UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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 June 30, 2008
   Commission File
    Number: 1-11376
  The Allied Defense Group,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
   Delaware(State or other jurisdiction
    of
    incorporation or organization)

04-2281015(I.R.S. Employer
    Number)   8000 Towers Crescent Drive, Suite 260
 Vienna, Virginia 22182
 (Address of principal executive
    offices, including zip code)
   (703) 847-5268
 (Registrants telephone
    number, including area code)
   þ o
   Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o

Smaller reporting
    company þ(Do not check if a smaller reporting company)   Rule 12b-2 o þ




---



##### 



THE
    ALLIED DEFENSE GROUP, INC.
  INDEX
  PAGENUMBERPART I. FINANCIAL INFORMATION  UNAUDITEDItem 1.


Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2008 and
    December 31, 2007


2Condensed Consolidated Statements of Operations for the three
    and six months ended June 30, 2008 and 2007


3Condensed Consolidated Statements of Stockholders Equity
    and Comprehensive Income (Loss) for the six months ended
    June 30, 2008 and the year ended December 31, 2007


4Condensed Consolidated Statements of Cash Flows for the six
    months ended June 30, 2008 and 2007


5Notes to Unaudited Condensed Consolidated Financial Statements


7Item 2.


Managements Discussion and Analysis of Financial Condition
    and Results of Operations


25Item 3.


Quantitative and Qualitative Disclosures About Market Risk


42Item 4T.


Controls and Procedures


42PART II. OTHER INFORMATIONItem 1.


Legal Proceedings


43Item 1A.


Risk Factors


43Item 2.


Unregistered Sales of Equity Securities and Use of Proceeds


43Item 3.


Defaults Upon Senior Securities


43Item 4.


Submission of Matters to a Vote of Security Holders


43Item 5.


Other Information


43Item 6.


Exhibits


44Signatures


45




---



##### 



The
    Allied Defense Group, Inc.
 CONDENSED
    CONSOLIDATED BALANCE SHEETS (Unaudited)
    (Thousands of Dollars, except per share and share
    data)
  June 30,


December 31,2008


2007(a)ASSETSCurrent AssetsCash and cash equivalents

$
13,023


$
21,750Restricted cash


8,687



13,052Accounts receivable, net


16,283



9,339Costs and accrued earnings on uncompleted contracts


67,432



39,313Inventories, net


32,571



24,706Prepaid and other current assets


8,725



4,194Assets held for sale






4,599Total current assets


146,721



116,953PROPERTY, PLANT AND EQUIPMENT, NET


24,592



25,059Other AssetsIntangible assets, net


7,454



8,011Goodwill


9,932



9,932Other assets


263



296Total other assets


17,649



18,239TOTAL ASSETS

$
188,962


$
160,251CURRENT LIABILITIESCurrent maturities of senior secured convertible notes

$
19,426


$
13,610Bank overdraft facility


18,143



7,239Current maturities of long-term debt


5,025



4,133Accounts payable


20,144



16,806Accrued liabilities


22,394



15,871Belgium social security


5,919



8,307Customer deposits


37,765



26,835Foreign exchange contracts


149



Income taxes


4,259



3,680Liabilities held for sale






2,051Total current liabilities


133,224



98,532LONG TERM OBLIGATIONSLong-term debt, less current maturities and unamortized discount


8,802



9,439Senior secured convertible notes, less current maturities






5,782Derivative instrument


195



183Other long-term liabilities


720



660Total long-term obligations


9,717



16,064TOTAL LIABILITIES


142,941



114,596CONTINGENCIES AND COMMITMENTSSTOCKHOLDERS EQUITYPreferred stock, no par value; authorized 1,000,000 shares;
    none issued






Common stock, par value, $.10 per share; authorized
    30,000,000 shares; issued and outstanding, 8,024,851 at
    June 30, 2008 and 8,013,161 at December 31, 2007


802



801Capital in excess of par value


55,623



55,355Retained deficit


(30,298
)


(27,909
)Accumulated other comprehensive income


19,894



17,408Total stockholders equity


46,021



45,655TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
188,962


$
160,251     (a)
    
