Allied Defense (ADG) 10-Q/A 2004 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended June 30, 2004

Commission File Number: 001-11376

The Allied Defense Group, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	04-2281015
(State or other jurisdiction of	(I.R.S. Employer Number)
incorporation or organization)

8000 Towers Crescent Drive, Suite 260
Vienna, Virginia 22182
(Address of principal executive offices, including zip code)

(703) 847-5268
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yesþ No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

     Yesþ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of June 30, 2004: 5,558,446.

EXPLANATORY NOTE

This Form 10-Q/A is being filed to amend The Allied Defense Group, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2004 in order to reflect the restatement of the Company’s Consolidated Financial Statements and amendments to related disclosures as of June 30, 2004 and for the three and six months ended June 30, 2004 and 2003. The restatement arose from management’s determination that the Company’s accounting for foreign currency contracts did not qualify for the use of hedge accounting under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. See the more complete discussion set forth in the Annual Report on Form 10-K for the period ended December 31, 2004.

Generally, no attempt has been made in this Form 10-Q/A to modify or update other disclosures presented in the original report on Form 10-Q except as required to reflect the effects of the restatement. This Form 10-Q/A does not reflect events occurring after the filing of the original Form 10-Q or modify or update those disclosures. Information not affected by the restatement is unchanged and reflects the disclosure made at the time of the original filing of the Form 10-Q with the Securities and Exchange Commission on August 9, 2004. The following items have been amended as a result of the restatement:

•   Part I – Item 1 – Financial Statements

•   Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

•   Part I – Item 3 – Quantitative and Qualitative Market Risk Disclosure

•   Part I – Item 4 – Disclosure Controls and Procedures; and

•   Part II – Item 6 – Exhibits and Reports on Form 8-K

THE ALLIED DEFENSE GROUP, INC.
INDEX

	PAGE
	NUMBER
PART I. FINANCIAL INFORMATION - UNAUDITED
Item 1. Financial Statements
Condensed Consolidated Balance Sheets June 30, 2004 and December 31, 2003		2
Condensed Consolidated Statements of Earnings Three and six months ended June 30, 2004 and 2003		3
Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2004 and 2003		4
Notes to Condensed Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Market Risk Disclosure		27
Item 4. Disclosure Controls and Procedures		27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		28
Item 4. Submission of Matters to a Vote of Security Holders		28
Item 6. Exhibits and Reports on Form 8-K		29
Signatures		31

The Allied Defense Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except per share data)

	June 30, 2004
	Restated and
	Unaudited		December 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	22,100	$	43,377
Restricted cash		10,864		15,937
Accounts receivable		34,620		33,404
Costs and accrued earnings on uncompleted contracts		82,729		60,516
Inventories		14,351		12,068
Deferred tax asset		1,707		1,016
Fair value of foreign exchange contracts		—		6,900
Prepaid and other current assets		9,191		4,880
Total current assets		175,562		178,098
PROPERTY, PLANT AND EQUIPMENT –net of accumulated depreciation		25,093		24,615
OTHER ASSETS
Intangibles, net of accumulated amortization		3,948		4,135
Goodwill		13,558		13,718
Other assets		525		378
		18,031		18,231
	$	218,686	$	220,944
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable	$	10,901	$	14,200
Current maturities of long-term debt		2,239		2,709
Convertible subordinated debenture, current, less unamortized discount		6,693		5,250
Accounts payable		43,074		53,284
Accrued liabilities		18,225		7,594
Customer deposits		9,159		4,938
Foreign exchange contracts		3		—
Income taxes		4,295		906
Total current liabilities		94,589		88,881
LONG-TERM OBLIGATIONS
Long-term debt, less current maturities and unamortized discount		6,057		4,902
Convertible subordinated debenture, less current maturities and unamortized discount		—		2,156
Deferred compensation		1,705		1,334
Deferred taxes		2,045		5,533
		9,807		13,925
STOCKHOLDERS’ EQUITY
Preferred stock, no par value; authorized, 1,000,000 shares; none issued		—		—
Common stock, par value, $.10 per share; authorized 30,000,000 shares; issued and outstanding, 5,558,446 in 2004 and 5,551,373 in 2003		556		555
Additional paid-in capital		26,096		25,891
Retained earnings		74,271		75,495
Accumulated other comprehensive income		13,367		16,197
		114,290		118,138
	$	218,686	$	220,944

The accompanying notes are an integral part of these consolidated financial statements.

2

The Allied Defense Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Thousands of Dollars, except per share data)

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Revenue	$	39,232		$	41,206		$	66,095		$	77,058
Cost and expenses
Cost of sales		28,456			28,777			50,631			54,398
Selling and administrative		5,702			6,520			12,349			12,294
Research and development		1,816			906			3,377			1,757
Operating income (loss)		3,258			5,003			(262	)		8,609
Other income (expense)
Interest income		93			131			195			228
Interest expense		(520	)		(524	)		(998	)		(959	)
Other-net		(85	)		(348	)		(434	)		(320	)
		(512	)		(741	)		(1,237	)		(1,051	)
Earnings (loss) before income taxes		2,746			4,262			(1,499	)		7,558
Income tax expense (benefit)		1,105			1,698			(275	)		3,377
NET EARNINGS (LOSS)	$	1,641		$	2,564		$	(1,224	)	$	4,181
Earnings (loss) per share
Basic	$	0.30		$	0.47		$	(0.22	)	$	0.76
Diluted	$	0.28		$	0.45		$	(0.22	)	$	0.74
Weighted average number of common shares:
Basic		5,555,509			5,487,919			5,553,454			5,483,546
Diluted		6,017,500			5,920,786			5,553,454			5,919,666

The accompanying notes are an integral part of these consolidated financial statements.

3

The Allied Defense Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

	Six months ended June 30
	2004			2003
	Restated			Restated
Cash flows from operating activities
Net earnings (loss)	$	(1,224	)	$	4,181
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		2,295			1,810
Unrealized losses (gains) on forward contracts		5,203			(3,145	)
Provision for estimated losses on contracts		242			438
Deferred taxes		18			5,416
Debenture issue costs and conversion feature		52			205
Deferred compensation		413			226
Common stock award		34			—
Changes in assets and liabilities
Accounts receivable		(2,887	)		10,224
Costs and accrued earnings on uncompleted contracts		(21,129	)		(1,742	)
Inventories		(2,613	)		(1,656	)
Prepaid and other current assets		(5,377	)		(6,437	)
Accounts payable, accrued liabilities and customer deposits		1,424			105
Income taxes		3,474			1,513
Net cash (used in) provided by operating activities		(20,075	)		11,138
Cash flows from investing activities
Capital expenditures		(3,476	)		(3,023	)
Net cash used in investing activities		(3,476	)		(3,023	)
Cash flows from financing activities
Principal payments on long-term borrowing		(2,190	)		(1,166	)
Proceeds from issuance of long-term debt		3,305			1,247
Net decrease in short-term borrowings		(2,812	)		(153	)
Proceeds from employee stock purchases		—			132
Option exercises		84			43
Restricted cash		4,580			(1,871	)
Net cash provided by (used in) financing activities		2,967			(1,768	)
Net increase (decrease) in cash and cash equivalents		(20,584	)		6,347
Effects of exchange rate changes on cash and cash equivalents		(693	)		846
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(21,277	)		7,193
Cash and cash equivalents at beginning of year		43,377			14,876
Cash and cash equivalents at end of period	$	22,100		$	22,069
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest	$	569		$	635
Taxes		4,983			8,426
Supplemental Disclosures of Non-cash financing activities
Warrants issued in conjunction with senior secured credit facility	$	68		$	—

The accompanying notes are an integral part of these consolidated financial statements.

