U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2005
COMMISSION FILE NUMBER: 1-9431
AdAl Group, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3012230
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
BILLHURST STUDIO
LINGFIELD COMMON ROAD
LINGFIELD SURREY RH7 6B7, UK
----------------------------------------
(Address of principal executive offices)
441-342-833855
---------------------------
(Issuer's telephone number)
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 [_].
As of May 13, 2005, there were 2,985,001 shares of common stock, par value
$0.0001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X].
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION................................................................................. 3
Item 1. FINANCIAL STATEMENTS......................................................................... 3
Consolidated Condensed Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004. 3
Consolidated Condensed Statements of Operations for the three month periods ended March 31,
2005 and 2004 (unaudited).................................................................... 4
Consolidated Condensed Statements of Cash Flows for the three month periods ended March 31,
2005 and 2004 (unaudited).................................................................... 5
Notes to Consolidated Financial Statements (unaudited)....................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11
Item 3. Controls and Procedures...................................................................... 15
PART II - OTHER INFORMATION.................................................................................... 16
Item 1. LEGAL PROCEEDINGS............................................................................ 16
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.................................. 16
Item 3. DEFAULTS UPON SENIOR SECURITIES.............................................................. 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 16
Item 5. OTHER INFORMATION............................................................................ 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................. 16
SIGNATURES................................................................................... 17
CERTIFICATION................................................................................ 18
i
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AdAl Group, Inc and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
March 31 December 31
2 0 0 5 2 0 0 4
-------- --------
Assets: (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 264 $ 389
Accounts Receivable 8,118 6,845
Inventories 2,890 2,408
Deferred Tax Asset 72 37
Other Current Assets 484 314
-------- --------
Total Current Assets 11,828 9,993
Property, Plant and Equipment - Net 9,034 6,229
Intangible Assets 1,035 526
-------- --------
TOTAL ASSETS $ 21,897 $ 16,748
======== ========
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Short-Term Borrowings and Credit
Agreements $ 7,797 $ 6,048
Accounts Payable 7,091 6,243
Accrued Expenses - Related Party 90 120
Payroll and Excise Taxes Payable 759 617
Current Portion of Long-Term Debt 654 595
Other Current Liabilities 1,057 549
-------- --------
Total Current Liabilities 17,448 14,172
Long-Term Debt, Less Current Portion 5,995 4,275
Deferred Tax Liability 91 99
-------- --------
Total Liabilities 23,534 18,546
-------- --------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Common Stock, $0.0001 par value,
100,000,000 shares authorized,
2,860,001 and 2,550,000 shares issued and outstanding at March 31, 2005
and December 31, 2004, respectively -- --
Additional Paid In Capital 816 2
Retained Earnings (Deficit) (3,151) (2,454)
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment 698 654
-------- --------
Total Stockholders' (Deficit) (1,637) (1,798)
-------- --------
Total Liabilities and Stockholders' (Deficit) $ 21,897 $ 16,748
======== ========
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements.
3
AdAl Group, Inc and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITIED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
Three months ending
March 31,
-----------------------------
2 0 0 5 2 0 0 4
----------- -----------
Net Sales $ 7,896 $ 7,062
Cost of Sales 7,282 6,373
----------- -----------
Gross Profit 614 689
Selling, General and
Administrative Expense 1,048 748
----------- -----------
(Loss) from Operations (434) (59)
Interest Expense (263) (121)
(Loss) Before Income Taxes (697) (180)
Provision For Income Tax Expense -- 6
----------- -----------
Net (Loss) $ (697) $ (186)
=========== ===========
Earnings (Loss) Per Share - Basic and Diluted $ (0.26) $ (0.07)
=========== ===========
Weighted Average Number of Shares Outstanding 2,705,334 2,550,000
=========== ===========
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements.
