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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 Commission file number: 1-11376
 THE ALLIED DEFENSE GROUP, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    04-2281015(State of incorporation)
    
    (I.R.S. Employer
Identification No.)
 120 E. Baltimore Street, Suite 2100
Baltimore, Maryland 21202  (Address of principal executive offices, including zip
code)   (410) 385-8155  (Registrants telephone number, including area
code)   Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
 YES o NO þ
 YES o NO þ
 þ o
 o o
 þ
  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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##### 



INDEX
 PART IItem 1. Business
    
    3Item 1A. Risk Factors
    
    4Item 1B. Unresolved Staff Comments
    
    4Item 2. Properties
    
    4Item 3. Legal Proceedings
    
    4Item 4 ( Removed and Reserved )
    
    5PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    6Item 6. Selected Financial Data
    
    6Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    6Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    12Item 8. Financial Statements and Supplementary Data
    
    12Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    12Item 9A. Controls and Procedures
    
    12Item 9B. Other Information
    
    13PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    14Item 11. Executive Compensation
    
    16Item 12. Security Ownership of Certain Beneficial Owners, Management & Related
Stockholder Matters
    
    18Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    19Item 14. Principal Accountant Fees and Services
    
    19PART IVItem 15. Exhibits, Financial Statement Schedules
    
    20Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32




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PART I
 
 ITEM 1.
    
    BUSINESS
        3




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Available Information
 www.allieddefensegroup.com www.allieddefensegroup.com
 
 
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
 DOJ Subpoena
   4




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Litigation Relating to Consulting Agreement
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
  Indemnification provisions
   
 ITEM 4.
    
    (REMOVED AND RESERVED)
  5




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information.
 2010
    
    
    2009High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    $
    7.25
    
    
    $
    4.51
    
    
    $
    7.15
    
    
    $
    3.782nd Quarter
    
    $
    7.25
    
    
    $
    1.85
    
    
    $
    4.84
    
    
    $
    3.283rd Quarter
    
    $
    3.72
    
    
    $
    2.22
    
    
    $
    5.26
    
    
    $
    3.374th Quarter
    
    $
    3.48
    
    
    $
    2.30
    
    
    $
    7.14
    
    
    $
    4.72
 Stockholders.
 Dividends.
 
 ITEM 6.
    
    SELECTED FINANCIAL DATA
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (amounts in thousands of dollars,
other than share data)
 Overview
    6




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7




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Liquidity and Capital Resources
  September 30,
    
    
    Changes in
    
    
    Costs Incurred
    
    
    December 31,2010
    
    
    Estimates
    
    
    (Income Received)
    
    
    2010Estimated net costs to be incurred during liquidationCompensation for remaining employees and directors
    
    $
    930
    
    
    $
    (443
    )
    
    $
    (89
    )
    
    $
    398Compliance and other costs
    
    
    855
    
    
    
    863
    
    
    
    (488
    )
    
    
    1,230Insurance Fees
    
    
    580
    
    
    
    (122
    )
    
    
    (107
    )
    
    
    351Professional Fees
    
    
    2,135
    
    
    
    (510
    )
    
    
    (240
    )
    
    
    1,385Income Taxes
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    350Less: interest income on cash and investment balances
    
    
    (500
    )
    
    
    331
    
    
    
    19
    
    
    
    (150
    )Total net costs to be incurred during liquidation
    
    $
    4,000
    
    
    $
    469
    
    
    $
    (905
    )
    
    $
    3,564
    Results of Operations (Going Concern Basis)
    8




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##### Table of Contents



Results of Operations for the Nine Months Ended September 30, 2010 compared to the Twelve
Months Ended December 31, 2009
 Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Revenues
    
    $
    
    
    
    $
    Cost and expensesSelling and administrative  corporate expenses
    
    
    7,469
    
    
    
    6,837Operating loss
    
    
    (7,469
    )
    
    
    (6,837
    )Other income (expenses)Net interest income (expense)
    
    
    38
    
    
    
    31Net gain (loss) on fair value of warrants
    
    
    (17
    )
    
    
    299Other-net
    
    
    (1,358
    )
    
    
    (168
    )(1,337
    )
    
    
    162Loss from continuing operations before income taxes
    
    
    (8,806
    )
    
    
    (6,675
    )Income tax (benefit) expense
    
    
    1
    
    
    
    (200
    )Loss from continuing operations
    
    
    (8,807
    )
    
    
    (6,475
    )Income (loss) from discontinued operations, net of taxGain on sale of subsidiaries
    
    
    48,081
    
    
    
    3,923Loss from discontinued operations
    
    
    (14,418
    )
    
    
    (5,755
    )33,663
    
    
    
    (1,832
    )NET INCOME (LOSS)
    
    $
    24,856
    
    
    $
    (8,307
    )Earnings (Loss) per share  basic and diluted:Net loss from continuing operations
    
    $
    (1.08
    )
    
    $
    (0.80
    )Net earnings (loss) from discontinued operations
    
    
    4.12
    
    
    
    (0.22
    )Total earnings (loss) per share  basic and diluted
    
    $
    3.04
    
    
    $
    (1.02
    )Weighted average number of common shares:Basic
    
    
    8,175,580
    
    
    
    8,120,428Diluted
    
    
    8,182,279
    
    
    
    8,120,428
  9




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##### Table of Contents



Selling and Administrative Expenses (Corporate Expenses)
  Net Interest Income (Expense) .
 Net Gain (Loss) on Fair Value of the Warrants.
 Other  Net.
 Income Taxes. Accounting for Income Taxes in Interim periods
 Net Income (Loss) from Discontinued Operations.
  Off-Balance Sheet Arrangements.
  Critical Accounting Policies
   10




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##### Table of Contents




    
    Foreign Currency Translations.The assets and liabilities of the Companys foreign
subsidiaries are translated into U.S. dollars at year-end exchange rates. The resulting
translation gains and losses are accumulated in a separate component of stockholders
equity. Income and expense items are converted into U.S. dollars at average rates of
exchange prevailing during the year. Foreign currency transaction gains and losses are
credited or charged directly to operations.
 
