U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to_____
Commission File Number: 1-9431
ADAL GROUP, INC.
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(Exact name of small business issuer in its charter)
Delaware 94-3012230
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Billhurst Studio RH7 6B7
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Lingfield Common Road (Zip Code)
Lingfield, Surrey
United Kingdom
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(Address of principal executive offices)
Registrant's Telephone Number: 44-342-833855
Sunningdale, Inc., 925 West Lambert Road, Suite A, Brea CA, 92821
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(Former Name and Address)
Securities registered under 12(b) of the Exchange Act: None
Securities registered under 12(g) of the Exchange Act:
Common Stock, par value $0.0001
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |X| NO | |
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. | |
Issuer's revenues for its most recent fiscal year: $29,228,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant as of March 31, 2005 was approximately
$153,000, based upon the closing sale price of $6.00 per share as reported
by The Over the Counter Bulletin Board on such date.
There were 2,860,001 shares of the Company's common stock outstanding on March
31, 2005.
Transitional Small Business Disclosure Format (check one): YES | | NO |X|
DOCUMENTS INCORPORATED BY REFERENCE - The information required to be disclosed
under Part III of this Annual Report on Form 10-KSB is being incorporated by
reference to the Registrant's Definitive Proxy Statement filed on April 8, 2005,
for its Annual Meeting of Stockholders to be held on May 19, 2005.
TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business..............................................................2
Item 2. Description of Property..............................................................9
Item 3. Legal Proceedings...................................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................................10
PART II..................................................................................................10
Item 5. Market for Common Equity and Related Stockholder Matters............................10
Item 6. Management's Discussion and Analysis................................................11
Item 7. Financial Statements................................................................17
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure............................................................18
Item 8A. Controls and Procedures.............................................................18
Item 8B. Other Information...................................................................18
PART III 1
Item 9. Directors and Executive Officers of the Registrant..................................18
Item 10. Executive Compensation..............................................................18
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.........................................................19
Item 12. Certain Relationships and Related Transactions......................................19
Item 13. Exhibits, List and Reports on Form 8-K..............................................19
Item 14. Principal Accountant Fees and Services..............................................20
i
PART I
Item 1. Description of Business.
Overview
AdAl Group, Inc. f/k/a Sunningdale, Inc. ("We" or the "Company") was
incorporated in Delaware in 1986. Currently, our headquarters are located in the
United Kingdom. We are a diversified producer of aluminum extrusions and
manufactured parts and products. We are the parent company for several
established businesses that provide complete one-stop aluminum extrusion,
machining, and assembly services, which include: AdAl Seco, AdAl Engineering,
AdAl Extra, AdAl Climatix, and the newly added AdAl Architectural Division,
consisting of AdAl Guilform. Our long-term goal is to create synergistic
benefits through the acquisition and streamlining of vertically-integrated,
value-added aluminum extrusion, machining, manufacturing and assembly
operations.
Share Exchange
On October 28, 2004, we consummated the transactions contemplated by
that certain Share Exchange Agreement ("Exchange Agreement"), dated September
22, 2004, by and among us, Advanced Aluminium Group Limited, a company
incorporated under the laws of the United Kingdom ("AAG"), the stockholders of
AAG, and Keating Reverse Merger Fund, LLC ("KRM Fund"). Pursuant to the terms of
the Exchange Agreement, we acquired all of the outstanding capital stock of AAG
in exchange for the issuance to the AAG stockholders of 2,295,000 shares of the
Company's common stock. As a result of the transaction, AAG became our
wholly-owned subsidiary. On November 5, 2004, we changed our name from
Sunningdale, Inc. to AdAl Group, Inc. ("AdAl").
Products and Services
The following describes the products and services that our active
subsidiaries and divisions provide:
o AdAl Seco
Since 1965, AdAl Seco (formerly Seco Aluminum Ltd.) ("Seco") has
been a leading UK provider of aluminum extrusion design and
production services, specializing in meeting just-in-time delivery
schedules. Seco provides complete supply-chain management, including
component design, fabrication, warehousing and delivery. Seco's
capabilities especially emphasize product precision, speed of order
completion, extensive design knowledge and a flexible manufacturing
process. Because of Seco's ability to operate via a short run cycle
compared to its competitors who usually operate via a long run
cycle, Seco is able to respond promptly to marketplace demands and
lend a desired level of flexibility to its clients.
Seco's extrusion process consists of a heated cylindrical billet of
aluminum being forced through a uniquely shaped die, which defines
the structural and quality aspects of the product. Each customer's
part has a steel die designed to their specifications. Seco
currently houses approximately 17,000 such dies for its customers.
Seco's principal raw material is aluminum billets. Despite the wide
availability of aluminum billets through an openly traded market
(London Metal Exchange), the Company protects itself against
supply-chain interruption through contracts with four to five
smelters. Seco also hedges against price fluctuations in its raw
materials supply by buying a proportion of its raw materials through
long dated contracts (12 to 18 months out), a proportion through
short dated contracts (three to six months out) and the balance
through the spot market. Smelters distribute the amount requested by
Seco on a monthly basis. The contracts are re-negotiated annually
and billets are priced at a set rate at the time of renegotiation.
Management has partially offset the negative impact of aluminum
price volatility by increasing customer cost and will continue to do
so in the future.
The extrusion process produces a strong, light weight and versatile
product that can be utilized across multiple industries. Seco's
manufacturing business functions with three extrusion presses: two
are seven inch presses that together have the capacity to produce
roughly 8,500 tons of product annually (4,250 tons from each press)
and one is a five inch press that can produce up to 400 tons of
product annually. The two larger presses produce extrusions that
range in size and alloys and the smaller press is a specially
crafted Seco model that produces a `very fine' higher margin niche
product.
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We believe there are twenty-seven aluminum extrusion presses that
exist in the United Kingdom, which provided the market with nearly
150,000 tons of aluminum in 2004 Seco owns and operates three of
these presses and produced approximately 5,600 tons of product, or
3.7%, of the total estimated UK market production of extruded
aluminum in 2004. Through process enhancements and equipment
upgrades, management believes Seco can improve its existing output.
Management intends to implement the following enhancements to its
presses:
o Add a puller to one of the Company's larger presses,
which will reduce the current amount of scrap made
during production by up to 10%.
o Replace the existing heating elements on one press. If
the existing heating element malfunctions, it takes
approximately nine hours to cool it down, two hours to
replace it, and nine hours to heat it up-- a total of 20
hours. By installing a new state of the art heating
element, this downtime will be reduced by roughly 80%.
o We plan to add a complete new handling system for one of
our 7 inch presses in May 2005. This handling system,
known as a table, transports extruded aluminum from the
press to the cutting stations. The table will require a
capital investment of approximately $300,000, and we
believe it will improve our quality and thereby open up
new market opportunities.
o Add another cutting station to the extrusion line. The
current process has a bottleneck caused by the
production of extruded raw product faster than the
cutting station can cut metal. Another cutting station
will reduce costs related to production delays and labor
(overtime). The estimated cost of the new cutting
station is approximately $100,000 and it will provide a
return on investment within 12 to 18 months. Managements
plans to install it in the third quarter of 2005.
Seco currently employs approximately 140 persons and operates out of
a 49,000 square foot company owned facility in Witham, Essex,
England.
o AdAl Engineering
AdAl Engineering Ltd. (formerly W.H.J. Fagg and Son Ltd)
("Engineering"), founded in 1965 and purchased by the Company in
January 2004, provides precision engineering, tool making and volume
production of machined aluminum components. Approximately 60% of
Engineering's production is supplied to the automotive industry,
principally in the form of parts for air conditioning units and
other components, 20% to building products, hydraulics and
pneumatics, electric motors and leisure and 20% to the British
Ministry of Defense for gun cleaning kits. Engineering uses Computer
Numeric Controlled (CNC) machines in its production facilities.
Engineering is a manufacturer of parts for air conditioning units
for motor vehicles produced by major Original Equipment
Manufacturers ("OEMs"). 60% of Engineering's revenues attributed to
the automotive sector is divided between two principal customers,
Denso Manufacturing and Calsonic Kansei, 40% and 20%, respectively.
Our products can be found in noted motor vehicle brands such as Land
Rover, BMW, Audi and Toyota. Management expects that the use of
Engineering's parts in cars and in a wide range of noted brands will
continue due to the move toward standardization of air conditioning
units in cars. The competition in this market sector is very strong
but we believe that Engineering is considered to be a proven and
reliable supplier with consistent quality. Engineering provides its
components directly to the OEM's production lines on a just-in-time
basis.
Engineering's building products consist primarily of aluminum
double-glazing and window bars, hardware and handles. Machining is
done on parts for electric motors, hydraulic and pneumatic products.
Engineering also produces various parts for products used in the
leisure fishing industry. Engineering's principal product for
defense customers is a gun cleaning kit sold to the United Kingdom's
Ministry of Defense and used by the country's frontline soldiers. In
2004, 30,000 such kits were sold.
Engineering currently purchases nearly 60% of its aluminum
extrusions from Seco. Pricing is on an arms-length basis. The
remaining portion of Engineering's aluminum is sourced through the
Japanese market from suppliers approved by various customers.
Engineering also uses a small amount of steel to manufacture some of
its products.
AdAl Seco and Engineering have complimentary roles because nearly
every piece of extruded aluminum produced by AdAl Seco requires some
degree of secondary machining, from the more straight-forward
aspects of cutting to the more complex CNC machining. Thus,
Engineering has the opportunity to work with Seco to offer customers
a significantly higher level of value added production. Management's
plans for Engineering
3
over the next twenty-four months include an increase in domestic
market share, an improved labor cost ratio and further penetration
of the value-added parts of the business.
To support the expected growth and anticipated production increases,
management plans to invest in additional automated equipment and to
advance its technological operations. In this regard, we intend to
purchase two fully automated machining centers, to upgrade existing
machinery to semi and full automation where needed, and adopt lean
process practices.
Engineering currently has 60 employees.
o AdAl Extra
AdAl Extra Ltd ("EX"), a division of Seco, specializes in extrusion
design, aluminum forming and machining, and aluminum welding. EX
provides complete product manufacturing, assembly, warehousing and
delivery. It also provides value added finishing services to Seco
extruded parts. EX focuses on the value-added aspects of the
aluminum extrusions process, with services ranging from design and
machining to assembly and welding.
Management plans to build EX into a leading supplier of a full
assortment of off-the-shelf high quality products. This will allow
EX to become a provider of customized solutions, a carrier of
standard components, and a parts distribution company through
catalog marketing.
o AdAl Climatix
AdAl Climatix Ltd ("Climatix"), a division of Seco, specializes in
the architectural design and manufacturing of heating and
ventilating air conditioning systems. This newly formed division
offers its customers a complete turnkey solution for customized
projects. The AdAl Group intends to capitalize on the post-extrusion
production which includes assembly, packaging, and delivery, and
development of proprietary products for its clients.