4
AdAl Group, Inc and Subsidiaries
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Three months ending
March 31,
---------------------
2 0 0 5 2 0 0 4
------- -------
Operating Activities:
Net Income (Loss) $ (697) $ (186)
Adjustments to Reconcile Net (Loss) to Cash From Operations:
Depreciation and Amortization 369 291
Changes in Assets and Liabilities:
Decrease (Increase):
Receivables (755) 1,023
Inventories 32 (17)
Other Current Assets (83) 107
Increase (Decrease):
Accounts Payable 492 126
Other Current Liabilities 596 89
------- -------
Net Cash - Operating Activities (46) 1,433
------- -------
Investing Activities:
Business Acquisition (1,015) (732)
Capital Expenditures (549) (99)
------- -------
Net Cash - Investing Activities (1,564) (831)
------- -------
Financing Activities:
Net Changes to Short-Term Borrowings 1,392 (3,852)
Borrowing of Long-Term Debt 210 3,571
Payment of Long-Term Debt (146) --
Issuance of Common Stock 26 --
------- -------
Net Cash - Financing Activities 1,482 (281)
------- -------
Effect Of Exchange Rates Changes on Cash 3 (204)
------- -------
Net Increase (Decrease) in Cash - Forward $ (125) $ 117
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements.
5
AdAl Group, Inc and Subsidiaries
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
Three months ending
March 31,
---------------------
2 0 0 5 2 0 0 4
------- -------
(Unaudited) (Unaudited)
Net Increase (Decrease) in Cash - Forwarded $(125) $ 117
Cash - Beginning of Periods 389 150
Cash - End of Periods $ 264 $ 267
Supplemental Cash Flow Information:
Cash paid during the periods for:
Interest $ 251 $ 113
Income Taxes $ -- $ --
The Accompanying Notes are an Integral Part of the
Consolidated Financial Statements.
6
AdAl Group, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA, OR UNLESS OTHERWISE NOTED)
--------------------------------------------------------------------------------
(1) Basis of Presentation
The Consolidated Financial Statements include the accounts of AdAl Group, Inc.
and its subsidiaries (collectively, the "Company," "AdAl," "we," "us" or "our").
We are a diverse aluminum manufacturer with a value-added focus serving the
construction, automotive, medical, defense, transportation and HVAC industries
to name but just a few. Our worldwide headquarters is in Lingfield, Surrey,
United Kingdom and our manufacturing facilities are all currently in the United
Kingdom, in Witham, Essex and St.Albans, Hertfordshire. We are engaged primarily
in providing manufacturing, fabricating, precision engineering and design
services. Our principal subsidiaries are AdAl Seco Limited, AdAl Engineering
Limited and AdAl Guilform Limited. All material intercompany accounts and
transactions have been eliminated in consolidation.
These Consolidated Financial Statements are prepared in accordance with the
rules and regulations of the Securities and Exchange Commission (the "SEC") with
respect to Form 10-QSB and reflect all normal recurring adjustments that are, in
the opinion of management, necessary for a fair presentation of the financial
position of AdAl Group, Inc as of March 31, 2005 and the results of operations
and cash flows for the interim periods presented. Pursuant to such rules and
regulations, certain footnote disclosures that normally are required under
generally accepted accounting principles are omitted. These Consolidated
Financial Statements and notes should be read in conjunction with the audited
Consolidated Financial Statements and the notes thereto (the "2004 Consolidated
Financial Statements") included in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2004 (the "Form 10-KSB").
The Consolidated Financial Statements are prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
The nature of our business is such that the results of any interim period may
vary significantly from quarter to quarter and may not be indicative of the
results to be expected for the fiscal year.
(2) Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of AdAl and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
7
AdAl Group, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA, OR UNLESS OTHERWISE NOTED)
--------------------------------------------------------------------------------
Foreign Currency - AdAl headquarters and principal business operations are
located in England. Although most purchase contracts for aluminum billets 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 effected 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.
