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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 Commission File Number: 1-11376
 The Allied Defense Group, Inc.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    04-2281015(State or other jurisdiction of
    
    (I.R.S. Employer Number)incorporation or organization)
 120 E. Baltimore Street, Suite 2100
Baltimore, MD 21202  (Address of principal executive offices, including zip code)
 (410) 385-8155  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 þ o




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THE ALLIED DEFENSE GROUP, INC.
INDEX
 PAGENUMBERPART I. FINANCIAL INFORMATION  UNAUDITEDItem 1. Financial Statements (Unaudited)Consolidated Statements of Net Assets as of March 31, 2011 and December 31, 2010 (liquidation basis)
    
    
    2Consolidated Statement of Changes in Net Assets for the three months ended March 31, 2011
(liquidation basis)
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 (going
concern basis)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 (going
concern basis)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. (Reserved)
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    18Signatures
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32




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The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENTS OF NET ASSETS


(Liquidation Basis)
 (Unaudited)
 (Thousands of Dollars, except per share and share data)
 March 31,
    
    
    December 31,2011
    
    
    2010ASSETSCash and cash equivalents
    
    $
    728
    
    
    $
    14,462Short-term investments
    
    
    31,936
    
    
    
    18,801Prepaid and other current assets
    
    
    503
    
    
    
    606Notes receivable
    
    
    875
    
    
    
    875Property and Equipment, net
    
    
    
    
    
    
    2Funds held in escrow
    
    
    15,008
    
    
    
    15,003TOTAL ASSETS
    
    
    49,050
    
    
    
    49,749LIABILITIESEstimated net costs to be
incurred during liquidation
    
    
    2,872
    
    
    
    3,564Accounts payable
    
    
    133
    
    
    
    68Accrued liabilities
    
    
    352
    
    
    
    399Income taxes payable
    
    
    
    
    
    
    2Other liabilities
    
    
    87
    
    
    
    87TOTAL LIABILITIES
    
    
    3,444
    
    
    
    4,120NET ASSETS IN LIQUIDATION
    
    $
    45,606
    
    
    $
    45,629NUMBER OF SHARES OUTSTANDING
    
    
    8,235,195
    
    
    
    8,235,195NET ASSETS IN LIQUIDATION PER SHARE
    
    $
    5.54
    
    
    $
    5.54
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS


(Liquidation Basis)
 (Unaudited)
 (Thousands of Dollars)
 Three MonthsEndedMarch 31,2011Net assets on liquidation basis as of December 31, 2010
    
    $
    45,629Changes in fair value of net assets in liquidation  December 31, 2010 to March 31, 2011Adjust net assets to fair value
    
    
    (213
    )Adjust estimated costs to be incurred during liquidation
    
    
    190Net assets on liquidation basis as of March 31, 2011
    
    $
    45,606
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


(Going Concern Basis)
 (Unaudited)
 (Thousands of Dollars, except per share and share data)
 Three Months EndedMarch 31, 2010Revenue
    
    $
    Cost and expensesSelling and administrative  corporate expenses
    
    
    1,691Operating loss
    
    
    (1,691
    )Other income (expenses)Net interest income
    
    
    19Net loss on fair value of senior notes and warrants
    
    
    (249
    )Other-net
    
    
    (12
    )(242
    )Loss from continuing operations before income taxes
    
    
    (1,933
    )Income tax expense
    
    
    1Loss from continuing operations
    
    
    (1,934
    )Income (loss) from discontinued operations, net of taxLoss from discontinued operations
    
    
    (3,221
    )(3,221
    )NET LOSS
    
    $
    (5,155
    )Earnings (Loss) per share  basic and diluted:Net loss from continuing operations
    
    $
    (0.24
    )Net loss from discontinued operations
    
    
    (0.39
    )Total loss per share  basic and diluted
    
    $
    (0.63
    )Weighted average number of common shares:Basic and Diluted
    
    
    8,175,364
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


(Going Concern Basis)
 (Unaudited)
 (Thousands of Dollars)
 Three Months EndedMarch 31, 2010Cash flows from operating activitiesNet loss
    
    $
    (5,155
    )Less: Discontinued operations, net of tax
    
    
    3,221Loss from continuing operations
    
    
    (1,934
    )Adjustments to reconcile net loss from continuing operations to net cash used in operating activities, net of divestitures:Depreciation and amortization
    
    
    4Net loss related to fair value of warrants
    
    
    249Common stock and stock option awards
    
    
    85Deferred director stock awards
    
    
    22(Increase) decrease in operating assets and increase (decrease) in liabilities, net
of effects from discontinued businesses:Prepaid and other current assets
    
    
    100Accounts payable, accrued liabilities and other current liabilities
    
    
    (352
    )Deferred compensation
    
    
    1Income taxes
    
    
    (112
    )Net cash used in operating activities  continuing operations
    
    
    (1,937
    )Net cash used in operating activities  discontinued operations
    
    
    (5,843
    )Net cash used in operating activities
    
    
    (7,780
    )Cash flows from investing activitiesNet cash used in investing activities  discontinued operations
    
    
    (299
    )Net cash used in investing activities
    
    
    (299
    )Cash flows from financing activitiesIncrease from short-term borrowing
    
    
    1,068Net cash provided by financing activities  continuing operations
    
    
    1,068Net cash provided by financing activities  discontinued
operations
    
    
    3,988Net cash provided by financing activities
    
    
    5,056Effects of exchange rate on cash
    
    
    (5
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,028
    )Cash and cash equivalents at beginning of period
    