    Condensed consolidated balance sheet as of December 31,
    2007, has been derived from audited consolidated financial
    statements.   2




---



##### 



The
    Allied Defense Group, Inc.
 CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
    (Thousands of Dollars, except per share and share
    data)
  Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Revenue

$
46,274


$
4,761


$
76,375


$
14,200Cost and expensesCost of sales


35,667



9,437



58,406



19,924Selling and administrative


6,784



7,561



13,280



14,531Research and development


1,183



1,353



2,270



2,019Operating income (loss)


2,640



(13,590
)


2,419



(22,274
)Other income (expenses)Interest income


258



55



426



317Interest expense


(2,445
)


(5,385
)


(4,245
)


(8,206
)Net gain (loss) on fair value of senior convertible notes and
    warrants


705



(4,392
)


(527
)


(7,766
)Other-net


(59
)


(166
)


(110
)


(146
)(1,541
)


(9,888
)


(4,456
)


(15,801
)Income (loss) from continuing operations before income taxes


1,099



(23,478
)


(2,037
)


(38,075
)Income tax expense


193



5



323



12Income (Loss) from continuing operations


906



(23,483
)


(2,360
)


(38,087
)Income (loss) from discontinued operations, net of taxGain on sale of subsidiaries










113



Loss from discontinued operations






(672
)


(142
)


(3,922
)



(672
)


(29
)


(3,922
)NET INCOME (LOSS)

$
906


$
(24,155
)

$
(2,389
)

$
(42,009
)Earnings (loss) per share  basic and diluted:Net earnings (loss) from continuing operations

$
0.11


$
(3.58
)

$
(0.29
)

$
(5.85
)Net earnings (loss) from discontinued operations






(0.10
)






(0.60
)Total earnings (loss) per share  basic and diluted

$
0.11


$
(3.68
)

$
(0.29
)

$
(6.45
)Weighted average number of common shares:Basic and diluted


8,021,755



6,559,295



8,017,418



6,510,211    3




---



##### 



The
    Allied Defense Group, Inc.
 CONDENSED
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
    (Thousands of Dollars, except per share and share
    data)
  AccumulatedPreferred


Common Stock


Capital





Other


TotalStock, No





$.10


in Excess


Retained


Comprehensive


StockholdersPar Value


Shares


Par value


of Par value


(Deficit)


Income (Loss)


EquityBalance at January 1, 2007

$




6,440,944


$
644


$
43,312


$
(6,631
)

$
18,022


$
55,347Common stock awards






59,986



6



710











716Retired stocks






(1,668
)






(14
)










(14
)Employee stock purchase plan purchases






47,431



4



358











362Common stock converted from Notes






150,500



15



1,392











1,407Common stock issued to noteholders






1,288,000



129



9,415











9,544Directors deferred stock compensation














(275
)










(275
)Issue of stock options














216











216Exercise of warrants






27,968



3



241











244Comprehensive loss:Net loss for the year ended


















(21,278
)






(21,278
)Currency translation adjustment related to sale of The VSK Group






















(4,491
)


(4,491
)Currency translation adjustment






















3,877



3,877Total comprehensive loss


























(21,892
)Balance at December 31, 2007

$




8,013,161


$
801


$
55,355


$
(27,909
)

$
17,408


$
45,655Common stock awards














134











134Retired stocks






(1,351
)






(9
)










(9
)Employee stock purchase plan purchases






13,041



1



74











75Issue of stock options














33











33Directors deferred stock compensation














36











36Comprehensive income:Net loss for the six months ended


















(2,389
)






(2,389
)Currency translation adjustment






















2,486



2,486Total comprehensive income


























97Balance at June 30, 2008

$




8,024,851


$
802


$
55,623


$
(30,298
)

$
19,894


$
46,021    4




---



##### 



The
    Allied Defense Group, Inc.
 CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
    (Thousands of Dollars)
  Six Months Ended June 30,2008


2007Cash flows from operating activitiesNet loss

$
(2,389
)