    
    Valuation of deferred income taxes and income tax reserves.Under the going concern
method of accounting, income taxes were provided based on the liability method for
financial reporting purposes. Under this method, deferred and prepaid taxes are provided
for on temporary differences in the basis of assets and liabilities which are recognized in
different periods for financial and tax reporting purposes. Valuation allowances are
provided if, based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. Where it is not more likely
than not that the Companys tax position will be sustained, the Company records its best
estimate of the resulting tax liability and interest in the consolidated financial
statements. It is the Companys policy to record interest and penalties, if any, related to
unrecognized tax benefits as part of income tax expense for financial reporting purposes.
 
    
    Estimates of expenses incurred and interest income received during liquidation.Under
the liquidation basis of accounting, the Company accrues for the remaining costs to be
incurred during liquidation, including compensation for remaining directors, consultants,
insurance costs, costs to settle remaining leases, fees for professional service providers
and miscellaneous other costs, partially offset by estimated future interest earnings.
These estimates are undiscounted for present value and are based on the assumption that
liquidation will occur no later than December 31, 2012.
 Recent Accounting Pronouncements
 Subsequent Events (Topic 855)  Amendments to
Certain Recognition and Disclosure Requirements. Subsequent Events
 Improving Disclosures about Fair Value
Measurements
   Forward-Looking Statements
   11




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##### Table of Contents



ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Overview
  Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
     12




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Changes in Internal Control Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
   13




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Year in which firstName of Nominee
    
    elected a director
    
    
    Age
    
    
    Principal business occupation for past five years and other directorshipsJohn G. Meyer, Jr.
    

    2003
    
    

    66
    
    
    Consultant; Chief Executive Officer of RedX Defense, Inc., a provider of
explosive detection devices from July 2009 to September 2009; serves as
a director of Heckler & Koch since 2005; Chief Executive Officer of
Heckler & Koch, a defense contractor, from June 2005  August 2007;
Chief Executive Officer of the Company from June 2003  June, 2005;
President of the Company from January 2003  June 2005; Chief Operating
Officer of the Company from January 2001  May 2003; Executive Vice
President of the Company from January 2001  January 2003; retired from
United States Army having served as its most senior Public Affairs
Officer. Mr. Meyer has proven business acumen, having served as the
chief executive officer of several defense industry companies including
serving as the Chief Executive Officer of the Company from 2003 to 2005.
His military background provides the Board with relevant industry
experience. Mr. Meyer currently serves on the board of three other
non-public companies.Charles S. Ream
    

    2006
    
    

    67
    
    
    Retired as the Executive Vice President and Chief Financial Officer of
Anteon International Corporation, having served in that capacity from
2003-2006; Senior Vice President and Chief Financial Officer of Newport
News Shipbuilding Inc. from 2000-2001; Senior Vice President of Finance
and Strategic Initiatives of Raytheon Systems Company from 1998-2000.
Also currently a director of Aeroflex Holdings Corp., Vangent, Inc., and
previously a director of DynCorp International (2006-2010), Stanley,
Inc. (2006-2010), and Stewart & Stevenson (2004-2006). Mr. Reams
experience brings to the Board a strong understanding of public company
governance and operations. Mr. Ream has extensive financial experience
as having served as a chief financial officer at several industry
related companies. Mr. Ream is a certified public accountant (inactive).
 Executive Officers
  Code of Ethics
 http://www.allieddefensegroup.com
 
  14




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Procedure for Board Recommendations
  Audit Committee
  Section 16(a) Beneficial Ownership Regarding Compliance
    15




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##### Table of Contents



ITEM 11.
    
    EXECUTIVE COMPENSATION
 SUMMARY COMPENSATION TABLE
As Of December 31, 2010
 Change in PensionValue andNonqualifiedNon-Equity
    
    
    Deferred
    
    
    All OtherName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    

    Option
    

    
    Incentive Plan
    
    
    Compensation
    
    
    Compensation onPosition
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Awards ($)
    
    
    Awards ($)
    
    
    Compensation ($)
    
    
    Earnings ($)
    
    
    ($)
    
    
    Total ($)John J. Marcello,
    
    
    2010
    
    
    $
    216,695
    
    
    $
    691,075
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,408
    (2)
    
    $
    923,178Chief Executive
Officer until
September 1, 2010
    
    
    2009
    
    
    $
    303,850
    
    
    
    
    
    
    
    
    
    
    $
    36,030
    (4)
    
    
    
    
    
    
    
    
    
    $
    28,500
    (3)
    
    $
    368,380John G. Meyer, Jr.,
    
    
    2010
    
    
    $
    54,000Chief Executive
Officer from and after
September 1, 2010
    
    
    2009
    
    
    $
    54,000
 
 (1)
    
    Paid pursuant to Mr. Marcellos change of control agreement.(2)
    
    Payment to Mr. Marcellos 401(k) plan account.(3)
    
    Payment to Mr. Marcellos 401(k) plan account and also includes a payment of $4,000 for premium for a life insurance policy for Mr. Marcello.(4)
    
    The amounts in this column reflect the aggregate grant date fair value, in accordance with FASB ASC 718, of option grants made under the
2001 Equity Incentive Plan in 2009. Assumptions used in the calculation of these amounts are included in Footnote A to the Companys audited
financial statements included in this Form 10-K.  16




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##### Table of Contents



COMPENSATION OF DIRECTORS
  DIRECTOR COMPENSATION FOR 2010
 Change in PensionValue andNon-Equity
    
    
    NonqualifiedFees Earned
    
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    
    Deferred
    
    
    All Otheror Paid in
    
    
    Stock
    
    
    Option
    
    
    Compensation
    
    
    Compensation
    
    
    CompensationName
    
    Cash ($)
    
    
    Awards
    
    
    Awards ($)
    
    
    ($)
    
    
    Earnings(2)
    
    
    ($)1
    
    
    Total ($)J. H. Binford Peay, III
    
    $
    17,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,100
    
    
    $
    104,100John G. Meyer, Jr.
    