We plan to expand the Climatix business on a project basis. Climatix
will continue creating aluminum-based designs that are unique,
reliable and highly efficient. Several concepts are underway and in
varying stages ranging from establishment of trademarks to prototype
testing and contracts including low surface temperature products,
innovative space and cost saving domestic heating products and
radiant heat products for use in the building and refurbishment of
hospitals.
o AdAl Architectural Division
AdAl Guilform ("Guilform") formerly known as Guilform Holdings Ltd.,
is a United Kingdom (UK) based manufacturer of aluminum building
facades. In February 2005, we purchased all of the outstanding
shares of Guilform, which resulted in Guilform becoming our
wholly-owned subsidiary. We also appointed Gary O'Connor as Managing
Director of our newly formed Architectural Division.
Guilform fabricates commercial building facades for suppliers and
installers of the main building contractors in the United Kingdom.
Guilform has an excellent reputation in the market place, a very
experienced and professional workforce and quality standards that
are amongst the highest in the industry. We plan to develop the
business by adding AdAl Architectural proprietary designs and
introduce these designs to architects globally.
Principal Customers
The Company has a broad range of customers in various industries that utilize
aluminum products, such as, automotive- heat exchange and vehicle finishing
products, domestic and commercial properties (windows, doors, showers, blinds
and partitioning), lighting, heating and ventilation, aircraft and aerospace,
shipbuilding, oil/gas platforms, electrical machinery and equipment, shop
fittings and supply fabricators and extrusion wholesalers. The Company has no
dependence on any individual customer or group of customers and has a truly
diversified and growing customer base.
4
Principal Suppliers
The group purchases its raw materials from the world's principal smelters e.g.
Alcoa, Dubai Aluminum, Hydro Aluminum and Rio Tinto Aluminum. There is an
excellent supply of aluminum globally and the raw materials for smelting are
abundant in the earth's crust.
Licensing Agreements
In February 2005, we signed an interim global licensing agreement with
Stonescreen, a designer, manufacturer and installer of stone building facades.
We were granted a 12 month exclusive, non-transferable license to reproduce
drawings, and manufacture and install materials pertaining to the Stonescreen
stone cladding and curtain wall system, which is constructed using extruded
aluminum sections. The license is a short term measure and we expect to purchase
the Stonescreen system during the next twelve months.
Sales and Marketing
Sales and customer service for each of the Company's operating subsidiaries is
handled by in-house sales employees. Over the next year, the Company plans to
focus on the cross-selling of products and services between subsidiaries.
Competition
The UK extrusion market is dominated (75% of the market) by three major
extruders, Alcoa, Hydro and SAPA. AdAl Seco is the fifth largest supplier in the
remaining 25%. AdAl Seco does not directly compete with the three market
leaders, who generally focus on the high volume low priced market. AdAl Seco
differentiates itself by providing a very flexible, high quality, "just in time"
product to the market place. There is ample opportunity for the Company to
increase its market share and reach maximum capacity in the next few years. The
market clearly reacts to price but we believe a greater emphasis is placed on
service and quality and that AdAl Seco is well placed to explore further
opportunities within its niche.
The AdAl Engineering market place is largely untapped and we have focused our
core business on automotive heat exchange products and have very few UK
competitors. The barriers to entry in the automotive market are cost and time,
quality approval by manufacturers and the time period required to achieve that
approval (up to two years). These factors, coupled with the life cycles of a
vehicle model (six plus years) make this an excellent platform to build our
engineering business. Our focus is on maintaining our quality and delivery
standards for our main automotive customers and we wish to continue this core
activity whilst adding more diverse products to the AdAl Engineering product
mix.
Governmental Regulation
Government is likely to increase its support for the aluminum industry in the UK
and will promote the environmentally responsible nature of the product,
emphasizing the excellent recycling achievements over recent years.
Environmentally there is little impact on the Company. The Company currently
complies with the environmental manufacturing requirements with respect to
waste. There are no material costs associated with environmental compliance.
Employees
As at December 31, 2004, the Company employed 208 staff; 139 full time employees
at AdAl Seco (103 manufacturing staff, 36 office and management), AdAl
Engineering employed 65 staff (58 production staff, including 20 temporary staff
and 7 office and management) and we have four employees at the Company's
headquarters,
Research and Development
We spent approximately $250,000 on research and development in the past two
years. This expenditure has largely been invested in machine automation at AdAl
Engineering and new product development at AdAl Seco.
5
Recent Developments
On February 7, 2005, we entered into a Share Sale and Purchase Agreement
(the "Agreement") relating to Guilform Holdings Limited ("Guilform"), with Keith
Malcolm Broome, the sole shareholder of Guilform. We purchased 100% of the
shares of Guilform from Mr. Broome in consideration of (i) 300,000 British
Pounds (approximately $575,000) in cash; (ii) a promissory note in the amount of
200,000 British Pounds (approximately $380,000) bearing interest at a rate of 6%
per annum; and (iii) 300,000 restricted shares (the "Shares") of the Company.
Under the Agreement, we have undertaken to ensure that Guilform meets its
payment obligations under certain commercial loan facilities provided to
Guilform by State Securities plc in the sum of 1,007,000 British Pounds
(approximately $1,930,000), of which 497,000 British Pounds (approximately
$950,000) was new borrowing in connection with the consummation of the
transactions contemplated by the Agreement. Approximately 321,000 British Pounds
(approximately $615,000) of the new lending was loaned by Guilform to the
Company in respect of the payment due to Mr. Broome on completion of the
Agreement and completion expenses incurred. Mr. Broome and Ms. Janice Conley,
the previous Secretary of Guilform, had guaranteed payment of the amounts owing
by Guilform under the loan facilities. Under the Agreement, we have undertaken
to provide for the release of Mr. Broome and Ms. Conley as guarantors on the
loan facility by August 7, 2007. Further, in connection with another loan
facility provided to Guilform by Venture Finance plc, with respect to which Mr.
Broome and Ms. Conley are also guarantors, we have undertaken to provide for the
release of Mr. Broome and Ms. Conley as guarantors on that loan facility upon
its expiration on May 31, 2005. We intend for Guilform to re-finance the Venture
Finance plc loan facility on or prior to expiration. As a condition to the
consummation of the Agreement, our Board of Directors appointed Mr. Broome to
serve as a non-executive director on Board.
On October 28, 2004 (the "Closing"), Sunningdale, Inc., a Delaware
corporation ("Company") consummated the transactions contemplated by that
certain Share Exchange Agreement ("Exchange Agreement"), dated September 22,
2004, by and among the Company, Advanced Aluminium Group Limited ("AAG"), the
stockholders of AAG, and Keating Reverse Merger Fund, LLC ("KRM Fund"). Pursuant
to the terms of the Exchange Agreement, the Company acquired all of the
outstanding capital stock of AAG in exchange for the Company's issuance to the
AAG stockholders of 2,295,000 shares of the Company's common stock. The issuance
of the Company's shares of common stock to AAG's stockholders was exempt from
registration under the Securities Act of 1933, as amended ("Securities Act")
pursuant to Section 4(2) thereof.
Following the Closing, the stockholders of AAG owned 2,295,000 shares of
the Company's common stock, or 90% of the outstanding shares of the Company's
common stock, and the stockholders of the Company immediately prior to Closing
("Existing Stockholders") owned 255,000 shares of the Company's common stock, or
10% of the outstanding shares of the Company's common stock.
Under the Exchange Agreement, the Existing Stockholders also have
anti-dilution protection in the event the Company: (i) issues any securities in
any offering during the twelve (12) month period following the Closing, or (ii)
issues any securities in connection with the license and/or acquisition by the
Company of technology related to electricity-generating roadway ramps following
Closing (collectively, the "Events"). In such cases, the Company is required to
issue to the Existing Stockholders, in proportion to their respective ownership
interests prior to Closing, such additional number of shares of common stock of
the Company so that the Existing Stockholders shall own, in the aggregate, ten
percent (10%) of the issued and outstanding shares of common stock of the
Company, on a fully diluted basis, after giving effect to the Events. On April
8, 2005, the Company and the KRM Fund agree to amend the Exchange Agreement to
terminate the anti-dilution provision. As consideration for this termination the
Company agreed to issue 125,000 shares of its Common Stock to the KRM Fund.
Effective as of the Closing, Kevin R. Keating resigned as sole director of
the Company, and the newly-appointed board of directors of the Company consisted
of Nicholas A. Shrager and Charles K. Howe. Subsequent to the closing Brian
Alleman and John Sanderson joined the Board as independent directors, and Keith
Broome joined the Board as a non-executive director. Pursuant to the terms of a
Voting Agreement among AAG, the stockholders of AAG and the KRM Fund (the
"Voting Agreement"), the AAG stockholders have agreed to vote their shares of
the Company's Common Stock to elect Mr. Sanderson to the Company's board for a
period of one year following the Closing. Under the terms of the Exchange
Agreement, the vacant director position at the time of Closing was to be filled
by a person selected by the AAG stockholders to be an independent director. Mr.
Alleman was appointed to fill this position.
In connection with the Closing, the Company also entered into a financial
advisory agreement with Keating Securities, LLC ("Keating Securities"), a
registered broker-dealer, under which Keating Securities will be compensated by
the Company for its advisory services rendered to the Company in connection with
these transactions.
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The transaction advisory fee is $190,000. The financial advisory agreement also
appoints Keating Securities as the Company's exclusive placement agent for
private and public offerings of the Company's securities during the one year
period following the Closing.
7
RISK FACTORS
In addition to the other information in this annual report, the following
factors should be considered carefully in evaluating the Company's business and
prospects. THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS OR
PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS CAUTIONARY
STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR STATEMENTS SHALL BE
DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE FOLLOWING FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENT
OR STATEMENTS.
RISKS RELATED TO OUR BUSINESS
Revenues may not be consistent due to fluctuating demand for products. We derive
revenues through the sale of products to our customers. Fluctuating demand for
our products by our customers may result from a variety of factors, including,
but not limited to customers' industries market falling, the weather and
competition from imports. If customer demand for our products is not consistent,
our revenues would be adversely affected. Our industry has historically
experienced a very slow start to each year with December and the first three
months of the year being the lowest in terms of sales; this is largely due to
the seasonal nature of a large proportion of the customer base, the Christmas
holiday period slow down and year end inventory reduction by customers.
An inability to respond quickly and effectively to new technological
developments could adversely impact our competitive position. Our failure to
maintain the superiority of our technological capabilities or to respond to
technological changes could adversely affect our ability to retain existing
customers and secure new customers. We will need to constantly seek out new
technology to improve the efficiency and effectiveness of our processes. If we
are unable to keep current with new developments, our competitors' technologies
or products may render us noncompetitive. This means that we must have a strong
capital investment program at our extrusion plant and our engineering factories.
We need to continue to automate machines and processes and invest in modernizing
our plant and equipment.
Rising costs of raw materials could adversely impact our margins. Our principal
raw material is aluminum billets, which are generally available from a variety
of suppliers. However, world commodity prices for aluminum could rise faster
than our ability to recoup increases in these costs from our customers. If raw
material costs increase in such a manner, our gross profit and net income could
be negatively impacted.
The industries in which we compete are highly competitive and fragmented. We
operate in a marketplace that is becoming more global, and the threat of lower
cost imports is increasing. If we are not able to differentiate ourselves in
ways other than reducing prices, such as through technical experience, just in
time service and quality, we may lose market share.
