<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

Mark one

(X)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of the Securities
      Exchange Act of 1934

For the period ended                                          March 31, 2002
                                                              --------------

                                       OR

( )   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
                                                                0-2545
                                                         ----------------------

                           Allied Research Corporation
               --------------------------------------------------
             (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)

8000 Towers Crescent Drive, Suite 260
Vienna, Virginia                                                22182
----------------------------------------                        -----
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:         (703) 847-5268

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
                       ------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 2002:  5,168,483

<PAGE>

                           ALLIED RESEARCH CORPORATION

                                      INDEX

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                             PAGE
PART I.      FINANCIAL INFORMATION - UNAUDITED                                                              NUMBER
<S>          <C>                                                                                            <C>
    Item 1.  Financial Statements

             Condensed Consolidated Balance Sheets

                  March 31, 2002 and December 31, 2001 ...................................................       2


             Condensed Consolidated Statements of Earnings

                  Three months ended March 31, 2002 and 2001 .............................................       3


             Condensed Consolidated Statements of Cash Flows

                  Three months ended March 31, 2002 and 2001 .............................................       4


             Notes to Condensed Consolidated Financial Statements ........................................       5


    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations .......      10


    Item 3.  Quantitative and Qualitative Market Risk Disclosure .........................................      15


PART II.     OTHER INFORMATION ...........................................................................      16
</TABLE>

<PAGE>

                           Allied Research Corporation

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                             (Thousands of Dollars)

                                   (Unaudited)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------

                                 ASSETS                                           March 31, 2002    December 31, 2001
                                                                                  --------------    -----------------
<S>                                                                               <C>               <C>
CURRENT ASSETS
    Cash and equivalents                                                            $ 11,220             $10,922
    Restricted cash                                                                    9,926               6,212
    Accounts and note receivable                                                      19,790              19,656
    Costs and accrued earnings on uncompleted contracts                               14,665              20,338
    Inventories                                                                        8,067               6,190
    Prepaid and other current assets                                                   2,256               2,903
                                                                                    --------             -------

           Total current assets                                                       65,924              66,221

PROPERTY, PLANT AND EQUIPMENT - net of accumulated depreciation                       12,049              12,299

OTHER ASSETS
    Intangibles, net of accumulated amortization                                       7,028               7,144
    Deferred taxes                                                                       888                 935
    Other assets                                                                         129                 185
                                                                                    --------             -------
                                                                                       8,045               8,264
                                                                                    --------             -------

                                                                                    $ 86,018             $86,784
                                                                                    ========             =======


                  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Notes payable                                                                   $      -             $ 2,478
    Current maturities of long-term debt                                               1,465               1,255
    Accounts payable                                                                   7,359              10,306
    Accrued liabilities                                                                4,981               6,784
    Customer deposits                                                                  8,354               2,052
    Income taxes                                                                       1,487               2,149
                                                                                    --------             -------

           Total current liabilities                                                  23,646              25,026

LONG-TERM DEBT, less current maturities                                                2,398               3,110

CONTINGENCIES AND COMMITMENTS                                                              -                   -

STOCKHOLDERS' EQUITY
    Preferred stock, no par value; authorized, 1,000,000 shares; none issued               -                   -
    Common stock, par value, $.10 per share; authorized 10,000,000 shares;
        issued and outstanding, 5,168,483 in 2002 and 5,128,179 in 2001                  517                 513
    Capital in excess of par value                                                    17,869              17,273
    Retained earnings                                                                 51,845              50,672
    Accumulated other comprehensive loss                                             (10,257)             (9,810)
                                                                                    --------             -------
                                                                                      59,974              58,648
                                                                                    --------             -------

                                                                                    $ 86,018             $86,784
                                                                                    ========             =======
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       2

<PAGE>

                           Allied Research Corporation

                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

                             (Thousands of Dollars)

                                   (Unaudited)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------

                                                                                      Three months ended March 31
                                                                                      ---------------------------
                                                                                        2002               2001
                                                                                      --------           --------
<S>                                                                                   <C>               <C>
Revenue                                                                               $ 16,928           $ 17,010

Cost and expenses
   Cost of sales                                                                        11,698             12,022
   Selling and administrative                                                            2,555              2,702
   Research and development                                                                532                453
                                                                                      --------           --------

