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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, 2010
 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 
incorporation or organization)
    
    (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)
 None
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



THE ALLIED DEFENSE GROUP, INC.
INDEX
 PAGENUMBERPART I. FINANCIAL INFORMATION  UNAUDITEDItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Stockholders Equity and Comprehensive Loss
for the six months ended June 30, 2010 and the year ended December 31, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010
and 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. (Reserved)
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38Exhibit 31Exhibit 32




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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (Thousands of Dollars, except per share and share data)
 June 30,
    
    
    December 31,2010
    
    
    2009 (a)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    6,784
    
    
    $
    9,021Restricted cash
    
    
    18,834
    
    
    
    5,599Accounts receivable, net
    
    
    19,335
    
    
    
    28,911Costs and accrued earnings on uncompleted contracts
    
    
    8,994
    
    
    
    14,402Inventories, net
    
    
    15,921
    
    
    
    19,581Contracts in progress
    
    
    1,733
    
    
    
    179Prepaid assets
    
    
    10,643
    
    
    
    3,254Other current assets
    
    
    684
    
    
    
    1,425Total current assets
    
    
    82,928
    
    
    
    82,372Property, Plant and Equipment, net
    
    
    13,944
    
    
    
    16,545Other Assets
    
    
    1,261
    
    
    
    1,712TOTAL ASSETS
    
    $
    98,133
    
    
    $
    100,629CURRENT LIABILITIESBank overdraft facility
    
    $
    980
    
    
    $
    2,635Current maturities of long-term debt
    
    
    16,753
    
    
    
    4,240Accounts payable
    
    
    24,663
    
    
    
    17,429Accrued liabilities
    
    
    8,600
    
    
    
    18,654Customer deposits
    
    
    28,850
    
    
    
    15,974Belgium social security
    
    
    2,049
    
    
    
    3,803Income taxes
    
    
    3,065
    
    
    
    3,773Other current liabilities
    
    
    819
    
    
    
    315Total current liabilities
    
    
    85,779
    
    
    
    66,823LONG TERM OBLIGATIONSLong-term debt, less current maturities and unrealized discounts
    
    
    51
    
    
    
    4,607Long-term foreign exchange contract, less current maturities
    
    
    637
    
    
    
    499Other long-term liabilities
    
    
    1,456
    
    
    
    1,689Total long-term obligations
    
    
    2,144
    
    
    
    6,795TOTAL LIABILITIES
    
    
    87,923
    
    
    
    73,618CONTINGENCIES 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, 8,173,650 at June 30, 2010 and 8,175,480 at December 31,
2009
    
    
    818
    
    
    
    818Capital in excess of par value
    
    
    56,698
    
    
    
    56,490Accumulated deficit
    
    
    (61,203
    )
    
    
    (46,658
    )Accumulated other comprehensive income
    
    
    13,897
    
    
    
    16,361Total stockholders equity
    
    
    10,210
    
    
    
    27,011TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    98,133
    
    
    $
    100,629
 (a)
    
    Condensed consolidated balance sheet as of December 31, 2009, has been derived from audited
consolidated financial statements. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
  2




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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (Thousands of Dollars, except per share and share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    18,744
    
    
    $
    47,380
    
    
    $
    38,913
    
    
    $
    78,928Cost and expensesCost of sales
    
    
    20,855
    
    
    
    40,158
    
    
    
    39,129
    
    
    
    66,876Selling and administrative
    
    
    5,089
    
    
    
    4,539
    
    
    
    9,612
    
    
    
    8,751Research and development
    
    
    440
    
    
    $
    580
    
    
    
    944
    
    
    
    1,072Operating (loss) income
    
    
    (7,640
    )
    
    
    2,103
    
    
    
    (10,772
    )
    
    
    2,229Other income (expenses)Interest income
    
    
    23
    
    
    
    28
    
    
    
    42
    
    
    
    63Interest expense
    
    
    (1,010
    )
    
    
    (1,040
    )
    
    
    (2,169
    )
    
    
    (1,904
    )Net gain (loss) on fair value of senior convertible notes and warrants
    
    
    232
    
    
    
    8
    
    
    
    (17
    )
    
    
    247(Loss) gain from foreign exchange contracts
    
    
    (117
    )
    
    
    1,231
    
    
    
    (785
    )
    
    
    569Other-net
    
    
    (628
    )
    
    $
    (556
    )
    
    
    (584
    )
    
    
    (803
    )(1,500
    )
    
    
    (329
    )
    
    
    (3,513
    )
    
    
    (1,828
    )(Loss) income from continuing operations before income taxes
    
    
    (9,140
    )
    
