The Allied Defense Group disclosed that the Securities and Exchange Commission is looking into certain errors in its financial statements for the three-month and nine-month periods ended September 30, 2006.

In February, reported the Washington Business Journal, the Vienna, Virginia-based defense and security-services company announced a restatement for those periods to correct its inventory balance, which was overstated because of an accounting error at Mecar, its Belgian subsidiary.

According to the company, the SEC stressed that the inquiry should not be construed as an indication that any violation of the law has occurred. The company added that it will cooperate fully.

Separately, Allied Defense disclosed that its 2006 financial statements contain a going-concern qualification from its independent accounting firm, BDO Seidman.

“The decision to issue a going-concern qualification was based on the reclassification of our convertible debt as current,” said chief executive officer and president John J. Marcello, in a statement. According to Marcello, the reclassification followed notifications of default from three of the company’s convertible debt holders: Kings Road Investments, Portside Growth and Opportunity Fund, and LBI Group.

“We dispute the alleged events of default and are in discussions with those holders to resolve the issue,” Marcello added. “Additionally, we are exploring a number of alternatives for resolution of those issues, including restructuring the existing convertible notes, obtaining new credit facilities to replace the current convertible notes, or selling assets to repay the convertible notes.”