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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2011
 Commission File Number: 1-11376
 The Allied Defense Group, Inc.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    04-2281015(State or other jurisdiction of
    
    (I.R.S. Employer Number)incorporation or organization)
 120 E. Baltimore Street, Suite 2100
Baltimore, MD 21202  (Address of principal executive offices, including zip code)
 (410) 385-8155  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 þ o




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THE ALLIED DEFENSE GROUP, INC.
INDEX
 PAGENUMBERPART I. FINANCIAL INFORMATION  UNAUDITEDItem 1. Financial Statements (Unaudited)Consolidated Statements of Net Assets as of June 30, 2011 and December 31, 2010 (liquidation basis)
    
    
    2Consolidated Statement of Changes in Net Assets for the three and six months ended June 30, 2011
(liquidation basis)
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 (going
concern basis)
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 (going concern basis)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. (Reserved)
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    18Signatures
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32




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The Allied Defense Group, Inc.
CONSOLIDATED STATEMENTS OF NET ASSETS (Liquidation Basis)
(Thousands of Dollars, except per share and share data)
 June 30,2011
    
    
    December 31,(Unaudited)
    
    
    2010ASSETSCash and cash equivalents
    
    $
    737
    
    
    $
    14,462Short-term investments
    
    
    31,247
    
    
    
    18,801Prepaid and other current assets
    
    
    406
    
    
    
    606Notes receivable
    
    
    825
    
    
    
    875Property and Equipment, net
    
    
    
    
    
    
    2Funds held in escrow
    
    
    15,010
    
    
    
    15,003TOTAL ASSETS
    
    
    48,225
    
    
    
    49,749LIABILITIESEstimated net costs to be incurred during liquidation
    
    
    3,390
    
    
    
    3,564Accounts payable
    
    
    83
    
    
    
    68Accrued liabilities
    
    
    223
    
    
    
    399Income taxes payable
    
    
    
    
    
    
    2Other liabilities
    
    
    88
    
    
    
    87TOTAL LIABILITIES
    
    
    3,784
    
    
    
    4,120NET ASSETS IN LIQUIDATION
    
    $
    44,441
    
    
    $
    45,629NUMBER OF SHARES OUTSTANDING
    
    
    8,235,195
    
    
    
    8,235,195NET ASSETS IN LIQUIDATION PER SHARE
    
    $
    5.40
    
    
    $
    5.54
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Liquidation Basis)
(Unaudited)
(Thousands of Dollars, except per share and share data)
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2011
    
    
    2011Net assets on liquidation basis at beginning of period
    
    $
    45,606
    
    
    $
    45,629Changes in fair value of net assets in liquidationAdjust net assets to fair value
    
    
    (248
    )
    
    
    (461
    )Adjust estimated costs to be incurred during liquidation
    
    
    (917
    )
    
    
    (727
    )Net assets on liquidation basis at end of period
    
    $
    44,441
    
    
    $
    44,441
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Going Concern Basis)
(Unaudited)
(Thousands of Dollars, except per share and share data)
 Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Revenue
    
    $
    
    
    
    $
    Cost and expensesSelling and administrative  corporate expenses
    
    
    2,777
    
    
    
    4,468Operating loss
    
    
    (2,777
    )
    
    
    (4,468
    )Other income (expenses)Interest income
    
    
    14
    
    
    
    33Net loss on fair value of senior notes and warrants
    
    
    232
    
    
    
    (17
    )Other-net
    
    
    5
    
    
    
    (7
    )251
    
    
    
    9Loss from continuing operations before income taxes
    
    
    (2,526
    )
    
    
    (4,459
    )Income tax expense
    
    
    
    
    
    
    1Loss from continuing operations
    
    
    (2,526
    )
    
    
    (4,460
    )Income (loss) from discontinued operations, net of taxLoss on sale of subsidiaries
    
    
    (250
    )
    
    
    (250
    )Loss from discontinued operations
    
    
    (6,614
    )
    