    $
    27,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    $
    130,539
    (3)
    
    
    
    
    
    $
    184,539Ronald H. Griffith
    
    $
    9,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36,000Gilbert F. Decker
    
    $
    9,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    $
    145,861
    (3)
    
    
    
    
    
    $
    181,861Charles S. Ream
    
    $
    27,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    54,000Frederick G. Wasserman
    
    $
    9,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36,000Tassos D. Recachinas
    
    $
    9,000
    
    
    $
    27,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36,000
 
 (1)
    
    Annual payment for a $1 million life insurance policy including the gross-up for taxes.(2)
    
    Deferred compensation paid following termination of Outside Directors Deferred Compensation Plan.(3)
    
    Cash payments representing director fees previously deferred by Messrs. Meyer ($62,000) and
Decker ($71,000) plus Company stock representing directors fees previously deferred by Messrs.
Meyer (29,416 shares at $2.33 per share) and Decker (32,129 shares at $2.33 per share).  17




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##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Name of Beneficial Owner
    
    Shares Beneficially Owned
    
    
    Percent of Class(1)Water Island Capital, LLC(2)
    
    
    689,203
    
    
    
    8.4
    %AQR Capital Management, LLC(3)
    
    
    555,790
    
    
    
    6.7
    %Dimensional Fund Advisors LP(4)
    
    
    547,056
    
    
    
    6.6
    %Gabelli Funds, LLC(5)
    
    
    420,247
    
    
    
    5.1
    %
 (1)
    
    Based upon 8,235,195 shares of common stock outstanding as of December 31, 2010.(2)
    
    Ownership information based on information contained in a Schedule 13G filed with the
SEC on December 10, 2010 by Water Island Capital, LLC (Water Island). Water Island
possesses sole voting power of 689,203 shares or our common stock and sole investment
power of 689,203 shares of our common stock. The principal business address of the
reporting person is 41 Madison Ave., Suite 2802, New York, NY 10010. ADG and Water Island
have determined that Water Islands purchases of our common stock following the public
announcement of the Fourth Rights Agreement Amendment on June 24, 2010, would, without a
determination by our board of directors that Water Island is an Exempt Person under the
Rights Agreement, result in Water Island becoming an Acquiring Person under the Rights
Agreement. On July 22, 2010, after consulting with our financial and legal advisors, and
contingent on Water Island agreeing not to purchase additional shares of our common stock,
our board of directors exercised its discretionary authority under the Rights Agreement to
determine that Water Island is an Exempt Person under the Rights Agreement based on the
determination that Water Islands current beneficial ownership of our common stock would
not jeopardize, endanger or limit (in timing or amount) the availability to ADG of its tax
benefits. That same day, Water Island entered into an agreement with ADG pursuant to which
Water Island agreed not to acquire, and to cause its affiliates not to acquire, beneficial
ownership to any additional shares of our common stock while the Rights Agreement remains
in effect.(3)
    
    Ownership information as of December 31, 2010, based on information contained in a
Schedule 13G/A filed with the SEC on February 11, 2011 by AQR Capital Management, LLC
(AQR). AQR possesses shared voting power of 555,790 shares of our common stock and
shared investment power of 555,790 shares of our common stock. The principal business
address of AQR is Two Greenwich Plaza, 3rd Floor, Greenwich, CT 06830.(4)
    
    Ownership information as of December 31, 2010, based on information contained in a
Schedule 13G/A filed with the SEC on February 11, 2011 by Dimensional Fund Advisors LP
(Dimensional). Dimensional possess sole voting power of 540,056 shares of our common
stock and sole investment power of 547,019 shares of our common stock. Dimensional, an
investment adviser registered under Section 203 of the Investment Advisors Act of 1940, as
amended, furnishes investment advice to four investment companies registered under the
Investment Company Act of 1940, as amended, and serves as investment manager to certain
other commingled group trusts and separate accounts (such investment companies, trusts and
accounts, collectively referred to as the Dimensional Funds). In certain cases,
subsidiaries of Dimensional may act as an adviser or sub-adviser to certain Dimensional
Funds. In its role as investment adviser, sub-adviser and/or manager, neither Dimensional
nor its subsidiaries possesses voting and/or investment power over our securities that are
owned by the Dimensional Funds, and may be deemed to be the beneficial owner of our shares
of common stock held by the Dimensional Funds. However, all shares reported on
Dimensionals Schedule 13G/A are owned by the Dimensional Funds. Dimensional disclaims
beneficial ownership of such securities. The principal business address of Dimensional is
Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746.(5)
    
    Ownership information, based on information contained in a Schedule 13D filed with the
SEC on December 13, 2010 by Gabelli Funds, LLC (Gabelli). Gabelli possesses shared
voting power of 420,247 shares of our common stock and shared investment power of 420,247
shares of our common stock. The principal business address of Gabelli is One Corporate
Center, Rye, New York 10580-1435.  18




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##### Table of Contents



Name and Address of
    
    Amount and Nature ofTitle of Class
    
    Beneficial Owner
    
    Beneficial Owner
    
    Percent of ClassCommon
    
    John G. Meyer, Jr.
    
    102,800 Owned directly
    
    
    1.25
    %Common
    
    Charles S. Ream
    
    36,214 Owned directly
    
    
    *Common
    
    All executive officers and directors as a  group(2)
    
    139,014 Owned directly
    
    
    1.69
    %
 
 *
    
    Less than 1.00% 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
 Procedures for Approval of Related Party Transactions
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICE.
  (In Thousands)2010
    
    
    2009Audit fees
    
    $
    332
    
    
    $
    633Audit-related feesTax feesAll other feesTotal
    
    $
    332
    
    
    $
    633
     19




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 Exhibit No.