RISKS RELATED TO OUR COMMON STOCK
Our president and chief executive officer controls a majority of our common
stock. Nicholas Shrager, our President and Chief Executive Officer,
individually, and through a trust over which he is co-trustee, beneficially owns
60.9% of our outstanding Common Stock. As a result, Mr. Shrager has the ability
to control the outcome of all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions,
such as mergers, consolidations or the sale of substantially all of our assets.
Consequently, this concentration of ownership may have the effect of delaying or
preventing a change of control, including a merger, consolidation or other
business combination involving us, or discouraging a potential acquiror from
making a tender offer or otherwise attempting to obtain control, even if such a
change of control would benefit our other shareholders.
Operations could be curtailed if we are unable to obtain required additional
financing. We have incurred net losses amounting to $2,454,000 since inception
and have a capital deficiency of $4,179,000 at December 31, 2004. We need to
raise additional capital to sustain operations and provide funds to invest in
new plant and equipment, through public or private financing, which may include
the sale of equity securities. The issuance of these equity securities could
result in dilution to our stockholders. In addition, if we are unable to raise
the capital when needed, our business strategy could be affected, which could
severely limit our ability to continue operations.
8
Efforts to comply with recently enacted changes in securities laws and
regulations will increase our costs and require additional management resources
and we still may fail to comply. As directed by Section 404 of the
Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to
include a report of management on internal controls over financial reporting in
their Annual Reports on Form 10-K and Form 10-KSB. In addition, the public
accounting firm auditing the company's financial statements must attest to and
report on management's assessment of the effectiveness of the company's internal
controls over financial reporting. This requirement will first apply to our
annual report on Form 10-KSB for our fiscal year ending December 31, 2006. If we
are unable to conclude that we have effective internal controls over financial
reporting or, if our independent auditors are unable to provide us with an
unqualified report as to the effectiveness of our internal controls over
financial reporting as of December 31, 2006 and future year ends as required by
Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence
in the reliability of our financial statements, which could result in a decrease
in the value of our securities. We have only recently begun a formal process to
evaluate our internal controls over financial reporting. Given the status of our
efforts, coupled with the fact that guidance from regulatory authorities in the
area of internal controls continues to evolve, substantial uncertainty exists
regarding our ability to comply by the applicable deadlines.
There has not been significant trading in our common stock. Our Common Stock is
quoted on the Over the Counter Bulletin Board. To date, there has been a limited
trading market for the Common Stock. There is a significant risk that our stock
price may fluctuate dramatically in the future in response to any or all of the
following factors, some of which are beyond our control:
o variations in our quarterly operating results;
o announcements that our revenue or income are below analysts'
expectations;
o general economic slowdowns;
o changes in market valuations of similar companies;
o sales of large blocks of our Common Stock;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o fluctuations in stock market prices and volumes, which are
particularly common among highly volatile securities of
internationally-based companies;
o the cost and management time associated with the integration of
newly acquired businesses;
o the increasing threat of low priced imports from China and India;
o the ability of the Company to attract equity investors to support
the planned growth of the Company; and
o rising raw material costs if AdAl is unable to pass these costs onto
customers
Item 2. Description of Property.
We operate from the following facilities:
o We own a 160,000 square foot facility in Witham, Essex UK. Seco
utilizes 49,000 square feet for production and warehouse space. AdAl
Engineering utilizes approximately 20,000 square feet located on the
site of the AdAl Seco plant in Witham. AdAl Engineering's space
consists of two buildings, both newly built in 2004. Approximately
13,000 square feet is ground level production floor space, 3,000
square foot of storage & production mezzanine floor and
approximately 4,000 square foot of office space. Our mortgage on the
site is repayable over fifteen years.
o The corporate offices are in Lingfield in Surrey. We rent these
offices for $9,000 per annum from one of our Directors on a
month-to-month basis.
9
Item 3. Legal Proceedings.
We are not subject to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock is listed on the Over the Counter Bulletin Board
under the symbol "ADGR". The following table sets forth the range of high and
low bid prices reported by the Over the Counter Bulletin Board in each fiscal
quarter from January 1, 2003 to December 31, 2004. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. Information presented for dates prior to
October 18, 2004, relate to the Company prior to the share exchange transaction
described elsewhere in this Form 10-KSB,
High Low
---- ---
Fiscal 2003
-----------
Quarter Ended March 31, 2003 $0.84 $0.14
Quarter Ended June 30, 2003 $0.84 $0.15
Quarter Ended September 30, 2003 $4.90 $0.18
Quarter Ended December 31, 2003 $2.00 1.01
Fiscal 2004
-----------
Quarter Ended March 31, 2004 $5.25 $2.75
Quarter Ended June 30, 2004 $3.25 $1.50
Quarter Ended September 30, 2004 $3.25 $1.01
October 1, 2004 - October 27, 2004 $1.01 $1.01
October 28, 2004 - December 31, 2004* $5.00 $1.01
Fiscal 2005
-----------
January 1, 2005 - March 31, 2005 $5.20 $5.00
*Represents stock performance for periods after the share exchange transaction.
As of March 31, 2005, there were approximately 487 record holders of
the common stock. This number does not reflect shareholders who beneficially own
common stock held in nominee or "street name".
We have not paid any dividend on our common stock since inception
and we do not intend to pay any dividends on our common stock in the foreseeable
future.
There was no repurchase of stock in the fourth quarter.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the period
covered by this report that were not previously reported in a Quarterly Report
on Form 10-QSB or in a Current Report on Form 8-K.
10
Item 6. Management's Discussion and Analysis.
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS STATEMENTS WHICH CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). DISCUSSION CONTAINING
SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH BELOW AND
UNDER "BUSINESS," AS WELL AS WITHIN THE ANNUAL REPORT GENERALLY. IN ADDITION,
WHEN USED IN THIS ANNUAL REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS,"
"PLANS," "INTENDS," "SHOULD," "WILL" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS AND STATEMENTS
OF EXPECTATIONS, PLANS AND INTENT ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CHANGES IN
TECHNOLOGY, CUSTOMER REQUIREMENTS AND NEEDS, AMONG OTHER FACTORS. WE UNDERTAKE
NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
OVERVIEW
As discussed in the Notes to the Financial Statements contained in this Form
10-KSB we acquired, through a reverse merger transaction, Advanced Aluminium
Group Limited ("AAG"), a company incorporated under the Companies Acts of
England and Wales.
As a result of this merger, we adopted the financial reporting year end of AAG
and therefore we now have a December 31 fiscal year end.
Our purchase of the shares of AAG has been treated for accounting and financial
reporting purposes as a reverse acquisition of us by AAG, since the former AAG
stockholders controlled us after the transaction. Under this accounting
treatment, AAG is deemed for accounting purposes to be the acquiring entity and
we are the acquired entity.
On October 20, 2003, AAG acquired all of the outstanding capital stock of
Advanced Aluminium Industries, Ltd. ("AAI"). AAI's activities as of the date of
acquisition consisted solely of the ownership of Seco, which was acquired by
AAI.
On January 30, 2004, AAG acquired all of the outstanding capital stock of AdAl
Engineering f/k/a W.H.G. Fagg &Son LTD through its wholly-owned subsidiary AAI.
The consolidated financial information for Engineering included in this Annual
Report, is reflected as of the date of the acquisition through December 31,
2004.
We intend to expand both organically and through acquisition. We completed our
second acquisition on February 7, 2005 when we acquired Guilform Holdings. This
acquisition was the first step in building our Architectural Division and the
focus in 2005 will be on building this Division and improving productivity and
efficiency at both AdAl Seco and AdAl Engineering.
The AdAl Seco plant and machinery has been an area of investment focus in the
fourth quarter of 2004 and will require continued investment during fiscal years
2005 and 2006 to enable us to return to and improve upon historical productivity
and efficiency levels. Anticipated investment in plant and machinery over the
next two years is $2,000,000. We have invested in a new puller and heater at
AdAl Seco and will invest in handling and packing equipment at AdAl Seco in the
first half of 2005. We have also added new CNC machines at AdAl Engineering and
an automation timetable, subject to allowable production downtime in the current
environment, has been budgeted. These investments are expected to improve the
throughput at these facilities without increasing labor costs at AdAl Seco and
reducing labor cost at AdAl Engineering, thus improving our cost of sales.
11
We reviewed our planned expansion in a machining and fabrication operation in
the Czech Republic and put this project on hold until the end of the second
quarter of 2005. We already formed the corporate entity in the Czech Republic
and established banking facilities, which will remain in place. It is unlikely
that there will be further major acquisitions in the UK in 2005. Our focus will
be on organic growth in the UK and the acquisition of a US aluminum based
manufacturer. We are currently developing marketing plans and will work with our
advisors to raise equity capital to de-leverage the Balance Sheet, provide
Investment Capital for AdAl Seco and to reduce our reliance on accounts
receivable financing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements that have been
prepared under accounting principles generally accepted in the United States.
The preparation of financial statements requires our management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could
materially differ from those estimates. We have disclosed all significant
accounting policies in Note 1 to the consolidated financial statements included
in this Form 10-KSB. The consolidated financial statements and the related notes
thereto should be read in conjunction with the following discussion of our
critical accounting policies. Critical accounting policies and estimates are:
o Revenue Recognition
o Accounting for Long-Lived Assets
o Impairment of Long-Lived Assets
REVENUE RECOGNITION
Revenue recognition rules are very complex, and certain judgments affect the
application of our revenue policy. The amount and timing of our revenue is
difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause our operating results to vary significantly from quarter to
quarter. In addition to determining our results of operations for a given
period, our revenue recognition determines the timing of certain expenses, such
as commissions and other variable expenses. We recognize revenue when products
are shipped to customers, the customer is obligated to pay for such product and
collectability is reasonably assured.
ACCOUNTING FOR LONG-LIVED ASSETS
We state our property and equipment at acquisition cost and compute depreciation
for book purposes by the straight-line method over estimated useful lives of the
assets. In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of the
asset may not be recoverable. Recoverability of assets to be held and used is
measured by comparison of the carrying amount of an asset to the future cash
flows expected to be generated by the asset. If the carrying amount of the asset
exceeds its estimated future cash flows, an impairment charge is recognized to
the extent the carrying amount of the asset exceeds the fair value of the asset.
These computations are complex and subjective.
IMPAIRMENT OF LONG-LIVED ASSETS
In assessing the recoverability of our intangibles we must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. This impairment test requires the determination
of the fair value of the intangible asset. If the fair value of the intangible
asset is less than its carrying value, an impairment loss will be recognized in
an amount equal to the difference. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for these assets.
12
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 152 "Accounting for Real Estate Time-Sharing Transactions - An amendment of
SFAS No. 66 and 67." This Statement amends Statement of Financial Accounting
Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate," to reference
the financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in American Institute of Certified Public
Accountants Statement of Position (SOP) 04-2, "Accounting for Real Estate
Time-Sharing Transactions." This Statement also amends SFAS No. 67, "Accounting
for Costs and Initial Rental Operations of Real Estate Projects," to state the
guidance for (a) incidental costs and (b) costs incurred to sell real estate
projects does not apply to real estate time-sharing transactions. The accounting
for those operations and costs is subject to guidance in SOP 04-2. SFAS No. 152
is effective for financial statements for fiscal years beginning after June 15,
2005. Adoption of this Statement is not expected to have a material impact on
our financial statements.
