##### 



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 period ended June 30, 2005
 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)
 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
  þ o




---



##### 



THE ALLIED DEFENSE GROUP, INC.
 INDEX
 PAGENUMBERPART I. FINANCIAL INFORMATION  UNAUDITEDItem 1.
Financial Statements (Unaudited)Condensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
    
    
    2Condensed Consolidated Statements of Operations
Three and six months ended June 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2005 and 2004
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Market Risk Disclosure
    
    
    29Item 4. Disclosure Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 6. Exhibits
    
    
    31Signatures
    
    
    32




---



##### 



The Allied Defense Group, Inc.
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS(Unaudited)
 (Thousands of Dollars, except per share data)
 June 30, 2005
    
    December 31, 2004RestatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    12,101
    
    
    $
    27,940Restricted cash
    
    
    7,667
    
    
    
    9,757Accounts receivable
    
    
    18,852
    
    
    
    28,241Costs and accrued earnings on uncompleted contracts
    
    
    35,199
    
    
    
    54,877Inventories
    
    
    15,904
    
    
    
    16,063Deferred tax asset
    
    
    3,435
    
    
    
    1,058Fair value of foreign exchange contracts
    
    
    1
    
    
    
    1,195Prepaid and other current assets
    
    
    6,709
    
    
    
    4,123Total current assets
    
    
    99,868
    
    
    
    143,254PROPERTY, PLANT AND EQUIPMENT net of accumulated depreciation
    
    
    27,993
    
    
    
    30,294OTHER ASSETSRestricted cash
    
    
    2,000
    
    
    
    2,000Intangibles, net of accumulated amortization
    
    
    3,488
    
    
    
    3,723Goodwill
    
    
    13,869
    
    
    
    14,401Deferred tax asset, non-current
    
    
    1,190
    
    
    
    1,020Other assets
    
    
    1,310
    
    
    
    1,62621,857
    
    
    
    22,770$
    149,718
    
    
    $
    196,318LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable
    
    $
    47
    
    
    $
    54Current maturities of long-term debt
    
    
    2,225
    
    
    
    2,733Convertible subordinated debenture, current, less unamortized discount
    
    
    
    
    
    
    2,231Accounts payable
    
    
    12,850
    
    
    
    34,933Accrued liabilities
    
    
    6,774
    
    
    
    9,374Customer deposits
    
    
    8,679
    
    
    
    8,708Deferred compensation
    
    
    
    
    
    
    1,612Foreign exchange contracts
    
    
    2,661
    
    
    
    Income taxes
    
    
    
    
    
    
    811Total current liabilities
    
    
    33,236
    
    
    
    60,456LONG-TERM OBLIGATIONSLong-term debt, less current maturities and unamortized discount
    
    
    4,997
    
    
    
    6,440Deferred compensation
    
    
    410
    
    
    
    3775,407
    
    
    
    6,817STOCKHOLDERS 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 5,656,412 in 2005 and 5,601,101 in 2004
    
    
    566
    
    
    
    560Additional paid-in capital
    
    
    26,997
    
    
    
    26,669Retained earnings
    
    
    72,840
    
    
    
    77,605Accumulated other comprehensive income
    
    
    10,672
    
    
    
    24,211111,075
    
    
    
    129,045$
    149,718
    
    
    $
    196,318
 The accompanying notes are an integral part of these consolidated financial statements.
 2




---



##### 



The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Thousands of Dollars, except per share data)
 (Unaudited)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Restated
    
    
    
    
    
    RestatedRevenue
    
    $
    21,101
    
    
    $
    39,069
    
    
    $
    42,157
    
    
    $
    72,159Cost and expensesCost of sales
    
    
    15,678
    
    
    
    28,346
    
    
    
    30,675
    
    
    
    52,413Selling and administrative
    
    
    8,512
    
    
    
    5,703
    
    
    
    15,984
    
    
    
    12,349Research and development
    
    
    1,491
    
    
    
    1,816
    
    
    
    3,018
    
    
    
    3,377Operating income (loss)
    
    
    (4,580
    )
    
    
    3,204
    
    
    
    (7,520
    )
    
    
    4,020Other income (expense)Interest income
    
    
    218
    
    
    
    94
    
    
    
    407
    
    
    
    195Interest expense
    
    
    (499
    )
    
    
    (519
    )
    
    
    (1,036
    )
    
    
    (998
    )Other-net
    
    
    113
    
    
    
    (84
    )
    
    
    301
    
    
    
    (434
    )(168
    )
    
    
    (509
    )
    
    
    (328
    )
    
    
    (1,237
    )Earnings (loss) before income taxes
    
    
    (4,748
    )
    
    
    2,695
    
    
    
    (7,848
    )
    
    
    2,783Income tax expense (benefit)
    
    
    (1,890
    )
    
    
    1,087
    
    
    
    (3,083
    )
    
    
    1,181NET EARNINGS (LOSS)
    
    $
    (2,858
    )
    
    $
    1,608
    
    
    $
    (4,765
    )
    
    $
    1,602Earnings (loss) per shareBasic
    
    $
    (0.51
    )
    
    $
    0.29
    
    
    $
    (0.85
    )
    
    $
    0.29Diluted
    
    $
    (0.51
    )
    