           Operating  income                                                             2,143              1,833

Other income (deductions)
   Interest income                                                                          80                135
   Interest expense                                                                       (211)              (395)
   Other                                                                                    78                441
                                                                                      --------           --------
                                                                                           (53)               181
                                                                                      --------           --------

           Earnings before income taxes                                                  2,090              2,014

Income tax expense                                                                         917                871
                                                                                      --------           --------

           NET EARNINGS                                                               $  1,173           $  1,143
                                                                                      ========           ========

Earnings per share
   Basic                                                                                $  .23             $  .23
   Diluted                                                                              $  .23             $  .23

Weighted average number of common shares:

   Basic                                                                             5,147,712          4,870,515

   Diluted                                                                           5,185,740          4,871,773
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       3

<PAGE>

                           Allied Research Corporation

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Thousands of Dollars)

                                   (Unaudited)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                                                                                         Three months ended March 31
                                                                                         ---------------------------
Increase (decrease) in cash and equivalents                                                2002               2001
                                                                                         --------            -------

<S>                                                                                      <C>                 <C>
Cash flows from operating activities
   Net earnings                                                                          $  1,173            $ 1,143
   Adjustments to reconcile net earnings to net cash provided by (used in)
      operating activities
        Depreciation and amortization                                                         435                417
        Common stock award                                                                    468                533
        Changes in assets and liabilities
           Accounts receivable                                                               (290)               776
           Costs and accrued earnings on uncompleted contracts                              5,449                116
           Inventories                                                                     (1,981)            (2,117)
           Prepaid expenses and other assets                                                 (266)              (127)
           Accounts payable, accrued liabilities and customer deposits                      3,003             (2,275)
           Income taxes                                                                      (352)               -
                                                                                         --------

              Net cash provided by (used in) operating activities                           7,639             (1,534)

Cash flows (used in) investing activities

   Capital expenditures                                                                      (380)            (1,036)
   Proceeds from sale of fixed assets                                                           -                156
                                                                                         ---------           -------

              Net cash (used in) investing activities                                        (380)              (880)

Cash flows from financing activities

   Proceeds from long-term debt                                                               -                  372
   Principal payments on long-term debt                                                      (930)              (738)
   Net (decrease) increase in short-term borrowings                                        (2,217)               846
   Proceeds from employee stock purchases                                                      70                185
   Options exercised                                                                           62                -
   Restricted cash                                                                         (3,714)              (690)
                                                                                         --------            -------

              Net cash (used in) financing activities                                      (6,729)               (25)
                                                                                         --------            -------

              Net increase (decrease) in cash from operations                                 530             (2,439)

   Effects of exchange rate changes on cash                                                  (232)              (100)
                                                                                         --------            -------

              NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            298             (2,539)

Cash and equivalents at beginning of period                                                10,922              7,570
                                                                                         --------            -------

Cash and equivalents at end of period                                                    $ 11,220            $ 5,031
                                                                                         ========            =======

Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
  Cash paid during the period for:
      Interest                                                                           $     75            $   287
      Taxes                                                                                   255                359
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        4

<PAGE>

                           Allied Research Corporation

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2001

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   The condensed consolidated balance sheets as of March 31, 2002 and December
   31, 2001, the condensed consolidated statements of earnings and the condensed
   consolidated statements of cash flows for the three months ended March 31,
   2002 and 2001, have been prepared by the Company without audit. In the
   opinion of management, all adjustments (which include only normal recurring
   adjustments) necessary to present fairly the financial position, results of
   operations and changes in cash flow as of and for the three months ended
   March 31, 2002 and 2001 have been made.

   Certain information and footnote disclosures normally included in financial
   statements prepared in accordance with generally accepted accounting
   principles generally accepted by the United States of America have been
   condensed or omitted. It is suggested that these condensed consolidated
   financial statements be read in conjunction with the financial statements and
   notes thereto included in the Company's December 31, 2001 Form 10-K filed
   with the Securities and Exchange Commission, Washington, D.C. 20549. The
   results of operations for the period ended March 31, 2002 and 2001 are not
   necessarily indicative of the operating results for the full year.