In November 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment to APBO No. 29." This Statement amends Accounting Principles
Board Opinion ("APBO") No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This is
effective for fiscal periods beginning after June 15, 2005. Adoption of this
Statement is not expected to have a material impact on our financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" ("SFAS
No. 123R"). SFAS No. 123R requires companies to recognize in the income
statement the grant date fair value of stock options and other equity-based
compensation issued to employees. SFAS No. 123R eliminates the intrinsic
value-based method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations, that we currently use. SFAS
No. 123R requires us to adopt the new accounting provisions beginning on July 1,
2005. We have not yet determined what effect, if any, this new standard will
have on future periods.
In October 2004, the FASB issued No. 151 "Inventory - an amendment of ARB No.
43, Chapter 4." This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. Adoption of this statement is not expected to have a material impact
on our financial statements.
RESULTS OF OPERATIONS
When reviewing the results of the operations compared to the prior years the
reader should consider the transition of the group from two private UK companies
to a U.S. public company with the establishment of a corporate office. The costs
of this transition are identified in the relevant sections below. All
comparisons to 2003 reflect the combined amounts for the Company, which includes
AdAl Seco.
REVENUES. For the year ended December 31, 2004 our consolidated revenues were
$29,228,000 up $7,981,000 on 2003. The Company had two operating subsidiaries in
2004. AdAl Seco's revenues were $25,095,000 (including sales of $531,000 to AdAl
Engineering, eliminated on consolidation) and AdAl Engineering's revenues were
$4,664,000 for the eleven month period ended December 31, 2004. Revenues for
AdAl Extra and AdAl Climatix are consolidated within AdAl Seco.
Excluding the effect of exchange rates this represents a 5.7% increase on the
prior year for AdAl Seco, which was the result of an increase in sales for AdAl
Seco of 272 tons from 5,373 tons in 2003 to 5,645 tons in 2004.
COST OF GOODS SOLD. Cost of goods sold as a percentage of sales was 95% of
sales, $27,898,000, for the year ended December 31, 2004 versus 91% of sales,
$19,315,000 for the same period in 2003. AdAl Engineering's cost of goods sold
for the eleven months ended December 31, 2004 was $4,686,000.
Higher prices for aluminum accounts for 1% of the increase in the cost of sales.
Aluminum price increases have now been substantially offset by price increases
to our customers. Through the timing of raw material purchases, and price
increases to customers, management has recovered the increase in the price of
aluminum and the exchange rate volatility at the end of the year. However there
was a time lag and this is responsible for a 1% increase in the cost of sales.
Aluminum purchases represent 60.6% of the cost of sales. The major cause of the
reduced margins relates to inefficiencies with the plant and machinery resulting
in incremental labor costs. Direct Labor costs are up by 3% of sales, or
$750,000. The AdAl Seco plant and machinery has been an area of investment focus
in the fourth quarter of 2004 and will require continued investment focus during
2005 and 2006 to enable us to return to and improve upon historical productivity
and efficiency levels. We anticipate investing $2,000,000 in plant and machinery
over the next two years.
AdAl Engineering's cost of goods sold exceeded its sales for the eleven month
period ended December 31, 2004. Raw material costs, primarily aluminum and
steel, were 40% of sales. The cause of the reduced margins relates to
incremental labor and restructuring costs as a result of a major relocation of
the production facility from Braintree to the site of AdAl Seco in Witham. To
facilitate the move and to ensure minimal disruption to our customers we worked
significant levels of overtime and employed additional temporary staff to enable
us to build stock. Our work on machine automation has also been delayed as we
focused on building inventory levels prior to the move. It now appears that
taking machines offline to automate them, which will generate labor savings,
will not be possible until the second quarter of 2005. In addition we
encountered problems setting production up in the new facility, resulting in
additional delays. This compounded the financial impact of the relocation,
created a need to rebuild stock a second time and will have an impact on our
financial performance in the first quarter of 2005. We finally moved to the new
facility on January 31, 2005.
13
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. For the year ending December 31,
2004, selling, general and administrative costs, including $190,000 of Related
Party Advisory Fees, were $2,973,000 compared to $1,323,000 in 2003. In 2003
there were only $70,000 of expenses associated with the corporate office SG&A in
2004 can be analyzed as follows: (a) AdAl Seco's SG&A $1,312,000 (5.2% of
revenues) (b) AdAl Engineering's SG&A $95,000 (3.7% of revenues); (c)
amortization of AdAl Engineering's customer list of $112,000; (d) Central
Management and Administration costs $813,000; (e) one time costs associated with
reverse merger $541,000 including $190,000 of Related Party Advisory Fees which
are separately disclosed in the statements of operations and (f) on costs
related to being a public company of approximately $100,000, principally legal
and accounting costs which were not incurred by the companies prior to the
reverse merger. Therefore the increase in costs from 2003 to 2004 of $1,650,000
relates to the roll-up strategy being pursued by the Company, the Company
obtaining public company status in the U.S. through the reverse merger,
$1,194,000, and additional operating company SG&A of $154,000.
INTEREST EXPENSE. Interest expense for year ending December 31, 2004 was
$650,000 compared to $270,000 for 2003. AAG was created through leveraged buy
outs and the interest associated with the acquisition costs totaled $350,000 in
2004. The funding for the buy outs resulted primarily from secured real estate
financing (current borrowings reflect a 72% loan to appraised value). We have
increased borrowings in 2004 to finance the building of two new manufacturing
facilities at the Witham site, which has resulted in incremental interest
expense in 2004 of $34,000 ($1,030,000 investment over 11 months). We now
operate AdAl Seco and AdAl Engineering from our owned premises, on a single
site, having terminated AdAl Engineering's lease of the Braintree site in
January of 2005. Interest expense from operations totaled $266,000 in 2004,
which was not materially different from 2003.
AdAl Seco and AdAl Engineering fund their working capital requirements through
accounts receivable revolver facilities and their capital investment programs
through asset finance. In 2004, AdAl Seco and AdAl Engineering incurred interest
expenses related to these arrangements of $174,000 and $92,000, respectively.
NET INCOME (LOSS). For the year ended December 31, 2004, the net loss was
$2,290,000, or $0.98 per share compared to a profit of $255,000, or $0.11 per
share, for the year ended December 31, 2003.
Loss and earnings per share for periods prior to the reverse merger are computed
using the shares issued in the reverse merger which was 2,295,000. The shares
outstanding in Sunningdale prior to the transaction, which totaled 255,000, were
accounted for as if they were issued on October 28, 2004, the date of the
reverse merger.
LIQUIDITY AND CAPITAL RESOURCES
Our total assets at December 31, 2004 are $16,748,000, which is comprised of
$6,229,000 property plant and equipment, accounts receivable $6,845,000,
inventory $2,408,000, cash and cash equivalents of $389,000, intangible assets
(capitalized customer list from AdAl Engineering acquisition) of $526,000,
prepaid expenses of $314,000 and a deferred tax asset of $37,000. Our current
liabilities are $14,172,000. The Company has long-term debt of $4,870,000, of
which $595,000 is the current portion. The accumulated deficit as of December
31, 2004 was $2,454,000.
At December 31, 2004, we had a working capital deficit of $4,179,000. We also
incurred a net loss for year ending December 31, 2004 of $2,290,000. Management
believes that the loss is due to the changes that we have gone through in the
past year, including: (a) costs associated with operating a corporate office;
(b) costs associated with the reverse merger; and (c) interest costs associated
with the acquisitions of AdAl Seco and AdAl Engineering. In addition, the
Company has been making changes in the manufacturing operations at both AdAl
Seco and AdAl Engineering, and improving facilities for the future (including
completion of the construction of a new building for AdAl Engineering's
manufacturing operations).
As of December 31, 2004, the Company had its short term bank debt split between
two major UK banks. All short term bank debt is secured by our accounts
receivable. In February 2005 the Company consolidated its revolving bank lines
of credit agreements with one major UK bank. This process took longer than
expected as management conducted extensive reviews, between November 2004 and
February 2005, of the UK banking marketplace and met with, and reviewed
financing terms in detail, with three of the four major UK banks, three major
European banks and three niche financial institutions. The Company decided to
increase its revolving credit borrowings with the chosen major UK bank, which
were consolidated in February 2005.
14
The mortgage of the Witham site, which is our major long term debt component as
at December 31, 2004, is secured by a lien on the land and buildings. Equipment
loans are secured by a lien on the specific machinery and equipment financed. We
are currently reviewing our options with respect to the mortgage of the Witham
site and plan to increase the loan to appraised value on the mortgage by
re-financing the property with either our current lender, or another lender. We
expect this to generate additional funds of between $300,000 and $500,000.
As of December 31, 2004, we had credit available of approximately $750,000 under
our revolving bank lines. We refinanced some of our plant and machinery assets
held at AdAl Engineering and raised approximately $350,000 (80% loan to
appraised value) to help finance the cost of the reverse merger. Our business
has its lowest sales in December, which averages 50% of a normal month's sales,
and leads to a slow start to the year. The four slowest sales months are
typically December, February, March and January, in that order. Conversely
October, July and September historically have been the best production months
during the year. We believe that utilizing our unsecured inventory assets to
secure additional debt financing is a strategic measure since the financing will
be secured on finished goods inventory held at our premises, and given the
cyclical nature of our business and our current reliance on revolving credit
arrangements tied to accounts receivable, this additional source of funds will
enable us to build stock versus our order book at a time when we have
historically slowed down production. It is a short term issue as we are
currently experiencing the impact of our cyclical sales and need this financing
to ensure a buoyant approach to the second quarter.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management plans to secure additional financing through the
following actions:
o In February 2005 we moved AdAl Engineering's accounts receivable
revolving from the existing bank to the same bank used by AdAl Seco.
This move provided an additional $170,000 of availability due to an
improved advance rate against eligible accounts receivable.
o The bank holding the mortgage on the Witham facility has agreed to
refinance the loan to value to 75% of the current appraised value of
the property. This will generate incremental funding of $300,000 and
is expected to close in late April 2005.
o We have established a credit agreement with a bank based on the
finished goods inventory at AdAl Seco, which will provide
approximately $320,000 of cash availability. Funding is expected to
close by the end of April 2005.
o Two directors of the Company have agreed to lend the Company
$150,000 each for a total of $300,000. These loans are expected to
be in place in May 2005.
o On April 11, 2005 the investment committee of an investment company
approved a term sheet, subject to completion of final due diligence,
to provide $3,000,000 in funding through a three year convertible
loan facility. The first $1,000,000 of funds is expected to be
received in May 2005, and can be used for any purpose. The remaining
$2,000,000 is reserved for use in future acquisitions.
The above actions are expected to provide additional cash resources of
approximately $2,090,000 in the first half of 2005. Management believes that
this additional cash will be adequate to sustain operations until the Company
generates sufficient cash flows from operations.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
In addition, any plant and machinery requirements over the next six to twelve
months are expected to be financed through equipment leases or other available
financing methods.