    
    1,774
    
    
    
    (14,285
    )
    
    
    401Income tax expense (benefit)
    
    
    
    
    
    $
    (195
    )
    
    
    10
    
    
    
    (195
    )(Loss) income from continuing operations
    
    
    (9,140
    )
    
    
    1,969
    
    
    
    (14,295
    )
    
    
    596Income from discontinued operations, net of tax(Loss) gain on sale of subsidiaries
    
    
    (250
    )
    
    
    865
    
    
    
    (250
    )
    
    
    1,811Loss from discontinued operations
    
    
    
    
    
    $
    (1,675
    )
    
    
    
    
    
    
    (1,565
    )Net (loss) income from discontinued operations
    
    
    (250
    )
    
    
    (810
    )
    
    
    (250
    )
    
    
    246NET (LOSS) INCOME
    
    $
    (9,390
    )
    
    $
    1,159
    
    
    $
    (14,545
    )
    
    $
    842Earnings (Loss) per share  basic:Net (loss) earnings from continuing operations
    
    $
    (1.12
    )
    
    $
    0.24
    
    
    $
    (1.75
    )
    
    $
    0.07Net (loss) earnings from discontinued operations, net of tax
    
    
    (0.03
    )
    
    
    (0.10
    )
    
    
    (0.03
    )
    
    
    0.03Total (loss) earnings per share  basic
    
    $
    (1.15
    )
    
    $
    0.14
    
    
    $
    (1.78
    )
    
    $
    0.10Earnings (Loss) per share  diluted:Net (loss) earnings from continuing operations
    
    $
    (1.12
    )
    
    $
    0.24
    
    
    $
    (1.75
    )
    
    $
    0.07Net (loss) income from discontinued operations, net of tax
    
    
    (0.03
    )
    
    
    (0.10
    )
    
    
    (0.03
    )
    
    
    0.03Total (loss) earnings per share  diluted
    
    $
    (1.15
    )
    
    $
    0.14
    
    
    $
    (1.78
    )
    
    $
    0.10Weighted average number of common shares:Basic
    
    
    8,174,363
    
    
    
    8,085,207
    
    
    
    8,174,521
    
    
    
    8,082,402Diluted
    
    
    8,174,363
    
    
    
    8,101,875
    
    
    
    8,174,521
    
    
    
    8,107,595
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
  3




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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
 (Unaudited)
 (Thousands of Dollars, except per share and share data)
 AccumulatedPreferred
    
    
    Common Stock
    
    
    Capital in
    
    
    
    
    
    
    Other
    
    
    Totalstock, no
    
    
    
    
    
    
    $.10 Par
    
    
    Excess of
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersPar Value
    
    
    Shares
    
    
    value
    
    
    Par value
    
    
    (Deficit)
    
    
    Income
    
    
    EquityBalance at January 1, 2009
    
    $
    
    
    
    
    8,079,509
    
    
    $
    808
    
    
    $
    55,912
    
    
    $
    (38,351
    )
    
    $
    16,082
    
    
    $
    34,451Common stock awards
    
    
    
    
    
    
    78,490
    
    
    
    8
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    334Retired stocks
    
    
    
    
    
    
    (1,502
    )
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )Employee stock purchase plan purchases
    
    
    
    
    
    
    18,983
    
    
    
    2
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    86Issue of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    71Directors deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    103Comprehensive loss:Net loss for the year ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,307
    )
    
    
    
    
    
    
    (8,307
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279
    
    
    
    279Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,028
    )Balance at December 31, 2009
    
    $
    
    
    
    
    8,175,480
    
    
    $
    818
    
    
    $
    56,490
    
    
    $
    (46,658
    )
    
    $
    16,361
    
    
    $
    27,011Common stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    138Forfeited stocks
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retired stocks
    
    
    
    
    
    
    (830
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issue of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    27Directors deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43Comprehensive loss:Net loss for the six months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,545
    )
    
    
    
    
    
    
    (14,545
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,464
    )
    
    
    (2,464
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,009
    )Balance at June 30, 2010
    
    $
    
    
    
    
    8,173,650
    
    
    $
    818
    
    
    $
    56,698
    
    
    $
    (61,203
    )
    
    $
    13,897
    
    
    $
    10,210
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
  4




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The Allied Defense Group, Inc.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Thousands of Dollars)
 Six Months Ended June 30,2010
    
    
    2009Cash flows from operating activitiesNet (loss) income
    
    $
    (14,545
    )
    
    $
    842Less: Loss (gain) on sale of subsidiaries
    
    
    250
    
    
    