    
    Description of Exhibits2.1
    
    
    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).3.1
    
    
    Certificate of Incorporation, as amended (Incorporated by reference from Form 10-Q filed
in August 2002).3.2
    
    
    Amended and Restated By-Laws (Incorporated by reference from Form 10-Q filed in August
2004).3.3
    
    
    Plan of Complete Liquidation And Dissolution of The Allied Defense Group, Inc.
(Incorporated by reference from Proxy Statement filed on July 28, 2010).4.1
    
    
    Rights Agreement between Allied and Mellon Investor Services, LLC (Incorporated by
reference from Form 8-K filed in June 2001).4.2
    
    
    First Amendment To Rights Agreement, dated as of June 15, 2006 (incorporated by reference
from Form 8-A/A filed on June 21, 2006).4.3
    
    
    Second Amendment To Rights Agreement, dated as of November 30, 2006 (incorporated by
reference from Form 8-K filed on December 7, 2006).4.4
    
    
    Third Amendment To Rights Agreement, dated as of January 18, 2010 (incorporated by
reference from Form 8-K filed on January 19, 2010).4.5
    
    
    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).10.1
    
    
    Employment Agreement between Allied and John J. Marcello (Incorporated by reference from Form 10-Q filed in August 2005).10.2
    
    
    Employment Agreement between Allied and Deborah F. Ricci (Incorporated by reference from Form 10-Q filed in May 2007).10.3
    
    
    Employment Agreement between Allied and Monte L. Pickens (Incorporated by reference from Form 8-K filed in April 2003).10.4
    
    
    Employment Agreement letter amendment between Allied and Monte L. Pickens (Incorporated by
reference from Form 10-Q filed in August 2004).10.5
    
    
    Employment Agreement between Allied and Wayne F. C. Hosking, Jr. (Incorporated by
reference from Form 8-K filed in April 2004).10.6
    
    
    2001 Equity Incentive Plan, as amended (Incorporated by reference from Proxy Statements
filed in April 2001, April 2002 and May 2005).10.7
    
    
    8% Convertible Debenture, Series A and related documents (Incorporated by reference from Form 8-K filed in July 2002).10.8
    
    
    Credit Agreement for MECAR S.A. (Incorporated by reference from Form 10-Q filed in August 2002).10.9
    
    
    Employee Stock Purchase Plan, as amended (Incorporated by reference from Form 10-Q filed in November 2002).10.10
    
    
    Lease Agreement, as amended (Incorporated by reference from Form 10-Q filed in November 2002).10.11
    
    
    Amendment to Lease Agreement (Incorporated by reference from Form 10-Q filed in November 2002).10.12
    
    
    Form of Indemnity Agreement for Directors and Executive Officers (Incorporated by
reference from Form 10-Q filed in November 2002).10.13
    
    
    Amended and Restated International Distribution Agreement (Incorporated by reference from
Form 10-Q filed in November 2008).10.14
    
    
    Deferred Compensation Plan for Non-Employee Directors (Incorporated by reference from Form 10-Q filed in August 2004).10.15
    
    
    Stock Option Agreement-Employee Form
(Incorporated by reference from Form 10-Q filed in
November 2004)10.16
    
    
    Directors Stock Option Agreement-Director Form (Incorporated by reference from Form 10-Q filed in November 2004)10.17
    
    
    Restricted Stock Agreement (Incorporated by reference from Form 10-Q filed in May 2005)10.18
    
    
    7.5% Senior Subordinated Convertible Notes and related documents (Incorporated by reference from 8-K filed in March 2006).10.19
    
    
    Amended and Restated Securities Purchase Agreement, dated as of June 19, 2007, between
The Allied Defense Group, Inc. and the Purchasers (Incorporated by reference from Form 8-K
filed June 20, 2007).10.20
    
    
    Form of Notes (Incorporated by reference from Form 8-K filed June 20, 2007).10.21
    
    
    Form of Amended and Restated Registration Rights Agreement (Incorporated by reference from Form 8-K filed June 20, 2007).10.22
    
    
    MECAR Certificate dated July 11, 2007 (Incorporated by reference from Form 8-K filed July 12, 2007).10.23
    
    
    Stock Purchase Agreement, dated as of September 6, 2007 between Ving Holdings (Belgium)
BVBA in incorporation (in oprichting), as purchaser and ARC Europe SA, as seller
(Incorporated by reference from Form 8-K filed September 10, 2007).10.25
    
    
    Asset Purchase Agreement, dated as of August 19, 2008, among The Allied Defense Group,
Inc., Global Microwave Systems, Inc., GMS Cobham, Inc. and DTC Communications, Inc.
(Incorporated by reference from Form 8-K filed on August 20, 2008).10.26
    
    
    Stock Purchase Agreement, dated as of August 7, 2009, between The Allied Deefense Group,
Inc., .and 3DRS International, Inc. to complete the sale of NS Microwave Systems, Inc.,
(Incorporated by reference from Form 8-K filed on August 10, 2009).10.27
    
    
    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).10.28
    
    
    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).21
    
    
    List of Subsidiaries (a)23
    
    
    Consent of Independent Registered Public Accounting Firm (a)31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (a)31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (a)32
    
    
    Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(a).
 
 (a)
    
    Filed herewith  20




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##### Table of Contents



SIGNATURES
  
 /s/ John G. Meyer, Jr.

John G. Meyer, Jr., Chief Executive Officer and President
    
    
    
    Date: March 16, 2011
  /s/ Charles S. Ream
    
    Chief Financial Officer
    
    Date: March 16, 2011Charles S. Ream/s/ Charles S. Ream
    
    Director
    
    Date: March 16, 2011Charles S. Ream/s/ John G. Meyer, Jr.
    
