Liquidation During the Three Months Ended December 31, 2011

The table below summarizes the changes in net assets during the three months ended December 31, 2011:

 

September 30,
       Three Months  
       Ended  
       December 31, 2011  
       (in thousands)  

Net assets on liquidation basis at beginning of period

     $ 44,240   

Changes in fair value of net assets in liquidation

    

Adjust net assets to fair value

       (341

Decrease in estimated net costs to be incurred during liquidation

       71   

Adjust estimated income to be earned during liquidation

       363   
    

 

 

 

Net assets on liquidation basis at end of period

     $ 44,333   
    

 

 

 

The change in net assets in liquidation during the three months ended December 31, 2011 is the net effect of valuation changes to the net assets, income earned on assets, and changes in the estimated net costs to be incurred during liquidation. Adjusting net assets to fair market value decreased the net assets in liquidation by $0.341 million. The estimated net costs to be incurred during liquidation decreased by $0.071 million. Estimated income earned during liquidation increased by $0.363 million. The net effect was an increase of $0.093 million in net assets in liquidation for the three months ended December 31, 2011.

The adjustment of assets to fair value is the reduction of short term investments to fair market value. The unrealized loss associated with the short term investments is due to the Company’s purchase of financial instruments with interest rates above market and therefore are purchased at a premium to their maturity value with an initial unrealized loss. The unrealized loss will be absorbed against the interest income received as the instruments mature.

The table below reconciles the changes during the quarter ended December 31, 2011, in the estimated net costs to be incurred during liquidation. Actual costs, net of interest income received, incurred during the three months ended December 31, 2011 reduce the remaining estimated net costs to be incurred during liquidation. An updated estimate of remaining estimated net costs to be incurred during liquidation is prepared and reflected in the changes in estimates column.

 

September 30, September 30, September 30, September 30,
        (in thousands)  
       September 30,      Changes in      (Costs Incurred)      December 31,  

Estimated Net Costs to be Incurred During Liquidation

     2011      Estimates      Income Received      2011  

Estimated net costs to be incurred during liquidation

             

Compensation for remaining employees and directors

     $ 387       $ (24    $ (66    $ 297   

Compliance and other office costs

       814         (187      (63      564   

Insurance Fees

       416         114         (209      321   

Professional Fees

       1,743         26         (213      1,556   

Income Taxes

       150         —           —           150   
    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

       3,510         (71      (551      2,888   

Less: interest income on cash and investment balances

       (200      (363      363         (200
    

 

 

    

 

 

    

 

 

    

 

 

 

Total estimated net costs to be incurred during liquidation

     $ 3,310       $ (434    $ (188    $ 2,688   
    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2011, the estimated total net costs to be incurred during liquidation was $3.310 million, consisting of $3.510 million estimated costs offset by $0.200 million of investment income. During the quarter ended December 31, 2011, $0.551 million of costs were incurred. The estimate of costs to be incurred during liquidation was reduced by $0.071 million. This is the net effect of a $0.114 million increase in insurance costs, primarily for directors and officers liability insurance, and a $0.187 million decrease in compliance costs for accounting and legal services. As of December 31, 2011, the estimate of remaining costs to be incurred through 2013 is $2.888 million. Future investment income is estimated to be $0.200 million resulting in estimated total net costs to be incurred during liquidation of $2.688 million as of December 31, 2011.

 

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Changes in Net Assets in Liquidation During the Twelve Months Ended December 31, 2011

The table below summarizes the changes in net assets during the twelve months ended December 31, 2011:

 

September 30,
       Twelve Months  
       Ended  
       December 31, 2011  
       (in thousands)  

Net assets on liquidation basis at beginning of period

     $ 45,629   

Changes in fair value of net assets in liquidation

    

Adjust net assets to fair value

       (1,577

Increase in estimated net costs to be incurred during liquidation

       (1,184

Adjust estimated income to be earned during liquidation

       1,465   
    

 

 

 

Net assets on liquidation basis at end of period

     $ 44,333   
    

 

 

 

The change in net assets in liquidation during the twelve months ended December 31, 2011 is the net effect of valuation changes to the net assets, income earned on investments and changes in the estimated net costs to be incurred during liquidation. Adjusting net assets to fair market value decreased the net assets in liquidation by $1.577 million. The estimated net costs to be incurred during liquidation increased by $1.184 million. Adjusting estimated income to be earned during liquidation increased the net assets in liquidation by $1.465 million. The net effect was a reduction of $1.296 million in net assets in liquidation for the twelve months ended December 31, 2011.

The adjustment of assets to fair value is the reduction of short term investments to fair market value. The unrealized loss associated with the short term investments is due to the Company’s purchase of financial instruments with interest rates above market and therefore are purchased at a premium to their maturity value with an initial unrealized loss. The unrealized loss is absorbed against the interest income received as the instruments mature.