    (1,811
    )Discontinued operations, net of tax
    
    
    
    
    
    
    1,565(Loss) income from continuing operations
    
    
    (14,295
    )
    
    
    596Adjustments to reconcile net (loss) income from continuing operations to net cash used in operating activities, net of divestitures:Depreciation and amortization
    
    
    1,728
    
    
    
    2,069Unrealized loss (gain) on foreign exchange contracts
    
    
    785
    
    
    
    (569
    )Net loss (gain) related to fair value of notes and warrants
    
    
    17
    
    
    
    (247
    )(Reduction) provision for estimated losses on contracts
    
    
    (1,302
    )
    
    
    17Reduction for warranty reserves, uncollectible accounts and inventory obsolescence
    
    
    (116
    )
    
    
    (194
    )Common stock and stock option awards
    
    
    165
    
    
    
    226Deferred director stock awards
    
    
    43
    
    
    
    60(Increase) decrease in operating assets and increase (decrease) in liabilities, net
of effects from discontinued businessesRestricted cash
    
    
    (15,292
    )
    
    
    (4,409
    )Accounts receivable
    
    
    6,237
    
    
    
    (1,708
    )Costs and accrued earnings on uncompleted contracts
    
    
    3,566
    
    
    
    (8,726
    )Inventories
    
    
    1,167
    
    
    
    (2,155
    )Contracts in progress
    
    
    (1,554
    )
    
    
    (4,603
    )Prepaid and other current assets
    
    
    (7,903
    )
    
    
    (1,537
    )Accounts payable and accrued liabilities
    
    
    1,756
    
    
    
    1,829Customer deposits
    
    
    16,565
    
    
    
    10,260Deferred compensation
    
    
    3
    
    
    
    598Income taxes
    
    
    (222
    )
    
    
    (278
    )Net cash used in operating activities  continuing operations
    
    
    (8,652
    )
    
    
    (8,771
    )Net cash used in operating activities  discontinued operations
    
    
    
    
    
    
    (152
    )Net cash used in operating activities
    
    
    (8,652
    )
    
    
    (8,923
    )Cash flows from investing activitiesCapital expenditures
    
    
    (1,181
    )
    
    
    (680
    )Net proceeds from sale of subsidiaries
    
    
    
    
    
    
    422Net cash used in investing activities  continuing operations
    
    
    (1,181
    )
    
    
    (258
    )Net cash provided by investing activities  discontinued operations
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (1,181
    )
    
    
    (258
    )Cash flows from financing activitiesProceeds received from the issuance of the Bridge Notes
    
    
    9,919
    
    
    
    Bank overdraft payments
    
    
    (1,378
    )
    
    
    (151
    )Increase from short-term borrowing
    
    
    
    
    
    
    3,198Principal payments on senior convertible notes
    
    
    
    
    
    
    (928
    )Net of proceeds received from long-term debt and repayment on capital lease obligations
    
    
    (93
    )
    
    
    10Net cash transferred to discontinued operations
    
    
    
    
    
    
    (132
    )Proceeds from employee stock purchases
    
    
    
    
    
    
    37Net cash provided by financing activities  continuing operations
    
    
    8,448
    
    
    
    2,034Net cash provided by financing activities  discontinued operations
    
    
    
    
    
    
    131Net cash provided by financing activities
    
    
    8,448
    
    
    
    2,165Net change in cash of discontinued operations
    
    
    
    
    
    
    22Effects of exchange rate on cash
    
    
    (852
    )
    
    
    (112
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,237
    )
    
    
    (7,106
    )Cash and cash equivalents at beginning of period
    
    
    9,021
    
    
    
    8,816Cash and cash equivalents at end of period
    
    $
    6,784
    
    
    $
    1,710
 2010
    
    
    2009Supplemental Disclosures of Cash Flow informationCash paid during the period forInterest
    
    $
    2,578
    
    
    $
    1,644Taxes
    
    $
    231
    
    
    $
    27Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesCapital leases
    
    $
    
    
    
    $
    22
 The accompanying notes are an integral part of these unaudited condensed consolidated statements.
  5




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The Allied Defense Group, Inc.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 (Thousands of Dollars)
 NOTE 1  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
           6




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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 Liquidity and Capital Resources
  
   
     7




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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 Outlook for 2010
  ,
    NOTE 2  PRINCIPLES OF CONSOLIDATION
  
    
    ARC Europe, S.A. (ARC Europe), a Belgian company, including its wholly-owned
subsidiary Mecar S.A. (Mecar).
 