Management recognizes that its reliance on its accounts receivable revolver
facility needs to be reduced in 2005 and it is in active discussions with a few
financial institutions to provide either convertible debt financing or equity
through one or more private placement transactions. Management anticipates
raising equity capital in 2005. Any such additional funds would be utilized to
de-leverage the balance sheet, reduce reliance on accounts receivable facilities
and to provide additional working capital to build the businesses.
If the Company does not raise sufficient additional equity capital to provide
positive working capital and is unable to return to profitability in the near
term , it may be required to curtail future operations and/or liquidate assets
or enter into credit arrangements on less favorable terms than would normally be
expected, to provide for future liquidity.
The Company expects to break even in 2005 and return to profitability in 2006.
OFF BALANCE SHEET ARRANGEMENTS
15
The Company does not have any off balance sheet financing arrangements and has
not established any special purpose entities.
16
Item 7. Financial Statements
ADAL GROUP INC. AND SUBSIDIARIES
======================================================================================================================
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
======================================================================================================================
Page
----
Report of Independent Registered Public Accounting Firm ................................................... F-1
Consolidated Balance Sheet as of December 31, 2004......................................................... F-2
Consolidated Statements of Operations for the year ended December 31, 2004 and
for the period from October 20, 2003 (inception) to December 31, 2003, and of
Seco Aluminium Ltd. (as Predecessor Company) for the period from January 1,
2003 to October 19, 2003................................................................................ F-3
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive
Income (Loss) for the year ended December 31, 2004 and for the period from
October 20, 2003 (inception) to December 31, 2003 ...................................................... F-4
Consolidated Statements of Cash Flows for the year ended December 31, 2004 and
for the period from October 20, 2003 (inception) to December 31, 2003, and of
Seco Aluminium Ltd. (as Predecessor Company) for the period from January 1,
2003 to October 19, 2003................................................................................ F-5
Notes to Consolidated Financial Statements................................................................. F-7
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheet of AdAl Group Inc.
and its subsidiaries (the "Company") as of December 31, 2004, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive income (loss), and cash flows for the periods January 1, 2003 to
October 19, 2003 (predecessor Company), October 20, 2003 to December 31, 2003
and for the year ended December 31, 2004. 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
consolidated 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 audit 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 consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2004, and the consolidated results of their
operations and their cash flows for the periods January 1, 2003 to October 19,
2003 (predecessor Company), October 20, 2003 to December 31, 2003 and for the
year ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a working capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in Note 4. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
MOORE STEPHENS, P. C.
Certified Public Accountants.
New York, New York
February 25, 2005 except for Note 4,
for which the date is April 11, 2005
F-1
ADAL GROUP INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS)
================================================================================
December 31, 2004
-----------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 389
Accounts Receivable 6,845
Inventories 2,408
Current Deferred Taxes 37
Other Current Assets 314
--------
Total Current Assets 9,993
Property, Plant and Equipment - Net 6,229
Intangible Assets, Less Accumulated
Amortization of $80 526
--------
Total Assets $ 16,748
========
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Short-Term Borrowings and Credit
Agreements $ 6,048
Accounts Payable 6,243
Accrued Expenses - Related Party 120
Payroll and Excise Taxes Payable 617
Current Portion of Long-Term Debt 595
Other Current Liabilities 549
--------
Total Current Liabilities 14,172
Long-Term Debt, Less Current
Portion 4,275
Non-Current Deferred Taxes 99
--------
Total Liabilities 18,546
--------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common Stock, $.0001 Per Share Stated
Value; 100,000,000 Shares Authorized, 2,550,000
Shares Issued and Outstanding --
Additional Paid in Capital 2
Accumulated Deficit (2,454)
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment 654
--------
Total Stockholders' Equity (Deficit) (1,798)
--------
Total Liabilities and Stockholders' Equity (Deficit) $ 16,748
========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
F-2
ADAL GROUP INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA)
================================================================================
Predecessor
AdAl Group Inc. and Subsidiaries Company
-------------------------------- -------
Year October 20, January 1,
Ended 2003 to 2003 to
December 31, December 31, October 19,
2004 2003 2003
------------ ------------ ------------
Net Sales $ 29,228 $ 4,194 $ 17,053
Cost of Sales 27,898 4,004 15,311
-------- -------- --------
Gross Profit 1,330 190 1,742
Selling, General and
Administrative Expenses 2,783 268 1,055
Advisory Fees - Related Party 190 -- --
-------- -------- --------
Income (Loss) from
Operations (1,643) (78) 687
Interest Expense 650 122 148
-------- -------- --------
Income Before Income
Taxes (2,293) (200) 539
Provision For Income Tax
Expense (Benefit) (3) (36) 120
-------- -------- --------
Net Income (Loss) $ (2,290) $ (164) $ 419
======== ======== ========
Basic and Diluted Income
(Loss) per Share: $ (0.98) $ (0.06) $ 0.18
======== ======== ========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
F-3
ADAL GROUP INC. AND SUBSIDIARIES
=========================================================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS OF U.S. DOLLARS)
=========================================================================================================================
Accumulated Total
Comprehensive Common Stock Additional Retained Other Stockholders'
Income ------------ Paid-in Earnings Comprehensive Equity
(Loss) Shares Amount Capital (Deficit) (Loss) (Deficit)
------ ------ ------ ------- --------- ------ ---------
Inception - October 20, 2003 $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of Common Stock
For Cash -- 2,295,000 -- 2 -- -- 2
Net Loss (164) -- -- -- (164) -- (164)
Effect of Currency
Translation in Period (3) -- -- -- -- (3) (3)
--------- --------- --------- --------- --------- --------- ---------
$ (167)
=========
Balances -
December 31, 2003 2,295,000 -- 2 (164) (3) (165)
Shares Issued in Connection
With Merger $ -- 255,000 -- -- -- -- --
Net Loss (2,290) -- -- -- (2,290) -- (2,290)
Effect of Currency
Translation In Period 657 -- -- -- -- 657 657
--------- --------- --------- --------- --------- --------- ---------
$ (1,633)
=========
Balances -
December 31, 2004 2,550,000 $ -- $ 2 $ (2,454) $ 654 $ (1,798)
========= ========= ========= ========= ========= =========
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
F-4
ADAL GROUP INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
================================================================================
AdAl Group Inc. and Subsidiaries Predecessor Company
-------------------------------- -------------------
Year October 20, January 1,
Ended 2003 to 2003 to
December 31, December 31, October 19,
2004 2003 2003
---- ---- ----
Operating Activities:
Net Income (Loss) $(2,290) $ (164) $ 419
Adjustments to Reconcile Net
Income (Loss) to Cash From
Operations:
Depreciation and Amortization 1,212 111 657
Deferred tax (Benefit) (3) -- --
------- ------- -------
Changes in Assets and Liabilities:
Decrease (Increase):
Receivables 1,086 541 (877)
Inventories (217) (231) 226
Other Current Assets (150) 66 (3)
Increase (Decrease):
Accounts Payable 888 (107) 154
Taxes 127 (19) 88
Other Current Liabilities 162 86 (101)
------- ------- -------
Net Cash - Operating
Activities 815 283 563
------- ------- -------
Investing Activities:
Cash Paid for Seco
Acquisition, Net of
Cash Acquired-- -- (3,874) --
Cash Paid for Fagg
Acquisition, Net of Cash Acquired (732) -- --
Capital Expenditures (2,713) (87) (362)
------- ------- -------
Net Cash - Investing
Activities (3,445) (3,961) (362)
------- ------- -------
Financing Activities:
Net Changes to Short-Term
Borrowings (1948) 3,570 (177)
Borrowing of Long-Term Debt 4,530 -- --
Payment of Long-Term Debt (480) -- --
Issuance of Common Stock -- 2 --
------- ------- -------
Net Cash - Financing
Activities 2,102 3,572 (177)
------- ------- -------
Effect Of Exchange Rates
Changes on Cash 767 231 1
------- ------- -------
Net Increase (Decrease) in
Cash - Forward $ 239 $ 125 $ 25
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements
F-5
ADAL GROUP INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
================================================================================
Predecessor
AdAl Group Inc. and Subsidiaries Company
-------------------------------- -------
Year October 20, January 1,
ended 2003 to 2003 to
December 31, December 31, October 19,
2004 2003 2003
---- ---- ----
Net Increase (Decrease) in
Cash - Forwarded $ 239 $ 125 $ 25
Cash - Beginning of Period 150 25 --
----- ----- -----
Cash - End of Period $ 389 $ 150 $ 25
===== ===== =====
Supplemental Cash Flow Information:
Cash paid during the periods for:
Interest $ 343 $ 116 $ 141
Income Taxes $ -- $ -- $ --
Non-Cash Transactions:
Debt Issued for Engineering
Acquisition $ 675 $ -- $ --
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
F-6
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(1) Business
AdAl Group Inc. (the "Company"), through its operating subsidiaries, is a
diversified producer of aluminum extrusions and manufactured parts. The
Company's two principal operating subsidiaries are AdAl Seco ("Seco") and AdAl
Engineering (formerly W.H.J. Fagg & Son Ltd.) ("Engineering"), both of which are
located in England. The Company's customers are also based in England. Seco is a
provider of aluminum extrusion design and production services, providing
complete supply-chain management including component design, fabrication,
warehousing and delivery. These added value products are sold through the AdAl
Seco brands, AdAl Extra and AdAl Climatix. Engineering provides precision
engineering, tool making and volume production of machined (primarily aluminum)
components principally for the automotive industry. Engineering was acquired
effective February 1, 2004.
(2) Organization and Basis of Presentation
AdAl Group Inc., a Delaware corporation, was formerly known as Sunningdale, Inc.
("Sunningdale") a shell corporation. A merger of Sunningdale and Advanced
Aluminium Group Ltd. ("AAG") incorporated under the laws of England, was
completed on October 28, 2004. The merger has been treated for accounting and
financial reporting purposes as a reverse acquisition of Sunningdale by AAG,
since the former AAG stockholders control the Company after the merger. Under
this accounting treatment, AAG is deemed for accounting purposes to be the
acquiring entity and Sunningdale the acquired entity. Accordingly, the
transaction has been treated as a recapitalization of AAG, with no goodwill
recorded. The financial statements of the Company after the merger now reflect
AAG on a historical basis. All references to the "Company" means AdAl Group Inc.
and its subsidiaries. As of the date of the merger, Sunningdale had total assets
of $15 and total liabilities of $15, which were assumed by the Company.
Effective October 20, 2003, AAG acquired all of the outstanding capital stock of
Advanced Aluminium Industries, Ltd. ("AAI"). AAI's activities as of the date of
acquisition consisted solely of the ownership of Seco, which was acquired by AAI
on October 20, 2003.
Since October 20, 2003 ("Inception") the Company's activities consisted solely
of activities related to the operation of AAI and Seco. Such activities, which
were not significant, have been included in the consolidated statement of
operations for the Company for the period from Inception through December 31,
2003. The primary operating activities included in the consolidated statement of
operations for the Company for the period from Inception through December 31,
2003 are those of Seco, which became an indirect subsidiary of the Company,
through its AAI subsidiary, on October 20, 2003.