4

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all necessary adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for fair presentation for the periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the periods ended June 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current presentation.

Restatement.As described in greater detail in the Annual Report on Form 10-K for the period ended December 31, 2004, the Company has restated its financial statements for certain periods, including the periods covered by this Form 10-Q/A, since it did not qualify for the use of hedge accounting under SFAS 133.

The Condensed Consolidated Balance Sheets as of June 30, 2004 included in this Form 10-Q/A has been restated as follows:

	June 30, 2004
	As		As Previously
	Restated		Reported
Accounts receivable	$	34,620	$	31,576
Cost and accrued earnings on uncompleted contracts		82,729		86,461
Fair value of foreign exchange contracts		—		3,811
Total current assets		175,562		180,061
Total assets		218,686		223,185
Accrued liabilities		18,225		21,549
Foreign exchange contracts		3		3,811
Total current liabilities		94,589		101,721
Deferred tax liability – non-current		2,045		1,150
Total liabilities		104,396		110,633
Accumulated other comprehensive income		13,367		10,764
Total liabilities and stockholder’s equity		218,686		223,185

The Condensed Consolidated Statements of Earnings for the three and six months ended June 30, 2004 and 2003 included in this Form 10-Q/A have been restated as follows:

Three months ended,	June 30, 2004				June 30, 2003
	As		As Previously		As		As Previously
	Restated		Reported		Restated		Reported
Revenues	$	39,232	$	45,228	$	41,206	$	42,723
Cost of Sales		28,456		30,537		28,777		30,691
Operating income		3,258		7,173		5,003		4,606
Earnings before income taxes		2,746		6,661		4,262		3,865
Income tax expense		1,105		2,435		1,698		1,563
Net Earnings	$	1,641	$	4,226	$	2,564	$	2,302

5

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Six months ended,	June 30, 2004					June 30, 2003
	As			As Previously		As		As Previously
	Restated			Reported		Restated		Reported
Revenues	$	66,095		$	79,696	$	77,058	$	85,380
Cost of Sales		50,631			54,848		54,398		59,606
Operating income (loss)		(262	)		9,122		8,609		11,723
Earnings (loss) before income taxes		(1,499	)		7,885		7,558		10,672
Income tax (benefit) expense		(275	)		2,915		3,377		4,436
Net Earnings (loss)	$	(1,224	)	$	4,970	$	4,181	$	6,236

NOTE 2 - PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of The Allied Defense Group, Inc. (“Allied” or the “Company”), a Delaware corporation, and its wholly-owned subsidiaries as follows:

•   ARC Europe, S.A. (“ARC Europe”), a Belgian company,

•   Allied Research Corporation Limited (“Limited”), an inactive United Kingdom company,

•   News/Sports Microwave Rental, Inc. (“NS Microwave”), a California corporation,

•   Titan Dynamics Systems, Inc. (“Titan Dynamics”), a Texas corporation,

•   SeaSpace Corporation (“SeaSpace”), a California corporation, and

•   MECAR USA, Inc. (“MECAR USA”), a Delaware corporation

ARC Europe includes its wholly-owned subsidiaries MECAR S.A. (“MECAR”), Sedachim S.I. S.A., Hendrickx S.A., and the VSK Group. The VSK Group is comprised of VSK Electronics N.V. and its wholly-owned subsidiaries, Télé Technique Générale S.A., Intelligent Data Capturing Systems (IDCS) N.V., and VIGITEC S.A.

The Company operates in four (4) segments, which are outlined below:

•   Ordnance & Manufacturingsegment consists of MECAR and MECAR USA. MECAR develops and produces medium caliber tank, mortar and other ammunition. MECAR USA will initially pursue contracts from the U.S. government and others for ammunition and pyrotechnics devices. MECAR USA is expected to be operational in the latter portion of 2004.

•   Electronic Securitysegment consists of The VSK Group and NS Microwave. VSK Electronics N.V. manufactures access control, intrusion protection, fire detection and video systems; Télé Technique Générale S.A. installs security systems; Intelligent Data Capturing Systems N.V. manufacturers integrated video systems; and VIGITEC S.A. installs networked video surveillance systems. NS Microwave designs, manufactures, distributes and services industrial and law enforcement security products and systems.

•   Environmental Safety & Securitysegment consists of SeaSpace, which designs, manufactures, distributes and services weather and environmental satellite ground reception systems.

•   Software, Training & Simulationsegment consists of Titan Dynamics, which designs, manufactures and sells battlefield effects simulators.

Allied, the parent company, provides management services to its subsidiaries and has no operating activities.

Significant intercompany transactions have been eliminated in consolidation.

6

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses foreign currency futures contracts to minimize the foreign currency exposures that arise from sales contracts with certain foreign customers. Under the terms of these sales contracts, the selling price and certain costs are payable in U.S. dollars rather than the Euro, which is MECAR’s functional currency. As discussed in Note 1, the Company’s accounting for foreign currency exchange contracts at MECAR did not comply with the guidelines of FAS 133. As such, gains/losses from settlements of the derivative contracts are reported as a component of revenues and amounted to losses of $184 and $929 and gains of $4,682 and $8,337 for the three and six months ended June 31, 2004 and 2003, respectively.

NOTE 4 - RESTRICTED CASH

MECAR is generally required under the terms of its contracts with foreign governments and its distributor to provide performance bonds and advance payment guarantees. The credit facility agreements used to provide these financial guarantees place restrictions on cash deposits and other liens on MECAR’s assets. The VSK Group has also pledged certain term deposits to secure outstanding bank guarantees. $8,739 and $15,812 at June 30, 2004 and December 31, 2003, respectively, was restricted or pledged as collateral for these agreements.

Restricted cash also included $2,000 at June 30, 2004 as a requirement of the senior secured facility which was completed on May 28, 2004.

Restricted cash also included $125 at June 30, 2004 and December 31, 2003, as a result of a deposit which was a requirement of the SeaSpace acquisition agreement. In 2002, the Company issued a $250 promissory note payable in equal installments on July 31, 2003 and 2004. Payment is subject to certain conditions being met as defined in the acquisition agreement.

NOTE 5 – ACCOUNTS RECEIVABLE

Accounts receivable at June 30, 2004 and December 31, 2003 are comprised as follows:

	2004		2003
	Restated
Direct and indirect receivables from foreign governments	$	22,313	$	19,696
Commercial and other receivables, less allowance for doubtful receivables of $119 in 2004 and $115 in 2003		12,307		13,708
	$	34,620	$	33,404

Receivables from foreign government and government agencies are generally due within 30 days of shipment, less a 10% hold back provision which is generally due within 90 days. Since these receivables are supported by letters of credit or other guarantees, no provision for doubtful accounts is deemed necessary. The Company evaluates its allowance for doubtful accounts on commercial receivables on an ongoing basis and provides for losses as deemed necessary.

NOTE 6 - COSTS AND ACCRUED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and accrued earnings on uncompleted contracts are recognized by MECAR, NS Microwave and SeaSpace for their fixed priced sales contracts in accordance with the percentage of completion method of accounting. Under this method, revenue is recognized as work progresses, based on the relationship between actual costs incurred during the period and total estimated cost to be incurred for the total contract. Management reviews these estimates as work progresses and the effect of any change in cost estimates is reflected in cost of sales in the period in which the change is identified. The revenue recognized on the contracts in progress for the three and six months ended June 30, 2004 and 2003 were $31,346 and $50,437, and $34,121 and $62,992, respectively.