    
    Allied Research BV (BV), a Dutch company,
 
    
    Allied Research Cooperative (Coop) and,
 
    
    Mecar USA, Inc. (Mecar USA), a Delaware corporation.
   
    
    Mecar.Mecar designs, develops, manufactures and sells ammunition and ammunition related
products for military use. Substantially all of Mecars revenues are derived from the sale of
ammunition which is used with weapons that are generally considered defensive weapons. From time
to time, Mecar provides system integration services pursuant to which it purchases and resells
weapon systems, ammunition manufactured by others or consulting services to governments looking to
develop their own manufacturing capabilities often in types of ammunition not manufactured by
Mecar. Mecars manufactured products consist of a wide variety of ammunition and grenades in the
medium caliber, artillery, anti-tank and anti-material categories.
  8




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 
    
    Mecar USA.Mecar USA purchases and resells ammunition and ammunition related products
manufactured by others for the benefit of the U.S government and foreign governments. Mecar USA
substantially expanded this procurement business in 2008. Mecar USA also pursues manufacturing
contracts from the U.S. Government and others for ammunition and pyrotechnics devices. Mecar USA
became operational in late-2005 following the construction of a new facility in Marshall, Texas.
  NOTE 3  ACCOUNTS RECEIVABLE AND COSTS AND ACCRUED EARNINGS ON UNCOMPLETED CONTRACTS
  June 30,
    
    
    December 31,2010
    
    
    2009Direct and indirect receivables from governments
    
    $
    6,671
    
    
    $
    19,570Commercial and other receivables
    
    
    13,518
    
    
    
    10,32820,189
    
    
    
    29,898Less: Allowance for doubtful receivables
    
    
    (854
    )
    
    
    (987
    )$
    19,335
    
    
    $
    28,911
  Transfers and Servicing.
  NOTE 4  INVENTORIES
  June 30,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    10,574
    
    
    $
    10,633Work in process
    
    
    5,799
    
    
    
    9,037Finished goods
    
    
    1,809
    
    
    
    2,85918,182
    
    
    
    22,529Less: Reserve for obsolescence
    
    
    (2,261
    )
    
    
    (2,948
    )$
    15,921
    
    
    $
    19,581
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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  NOTE 5  CONTRACTS IN PROGRESS
  NOTE 6  BANK CREDIT FACILITY
  
   
  10




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The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  NOTE 7  LONG-TERM OBLIGATIONS
  June 30,
    
    
    December 31,2010
    
    
    2009SOGEPA loan
    
    $
    7,325
    
    
    $
    8,600Secured Bridge Notes
    
    
    9,348
    
    
    
    Bank notes payable
    
    
    85
    
    
    
    128Capital leases and other
    
    
    46
    
    
    
    119Total long-term debt
    
    
    16,804
    
    
    
    8,847Less: Current maturities
    
    
    (16,753
    )
    
    
    (4,240
    )Long-term debt, less current maturities
    
    $
    51
    
    
    $
    4,607
 SOGEPA Loan.     Debtors Accounting for a Modification or Exchange of Debt Instruments  
 Secured Bridge Notes.  
  11




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 Bank notes payable. 
 Capital lease and other.
  NOTE 8  WARRANTS
 Derivatives and Hedging
 NOTE 9  DERIVATIVE FINANCIAL INSTRUMENTS
    12




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  Fair Value atLiability Derivatives Balance Sheet Location
    
    June 30, 2010
    
    
    December 31, 2009Derivatives not designated as hedging instruments under ASC 815Foreign Currency future contracts
    
    Other current liabilities
    
    $
    777
    
    
    $
    315Foreign Currency future contracts
    
    Long-term foreign exchange contracts, less
current maturities
    
    
    637
    
    
    
    499Total derivatives not designated
as hedging instruments under ASC
815
    
    
    
    $
    1,414
    
    
    $
    814
  For the Three Months Ended
    
    
    For the Six Months EndedStatement of Operations Location
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Derivatives not designated as hedging instruments under ASC 815Foreign Currency future contracts
    
    (Loss) gain from foreign exchange contracts
    
    $
    (117
    )
    
    $
    1,231
    
    
    $
    (785
    )
    
    $
    569
  NOTE 10  FAIR VALUE MEASUREMENTS
   
 
 
   13




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsJune 30, 2010
    
    or Liabilities (level 1)
    
    
    (level 2)
    
    
    (Level 3)
    
    
    TotalLiabilitiesDerivative instruments
    
    $
    
    
    
    $
    42
    
    
    $
    
    
    
    $
    42Foreign exchange contracts
    
    
    