NOTE 2 - PRINCIPLES OF CONSOLIDATION

   The condensed consolidated financial statements include the accounts of
   Allied Research Corporation (a Delaware corporation) and its wholly-owned
   subsidiaries, ARC Europe, S.A. (ARC Europe), a Belgian company, News/Sports
   Microwave Rental, Inc., a California corporation (Microwave), and Allied
   Research Corporation Limited (Limited), a United Kingdom company (which is
   inactive).

   ARC Europe includes its wholly-owned subsidiaries Mecar S.A. (Mecar),
   Sedachim. S.I. and the VSK Electronical N.V. (the VSK Group). The VSK Group
   is comprised of VSK Electronics N.V. (VSK) and its wholly-owned subsidiaries,
   Tele Technique Generale, S.A., I.D.C.S., N.V. Belgian Automation Units, N.V.
   and Vigitec S.A.

   The Company operates in two (2) principal segments - Mecar's development and
   production of ammunition and weapon systems (Ammunition) and the manufacture,
   distribution and service of industrial security products conducted by the VSK
   Group and Microwave (Security).

   Significant intercompany transactions have been eliminated in consolidation.

NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS

   In the first quarter of 2001, the Company adopted Statement of Financial
   Accounting Standards) No. 133, "Accounting for Derivative Instruments and
   Hedging Activities" (SFAS 133), which establishes accounting and reporting
   standards for derivative instruments, including certain derivative
   instruments embedded in other contracts, and for hedging activities. SFAS 133
   requires that an entity recognize all derivatives as either assets or
   liabilities in the statement of financial position and measure those
   instruments at fair value. The accounting for the changes in the fair value
   of the derivative depends on the intended use of the derivative and the
   resulting designation.

                                       5

<PAGE>

                           Allied Research Corporation

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS - Continued

   The Company designates its derivatives based upon the criteria established by
   SFAS 133. For a derivative designated as a fair value hedge, the gain or loss
   is recognized in earnings in the period of change together with the
   offsetting loss or gain on the risk being hedged. For a derivative designated
   as a cash flow hedge, the effective portion of the derivative's gain or loss
   is initially reported as a component of accumulated other comprehensive
   income (loss) and is subsequently reclassified to earnings when the hedge
   exposure effects earnings. The ineffective portion of the hedge is reported
   in earnings immediately.

   The Company uses derivatives to manage exposures to foreign currency exchange
   rate risks. The objective is to reduce the volatility of earnings and cash
   flows associated with changes in foreign currency exchange rates.

   The Company uses foreign currency future contracts to minimize the foreign
   currency exposures that arise from sales contracts with certain foreign
   customers and certain costs associated with these contracts. Under the terms
   of these sales contracts, the selling price and certain costs are payable in
   U.S. dollars rather than the Euro, which is Mecar's functional currency.
   These futures contracts are designated as fair value hedges since they are
   designed to lock in the net Euros that will be realized when the amounts due
   under the sales agreement are received. As a matter of policy, the Company
   does not enter into speculative hedge contracts or use other derivative
   financial instruments.

   As of March 31, 2002, futures contracts designated as fair value hedges with
   a $108 million notional amount were outstanding and the fair value of these
   contracts was $273.

   The Company estimates the fair value of outstanding hedge contracts based on
   quotes obtained from the counterparties to the derivative contracts. The
   Company recognizes the fair value of hedge contracts that expire in less than
   one year as current assets or liabilities. Those that expire in more than one
   year are recognized as long-term assets or liabilities.

   The adoption of SFAS 133 did not have a material impact on the Company's
   operating results. Gains and losses from settlements of derivative contracts
   are reported as a component of other income. Net changes in the fair value of
   derivative contracts before settlement are also reported as a component of
   other income. There were no net gains or losses realized during the three
   months ended March 31, 2002 from hedge ineffectiveness, from firm commitments
   that no longer qualifies as fair value hedges, nor were any amounts excluded
   from the assessment of hedge effectiveness.

   The Company's foreign exchange forward and option contracts expose the
   Company to credit risks to the extent that the counter parties may be unable
   to meet the terms of the agreement. The company minimizes such risk by using
   major financial institutions as its counterparties. Management does not
   expect any material loss as result of default by counterparties.