7

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

NOTE 7 – INVENTORIES

Inventories at June 30, 2004 and December 31, 2003 are comprised as follows:

	2004		2003
Raw materials	$	11,824	$	9,852
Work in process		1,231		1,017
Finished goods, less reserve for obsolescence of $212 in 2004 and $214 in 2003		1,296		1,199
	$	14,351	$	12,068

NOTE 8 – INTANGIBLE ASSETS AND GOODWILL

	June 30, 2004						December 31, 2003
			Accumulated						Accumulated
	Gross Amount		Amortization		Net		Gross Amount		Amortization		Net
Intangible assets subject to amortization:
Capitalized Software	$	1,213	$	367	$	846	$	1,179	$	282	$	897
Customer Lists		2,248		449		1,799		2,247		356		1,891
Patents		1,494		191		1,303		1,494		147		1,347
Total	$	4,955	$	1,007	$	3,948	$	4,920	$	785	$	4,135

Consolidated amortization expense related to intangible assets, excluding goodwill, for each of the three and six months ended June 30, 2004 and 2003 were $111 and $222. Estimated future aggregate annual amortization for intangible assets is as follows:

Period	Amount
Six months ended December 31, 2004	$	222
Year ended December 31, 2005		540
Year ended December 31, 2006		379
Year ended December 31, 2007		297
Year ended December 31, 2008		225
Thereafter		2,285

The $13,558 of goodwill at June 30, 2004 is comprised of $7,580 related to the Electronic Security Segment, $4,322 related to the Environmental Safety & Security Segment and $1,656 related to the Software, Training & Simulation Segment. The change in goodwill during the six-month period ended June 30, 2004 was due to the currency translation adjustment.

NOTE 9 – NOTES PAYABLE AND CREDIT FACILITY

Notes Payable– At June 30, 2004, MECAR had borrowed $10,827 under its lines of credit with its lenders. NS Microwave had a note of $74 for machinery and vehicles. At December 31, 2003, MECAR had borrowed $4,322 under its lines of credit with its lenders. In addition, MECAR borrowed $9,878 under a short-term loan which was secured by a receivable of $9,878. The weighted average interest rate for Notes Payable as of June 30, 2004 and December 31, 2003 was 3%.

Credit Facility– MECAR is obligated under an agreement (the Agreement), executed March 2002, with its foreign banking syndicate that provides credit facilities primarily for bank guarantees including performance bonds, letters of credit and similar instruments required for specific sales contracts as well as a line-of-credit for tax prepayments and working capital. The Agreement provides for certain bank charges and fees as the facility is used, plus fees of 2% of

8

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

guarantees issued and quarterly fees at an annual rate of 1.25% of guarantees outstanding. These fees are charged to interest expense. As of June 30, 2004 and December 31, 2003, guarantees and performance bonds of approximately $20,563 and $17,233 respectively, were outstanding.

Advances under the Agreement are secured by restricted cash at June 30, 2004 and December 31, 2003 of approximately $8,737 and $15,813, respectively. Amounts outstanding are also collateralized by a pledge of approximately $41,624 of MECAR’s net assets. The Agreement requires that MECAR maintain net worth and working capital covenants.

NOTE 10 - LONG-TERM DEBT

Long-term obligations consist of the following as of June 30, 2004 and December 31, 2003, respectively:

	June 30, 2004		December 31, 2003
Notes payable, less unamortized discount and debt issue costs	$	1,103	$	—
Mortgage loan agreements		279		908
Capital leases and other		6,914		6,703
	$	8,296	$	7,611
Less current maturities		2,239		2,709
	$	6,057	$	4,902

Notes payable.On May 28, 2004 the Company obtained a senior loan facility from an accredited lender under which the Company may borrow up to $18,000 for acquisitions and working capital. At closing, the Company borrowed $2,000 and deposited $2,000 in a restricted account to secure the repayment. The facility allows the Company to make additional draws under the facility under certain conditions through November 28, 2005. All loans under the facility bear interest at the rate of 11.5% per year payable monthly. Principal is paid in sixty equal monthly payments commencing in late December 2005. The Company pays a fee on the unused portion of the facility. Warrants (exercisable at $0.01 per share) to purchase 4,000 shares of the Company’s common stock were issued at closing and were valued at $68. Additional warrants (at the rate of 2,000 for each $1 million loan) will be issued with future loan advances. The facility includes certain financial and other covenants. The Company is currently in compliance with those covenants.

Mortgage loan agreements.The VSK Group is obligated on a mortgage on its building, which has a balance of approximately $279 at June 30, 2004. These mortgages are payable in annual installments of approximately $56 plus interest.

Capital leases and other.The Company and its subsidiaries are also obligated on various vehicle, equipment, capital lease obligations and other loans. The notes and leases are generally secured by the assets acquired, bear interest at rates ranging from 3.5% to 8.0% and mature at various dates through 2009.

Scheduled annual maturities of long-term obligations as of June 30, 2004 are approximately as follows:

Year	Amount
2005	$	2,239
2006		2,001
2007		1,556
2008		899
2009		498
Thereafter		1,103

9

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

NOTE 11 - CONVERTIBLE SUBORDINATED DEBENTURE

On June 28, 2002 the Company sold to an accredited investor for $7,500 (i) an 8% subordinated debenture that is convertible into shares of the Company’s common stock at $25.00 per share and (ii) warrants to purchase 15,000 shares of the Company’s common stock at an exercise price of $28.75 per share in cash. The debenture bears interest at the rate of 8% per year, payable semi-annually. The Company may elect to pay the principal and/or the interest in cash or in registered shares of its common stock at a 10% discount to the then current market price. The warrants to purchase 15,000 shares of the Company’s common stock were valued at $140.

Monthly principal payments, in the amount of $750, began on June 28, 2004 and continue for a period of ten (10) months or until March 28, 2005. The holder of the debenture may choose to convert all or a portion of the principal amount outstanding into shares of the Company’s common stock at any time before maturity. The right of the Company to sell and the holder’s right to purchase additional debentures expired in August 2003. The Company has registered the shares of common stock that could be issued in the event the holder elects to convert the debenture and exercise the warrants.

NOTE 12 - EARNINGS (LOSS) PER SHARE

Basic earnings per share exclude dilution and are computed by dividing net earnings by the weighted average number of common shares outstanding for the period. The computation of diluted earnings per share includes the effects of stock options, warrants and convertible debenture, if such effect is dilutive. The table below shows the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2004 and June 30, 2003, respectively:

	Three months ended				Six months ended
	June 30,				June 30,
	2004		2003		2004			2003
	Restated		Restated		Restated			Restated
Net earnings (loss)	$	1,641	$	2,564	$	(1,224	)	$	4,181
Interest on convertible debenture, net of taxes		46		90		—			179
Net earnings (loss) before interest on convertible debenture	$	1,687	$	2,654	$	(1,224	)	$	4,360
Weighted average number of basic shares		5,555,509		5,487,919		5,553,454			5,483,546
Common stock equivalents		461,991		432,867		—			436,120
Weighted average number of diluted shares		6,017,500		5,920,786		5,553,454			5,919,666
Basic earning (loss) per share	$	0.30	$	0.47	$	(0.22	)	$	0.76
Diluted earnings (loss) per share	$	0.28	$	0.45	$	(0.22	)	$	0.74

For the six months ended June 30, 2004, the Company has excluded common stock equivalents of 478,256 since their effect would be anti-dilutive.