Our estimated costs to be incurred during liquidation consist of $1.711 million and $1.177 million in costs to be incurred in 2012 and 2013, respectively. The total costs are offset by anticipated income of $0.2 million related to short-term investments. To the extent that we are able to resolve the DOJ/SEC matter and make final distributions to stockholders prior to the end of 2013, we may be able to minimize certain of these costs and increase our distribution to the stockholders.

Our estimate of $2.688 million in net remaining costs to be incurred during liquidation consists of $0.297 million in compensation for remaining employees and directors; $0.564 million for compliance and other office costs, including resident filing fees and costs to settle remaining leases; $0.321 million for insurance; $1.556 million in fees for professional service providers including legal representation relating to the DOJ subpoena; and $0.150 million in income taxes related to the repatriation of foreign monies; offset by interest income of $0.2 million estimated to be received on our cash and short-term investment balances during liquidation. Our estimates are based on the assumption that liquidation will occur no later than December 31, 2013.

 

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The table below reconciles the changes during the twelve months ended December 31, 2011, in the estimated net costs to be incurred during liquidation:

 

September 30, September 30, September 30, September 30,
        (in thousands)  
       December 31,      Changes in      (Costs Incurred)      December 31,  

Estimated Net Costs to be Incurred During Liquidation

     2010      Estimates      Income Received      2011  

Estimated net costs to be incurred during liquidation

             

Compensation for remaining employees and directors

     $ 398       $ 173       $ (274    $ 297   

Compliance and other office costs

       1,230         (34      (632      564   

Insurance Fees

       351         454         (484      321   

Professional Fees

       1,385         814         (643      1,556   

Income Taxes

       350         —           (200      150   
    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

       3,714         1,407         (2,233      2,888   

Accrued liabilities

       399         (223      (176      —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

       4,113         1,184         (2,409      2,888   

Less: interest income on cash and investment balances

       (150      (1,465      1,415         (200
    

 

 

    

 

 

    

 

 

    

 

 

 

Total estimated net costs to be incurred during liquidation

     $ 3,963       $ (281    $ (994    $ 2,688   
    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2010, the estimate of net costs to be incurred during liquidation was $3.963 million, consisting of $4.113 million in estimated costs, offset by $0.150 million in estimated investment income. During the year ended December 31, 2011, $2.409 million in costs were incurred. The estimate of costs to be incurred increased by $1.184 million during the year, decreasing the net assets in liquidation per share by $0.15.

The primary causes for the increase were the extension of the liquidation period through 2013 based on advice of FCPA counsel ($0.800 million), the settlement of litigation with a former executive of the Company ($0.200 million), and additional accounting and legal fees costs to be incurred as a result of the direction by the Securities and Exchange Commission staff that the Company must continue to file quarterly and annual financial statements ($0.250 million) and an increase in the premium costs for directors and officers liability insurance ($0.150 million). These increases were offset by the estimate of sublease income from the Company’s former executive offices ($0.200 million).

The estimate of investment income increased by $1.465 million during the year. This is an offset to the fair market value adjustment for investments and reduces the change in net costs in liquidation to $0.281 million.

Results of Operations (Going Concern Basis)

For all periods preceding the authorization of the Plan of Dissolution, the Company’s 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 Company’s assets and liabilities for the period from January 1, 2010 to September 30, 2010. Accordingly, the following discussion of the results of operations includes the period for the nine months ended September 30 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 Company’s continuing operations include only those costs incurred to support the Company’s 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.

Allied had a net loss from continuing operations of $8.81 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2010, the Company had net income of $33.66 million from discontinued operations. Net income was $24.86 million for the nine months ended September 30, 2010. Results for 2010 were favorably impacted by the gains recognized from the sale of both Mecar and Mecar USA.

 

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The table below sets forth certain condensed consolidated statement of operations data for the nine months ended September 30, 2010:

 

September 30,
       Nine Months Ended  
       September 30, 2010  
       (in thousands)  

Revenues

     $ —     
    

 

 

 

Cost and expenses

    

Selling and administrative—corporate expenses

       7,469   
    

 

 

 

Operating loss

       (7,469
    

 

 

 

Other income (expenses)

    

Interest income

       38   

Net loss on fair value of senior notes and warrants

       (17

Other-net

       (1,358
    

 

 

 
       (1,337
    

 

 

 

Loss from continuing operations before income taxes

       (8,806

Income tax expense

       1   
    

 

 

 

Loss from continuing operations

       (8,807
    

 

 

 

Income (loss) from discontinued operations, net of tax

    

Gain on sale of subsidiaries

       48,081   

Loss from discontinued operations

       (14,418
    

 

 

 

Net income from discontinued operations

       33,663   
    

 

 

 

NET INCOME

     $ 24,856   
    

 

 

 

Earnings (Loss) per share—basic and diluted:

    

Net loss from continuing operations

     $ (1.08

Net income from discontinued operations

       4.12   
    

 

 

 

Total income per share—basic and diluted

     $ 3.04   
    

 

 

 

Weighted average number of common shares:

    

Basic

       8,175,580   

Diluted

       8,182,279   

 

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Critical Accounting Policies

The Company’s discussion and analysis of its financial condition, results of operations and cash flows are based upon the Company’s 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 Company’s 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.

