| ALLIED DEFENSE GROUP INC Item 1A Risk Factors 8 ITEM 1A RISK FACTORS OUR FINANCIAL RESULTS CONTINUE TO BE LARGELY INFLUENCED BY THE RESULTS OF MECAR MECAR continues to provide the principal portion of our revenues |
| In 2005, 2004 and 2003, MECAR contributed 60prca, 64prca, and 73prca, respectively, of our annual revenue |
| AT MECAR, OUR REVENUE CONTINUES TO BE CONCENTRATED AMONG A SMALL NUMBER OF CUSTOMERS A significant percentage of our revenue is concentrated among a relatively small number of end-user customers |
| During the last five calendar years, two agencies of The Kingdom of Saudi Arabia and the US Army, via direct sales and Foreign Military Sales (FMS), have provided the majority of our revenues |
| The loss of such a significant customer or a substantial decrease in sales to such a customer would have a material adverse effect on our revenue and operating results |
| Additionally, there may be significant gaps in time periods between receipt of significant contracts from these customers which may cause substantial swings in our operating results |
| MECAR DEPENDS UPON AN INDEPENDENT DISTRIBUTOR FOR THE SALE OF PRODUCTS AND ANY DISRUPTION IN THIS RELATIONSHIP COULD ADVERSELY AFFECT US MECAR currently sells and supports its products to its principal customers in the Kingdom of Saudi Arabia through an independent distributor |
| Any disruption or termination of this distributor relationship could negatively impact our operations |
| WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS AND OUR CUSTOMERS MAY CEASE PURCHASING OUR PRODUCTS AT ANY TIME We generally do not have long-term contracts with our customers |
| As a result, our agreements with our customers do not provide any assurance of future sales |
| Accordingly, while we have served our principal customers for many years, our customers can cease purchasing our products at any time without penalty |
| OUR MARKETS FOR AMMUNITION SALES ARE LIMITED BY THE AVAILABILITY OF BELGIAN EXPORT LICENSES Belgian law requires that MECAR obtain a government-issued export license to ship its ammunition products to other countries for each order it receives |
| From time to time, MECAR has been forced to decline an order from a customer due to refusal of the government to issue the export license |
| Such refusals have been based on actual or perceived deficiencies of the recipient country’s government or for other reasons |
| Failure to obtain export licenses for sales to MECAR’s traditional customer base would adversely affect our operations and financial results |
| OUR SUPPLIERS HAVE FROM TIME TO TIME BEEN LATE IN DELIVERY OF KEY SUPPLIES WHICH HAS DELAYED OUR PRODUCTION AND HAD A NEGATIVE IMPACT ON OUR FINANCIAL RESULTS MECAR’s operations are dependent on the ability of certain suppliers to deliver supplies on a timely basis |
| From time to time, MECAR has experienced substantial delays in receipt of needed supplies which has caused delays in MECAR’s production activities |
| FIRES OR EXPLOSIVE INCIDENTS MAY DISRUPT OUR AMMUNITION & WEAPONS EFFECTS BUSINESS MECAR’s products frequently involve the manufacture and/or handling of a variety of explosive and flammable materials |
| From time to time, this manufacturing and/or handling has resulted in incidents that have temporarily shut down or otherwise disrupted our manufacturing, causing production delays and resulting in liability for workplace injuries |
| We cannot assure you that we will not experience these types of incidents in the future or that these incidents will not result in production delays or otherwise have an adverse effect on our business, financial condition or results of operations |
| Our inability to negotiate acceptable terms with the unions could result in strikes or work stoppages or increased operating costs as a result of higher wages or benefits paid to union members |
| If the unionized workers were to engage in a strike or other work stoppage, we could experience a significant disruption of our operations or higher ongoing labor costs, either of which could adversely affect our business, financial condition or results of operations |
| The union employees are not subject to a national collective bargaining agreement with an established expiration date |
| 8 _________________________________________________________________ WE MAY EXPERIENCE PRODUCT FAILURES, SCHEDULE DELAYS OR OTHER PROBLEMS WITH EXISTING OR NEW PRODUCTS AND SYSTEMS, ANY OF WHICH COULD ADVERSELY IMPACT OUR BUSINESS We may experience product and service failures, schedule delays and other problems in connection with the manufacture or delivery of our products |
| In addition to any costs resulting from product warranties, contract performance or required remedial action, these failures may result in increased costs or loss of revenues due to postponement of subsequently scheduled product and service deliveries |