The consolidated balance sheets as of October 19, 2003 and the consolidated
statements of operations and cash flows for the period from January 1, 2003 to
October 19, 2003 represent the financial position and results of operations and
cash flows of Seco, which was the "Predecessor Company" through the date of
acquisition. The consolidated balance sheets as of December 31, 2004 and
December 31, 2003 and consolidated statements of operations and cash flows for
the year ended December 31, 2004 and for the period from October 20, 2003
(Inception) to December 31, 2003 represent the consolidated financial position
and results of operations and cash flows for the Company and its subsidiaries.
The operations of Engineering have been included since February 1, 2004, the
date on which AAI acquired all of the outstanding capital stock of Engineering.
All amounts in the financial statements are presented in thousands of U.S.
Dollars.
(3) Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of its wholly-owned direct and indirect
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(3) Significant Accounting Policies (Continued)
Foreign Currency - The Company headquarters and principal business operations
are located in England. Although most purchase contracts for aluminum are
denominated in U.S. dollars, all other expenses and all revenues are denominated
in UK Pound Sterling. As such, management has determined that the functional
currency for financial reporting purposes is the UK Pound Sterling. Translation
into U.S. dollars has been accomplished in the following manner: assets and
liabilities using the exchange rates in effect at the balance sheet date,
stockholders equity at historical rates, and results of operations and cash
flows at the average exchange rates during the period. The effect of exchange
rate changes is reflected as a separate component of stockholders' equity.
Use of Estimates - The preparation of the financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the periods reported. Actual results could differ from those
estimates.
Cash and Cash Equivalents - The Company considers all highly liquid debt
securities purchased with an original maturity of three months or less to be
cash equivalents.
Inventories - Inventories consist primarily of raw materials (principally
aluminum billets, extrusions and bar stock) and work in process/finished goods,
(aluminum extrusions and machined parts). Inventories are stated at the lower of
cost (first-in, first-out method) or market. Inventories consist of:
December 31,
2004
------------
Raw Materials $ 1,255
Work in Process and Finished Goods 1,153
------------
Totals $ 2,408
------ ============
Income Taxes - The Company accounts for income taxes under the liability method,
whereby current and deferred tax assets and liabilities are determined based on
tax rates and laws enacted as of the balance sheet date. Deferred tax expense
(benefit) represents the change in the deferred tax asset/liability balance.
Property, Plant and Equipment - Property and equipment is stated at cost.
Depreciation is computed principally using the straight-line method. The
estimated useful lives are:
Buildings and Improvements 50 Years
Equipment, Furniture and Fixtures 3 to 15 Years
Vehicles 3 to 5 Years
Expenditures for maintenance and repairs that do not materially extend the
useful lives of property, plant and equipment are charged to earnings. When
property or equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts with the
resulting gain or loss reflected in earnings. Property, plant and equipment
consist of the following:
December 31,
2004
------------
Land, Buildings and Improvements $ 2,521
Equipment, Furniture and Fixtures 12,214
Vehicles 66
------------
Totals 14,801
Less Accumulated Depreciation (8,572)
------------
Property, Plant and Equipment - Net $ 6,229
============
Depreciation expense was $1,100 for the year ended December 31, 2004, $111 for
the period ended December 31, 2003, and $657 for the period from January 1, 2003
to October 20, 2003.
F-8
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(3) Significant Accounting Policies (continued)
Intangible Assets - Customer lists are the sole intangible asset of the Company.
These are recorded at cost and are amortized utilizing the straight-line method
over a period of 5 years. The customer lists were recorded at a value of $606
and there was $80 of amortization expense during the year ended December 31,
2004 with none prior. When changing circumstances warrant, the Company evaluates
the carrying value and the period of amortization based on the current and
expected future undiscounted cash flows from operations to determine whether a
revised estimate of carrying value or useful life is required.
Year ended
December 31, Total
------------ -----
2005 $ 129
2006 129
2007 129
2008 129
Thereafter 10
------------
Total $ 526
============
The Company assesses intangible assets for impairment on a periodic basis and
more frequently when circumstances warrant. No impairment has been recorded
during the periods presented.
Revenue Recognition - The Company recognizes revenue after its product is
shipped and collectability is reasonably assured.
Net Revenues - Net revenues include the amounts charged for products shipped to
customers, plus recoveries of the freight charges to ship the product from the
manufacturing facility to the customer.
Cost of Sales - Cost of sales includes the direct cost of the product, including
material, labor, overhead, depreciation and the freight charges to ship the
product to the customer.
Selling, General and Administrative Expenses - Selling general and
administrative expenses include costs for administrative and sales employee
wages, benefits, legal, accounting and consulting services and other general and
administrative costs.
Impairment of Long-Lived Assets - The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such factors and
circumstances exist, the projected undiscounted future cash flows associated
with the future use and disposal of the related asset or group of assets is
compared to their respective carrying amounts. Impairment, if any, is measured
as the excess of the carrying amount over the fair value, based on market value
when available, or discounted expected cash flows, of those assets and is
recorded in the period in which the determination is made.
Fair Value of Financial Instruments - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No.107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosing fair value, to the extent practicable,
for financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value amount consider the tax consequences of realization or
settlement.
In assessing the fair value of these financial instruments, the Company used a
variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, related party and trade and notes payable, it was
assumed that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities.
The fair value of long-term debt is based upon current rates at which the
Company could borrow funds with similar remaining maturities. It was assumed
that the carrying amount approximated fair value for these instruments.
Research and Development Costs - The Company does not have a research and
development department. The development activity generally relates to designing
new products, which is principally done by employees with general administrative
or other operating responsibility. As such, the Company does not separately
account for such costs. However, management believes the total amounts expended
on these activities are not significant. All such costs are expensed as
incurred.
F-9
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(3) Significant Accounting Policies (continued)
Advertising - The Company expenses advertising costs as incurred. Advertising
expenses were approximately $15 for the year ended December 31, 2004, $2 for the
period from October 20, 2003 to December 31, 2003, and $6 for the period from
January 1, 2003 to October 19, 2003.
Stock-Based Compensation - We account for stock-based compensation utilizing the
intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees" and related Interpretations. Accordingly, no compensation expense is
recognized because the exercise prices of these employee stock options equal or
exceed the estimated fair market value of the underlying stock on the dates of
grant.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based
Payment". SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock
Based Compensation", and supersedes APB 25. Among other items, SFAS 123R
eliminates the use of APB 25 and the intrinsic value method of accounting, and
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial statements. The effective date of SFAS 123R is
the first reporting period beginning after June 15, 2005, which is third quarter
2005 for calendar year companies, although early adoption is allowed. SFAS 123R
requires companies to adopt its requirements using a "modified prospective"
method. Under the "modified prospective" method, compensation cost is recognized
in the financial statements beginning with the effective date, based on the
requirements of SFAS 123R for all share-based payments granted after that date,
and based on the requirements of SFAS 123 for all unvested awards granted prior
to the effective date of SFAS 123R. The "modified retrospective" method also
permits entities to restate financial statements of previous periods based on
proforma disclosures made in accordance with SFAS 123.
We currently utilize a standard option pricing model (i.e., Black-Scholes) to
measure the fair value of stock options granted to employees. While SFAS 123R
permits entities to continue to use such a model, the standard also permits the
use of a "lattice" model. We have not yet determined which model we will use to
measure the fair value of employee stock options upon the adoption of SFAS 123R.
SFAS 123R also requires that the benefits associated with the tax deductions in
excess of recognized compensation cost be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. We
have not yet determined what effect, if any, this change will have on future
periods.
We currently expect to adopt SFAS 123R effective July 1, 2005; however, we have
not yet determined which of the aforementioned adoption methods we will use.
Earnings (Loss) Per Share - Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share is computed giving
effect to all potentially dilutive common stock. There were no potentially
dilutive items for the periods presented. The weighted average shares
outstanding were 2,339,625 for the year ended December 31, 2004 and 2,295,000
for the other periods presented, including the Predecessor Company.
Recent Accounting Pronouncements - In October 2004, the FASB issued No. 151
"Inventory - an amendment of ARB No. 43, Chapter 4." This Statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). This Statement requires that those items
be recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. Adoption of this statement is not
expected to have a material impact on our financial statements.
In November 2004, the FASB issued SFAS No. 152 "Accounting for Real Estate
Time-Sharing Transactions - An amendment of SFAS No. 66 and 67." This Statement
amends SFAS No. 66. "Accounting for Sales of Real Estate," to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
"Accounting for Real Estate Time-Sharing Transactions." This Statement also
amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects," to state the guidance for (a) incidental costs and (b) costs
incurred to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to
guidance in SOP 04-2. SFAS No. 152 is effective for financial statements for
fiscal years beginning after June 15, 2005. Adoption of this Statement is not
expected to have a material impact on our financial statements.
In November 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment to APBO No. 29." This Statement amends APBO 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This is effective for fiscal periods beginning after June 15,
2005. Adoption of this Statement is not expected to have a material impact on
our financial statements.
F-10
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(4) Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate the continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. For the year ended
December 31, 2004, the Company has a net loss of approximately $2,290, a working
capital deficiency of approximately $4,179 and an accumulated deficit of
approximately $2,454. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management plans to secure
additional financing through the following actions:
o In February 2005 we moved AdAl Engineering's accounts receivable
revolving credit facility from the existing bank to the same bank
used by AdAl Seco. This move provided an additional $170 of
availability due to an improved advance rate against eligible
accounts receivable.
o The bank holding the mortgage on the Witham facility has agreed to
refinance the loan and allow us to increase our borrowings to 75% of
the current appraised value of the property. This will generate
incremental funding of approximately $300 and is expected to close
in late April 2005.
o We have established a credit agreement with a bank based on the
finished goods inventory at AdAl Seco, which will provide
approximately $320 of cash availability. Funding is expected to
close by the end of April 2005.
o Two directors of the Company have agreed to lend the Company $150
each for a total of $300. These loans are expected to be in place in
May 2005.
o On April 11, 2005 the investment committee of an investment company
approved a term sheet, subject to completion of final due diligence,
to provide $3,000 in funding through a three year convertible loan
facility. The first $1,000 of funds is expected to be received in
May 2005, and can be used for any purpose. The remaining $2,000 is
reserved for use in future acquisitions.
The above actions are expected to provide additional cash resources of
approximately $2,090 in the first half of 2005. Management believes that this
additional cash will be adequate to sustain operations until the Company
generates sufficient cash flows from operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
(5) Acquisitions
On October 20, 2003, the Company purchased all of the outstanding shares of the
Predecessor Company through its wholly-owned AAI subsidiary, for cash of
approximately $3.9000, including acquisition costs of approximately $125.
Accordingly, the results of operations of AdAl Seco are included in the
consolidated financial statements of the Company from the date of acquisition.
Because the total purchase price was less than the net book value of the
Predecessor Company, no allocation of the purchase price was made, and the
amount paid below net book value of approximately $913 was recorded as a
reduction to land, buildings and improvements.