    Director
    
    Date: March 16, 2011John G. Meyer, Jr.
  21




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##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010
 FORMING A PART OF
ANNUAL REPORT PURSUANT TO
THE SECURITIES EXCHANGE ACT OF 1934
 FORM 10-K
 OF
 The Allied Defense Group, Inc.
  F - 1




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##### Table of Contents



The Allied Defense Group Inc.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F - 3Consolidated Statement of Net Assets as of December 31, 2010 (liquidation basis)
    
    
    F - 4Consolidated Statement of Changes in Net Assets from October 1, 2010 to
December 31, 2010 (liquidation basis)
    
    
    F - 5Consolidated Balance Sheet as of December 31, 2009 (going concern basis)
    
    
    F - 6Consolidated Statements of Operations for the nine months ended September 30,
2010 and the year ended December 31, 2009 (going concern basis)
    
    
    F - 7Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
for the nine months ended September 30, 2010 and the year ended December
31, 2009 (going concern basis)
    
    
    F - 8Consolidated Statements of Cash Flows for the nine months ended September 30,
2010 and the year ended December 31, 2009 (going concern basis)
    
    
    F - 9Notes to Consolidated Financial Statements
    
    
    F - 11
 
  F - 2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ BDO USA, LLP
    F - 3




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENT OF NET ASSETS (Liquidation Basis)
 (Thousands of Dollars, except per share and share data)
 December 31,2010ASSETSCash and cash equivalents
    
    $
    14,462Short-term investments
    
    
    18,801Prepaid and other current assets
    
    
    606Notes receivable
    
    
    875Property and Equipment, net
    
    
    2Funds held in escrow
    
    
    15,003TOTAL ASSETS
    
    
    49,749LIABILITIESEstimated net costs to be incurred during liquidation
    
    
    3,564Accounts payable
    
    
    68Accrued liabilities
    
    
    399Income taxes payable
    
    
    2Other liabilities
    
    
    87TOTAL LIABILITIES
    
    
    4,120NET ASSETS IN LIQUIDATION
    
    $
    45,629NUMBER OF SHARES OUTSTANDING
    
    
    8,235,195NET ASSETS IN LIQUIDATION PER SHARE
    
    $
    5.54
 S
  F - 4




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Liquidation Basis)
 (Thousands of Dollars, except per share and share data)
 October 1,2010 toDecember 31,2010Shareholders equity at September 30, 2010 (going concern basis)
    
    $
    49,671Liquidation basis adjustments upon adoptionAdjust net assets to fair value
    
    
    (17
    )Accrue estimated costs to be incurred during liquidation
    
    
    (4,500
    )Estimated interest income earned during liquidation
    
    
    500Net assets on liquidation basis as of September 30, 2010
    
    
    45,654Changes in fair value of net assets in liquidation  September 30, 2010 to December 31, 2010Adjust net assets to fair value
    
    
    168Adjust accrued estimated costs to be incurred during liquidation
    
    
    138Adjust estimated income to be earned during liquidation
    
    
    (331
    )Net assets on liquidation basis as of December 31, 2010
    
    $
    45,629
   F - 5




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED BALANCE SHEET (Going Concern Basis)
 (Thousands of Dollars, except per share and share data)
 December 31,2009ASSETSCurrent AssetsCash and cash equivalents
    
    $
    3,475Restricted cash
    
    
    234Prepaid and other current assets
    
    
    400Assets held for sale
    
    
    95,414Total current assets
    
    
    99,523Property and Equipment, net
    
    
    31Other AssetsNote receivable
    
    
    1,075Total other assets
    
    
    1,075TOTAL ASSETS
    
    $
    100,629CURRENT LIABILITIESCurrent maturities of long-term debt
    
    $
    5Accounts payable
    
    
    696Accrued liabilities
    
    
    2,937Income taxes payable
    
    
    495Liabilities held for sale
    
    
    69,220Total current liabilities
    
    
    73,353LONG TERM OBLIGATIONSLong-term debt, less current maturities and unamortized discount
    
    
    2Other long-term liabilities
    
    
    263Total long-term obligations
    
    
    265TOTAL LIABILITIES
    
    
    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 8,175,480 shares
    
    
    818Capital in excess of par value
    
    
    56,490Accumulated deficit
    
    
    (46,658
    )Accumulated other comprehensive income
    
    
    16,361Total stockholders equity
    
    
    27,011TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    100,629
   F - 6




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Going Concern Basis)
 (Thousands of Dollars, except per share and share data)
 Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Revenues
    
    $
    
    
    
    $
    Cost and expensesSelling and administrative  corporate expenses
    
    
    7,469
    
    
    
    6,837Operating loss
    
    
    (7,469
    )
    
    
    (6,837
    )Other income (expenses)Net interest income (expense)
    
    
    38
    
    
    
    31Net gain (loss) on fair value of warrants
    
    
    (17
    )
    
    
    299Other-net
    
    
    (1,358
    )
    
    
    (168
    )(1,337
    )
    
    
    162Loss from continuing operations before income taxes
    
    
    (8,806
    )
    
    
    (6,675
    )Income tax (benefit) expense
    
    
    1
    
    
    
    (200
    )Loss from continuing operations
    
    
    (8,807
    )
    
    
    (6,475
    )Income (loss) from discontinued operations, net of taxGain on sale of subsidiaries
    
    
    48,081
    
    
    
    3,923Loss from discontinued operations
    
    
    (14,418
    )
    
    
    (5,755
    )33,663
    
    
    
    (1,832
    )NET INCOME (LOSS)
    
    $
    24,856
    
    
    $
    (8,307
    )Earnings (Loss) per share  basic and diluted:Net loss from continuing operations
    
    $
    (1.08
    )
    
    $
    (0.80
    )Net earnings (loss) from discontinued operations
    
    
    4.12
    
    
    
    (0.22
    )Total earnings (loss) per share  basic and diluted
    
    $
    3.04
    
    
    $
    (1.02
    )Weighted average number of common shares:Basic
    
    
    8,175,580
    
    
    
    8,120,428Diluted
    
    
    8,182,279
    
    
    
    8,120,428
   F - 7




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(LOSS) (Going Concern Basis)
 (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Directors deferred stock compensation
    
    
    
    
    
    
    61,545
    
    
    
    6
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    43Comprehensive income:Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,856
    
    
    
    
    
    
    
    24,856Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,410
    )
    
    
    (2,410
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,446Balance at September 30, 2010
    
    $
    
    
    
    
    8,235,195
    
    
    $
    824
    
    
    $
    56,698
    
    
    $
    (21,802
    )
    