    $
    0.27
    
    
    $
    (0.85
    )
    
    $
    0.29Weighted average number of common shares:Basic
    
    
    5,632,071
    
    
    
    5,555,509
    
    
    
    5,620,774
    
    
    
    5,553,454Diluted
    
    
    5,632,071
    
    
    
    6,017,500
    
    
    
    5,620,774
    
    
    
    6,031,711
 The accompanying notes are an integral part of these consolidated financial statements.
 3




---



##### 



The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Thousands of Dollars)
 (Unaudited)
 Six months ended June 302005
    
    2004RestatedCash flows from operating activitiesNet (loss) earnings
    
    $
    (4,765
    )
    
    $
    1,602Adjustments to reconcile net (loss) earnings to net cash used in operating activitiesDepreciation and amortization
    
    
    3,015
    
    
    
    2,295Unrealized losses on forward contracts
    
    
    2,055
    
    
    
    2,170Debenture issue costs and conversion feature
    
    
    108
    
    
    
    52Provision for estimated losses on contracts
    
    
    161
    
    
    
    242Deferred taxes
    
    
    (2,771
    )
    
    
    269Common stock award
    
    
    451
    
    
    
    34Changes in assets and liabilitiesRestricted cash
    
    
    1,028
    
    
    
    6,582Accounts receivable
    
    
    6,379
    
    
    
    (2,887
    )Costs and accrued earnings on uncompleted contracts
    
    
    14,476
    
    
    
    (20,887
    )Inventories
    
    
    (1,120
    )
    
    
    (2,613
    )Prepaid and other current assets
    
    
    (2,053
    )
    
    
    (5,377
    )Accounts payable, accrued liabilities and customer deposits
    
    
    (22,059
    )
    
    
    1,182Deferred compensation
    
    
    33
    
    
    
    413Income taxes
    
    
    (1,806
    )
    
    
    3,474Net cash used in operating activities
    
    
    (6,868
    )
    
    
    (13,449
    )Cash flows from investing activitiesCapital expenditures
    
    
    (3,712
    )
    
    
    (3,476
    )Net cash used in investing activities
    
    
    (3,712
    )
    
    
    (3,476
    )Cash flows from financing activitiesPrincipal payments on long-term borrowing
    
    
    (4,152
    )
    
    
    (2,190
    )Proceeds from issuance of long-term debt
    
    
    711
    
    
    
    3,305Net decrease in short-term borrowings
    
    
    (8
    )
    
    
    (2,812
    )Proceeds from employee stock purchases
    
    
    46
    
    
    
    Option exercises
    
    
    274
    
    
    
    84Restricted cash
    
    
    
    
    
    
    (2,000
    )Net cash used in financing activities
    
    
    (3,129
    )
    
    
    (3,613
    )Net decrease in cash and cash equivalents
    
    
    (13,709
    )
    
    
    (20,538
    )Effects of exchange rate changes on cash and cash equivalents
    
    
    (2,130
    )
    
    
    (739
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (15,839
    )
    
    
    (21,277
    )Cash and cash equivalents at beginning of year
    
    
    27,940
    
    
    
    43,377Cash and cash equivalents at end of period
    
    $
    12,101
    
    
    $
    22,100Supplemental Disclosures of Cash Flow InformationCash paid during the period forInterest
    
    $
    497
    
    
    $
    569Taxes
    
    
    1,189
    
    
    
    4,983Supplemental Disclosures of Non-cash financing activitiesWarrants issued in conjunction with senior secured credit facility
    
    $
    
    
    
    $
    68
 The accompanying notes are an integral part of these consolidated financial statements.
 4




---



##### 



The Allied Defense Group, Inc.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Restatement
      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. (NS Microwave), a California corporation,
 
    
    Titan Dynamics Systems, Inc. (Titan Dynamics), a Texas corporation,
 
    
    SeaSpace Corporation (SeaSpace), a California corporation,
 
    
    MECAR USA, Inc. (MECAR USA), a Delaware corporation, and
 
    
    Allied Technology, LLC (Allied Technology), a Maryland corporation
  5




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
  
    
    Ordnance & Manufacturingsegment
consists of MECAR and MECAR USA. MECAR
develops and produces medium caliber
tank, mortar and other ammunition.
MECAR USA will initially pursue
contracts from the U.S. government and
others for ammunition and pyrotechnics
devices. MECAR USA is expected to be
operational in the third quarter of
2005.
 
    
    Electronic Securitysegment consists of
The VSK Group and NS Microwave. VSK
Electronics N.V. manufactures access
control, intrusion protection, fire
detection and video systems; Télé
Technique Générale S.A. installs
security systems; Intelligent Data
Capturing Systems N.V. manufactures
integrated video systems; VIGITEC S.A.
installs networked video surveillance
systems; and Control Monitor Systems
manufactures access
control systems. NS Microwave designs, manufactures, distributes and services
industrial and law enforcement security products and systems.
 
    
    Environmental Safety & Securitysegment consists of
SeaSpace, which designs, manufactures, distributes
and services weather and environmental satellite
ground reception systems, as well as a line of
antennas.
 