$
(42,009
)Less: Gain on sale of subsidiaries


(113
)


Discontinued operations, net of tax


142



3,922Loss from continuing operations


(2,360
)


(38,087
)Adjustments to reconcile net loss from continuing operations to
    net cash used in operating activities, net of divestitures:Depreciation and amortization


3,509



3,148Amortization of debt discount and debt issue costs


59



3,235Unrealized loss on forward contracts


144



Loss (gain) on sale of fixed assets


212



(12
)Net loss related to fair value of notes and warrants


527



7,766Interest and penalties converted to debt principal






1,204Provision for estimated losses on contracts


63



1,294Provision for warranty reserves, uncollectible accounts and
    inventory obsolescence


452



915Common stock and stock option awards


178



757Deferred director stock awards


36



(311
)(Increase) decrease in operating assets and increase (decrease)
    in liabilities, net of effects from discontinued businessesRestricted cash


5,132



2,447Accounts receivable


(6,380
)


2,422Costs and accrued earnings on uncompleted contracts


(24,568
)


10,227Inventories


(6,473
)


(1,408
)Prepaid and other current assets


(4,457
)


364Accounts payable and accrued liabilities


4,783



2,894Customer deposits


8,824



(8,968
)Deferred compensation


26



(11
)Income taxes


321



(235
)Net cash used in operating activities  continuing
    operations


(19,972
)


(12,359
)Net cash provided by operating activities 
    discontinued operations






2,670Net cash used in operating activities


(19,972
)


(9,689
) 5




---



##### 



Six Months Ended June 30,2008


2007Cash flows from investing activitiesCapital expenditures


(1,025
)


(905
)Proceeds from sale of subsidiaries


2,433



Proceeds from sale of fixed assets


20



12Net cash provided by (used in) investing activities 
    continuing operations


1,428



(893
)Net cash used in investing activities  discontinued
    operations






(739
)Net cash provided by (used in) investing activities


1,428



(1,632
)Cash flows from financing activitiesIncrease (decrease) in bank overdraft


10,054



(4,861
)Principal payment on senior secured notes


(481
)


Principal payments on long-term borrowing






(838
)Repayment on capital lease obligations


(547
)


(1,034
)Proceeds from issuance of long-term debt






5,376Debt issue cost on senior secured notes






(1,098
)Proceeds from employee stock purchases


65



263Retirement of stock


(9
)


Net cash provided by (used in) financing activities 
    continuing operations


9,082



(2,192
)Net cash used in financing activities  discontinued
    operations






(40
)Net cash provided by (used in) financing activities


9,082



(2,232
)Net change in cash of discontinued operations






1,636Effects of exchange rate on cash


735



129NET DECREASE IN CASH AND CASH EQUIVALENTS


(8,727
)


(11,788
)Cash and cash equivalents at beginning of period


21,750



16,397Cash and cash equivalents at end of period

$
13,023


$
4,609Supplemental Disclosures of Cash Flow informationCash paid during the period forInterest

$
3,572


$
2,900Taxes

$
52


$
646Supplemental Disclosures of Non-Cash Investing and Financing
    ActivitiesIssuance of common stock in exchange of convertible notes

$



$
10,046Interest and financing charges converted to debt principal

$



$
1,580Capital leases

$
15


$
2    6




---



##### 



The
    Allied Defense Group, Inc.NOTES TO UNAUDITED CONDENSED CONSOLIDATED
    FINANCIAL STATEMENTSJune 30, 2008
    (Thousands of Dollars)
  NOTE 1 
    CONDENSED
    CONSOLIDATED FINANCIAL STATEMENTS    Form 10-K
    (Form 10-K)
    Liquidity
    and Capital Resources
       7