NOTE 4 - RESTRICTED CASH

   Mecar is generally required under the terms of its contracts with foreign
   governments to provide performance bonds, advance payment guarantees and
   letters of credit. The credit facility agreements used to provide these
   financial guarantees place restrictions on cash deposits and other liens on
   Mecar's assets. VSK has also pledged certain term deposits to secure
   outstanding bank guarantees.

                                       6

<PAGE>

                           Allied Research Corporation

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

NOTE 4 - RESTRICTED CASH - Continued

   Restricted cash of $9,926 and $6,212 included in current assets at March 31,
   2002 and December 31, 2001, respectively, was restricted or pledged as
   collateral for these agreements and other obligations.

NOTE 5 - ACQUISITION

   On December 31, 2001, the Company acquired all the common stock of Microwave.
   Included in the first quarter of operations for March 31, 2002 are the
   operations of this acquisition.

NOTE 6 - INVENTORIES

   Inventories are composed of raw materials and supplies.

NOTE 7 - CREDIT FACILITY

   Mecar is obligated under a new agreement (the Agreement), executed March
   2002, with its foreign banking syndicate that provides credit facilities
   primarily for letters of credit, bank guarantees, performance bonds and
   similar instruments required for specific sales contracts as well as a
   line-of-credit for tax prepayments and working capital. The Agreement
   provides for certain bank charges and fees as the facility is used, plus fees
   of 2% of guarantees issued and quarterly fees at an annual rate of 1.25% of
   letters of credit and guarantees outstanding. These fees are charged to
   interest expense. As of March 31, 2002 and December 31, 2001, guarantees and
   performance bonds of approximately $20,000 and $18,000, respectively, remain
   outstanding.

   Advances under the Agreement are secured by restricted cash at March 31, 2002
   and December 31, 2001 of $9,926 and $6,212, respectively. Amounts outstanding
   are also collateralized by the letters of credit received under the contracts
   financed, and a pledge of approximately $24 million Mecar's net assets. The
   Agreement requires that Mecar maintain certain net worth and working capital
   levels and other provisions.

NOTE 8 - LONG-TERM FINANCING

   Mecar is obligated on a mortgage with a balance of approximately $878 on its
   manufacturing and administration facilities. The loan is payable in annual
   principal installments of approximately $460 and matures in 2004. The VSK
   Group is also obligated on several mortgages on its buildings, which have a
   balance of approximately $290 at March 31, 2002. These mortgages are payable
   in annual installments of approximately $39 plus interest.

   The Company and its subsidiaries are also obligated on various vehicle,
   equipment, capital lease obligation and other loans. The notes and leases are
   generally secured by the assets acquired, bear interest at rate ranging from
   3.5% to 8.0% and mature at various dates through 2006.

                                       7

<PAGE>

                           Allied Research Corporation

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

NOTE 8 - LONG-TERM FINANCING - Continued

   Scheduled annual maturities of long-term obligations as of March 31, 2002 are
   approximately as follows:

           Year                       Amount
           ----                       ------
           2003                       1,465
           2004                       2,300
           2005                          51
           2006                          47


NOTE 9 - INCOME TAXES

   As of December 31, 2001, the Company had unused foreign tax credit
   carryforwards of approximately $374 which expire through 2004 and domestic
   net operating loss carryforwards of approximately $2,400 which expire in
   2020.

   Deferred tax liabilities have not been recognized for basis differences
   related to investments in the Company's Belgian and United Kingdom
   subsidiaries. These differences, which consist primarily of unremitted
   earnings intended to be indefinitely reinvested in the subsidiaries,
   aggregated approximately $51,300 at March 31, 2002. Determination of the
   amount of unrecognized deferred tax liabilities is not practicable.

NOTE 10 - EARNINGS PER SHARE

   Incremental shares from the assumed conversion of stock options outstanding
   have been included in the diluted per share computation.

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

   On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
   Statement of Financial Accounting Standards (SFAS) 141, Business
   Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
   effective for all business combinations completed after June 30, 2001. SFAS
   142 is effective for fiscal years beginning after December 15, 2001; however,
   certain provisions of this Statement apply to goodwill and other intangible
   assets acquired between July 1, 2001 and the effective date of SFAS 142. The
   provisions of SFAS 141 and 142 have been implemented by the Company.
   Accordingly, effective January 1, 2002, all previously recognized goodwill
   and intangible assets with indefinite lives are no longer being amortized.
   These assets will be tested for impairment annually and whenever there is an
   impairment indicator. Intangibles with definite lives are being amortized to
   operations over their estimated useful lives.