    
    Software, Training & Simulationsegment consists of
Titan Dynamics, which designs, manufactures and sells
battlefield effects simulators, minor pyrotechnics,
and other training devices. Allied Technology was
formed in anticipation of the Battlefield Effects
Simulator (BES) award and will subcontract the work
to Titan Dynamics.
  NOTE 3  DERIVATIVE FINANCIAL INSTRUMENTS
  Fair value hedges
  Cash flow hedges
  Derivatives not designated as hedges
  6




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
  NOTE 4  RESTRICTED CASH
  2005
    
    2004Collateralized performance bonds and advance
payment guarantees
    
    $
    7,643
    
    
    $
    9,745Senior secured facility deposit
    
    
    2,000
    
    
    
    2,000Other
    
    
    24
    
    
    
    12$
    9,667
    
    
    $
    11,757Less non-current portion
    
    
    2,000
    
    
    
    2,000$
    7,667
    
    
    $
    9,757
   NOTE 5  ACCOUNTS RECEIVABLE
  2005
    
    2004RestatedDirect and indirect receivables from foreign governments
    
    $
    6,557
    
    
    $
    15,585Commercial and other receivables, less allowance for doubtful
receivables of $148 in 2005 and $143 in 2004
    
    
    12,295
    
    
    
    12,656$
    18,852
    
    
    $
    28,241
  NOTE 6  COSTS AND ACCRUED EARNINGS ON UNCOMPLETED CONTRACTS
  7




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
  NOTE 7  INVENTORIES
  2005
    
    2004RestatedRaw materials
    
    $
    13,833
    
    
    $
    14,603Work in process
    
    
    804
    
    
    
    686Finished goods, less reserve for obsolescence of
$610 in 2005 and $668 in 2004
    
    
    1,267
    
    
    
    774$
    15,904
    
    
    $
    16,063
 NOTE 8  INTANGIBLE ASSETS AND GOODWILL
 June 30, 2005
    
    December 31, 2004Intangible assets
    
    Gross
    
    Accumulated
    
    
    
    
    
    Gross
    
    Accumulatedsubject to amortization:
    
    Amount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    NetCapitalized Software
    
    $
    1,185
    
    
    $
    549
    
    
    $
    636
    
    
    $
    1,184
    
    
    $
    477
    
    
    $
    707Customer Lists
    
    
    2,297
    
    
    
    658
    
    
    
    1,639
    
    
    
    2,297
    
    
    
    540
    
    
    
    1,757Patents
    
    
    1,494
    
    
    
    281
    
    
    
    1,213
    
    
    
    1,494
    
    
    
    235
    
    
    
    1,259Total
    
    $
    4,976
    
    
    $
    1,488
    
    
    $
    3,488
    
    
    $
    4,975
    
    
    $
    1,252
    
    
    $
    3,723
  Period
    
    AmountSix months ended December 31, 2005
    
    $
    265Year ended December 31, 2006
    
    
    379Year ended December 31, 2007
    
    
    297Year ended December 31, 2008
    
    
    225Year ended December 31, 2009
    
    
    225
   8




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 NOTE 9  NOTES PAYABLE AND CREDIT FACILITY
 Notes Payable
 Credit Facility
  NOTE 10  LONG-TERM DEBT
  2005
    
    2004Notes payable, less unamortized discount and debt issue costs
    
    $
    1,265
    
    
    $
    1,176Mortgage loan agreements
    
    
    224
    
    
    
    284Loan for Control Monitor Systems acquisition
    
    
    300
    
    
    
    300Capital leases and other
    
    
    5,433
    
    
    
    7,413Total Long-Term Debt
    
    $
    7,222
    
    
    $
    9,173Less current maturities
    
    
    2,225
    
    
    
    2,733Long-Term Debt, less current maturities and unamortized
discount
    
    $
    4,997
    
    
    $
    6,440
 Notes payable.
 Mortgage loan agreements.
 9




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Loan for Control Monitor Systems acquisition.
 Capital leases and other.
  Year
    
    
    
    
    
    Amount2006
    
    
    
    
    
    
    2,2252007
    
    
    
    
    
    
    2,3002008
    
    
    
    
    
    
    9972009
    
    
    
    
    
    
    3082010
    
    
    
    
    
    
    1,392
 NOTE 11  CONVERTIBLE SUBORDINATED DEBENTURE
  NOTE 12  EARNINGS (LOSS) PER SHARE
  10




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,Restated
    
    
    
    
    
    Restated2005
    
    2004
    
    2005
    
    2004Net earnings (loss)
    
    $
    (2,858
    )
    
    $
    1,608
    
    
    $
    (4,765
    )
    
    $
    1,602Interest on convertible debenture, net of taxes
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    123Net earnings (loss) before interest on
convertible debenture
    
    
    (2,858
    )
    
    $
    1,654
    
    
    
    (4,765
    )
    
    $
    1,725Weighted average number of basic shares
    
    
    5,632,071
    
    
    
    5,555,509
    
    
    
    5,620,774
    
    
    
    5,553,454Common stock equivalents
    
    
    
    
    
    
    461,991
    
    
    
    
    
    
    
    478,257Weighted average number of diluted shares
    
    
    5,632,071
    
    
    
    6,017,500
    
    
    
    5,620,774
    
    
    