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      and/or
       8




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    The Company will be successful securing MECARs long-term
    financing.
    The Company will be successful managing its cash requirements in
    August and September at MECAR, as its ability to ship products,
    based on seasonality, is limited.
    The Company will be successful in taking necessary steps to be
    in a position to satisfy a potential put of its
    senior secured convertible notes which may be made in December
    2008 and/or
    January 2009.
    The Company will be successful in its restructuring and
    turnaround efforts at its subsidiaries.
    The Company will be able to meet the financial debt covenants of
    its debt instruments.    Reclassification
    NOTE 2 
    PRINCIPLES
    OF CONSOLIDATION    
    ARC Europe, S.A. (ARC Europe), a Belgian company,
    Allied Research Corporation Limited (Limited), an
    inactive United Kingdom company,
    News/Sports Microwave Rental, Inc. (NSM), a
    California corporation,
    MECAR USA, Inc. (MECAR USA), a Delaware corporation,
    Global Microwave Systems, Inc (GMS), a California corporation.      Ammunition & Weapons Effects.
  Electronic Security. sub-miniature
 9




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other.
    NOTE 3 
    ACCOUNTS
    RECEIVABLE AND COSTS AND ACCRUED EARNINGS ON UNCOMPLETED
    CONTRACTS    June 30,


December 31,2008


2007Direct and indirect receivables from governments

$
11,263


$
3,529Commercial and other receivables


5,893



6,48517,156



10,014Less: Allowance for doubtful receivables


(873
)


(675
)$
16,283


$
9,339       NOTE 4 
    INVENTORIES    June 30,


December 31,2008


2007Raw materials

$
13,449


$
13,902Work in process


19,536



11,582Finished goods


2,554



1,74935,539



27,233Less reserve for obsolescence


(2,968
)


(2,527
)$
32,571


$
24,706   NOTE 5 
    GOODWILL   10




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 6 
    BANK
    OVERDRAFT CREDIT FACILITY       11




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 7 
    LONG-TERM
    OBLIGATIONS    June 30,


December 31,2008


2007Fair value of Senior secured convertible notes

$
19,426


$
19,392Note related to GMS acquisition, less unamortized discount


3,311



3,252SOGEPA loan


9,479



8,837Capital leases and other


1,037



1,483Total long-term debt


33,253



32,964Less current maturities


(24,451
)


(17,743
)Long-term debt, less current maturities and unamortized discount

$
8,802


$
15,221         Senior secured convertible notes.
  and/or and/or
   12




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      FSP 00-19-2 Accounting for Registration Payment Arrangements FSP 00-19-2, FSP 00-19-2, Accounting for Contingencies
      June 30,


December 31,2008


2007Amended Notes

$
13,033


$
13,134First Closing of New Notes


490



476Second Closing of New Notes


5,903



5,782$
19,426


$
19,392  13




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       June 30,


December 31,2008


2007Amended Notes

$
13,282


$
13,763First Closing of New Notes


499



499Second Closing of New Notes


6,095



6,095$
19,876


$
20,357   Warrants EITF 00-19, Accounting for Derivative Instruments Index to, and
    Potentially Settled in, a Companys Own Stock
  Loan for Global Microwave Systems
    acquisition. EITF 96-19 Debtors Accounting for a Modification or Exchange of
    Debt Instruments
 14




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   SOGEPA Loan. Société Wallonne de Gestion et de
    Participations
  Capital lease and other.
    NOTE 8 
    DERIVATIVE
    FINANCIAL INSTRUMENTS  Derivatives
    not designated as hedges
    NOTE 9 
    FAIR
    VALUE MEASUREMENTS  Fair Value Measurements FSP 157-2.
     15




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    Level 1  Observable inputs such as quoted prices
    in active markets for identical assets or liabilities
    Level 2  Inputs other than quoted prices that
    are observable for the asset or liability, either directly or
    indirectly. These include quoted prices for similar assets or
    liabilities in active markets, quoted prices for identical or
    similar assets or liabilities in markets that are not active and
    amounts derived from valuation models where all significant
    inputs are observable in active markets
    Level 3  Unobservable inputs that reflect
    managements assumptions      Quoted Prices in


SignificantActive Markets for


Other


SignificantIdentical Assets or


Observable


UnobservableLiabilities (Level 1)


Inputs (Level 2)


Inputs (Level 3)