    
    
    
    1,414
    
    
    
    
    
    
    
    1,414$
    
    
    
    $
    1,456
    
    
    $
    
    
    
    $
    1,456
 Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDecember 31, 2009
    
    or Liabilities (level 1)
    
    
    (level 2)
    
    
    (Level 3)
    
    
    TotalLiabilitiesDerivative instruments
    
    $
    
    
    
    $
    24
    
    
    $
    
    
    
    $
    24Foreign exchange contracts
    
    
    
    
    
    
    814
    
    
    
    
    
    
    
    814$
    
    
    
    $
    838
    
    
    $
    
    
    
    $
    838
  NOTE 11  (LOSS) EARNINGS PER SHARE FROM CONTINUING OPERATIONS
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income from continuing operations
    
    $
    (9,140
    )
    
    $
    1,969
    
    
    $
    (14,295
    )
    
    $
    596Number of shares:Weighted average shares outstanding
    
    
    8,174,363
    
    
    
    8,085,207
    
    
    
    8,174,521
    
    
    
    8,082,402Effect of dilutive potential common sharesUnvested stock awards
    
    
    
    
    
    
    16,668
    
    
    
    
    
    
    
    16,668Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,525Weighted average number of diluted shares
    
    
    8,174,363
    
    
    
    8,101,875
    
    
    
    8,174,521
    
    
    
    8,107,595Basic net (loss) earnings per share from continuing operations
    
    $
    (1.12
    )
    
    $
    0.24
    
    
    $
    (1.75
    )
    
    $
    0.07Diluted net (loss) earnings per share from continuing operations
    
    $
    (1.12
    )
    
    $
    0.24
    
    
    $
    (1.75
    )
    
    $
    0.07
  14




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Warrants
    
    
    411,593
    
    
    
    411,593
    
    
    
    411,593
    
    
    
    411,593Unvested stock awards
    
    
    2,000
    
    
    
    
    
    
    
    2,000
    
    
    
    Stock options
    
    
    4,048
    
    
    
    
    
    
    
    23,394
    
    
    
    Total
    
    
    417,641
    
    
    
    411,593
    
    
    
    436,987
    
    
    
    411,593
 NOTE 12  COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income
    
    $
    (9,390
    )
    
    $
    1,159
    
    
    $
    (14,545
    )
    
    $
    842Currency Translation Adjustment
    
    
    (1,208
    )
    
    
    1,829
    
    
    
    (2,464
    )
    
    
    (33
    )Comprehensive (loss) income
    
    $
    (10,598
    )
    
    $
    2,988
    
    
    $
    (17,009
    )
    
    $
    809
  NOTE 13  OTHER  NET
  Three Months Ended June 30,
    
    
    Six Months Ended 
June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net currency transaction losses
    
    $
    (735
    )
    
    $
    (795
    )
    
    $
    (396
    )
    
    $
    (1,096
    )Miscellaneous  net
    
    
    107
    
    
    
    239
    
    
    
    (188
    )
    
    
    293$
    (628
    )
    
    $
    (556
    )
    
    $
    (584
    )
    
    $
    (803
    )
  NOTE 14  SHARE- BASED COMPENSATION
    15




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
  June 30, 2009Risk free interest rate
    
    
    0.80
    %Expected volatility rate
    
    
    70.71
    %Expected lives  years
    
    
    1Dividend yield
    
    
    
  NOTE 15  INDUSTRY SEGMENTS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues from external customersMecar SA
    
    $
    17,024
    
    
    $
    22,971
    
    
    $
    31,459
    
    
    $
    49,713Mecar USA
    
    
    1,720
    
    
    
    24,409
    
    
    
    7,454
    
    
    
    29,215$
    18,744
    
    
    $
    47,380
    
    
    $
    38,913
    
    
    $
    78,928Segment (loss) earnings from continuing
operations before taxesMecar SA
    
    $
    (6,043
    )
    
    $
    1,416
    
    
    $
    (9,774
    )
    
    $
    1,244Mecar USA
    
    
    (571
    )
    
    
    1,992
    
    
    
    (52
    )
    
    
    1,998Corporate
    
    
    (2,526
    )
    
    
    (1,634
    )
    
    
    (4,459
    )
    
    
    (2,841
    )$
    (9,140
    )
    
    $
    1,774
    
    
    $
    (14,285
    )
    
    $
    401
  June 30,
    
    
    December 31,2010
    
    
    2009Segment assetsMecar SA
    
    $
    89,797
    
    
    $
    84,575Mecar USA
    
    
    5,802
    
    
    