Revenue Recognition - The Company recognizes revenue after its product is
shipped and collectibility is reasonably assured.
Earnings (Loss) Per Share - Basic earnings (loss) per share are computed by
dividing net income (loss) by the weighted-average number of shares of common
stock outstanding for the period. Diluted earnings (loss) per share is computed
giving effect to all potentially dilutive common stock.
Intangibles. 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
weighted-average amortization period of 5 years. The customer lists were
recorded at a gross value of $1,163 and accumulated amortization of $128. There
was $41 of amortization expense during the three month period ended March 31,
2005 with $21 being recorded in the three months to March 31, 2004. 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. The estimated customer list amortization
expense for the fiscal year ending December 31, 2005, and for the subsequent
years is as follows:
Year ended
December 31, Total
------------ ------------
2005 $ 221
2006 240
2007 240
2008 240
Thereafter 94
------------
Total $ 1,035
============
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.
8
AdAl Group, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA, OR UNLESS OTHERWISE NOTED)
--------------------------------------------------------------------------------
Significant policies followed by the Company are set forth in Note 3 to the
Company's consolidated financial statements in the December 31, 2004 10-KSB
filed with the SEC.
(3) Acquisition of Guilform Holdings Limited
On February 7, 2005, the Company purchased all of the outstanding shares of
Guilform Holdings Ltd. ("Guilform"), for a total investment of $1.8 million.
Payment was made in the form of cash of $600 and notes in the amount of $375 and
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 investment in excess of the net book value of Guilform Holdings Limited has
been allocated to intangible assets, representing the value assigned to
Guilform's customer list, which is being amortized over five years using the
straight-line method. The results of operations of Guilform are included in the
consolidated financial statements beginning February 8, 2005.
The assets acquired and liabilities assumed in the acquisition of Guilform are
as follows:
Tangible Assets acquired at Fair Value $ 3,267
Cost in excess of net assets acquired 557
Liabilities Assumed at Fair Value (2,024)
------------
Total Purchase Price $ 1,800
============
(4) Commitments
Purchase Contracts - AdAl Seco, an indirect wholly-owned 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 March 31, 2005 and December 31, 2004, there were purchase agreements totaling
approximately $2,422 and $3,510 respectively.
9
AdAl Group, Inc and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE DATA, OR UNLESS OTHERWISE NOTED)
--------------------------------------------------------------------------------
(5) Going Concern
The accompanying consolidated financial statements have been prepared assuming
that we will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. We
have incurred net operating losses of approximately $697,000 for the three
months ended March 31, 2005, compared to $186,000 for the three months ended
March 31, 2004. Additionally, as of March 31, 2005, we had a net working capital
deficiency of approximately $5,620,000 and negative cash flows from operating
activities of approximately $46,000. Our management expects cash flows from
operating activities to improve in the second quarter of fiscal 2005, primarily
as a result of an increase in sales, and plans to raise financing through
various methods to achieve their business plans, although there can be no
assurance thereof. The accompanying consolidated financial statements do not
include any adjustments that might be necessary should we be unable to continue
as a going concern. If we fail to generate positive cash flows or obtain
additional financing when required, we may have to modify, delay or abandon some
or all of our business and expansion plans.
10
AdAl Group, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
The following discussion of the financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
related notes thereto. The following discussion contains certain forward-looking
statements that involve risk and uncertainties. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, risks and uncertainties
related to the need for additional funds, the rapid growth of the operations and
our ability to operate profitably after the initial growth period is completed.
This Quarterly Report on Form 10-QSB contains historical information as well as
forward-looking statements. Statements looking forward in time are included in
this Quarterly Report pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Such statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to be materially different from any future performance suggested
herein. For a further discussion concerning risks to the Company's business, the
results of its operations and its financial condition, reference is made to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2004.