TotalLiabilitiesSenior secured convertible notes

$



$
19,426


$



$
19,426Derivative instrument






195







195Foreign exchange contract






149







149$



$
19,770


$



$
19,770    16




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 10 
    EARNINGS
    (LOSS) PER SHARE FROM CONTINUING OPERATIONS    Three Months Ended


Six Months EndedJune 30,


June 30,2008


2007


2008


2007Net income (loss) from continuing operations

$
906


$
(23,483
)

$
(2,360
)

$
(38,087
)Weighted average number of basic and diluted shares


8,021,755



6,559,295



8,017,418



6,510,211Basic and diluted earnings (loss) per share from continuing
    operations

$
0.11


$
(3.58
)

$
(0.29
)

$
(5.85
)     NOTE 11 
    COMPREHENSIVE
    INCOME (LOSS)    Three Months Ended June 30,


Six Months Ended June 30,2008


2007


2008


2007Net Income (Loss)

$
906


$
(24,155
)

$
(2,389
)

$
(42,009
)Currency Translation Adjustment


12



24



2,486



765Comprehensive Income (Loss)

$
918


$
(24,131
)

$
97


$
(41,244
)     NOTE 12 
    SHARE-BASED
    COMPENSATION   17




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Six Months EndedJune 30,2008Risk free interest rate


1.53
%Expected volatility rate


92.11
%Expected life  year


1Dividend yield


       NOTE 13 
    INDUSTRY
    SEGMENTS  Three Months Ended June 30,


Six Months Ended June 30,2008


2007


2008


2007Revenues from external customersAmmunitions & Weapons Effects

$
40,322


$
1,347


$
67,117


$
6,551Electronic Security


5,952



3,414



9,258



7,649$
46,274


$
4,761


$
76,375


$
14,200Segment profit (loss) before provision for income taxesAmmunitions & Weapons Effects

$
650


$
(9,485
)

$
2,059


$
(16,772
)Electronic Security


1,320



(1,344
)


474



(1,699
)Corporate


(871
)


(12,649
)


(4,570
)


(19,604
)$
1,099


$
(23,478
)

$
(2,037
)

$
(38,075
)     NOTE 14 
    PROVISION
    FOR TAXES   18




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Accounting for Income
    NOTE 15 
    COMMITMENTS
    AND CONTINGENCIES       19




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Indemnification
    provisions.
          Tax
    Litigation
    Social
    Security Litigation
   20




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    NOTE 16 
    DISCONTINUED
    OPERATIONS    SeaSpace
    Corporation
      The VSK
    Group
     21




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    CMS
    Security Systems
    Titan
    Dynamics Systems, Inc.
      December 31, 2007TitanCash

$
74Accounts receivable, net


714Inventories, net


2,219Other assets


1,592Assets held for sale

$
4,599Accounts payable

$
883Accrued liabilities


241Customer deposits


922Other liabilities


5Liabilities held for sale

$
2,051  22




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    TitanRevenues

$
668Income (loss) before taxes


(142
)Income (loss), net of tax


(142
)Discontinued operations, net of tax

$
(142
)     For the Three Months Ended June 30, 2007The VSK


CMS SecurityGroup


Systems


SeaSpace


Titan


TotalRevenues

$
8,791


$
25


$
789


$
1,335


$
10,940Income (loss) before taxes


1,386



(161
)


(1,056
)


(362
)


(194
)Income (loss), net of tax


907



(161
)


(1,056
)


(362
)


(672
)Discontinued operations, net of tax

$
907


$
(161
)

$
(1,056
)

$
(362
)

$
(672
)   For the Six Months Ended June 30, 2007The VSK


CMS SecurityGroup


Systems


SeaSpace


Titan


TotalRevenues

$
16,624


$
70


$
2,847


$
3,611


$
23,152Income (loss) before taxes


2,131



(314
)


(4,665
)


(307
)


(3,155
)Income (loss), net of tax


1,370



(314
)


(4,666
)


(312
)


(3,922
)Discontinued operations, net of tax

$
1,370


$
(314
)

$
(4,666
)

$
(312
)