    12,175Corporate
    
    
    2,534
    
    
    
    3,879$
    98,133
    
    
    $
    100,629
  NOTE 16  PROVISION FOR TAXES
 Interim Financial Reporting
  16




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
    Accounting for Income Taxes.
  NOTE 17  COMMITMENTS AND CONTINGENCIES
       17




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 Legal Proceedings
 DOJ Subpoena
  
    Litigation Relating to Consulting Agreement
  Tax Litigation
  Indemnification provisions
   18




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
     
     NOTE 18  DISCONTINUED OPERATIONS
   19




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##### Table of Contents



The Allied Defense Group, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(Thousands of Dollars)
 NS Microwave Systems, Inc.
    Three Months Ended
    
    
    Six Months EndedJune 30, 2009Revenue
    
    $
    838
    
    
    $
    2,579Loss before taxes
    
    
    (1,671
    )
    
    
    (1,561
    )Loss, net of tax
    
    
    (1,675
    )
    
    
    (1,565
    )Discontinued operations, net of tax
    
    $
    (1,675
    )
    
    $
    (1,565
    )
  NOTE 19  SUBSEQUENT EVENTS
    20




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##### Table of Contents



The Allied Defense Group, Inc.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 June 30, 2010
 (Thousands of Dollars)
 (Unaudited)
 Overview
      
    
    Mecar.Mecar designs, develops, manufactures and sells
ammunition and ammunition related products for military use.
Substantially all of Mecars revenues are derived from the
sale of ammunition which is used with weapons that are
generally considered defensive weapons. From time to time,
Mecar provides system integration services pursuant to which
it purchases and resells weapon systems, ammunition
manufactured by others or consulting services to governments
looking to develop their own manufacturing capabilities often
in types of ammunition not manufactured by Mecar. Mecars
manufactured products consist of a wide variety of ammunition
and grenades in the medium caliber, artillery, anti-tank and
anti-material categories.
 
    
    Mecar USA.Mecar USA purchases and resells ammunition and
ammunition related products manufactured by others for the
benefit of the U.S government and foreign governments. Mecar
USA substantially expanded this procurement business in 2008.
Mecar USA also pursues manufacturing contracts from the U.S.
Government and others for ammunition and pyrotechnics
devices. Mecar USA became operational in late-2005 following
the construction of a new facility in Marshall, Texas.
    21




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Liquidity and Capital Resources
  
   
     22




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Outlook for 2010
  ,
    Results of Operations
      23




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Results of Operations for the Three Month Ended June 30, 2010 and 2009
 Revenue.
 Revenue by SegmentThree months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofAmount
    
    
    total
    
    
    Amount
    
    
    totalMecar
    
    $
    17,024
    
    
    
    91
    %
    
    $
    22,971
    
    
    
    48
    %Mecar USA
    
    
    1,720
    
    
    
    9
    
    
    
    24,409
    
    
    
    52Total
    
    $
    18,744
    
    
    
    100
    %
    
    $
    47,380
    
    
    
    100
    %
   Cost of Sales.
 Cost of Sales as a Percentage of Revenue by SegmentThree months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofsegment
    
    
    
    
    
    
    segmentAmount
    
    
    revenue
    
    
    Amount
    
    
    revenueMecar
    
    $
    18,858
    
    
    
    111
    %
    
    $
    18,458
    
    
    
    80
    %Mecar USA
    
    
    1,997
    
    
    
    116
    
    
    
    21,700
    
    
    
    89Total
    
    $
    20,855
    
    
    
    111
    %
    
    $
    40,158
    
    
    
    85
    %
    24




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Selling and Administrative.
 Selling and Administrative Expenses by SegmentThree months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofAmount
    
    
    total
    
    
    Amount
    
    
    totalMecar
    
    $
    2,024
    
    
    
    40
    %
    
    $
    2,391
    
    
    
    53
    %Mecar USA
    
    
    288
    
    
    
    6
    
    
    
    502
    
    
    
    11Corporate
    
    
    2,777
    
    
    
    54
    
    
    
    1,646
    
    
    
    36Total
    
    $
    5,089
    
    
    
    100
    %
    
    $
    4,539
    
    
    
    100
    %
  Research and Development.
 Interest Income.
 Interest Expense.
 Net Gain (Loss) on Fair Value of the Warrants.
 (Loss) Gain from Foreign Exchange Contracts.
 Other  Net.
  25




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Pre-Tax Income (Loss)
  Pre-Tax Income (Loss) by SegmentThree months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalAmount
    
    
    revenue
    
    
    Amount
    
    
    revenueMecar
    
    $
    (6,043
    )
    