RESULTS OF OPERATIONS
When reviewing the results of the operations compared to the prior year, it is
important to consider the evolution of the Company. The first quarter of 2004
includes a full quarter for AdAl Seco, two months for AdAl Engineering (acquired
on 30th January 2004), do not include any results for AdAl Guilform (acquired on
7th February 2005) and only reflects the start up of our corporate office and
the very beginnings of our corporate infrastructure, and does not include the
costs associated with being a US public company which on October 28, 2004. The
first quarter of 2005 includes a full quarter for AdAl Seco, AdAl Engineering,
our corporate office and costs associated with being a public company and
includes about two months of AdAl Guilform.
REVENUES. For the three months ended March 31, 2005 our consolidated revenues
were $7,896,000 compared to $7,062,000 for the comparable 2004 period, an
increase of $834,000 or (12%). The increase is due to incremental revenues from
AdAl Engineering $426,000 (mainly due to the extra month in 2005), $417,000 of
revenues from AdAl Guilform and $205,000 from favorable exchange rates (UK
sterling 3% stronger versus the dollar for the same period last year). These
gains are offset by a $214,000 revenue reduction at AdAl Seco, a decrease of
approximately 2%. Based on published industry data, we believe that the aluminum
extrusion market in the United Kingdom has suffered a downturn of between 10%
and 15% in the first quarter of 2005.
COST OF GOODS SOLD. Cost of goods sold as a percentage of sales were 92% for the
three months ended March 31, 2005 versus 90% for the same period in 2004.
This increase is largely due to the increased raw material costs, which we have
not yet passed through to customers. It typically takes 3 to 4 months to adjust
prices. Our capital investment program and operating efficiency plans are well
underway and we expect to see significant reductions in our cost of sales by the
year end and expect to see some impact in quarters two and three.
11
AdAl Group, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
--------------------------------------------------------------------------------
AdAl Seco's cost of goods sold was 94% of sales for the three months ending
March 31, 2005 compared to 90% in the same period last year. Raw material costs
were 56% of sales compared to 54% in the same period last year. Capital
investment in a new puller in December 2004 has helped our efficiency, but the
full impact will not be seen until we install other key pieces of equipment over
the next several months. Our next investment is scheduled for June 2005. Direct
Labor costs were also up by 0.4% as a percentage of sales mainly due to the
fixed nature of our direct labor and the lower sales volume. Manufacturing
overhead were up by 1% as a percentage of sales, mainly due to the lower sales
volume.
AdAl Engineering's cost of goods sold was 93% of sales for the three months
ending March 31, 2005 compared to 92% in the same period last year. Raw material
costs are down 8% compared to the same quarter last year due to an improved mix
of business in the first quarter of 2005. Manufacturing Overheads are up 9% on
the same period last year. This increase is partly due to the increased running
costs of the Engineering's new facility, the business moved into new facilities
on January 31, 2005, and partly due to one time costs associated with moving to
the new facility and vacating the previous one.
AdAl Guilform's cost of goods sold was almost equal to the sales for the period
and the first quarter of the year is typically very slow in AdAl Guilform's
marketplace. Revenues for the second quarter appear to be increasing and are
inline with our expectations.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. For the three month period ended
March 31, 2005, selling, general and administrative costs were $1,048,000
compared to $748,000 in the same period last year. At the operating company
level the SG&A costs are in line with the previous year. AdAl Guilform's SG&A
was $45,000 from February 8 through March 31 and there were no such expenses
included in our 2004 operating results. The remaining increase is due to; (a)
the expenses associated with running the group corporate office, $70,000
($198,000 for the three months ending March 31, 2005 versus $128,000 in the same
period of 2004) (b) costs associated with the US public company, principally
legal and accounting costs, $125,000 ($140,000 in the three months to March 31,
2005, versus $15,000 in the same period of 2004); (c) amortization of AdAl
Engineering and AdAl Guilform's customer lists of $20,000 ($41,000 in the three
months to March 31, 2005, versus $21,000 in the same period for 2004); and (d)
effect of exchange rates of $30,000.