$
(3,922
)    23




---



##### 



The
    Allied Defense Group, Inc.
  NOTES TO
    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 17 
    SUBSEQUENT
    EVENTS  Sale of
    GMS
      June 30, 2008


December 31, 2007GMS


GMSCash

$
1,796


$
1,430Accounts receivable, net


1,327



2,375Costs and accrued earnings on uncompleted contracts






Inventories, net


3,277



2,678Other assets


14,052



14,575Total assets

$
20,452


$
21,058Accounts payable

$
307


$
437Accrued liabilities


438



409Customer deposits


185



70Other liabilities


9



9Total liabilities

$
939


$
925   Bank
    Overdraft Credit Facility
   24




---



##### 



The
    Allied Defense Group, Inc.
  MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS
 June 30, 2008
 (Thousands of Dollars)
 (Unaudited)
  Overview
      
    Ammunition & Weapons Effectssegment consists
    of MECAR, located in Belgium, and MECAR USA, located in
    Marshall, TX. MECAR develops and produces medium caliber, tank,
    mortar and other ammunition. MECAR USA became operational in
    late 2005 and pursues contracts from U.S. and foreign
    governments for ammunition and pyrotechnics devices with a focus
    on the 105MM market. More recently, MECAR USA has begun
    purchasing and selling weapon systems
    and/or
    ammunition manufactured by others, in the form of procurement
    contracts for the benefit of the U.S government and other
    foreign governments.
    Electronic Securitysegment consists of News Sports
    Microwave (NSM) and Global Microwave Systems (GMS), both located
    near San Diego, California. NSM designs, manufactures,
    installs and services industrial and law enforcement
    surveillance products and integrated systems for the law
    enforcement community and agencies of the Department of Homeland
    Security and the Department of Defense. GMS designs and
    manufactures miniature and sub-miniature FM and digital
    transmitters, receivers, and related equipment for
    investigative, surveillance, and security applications, and live
    TV news/sports/entertainment coverage.    and/or
  Liquidity
    and Capital Resources
  Form 10-K
 25




---



##### 



and/or
   26




---



##### 




    The Company will be successful securing MECARs long-term
    financing.
    The Company will be successful managing its cash requirements in
    August and September at MECAR, as its ability to ship products,
    based on seasonality, is limited.
    The Company will be successful in taking necessary steps to be
    in a position to satisfy a potential put of its
    senior secured convertible notes which may be made in December
    2008 and/or
    January 2009.
    The Company will be successful in its restructuring and
    turnaround efforts at its subsidiaries.
    The Company will be able to meet the financial debt covenants of
    its debt instruments.
    The strategic direction taken by the Companys Board of
    Directors will yield the greatest return to the shareholders.    Overview
    Results
         27




---



##### 



Results
    of Operations for the Three Months Ended June 30, 2008 and
    2007
  Three Months Ended June 30,2008


2007Amount


%


Amount


%Revenue

$
46,274



100.0
%

$
4,761



100.0
%Cost and expensesCost of sales


35,667



77.0



9,437



198.2Selling and administrative


6,784



14.7



7,561



158.8Research and development


1,183



2.6



1,353



28.4Operating income (loss)


2,640



5.7



(13,590
)


(285.4
)Other income (expense)Interest income


258



0.6



55



1.2Interest expense


(2,445
)


(5.3
)


(5,385
)


(113.1
)Gain (loss) from fair value of notes and warrants


705



1.5



(4,392
)


(92.3
)Other  net


(59
)


(0.1
)


(166
)


(3.5
)Income (loss) from continuing operations before income taxes


1,099



2.4



(23,478
)


(493.1
)Income tax expense (benefit)


193



0.4



5



0.1Net income (loss) from continuing operations, net of tax


906



2.0



(23,483
)


(493.2
)Gain on sale of subsidiaries, net of tax














Loss from discontinued operations, net of tax










(672
)


(14.1
)Loss from discontinued operations, net of tax










(672
)


(14.1
)Net Income (loss)

$
906



2.0
%

$
(24,155
)