    $
    13,951
    
    
    $
    49,671
   F - 8




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##### Table of Contents



The Allied Defense Group, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Going Concern Basis)
 (Thousands of Dollars)
 Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Cash flows from operating activitiesNet loss
    
    $
    24,856
    
    
    $
    (8,307
    )Less: Gain on sale of subsidiaries
    
    
    (48,081
    )
    
    
    (3,923
    )Loss from discontinued operations, net of tax
    
    
    14,418
    
    
    
    5,755Loss from continuing operations
    
    
    (8,807
    )
    
    
    (6,475
    )Adjustments to reconcile net loss from continuing operations to net cash used in operating activities, net of divestitures:Depreciation and amortization
    
    
    13
    
    
    
    328Loss on sale of fixed assets
    
    
    1
    
    
    
    Net (gain) loss related to fair value of notes and warrants
    
    
    17
    
    
    
    (299
    )Common stock and stock option awards
    
    
    171
    
    
    
    417Deferred director stock awards
    
    
    43
    
    
    
    103(Increase) decrease in operating assets and increase (decrease) in liabilities, net
of effects from discontinued businessesRestricted cash
    
    
    160
    
    
    
    Accounts receivable
    
    
    
    
    
    
    1Prepaid and other current assets
    
    
    88
    
    
    
    632Accounts payable and accrued liabilities
    
    
    (62
    )
    
    
    697Deferred compensation
    
    
    (156
    )
    
    
    5Income taxes
    
    
    (363
    )
    
    
    (290
    )Net cash used in operating activities  continuing operations
    
    
    (8,895
    )
    
    
    (4,881
    )Net cash provided by operating activities  discontinued operations
    
    
    
    
    
    
    1,482Net cash used in operating activities
    
    
    (8,895
    )
    
    
    (3,399
    )Cash flows from investing activitiesNet proceeds from sale of subsidiaries
    
    
    54,446
    
    
    
    4,213Funds deposited in escrow
    
    
    (15,000
    )
    
    
    Net cash used for short-term investment transactions
    
    
    (20,000
    )
    
    
    Net cash provided by investing activities  continuing operations
    
    
    19,446
    
    
    
    4,213Net cash used in investing activities  discontinued operations
    
    
    
    
    
    
    (1,400
    )Net cash provided by investing activities
    
    
    19,446
    
    
    
    2,813
   F - 9




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##### Table of Contents



The Allied Defense Group, Inc.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Going Concern Basis)
 (Thousands of Dollars)
 Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Cash flows from financing activitiesNet principal payments on long term debt and capital lease obligations
    
    
    (1
    )
    
    
    (934
    )Proceeds from Employee Stock Purchase
    
    
    
    
    
    
    73Retirement of Stock
    
    
    
    
    
    
    (6
    )Net cash used in financing activities  continuing operations
    
    
    (1
    )
    
    
    (867
    )Net cash used in financing activities  discontinued operations
    
    
    
    
    
    
    (737
    )Net cash used in financing activities
    
    
    (1
    )
    
    
    (1,604
    )Net change in cash of discontinued operations
    
    
    
    
    
    
    Effects of exchange rate on cash
    
    
    850
    
    
    
    2NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    11,400
    
    
    
    (2,188
    )Cash and cash equivalents at beginning of period
    
    
    3,475
    
    
    
    5,663Cash and cash equivalents at end of period
    
    $
    14,875
    
    
    $
    3,475
 Nine Months Ended
    
    
    Year EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Supplemental Disclosures of Cash Flow informationCash paid during the period for:Interest
    
    $
    
    
    
    $
    18Taxes
    
    $
    373
    
    
    $
    Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesCapital leases
    
    $
    
    
    
    $
    22
   F - 10




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##### Table of Contents



The Allied Defense Group, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Thousands of Dollars)
 NOTE A  DESCRIPTION OF BUSINESS
 Business Operations
  Plan of Dissolution and Liquidation
    NOTE B  DOJ LEGAL PROCEEDINGS
    F - 11




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
    NOTE C  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Liquidation Basis of Accounting
    F - 12




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
  Going Concern Basis of Accounting
  Principles of Consolidation
  
    
    ARC Europe, a Belgian company,
    
    Allied Research BV (BV), a Dutch company,
    
    Allied Research Cooperative (Coop) and,
    
    ADG Sub USA, Inc. (USA)
   Use of Estimates
  Foreign Currency Translation
   F - 13




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 Cash and cash equivalents
  Short-term investments
  Property and equipment
  Buildings and improvements
    
    20 - 30 yearsMachinery and equipment
    
    3 - 10 yearsDemonstration inventory
    
    3 - 7 years
   Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal
of Long-Lived Assets.
 Income Taxes
   F - 14




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 Earnings Per Common Share
  Stock-Based Compensation
 Accounting for Stock Compensation
    December 31,2009Risk free interest rate
    
    
    0.80
    %Expected volatility rate
    
    
    70.71
    %Expected lives  years
    
    
    1Divided yield
    
    
    
  Concentrations of Credit Risk
   F - 15




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
  Reportable segments
  Recent Accounting Pronouncements
 Subsequent Events (Topic 855)  Amendments to
Certain Recognition and Disclosure Requirements. Subsequent Events
 Improving Disclosures about Fair Value
Measurements
    NOTE D  DISCONTINUED OPERATIONS
 Property,
Plant, and Equipment
  F - 16




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 Mecar and Mecar USA
  NS Microwave Systems, Inc.
   December 31, 2009Mecar
    
    
    Mecar USA
    
    
    TotalCash
    
    $
    5,546
    
    
    $
    
    
    
    $
    5,546Restricted cash
    
    
    5,364
    
    
    
    
    
    
    
    5,364Accounts receivable, net
    
    
    21,786
    
    
    
    7,124
    
    
    
    28,910Costs and accrued earnings on
uncompleted contracts
    
    
    14,402
    
    
    
    
    
    
    
    14,402Contract in progress
    
    
    
    
    
    
    179
    
    
    
    179Inventories, net
    
    
    18,633
    
    
    