    
    (9,835
    )(6,864
    )
    
    
    (10,085
    )NET LOSS
    
    $
    (9,390
    )
    
    $
    (14,545
    )Earnings (Loss) per share  basic and diluted:Net loss from continuing operations
    
    $
    (0.31
    )
    
    $
    (0.55
    )Net loss from discontinued operations
    
    
    (0.84
    )
    
    
    (1.23
    )Total loss per share  basic and diluted
    
    $
    (1.15
    )
    
    $
    (1.78
    )Weighted average number of common shares:Basic and Diluted
    
    
    8,174,363
    
    
    
    8,174,521
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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The Allied Defense Group, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Going Concern Basis)
(Unaudited)
(Thousands of Dollars, except per share and share data)
 Six Months EndedJune 30, 2010Cash flows from operating activitiesNet loss
    
    $
    (14,545
    )Less: Loss on sale of subsidiaries
    
    
    250Less: Discontinued operations, net of tax
    
    
    9,835Loss from continuing operations
    
    
    (4,460
    )Adjustments to reconcile net loss from continuing operations to net cash used in operating activities, net of divestitures:Depreciation and amortization
    
    
    9Net gain related to fair value of warrants
    
    
    17Common stock and stock option awards
    
    
    165Deferred director stock awards
    
    
    43(Increase) decrease in operating assets and increase (decrease) in liabilities, net
of effects from discontinued businesses:Prepaid and other current assets
    
    
    273Accounts payable, accrued liabilities and other current liabilities
    
    
    (474
    )Deferred compensation
    
    
    3Income taxes
    
    
    (222
    )Net cash used in operating activities  continuing operations
    
    
    (4,646
    )Net cash used in operating activities  discontinued operations
    
    
    (4,006
    )Net cash used in operating activities
    
    
    (8,652
    )Cash flows from investing activitiesNet cash used in investing activities  discontinued operations
    
    
    (1,181
    )Net cash used in investing activities
    
    
    (1,181
    )Cash flows from financing activitiesIncrease from short-term borrowing
    
    
    9,919Repayment on capital lease obligations
    
    
    (2
    )Net cash provided by financing activities  continuing operations
    
    
    9,917Net cash used in financing activities  discontinued operations
    
    
    (1,469
    )Net cash provided by financing activities
    
    
    8,448Effects of exchange rate on cash
    
    
    (852
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,237
    )Cash and cash equivalents at beginning of period
    
    
    9,021Cash and cash equivalents at end of period
    
    $
    6,784Supplemental Disclosures of Cash Flow informationCash paid during the period forInterest
    
    $
    2,578Taxes
    
    $
    231
 The accompanying notes are an integral part of these unaudited condensed consolidated statements.
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
 NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Business Operations
  Plan of Dissolution and Liquidation
    Basis of Presentation
 Liquidation Basis of Accounting
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
    Going Concern Basis of Accounting
  NOTE 2  PRINCIPLES OF CONSOLIDATION
  
    
    ARC Europe, a Belgian company,
    
    Allied Research BV (BV), a Dutch company,
    
    Allied Research Cooperative (Coop) and,
    
    ADG Sub USA, Inc. (Mecar USA)
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
 NOTE 3  DISCONTINUED OPERATIONS
 Mecar and Mecar USA
   Three Months EndedJune 30, 2010Mecar
    
    
    Mecar USA
    
    
    TotalRevenue
    
    $
    17,282
    
    
    $
    1,719
    
    
    $
    19,001Income (loss) before taxes
    
    
    (6,005
    )
    
    
    (610
    )
    
    
    (6,615
    )Income (loss), net of tax
    
    
    (6,005
    )
    
    
    (609
    )
    
    
    (6,614
    )
 Six Months EndedJune 30, 2010Mecar
    
    
    Mecar USA
    
    
    TotalRevenue
    
    $
    31,498
    
    
    $
    7,672
    
    
    $
    39,170Income (loss) before taxes
    
    
    (9,812
    )
    