    
    (32
    )%
    
    $
    1,416
    
    
    
    3
    %Mecar USA
    
    
    (571
    )
    
    
    (3
    )
    
    
    1,992
    
    
    
    4Corporate
    
    
    (2,526
    )
    
    
    (14
    )
    
    
    (1,634
    )
    
    
    (3
    )Total
    
    $
    (9,140
    )
    
    
    (49
    )%
    
    $
    1,774
    
    
    
    4
    %
  Income Taxes. Accounting for Income Taxes in Interim periods
 Net Loss from Discontinued Operations.
 Three months EndedJune 30,2010
    
    
    2009Loss from discontinued operations
    
    $
    
    
    
    $
    (1,675
    )(Loss) gain on the sale of subsidiaries, net of tax
    
    
    (250
    )
    
    
    865Net loss from discontinued operations
    
    $
    (250
    )
    
    $
    (810
    )
   26




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Net (Loss) Income.
 Results of Operations for the Six Months Ended June 30, 2010 and 2009
 Revenue.
 Revenue by SegmentSix Months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofAmount
    
    
    total
    
    
    Amount
    
    
    totalMecar
    
    $
    31,459
    
    
    
    81
    %
    
    $
    49,713
    
    
    
    63
    %Mecar USA
    
    
    7,454
    
    
    
    19
    
    
    
    29,215
    
    
    
    37Total
    
    $
    38,913
    
    
    
    100
    %
    
    $
    78,928
    
    
    
    100
    %
   Cost of Sales.
 Cost of Sales as a Percentage of Revenue by SegmentSix Months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofSegment
    
    
    
    
    
    
    segmentAmount
    
    
    revenue
    
    
    Amount
    
    
    revenueMecar
    
    $
    32,325
    
    
    
    103
    %
    
    $
    40,691
    
    
    
    82
    %Mecar USA
    
    
    6,804
    
    
    
    91
    
    
    
    26,185
    
    
    
    90Total
    
    $
    39,129
    
    
    
    101
    %
    
    $
    66,876
    
    
    
    85
    %
   27




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
  Selling and Administrative.
 Selling and Administrative Expenses by SegmentSix Months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % ofAmount
    
    
    total
    
    
    Amount
    
    
    totalMecar
    
    $
    4,523
    
    
    
    47
    %
    
    $
    4,825
    
    
    
    55
    %Mecar USA
    
    
    621
    
    
    
    6
    
    
    
    834
    
    
    
    10Corporate
    
    
    4,468
    
    
    
    47
    
    
    
    3,092
    
    
    
    35Total
    
    $
    9,612
    
    
    
    100
    %
    
    $
    8,751
    
    
    
    100
    %
  Research and Development.
 Interest Income.
 Interest Expense.
 Net Gain (Loss) on Fair Value of the Senior Convertible Notes and Warrants.
 (Loss) Gain from Foreign Exchange Contracts.
 Other  Net.
  28




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Pre-Tax Income (Loss)
  Pre-Tax Income (Loss) by SegmentSix Months Ended June 30,2010
    
    
    2009% of
    
    
    
    
    
    
    % oftotal
    
    
    
    
    
    
    totalAmount
    
    
    revenue
    
    
    Amount
    
    
    revenueMecar
    
    $
    (9,774
    )
    
    
    (25
    )%
    
    $
    1,244
    
    
    
    2
    %Mecar USA
    
    
    (52
    )
    
    
    
    
    
    
    1,998
    
    
    
    3Corporate
    
    
    (4,459
    )
    
    
    (12
    )
    
    
    (2,841
    )
    
    
    (4
    )Total
    
    $
    (14,285
    )
    
    
    (37
    )%
    
    $
    401
    
    
    
    1
    %
  Income Taxes. Accounting for Income Taxes in Interim periods
 Net (loss) income from Discontinued Operations.
 Six months EndedJune 30,2010
    
    
    2009Loss from discontinued operations
    
    $
    
    
    
    $
    (1,565
    )(Loss) gain on the sale of subsidiaries, net of tax
    
    
    (250
    )
    
    
    1,811Net (loss) income from discontinued operations
    
    $
    (250
    )
    
    $
    246
 
  29




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Net (Loss) Income.
 Backlog.
 Backlog by SegmentJune 30, 2010
    
    
    June 30, 2009Amount
    
    
    %
    
    
    Amount
    
    
    %Mecar
    
    $
    123,693
    
    
    
    95
    %
    
    $
    90,837
    
    
    