    6,031,711Basic earning (loss) per share
    
    $
    (0.51
    )
    
    $
    0.29
    
    
    $
    (0.85
    )
    
    $
    0.29Diluted earnings (loss) per share
    
    $
    (0.51
    )
    
    $
    0.27
    
    
    $
    (0.85
    )
    
    $
    0.29
  NOTE 13  COMPREHENSIVE LOSS
  Accumulated othercomprehensive incomeCurrencyThree months ended
    
    Retained
    
    translation
    
    Cash flowJune 30, 2005 and 2004
    
    Earnings
    
    adjustment
    
    hedges
    
    TotalMarch 31,
2005 (restated)
    
    $
    75,698
    
    
    $
    19,298
    
    
    $
    (259
    )
    
    $
    94,737Comprehensive lossNet loss
    
    
    (2,858
    )Currency translation adjustment
    
    
    
    
    
    
    (6,870
    )Change in fair value of FX
contracts
    
    
    
    
    
    
    
    
    
    
    (1,497
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,225
    )Three months ended June 30, 2005
    
    $
    72,840
    
    
    $
    12,428
    
    
    $
    (1,756
    )
    
    $
    83,512March 31,
2004 (restated)
    
    $
    73,665
    
    
    $
    13,475
    
    
    $
    
    
    
    $
    87,140Comprehensive incomeNet income
    
    
    1,608Currency translation adjustment
    
    
    
    
    
    
    (623
    )Comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985Three months ended June 30, 2004 (restated)
    
    $
    75,273
    
    
    $
    12,852
    
    
    $
    
    
    
    $
    88,125
 11




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Accumulated othercomprehensive incomeCurrencySix months ended
    
    Retained
    
    translation
    
    Cash flowJune 30, 2005 and 2004
    
    Earnings
    
    adjustment
    
    hedges
    
    TotalDecember 31, 2004 (restated)
    
    $
    77,605
    
    
    $
    24,211
    
    
    $
    
    
    
    $
    101,816Comprehensive lossNet loss
    
    
    (4,765
    )Currency translation adjustment
    
    
    
    
    
    
    (11,783
    )Change in fair value of FX
contracts
    
    
    
    
    
    
    
    
    
    
    (1,756
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,304
    )Six months ended June 30, 2005
    
    $
    72,840
    
    
    $
    12,428
    
    
    $
    (1,756
    )
    
    $
    83,512December 31, 2003 (restated)
    
    $
    73,671
    
    
    $
    15,636
    
    
    $
    
    
    
    $
    89,307Comprehensive lossNet income
    
    
    1,602Currency translation adjustment
    
    
    
    
    
    
    (2,784
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,182
    )Six months ended June 30, 2004 (restated)
    
    $
    75,273
    
    
    $
    12,852
    
    
    $
    
    
    
    $
    88,125
  NOTE 14  STOCK BASED COMPENSATION
 Accounting for Stock Issued to Employees.
  12




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Restated
    
    
    
    
    
    Restated(Dollars in thousands, except per share amounts)
    
    2005
    
    2004
    
    2005
    
    2004Reported net earnings (loss)
    
    $
    (2,858
    )
    
    $
    1,608
    
    
    $
    (4,765
    )
    
    $
    1,602Stock-based compensation costs that would have
been included in the determination of reported
net earnings, if the fair value method was
applied to all awards, net of tax
    
    
    (85
    )
    
    
    (165
    )
    
    
    (169
    )
    
    
    (331
    )Pro forma net earnings (loss)
    
    $
    (2,943
    )
    
    $
    1,443
    
    
    
    (4,934
    )
    
    $
    (1,271
    )Basic earnings (loss) per share:Reported earnings (loss) per share
    
    $
    (0.51
    )
    
    $
    0.29
    
    
    $
    (0.85
    )
    
    $
    0.29Compensation costs, net of tax
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.06
    )Pro forma basic earnings (loss) per share
    
    $
    (0.53
    )
    
    $
    0.26
    
    
    
    (0.88
    )
    
    $
    0.23Diluted earnings (loss) per share:Reported earnings (loss) per share
    
    $
    (0.51
    )
    
    $
    0.27
    
    
    $
    (0.85
    )
    
    $
    0.29Compensation costs, net of tax
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.05
    )Pro forma diluted earnings (loss) per share
    
    $
    (0.52
    )
    
    $
    0.24
    
    
    $
    (0.88
    )
    
    $
    (0.24
    )
   Three Months Ended June 30
    
    Six Months Ended June 302005
    
    2004
    
    2005
    
    2004Risk free interest rate
    
    
    
    
    
    
    3.63
    %
    
    
    3.63
    %
    
    
    3.63
    %Expected volatility rate
    
    
    
    
    
    
    47.00
    %
    
    
    33.90
    %
    
    
    47.00
    %Expected lives  years
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    4Divided yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  13




---



##### 



The Allied Defense Group, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 NOTE 15  INDUSTRY SEGMENTS
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    

    2004
    
    2005
    
    2004Revenues from external customers
    
    
    
    
    
    Restated
    
    
    
    
    
    RestatedOrdnance & Manufacturing
    
    $
    9,592
    
    
    $
    26,137
    
    
    $
    18,523
    
    
    $
    47,836Electronic Security
    
    
    9,844
    
    
    