INTEREST EXPENSE. Interest expense for the three months ended March 31, 2005 was
$263,000 compared with $121,000 for the three months ended March 31, 2004. The
increase of $142,000, $138,000 after adjusting for the $4,000 exchange rate
impact, is due to; (a) increases in the bank of England base rate $22,000 (base
rate 4.75 for the 2005 period versus 3.75 for the 2004 period); (b) additional
debt associated with the acquisition of AdAl Guilform $40,000 (c) additional
debt associated with development of the Witham site and the building of new
manufacturing facilities there $11,000; (d) incremental asset finance for new
machinery at AdAl Engineering $11,000; (e) increased use of existing short term
accounts receivable revolving credit facilities $54,000.
NET LOSS. For the three month period ended March 31, 2005, the net loss was
$697,000, or $0.26 per share, compared to net loss of $186,000, or $0.07 per
share for the three month period ending March 31, 2004.
12
AdAl Group, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets at March 31, 2005 were $21,897,000, which is
comprised of $9,034,000 property plant and equipment, accounts receivable
$8,118,000, inventory $2,890,000, cash and cash equivalents of $264,000
intangible assets (customer lists) from AdAl Engineering and AdAl Guilform
acquisitions $1,035,000 and other assets of $556,000.
The Company's current liabilities are $17,448,000. The Company has long-term
debt of $5,995,000, of which $654,000 is current.
The accumulated deficit as of March 31, 2005 is $1,637,000.
At March 31, 2005, the Company had a working capital deficit of $5,620,000. The
company reported a net loss of $697,000 for the quarter ending March 31, 2005.
Management believes that the loss is due to the trading conditions historically
prevalent in the first quarter in this industry, the relatively high corporate
overheads i.e. corporate overheads will decrease as a percentage of sales as we
grow the business organically and through acquisition and interest charges
associated with the companies' current debt structure. Given our status we had
no choice but to fund the building of our new manufacturing facility for AdAl
Engineering and the AdAl Guilform acquisition with debt.
Management has secured additional financing through the following actions:
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, $150,000 of
the funds was received on May 2, 2005, and the remaining $150,000 is
expected to be received by May 31, 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. Initial funding was received in April 2005. We are
pursuing similar inventory funding for AdAl Engineering, which is expected
to raise a further $200,000 by the end of June.
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 by
the end of the second quarter.
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. Financial due diligence is expected to be complete by May 16,
2005. 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 have provided $470,000 to date and are expected to provide
additional cash resources of approximately $1,500,000, after fees, 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.
13
AdAl Group, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
--------------------------------------------------------------------------------
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 revolving
credit facilities 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 additional 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 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.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any off balance sheet financing arrangements and has
not established any special purpose entities.
14
AdAl Group, Inc.
Item 3. Controls and Procedures
--------------------------------------------------------------------------------
We maintain "disclosure controls and procedures," as such term is defined
under Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our chief executive officer
and our chief financial officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)), have concluded that, as of
March 31, 2005, our disclosure controls and procedures were adequate and
designed to ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.
There were no significant changes in our internal controls or to our
knowledge, in other factors that could materially affect, or would be reasonably
likely to materially affect, our disclosure controls and procedures, or our
internal control over financial reporting, subsequent to March 31, 2005.
15
AdAl Group Inc
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. Description
---- ------------
31.1 Rule 13a-14(a) - Certification of Chief Executive Officer
31.2 Rule 13a-14(a) - Certification of Chief Financial Officer
32 18 U.S.C. Section 1350 Cert.
16
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.
AdAl Group, Inc.
By: /s/ Nicholas Shrager
-------------------------------------
Nicholas Shrager
President and Chief Executive Officer
By: /s/ Stephen Goodacre
-------------------------------------
Stephen Goodacre
Chief Financial Officer
Date: May 13, 2005
17