NOTE 13 - COMPREHENSIVE INCOME (LOSS)

A summary of the components of Comprehensive Income (Loss) for the three and six months ended June 30, 2004 and 2003, is as follows:

	Three months ended					Six months ended
	June 30,					June 30,
	2004			2003		2004			2003
	Restated			Restated		Restated			Restated
Net earnings (loss)	$	1,641		$	2,564	$	(1,224	)	$	4,181
Currency translation adjustment		(669	)		4,885		(2,830	)		6,819
Comprehensive income (loss)	$	972		$	7,449	$	(4,054	)	$	11,000

10

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

The currency translation adjustment for the three and six months ended June 30, 2004 resulted from the depreciation of the Euro during the respective periods. In contrast, the currency translation adjustment for the comparable periods in 2003 resulted from the appreciation of the Euro during those periods.

NOTE 14 - STOCK BASED COMPENSATION

The Company currently accounts for stock options using the intrinsic value method and is applying APB Opinion No. 25,“Accounting for Stock Issued to Employees.”Accordingly, compensation costs for stock options is measured and recorded as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost for stock awards is recorded based on the quoted market value of the Company’s stock at the time of grant. No compensation cost has been recognized for the granting of stock options to employees in the three and six months ended June 30, 2004 and 2003.

The following table presents the pro forma decrease in income for the three and six months ended June 30, 2004 and 2003, that would have been recorded had the fair values of options granted been recognized as compensation expense on a straight-line basis over the vesting period of the grant:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Reported net earnings (loss)	$	1,641		$	2,564		$	(1,224	)	$	4,181
Stock-based compensation costs that would have been included in the determination of reported net earnings, if the fair value method was applied to all awards, net of tax		(165	)		(120	)		(331	)		(241	)
Pro forma net earnings (loss)	$	1,476		$	2,444		$	(1,555	)	$	3,940
Basic earnings (loss) per share:
Reported earnings (loss) per share	$	0.30		$	0.47		$	(0.22	)	$	0.76
Compensation costs, net of tax		(0.03	)		(0.02	)		(0.06	)		(0.04	)
Pro forma basic earnings (loss) per share	$	0.27		$	0.45		$	(0.28	)	$	0.72
Diluted earnings (loss) per share:
Reported earnings (loss) per share	$	0.28		$	0.45		$	(0.22	)	$	0.74
Compensation costs, net of tax		(0.03	)		(0.02	)		(0.05	)		(0.04	)
Pro forma diluted earnings (loss) per share	$	0.25		$	0.43		$	(0.27	)	$	0.70

Options granted during the three and six months ended June 30, 2004 were 40,000. Options granted during the three and six months ended June 30, 2003 were 110,000. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model. The weighted-average fair value of each option at the date of grant for the three and six months ended June 30, 2004 was $7.59. The weighted-average fair value of each option at the date of grant for the three and six months ended June 30, 2003 was $6.50. The weighted average assumptions used in the model were as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
Risk free interest rate		2.86	%		2.86	%		2.86	%		2.86	%
Expected volatility rate		47.00	%		47.00	%		47.00	%		47.00	%
Expected lives - years		3			3			3			3
Divided yield		—			—			—			—

11

The Allied Defense Group, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

The weighted average assumptions were consistent between 2003 and 2004 and will be evaluated prior to the  publication   of the   next   Form 10-K. We do not believe that the factors used above have changed materially over the past twelve months. The pro forma amounts may not be representative of future amounts since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future periods.

NOTE 15 - INDUSTRY SEGMENTS

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Revenues from external customers
Ordnance & Manufacturing	$	26,300		$	31,802		$	41,772		$	57,664
Electronic Security		11,559			7,707			20,890			14,438
Environmental Safety & Security		1,223			1,509			3,247			3,815
Software, Training & Simulation		150			188			186			1,141
	$	39,232		$	41,206		$	66,095		$	77,058
Segment profit (loss) before taxes
Ordnance & Manufacturing	$	1,752		$	5,305		$	(2,437	)	$	8,612
Electronic Security		2,237			(63	)		3,057			(5	)
Environmental Safety & Security		(1,046	)		(345	)		(1,182	)		(337	)
Software, Training & Simulation		(162	)		(58	)		(341	)		109
Corporate and Other		(35	)		(577	)		(596	)		(821	)
	$	2,746		$	4,262		$	(1,499	)	$	7,558

NOTE 16 – COMMITMENTS AND CONTINGENCIES

A suit has been filed against one of the VSK subsidiaries in the Belgian courts alleging a breach of a non-compete clause within a teaming agreement executed with a claimant in prior years. Management intends to vigorously defend this suit and believes that it has meritorious defense to the claim.

SeaSpace is in litigation with a former distributor concerning certain aspects of the termination of the distributor relationship. The former distributor has filed a preliminary injunction action in Japan concerning the termination. SeaSpace has filed an action for monetary damages in California and the former distributor has filed a similar action for monetary damages in Japan. The California court has recently ruled that the matter should be resolved in an international arbitration proceeding. Management continues to vigorously defend these matters and believes that it has a meritorious position.

NOTE 17 - RECENT ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements during the six months ended June 30, 2004 that would impact the Company’s financial reporting.

12

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Overview

Allied is a strategic portfolio of defense and security businesses, with presence in worldwide markets, offering both government and commercial customers leading edge products and services. Allied operates in four (4) segments:

•   Ordnance & Manufacturingsegment consists of MECAR, located in Belgium, and MECAR USA, located in Marshall, TX. MECAR develops and produces medium caliber tank, mortar and other ammunition. MECAR USA will initially pursue contracts from U.S. and foreign governments for ammunition and pyrotechnics devices. MECAR USA is expected to be marginally operational in the fourth quarter of 2004.

•   Electronic Securitysegment consists of The VSK Group, located in Belgium, and NS Microwave, located in San Diego, CA. The VSK Group consists of VSK Electronics N.V. which manufactures access control, intrusion protection, fire detection and video systems; Télé Technique Générale S.A. which installs security systems; Intelligent Data Capturing Systems N.V. which manufacturers integrated video systems; and VIGITEC S.A. which installs networked video surveillance systems. NS Microwave designs, manufactures, distributes and services industrial and law enforcement surveillance products and systems.

•   Environmental Safety & Securitysegment consists of SeaSpace, located in San Diego, CA, which designs, manufactures, distributes and services weather and environmental satellite ground reception systems .

•   Software, Training & Simulationsegment consists of Titan Dynamics, located in Marshall, TX, which designs, manufactures and sells battlefield effects simulators, minor pyrotechnics and other training devices.

Allied, the parent company, provides management services to its subsidiaries and has no operating activities. Allied earned net profit (loss) of $1,641 and $(1,224) for the three and six months ended June 30, 2004, respectively, compared to net profits of $2,564 and $4,181 for the comparable periods of 2003.

Allied entered 2004 with substantial cash reserves and anticipates no liquidity concerns in 2004. Allied has secured a senior domestic lending facility for working capital and acquisitions.

Restatement.As described in greater detail in the Annual Report on Form 10-K for the period ended December 31, 2004, the Company has restated its financial statements for certain periods, including the periods covered by this Form 10-Q/A, since it did not qualify for the use of hedge accounting under SFAS 133. The balance of this Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to and is based upon the restated financial statements, computed using derivative accounting.