    77
    %Mecar USA
    
    
    6,702
    
    
    
    5
    
    
    
    27,094
    
    
    
    23Total
    
    $
    130,395
    
    
    
    100
    %
    
    $
    117,931
    
    
    
    100
    %
     30




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Balance Sheet
  June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCash, unrestricted
    
    $
    6,784
    
    
    $
    9,021Cash, restricted
    
    
    18,834
    
    
    
    5,599Accounts receivable, net
    
    
    19,335
    
    
    
    28,911Costs and accrued earnings on uncompleted contracts
    
    
    8,994
    
    
    
    14,402Inventories, net
    
    
    15,921
    
    
    
    19,581Contracts in progress
    
    
    1,733
    
    
    
    179Other current assets
    
    
    11,327
    
    
    
    4,679Property, plant & equipment and other assets
    
    
    15,205
    
    
    
    18,257TOTAL ASSETS
    
    $
    98,133
    
    
    $
    100,629LIABILITIESBank overdraft facility
    
    $
    980
    
    
    $
    2,635Bridge Notes
    
    
    9,348
    
    
    
    Accounts payable and accrued liabilities
    
    
    35,312
    
    
    
    39,886Customer deposits
    
    
    28,850
    
    
    
    15,974Other current liabilities
    
    
    3,065
    
    
    
    3,773Other long-term liabilities and debt
    
    
    10,368
    
    
    
    11,350TOTAL LIABILITIES
    
    
    87,923
    
    
    
    73,618STOCKHOLDERS EQUITY
    
    
    10,210
    
    
    
    27,011TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    98,133
    
    
    $
    100,629
    
    31




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
       Cash Flows
  For Six Months Ended June 30,2010
    
    
    2009Net cash used in operating activities
    
    $
    (8,652
    )
    
    $
    (8,923
    )Net cash used in investing activities
    
    
    (1,181
    )
    
    
    (258
    )Net cash provided by financing
activities
    
    
    8,448
    
    
    
    2,165Effects of exchange rate on cash
    
    
    (852
    )
    
    
    (112
    )
 Operating Activities.
  32




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
  Investing Activities.
 Financing Activities.
 Effects of Exchange Rate.
 Allied .
 Mecar. 
 Mecar USA.
 Stock Repurchases.
  33




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Future Liquidity
 Off-Balance Sheet Arrangements.
   Critical Accounting Policies
   
    
    Revenue recognition
 
    
    Inventory reserves and allowance for doubtful accounts
 
    
    Foreign currency translations
 
    
    Derivative Instruments
 
    
    Valuation of deferred income taxes and income tax reserves.
  Recent Accounting Pronouncements
 Subsequent Events (Topic 855)  Amendments to
Certain Recognition and Disclosure Requirements. Subsequent Events
  34




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##### Table of Contents



The Allied Defense Group, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2010
(Thousands of Dollars)
(Unaudited)
 Improving Disclosures about Fair Value
Measurements
 Forward-Looking Statements
  
  35




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE
  
 ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
    Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 DOJ Subpoena
     Litigation Relating to Consulting Agreement
   36




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  Société Wallonne de Gestion et de Participations   
  
 Item 4. (Reserved)
 
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibits2
    
    
    Stock and Asset Purchase Agreement, dated as of June 24, 2010, between The Allied Defense Group, Inc., Mecar USA,
Inc., ARC Europe, S.A. and Chemring Group PLC (Filed as Exhibit 2.1 to Form 8-K filed on June 24, 2010, and
incorporated herein by reference).4
    
    
    Fourth Amendment To Rights Agreement, dated as of June 24, 2010 (Filed as Exhibit 4.5 to Form 8-K filed on June 24,
2010, and incorporated herein by reference).10
    
    
    Secured Promissory Note, between The Allied Defense Group, Inc. and Chemring Group PLC (Filed as Exhibit 10.27 to
Form 8-K filed on June 24, 2010, and incorporated herein by reference).10.2
    
    
    Secured Promissory Note, between ARC Europe, S.A. and Chemring Group PLC (Filed as Exhibit 10.28 to Form 8-K filed on
June 24, 2010, and incorporated herein by reference).*31
    
    
    Certification of Chief Executive Officer and Acting Principal 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.  37




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##### Table of Contents



SIGNATURE
  THE ALLIED DEFENSE GROUP, INC./s/ John  J. MarcelloDate: August 13, 2010
    John  J. MarcelloChief Executive Officer and President and Acting Principal
Financial Officer * *
    
    Mr. Marcello is also acting as the Registrants Acting Principal Financial Officer as of
the date of this filing.
  38