    
    (15
    )
    
    
    (9,827
    )Income (loss), net of tax
    
    
    (9,812
    )
    
    
    (23
    )
    
    
    (9,835
    )
 NS Microwave Systems, Inc. (NSM)
  NOTE 4  SHORT-TERM INVESTMENTS
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
 NOTE 5  WARRANTS
  NOTE 6  FAIR VALUE MEASUREMENTS
   
    
    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.
   NOTE 7  EARNINGS (LOSS) PER SHARE
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)


Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Net loss from continuing operations
    
    $
    (2,526
    )
    
    $
    (4,460
    )Net loss from discontinued operations, net of tax
    
    
    (6,864
    )
    
    
    (10,085
    )Total loss
    
    $
    (9,390
    )
    
    $
    (14,545
    )Number of shares:Weighted average shares outstanding, basic and diluted
    
    
    8,174,363
    
    
    
    8,174,521Basic and diluted net loss per share from continuing operations
    
    $
    (0.31
    )
    
    $
    (0.55
    )Basic and diluted net loss per share from discontinued operations
    
    
    (0.84
    )
    
    
    (1.23
    )Basic and diluted net loss per share from total earnings
    
    $
    (1.15
    )
    
    $
    (1.78
    )
 NOTE 8  OTHER  NET
  Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Net currency transaction
gains
    
    $
    1
    
    
    $
    6Interest expense
    
    
    (4
    )
    
    
    (21
    )Miscellaneous  net
    
    
    8
    
    
    
    8$
    5
    
    
    $
    (7
    )
 NOTE 9  SHARE- BASED COMPENSATION
   NOTE 10 INDUSTRY SEGMENTS
  NOTE 11  PROVISION FOR TAXES
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
   Accounting for Income Taxes.
  NOTE 12  COMMITMENTS AND CONTINGENCIES
    Legal Proceedings
 DOJ Subpoena
    11




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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Thousands of Dollars)
   Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  Indemnification provisions
    12




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ITEM 2. MANGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
        13




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Net Assets in Liquidation
   Changes in Net Assets in Liquidation During the Six Months Ended June 30, 2011
      14




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Estimated Net Costs to be Incurred During Liquidation
    
    (in thousands)December 31,
    
    
    Changes in
    
    
    (Costs Incurred)
    
    
    June 30,2010
    
    
    Estimates
    
    
    Income Received
    
    
    2011Compensation for remaining employees and
directors
    
    $
    398
    
    
    $
    136
    
    
    $
    (169
    )
    
    $
    365Compliance and other office costs
    
    
    1,230
    
    
    
    (189
    )
    
    
    (232
    )
    
    
    809Insurance Fees
    
    
    351
    
    
    
    100
    
    
    
    (50
    )
    
    
    401Professional Fees
    
    
    1,385
    
    
    
    750
    
    
    
    (270
    )
    
    
    1,865Income Taxes
    
    
    350
    
    
    
    
    
    
    
    (200
    )
    
    
    150Less: interest income on cash and investment
balances
    
    
    (150
    )
    
    
    (70
    )
    
    
    20
    
    
    
    (200
    )Total net costs to be incurred during liquidation
    
    $
    3,564
    
    
    $
    727
    
    
    $
    (901
    )
    
    $
    3,390
 Critical Accounting Policies
   
    
    Estimates of the potential liability associated with litigation and government investigations
    
    Valuation of deferred income taxes and income tax reserves.
    
    Estimation of expenses incurred and interest income received during liquidation.
  Forward-Looking Statements
  Commitments and Contingencies
 DOJ Subpoena
  Employee Severance Payments
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Leases
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  Indemnification provisions
 
  Future Reporting
    16




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  Overview
  Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 DOJ Subpoena
      17




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Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Reserved)
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibits*31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.  18




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SIGNATURE
  THE ALLIED DEFENSE GROUP, INC./s/ Charles S. ReamDate: August 12, 2011
    
    Charles S. ReamDirector and Chief Financial Officer
  19