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:

 

   

Estimates of the potential liability associated with litigation and government investigation

 

   

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, 2013.

 

   

Fair Value of financial instruments. The fair values for substantially all of our financial assets and financial liabilities are based on observable prices and inputs and are classified in level 1 of the hierarchy.

Forward-Looking Statements

This Management’s 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.

Commitments and Contingencies

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 (DOJ – Legal Proceedings) for additional information regarding the DOJ matter.

Employee Severance Payments

The Company entered into employment agreements with certain management personnel at the Company’s 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 million in satisfaction of its severance obligations to the Company’s 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 under an operating lease which expires in early 2013. The lease also includes escalation provisions for taxes and operating costs. In April, 2011, the Company subleased the office space for 2011 and 2012 to offset a portion of the rental obligation owed by the Company.

 

 

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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 September 30, 2011, 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 $1.0 million, $0.950 million, $6.474 million (€5.0 million), $5.2 million and $0.863 million, respectively. At December 31, 2011, 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 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 Mecar’s completed contracts, Mecar USA liabilities retained by the Company and any failure by the Company to satisfy all transaction related expenses. The Company’s indemnification liability is limited to, and capped at, the escrowed amount of $15 million plus the accumulated interest. The Company’s indemnification obligations expire upon the earlier of (i) June 30, 2015 and (ii) the Company’s entry into either a court or administrative order or a Chemring-approved settlement agreement, in either case, finally resolving the matters relating to the DOJ’s 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, 2011, no amount has been accrued related to this indemnification as a liability is not deemed probable.

Future Reporting

The Company filed a Certificate of Dissolution with the State of Delaware on August 31, 2011 and the Company has closed its stock transfer books and instructed its stock transfer agent that no further stock transfers be recognized. Accordingly, the Company’s stock has ceased trading on the OTCQB Marketplace. The Company is required under Delaware law to maintain a quasi-corporate existence for a period of three years for the limited purpose of winding up its affairs and discharging or making provision for the discharge of its liabilities.

Promptly after the filing of the Certificate of Dissolution, the Company requested a no-action letter from the Securities and Exchange Commission to allow the Company to cease filing Forms 10-K and 10-Q. The Securities and Exchange Commission has rejected this request; accordingly, the Company will continue to file all required Forms 10-K and 10-Q.

 

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 Company’s independent registered public accounting firm for both 2011 and 2010.

 

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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 Company’s Officers/Board of Directors continue to oversee and review the Company’s 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 Company’s management, including the Company’s 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 Company’s Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2011.

Management’s 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 Company’s internal control system was designed to provide reasonable assurance to the Company’s 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 Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. 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 Company’s internal controls over financial reporting are effective as of December 31, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to SEC rules that permits the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15-d-15(f) of the Exchange Act) during the fourth quarter of fiscal year 2011 that has materially affected, or is reasonably likely to materially affect, our 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 2011 which was not so disclosed.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following are the directors of Allied:

 

Name of Nominee

   Year in which first
elected a director
   Age   

Principal business occupation for past five years and other directorships

John G. Meyer, Jr.

   2003    67    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 Cyalume Technologies, Inc. as well as three non-public companies.

Charles S. Ream

   2006    68    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., and previously a director of Vangent, Inc. (2007-2011), DynCorp International (2006-2010), and Stanley, Inc. (2006-2010). Mr. Ream’s 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 Allied’s principal executive officer and principal financial officer). Stockholders may request a free copy of the code of ethics from the Company’s website at http://www.allieddefensegroup.com or at:

Allied Defense Group, Inc.

120 E. Baltimore Street

Suite 2100

Baltimore, Maryland 21202

(410) 385-8155

 

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Procedure for Board Recommendations

There have been no material changes to the procedures by which the Company’s stockholders may recommend nominees to the Company’s 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 Company’s 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 Company’s Directors and Executive Officers, and anyone who beneficially owns ten percent (10%) or more of the Company’s 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 2011, the Company believes that each filing required to be made pursuant to Section 16(a) of the Exchange Act and with respect to 2011 was filed in a timely manner.