| Performance penalties could also be imposed should we fail to meet delivery schedules or other measures of contract performance |
| NEWLY FORMED SUBSIDIARIES MAY NOT PERFORM AS EXPECTED MECAR USA was formed to acquire munitions contracts in the United States and to serve as an extended production facility for MECAR Risks include the inability of MECAR USA to negotiate or win contracts in the United States, an unwillingness by potential customers to contract with a newly formed company, and/or the inability to generate enough revenue to cover operating costs over the long-term |
| Nor are there any guarantees that MECAR will be able to forward new or existing orders for fulfillment at MECAR USA LARGE CONTRACT ORDERS MAY NOT BE FULFILLED Due in part to a substantial Battlefield Effect Simulator (BES) contract award received in 2005, we expect that Titan will need to grow substantially to fulfill contract demands |
| Such expected large orders may not be performed on a profitable basis as Titan ramps up to meet the expected demand due to an inability to find key engineering personnel, enough production workers, supplier disruptions, etc WE ARE NOT ABLE TO GUARANTEE THAT CONTRACT ORDERS INCLUDED IN OUR ESTIMATED BACKLOG WILL RESULT IN ACTUAL REVENUES IN ANY PARTICULAR FISCAL PERIOD OR THAT THE ACTUAL REVENUES FROM SUCH CONTRACTS WILL EQUAL OUR ESTIMATED BACKLOG There can be no assurance that any contracts included in our estimated backlog presented in this filing will result in actual revenues in any particular period or that the actual revenues from such contracts will equal our estimated backlog |
| Further, there can be no assurance that any contract included in our estimated backlog that generates revenue will be profitable |
| OUR BUSINESS IS SUBJECT TO MANY FACTORS THAT COULD CAUSE OUR QUARTERLY OR ANNUAL OPERATING RESULTS TO FLUCTUATE AND OUR STOCK PRICE TO BE VOLATILE Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control |
| If our quarterly or annual operating results do not meet the expectations of the investor community, the trading price of our common stock could significantly decline |
| Some of the factors that could affect our quarterly or annual operating results include: • the timing and amount of, or cancellation or rescheduling of, orders for our products; • our ability to develop, introduce, ship and support new products and product enhancements and manage product transitions, announcements and new product introductions; • our ability to achieve cost reductions; • our ability to achieve and maintain production volumes and quality levels for our products; • the volume of products sold and the mix of distribution channels through which they are sold; • the loss of any one of our major customers or a significant reduction in orders from those customers; and • increased competition, particularly from larger, better capitalized competitors |
| Due to these and other factors, quarterly or annual revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance |
| BECAUSE WE SELL SOME OF OUR PRODUCTS IN COUNTRIES OTHER THAN THE UNITED STATES, WE MAY BE SUBJECT TO POLITICAL, ECONOMIC, AND OTHER CONDITIONS THAT COULD RESULT IN REDUCED SALES OF OUR PRODUCTS AND WHICH COULD ADVERSELY AFFECT OUR BUSINESS 9 _________________________________________________________________ Sales to customers outside the US has historically accounted for the vast majority of our revenue |
| Accordingly, we are subject to political, economic and other conditions affecting countries or jurisdictions other than the US, including the Middle East, Europe and Asia |
| Any interruption or curtailment of trade between the countries in which we operate and their present trading partners, change in exchange rates, significant shift in trade policies or a significant downturn in the political, economic or financial condition of these countries could cause demand for and sales of our products to decrease, cause disruption of our supply channels or otherwise disrupt our operations, cause our costs of doing business to increase, or subject us to increased regulation including future import and export restrictions, any of which could adversely affect our business |
| OUR INTELLECTUAL PROPERTY IS IMPORTANT TO US AND WE RISK LOSS OF A VALUABLE ASSET IF WE CANNOT ADEQUATELY PROTECT IT We rely on a combination of patents, copyrights, trademarks, trade secret laws and contractual obligations to protect our technology |
| We cannot guarantee that these and other intellectual property protection measures will be sufficient to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours |
| In addition, the legal systems of many foreign countries do not protect intellectual property rights to the same extent as the legal system of the United States |
| If we are unable to adequately protect our proprietary information and technology, our business, financial condition and results of operations could be materially adversely affected |