    11,559
    
    
    
    20,172
    
    
    
    20,890Environmental Safety & Security
    
    
    1,109
    
    
    
    1,223
    
    
    
    2,628
    
    
    
    3,247Software, Training & Simulation
    
    
    556
    
    
    
    150
    
    
    
    834
    
    
    
    186$
    21,101
    
    
    $
    39,069
    
    
    $
    42,157
    
    
    $
    72,159Segment profit (loss) before taxesOrdnance & Manufacturing
    
    $
    (3,622
    )
    
    $
    1,701
    
    
    $
    (6,292
    )
    
    $
    1,845Electronic Security
    
    
    (49
    )
    
    
    2,237
    
    
    
    613
    
    
    
    3,057Environmental Safety & Security
    
    
    (672
    )
    
    
    (1,046
    )
    
    
    (1,183
    )
    
    
    (1,182
    )Software, Training & Simulation
    
    
    (123
    )
    
    
    (162
    )
    
    
    (209
    )
    
    
    (341
    )Corporate and Other
    
    
    (282
    )
    
    
    (35
    )
    
    
    (777
    )
    
    
    (596
    )$
    (4,748
    )
    
    $
    2,695
    
    
    $
    (7,848
    )
    
    $
    2,783
 NOTE 16  COMMITMENTS AND CONTINGENCIES
  14




---



##### 



The Allied Defense Group, Inc.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2005
 (Thousands of Dollars)
 (Unaudited)
 Overview
  
    
    Ordnance & Manufacturingsegment 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 will pursue contracts from U.S. and foreign governments
for ammunition and pyrotechnics devices. MECAR USA is expected to
be operational in the third quarter of 2005.
 
    
    Electronic Securitysegment consists of The VSK Group, located in
Belgium and California, and NS Microwave, located in San Diego,
CA. The VSK Group consists of VSK Electronics N.V. which
manufactures access control, intrusion protection, fire detection
and video systems; Télé Technique Générale S.A. which installs
security systems; Intelligent Data Capturing Systems N.V. which
manufactures integrated video systems; VIGITEC S.A. which installs
networked video surveillance systems; and Control Monitor Systems
which manufactures access control systems. NS Microwave designs,
manufactures, distributes, and services industrial and law
enforcement surveillance products and systems.
 
    
    Environmental Safety & Securitysegment consists of SeaSpace,
located in San Diego, CA, which designs, manufactures,
distributes, and services weather and environmental satellite
ground reception systems, as well as a line of antennas.
 
    
    Software, Training & Simulationsegment consists of Titan
Dynamics, located in Marshall, TX, which designs, manufactures and
sells battlefield effects simulators, minor pyrotechnics, and
other training devices. Allied Technology, a wholly-owned subsidiary, was formed in
anticipation of the Battlefield Effects Simulator (BES) proposal
and will subcontract the work to Titan Dynamics.
   1stRestatement
     Net EarningsPeriod Ended
    
    As Restated
    
    
    As initially reportedDecember 31, 2004
    
    $
    2,518
    
    
    $
    5,152December 31, 2003
    
    
    3,928
    
    
    
    8,821December 31, 2002
    
    
    20,894
    
    
    
    10,672
 2ndRestatement
  
 Net Earnings (Loss)Period Ended
    
    As Restated
    
    
    As previously reported(in the 2ndrestatement)
    
    
    (in the 1strestatement)March 31, 2005
    
    $
    (1,907
    )
    
    $
    (3,393
    )December 31, 2004
    
    
    3,934
    
    
    
    2,518December 31, 2003
    
    
    3,762
    
    
    
    3,928December 31, 2002
    
    
    19,236
    
    
    
    20,894
 Future Hedging
     15




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2005
 (Thousands of Dollars)
 (Unaudited)
 
 Net Earnings (Loss)Period Ended
    
    As Restated
    
    As previously reported(in the 2nd
restatement)
    
    (in
the 1st restatement)March 31, 2005
    
    $
    (1,907
    )
    
    $
    (3,393
    )December 31, 2004
    
    
    3,934
    
    
    
    2,518December 31, 2003
    
    
    3,762
    
    
    
    3,928December 31, 2002
    
    
    19,236
    
    
    
    20,894
  Results of Operations for the Three Months Ended June 30, 2005 and 2004
  Three months ended June 30,2005
    
    2004RestatedRevenue
    
    $
    21,101
    
    
    
    100.0
    %
    
    $
    39,069
    
    
    
    100.0
    %Cost and expensesCost of sales
    
    
    15,678
    
    
    
    74.3
    
    
    
    28,346
    
    
    
    72.6Selling and administrative
    
    
    8,512
    
    
    
    40.3
    
    
    
    5,703
    
    
    
    14.6Research and development
    
    
    1,491
    
    
    
    7.1
    
    
    
    1,816
    
    
    
    4.6Operating income
    
    
    (4,580
    )
    
    
    (21.7
    )
    
    
    3,204
    
    
    
    8.2Other income (expense)Interest income
    
    
    218
    
    
    
    1.0
    
    
    
    94
    
    
    
    0.2Interest expense
    
    
    (499
    )
    