    949
    
    
    
    19,582Prepaid and other current assets
    
    
    3,942
    
    
    
    337
    
    
    
    4,279Property, Plant and Equipment, net
    
    
    14,124
    
    
    
    2,391
    
    
    
    16,515Other assets
    
    
    636
    
    
    
    1
    
    
    
    637Assets held for sale
    
    $
    84,433
    
    
    $
    10,981
    
    
    $
    95,414Bank overdraft facility
    
    $
    2,635
    
    
    $
    
    
    
    $
    2,635Accounts payable
    
    
    13,084
    
    
    
    3,649
    
    
    
    16,733Accrued liabilities
    
    
    18,889
    
    
    
    632
    
    
    
    19,521Customer deposits
    
    
    15,589
    
    
    
    385
    
    
    
    15,974Other liabilities
    
    
    5,517
    
    
    
    
    
    
    
    5,517Long-term debt
    
    
    8,804
    
    
    
    36
    
    
    
    8,840Liabilities held for sale
    
    $
    64,518
    
    
    $
    4,702
    
    
    $
    69,220
   F - 17




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
  For the Nine Months Ended September 30, 2010
    
    
    For the Year Ended December 31, 2009Mecar
    
    
    Mecar USA
    
    
    NSM
    
    
    Total
    
    
    Mecar
    
    
    Mecar USA
    
    
    NSM
    
    
    TotalRevenues
    
    $
    38,477
    
    
    $
    9,342
    
    
    $
    
    
    
    $
    47,819
    
    
    $
    86,207
    
    
    $
    56,216
    
    
    $
    2,894
    
    
    $
    145,317Income (loss) before taxes
    
    
    (14,122
    )
    
    
    (287
    )
    
    
    
    
    
    
    (14,409
    )
    
    
    (7,903
    )
    
    
    3,825
    
    
    
    (1,675
    )
    
    
    (5,753
    )Income (loss), net of tax
    
    
    (14,122
    )
    
    
    (296
    )
    
    
    
    
    
    
    (14,418
    )
    
    
    (7,903
    )
    
    
    3,827
    
    
    
    (1,679
    )
    
    
    (5,755
    )Discontinued operations,
net of tax
    
    $
    (14,122
    )
    
    $
    (296
    )
    
    $
    
    
    
    $
    (14,418
    )
    
    $
    (7,903
    )
    
    $
    3,827
    
    
    $
    (1,679
    )
    
    $
    (5,755
    )
 NOTE E  PROPERTY & EQUIPMENT
   2009Land
    
    $
    Buildings and improvements
    
    
    94Machinery and equipment
    
    
    1,870Demonstration Equipment
    
    
    1,964Less: Accumulated depreciation
    
    
    (1,933
    )Total Propert and Equipment, net
    
    $
    31
  Capital Leases.
  2009Leased equipment
    
    $
    14Less: Accumulated amortization
    
    
    (7
    )Total Leased Equipment, net
    
    $
    7
   F - 18




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 NOTE F  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.
   Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDecember 31, 2009
    
    or Liabilities (level 1)
    
    
    (level 2)
    
    
    (Level 3)
    
    
    TotalAssetsCash and cash equivalents
    
    $
    3,475
    
    
    $
    
    
    
    $
    
    
    
    $
    3,475Restricted cash
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    234LiabilitiesWarrants
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (24
    )$
    3,709
    
    
    $
    (24
    )
    
    $
    
    
    
    $
    3,685
  NOTE G  WARRANTS
   F - 19




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 Derivatives and Hedging
 NOTE H  CONTINGENCIES AND COMMITMENTS
 DOJ Subpoena
  Employee Severance Payments
  Leases
  Litigation Relating to Consulting Agreement
  Litigation Initiated by Former Employee
  Litigation Relating to Consulting Agreement (MECAR)
   F - 20




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 Indemnification provisions
   NOTE I  STOCKHOLDERS EQUITY
 Rights Agreement
    Share based compensation
    F - 21




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
  The following table summarizes option activity for the year ended December 31, 2009:
 WeightedAverageShares
    
    
    Exercise PriceOptions outstanding at beginning of the year
    
    
    330,000
    
    
    $
    14.78Options granted
    
    
    100,000
    
    
    
    4.30Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    Options expired
    
    
    (40,000
    )
    
    
    20.43Options outstanding at end of year
    
    
    390,000
    
    
    $
    11.52Options exercisable at end of year
    
    
    284,000Weighted-average fair value of options, granted during the year
    
    $
    1.20
 The following table summarizes options outstanding at December 31, 2009:
 ExercisableWeightedWeighted
    
    
    Weighted Average
    
    
    
    
    
    
    AverageNumber
    
    
    Range of Exercise
    
    
    Average Exercise
    
    
    Remaining
    
    
    Number of
    
    
    ExerciseOutstanding
    
    
    Prices
    
    
    Prices
    
    
    Contractural Term
    
    
    Options
    
    
    Prices100,000
    
    
    $
    4.30
    
    
    $
    4.30
    
    
    2.23 Years
    
    
    
    
    
    $
    20,000
    
    
    
    7.44
    
    
    
    7.44
    
    
    0.17 Years
    
    
    20,000
    
    
    
    7.44100,000
    
    
    
    8.63
    
    
    
    8.63
    
    
    1.00 Years
    
    
    100,000
    
    
    
    8.63170,000
    
    
    $
    15.05 to $23.95
    
    
    
    17.94
    
    
    2.13 Years
    
    
    164,000
    
    
    
    18.04390,000
    
    
    $
    4.30 to $23.95
    
    
    $
    11.52
    
    
    
    
    
    
    
    284,000
    
    
    $
    13.98
   F - 22




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 The following table summarizes restricted stock (nonvested) shares outstanding as of December
31, 2009
 2009Weighted-Average GrantDate FairRestricted Stock
    
    Shares
    
    
    ValueRestricted at January 1,
    
    
    16,668
    
    
    $
    15.43Granted
    
    
    
    
    
    
    Vested
    
    
    (10,668
    )
    