| WE ARE DEPENDENT UPON KEY PERSONNEL WHO WOULD BE DIFFICULT TO REPLACE AND WHOSE LOSS COULD IMPEDE OUR DEVELOPMENT We are highly dependent on key personnel to manage our businesses, and their knowledge of business, management skills and technical expertise would be difficult to replace |
| The loss of key employees could limit or delay our ability to develop new products and adapt existing products to our customers’ evolving requirements and would also result in lost sales and diversion of management resources |
| Because of competition for additional qualified personnel, we may not be able to recruit or retain necessary personnel, which could impede development or sales of our products |
| Our growth depends on our ability to attract and retain qualified, experienced employees |
| There is substantial competition for experienced engineering, technical, financial, sales and marketing personnel in our industry |
| If we are unable to retain our existing key personnel, or attract and retain additional qualified personnel, we may, from time to time, experience inadequate levels of staffing to develop and market our products and perform services for our customers |
| OUR BUSINESS COULD BE ADVERSELY AFFECTED BY SIGNIFICANT CHANGES IN THE CONTRACTING OR FISCAL POLICIES OF THE US FEDERAL GOVERNMENT We have begun to derive substantial revenues from contracts with the US federal government and we believe that the success and development of our business will continue to depend on our successful participation in US federal government contract programs |
| Accordingly, changes in US federal government contracting policies could directly affect our financial performance |
| Among the factors that could materially adversely affect our US federal government contracting business are: • budgetary constraints affecting US federal government spending generally, or specific departments or agencies in particular, and changes in fiscal policies or available funding; • changes in US federal government programs or requirements; • the adoption of new laws or regulations; • technological developments; • US federal governmental shutdowns and other potential delays in the government appropriations process; • delays in the payment of our invoices by government payment officers due to problems with, or upgrades to, government information systems, or for other reasons; • competition and consolidation in the relevant industries; and • general economic conditions |
| These or other factors could cause US federal governmental agencies to reduce their purchases under contracts, to exercise their right to terminate contracts or not to exercise options to renew contracts, any of which could have a material adverse effect on our financial condition and operating results |
| Our government contracts may be terminated at any time prior to their completion, and if we do not replace them, our operating results may be harmed |
| We derive revenues from government contracts that typically are awarded through competitive processes and span one or more base years and one or more option years |
| Government agencies generally have the right not to exercise these option periods |
| 10 _________________________________________________________________ In addition, many of our contracts contain provisions permitting a government client to terminate the contract on short notice, with or without cause |
| A decision not to exercise option periods or to terminate contracts would reduce the profitability of these contracts to us |
| Upon contract expiration, if the customer requires further services of the type provided by the contract, there is frequently a competitive re-bidding process and there can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract |
| The unexpected termination of one or more of our significant contracts could result in significant revenue shortfalls the imposition of fines or damages or our suspension or debarment from bidding on additional contracts could harm operating results for those periods |
| Most government contract awards are subject to protest by competitors |
| These protests could also result in a requirement to resubmit bids for the contract or in the termination, reduction or modification of the awarded contract |
| In a fixed-price contract, we must fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve |
| Our failure to anticipate technical problems, estimate costs accurately or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause a loss |
| ACQUISITIONS MAY HAVE ADVERSE CONSEQUENCES FOR OUR BUSINESS In late 2001 and during 2002, we completed the acquisitions of NSM, Titan and SeaSpace |
| In 2004, we acquired CMS Security Systems and in 2005, we acquired Global Microwave Systems |
| We will continue to review opportunities to acquire and may acquire other businesses |
| However, we cannot be sure that we will be able to locate suitable acquisition opportunities |