On January 31, 2004, the Company purchased all of the outstanding shares of
W.H.J. Fagg & Son Ltd. ("Fagg") through its wholly-owned AAI subsidiary, for a
total investment of approximately $1,400 including transaction related costs of
$64. Payment was made in the form of cash of $739 and notes in the amount of
$675. Fagg was subsequently renamed AdAl Engineering. Engineering provides
precision engineering, tool making and volume production of machined aluminum
components principally for the automotive industry. The engineering and
machining capabilities of Engineering are complementary to the extrusion
business of Seco. The investment in excess of the net book value of Engineering
has been allocated to intangible assets, representing the value assigned to
Engineering's customer list, and is being amortized over five years using the
straight-line method. The results of operations of Engineering are included in
the consolidated financial statements of the Company beginning February 1, 2004.
F-11
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(5) Acquisitions (Continued)
The following condensed balance sheet information has been derived from the
audited balance sheet of Engineering as of January 31, 2004.
The assets acquired including the cost in excess of net assets acquired and
liabilities assumed in the acquisition of Engineering are as follows:
Tangible Assets acquired at Fair Value $ 2,725
Cost in excess of net assets acquired (customer lists) 606
Liabilities Assumed at Fair Value (1,917)
------------
Total Purchase Price $ 1,414
============
Selected unaudited proforma combined results of operations for the year ended
December 31, 2003, assuming that the Predecessor Company and Engineering
acquisitions occurred on January 1, 2003, including activity subsequent to their
actual acquisitions is as follows:
Year Ended
December
2003
----------
Net Sales:
Predecessor Company and the Company from Inception $ 21,308
Engineering 5,034
-----------
Combined $ 26,342
===========
Net Income:
Predecessor Company and the Company from Inception $ (108)
Engineering (155)
-----------
Combined $ (263)
===========
(6) Related Party Transactions
During the year ended December 31, 2004, the Company leased office space from a
Director on a month-to-month basis. The total of such rental expenses was
approximately $9 during the year ended December 31, 2004 with no expense in
other periods. This rent was included as a component of selling, general and
administrative expense.
On October 28, 2004, the Company entered into a financial advisory agreement
with an entity related to a former director of the Company who is also a major
shareholder. A fee of $190 was accrued related to this agreement, of which $70
was paid through December 31, 2004.
F-12
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(7) Concentrations
(A) Concentration of Credit Risk - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consists
principally of cash and cash equivalents and accounts receivable.
The Company and its subsidiaries maintain their cash and cash equivalents in
accounts with two major financial institutions in England and, principally in
the form of demand deposit accounts. Deposits in these banks may exceed the
amounts of insurance provided on such deposits. The Company has not experienced
any losses on its deposits of cash and cash equivalents.
The Company believes that the concentration of credit risk in its accounts
receivables is substantially mitigated by the Company's evaluation process,
relatively short collection terms, the high level of credit worthiness of its
customers and in the case of Seco the purchase of credit insurance for its
accounts receivable. The Company performs ongoing credit evaluations of its
customers' financial condition, but generally requires no collateral. Management
has entered into an insurance agreement to guarantee certain customer accounts
receivable balances up to specified limits as defined in the insurance
agreement. For those customer not covered under the insurance agreement the
Company often requires the customer to prepay for goods as a condition of sale.
The Company records an allowance for doubtful accounts specific to the accounts
receivable balances outstanding based upon the results of its evaluation of its
customers' financial condition and consideration of the insured balance. As of
December 31, 2004 the Company determined that no allowance for doubtful accounts
was required. Historically, the Company has recorded an immaterial amount of bad
debt write-offs.
(B) Concentration of Sources of Labor - Approximately 50% of the employees of
Seco, an indirect subsidiary of the Company are members of a trade union. Seco
is not a party to any collective bargaining agreement with this trade union.
Management believes that it has a good relationship with its employees.
(C) Concentration of Sources of Materials - Seco purchases aluminum billets from
five smelters. Though these billets are commonly used by extruders, a disruption
in the supply from these smelters could cause production delays or a material
increase in production costs. The Company has entered into forward supply
contracts with these smelters to minimize such risk [See Note 6].
(8) Commitments and Contingencies
Operating Leases - The Company leases various vehicles and equipment under
operating leases. Rent expense for such vehicles and equipment was $68 for the
year ended December 31, 2004, $10 for the period from October 20, 2003 to
December 31, 2003, and $24 for the period from January 1, 2003 to October 19,
2003.
Future minimum lease payments under operating leases at December 31, 2003 are as
follows:
Years Ending
December 31, Amount
------------ ------
2004 $ 49
2005 42
2006 33
2007 13
Thereafter 1
-------
Total $ 138
=======
Purchase Contracts - AdAl Seco, an indirect subsidiary of the Company, requires
a supply of aluminum billets as raw materials for its production process. Though
these billets are generally available on the open market, the Company has
entered into purchase contracts with five smelters to reduce the risk of a
disruption in supply. These contracts are for the delivery of billets per month
at an agreed rate for up to twelve months into the future. Production cost per
ton is set under an annual master agreement with each smelter. In advance of
production, the Company places material orders with the smelter, at which time
the cost of aluminum is determined.
At December 31, 2004 and December 31, 2003, there were purchase agreements
totaling approximately $3,500 and $829 respectively.
F-13
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(9) Debt
The Company has a Credit Agreement with a bank that allows the Company to borrow
against customer accounts receivable of AdAl Seco, subject to certain
restrictions. Under the terms of the Credit Agreement, the Company may borrow up
to a maximum of $9,600, subject to the availability of eligible customer
receivables. Interest is charged at the rate of 2% above the Base Rate of the
Bank of England for the first $4,000 borrowed and 1.4% above the Base Rate of
the Bank of England for the balance. At December 31, 2004, the Base Rate of the
Bank of England was 4.75%. The Company pays a commitment fee equal to 0.14% of
the eligible accounts receivable, at the time the accounts receivable are
reported to the bank. The amounts outstanding under this agreement are secured
by all of the outstanding accounts receivable of AdAl Seco. The term of the
Credit Agreement is open, but can be terminated by either party with 90 days
notice and as such is classified as a component of current liabilities. As of
December 31, 2004, there was $4,955 outstanding under the Credit Agreement. As
of December 31, 2004, the Company had unused borrowing availability of $584.
The Company also has a Credit Agreement with another bank that allows the
Company to borrow against customer accounts receivable of AdAl Engineering,
subject to certain restrictions. Under the terms of the Credit Agreement, the
Company may borrow up to a maximum of $770, subject to the availability of
eligible customer receivables. Interest is charged at the rate of 2.20% above
the Base Rate of the Bank of England (6.95% at December 31, 2004). The Company
pays a commitment fee equal to 0.50% of the eligible accounts receivable, at the
time the accounts receivable are reported to the bank. The amounts outstanding
under this agreement are secured by all of the outstanding accounts receivable
of AdAl Engineering. The term of the Credit Agreement is open, but can be
terminated by either party with 90 days notice and as such is classified as a
component of current liabilities. As of December 31, 2004, there was $393
outstanding under the Credit Agreement. As of December 31, 2004, the Company had
unused borrowing availability of $166.
As of December 31, 2004, the weighted average interest rate for the credit
agreements was 6.49%.
The Company has an overdraft agreement with a bank that allows the Company to
borrow up to $1,000. As of December 31, 2004, there was $700 outstanding under
the agreement. The proceeds are to be used to finance building reconstruction
and will be converted into a mortgage upon completion of the construction. The
outstanding balance bears interest at 1.5% above the Base Rate of the Bank of
England (6.25% at December 31, 2004). The loan is secured by a lien on the
Company's real estate, including land, buildings and improvements of the
facilities located in Witham, England. These amounts are classified as a
component of short term liabilities.
In connection with the acquisition of AdAl Engineering in January 2004, the
Company issued notes payable to the former owners in the original amount of
approximately $675. The notes did not bear interest and were paid in full in
November 2004.
Long-term debt consisted of the following at December 31, 2004:
December 31,
2004
-----------
Mortgage Loan, 6.435% Due January 2019 $ 3,670
Machinery and Equipment Loans 1,200
------------
Total Long-Term Debt 4,870
Less: Amounts Due Within One Year (595)
------------
Long-Term Portion $ 4,275
============
The mortgage loan is secured by the real estate, including land, buildings and
improvements of the facilities located in Witham, England, and has a 15 year
term. The interest rate on the mortgage is fixed for five years, after which
time the Company has the option to accept a fixed rate based upon the then
market rates or accept a variable rate at the Bank of England Base Rate plus
1.5%.
F-14
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(9) Debt (continued)
The machinery and equipment loans are secured by certain machinery and equipment
of Engineering. The agreements range from 3 to 5 years with interest ranging
between 5% and 8%.
Following are the principal amounts due under long-term debt as of December 31,
2004 by fiscal year:
Years Ending
December 31, Amount
------------ ------
2005 $ 595
2006 513
2007 386
2008 337
2009 264
Thereafter 2,775
-----------
Total $ 4,870
===========
(10)Common Stock
The Company has 100,000,000 shares of common stock authorized and 2,550,000
shares issued and outstanding as of December 31, 2004. The Company does not have
any equity incentive plans or other stock based compensation plans. There are no
outstanding warrants for the purchase of common stock.
(11) Income Taxes
A reconciliation between the Company's effective tax rate and the U.S. statutory
rate is as follows:
Predecessor
AdAl Group Inc. Company
--------------- -------
October 20, January 1,
Year Ended 2003 to 2003 to
December 31, December 31, October 19,
2004 2003 2003
---- ---- ----
U.S. statutory rate applied to
income from continuing operations
before taxes 35% 35% 35%
---- ---- ----
Differential arising from:
Foreign operations (5%) (5%) (5%)
Other Permanent Differences -- 18% 22%
Utilization of Net Operating
Loss Carryforwards (30%) (30%) (30%)
Effective Rate --% (18%) 22%
==== ==== ====
F-15
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(11) Income Taxes (continued)
Foreign operations comprised substantially all operations for fiscal 2004 and
2003. The provision (benefit) from income taxes shown in the consolidated
statements of operations consists of the following:
Predecessor
AdAl Group Inc. Company
--------------- -------
October 20, January 1,
Year Ended 2003 to 2003 to
December 31, December 31, October 19,
2004 2003 2002
----------- ------------ ------------
Current Provision
Federal $ -- $ -- $ --
Foreign -- (54) 165
State -- -- --
----- ----- -----
Total $ -- $ (54) $ 165
----- ----- -----
Deferred Provision
Federal $ -- $ -- $ --
Foreign (3) 18 (45)
State -- -- --
----- ----- -----
Total $ (3) $ 18 $ (45)
----- ----- -----
Grand Total $ (3) $ (36) $ 120
===== ===== =====
Deferred Income taxes at December 31, 2004 consisted of the following:
Year Ended
December 31,
2004
------------
Current Deferred Tax Asset:
Net Operating Loss Carryforward $ 259
Valuation Reserve (222)
---------
Total $ 37
=========
Non-Current Deferred Tax Liability:
Depreciation and Amortization $ (99)
=========
Tax benefits of operating loss carryforwards are evaluated on an ongoing basis,
including a review of historical and projected future operating results, the
eligible carryforward period, and other circumstances. Management believes that
it is more likely than not that the deferred tax assets will be realized. During
fiscal 2004 the Company had no current tax liability due to current period
losses, foreign tax adjustments and utilization of net operating loss
carryforwards. Management has recorded a valuation allowance on available net
operating losses to adjust the deferred tax asset to an amount that is more
likely than not to be realizable.