13

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Results of Operations for the Three Months Ended June 30, 2004 and 2003

The table below shows, for the three months ended June 30, 2004 and 2003, certain items from Allied’s condensed consolidated statements of earnings expressed as a percentage of revenue:

	Three months ended June 30,
	2004					2003
Revenue	$	39,232		100.0	%	$	41,206		100.0	%
Cost and expenses
Cost of sales		28,456		72.5			28,777		69.8
Selling and administrative		5,702		14.5			6,520		15.8
Research and development		1,816		4.6			906		2.2
Operating income		3,258		8.4			5,003		12.2
Other income (expense)
Interest income		93		0.2			131		0.3
Interest expense		(520	)	(1.4	)		(524	)	(1.3	)
Other – net		(85	)	(0.2	)		(348	)	(0.9	)
Earnings before income taxes		2,746		7.0			4,262		10.3
Income tax expense		1,105		2.8			1,698		4.1
Net earnings	$	1,641		4.2	%	$	2,564		6.2	%

Revenue.Allied had revenue of $39,232 in the three months ended June 30, 2004, which was 5% lower than its revenue in the same period of 2003. This decrease was principally attributable to the change in accounting for the derivatives, which was offset by higher distribution sales and increased activities at the VSK Group and NS Microwave and the increase in the value of the Euro.

	Revenue by Segment
	Three Months Ended					Three Months Ended
	June 30, 2004					June 30, 2003				��
			Percentage					Percentage
	Amount		of total			Amount		of total
Ordnance & Manufacturing	$	26,300		67	%	$	31.802		77	%
Electronic Security		11,559		30	%		7,707		19	%
Environmental Safety & Security		1,223		3	%		1,509		4	%
Software, Training & Simulation		150		—	%		188		—	%
	$	39,232		100	%	$	41,206		100	%

Ordnance & Manufacturing Segment revenue for the second quarter of 2004 decreased by 17% from the comparable 2003 period. The entire decrease occurred at MECAR as MECAR USA is not expected to be fully operational until the latter portion of 2004 or early 2005. The 2003 period was benefited by substantial activity under the approximately $130,000 Foreign Military Sales (FMS) contract which is in its final stages and did not provide as much revenue in the current period. While MECAR continues to meet the ammunition needs of its traditional customers, it is actively seeking to diversify its customer base.

14

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Electronic Security Segment revenue for the second quarter of 2004 increased by $3,852, or 50%, over the 2003 period due to increases at both NS Microwave and the VSK Group. Approximately $3,000 of the increase was from NS Microwave as it has begun to obtain long-awaited orders for its security products. A substantial portion of NS Microwave’s increased revenue was attributable to a U.S. government contract scheduled for completion in the third quarter of 2004. The increase at the VSK Group stemmed from the continued expansion of its distribution network in Europe, as well as its strong marketing and business development efforts.

Environmental Safety & Security Segment revenues for the second quarter of 2004 decreased by $286 from the comparable 2003 period. SeaSpace continues to suffer from increased competition by domestic and foreign competitors. Further, a substantial project initially forecast for the second quarter of 2004 has been delayed to the latter portion of 2004.

Software, Training & Simulation Segment revenues for the second quarter of 2004 decreased by $38 from the comparable 2003 period. Titan Dynamics’ sales of its Battle Effects Simulators (BES) continue to be depressed pending safety certifications expected in late 2004 or early 2005 from the U.S. Navy/Marine Corps and the U.S. Army. Accordingly, Titan Dynamics’ revenue is now largely comprised of cartridge sales for previously sold simulators.

Cost of Sales.Cost of sales as a percentage of sales for the three months ended June 30, 2004 was 73% compared with 70% for the same period in 2003.

Cost of Sales as Percentage of Sales by Segment

	Three months ended
	June 30
	2004			2003
Ordnance & Manufacturing		80	%		74	%
Electronic Security		56	%		55	%
Environmental Safety & Security		60	%		71	%
Software, Training & Simulation		67	%		43	%
Total		73	%		70	%

Ordnance & Manufacturing Segment cost of sales as a percentage of sales for the three months ended June 30, 2004 increased from the same period of 2003 due to the change to derivative accounting described above.

Electronic Security Segment cost of sales as a percentage of sales for the three months ended June 2004 increased over the same period in 2003 due to higher NS Microwave material costs associated with using new product components to fulfill customer requirements as well as replacing components which were discontinued by vendors. In contrast, the VSK Group had consistent cost of sales as a percentage of sales between 2003 and 2004 as it continues to experience production efficiencies while expanding its distribution channel throughout Europe.

Environmental Safety & Security Segment cost of sales as a percentage of sales decreased from 2003 as a result of the change in product mix and streamlined labor costs. SeaSpace has taken efforts to right-size its organization and reduce its cost of goods sold in light of the competitive environment.

Software, Training & Simulation Segment cost of sales as a percentage of sales for the three months ended June 2004 increased over 2003 as a result of the change in product mix and higher labor costs. Direct labor as a percentage of sales was higher in 2004 because the cartridges are more labor intensive than BES systems and other products.

15

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Selling and Administrative Expenses.Selling and administrative expenses as a percentage of sales for the three months ended June 30, 2004 was approximately 15% compared with 16% for the same period in 2003. This decrease stemmed from lower administrative costs at NS Microwave and Allied. In 2003, NS Microwave’s administrative costs were burdened with compensation charges associated with production personnel, which did not recur in 2004. Also in 2003, Allied’s administrative costs included the write-off of funding costs associated with a structured debt financing proposal, which did not recur in 2004. For the other business units, costs were greater in the second quarter of 2004 due primarily to increased compensation expenses for administrative personnel.

Research and Development.Research and development costs increased for the three months ended June 30, 2004 by 100% over 2003 levels. The increase was attributed to increased research being conducted at all the business units, except NS Microwave. Expenditures decreased at NS Microwave as the staff utilized for research and development efforts were assigned to production efforts during the quarter. This trend of increased research and development is expected to continue for the remainder of the year.

Interest Income.Interest income decreased for the three months ended June 30, 2004 by 29% from 2003 levels. The total dollar decrease was nominal and was primarily attributed to earnings on interest bearing cash accounts.

Interest Expense.Interest expense for the three months ended June 30, 2004 was materially consistent with 2003 levels.

Other-Net.Other-net primarily represents currency gains/losses, resulting from foreign currency transactions at MECAR and the VSK Group, as well as bank charges related to MECAR’s performance bonds and advance payment guarantees, which are generally required under the terms of MECAR’s contracts with foreign governments and its distributor. Other-net expense for the three months ended June 30, 2004 increased over the comparable 2003 period.

Pre-Tax Profit (Loss)

Pre-Tax Profit (Loss) by Segment

	Three months ended
	June 30
	2004			2003
Ordnance & Manufacturing	$	1,752		$	5,305
Electronic Security		2,237			(63	)
Environmental Safety & Security		(1,046	)		(345	)
Software, Training & Simulation		(162	)		(58	)
Corporate and other		(35	)		(577	)
	$	2,746		$	4,262

Ordnance & Manufacturing Segment pre-tax profit for the three months ended June 30, 2004 decreased from the comparable period in 2003 principally due to the change to derivative accounting described above. MECAR’s profitability for 2004 is expected to be at lower levels than in prior years due to a lack of substantial high-margin contracts which benefited 2001-2003 results.

Electronic Security Segment pre-tax profit for the three months ended June 30, 2004 increased from the comparable period in 2003. Activity at the VSK Group was favorably impacted by increased sales to non-Belgian customers via the VSK Group’s distribution network and NS Microwave’s increased business, largely from one U.S. government contract.

16

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Environmental Safety & Security Segment pre-tax loss resulted from increased competitive pressures, both at home and abroad, as well as increased development costs associated with new products expected to be available for sale before year-end and substantial legal expenses associated with an ongoing dispute with a former sales representative. SeaSpace has taken efforts to right-size its organization and reduce its cost of goods sold in light of the competitive environment.

Software, Training & Simulation Segment pre-tax loss in 2004 results from Titan Dynamics’ principal product lacking U.S. Government safety certification. Titan Dynamics anticipates receipt of Navy/Marine Corp certification in the fourth quarter of 2004.