| The acquisitions that we have completed and which we may complete in the future could result in the following, any of which could seriously harm our results of operations or the price of our stock: (i) issuances of equity securities that would dilute the percentage ownership of our current stockholders; (ii) large one-time write-offs or a series of operating losses; (iii) the incurrence of debt and contingent liabilities; (iv) difficulties in the assimilation and integration of the acquired companies; (v) diversion of management’s attention from other business concerns; (vi) contractual disputes; (vii) risks of entering geographic and business markets in which we have no or only limited prior experience; and (viii) potential loss of key employees of acquired organizations |
| POTENTIAL UNDISCLOSED LIABILITIES ASSOCIATED WITH ACQUISITIONS – WE MAY BE SUBJECT TO CERTAIN LIABILITIES ASSUMED IN CONNECTION WITH OUR ACQUISITIONS THAT COULD HARM OUR OPERATING RESULTS We conduct due diligence in connection with each of our acquisitions |
| In connection with any of our acquisitions, there may be liabilities that we fail to discover or that we improperly assess in our due diligence efforts |
| In particular, to the extent that prior owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to the US federal government or other customers, we, as the successor owner, may be financially responsible for these violations and failures and may suffer reputational harm or otherwise be adversely affected |
| The discovery of any material liabilities associated with our acquisitions could harm our operating results |
| WE HAVE DEMANDS ON OUR CASH RESOURCES IN ADDITION TO INTEREST AND PRINCIPAL PAYMENTS ON OUR DEBT, INCLUDING, AMONG OTHERS, OPERATING EXPENSES OUR LEVEL OF INDEBTEDNESS AND THESE SIGNIFICANT DEMANDS ON OUR CASH RESOURCES COULD: • make it more difficult for us to satisfy our obligations, • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions and other general corporate purposes, • limit our flexibility in planning for, or reacting to, changes in our lines of business, • place us at a competitive disadvantage compared to competitors that have lower debt service obligations and significantly greater operating and financing flexibility, • limit, along with the financial and other restrictive covenants applicable to our indebtedness, among other things, our ability to borrow additional funds, • increase our vulnerability to general adverse economic and industry conditions, and 11 _________________________________________________________________ • result in an event of default upon a failure to comply with financial covenants contained in any existing credit facilities which, if not cured or waived, could have a material adverse effect on our business, financial condition, or results of operations |
| • Should any significant combination of these risks materialize, we could run out of cash as early as Q1 of 2007 |
| Our ability to pay interest on and repay our long-term debt and to satisfy our other liabilities will depend upon future operating performance and our ability to refinance our debt as it becomes due |
| Our future operating performance and ability to refinance will be affected by prevailing economic conditions at that time and financial, business and other factors, many of which are beyond our control |
| We also intend to obtain a senior credit facility |
| If we encounter unexpected setbacks, we may be unable to repay these loans |
| The Company may not be able to finalize any of the lines of credit described in its discussion of Liquidity and Capital Resources |
| It may not receive significant new orders from our key customer in the Middle East nor may it be able to sufficiently trim expenses at its MECAR to ensure a cash breakeven operation in 2007 |
| The Company may have to continue to fund operations at operating units that it had projected to be cash neutral to positive in late 2006 and early 2007 |
| VSK may not have any excess cash with which to provide a significant cash dividend |
| The Company may not be able to disposition any of its core or non strategic assets |
| Should any significant combination of these risks materialize, the Company could run out of cash as early as Q1 of 2007 |
| WE MAY NEED TO RAISE ADDITIONAL CAPITAL ON TERMS UNFAVORABLE TO OUR STOCKHOLDERS Based on our current level of operations, we believe that our cash flow from operations, together with amounts we expect to be able to borrow under our senior secured credit facility, will be adequate to meet our anticipated operating, capital expenditure and debt service requirements for the foreseeable future |
| However, we do not have complete control over our future performance because it is subject to economic, political, financial, competitive, regulatory and other factors affecting the defense and security industries |