    
    (2.4
    )
    
    
    (519
    )
    
    
    (1.3
    )Other  net
    
    
    113
    
    
    
    0.6
    
    
    
    (84
    )
    
    
    (0.2
    )Loss before income taxes
    
    
    (4,748
    )
    
    
    (22.5
    )
    
    
    2,695
    
    
    
    6.9Income tax (benefit)
    
    
    (1,890
    )
    
    
    (9.0
    )
    
    
    1,087
    
    
    
    2,8Net earnings
    
    $
    (2,858
    )
    
    
    (13.5
    )%
    
    $
    1,608
    
    
    
    4,1
    %
 Revenue.
 Revenue by SegmentThree Months Ended
    
    Three Months EndedJune 30, 2005
    
    June 30, 2004Percentage
    
    
    
    
    
    PercentageAmount
    
    of total
    
    Amount
    
    of totalRestatedOrdnance & Manufacturing
    
    $
    9,592
    
    
    
    45
    %
    
    $
    26,137
    
    
    
    67
    %Electronic Security
    
    
    9,844
    
    
    
    47
    %
    
    
    11,559
    
    
    
    30
    %Environmental Safety & Security
    
    
    1,109
    
    
    
    5
    %
    
    
    1,223
    
    
    
    3
    %Software, Training & Simulation
    
    
    556
    
    
    
    3
    %
    
    
    150
    
    
    
    
    %$
    21,101
    
    
    
    100
    %
    
    $
    39,069
    
    
    
    100
    %
 16




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2005
 (Thousands of Dollars)
 (Unaudited)
     Cost of Sales.
 Cost of
Sales as Percentage of Sales by Segment
 Three months endedJune 302005
    
    2004RestatedOrdnance & Manufacturing
    
    
    99
    %
    
    
    80
    %Electronic Security
    
    
    54
    %
    
    
    56
    %Environmental Safety & Security
    
    
    48
    %
    
    
    60
    %Software, Training & Simulation
    
    
    71
    %
    
    
    67
    %Total
    
    
    74
    %
    
    
    72
    %
  17




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2005
 (Thousands of Dollars)
 (Unaudited)
     Selling and Administrative Expenses.
 Research and Development.
 Interest Income.
 Interest Expense.
 Other-Net.
 18




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2005
 (Thousands of Dollars)
 (Unaudited)
 
 Pre-Tax Profit (Loss)
 Pre-Tax
Profit (Loss) by Segment
 Three months endedJune 30,2005
    
    2004RestatedOrdnance & Manufacturing
    
    $
    (3,622
    )
    
    $
    1,701Electronic Security
    
    
    (49
    )
    
    
    2,237Environmental Safety & Security
    
    
    (672
    )
    
    
    (1,046
    )Software, Training & Simulation
    
    
    (123
    )
    
    
    (162
    )Corporate and other
    
    
    (282
    )
    
    
    (35
    )$
    (4,748
    )
    
    $
    2,695
      Income Taxes.
 Net Earnings.
 19




---



##### 



The
Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Results of Operations for the Six Months Ended June 30, 2005 and 2004
  Six months ended June 30,2005
    
    
    2004RestatedRevenue
    
    $
    42,157
    
    
    
    100.0
    %
    
    $
    72,159
    
    
    
    100.0
    %Cost and expensesCost of sales
    
    
    30,675
    
    
    
    72.8
    
    
    
    52,413
    
    
    
    72.6Selling and administrative
    
    
    15,984
    
    
    
    38.0
    
    
    
    12,349
    
    
    
    17.1Research and development
    
    
    3,018
    
    
    
    7.2
    
    
    
    3,377
    
    
    
    4.7Operating income (loss)
    
    
    (7,520
    )
    
    
    (18.0
    )
    
    
    4,020
    
    
    
    5.6Other income (expense)Interest income
    
    
    407
    
    
    
    1.0
    
    
    
    195
    
    
    
    0.3Interest expense
    
    
    (1,036
    )
    
    
    (2.5
    )
    
    
    (998
    )
    
    
    (1.4
    )Other  net
    
    
    301
    
    
    
    0.7
    
    
    
    (434
    )
    
    
    (0.6
    )Earnings (loss) before income taxes
    
    
    (7,848
    )
    
    
    (18.8
    )
    
    
    (2,783
    )
    
    
    3.9Income tax expense (benefit)
    
    
    (3,083
    )
    
    
    (7.3
    )
    
    
    1,181
    
    
    
    1.6Net earnings (loss)
    
    
    (4,765
    )
    
    
    (11.5
    )%
    
    $
    1,602
    
    
    
    2.3
    %
 Revenue.
  Revenue by SegmentSix Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2004Percentage
    
    
    
    
    
    
    PercentageAmount
    
    
    of total
    
    
    Amount
    
    
    of totalRestatedOrdnance & Manufacturing
    
    $
    18,523
    
    
    
    44
    %
    
    $
    47,836
    
    
    
    66
    %Electronic Security
    
    
    20,172
    
    
    
    48
    %
    
    
    20,890
    
    
    
    29
    %Environmental Safety & Security
    
    
    2,628
    
    
    
    6
    %
    
    
    3,247
    
    
    