 

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Table of Contents
ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

As Of December 31, 2011

 

Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,

Name and Principal Position

  Year     Salary     Bonus   Stock
Awards
($)
  Option
Awards
($)
  Non-Equity
Incentive Plan
Compensation ($)
  Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
  All Other
Compensation
on ($)
  Total ($)  

John G. Meyer, Jr.,

Chief Executive

    2011      $ 54,000 (1)                $ 54,000   

Officer from and after

September 1, 2010

    2010      $ 54,000 (1)                $ 54,000   

Charles S Ream,

Chief Financial

    2011      $ 54,000 (1)                $ 54,000   

Officer from and after

September 1, 2010

    2010      $ 54,000 (1)                $ 54,000   

 

(1)

Salary paid as director’s compensation

 

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Table of Contents

COMPENSATION OF DIRECTORS

Each director is compensated for service at the annual rate of $54,000. The Company also reimburses directors for out-of-pocket expenses incurred in connection with their service.

DIRECTOR COMPENSATION FOR 2011

 

September 30, September 30, September 30, September 30, September 30, September 30, September 30,

Name

     Fees Earned
or Paid in
Cash ($)
       Stock
Awards
     Option
Awards ($)
     Non-Equity
Incentive Plan
Compensation ($)
     Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
     All Other
Compensation ($)
     Total ($)  

John G. Meyer, Jr.

     $ 54,000                                  $ 54,000   

Charles S. Ream

     $ 54,000                                  $ 54,000   

 

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 Company’s 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:

 

September 30, September 30,

Name of Beneficial Owner

     Shares Beneficially Owned        Percent of  Class(1)  

Southpaw Asset Management(2)

       838,569           10.2

Water Island Capital, LLC(3)

       689,203           8.4

AQR Capital Management, LLC(4)

       555,790           6.7

Dimensional Fund Advisors LP(5)

       504,833           6.1

Gabelli Funds, LLC (6)

       420,247           5.1

 

(1)

Based upon 8,235,195 shares of common stock outstanding as of December 31, 2011.

 

(2)

Ownership information as of December 31, 2011, based on information in a Form 13G filed with the SEC on January 20, 2012, by Southpaw Credit Opportunity Master Fund LP, Southpaw Asset Management LP, Southpaw Holdings LLC, Kevin Wyman and Howard Golden, Two Greenwich Office Park, Greenwich, CT 06831.

 

(3)

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.

 

(4)

Ownership information as of December 31, 2011, based on information contained in a Schedule 13G/A filed with the SEC on February 14, 2012 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.

 

(5)

Ownership information as of December 31, 2011, based on information contained in a Schedule 13G/A filed with the SEC on February 14, 2012 by Dimensional Fund Advisors LP (“Dimensional”). Dimensional possess sole voting power of 497,420 shares of our common stock and sole investment power of 504,833 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 Dimensional’s 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.

 

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Table of Contents
(6)

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.

The following information is furnished as of December 31, 2011, with respect to the beneficial ownership by management of the Company’s 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%   

 

*

Less than 1.00%

 

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 by BDO USA, LLP (BDO) for audit and other services provided for 2011 and 2010, including work in connection with quarterly reviews:

 

September 30, September 30,
       (In Thousands)  
       2011        2010  

Audit fees

     $ 85         $ 332   

Audit-related fees

         
    

 

 

      

 

 

 

Tax fees

         
    

 

 

      

 

 

 

All other fees

         
    

 

 

      

 

 

 

Total

     $ 85         $ 332   
    

 

 

      

 

 

 

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 Director’s 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.

 

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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).
3.4    Certificate of Dissolution dated August 31, 2011 (a)
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
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    Director’s 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 (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 Defense 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)
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).

 

(a)

Filed herewith

 

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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 23, 2012

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.

 

/s/ Charles S. Ream

   Chief Financial Officer    Date: March 23, 2012

Charles S. Ream

     

/s/ Charles S. Ream

   Director    Date: March 23, 2012

Charles S. Ream

     

/s/ John G. Meyer, Jr.

   Director    Date: March 23, 2012

John G. Meyer, Jr.

     

 

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

FORMING A PART OF

ANNUAL REPORT PURSUANT TO

THE SECURITIES EXCHANGE ACT OF 1934

FORM 10-K

OF

The Allied Defense Group, Inc.