                                       8

<PAGE>

                           Allied Research Corporation

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------


NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS - Continued

    In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
    Obligations. This Statement addresses financial accounting and reporting for
    obligations associated with the retirement of tangible long-lived assets and
    the associated asset retirement costs. This Statement applies to all
    entities. It applies to legal obligations associated with the retirement of
    long-lived assets that result from the acquisition, construction,
    development and (or) the normal operation of a long-lived asset, except for
    certain obligations of lessees. This Statement is effective for financial
    statements issued for fiscal years beginning after June 15, 2002.

    In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
    or Disposal of Long-Lived Assets. This statement addresses financial
    accounting and reporting for the impairment or disposal of long-lived assets
    and supersedes FASB Statement No. 121, Accounting for the Impairment of
    Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
    provisions of the statement are effective for financial statements issued
    for fiscal years beginning after December 15, 2001.

    The Company's management has completed its assessment of the impact of these
    statements and there are no known retirement obligations or impairment
    issues related to its financial assets or its operations at this time.

                                        9




<PAGE>

                           Allied Research Corporation

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------


    The following is intended to update the information contained in the
    Company's Annual Report on Form 10-K for the year ended December 31, 2001
    and presumes that readers have access to, and will have read, "Management's
    Discussion and Analysis of Financial Condition and Results of Operations"
    contained in such Form 10-K.

    The Company conducts its business through its wholly-owned subsidiaries:
    Mecar S.A. (Mecar), a Belgian corporation; a group of Belgian corporations
    led by VSK Electronics, N.V., Teletechnique General, S.A., Vigitec S.A. and
    IDCS, S.A. (collectively, the VSK Group); and News/Sports Microwave Rental,
    Inc., a California corporation (Microwave). The Company operates in two (2)
    principal segments - Mecar's development and production of ammunition and
    weapon systems (Ammunition); and the manufacture, distribution and service
    of industrial security products conducted by the VSK Group and Microwave
    (Security). This discussion refers to the financial condition and results of
    operations of the Company on a consolidated basis. All dollars are in
    thousands except per share amounts.

    Forward-Looking Statements
    --------------------------

    This Management's Discussion and Analysis of Financial Condition and Results
    of Operations contains forward-looking statements that are based on current
    expectations, estimates and projections about the Company and the industries
    in which it operates. In addition, other written or oral statements which
    constitute forward-looking statements may be made by or on behalf of the
    Company. Words such as "expects", "anticipates", "intends", "plans",
    "believes", "seeks", "estimates", or variations of such words and similar
    expressions are intended to identify such forward-looking statements. These
    statements are not guarantees of future performance and involve certain
    risks, uncertainties and assumptions ("Future Factors") which are difficult
    to predict. Therefore, actual outcomes and results may differ materially
    from what is expressed or forecast in such forward-looking statements. The
    Company undertakes no obligation to update publicly any forward-looking
    statements, whether as a result of new information, future events or
    otherwise.

    Future Factors include substantial reliance on Mecar's principal customers
    to continue to acquire Mecar's products on a regular basis; the cyclical
    nature of the Company's military business; rapid technological developments
    and changes and the Company's ability to continue to introduce competitive
    new products and services on a timely, cost effective basis; the ability of
    the Company to successfully continue to expand its business base; the mix of
    products/services; domestic and foreign governmental fiscal affairs and
    public policy changes which may affect the level of purchases made by
    customers; changes in environmental and other domestic and foreign
    governmental regulations; continued availability of financing, financial
    instruments and financial resources in the amounts, at the times and on the
    terms required to support the Company's future business. These are
    representative of the Future Factors that could affect the outcome of the
    forward-looking statements. In addition, such statements could be affected
    by general industry and market conditions and growth rates; general domestic
    and international economic conditions, including interest rate and currency
    exchange rate fluctuations; increasing competition by foreign and domestic
    competitors, including new entrants; and other Future Factors.