Corporate and other Segment pre-tax loss for the three months ended June 30, 2004 decreased from the 2003 level due to reduced intercompany management fee adjustments and reduced taxes.

Income Taxes.The effective income tax rate in the three months ended June 30, 2004 and 2003 was 40%. While the corporate tax rate in Belgium was reduced from 40.17% to 33.99% effective for tax years beginning January 1, 2003, the reduced tax rate did not take effect at MECAR and the VSK Group until the second half of 2003.

Net Earnings.The Company earned a $1,641 net profit for the three months ended June 30, 2004 compared with $2,564 net profit in the same period of 2003. The decrease in 2004 resulted principally from the change to derivative accounting described above.

17

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Results of Operations for the Six Months Ended June 30, 2004 and 2003

The table below shows, for the six months ended June 30, 2004 and 2003, certain items from Allied’s condensed consolidated statements of earnings expressed as a percentage of revenue:

	Six months ended June 30,
	2004					2003
Revenue	$	66,095		100.0	%	$	77,058		100.0	%
Cost and expenses
Cost of sales		50,631		76.6			54,398		70.6
Selling and administrative		12,349		18.7			12,294		16.0
Research and development		3,377		5.1			1,757		2.3
Operating income (loss)		(262	)	(0.4	)		8,609		11.1
Other income (expense)
Interest income		195		0.3			228		0.3
Interest expense		(998	)	(1.5	)		(959	)	(1.2	)
Other – net		(434	)	(0.7	)		(320	)	(0.4	)
Earnings (loss) before income taxes		(1,499	)	(2.3	)		7,558		9.8
Income tax expense (benefit)		(275	)	(0.4	)		3,377		4.4
Net earnings (loss)	$	(1,224	)	(1.9	)%	$	4,181		5.4	%

Revenue.

Allied had revenue of $66,095 in the six months ended June 30, 2004, which was 14% lower than its revenue in the same period of 2003. This decrease was principally attributable to reduced production activities at MECAR.

	Revenue by Segment
	Six Months Ended					Six Months Ended
	June 30, 2004					June 30, 2003
			Percentage					Percentage
	Amount		of total			Amount		of total
Ordnance & Manufacturing	$	41,772		63	%	$	57,664		75	%
Electronic Security		20,890		32	%		14,438		19	%
Environmental Safety & Security		3,247		5	%		3,815		5	%
Software, Training & Simulation		186		—	%		1,141		1	%
	$	66,095		100	%	$	77,058		100	%

Ordnance & Manufacturing Segment revenue for the six months ended June 30, 2004 decreased by 28% from the comparable period in 2003. The decrease was the result of reduced activity on the large FMS contract received in February 2002, production delays encountered during the first quarter of 2004, and the change in the accounting gfor the derivatives.

Electronic Security Segment revenue for the six months ended June 30, 2004 increased by $6,452 over the comparable period in 2003. The VSK Group and NS Microwave contributed $2,547 and $3,905 to this increase, respectively. The increase at the VSK Group is principally the result of continued expansion of its export sales via

18

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

its European distribution network. NS Microwave’s business has improved due to receipt of some substantial orders in late 2003 and in the first half of 2004.

Environmental Safety & Security Segment revenues for the six months ended June 30, 2004 decreased by $568 from the comparable period in 2003 as a result of increased competition and delayed projects as noted above.

Software, Training & Simulation Segment revenues for the six month ended June 30, 2004 decreased by $955 from the comparable period in 2003 due to reduced simulator sales.

Cost of Sales.Cost of sales as a percentage of sales for the six month periods ended June 30, 2004, was 77% compared with 71% for the same period in 2003.

Cost of Sales as Percentage of Sales by Segment

	Six months ended
	June 30
	2004			2003
Ordnance & Manufacturing		88	%		76	%
Electronic Security		57	%		55	%
Environmental Safety & Security		58	%		65	%
Software, Training & Simulation		67	%		59	%
Total		77	%		71	%

Ordnance & Manufacturing Segment cost of sales as a percentage of sales for the six months ended June 2004 increased over the same period of 2003 due solely to the change to derivative accounting described above.

Electronic Security Segment cost of sales as a percentage of sales for the six months ended June 2004 increased over the same period of 2003 due to the higher NS Microwave material costs as noted above.

Environmental Safety & Security Segment cost of sales as a percentage of sales decreased from 2003 as a result of the change in product mix and streamlined labor costs

Software, Training & Simulation Segment cost of sales as a percentage of sales for the six months ended June 30, 2004 increased over 2003 as a result of the change in product mix and higher labor costs

Selling and Administrative Expenses.Selling and administrative expenses as a percentage of sales for the six months ended June 30, 2004 was approximately 19% compared with 16% for the same period in 2003. This resulted from higher costs at MECAR, the VSK Group and SeaSpace for increased compensation expenses for administrative personnel, offset by decreased costs at NS Microwave and Allied.

Research and Development.Research and development costs increased for the six months ended June 30, 2004 by 92% over 2003 levels. This trend of increased research and development is expected to continue for the remainder of the year.

Interest Income.Interest income decreased for the six months ended June 30, 2004 by 14% from 2003 levels. The total dollar decrease was nominal and was primarily attributed to earnings on interest bearing cash accounts.

Interest Expense.Interest expense increased for the six months ended June 30, 2004 by 4% over 2003 levels. The increase was primarily due to the total increase in long-term obligations.

19

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Other-Net.Other-net primarily represents currency gains/losses, resulting from foreign currency transactions at MECAR and the VSK Group, as well as bank charges related to MECAR’s performance bonds and advance payment guarantees, which are generally required under the terms of MECAR’s contracts with foreign governments and its distributor. Other-net expense for the six months ended June 30, 2004 increased over the comparable period of 2003 from currency losses in 2004 on MECAR’s U.S. bank accounts.

Pre-Tax Profit (Loss)

Pre-Tax Profit (Loss) by Segment

	Six months ended
	June 30
	2004			2003
Ordnance & Manufacturing	$	(2,438	)	$	8,612
Electronic Security		3,057			(5	)
Environmental Safety & Security		(1,182	)		(337	)
Software, Training & Simulation		(341	)		109
Corporate and other		(595	)		(821	)
	$	(1,499	)	$	7,558

Ordnance & Manufacturing Segment incurred a pre-tax loss for the first half of 2004 and a pre-tax profit for the same period of 2003 due to reduced work on the FMS contract as well as the required change to derivative accounting described above.

Electronic Security Segment pre-tax profit for the period ended June 30, 2004 increased over 2003 levels due to increased business and increased margins at both the VSK Group and NS Microwave.

Environmental Safety & Security Segment pre-tax loss for the six months period ended June 30, 2004 increased over the 2003 loss due to competitive pressures, increased development costs and higher legal expenses.

Software, Training & Simulation Segment pre-tax loss for the period ended June 30, 2004 resulted from reduced business awaiting necessary safety certifications.

Corporate and other Segment pre-tax loss for the six months ended June 30, 2004 was less than the comparable 2003 period due to reduced taxes.

Income Taxes.The effective income tax rate in the first six months of 2004 was a benefit of 18% compared to an expense of 45% in the same period of 2003. The fluctuation was primarily due to the reclassification of foreign currency hedge contracts as derivatives. While the corporate tax rate in Belgium was reduced from 40.17% to 33.99% effective for tax years beginning January 1, 2003, the reduced tax rate did not take effect at MECAR and the VSK Group until the second half of 2003.

Net Earnings (Loss).The Company incurred a $1,224 net loss for the six months ended June 30, 2004 compared with $4,181 net profit in the same periods of 2003. The decrease in 2004 resulted from the activities at MECAR, SeaSpace and Titan Dynamics.