    4
    %Software, Training & Simulation
    
    
    834
    
    
    
    2
    %
    
    
    186
    
    
    
    1
    %$
    42,157
    
    
    
    100
    %
    
    $
    72,159
    
    
    
    100
    %
   20




---



##### 



The
Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
   Cost of Sales.
 Cost of Sales as Percentage of Sales by Segment
 Six months endedJune 302005
    
    2004RestatedOrdnance & Manufacturing
    
    
    95
    %
    
    
    80
    %Electronic Security
    
    
    54
    %
    
    
    57
    %Environmental Safety & Security
    
    
    53
    %
    
    
    58
    %Software, Training & Simulation
    
    
    68
    %
    
    
    67
    %Total
    
    
    73
    %
    
    
    73
    %
     Selling and Administrative Expenses.
 Research and Development.
 Interest Income.
 21




---



##### 



The
Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Interest Expense.
 Other-Net.
 Pre-Tax Profit (Loss)
 Pre-Tax Profit (Loss) by Segment
 Six months endedJune 302005
    
    
    2004RestatedOrdnance & Manufacturing
    
    $
    (6,292
    )
    
    $
    1,845Electronic Security
    
    
    613
    
    
    
    3,057Environmental Safety & Security
    
    
    (1,183
    )
    
    
    (1,182
    )Software, Training & Simulation
    
    
    (209
    )
    
    
    (341
    )Corporate and other
    
    
    (777
    )
    
    
    (596
    )$
    (7,848
    )
    
    $
    2,783
      Income Taxes.
 Net Earnings (Loss).
 22




---



##### 



The
Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 Backlog.
 Backlog by SegmentJune 30, 2005
    
    June 30, 2004Percentage
    
    
    
    
    
    PercentageAmount
    
    of total
    
    Amount
    
    Of totalOrdnance & Manufacturing
    
    $
    67,193
    
    
    
    71
    %
    
    $
    59,687
    
    
    
    70
    %Electronic Security
    
    
    22,441
    
    
    
    24
    %
    
    
    23,029
    
    
    
    27
    %Environmental Safety & Security
    
    
    2,341
    
    
    
    2
    %
    
    
    1,630
    
    
    
    2
    %Software, Training & Simulation
    
    
    2,515
    
    
    
    3
    %
    
    
    553
    
    
    
    1
    %$
    94,490
    
    
    
    100
    %
    
    $
    84,899
    
    
    
    100
    %
  Liquidity and Capital Resources
 Balance Sheet
       23




---



##### 



The
Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
    Cash Flows
  Six months ended June 302005
    
    
    2004RestatedNet cash provided by (used in) operating activities
    
    $
    (6,868
    )
    
    $
    (13,449
    )Net cash used in investing activities
    
    
    (3,712
    )
    
    
    (3,476
    )Net cash used in financing activities
    
    
    (3,129
    )
    
    
    (3,613
    )
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Allied.
 MECAR.
 24




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
  VSK Group.
 Other Subsidiaries.
 Stock Repurchases.
 Future Liquidity.
   Off-Balance Sheet Arrangements.
 Critical Accounting Policies
  
    
    Revenue recognition via the percentage of completion method.The percentage of completion
method is used by MECAR, NS Microwave and SeaSpace for their fixed price sales contracts.
Approximately 61% and 60%, and 80% and 78%, of condensed consolidated revenue was recognized
under the percentage of completion method during the three and six months ended June 30, 2005
and 2004, respectively.
 25




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 
    
    Goodwill and intangible asset valuation.The Company completed a
goodwill impairment analysis in the fourth quarter of 2004, which
was recently reviewed, and determined that an impairment charge to
earnings was not required.
    
    Inventory reserves and allowance for doubtful accounts.The
Company reviews its recorded inventory and estimates a write-down
for obsolete or slow-moving items to their net realizable value.
Allowances for doubtful accounts are evaluated based upon detailed
analysis and assessment of receivables that may not be collected
in the normal course of operations. The inventory reserves and
allowance for doubtful accounts are deemed reasonable.
    
    Derivative instruments.The Company designates its derivatives
based upon the criteria established by 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, as amended by
SFAS 138 and SFAS 149, 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. 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. For a derivative that does
not qualify as a fair value hedge or cash flow hedge, the change
in fair value is recognized currently in net income.
    
    Valuation of deferred income taxes and income tax reserves.The
Company is subject to taxation by federal, state and international
jurisdictions. The Company reviews the balances on a quarterly
basis and believes the balances are adequate.
 Recent Accounting Pronouncements
  Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143 Accounting for Asset Retirement
Obligations,
 26




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
  Share-Based Payment
 Inventory Costs  An Amendment of ARB No. 43, Chapter
4.
 Exchanges of Non-monetary AssetsAn
Amendment of APB Opinion No. 29
 Forward-Looking Statements
   
    
    substantial reliance on MECARs principal customers to continue to acquire 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;
 27




---



##### 



The Allied Defense Group, Inc.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2005
(Thousands of Dollars)
(Unaudited)
 
    
    the ability of the Company to successfully continue to expand its business base;
    
    the ability of the Companys acquired businesses to mature and meet performance expectations;
    
    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;
    
    general risks associated with doing business outside the United States, including, without limitation, import duties,
tariffs, quotas and political and economic instability;
    
    the effects of terrorist actions on business activities, customer orders and cancellations, and the United States and
international governments responses to these terrorist actions;
    
    changes in government regulations;
    
    liability and other claims asserted against us;
    
    the ability to attract and retain qualified personnel; and
    
    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.
  28




---



##### 



The Allied Defense Group, Inc.
 June 30, 2005
 
 QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE
    29




---



##### 



The Allied Defense Group, Inc.
 June 30, 2005
 
 DISCLOSURE CONTROLS AND PROCEDURES
 1.
    