 

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The Allied Defense Group Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F - 3   

Consolidated Statements of Net Assets (liquidation basis) as of December 31, 2011 and December  31, 2010

     F - 4   

Consolidated Statements of Changes in Net Assets (liquidation basis) for the three months ended December 31, 2010 and twelve months ended December 31, 2011

     F - 5   

Consolidated Statement of Operations (going concern basis) for the nine months ended September  30, 2010

     F - 6   

Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) (going concern basis) for the nine months ended September 30, 2010

     F - 7   

Consolidated Statement of Cash Flows (going concern basis) for the nine months ended September  30, 2010

     F - 8   

Notes to Consolidated Financial Statements

     F - 9   

 

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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 statements of net assets (liquidation basis) of The Allied Defense Group, Inc. and subsidiaries (the “Company”), as of December 31, 2011 and 2010, and the related consolidated statements of changes in net assets (liquidation basis) for the year ended December 31, 2011 and for the period from October 1, 2010 to December 31, 2010. We have also audited the consolidated statements of operations (going concern basis), stockholders’ equity and comprehensive income (going concern basis), and cash flows (going concern basis) for the period from January 1, 2010 to September 30, 2010. These consolidated financial statements are the responsibility of the Company’s 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 Company’s 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 (liquidation basis) of The Allied Defense Group, Inc. and subsidiaries as of December 31, 2011 and 2010, the consolidated changes in net assets (liquidation basis) for the year ended December 31, 2011 and for period from October 1, 2010 to December 31, 2010, and the consolidated results of its operations and its cash flows for the period from January 1, 2010 to September 30, 2010, 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 23, 2012

 

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CONSOLIDATED STATEMENTS OF NET ASSETS

The Allied Defense Group, Inc.

CONSOLIDATED STATEMENTS OF NET ASSETS (Liquidation Basis)

(Thousands of Dollars, except per share and share data)

 

September 30, September 30,
       December 31,        December 31,  
       2011        2010  

ASSETS

         

Cash and cash equivalents

     $ 640         $ 14,462   

Short-term investments

       30,872           18,801   

Prepaid and other current assets

       647           606   

Notes receivable

       —             875   

Property and Equipment, net

       —             2   

Funds held in escrow

       15,010           15,003   
    

 

 

      

 

 

 

TOTAL ASSETS

       47,169           49,749   
    

 

 

      

 

 

 

LIABILITIES

         

Estimated net costs to be incurred during liquidation

       2,688           3,564   

Accounts payable

       57           68   

Accrued liabilities

       —             399   

Income taxes payable

       —             2   

Other liabilities

       91           87   
    

 

 

      

 

 

 

TOTAL LIABILITIES

       2,836           4,120   
    

 

 

      

 

 

 

NET ASSETS IN LIQUIDATION

     $ 44,333         $ 45,629   
    

 

 

      

 

 

 

NUMBER OF SHARES OUTSTANDING

       8,235,195           8,235,195   

NET ASSETS IN LIQUIDATION PER SHARE

     $ 5.38         $ 5.54   
    

 

 

      

 

 

 

See accompanying notes to consolidated financial statements.

 

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The Allied Defense Group, Inc.

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Liquidation Basis)

(Thousands of Dollars, except per share and share data)

 

September 30, September 30,
       Twelve Months      Three Months  
       Ended      Ended  
       December 31, 2011      December 31, 2010  

Net assets on liquidation basis at beginning of period

     $ 45,629       $ 45,654   

Changes in fair value of net assets in liquidation

       

Adjust net assets to fair value

       (1,577      168   

Decrease/(increase) in estimated net costs to be incurred during liquidation

       (1,184      138   

Adjust estimated income to be earned during liquidation

       1,465         (331
    

 

 

    

 

 

 

Net assets on liquidation basis at end of period

     $ 44,333       $ 45,629   
    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

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The Allied Defense Group, Inc.

 

CONSOLIDATED STATEMENT OF OPERATIONS

CONSOLIDATED STATEMENT OF OPERATIONS (Going Concern Basis)

(Thousands of Dollars, except per share and share data)

 

September 30,
       Nine Months Ended  
       September 30, 2010  

Revenues

     $ —     
    

 

 

 

Cost and expenses

    

Selling and administrative—corporate expenses

       7,469   
    

 

 

 

Operating loss

       (7,469
    

 

 

 

Other income (expenses)

    

Interest income

       38   

Net loss on fair value of warrants

       (17

Other-net

       (1,358
    

 

 

 
       (1,337
    

 

 

 

Loss from continuing operations before income taxes

       (8,806

Income tax expense

       1   
    

 

 

 

Loss from continuing operations

       (8,807
    

 

 

 

Income (loss) from discontinued operations, net of tax

    

Gain on sale of subsidiaries

       48,081   

Loss from discontinued operations

       (14,418
    

 

 

 

Net income from discontinued operations

       33,663   
    

 

 

 

NET INCOME

     $ 24,856   
    

 

 

 

Earnings (Loss) per share—basic and diluted:

    

Net loss from continuing operations

     $ (1.08

Net income from discontinued operations

       4.12   
    

 

 

 

Total income per share—basic and diluted

     $ 3.04   
    

 

 

 

Weighted average number of common shares:

    

Basic

       8,175,580   

Diluted

       8,182,279   

See accompanying notes to consolidated financial statements.

 

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The Allied Defense Group, Inc.