20

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Backlog.As of June 30, 2004, the Company’s backlog was $84,899 compared to $115,416 at December 31, 2003, and $124,430 at June 30, 2003. The June 30, 2004 and December 31, 2003 amounts included unfunded portion of approximately $9,700 from an indefinite delivery, indefinite quantity (IDIQ) federal contract.

	Backlog by Segment
	June 30, 2004					June 30, 2003
			Percentage					Percentage
	Amount		of total			Amount		Of total
Ordnance & Manufacturing	$	59,687		70	%	$	110,615		89	%
Electronic Security		23,029		27			12,281		10
Environmental Safety & Security		1,630		2			1,452		1
Software, Training & Simulation		553		1			82		—
	$	84,899		100	%	$	124,430		100	%

The decrease in backlog is primarily the result of MECAR’s work on the approximately $130,000 FMS multi-year contract awarded in February 2002. The backlog associated with this particular contract will continue to decrease in accordance with the delivery terms of the award. MECAR has undertaken a customer diversification effort in the past few years, which continues to be productive in 2004. In addition to meeting the ammunition needs of its traditional customers, MECAR has gained new customers which have contributed to a majority of its new orders for 2004. Electronic Security backlog increased from new contracts received at the VSK Group and NS Microwave. Electronic Security backlog includes an unfunded portion of approximately $9,700 from an IDIQ federal contract.

Liquidity and Capital Resources

Balance Sheet

The Company’s June 30, 2004 condensed consolidated balance sheet was affected by the value of the Euro. All European values were converted at the June 30, 2004 and December 31, 2003 conversion ratios of 1.2085 and 1.2557, respectively.

Historically, the Company’s positive cash flow from operations and available credit facilities have provided adequate liquidity and working capital to fully fund the Company’s operational needs. Working capital, which includes restricted cash, was $80,973 at June 30, 2004, which is a decrease of $8,244 from the December 31, 2003, level. Working capital remains strong due to profitable operations.

Cash at June 30, 2004 decreased by $21,277 from December 31, 2003 as substantial cash was expended in the first half of 2004 to repay current liabilities including MECAR’s short-term borrowings. Restricted cash decreased by $5,073 in the first half of 2004 due to completion of certain contracts at MECAR.

Accounts receivable at June 30, 2004 increased by $1,216, or 4% from December 31, 2003, due to higher sales in the second quarter 2004 versus the second quarter 2003 and the change in accounting for the derivatives. Costs and accrued earnings on uncompleted contracts increased by $22,213 from year-end 2003 primarily as a result of continued work on MECAR contracts and the change in accounting for the derivatives. Inventories increased $2,283 primarily from higher raw material purchases. The inventory buildup will give the subsidiaries the ability to deliver products with the shortest possible lead times. Fair value of foreign exchange contracts was a liability of $3 at June 30, 2004, compared to an asset of $6,900 at December 31, 2003. MECAR uses foreign currency derivative contracts to minimize the foreign currency exposures that arise from sales contracts with certain foreign customers.

Prepaid and other current assets increased $4,311 primarily from costs on MECAR’s hedge contract agreements.

21

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Property, Plant & Equipment, net of accumulated depreciation, increased primarily from equipment purchases at the business units during the first six months of 2004. Intangibles decreased primarily from the amortization of capitalized software, customer lists and patents. Goodwill decreased solely from the currency translation adjustment.

Notes Payable decreased $3,299 from December 31, 2003 as a result of MECAR paying off a short-term loan. During the first six months of 2004, MECAR used its cash from operations for working capital needs. Accounts payable decreased $10,210 as a result of lower production costs, primarily at MECAR, for the six months ended June 30, 2004 compared to the six months ended December 2003. In contrast, accrued liabilities increased $10,631 due primarily to the costs associated with deferred gains related to forward exchange contracts at MECAR. MECAR entered into new foreign exchange contracts during 2004. Customer deposits increased $4,221 primarily at MECAR as a result of shipments during the period and other new contracts in 2004 requiring deposits. Income taxes increased $3,389 due to the tax provisions at MECAR and the VSK Group, offset by the tax benefits at NS Microwave, SeaSpace, Titan Dynamics and Corporate.

Convertible-subordinated debenture, current and long-term, was materially unchanged between June 30, 2004, and December 31, 2003. The Company has commenced repayment of the debenture. Monthly payments will continue through March 2005.

Stockholders’ equity as of June 30, 2004, was negatively affected by the reduction in the value of the Euro versus the U.S. dollar during the first six months of 2004, resulting in a decrease in accumulated other comprehensive income by $2,830. The Euro depreciated by approximately 4% since the beginning of the year.

Cash Flows

The table below provides the cash flow statement data for the periods presented.

	Six months ended June 30
	2004			2003
Net cash (used in) provided by operating activities	$	(20,075	)	$	11,138
Net cash used in investing activities		(3,476	)		(3,023	)
Net cash provided by (used in) financing activities		2,967			(1,768	)

Operating Activities.The Company used $20,075 of cash in its operating activities during the six months ended June 30, 2004 whereas it generated $11,138 of cash during the same period of 2003. This is attributed primarily to reduction in earnings for the six months ended June 2004 and increase in costs and accrued earnings on uncompleted contracts. Cash paid for interest was $569 and $635, for the six months ended June 30, 2004 and 2003, respectively. Cash paid for income taxes was $4,983 and $8,426 for the six months ended June 30, 2004 and 2003, respectively, and includes federal, international and state taxes.

Investing Activities.Net cash used in investing activities increased by 15% between the two periods. This stemmed from higher capital expenditures for production equipment and leasehold improvements at the Belgian business units. The Company anticipates that cash generated from operations will be sufficient to support any further capital expenditures over the remainder of the year. Future expenditures for the remainder of the year will be primarily incurred for machinery and equipment.

Financing Activities.The Company generated $2,967 of cash from its financing activities during the six months ended June 30, 2004 whereas it used $1,768 of cash during the same period of 2003. This stemmed from proceeds of long-term debt, in particular the senior secured facility, as well as a reduction in restricted cash. This was offset by payment of short-term borrowings, which primarily pertained to MECAR operations.

22

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Allied.The parent company continues to operate based on fees and dividends received from its subsidiaries. In the second quarter of 2004, Allied has made cash infusions to NS Microwave, Titan Dynamics and SeaSpace to support working capital requirements. On May 28, 2004 the Company obtained a senior loan facility under which the Company may borrow up to $18,000 for acquisitions and working capital. At closing, the Company borrowed $2,000 and deposited $2,000 in a restricted account to secure the repayment. The facility allows the Company to make additional draws under the facility under certain conditions through November 28, 2005. All loans under the facility bear interest at the rate of 11.5% per year payable monthly. Principal is paid in sixty equal monthly payments commencing in late December 2005. The Company pays a fee on the unused portion of the facility. Warrants (exercisable at $0.01 per share) to purchase 4,000 shares of the Company’s common stock were issued at closing and were valued at $68. Additional warrants (at the rate of 2,000 for each $1 million loan) will be issued with future loan advances. The facility includes certain financial and other covenants. The Company is currently in compliance with those covenants.

MECAR.MECAR continues to operate from internally generated cash and funds provided by its bank syndicate and financing from capital leases. The bank syndicate agreement provides (i) lines of credit for tax prepayments and working capital and (ii) a facility for guarantees/bonds to support customer contracts. The financial lending terms and fees are denominated in Euros and the dollar equivalents will fluctuate according to global economic conditions. The bank agreement imposes two financial covenants requiring MECAR to maintain minimum net worth and working capital levels. As of June 30, 2004, MECAR was in compliance with both of these bank covenants. MECAR’s obligations under the bank syndicate agreement continue to be collateralized by a pledge of MECAR’s assets. The agreement includes Allied’s pledge to support MECAR so that it remains in compliance with its total borrowing obligations.