(507.3
)%   Revenue.
  Revenue by SegmentThree Months Ended


Three Months EndedJune 30, 2008


June 30, 2007Percentage





PercentageAmount


of total


Amount


of totalAmmunitions & Weapons Effects

$
40,322



87
%

$
1,347



28
%Electronic Security


5,952



13



3,414



72Total

$
46,274



100
%

$
4,761



100
%  28




---



##### 



Cost of Sales.
  Cost of Sales as a Percentage of Revenue by SegmentThree Months Ended


Three Months EndedJune 30, 2008


June 30, 2007Percentage of





Percentage ofAmount


Segment Revenue


Amount


Segment RevenueAmmunitions & Weapons Effects

$
33,484



83
%

$
7,223



536
%Electronic Security


2,183



37



2,214



65Total

$
35,667



77
%

$
9,437



198
%      29




---



##### 



Selling and Administrative Expenses.
      Research and Development.
  Interest Income.
  Interest Expense.
  Net Loss on fair value of the senior convertible notes and
    warrants.
  Other  Net.
 30




---



##### 



Pre-Tax
    Income (Loss)
    Pre-Tax Income (Loss) by SegmentThree Months Ended


Three Months EndedJune 30, 2008


June 30, 2007Percentage of





Percentage ofAmount


Total Revenue


Amount


Total RevenueAmmunitions & Weapons Effects

$
650



1
%

$
(9,485
)


(199
)%Electronic Security


1,320



3



(1,344
)


(28
)Corporate


(871
)


(2
)


(12,649
)


(266
)Total

$
1,099



2
%

$
(23,478
)


(493
)%         Income Taxes. Accounting for Income Taxes
    in Interim periods
  Loss from discontinued operations, net of
    tax.
  Net Income (Loss).
 31




---



##### 



Results
    of Operations for the Six Months Ended June 30, 2008 and
    2007
  Six Months Ended June 30,2008


2007Amount


%


Amount


%Revenue

$
76,375



100.0
%

$
14,200



100.0
%Cost and expensesCost of sales


58,406



76.4



19,924



140.3Selling and administrative


13,280



17.4



14,531



102.3Research and development


2,270



3.0



2,019



14.2Operating income (loss)


2,419



3.2



(22,274
)


(156.8
)Other income (expense)Interest income


426



0.5



317



2.2Interest expense


(4,245
)


(5.6
)


(8,206
)


(57.8
)Loss from fair value of notes and warrants


(527
)


(0.7
)


(7,766
)


(54.7
)Other  net


(110
)


(0.1
)


(146
)


(1.0
)Loss from continuing operations before income taxes


(2,037
)


(2.7
)


(38,075
)


(268.1
)Income tax expense (benefit)


323



0.4



12



0.1Net loss from continuing operations, net of tax


(2,360
)


(3.1
)


(38,087
)


(268.2
)Gain on sale of subsidiaries, net of tax


113



0.2







Loss from discontinued operations, net of tax


(142
)


(0.2
)


(3,922
)


(27.6
)Loss from discontinued operations, net of tax


(29
)






(3,922
)


(27.6
)Net Loss

$
(2,389
)


(3.1
)%

$
(42,009
)


(295.8
)%   Revenue.
  Revenue by SegmentSix Months Ended


Six Months EndedJune 30, 2008


June 30, 2007Percentage





PercentageAmount


of Total


Amount


of TotalAmmunitions & Weapons Effects

$
67,117



88
%

$
6,551



46
%Electronic Security


9,258



12



7,649



54Total

$
76,375



100
%

$
14,200



100
%      32




---



##### 



Cost of Sales.
  Cost of Sales as a Percentage of Revenue by SegmentSix Months Ended


Six Months EndedJune 30, 2008


June 30, 2007Percentage of





Percentage ofAmount


Segment Revenue


Amount


Segment RevenueAmmunitions & Weapons Effects

$
54,472



81
%

$
15,529



237
%Electronic Security


3,934



42



4,395



57Total

$
58,406



76
%

$
19,924



140
%         Selling and Administrative Expenses.
   33




---



##### 



Research and Development.
  Interest Income.
  Interest Expense.
  Net Loss on fair value of the senior convertible notes and
    warrants.
  Other  Net.
  Pre-Tax
    Income (Loss)
    Pre-Tax Loss by SegmentSix Months Ended