                                       10

<PAGE>

                           Allied Research Corporation

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

    Critical Accounting Policies
    ----------------------------

    Our significant accounting policies are described in Note A to the
    consolidated financial statements included in Item 8 of the Form 10-K for
    the year ended December 31, 2001. We believe our most critical accounting
    policies include revenue recognition and cost estimation on fixed price
    contracts for which we use the percentage of completion method of
    accounting. This method is used by MECAR for substantially all of its sales
    contracts. Approximately 80%, 81% and 65% of consolidated revenue was
    recognized under the percentage of completion method during the years ended
    December 31, 2001, 2000 and 1999, respectively. The value of contracts in
    process at March 31, 2002 and 2001 were $14.7 and $32.1 and the profits
    recognized on these contracts through March 31, 2002 were approximately $4.1
    and $3.0, respectively.

    Under the percentage of completion method revenue is recognized on these
    contracts as work progresses during the period, based on the amount of
    actual cost incurred during the period compared to total estimated cost to
    be incurred for the total contract. Management reviews these estimates on a
    regular basis and the effect of any change in cost estimates are reflected
    in cost of sales in the period in which the change is identified. If the
    contract is projected to create a loss, the entire estimated loss is charged
    to operations in the period such loss first becomes known. A number of
    internal and external factors affect our cost of sales estimates, including
    labor rates and efficiency variances, material usage variances, delivery
    schedules and testing requirements. Additionally, as inventory items
    increase in age, obsolete and excess items are charged to cost of sales when
    such determination is made. While we believe that the systems and procedures
    used by MECAR, coupled with the experience of its management team, provide a
    sound basis for our estimates, actual results will differ from management's
    estimates. The complexity of the estimation process and issues related to
    the assumptions, risks and uncertainties inherent with the application of
    the percentage of completion method affect the amounts reported in our
    financial statements.

    Revenue
    -------

    Allied had revenue of $16,928 in the first quarter of 2002, which
    approximated its revenue in the first three months of 2001.

                                           Revenue by Segment
                             --------------------------------------------------
                                1st Quarter 2002            1st Quarter 2001
                             ----------------------     -----------------------
                                        Percentage                  Percentage
                             Amount      of total       Amount       of total
                             -------    -----------     ------      ----------

          Ammunition         $10,833       64%            $11,801       69%
          Security             6,095       36%              5,209       31%

    Ammunition revenue in the first quarter of 2002 decreased from the amount
    recognized in the comparable quarter of 2001 due to lower production during
    the period.

    Security revenue increased during the first three (3) months of 2002 from
    the amount recognized in the first quarter of 2001 due to the acquisition of
    Microwave, which contributed $1,600 to 2002 first quarter revenue. Revenue
    at the VSK Group was lower in the first quarter of 2002 due to weak European
    economic conditions.

                                       11

<PAGE>

                           Allied Research Corporation

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

    Backlog
    -------

    As of March 31, 2002, the Company's backlog was $189,000 compared to $56,000
    at December 31, 2001 and $73,000 at March 31, 2001. The March 31, 2002
    backlog consists of approximately $179,000 and $10,000 for Ammunition and
    Security, respectively.

    Operating Costs and Expenses
    ----------------------------

    Cost of sales as a percentage of sales for the first three months of 2002
    was approximately 69% compared with 71% for the same period in 2001. Costs
    of sales in 2002 were positively impacted by a reduction in the projected
    costs to complete a supplemental FMS contract which provided substantial
    revenue and profit in 2001. Mecar was able to reduce the additional cost
    provision of $1,749 established at 2001 year-end to $444, as a result of
    continuing favorable tests by the U.S. Government. Final tests of the
    ammunition and related weapon system and any Mecar corrections related to
    this contract should be completed by the end of the second quarter of 2002.
    Such positive impact was offset by higher than anticipated costs incurred by
    Mecar during the first quarter of 2002 on various other contracts.

    Selling and administrative expenses in the first quarter of 2002 were 15% of
    revenue for the three months ended March 31, 2002 as compared to 16% of
    revenue for the three months ended March 31, 2001. The decrease in costs is
    primarily attributable to non-recurring compensation costs incurred in the
    first quarter of 2001.

    Research and Development
    ------------------------

    Research and development costs incurred in the first three months of 2002
    increased by $79 from 2001 levels. This increase is related to increased
    business activity at Mecar and the VSK Group.

    Interest Income
    ---------------

    Interest income decreased in the first quarter of 2002 by $55 from 2001
    levels, principally due to decreased amounts of cash invested and lower
    rates of interest.