    Evaluation of disclosure controls and proceduresThe Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports filed or submitted under the Securities
Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and
reported within the time periods specified in the Commissions rules and forms. Disclosure
controls and procedures are designed to ensure that information required to be disclosed by the
Company in its Exchange Act reports is accumulated and communicated to the Companys management
including its principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure. Under the direction and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief Financial
Officer, the Company carried out an evaluation of the effectiveness of the design and operation
of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of
the period covered by the report. As a result, the Chief Executive Officer and the Chief
Financial Officer concluded that the disclosure controls and
procedures were not effective.2.
    
    Changes in internal controlsSubsequent to March 31, 2005 we became aware of a material weakness in our internal control
over financial reporting. The Public Company Accounting Oversight Boards Auditing Standard No. 2
defines a material weakness as a significant deficiency, or a combination of significant
deficiencies, that results in there being a more than remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected. Our
processes and procedures relating to the translation of US dollar receivables by one of our Belgian
subsidiaries did not operate effectively. We identified this matter following our independent
registered public accounting firms quarterly review of our March 31, 2005 financial information
included in our Form 10-Q for the three months ended March 31, 2005. The correct accounting for
the contracts in question was subsequently determined and applied, prior to the public release of
our financial information for the second quarter of 2005 and, in accordance with that accounting,
the related account balances were restated.

Allied has filed a Form 8-K/A filed on August 10, 2005 as notification that it has determined it
needs to restate its financial statements for 2004, 2003 and 2002 due to errors made in translating
its US dollar receivables at the period end spot rates. Management assessed the effectiveness of
the companys internal control over financial reporting as of June 30, 2005. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control  Integrated Framework. Based on our assessment we
believe that, as of June 30, 2005, the companys internal control over financial reporting is
ineffective based on those criteria. We identified this additional material weakness in our
internal control over financial reporting upon the completion of our 130M FMS contract and the
termination of the related FX contracts. Specifically, Allied determined that it incorrectly
valued the U.S. Dollar receivables at the hedged rate rather than at the period end spot rate
during the period the 130M FMS contract was active (2002 through the first quarter of 2005).
The Company has remediated the first material weakness of accounting for foreign currency contracts
that arose in connection with the annual audit for 2004 and is currently in the process of remediating the
second material weakness of valuing the US. Dollar receivables at the period end spot rate. The Company hired a financial expert
on derivatives to help establish a policy on testing derivatives according to the FAS 133
guidelines. During 2005, all new foreign currency contracts entered into were documented and
tested according to the FAS 133 guidelines. The Company is also in the process of remediating
its significant deficiencies and expects to be completed by the end of 2005. Except as set
forth above, there have been no significant changes in our internal controls over financial
reporting or, to our knowledge, in other factors that occurred during the last quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
 
 Item 4 Submission of Matters to a Vote of Security Holders
    Nominee
    
    In Favor
    
    WithheldJ. H. Binford Peay, III
    
    
    4,431,262
    
    
    
    836,113Jay R. Sculley
    
    
    4,429,701
    
    
    
    837,674Clifford C. Christ
    
    
    4,259,389
    
    
    
    1,007,986Harry H. Warner
    
    
    4,257,339
    
    
    
    1,010,036Ronald H. Griffith
    
    
    4,259,507
    
    
    
    1,007,868Gilbert F. Decker
    
    
    4,257,606
    
    
    
    1,009,769John G. Meyer, Jr.
    
    
    4,428,031
    
    
    
    839,344
  For
    
    Against
    
    Abstain2,540,712
    
    
    1,479,057
    
    
    
    234,437
 30




---



##### 



The Allied Defense Group, Inc.
 PART II  OTHER INFORMATION
June 30, 2005
 
 Item 6 Exhibits
 (a)
    
    Reports on Form 8-KOn April 1, 2005, the Company filed a Form 8-K providing its financial results for the year
ended December 31, 2004.On May 6, 2005, the Company filed a Form 8-K providing its shareholder letter.On May 10, 2005, the Company filed a Form 8-K providing its financial results for the quarter
ended March 31, 2005.On May 12, 2005, the Company filed a Form 8-K reporting the resignation of its Chief Executive
Officer, John G. Meyer, Jr.
 (b)
    Exhibit No.
    Description of Exhibits10.1
    Employment Agreement between Allied and John J. Marcello31.1
    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.
 31




---



##### 



The Allied Defense Group, Inc.
 
 SIGNATURE
  THE ALLIED DEFENSE GROUP, INC./s/ Lawrence A. FischerDate:  August 15, 2005
    Lawrence A. FischerActing Chief Financial Officer and
Treasurer 32