    
    3,475Cash and cash equivalents at end of period
    
    $
    447Supplemental Disclosures of Cash Flow informationCash paid during the period forInterest
    
    $
    1Taxes
    
    $
    112
 The accompanying notes are an integral part of these unaudited condensed consolidated
statements.
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The Allied Defense Group, Inc.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2011
 (Thousands of Dollars)
 NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Business Operations
  Plan of Dissolution and Liquidation
    Basis of Presentation
 Liquidation Basis of Accounting
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
   Going Concern Basis of Accounting
  NOTE 2  PRINCIPLES OF CONSOLIDATION
  
    
    ARC Europe, a Belgian company,
    
    Allied Research BV (BV), a Dutch company,
    
    Allied Research Cooperative (Coop) and,
    
    ADG Sub USA, Inc. (Mecar USA)
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
 NOTE 3  DISCONTINUED OPERATIONS
 Mecar and Mecar USA
   Three Months EndedMarch 31, 2010Mecar
    
    
    Mecar USA
    
    
    TotalRevenue
    
    $
    14,216
    
    
    $
    5,953
    
    
    $
    20,169Income (loss) before taxes
    
    
    (3,807
    )
    
    
    595
    
    
    
    (3,212
    )Income (loss), net of tax
    
    
    (3,807
    )
    
    
    586
    
    
    
    (3,221
    )
 NS Microwave Systems, Inc. (NSM)
  NOTE 4  SHORT-TERM INVESTMENTS
  NOTE 5  WARRANTS
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
 NOTE 6  FAIR VALUE MEASUREMENTS
   
 
 
   NOTE 7  EARNINGS (LOSS) PER SHARE
  Three Months EndedMarch 31, 2010Net loss from continuing operations
    
    $
    (1,934
    )Net loss from discontinued operations, net of tax
    
    
    (3,221
    )Total loss
    
    $
    (5,155
    )Number of shares:Weighted average shares outstanding, basic and diluted
    
    
    8,175,364Basic and diluted net loss per share from continuing operations
    
    $
    (0.24
    )Basic and diluted net loss per share from discontinued operations
    
    
    (0.39
    )Basic and diluted net loss per share from total earnings
    
    $
    (0.63
    )
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
 NOTE 8  OTHER  NET
  Three Months EndedMarch 31, 2010Net currency transaction losses
    
    $
    (5
    )Miscellaneous  net
    
    
    17$
    12
 NOTE 9  SHARE- BASED COMPENSATION
   NOTE 10  INDUSTRY SEGMENTS
  NOTE 11  PROVISION FOR TAXES
    Accounting for Income Taxes.
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
  NOTE 12  COMMITMENTS AND CONTINGENCIES
    Legal Proceedings
 DOJ Subpoena
      11




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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Thousands of Dollars)
 Litigation Relating to Consulting Agreement
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  Indemnification provisions
    12




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The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2011
(Thousands of Dollars)
(Unaudited)
 
 ITEM 2.
    
    MANGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
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The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2011
(Thousands of Dollars)
(Unaudited)
   Net Assets in Liquidation
   Changes in Net Assets in Liquidation During the Quarter Ended March 31, 2011
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The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2011
(Thousands of Dollars)
(Unaudited)
  December 31,
    
    
    Changes in
    
    
    (Costs Incurred)
    
    
    March 31,2010
    
    
    Estimates
    
    
    Income Received
    
    
    2011Estimated net costs to be incurred during liquidationCompensation for remaining employees and directors
    
    $
    398
    
    
    $
    (30
    )
    
    $
    (141
    )
    
    $
    227Compliance and other office costs
    
    
    1,230
    
    
    
    (180
    )
    
    
    (183
    )
    
    
    867Insurance Fees
    
    
    351
    
    
    
    
    
    
    
    (44
    )
    
    
    307Professional Fees
    
    
    1,385
    
    
    
    
    
    
    
    (154
    )
    
    
    1,231Income Taxes
    
    
    350
    
    
    
    20
    
    
    
    
    
    
    
    370Less: interest income on cash and investment balances
    
    
    (150
    )
    
    
    
    
    
    
    20
    
    
    
    (130
    )Total net costs to be incurred during liquidation
    
    $
    3,564
    
    
    $
    (190
    )
    
    $
    (502
    )
    
    $
    2,872
 Critical Accounting Policies
   
    
    Estimates of the potential liability associated with litigation and government investigations
    
    Valuation of deferred income taxes and income tax reserves.
    
    Estimation of expenses incurred and interest income received during liquidation.
  Forward-Looking Statements
  Commitments and Contingencies
 DOJ Subpoena
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The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2011
(Thousands of Dollars)
(Unaudited)
 Employee Severance Payments
  Leases
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  Indemnification provisions
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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
  Overview
  Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 DOJ Subpoena
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Litigation Relating to Consulting Agreement
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    (Reserved)
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 Exhibit No.
    
    Description of Exhibits*31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.  18




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SIGNATURE
  THE ALLIED DEFENSE GROUP, INC./s/ Charles S. ReamDate: May 9, 2011
    Charles S. ReamDirector and Chief Financial Officer  19