    
    17.20Forfeited
    
    
    
    
    
    
    Restricted shares at December 31,
    
    
    6,000
    
    
    $
    12.29
  NOTE J  OTHER  NET
  Nine Months Ended
    
    
    Twelve Months EndedSeptember 30, 2010
    
    
    December 31, 2009Net currency transaction gains (losses)
    
    $
    (1,368
    )
    
    $
    1,630Impairment of long-lived assets
    
    
    
    
    
    
    (181
    )Miscellaneous income (losses)  net
    
    
    10
    
    
    
    (1,617
    )Other, net
    
    $
    (1,358
    )
    
    $
    (168
    )
  NOTE K  INCOME TAXES
   Nine Months Ended
    
    
    Twelve Months EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009Domestic
    
    $
    (6,523
    )
    
    $
    (4,543
    )Foreign
    
    
    (2,283
    )
    
    
    (2,132
    )$
    (8,806
    )
    
    $
    (6,675
    )
  F - 23




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
  September 30,
    
    
    December 31,2010
    
    
    2009Current (Benefit) ProvisionDomestic
    
    $
    1
    
    
    $
    1Foreign
    
    
    
    
    
    
    (201
    )Total Current (Benefit) Provision
    
    
    1
    
    
    
    (200
    )Deferred ProvisionDomestic
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    Total Deferred Provision
    
    
    
    
    
    
    Total tax (benefit) provision
    
    $
    1
    
    
    $
    (200
    )
  September 30,
    
    
    December 31,2010
    
    
    2009Taxes at statutory rate
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal benefit
    
    
    
    
    
    
    Impact of international operations
    
    
    (0.1
    )
    
    
    33.6Other permanent differences
    
    
    44.1
    
    
    
    37.3Valuation allowance
    
    
    (78.0
    )
    
    
    (101.9
    )Income taxes
    
    
    
    %
    
    
    3.0
    %
  December 31,2009Deferred tax assetsCompensation accruals
    
    
    24Accrued expenses
    
    
    176Business tax credits
    
    
    458Deferred compensation
    
    
    341Depreciation and amortization
    
    
    61Foreign tax credit carryforwards
    
    
    14,776Net operating loss carryforwards  US
    
    
    9,165Net operating loss carryforwards  Foreign
    
    
    1,553Gross deferred tax asset
    
    
    26,554Valuation allowance
    
    
    (26,554
    )Net Deferred Tax Assets (Liabilities)
    
    $
    
  F - 24




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
        F - 25




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 NOTE L  LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS
  Nine Months
    
    
    YearEnded
    
    
    EndedLoss:
    
    9/30/2010
    
    
    12/31/2009Net loss from continuing operations
    
    $
    (8,807
    )
    
    $
    (6,475
    )Effect of dilutive potential common shares
    
    
    
    
    
    
    Diluted net loss from continuing operations
    
    $
    (8,807
    )
    
    $
    (6,475
    )Number of shares:Weighted-average shares outstanding
    
    
    8,175,580
    
    
    
    8,120,428Basic and diluted net loss per share from continuing operations
    
    $
    (1.08
    )
    
    $
    (0.80
    )
  NOTE M  QUARTERLY FINANCIAL DATA

(UNAUDITED)
  First
    
    
    Second
    
    
    Third2010
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalRevenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations, net of tax
    
    
    (825
    )
    
    
    303
    
    
    
    (8,285
    )
    
    
    (8,807
    )Income (loss) from discontinued operations, net of tax
    
    
    (4,330
    )
    
    
    (9,693
    )
    
    
    47,686
    
    
    
    33,663Net income (loss)
    
    
    (5,155
    )
    
    
    (9,390
    )
    
    
    39,401
    
    
    
    24,856Basic and diluted earnings (loss) per share:Net income (loss) from continuing operations
    
    $
    (0.10
    )
    
    $
    0.04
    
    
    $
    (1.02
    )
    
    $
    (1.08
    )Net earnings (loss) from discontinued operations
    
    
    (0.53
    )
    
    
    (1.19
    )
    
    
    5.84
    
    
    
    4.12Total net earnings (loss) per share
    
    $
    (0.63
    )
    
    $
    (1.15
    )
    
    $
    4.82
    
    
    $
    3.04
  F - 26




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##### Table of Contents



The Allied Defense Group, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)
 First
    
    
    Second
    
    
    Third
    
    
    Fourth2009
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalRevenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Gross margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations, net
of tax
    
    
    1,047
    
    
    
    (1,330
    )
    
    
    (1,070
    )
    
    
    (5,122
    )
    
    
    (6,475
    )Income (loss) from discontinued operations,
net of tax
    
    
    (3,476
    )
    
    
    4,601
    
    
    
    (2,558
    )
    
    
    (399
    )
    
    
    (1,832
    )Net income (loss)
    
    
    (2,429
    )
    
    
    3,271
    
    
    
    (3,628
    )
    
    
    (5,521
    )
    
    
    (8,307
    )Basic and diluted earnings (loss) per share:Net income (loss) from continuing operations
    
    $
    0.12
    
    
    $
    (0.16
    )
    
    $
    (0.13
    )
    
    $
    (0.63
    )
    
    $
    (0.80
    )Net earnings (loss) from discontinued
operations
    
    
    (0.43
    )
    
    
    0.57
    
    
    
    (0.31
    )
    
    
    (0.05
    )
    
    
    (0.22
    )Total net earnings (loss) per share
    
    $
    (0.31
    )
    
    $
    0.41
    
    
    $
    (0.44
    )
    
    $
    (0.68
    )
    
    $
    (1.02
    )
  F - 27




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##### Table of Contents



EXHIBIT INDEX
 Number

    
    Description of Exhibit
    
    Page21
    
    
    List of Subsidiaries
    
    E-223
    
    
    Consent of Independent Registered Public Accounting Firm
    
    E-331.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated March
16, 2011
    
    E-431.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated March
16, 2011
    
    E-532
    
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002, dated March 16, 2011
    
    E-6
  E - 1