Six Months EndedJune 30, 2008


June 30, 2007Percentage of





Percentage ofAmount


Total revenue


Amount


Total revenueAmmunitions & Weapons Effects

$
2,059



3
%

$
(16,772
)


(118
)%Electronic Security


474







(1,699
)


(12
)Corporate


(4,570
)


(6
)


(19,604
)


(138
)Total

$
(2,037
)


(3
)%

$
(38,075
)


(268
)%  34




---



##### 



Income Taxes. Accounting for Income Taxes in
    Interim periods
  Loss from discontinued operations, net of
    tax.
  Net Loss.
  Backlog.
  Backlog by SegmentAt June 30,


At June 30,2008


2007Percentage





Percentageof Total


Amount


of TotalAmmunitions & Weapons Effects

$
149,354



98
%

$
33,797



89
%Electronic Security


3,716



2



3,970



11Total

$
153,070



100
%

$
37,767



100
%    35




---



##### 



Balance
    Sheet
    June 30,


December 31,2008


2007ASSETSCash

$
21,710


$
34,802Accounts receivable, net


16,283



9,339Costs and accrued earnings on uncompleted contracts


67,432



39,313Inventories, net


32,571



24,706Other current assets


8,725



8,793Other assets


42,241



43,298TOTAL ASSETS

$
188,962


$
160,251LIABILITIESBank overdraft facility

$
18,143


$
7,239Accounts payable and accrued liabilities


42,538



32,677Customer deposits


37,765



26,835Other current liabilities


10,327



14,038Senior convertible notes


19,426



19,392Long-term debt and other liabilities


14,742



14,415TOTAL LIABILITIES


142,941



114,596STOCKHOLDERS EQUITY


46,021



45,655TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
188,962


$
160,251        36




---



##### 



37




---



##### 



Cash
    Flows
    For Six MonthsEnded June 30,2008


2007Net cash used in operating activities

$
(19,972
)

$
(9,689
)Net cash provided by (used in) investing activities


1,428



(1,632
)Net cash provided by (used in) financing activities


9,082



(2,232
)Effects of exchange rate on cash


735



129   Operating Activities.
    Investing Activities.
  Financing Activities.
  Effects of Exchange Rate.
  Allied.
 38




---



##### 



MECAR.
  Other Subsidiaries.
  Stock Repurchases.
  Off-Balance Sheet Arrangements.
    Critical
    Accounting Policies
   39




---



##### 




    Revenue recognition via the percentage of completion method
    Goodwill and intangible asset valuation
    Inventory reserves and allowance for doubtful accounts
    Foreign currency translations
    Derivative Instruments
    Valuation of deferred income taxes and income tax reserves.  Form 10-K 10-K
  Recent
    Accounting Pronouncements
  14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1 14-1, 14-1
  FSP 142-3, Determining the Useful Life of Intangible Assets FSP 142-3 FSP 142-3 FSP 142-3
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
  Fair Value Measurements
 40




---



##### 



Forward-Looking
    Statements
     41




---



##### 



The
    Allied Defense Group, Inc.
 June 30, 2008
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE MARKET RISK DISCLOSURE    ITEM 4T.
    DISCLOSURE
    CONTROLS AND PROCEDURES  1.
    Evaluation
    of disclosure controls and procedures  Disclosure
    Controls and Procedures
  Rule 13a-15
  2.
    Changes
    in internal controls   42




---



##### 



PART II.
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings    Item 1A.
    Risk
    Factors    Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Item 3.
    Defaults
    Upon Senior Securities    Item 4.Submission
    of Matters to a Vote of Security Holders
    Item 5.
    Other
    Information   43




---



##### 



Item 6.
    Exhibits  Exhibit No.

Description of Exhibits10
.29

Consolidated EBITDA Schedule31
.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.  44




---



##### 



SIGNATURE      /s/  Deborah
    F. Ricci      45