    Interest Expense
    ----------------

    Interest expense decreased in the first quarter of 2002 by 47% compared to
    the amount incurred in the first quarter of 2001, principally as a result of
    decreased borrowings in 2002 and greater bank charges at Mecar in 2001.

    Other - Net
    -----------

    Other - Net results were a $78 gain in the first quarter of 2002 and a $441
    gain in the first quarter of 2001, largely due to lower net currency
    fluctuations at Mecar and the VSK Group.

                                       12

<PAGE>

                           Allied Research Corporation

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

    Pre-Tax Profit
    --------------

                                                    Pre-Tax Profit
                                                      by Segment
                                                  -----------------
                                                    2002      2001
                                                  ------     ------
                 Ammunition                       $1,458     $1,350
                 Security                            592        831
                 Corporate and other                  40       (167)

    Ammunition pre-tax profit for the first quarter of 2002 increased by 8% over
    the comparable 2001 period principally due to product mix at Mecar and the
    positive impact on cost of sales due to the reduction of the cost provision
    established in a prior period.

    Security pre-tax profit for the first quarter of 2002 was only 71% of
    pre-tax profit for the first three (3) months of 2001. Lower revenue and
    smaller margins at the VSK Group were the principal reasons for the decline.

    Income Taxes
    ------------

    The effective income tax expense in the first three months of 2002 was 44%
    compared to 43% in the first quarter of 2001.

    Net Earnings
    ------------

    The Company earned $1,173 profits in the first quarter of 2002 and $1,143 in
    the first quarter of 2001.

    Liquidity
    ---------

    Working capital, which includes restricted cash, was approximately $42,278
    at March 31, 2002, which is $1,083 greater than the December 31, 2001 level.
    The Company's current working capital is required for operations and to
    support credit facility agreements.

    During the first three months of 2002, the Company funded its operations
    principally with internally generated cash and a bank syndicate facility
    provided to Mecar. The bank syndicate agreement was amended in March 2002
    and now provides Mecar (i) lines of credit aggregating $11,200 for tax
    prepayments and working capital and (ii) a $32,600 facility for bank
    guarantees/bonds needed to support certain customer contracts.

    As of March 31, 2002, the Company had unrestricted cash (i.e., cash not
    required by the terms of the bank syndicate agreement to collateralize
    contracts) of approximately $11,220 compared with approximately $10,992 at
    December 31, 2001. Restricted cash increased by $3,714 during the first
    quarter of 2002.

    Stockholders' equity as of March 31, 2002 was adversely affected by the
    deterioration of the value of the Euro verses the U.S. dollar during the
    first quarter of 2002, resulting in a $448 adjustment to "Accumulated other
    comprehensive loss".

                                       13

<PAGE>

                           Allied Research Corporation

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED

                                 March 31, 2002

                             (Thousands of Dollars)

                                   (Unaudited)

--------------------------------------------------------------------------------

    The Company is continuing to explore alternate methods of obtaining
    financing necessary to implement its growth plans.

    The Company's ability to cover its anticipated future operating and capital
    requirements is dependent upon its ability to generate positive cash flow
    from the operations of its subsidiaries, particularly the operations of
    Mecar, and its ability to successfully integrate Microwave and subsequent
    acquisitions.

                                       14

<PAGE>

                          Allied Research Corporation

      QUANTITATIVE AND QUALITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE

                                 March 31, 2002

--------------------------------------------------------------------------------

    There have been no material changes in the Company's interest rate
    sensitivity and exchange rate sensitivity as reported in the Company's Form
    10-K for the period ended December 31, 2001.

                                       15

<PAGE>

                          Allied Research Corporation

                                 March 31, 2002

--------------------------------------------------------------------------------

PART II.   OTHER INFORMATION

           On January 8, 2002, the Company filed a report on Form 8-K reporting
           its acquisition of Microwave.

                                       16

<PAGE>

                           Allied Research Corporation


SIGNATURE

  Pursuant to the requirements 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.

                                            ALLIED RESEARCH CORPORATION




                                            /s/ Charles A. Hasper
                                            ------------------------------------
Date:  April 26, 2002                       Charles A. Hasper,
                                            Chief Financial Officer and
                                            Treasurer

                                       17