 

TED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Going Concern Basis)

(Thousands of Dollars, except per share and share data)

 

Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
                            Accumulated        
    Preferred     Common Stock     Capital in           Other     Total  
    stock, no           $.10 Par     Excess of Par     Accumulated     Comprehensive     Stockholders’  
    Par Value     Shares     value     value     (Deficit)     Income     Equity  

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.

 

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The Allied Defense Group, Inc.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS (Going Concern Basis)

(Thousands of Dollars)

 

September 30,
       Nine Months Ended  
       September 30, 2010  

Cash flows from operating activities

    

Net income

     $ 24,856   

Less: Gain on sale of subsidiaries

       (48,081

Plus: Loss on discontinued operations, net of tax

       14,418   
    

 

 

 

Loss from continuing operations

       (8,807

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities, net of divestitures:

    

Depreciation and amortization

       13   

Loss on sale of fixed assets

       1   

Net gain related to fair value of warrants

       17   

Common stock and stock option awards

       171   

Deferred director stock awards

       43   

(Increase) decrease in operating assets and increase (decrease) in liabilities, net of effects from discontinued businesses:

    

Restricted cash

       160   

Prepaid and other current assets

       88   

Accounts payable and accrued liabilities

       (62

Deferred compensation

       (156

Income taxes

       (363
    

 

 

 

Net cash used in operating activities

       (8,895
    

 

 

 

Cash flows from investing activities

    

Net proceeds from sale of subsidiaries

       54,446   

Funds deposited in escrow

       (15,000

Net cash used for short-term investment transactions

       (20,000
    

 

 

 

Net cash provided by investing activities

       19,446   
    

 

 

 

Cash flows from financing activities

    

Net principal payments on long-term debt and capital lease obligations

       (1
    

 

 

 

Net cash used in financing activities

       (1

Net change in cash of discontinued operations

       —     

Effects of exchange rate on cash

       850   
    

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

       11,400   

Cash and cash equivalents at beginning of period

       3,475   
    

 

 

 

Cash and cash equivalents at end of period

     $ 14,875   
    

 

 

 

Supplemental Disclosures of Cash Flow information

    

Cash paid during the period for:

    

Taxes

     $ 373   
    

 

 

 

See accompanying notes to consolidated financial statements.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Allied’s 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. $15,000 of the proceeds of the sale was deposited into escrow to secure the Company’s 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 Company’s stockholders approved the Plan of Dissolution on September 30, 2010. In response to concerns of certain of the Company’s stockholders, the Company agreed to delay the filing of a certificate of dissolution with the Delaware Secretary of State. The Company filed a certificate of dissolution with the Delaware Secretary of State on August 31, 2011. In connection with this filing, our stock transfer agent has ceased recording transfers of our stock and our stock is no longer publicly traded.

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 DOJ’s 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 USA’s 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 employee’s breach of his employment agreement, Mecar USA terminated his employment on January 20, 2010.

According to the DOJ’s 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.

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 DOJ’s 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 has been complying with the DOJ’s subpoena and the SEC’s requests for information. The Company’s response to the DOJ and SEC inquiries is being overseen by the Company’s Board of Directors. The Board of Directors is being assisted in these matters by 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. 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.

 

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In late February, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. The Company has subsequently requested that the DOJ consider the Company’s status in its investigation so that the Company may move forward with distributions to Company stockholders. No distributions to stockholders are expected prior to resolution of the DOJ and SEC inquiries and completion of the Delaware dissolution process which includes notices to creditors and publication of dissolution followed by a petition to the Delaware courts.

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 (liquidation basis) and consolidated statements of changes in net assets (liquidation basis) 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 Company’s 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 consolidated statements of net assets (liquidation basis).

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, 2011. The majority of net assets in liquidation at December 31, 2011 were 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 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 Company’s cash accounts. Such net costs were estimated to be $2,688 as of December 31, 2011. The $2,688 in net remaining costs to be incurred during liquidation consists of $297 in compensation for remaining employees and directors; $564 for compliance and other office costs, including resident filing fees and costs to settle remaining leases; $321 for insurance; and $1,556 in fees for professional service providers including legal representation relating to the DOJ subpoena; and income tax payments not to exceed $150 for the repatriation of cash balances held in foreign countries as of December 31, 2011; offset by $200 of estimated interest to be received on our cash and short-term investment balances during liquidation. Such estimates are based on assumptions regarding the Company’s 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.

 

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Going Concern Basis of Accounting

For all periods preceding the authorization of the Plan of Dissolution, the Company’s 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 Company’s assets and liabilities for the period from January 1, 2010 to September 30, 2010.

Principles of Consolidation

As of December 31, 2011, 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 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.

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 Company’s 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.

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 as an adjustment to fair value in the Statement of Changes in Net Assets. Unrealized gains or losses are recorded in other income (expense) on the Statement of Operations.