(12) Retirement Plans
The Company has defined contribution plans covering certain employees. The
Company's annual contribution to the defined contribution plans is based on the
matching of employee minimum contributions up to 2% of annual salary and
amounted to $82 for the year ended December 31, 2004, $13 for the period from
October 20, 2003 to December 31, 2003, and, $50 for the period from January 1,
2003 to October 19, 2003.
F-16
ADAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(13) Subsequent Event (Unaudited)
On February 7, 2005, the Company purchased all of the outstanding shares of
Guilform Holdings Ltd. ("Guilform"), for a total investment of $2,625. Payment
was made in the form of cash of $600 and notes in the amount of $375 and $1,650
from the issuance of 300,000 shares of the Company's common stock. Guilform
makes aluminum-based products for use in architecture, notably metal cladding
panels and composite panels which provide thermal and acoustic insulation and
fire protection.
The following condensed balance sheet information has been derived from the
audited balance sheet of Guilform as of December 31, 2004.
The assets acquired and liabilities assumed in the acquisition of Guilform are
as follows:
Tangible Assets acquired at Fair Value $ 3,942
Cost in excess of net assets acquired 914
Liabilities Assumed at Fair Value (2,231)
--------
Total Purchase Price $ 2,625
========
Selected unaudited pro-forma combined results of operations for the years ended
December 31, 2004, assuming that the Predecessor Company and Engineering
acquisitions occurred on January 1, 2004, including activity subsequent to their
actual acquisitions is as follows:
Year Ended
December
31, 2004
(In thousands of U.S. dollars)
------------------------------
Net Sales:
Company $ 29,228
Guilform (Year ended September 30, 2004) 4,141
------------
Combined $ 33,369
============
Net Income:
Company $ (2,290)
Guilform (Year ended September 30, 2004) (384)
------------
Combined $ (2,674)
============
In February of 2005, the Company issued 10,000 shares of common stock to its
independent Directors as compensation for their efforts on behalf of the
Company.
In February of 2005 the Company issued 1 share of stock to resolve a dispute.
In February of 2005 the Company refinanced the secured credit agreement of AdAl
Engineering. As the result of this refinance, the credit terms for Engineering
are substantially similar to those of the AdAl Seco secured credit agreement.
On April 8, 2005, the Company and the Keating Reverse Merger Fund, LLC agree to
amend their Exchange Agreement to terminate the anti-dilution provision. As
consideration for this termination the Company agreed to issue 125,000 shares of
its Common Stock to the Keating Reverse Merger Fund, LLC.
F-17
Item 8: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The financial statements of the Company prior to completion of the reverse
merger described elsewhere in this Form 10-KSB, were audited by Hein &
Associates LLP ("Hein"). As reported on Form 8-K dated October 28, 2004, we
ended the engagement of Hein & Associates, LLP as our independent certified
public accountants. The decision was approved by the Board of Directors of the
Company. Our Board of Directors appointed Moore Stephens, P.C. as the Company's
independent registered public accounting firm for the year ending December 31,
2004. There were no disagreements between the Company and Hein regarding any
accounting or financial disclosures.
Item 8A: Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the end of the
period covered by this report. Based on this evaluation, such officers have
concluded that, as of December 31, 2004, the Company's disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to the Company required to be included in the Company's
periodic filings under the Exchange Act.
(b) Changes in internal control over financial reporting.
During the quarter ended December 31, 2004, there were no changes in our
internal control over financial reporting that materially affected, or are
reasonably likely to affect, our internal control over financial reporting.
While we believe our internal controls are adequate and that there are no
material weaknesses, it should be noted that our disclosure controls and
procedures and our internal controls will not necessarily prevent all error or
fraud, and can thus not provide absolute assurance that all control issues or
fraud can be detected.
Item 8B. Other Information
None.
PART III
Item 9. Directors and Officers
Information regarding directors and executive officers of the
Company is incorporated by reference to our definitive proxy statement filed
with the SEC pursuant to Regulation 14A on April 8, 2005, in connection with the
2005 Annual Meeting of Stockholders.
Item 10. Executive Compensation.
Information regarding executive compensation is incorporated by
reference to our definitive proxy statement filed with the SEC pursuant to
Regulation 14A on April 8, 2005, in connection with the 2005 Annual Meeting of
Stockholders.
18
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Information regarding security ownership of certain beneficial
owners and management and related stockholder matters is incorporated by
reference to our definitive proxy statement filed with the SEC pursuant to
Regulation 14A on April 8, 2005, in connection with the 2005 Annual Meeting of
Stockholders.
Item 12. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions
is incorporated by reference to our definitive proxy statement filed with the
SEC pursuant to Regulation 14A on April 8, 2005, in connection with the 2005
Annual Meeting of Stockholders.
Item 13 Exhibits, List and Reports on Form 8-K.
Exhibits
The following exhibits are filed as part of this report:
Exhibit
Number Description
--------------------------------------------------------------------------------------------------------------------
2.1 Share Exchange Agreement, by and among the Registrant., the stockholders of Advanced Aluminium Group,
Ltd., Advanced Aluminium Group, Ltd. and the Keating Reverse Merger Fund, dated September 22, 2004
(1)
2.2 Financial Advisory Agreement, by and between the Registrant and Keating Securities, LLC. dated
October 28, 2004 (2)
2.3 Voting Agreement, by and among the Registrant, the Keating Reverse Merger Fund, LLC and the
Stockholders of Advanced Aluminium Group, Ltd., dated October 28, 2004 (2)
2.4 Share Sale and Purchase Agreement Relating to Guilform Holding Limited, between Keith Malcolm Broome
and the Registrant, dated February 7, 2005 (3)
3.1* Certificate of Incorporation, as amended
3.2 By-laws (4)
14* Code of Ethics
21* Subsidiaries of the Registrant
31.1* CEO Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
31.2* CFO Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
32.1* CEO Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
32.2* CFO Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
----------------------
* Filed herewith
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on September 22, 2004
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on October 28, 2004
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on February 11, 2005
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB filed with the SEC on February 14, 1997
19
Reports on Form 8-K:
On October 28, 2004, we filed a Current Report on Form 8-K, under
Items 3.02, 5.01, 5.03 and 9.01 to reports Sales of Unregistered Equity
Securities, Change in Control and Change in Fiscal Year. The following financial
statements were attached to the Form 8-K.
a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) Consolidated Balance Sheets - Consolidated balance sheets
of Advanced Aluminium Group Ltd. and its Subsidiaries as of June 30, 2004
(unaudited) and December 31, 2003, and of Seco Aluminium Ltd. (as Predecessor
Company) as of October 19, 2003 and December 31, 2002
(2) Consolidated Statements of Operations - Consolidated
statements of operations of Advanced Aluminium Group Ltd. and its Subsidiaries
for the six months ended June 30, 2004 (unaudited) and for the period from
October 20, 2003 (inception) to December 31, 2003, and of Seco Aluminium Ltd.
(as Predecessor Company) for the six months ended June 30, 2003 (unaudited) and
for the period from January 1, 2003 to October 19, 2003 and for the year ended
December 31, 2002
(3) Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Income (Loss) - Consolidated statements of stockholders'
equity (deficit) and comprehensive income (loss) of Advanced Aluminium Group
Ltd. and its Subsidiaries for the period from October 20, 2003 (inception) to
December 31, 2003 and for the six months ended June 30, 2004 (unaudited)
(4) Consolidated Statements of Cash Flows - Consolidated
statements of cash flows of Advanced Aluminium Group Ltd. and its Subsidiaries
for the six months ended June 30, 2004 (unaudited) and for the period from
October 20, 2003 (inception) to December 31, 2003, and of Seco Aluminium Ltd.
(as Predecessor Company) for the six months ended June 30, 2003 (unaudited) and
for the period from January 1, 2003 to October 19, 2003 and for the year ended
December 31, 2002
b) PRO FORMA FINANCIAL INFORMATION
(1) Unaudited Pro Forma Combined Balance Sheet as of June 30,
2004
(2) Unaudited Pro Forma Combined Statements of Operations for
the six month period ended June 30, 2004 and for the year ended December 31,
2003.
On October 29, 2004, we filed a Current Report on Form 8-K under
Items 4.01 and 9.01, Changes in Registrant's Certifying Accountant and Exhibits.
On November 12, 2004, we filed a Current Report on Form 8-K under
Items 5.03 and 9.01, Amendments to Articles of Incorporation and Exhibits.
On November 18, 2004, we filed a Current Report on Form 8-K under
Item 8.01 , Other Events.
Item 14 Principal Accountant Fees and Services
Information regarding principal accountant fees and services is
incorporated by reference to our definitive proxy statement filed with the SEC
pursuant to Regulation 14A on April 8, 2005, in connection with the 2005 Annual
Meeting of Stockholders.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 15, 2005 ADAL GROUP, INC.
By:/s/ Nicholas A. Shrager
----------------------------------------
Name: Nicholas A. Shrager
Title: Chief Executive Officer and
President (Principal Executive Officer)
By:/s/ Stephen Goodacre
----------------------------------------
Name: Stephen Goodacre
Title: Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this
Annual Report on Form 10-KSB is signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Nicholas A. Shrager Chief Executive Officer, President and April 15, 2005
--------------------------- Director (Principal Executive Officer)
Nicholas A. Shrager
/s/ Stephen Goodacre Chief Financial Officer (Principal April 15, 2005
--------------------------- Accounting Officer)
Stephen Goodacre
/s/ Charles K. Howe
--------------------------- Director April 15, 2005
Charles K. Howe
/s/ Brian Alleman
--------------------------- Director April 15, 2005
Brian Alleman
/s/ John Sanderson
--------------------------- Director April 15, 2005
John Sanderson
/s/ Keith M. Broome
--------------------------- Director April 15, 2005
Keith M. Broome
21
INDEX TO EXHIBITS
Exhibit
Number Description
--------------------------------------------------------------------------------------------------------------------
2.1 Share Exchange Agreement, by and among the Registrant., the stockholders of Advanced Aluminium Group,
Ltd., Advanced Aluminium Group, Ltd. and the Keating Reverse Merger Fund, dated September 22, 2004
(1)
2.2 Financial Advisory Agreement, by and between the Registrant and Keating Securities, LLC. dated
October 28, 2004 (2)
2.3 Voting Agreement, by and among the Registrant, the Keating Reverse Merger Fund, LLC and the
Stockholders of Advanced Aluminium Group, Ltd., dated October 28, 2004 (2)
2.4 Share Sale and Purchase Agreement Relating to Guilform Holding Limited, between Keith Malcolm Broome
and the Registrant, dated February 7, 2005 (3)
3.1* Certificate of Incorporation, as amended
3.2 By-laws (4)
14* Code of Ethics
21* Subsidiaries of the Registrant
31.1* CEO Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
31.2* CFO Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
32.1* CEO Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
32.2* CFO Certification Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
----------------------
* Filed herewith
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on September 22, 2004
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on October 28, 2004
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed with the SEC on February 11, 2005
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB filed with the SEC on February 14, 1997
22