| Further, our acquisition strategy will likely require additional equity or debt financings |
| Such financings could also be required to support our traditional and recently acquired operating units |
| There is no assurance that we will be able to obtain such financings to fuel our growth strategy and support our existing businesses |
| OUR OPERATIONS MAY BE INSUFFICIENT TO PAY FOR OUR INCREASED OVERHEAD We have experienced increased overhead costs and if we are successful in continuing to acquire additional companies we expect our overhead costs to further increase |
| There can be no assurance that our operating units will generate sufficient excess cash flow to support these increased overhead costs |
| WE MAY NOT BE ABLE TO CONTINUE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE DEFENSE AND SECURITY SECTORS AGAINST COMPETITORS WITH GREATER RESOURCES The defense and security industries are highly competitive |
| We face substantial competition throughout the world |
| We believe that to remain competitive, we will require significant financial resources in order to develop new products, offer a broader range of products and invest in research and development |
| Many of our existing and potential competitors have substantially greater financial resources, more extensive engineering, manufacturing, marketing, customer service capabilities and greater name recognition |
| We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved performance characteristics |
| OUR EMPLOYEES MAY ENGAGE IN IMPROPER ACTIVITIES WITH ADVERSE CONSEQUENCES TO OUR BUSINESS As with other government and other contractors, we are faced with the possibility that our employees may engage in misconduct, fraud or other improper activities that may have adverse consequences to our prospects and results of operations |
| Misconduct by employees could include failures to comply with US federal government regulations, violation of requirements concerning the protection of classified information, improper labor and cost charging to contracts and misappropriation of government or third party property and information |
| The occurrence of any such employee activities could result in our suspension or debarment from contracting with the US federal government, as well as, the imposition of fines and penalties which would cause material harm to our business |
| 12 _________________________________________________________________ IF WE CANNOT OBTAIN THE NECESSARY SECURITY CLEARANCES, WE MAY NOT BE ABLE TO PERFORM CLASSIFIED WORK FOR THE US GOVERNMENT AND OUR REVENUES MAY SUFFER Certain US government contracts require our facilities and some of our employees, to maintain security clearances |
| If we lose or are unable to obtain required security clearances, the client can terminate the contract or decide not to renew it upon its expiration |
| As a result, to the extent we cannot obtain the required security clearances for our employees working on a particular contract, we may not derive the revenue anticipated from the contract, which, if not replaced with revenue from other contracts, could seriously harm our operating results |
| CURRENCY FLUCTUATIONS, ESPECIALLY IN THE EUROPEAN EURO, MAY SIGNIFICANTLY AFFECT OUR RESULTS OF OPERATIONS The exchange rates for local currencies in countries where we operate may fluctuate in relation to the US Dollar |
| In recent years, this has allowed us to report increased earnings in US Dollars but a future strengthening of the US Dollar versus the Euro would result in decreased reported earnings which would have a negative effect on our stock price |
| SINCE WE DO NOT INTEND TO DECLARE DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE, THE RETURN ON YOUR INVESTMENT WILL DEPEND UPON APPRECIATION OF THE MARKET PRICE OF YOUR SHARES We have never paid any cash dividends on our common stock |
| Our board of directors does not currently intend to declare any dividends in the foreseeable future, but intends to retain all earnings, if any, for use in our business operations and for expansion of our portfolio of defense and security businesses |
| As a result, the return on your investment will depend upon any appreciation in the market price of our common stock |
| THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE The price of our common stock is volatile |
| From January 1, 2006 to September 29, 2006, the closing price of our common stock has ranged from a high of dlra23dtta45 to a low of dlra16dtta45 |
| The volatile fluctuations of the market price are based on (1) the number of shares we may be required to issue in the future, compared to the market demand for our shares; (2) our performance and meeting expectations of our performance, including the development and commercialization of our products and proposed products; (3) market conditions for companies in the small capitalization sectors; and (4) general economic and market conditions |
| STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF CONVERTIBLE NOTES AND WARRANTS In March 2006, the Company completed a debt offering and issued dlra30 million in convertible with an exercise price of dlra26dtta46 per share for a total potential conversion of approximately 1cmam134cmam000 shares |
| In addition, 226cmam800 warrants were issued with the debt offering |
| If all of the warrants are exercised and the debt is fully converted to Allied stock, current stockholders will experience a significant dilution in their ownership of the Company |
| THE PRICE OF OUR SHARES MAY BE ADVERSELY AFFECTED BY THE PUBLIC SALE OF A SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE All outstanding shares of our common stock are freely transferable or transferable under Rule 144 |
| A significant number of additional shares may be issued upon conversion of the notes and exercise of the warrants |
| Sales of large amounts of common stock in the public market could materially adversely affect the share price |
| Such sales also may inhibit our ability to obtain future equity related financing on acceptable terms |
| BECAUSE OF THE RIGHTS AGREEMENT AND “ANTI-TAKEOVER” PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS, A THIRD PARTY MAY BE DISCOURAGED FROM MAKING A TAKEOVER OFFER WHICH COULD BE BENEFICIAL TO OUR STOCKHOLDERS On June 6, 2001, we adopted a revised shareholder rights plan |
| The effect of this rights plan and of certain provisions of our Amended and restated Certificate of Incorporation, Amended and restated By-Laws, and the anti-takeover provisions of the Delaware General Corporation Law, could delay or prevent a third party from acquiring us or replacing members of our board of directors, even if the acquisition or the replacements would be beneficial to our stockholders |
| These factors could also reduce the price that certain investors might be willing to pay for shares of the common stock and result in the market price being lower than it would be without these provisions |
| 13 _________________________________________________________________ On June 6 2006, the Board of Directors modified the Company’s shareholder rights plan to increase the “acquiring person” threshold from 15prca to 20prca |
| BECAUSE OF LIKELY FLUCTUATIONS IN THE PRICE OF OUR STOCK, WE MAY BE SUBJECT TO CLASS ACTION LITIGATION THAT COULD DISTRACT MANAGEMENT AND RESULT IN SUBSTANTIAL COSTS In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities |
| We may be the target of similar litigation in the future |
| Securities litigation could result in substantial costs and divert management’s attention and resources from our operations and sales of our products, which would have a negative impact on our financial condition and results of operations |
| AS OF DECEMBER 31, 2005, ALLIED HAD MATERIAL WEAKNESSES IN ITS INTERNAL CONTROLS, AND ITS INTERNAL CONTROL OVER FINANCIAL REPORTING WAS NOT EFFECTIVE AS OF THAT DATE IF ALLIED FAILS TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, IT MAY NOT BE ABLE TO PROVIDE TIMELY AND ACCURATE FINANCIAL STATEMENTS As more fully described in Item 9A, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 |
| In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework |
| As a result of management’s assessment, management has concluded that, as of December 31, 2005, Allied did not maintain effective internal control over financial reporting |
| Additionally, our auditor, BDO Seidman LLP, issued a disclaimer of opinion with regards to Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 |
| The Public Company Accounting Oversight Board has defined a material weakness as a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim statements will not be prevented or detected |
| Accordingly, a material weakness increases the risk that the financial information we report contains material errors |
| We have identified control deficiencies in our internal control over financial reporting, and we are implementing new or revised controls to address these matters |
| The steps we have taken and are taking to address the material weaknesses may not be effective, however |
| Any failure to effectively address control deficiencies or implement required new or improved controls, or difficulties encountered in their implementation, could limit our ability to obtain financing, harm our reputation, disrupt our ability to process key components of our result of operations and financial condition timely and accurately and cause us to fail to meet our reporting obligations under SEC rules and our various debt arrangements |
| Any failure to remediate the material weakness or significant deficiencies identified in our evaluation of our internal controls could preclude our management from determining our internal control over financial reporting is effective or, otherwise, from issuing in a timely manner its management report in the future |