 

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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.

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 Company’s 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 Company’s policy to record interest and penalties, if any, related to unrecognized tax benefits as part of income tax expense for financial reporting purposes.

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.

Allied’s principal Equity Incentive Plan (the Plan), which was approved by the Board of Directors and stockholders in 2001 authorized 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 included: (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.

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.

 

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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 Company’s continuing operations include only those expenses incurred to support the Company’s corporate headquarters and its non-operating European subsidiaries.

Recent Accounting Pronouncements

In May 2011, the FASB issued a new accounting standard update, which amends the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements based on unobservable inputs. The standard is effective for fiscal years beginning after December 15, 2011.

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

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. $15,000 of the proceeds of the sale was deposited into escrow to secure the Company’s 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 Company’s 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 bore interest at a rate of one-year London Interbank Offered Rate plus 5% subject to a maximum interest cap of 8%. On August 5, 2011, the note was fully repaid and, as a result, the Company received $825 representing the note principal amount. The following summarizes the results of discontinued operations for the nine months ended September 30, 2010 for NSM, Mecar and Mecar USA:

 

September 30, September 30, September 30, September 30,
       Nine Months Ended  
       September 30, 2010  
       Mecar      Mecar USA      NSM        Total  

Revenues

     $ 38,477       $ 9,342       $ —           $ 47,819   

Loss before taxes

       (14,122      (287      —             (14,409

Loss, net of tax

       (14,122      (296      —             (14,418
    

 

 

    

 

 

    

 

 

      

 

 

 

Discontinued operations, net of tax

     $ (14,122    $ (296    $ —           $ (14,418
    

 

 

    

 

 

    

 

 

      

 

 

 

 

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NOTE E — PROPERTY & EQUIPMENT

Under the liquidation basis of accounting, the Company has reduced the value of its property and equipment to $2 as of December 31, 2010, which is the amount that management believes is likely be recoverable via sale or in liquidation.

Depreciation expense was $13 for the nine months ended September 30, 2010.

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 Company’s assets and liabilities.

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 management’s 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 statement of net assets at December 31, 2011:

 

September 30, September 30, September 30, September 30,
       Level 1        Level 2        Level 3        Total  

Mutual Funds

       2,977           —             —             2,977   

Municipal Bonds

       22,892           —             —             22,892   

Certificates of Deposit

       5,003           —             —             5,003   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total assets as fair value

     $ 30,872         $ —           $ —           $ 30,872   
    

 

 

      

 

 

      

 

 

      

 

 

 

 

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The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the consolidated statement of net assets at December 31, 2010:

 

September 30, September 30, September 30, September 30,
       Level 1        Level 2        Level
3
       Total  

Mutual Funds

       15,574           —             —             15,574   

Municipal Bonds

       —             —             —             —     

Certificates of Deposit

       3,227           —             —             3,227   
    

 

 

      

 

 

      

 

 

      

 

 

 

Total assets as fair value

     $ 18,801         $ —           $ —           $ 18,801   
    

 

 

      

 

 

      

 

 

      

 

 

 

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.

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 Company’s 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, the Company determined the fair value of the warrants was $0.

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 Company’s 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 Company’s 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 under an operating lease which expires in early 2013. The lease also includes escalation provisions for taxes and operating costs. The Company has subleased this office space to an unaffiliated party.

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, 2011, 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, $6,474 (€5,000), $5,200 and $863, respectively. At December 31, 2011, no amount has been accrued related to these indemnifications as a liability is not deemed probable.

 

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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 Mecar’s completed contracts, Mecar USA liabilities retained by the Company and any failure by the Company to satisfy all transaction related expenses. The Company’s indemnification liability is limited to, and capped at, the escrowed amount of $15,000 plus the accumulated interest. The Company’s indemnification obligations expire upon the earlier of (i) June 30, 2015 and (ii) the Company’s entry into either a court or administrative order or a Chemring-approved settlement agreement, in either case, finally resolving the matters relating to the DOJ’s 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, 2011, 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 expired at the close of business on December 31, 2011. Each right under the Rights Agreement entitled a stockholder to acquire at a purchase price of $50, one-hundredth of a share of preferred stock which carried voting and dividend rights similar to one share of common stock. Alternatively, a right holder could 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 could elect to acquire one-half of the common shares available under the second option. The purchase price and the preferred share fractional amount were subject to adjustment for certain events as described in the Agreement.

Rights also entitled the holder to receive a specified number of shares of an acquiring company’s common stock in the event that the Company is not the surviving corporation in a Merger or if 50% or more of the Company’s assets are sold or transferred.

At the discretion of a majority of the Board and within a specified time period, the Company could redeem all of the rights at a price of $.01 per right. The Board could 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 for the nine months ended September 30, 2010. 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 Company’s signing a definitive Merger Agreement on January 18, 2010, all equity compensation plans were suspended pending the Company’s 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.

In conjunction with the Company’s signing the Rights Agreement on June 24, 2010, all equity compensation plans were suspended pending the Company’s Merger. As such, no equity awards were made during the years ended December 31, 2010 and December 31, 2011. Since the exercise price for all of the options exercisable at December 31, 2009 remained above the share price in 2010, no options were exercised and all of them expired.

 

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NOTE J — OTHER — NET

Other expense included in the Company’s consolidated statements of operations at for the nine months ended September 30, 2010 is comprised of the following:

 

September 30,
       Nine Months Ended
September 30, 2010
 

Net currency transaction gains

     $ (1,368

Miscellaneous income (losses) - net

       10   
    

 

 

 

Other, net

     $ (1,358
    

 

 

 

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:

 

September 30,
       Nine Months Ended
Septmber 30, 2010
 

Domestic

     $ (6,523

Foreign

       (2,283
    

 

 

 

Total

     $ (8,806
    

 

 

 

The Company’s provision for income taxes from continuing operations is comprised of:

 

September 30,
       September 30, 2010  

Current Provision

     $ 1   

Domestic

       —     
    

 

 

 

Foreign

    

Total Current Provision

       1   
    

 

 

 

Deferred Provision

       —     

Domestic

       —     

Foreign

    
    

 

 

 

Total Deferred Provision

       —     
    

 

 

 

Total tax provision

     $ 1   
    

 

 

 

The Company’s provision for income taxes differs from the anticipated United States federal statutory rate. Differences between the statutory rate and the Company’s provision are as follows:

 

September 30,
       Septmber 30, 2010  

Taxes at statutory rate

       34.0

State taxes, net of federal benefit

       —     

Impact of international operations

       (0.1

Other permanent differences

       44.1   

Valuation allowance

       (78.0
    

 

 

 

Income taxes

       —  
    

 

 

 

 

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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 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, 2011, foreign earnings of $13,757 has been successfully repatriated and income tax payments of $200 has been made. 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 Company’s 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.

As of December 31, 2010 and 2011, the Company had no unrecognized tax benefits. For the year ended December 31, 2011, there was no interest or penalties recorded.

In Belgium, the Company is still open to examination by the Belgian tax authorities from 2008 forward. In the United States, the Company is still open to examination from 2008 forward, although carryforward tax attributes that were generated prior to 2008 may still be adjusted upon examination by the U.S. tax authorities if they either have been or will be utilized.

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:

 

September 30,
        Nine Months Ended,
September 30, 2010
 

Loss:

    

Net loss from continuing operations

     $ (8,807

Effect of dilutive potential common shares

       —     
    

 

 

 

Diluted net loss from continuing operations

     $ (8,807
    

 

 

 

Number of shares:

    

Weighted-average shares outstanding

       8,175,580   
    

 

 

 

Basic and diluted net loss per share from continuing operations

     $ (1.08
    

 

 

 

For the nine months ended September 30, 2010, the Company excluded 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 Company’s quarterly financial data under the going concern basis of accounting. The fourth quarter of 2011 was prepared under the liquidation basis of accounting and is not presented in the table below.

 

September 30, September 30, September 30, September 30,

2010

     First
Quarter
     Second
Quarter
     Third
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 earning (loss) per share:

             

Net income (loss) from continuing operations

     $ (0.10    $ 0.04       $ (1.02    $ (1.08

Net income (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   
    

 

 

    

 

 

    

 

 

    

 

 

 

NOTE N — SUBSEQUENT EVENTS

In accordance with Codification 855-50, “Subsequent Events”, the Company has reviewed subsequent events through the date of the filing and has determined there are no subsequent events that require disclosure.

 

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EXHIBIT INDEX

 

Number

    

Description of Exhibit

   Page  
  3.4       Certificate of Dissolution      E-2   
  21       List of Subsidiaries      E-3   
  31.1       Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated March 23, 2012      E-4   
  31.2       Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated March 23, 2012      E-5   
  32       Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002, dated March 23, 2012      E-6   
  101      

The following financial information from our Annual Report on Form 10-K for 2011 filed with the SEC formatted in Extensible Business Reporting Language (XBRL):

 

(i) Consolidated Statements of Net Assets (liquidation basis) as of December 31, 2011 and December 31, 2010;

(ii) Consolidated Statements of Changes in Net Assets (liquidation basis) for the three months ended December 31, 2010 and twelve months ended December 31, 2011;

(iii) Consolidated Statement of Operations (going concern basis) for the nine months ended September 30, 2010;

(iv) Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) (going concern basis) for the nine months ended September 30, 2010; and

(v) Consolidated Statement of Cash Flows (going concern basis) for the nine months ended September 30, 2010.

  

 

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