VSK Group.The VSK Group operated solely from cash generated from business operations. The VSK Group is obligated on several mortgages and other long-term obligations.

Other Subsidiaries.NS Microwave, Titan Dynamics and SeaSpace operated from cash generated from operations and cash infusions by Allied.

Stock Repurchases.The Company did not repurchase any shares of its common stock during the six months ended June 30, 2004 and does not anticipate repurchasing shares of Company stock during the remainder of 2004.

Future Liquidity.The Company is exploring additional financing in light of its repayment of the convertible debenture. At times, the Company has utilized the services of an Investment Banker in an attempt to secure appropriate financing.

Funds for the build-out of the initial MECAR USA infrastructure are being provided by the Marshall Economic Development Corporation of Marshall, Texas. This is a state funded organization with the initial proceeds directed at creating roads and a manufacturing plant on the grounds.

The Company’s ability to cover its anticipated future operating and capital requirements is dependent upon its continued ability to generate positive cash flow from the operations of its subsidiaries, particularly the operations of MECAR and the VSK Group, and its ability to successfully integrate its acquisitions. The Company expects its acquisitions to be accretive to operations over a period of not longer than 24 months, although this cannot be assured. This will depend upon many factors including the successful release of new product offerings, successful research and development efforts, and increased market share.

Off-Balance Sheet Arrangements.As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of

23

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of June 30, 2004, we are not involved in any material unconsolidated SPE transactions. MECAR is required to provide performance bonds and advance payment guarantees for certain contracts, which are provided by MECAR’s bank syndicate. MECAR is obligated to repay the bank syndicate any amounts it pays as a result of any demands on the bonds or guarantees. To date, there have never been any such demands.

Critical Accounting Policies

Our significant accounting policies are described in Note A to the consolidated financial statements included in Item 7 of the Form 10-K for the year ended December 31, 2003, and are outlined below:

•   Revenue recognition via the percentage of completion method.The percentage of completion method is used by MECAR, NS Microwave and SeaSpace for their fixed price sales contracts. Approximately 80% and 76%, and 83% and 82%, of condensed consolidated revenue was recognized under the percentage of completion method during the three and six months ended June 30, 2004 and 2003, respectively.

•   Goodwill and intangible asset valuation.The Company completed a goodwill impairment analysis in the fourth quarter of 2003 and did not determine that an impairment charge to earnings was required. As required by the accounting rules, the Company will perform a similar review each year or earlier if indicators of potential impairment exist. As of June 30, 2004, there were no indicators of impairment.

•   Inventory reserves and allowance for doubtful accounts.The Company reviews its recorded inventory and estimates a write-down for obsolete or slow-moving items to their net realizable value. Allowances for doubtful accounts are evaluated based upon detailed analysis and assessment of receivables that may not be collected in the normal course of operations. The inventory reserves and allowance for doubtful accounts are deemed reasonable.

•   Derivative Instruments.The Company designates its derivatives based upon the criteria established by Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended by SFAS 138 and SFAS 149, requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for the changes in the fair value of the derivative depends on the intended use of the derivative and the resulting designation. For a derivative designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the risk being hedged. For a derivative designated as a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and is subsequently reclassified to earnings when the hedge exposure effects earnings. The ineffective portion of the hedge is reported in earnings immediately. For a derivative that does not qualify as a fair value hedge or cash flow hedge, the change in fair value is recognized currently in net income.

•   Valuation of deferred income taxes and income tax reserves.The Company is subject to taxation by federal, state and international jurisdictions. The Company reviews the balances on a quarterly basis and believes the balances are adequate.

24

The Allied Defense Group, Inc.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2004
(Thousands of Dollars)
(Unaudited)

Forward-Looking Statements

This Management’s Discussion and Analysis contains forward-looking statements that are based on current expectations, estimates and projections about the Company and the industries in which it operates. In addition, other written or oral statements which constitute forward-looking statements may be made by or on behalf of the Company. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Future Factors include the following:

•   substantial reliance on MECAR’s principal customers to continue to acquire products on a regular basis;

•   the cyclical nature of the Company’s military business;

•   rapid technological developments and changes and the Company’s ability to continue to introduce competitive new products and services on a timely, cost effective basis;

•   the ability of the Company to successfully continue to expand its business base;

•   the ability of the Company’s acquired businesses to mature and meet performance expectations;

•   the mix of products/services;

•   domestic and foreign governmental fiscal affairs and public policy changes which may affect the level of purchases made by customers;

•   changes in environmental and other domestic and foreign governmental regulations;

•   general risks associated with doing business outside the United States, including, without limitation, import duties, tariffs, quotas and political and economic instability;

•   the effects of terrorist actions on business activities, customer orders and cancellations, and the United States and international governments’ responses to these terrorist actions;

•   changes in government regulations;

•   liability and other claims asserted against us;

•   the ability to attract and retain qualified personnel; and

•   continued availability of financing, financial instruments and financial resources in the amounts, at the times, and on the terms required to support the Company’s future business.

We operate in a very competitive and rapidly changing environment. New risk factors can arise and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

25

The Allied Defense Group, Inc.

June 30, 2004

QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE

At June 30, 2004, Allied had $33 million of cash (including restricted cash). Assuming all the cash was available for investment, a 1% change in interest rates would impact interest income for the three and six months ended June 30, 2004 and 2003 by $0.08 million and $0.16 million, respectively.

Approximately 87% and 92% of the Company’s revenue for the six months ended June 30, 2004 and 2003, respectively, were derived from operations outside the U.S. Accordingly, exposure exists to potentially adverse movement in foreign currency rates. It is estimated that a 10% change in the value of the Euro would impact reported net earnings for the three and six months ended June 30, 2004 and 2003 by approximately $0.20 million and $0.03 million and $0.43 million and $0.68 million, respectively.

DISCLOSURE CONTROLS AND PROCEDURES

The following has been amended to reflect the restatement of the Company’s consolidated financial statements as discussed further in the Explanatory Note and in Note 1 of the Notes to Consolidated Financial Statements.

1.	Evaluation of disclosure controls and procedures
	The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Under the direction and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by the report. In connection with the annual audit for calendar year 2004, management concluded that its internal control over financial reporting was ineffective due to its method of accounting for foreign currency contracts. As a result, the Chief Executive Officer and the Chief Financial Officer have concluded that the disclosure controls and procedures were not effective.
2.	Changes in internal controls
	Except as set forth above, there have been no significant changes in our internal controls over financial reporting or, to our knowledge, in other factors that occurred during the last quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

26

The Allied Defense Group, Inc.
PART II – OTHER INFORMATION
June 30, 2004

Item 1 Legal Proceedings

See Note 16 to the Condensed Consolidated Financial Statements.

Item 4 Submission of Matters to a Vote of Security Holders

On June 4, 2004, the Company held its annual meeting of shareholders.

The Company’s shareholders re-elected J. H. Binford Peay, III, John G. Meyer, Jr., J.R. Sculley, Clifford C. Christ, Harry H. Warner, Ronald H. Griffith and Gilbert F. Decker as members of the Board of Directors of the Company.

The following votes were cast in connection with the election of directors:

Nominee	In Favor		Withheld
J. H. Binford Peay, III		4,697,196		215,752
John G. Meyer, Jr.		4,696,906		216,042
Clifford C. Christ		4,809,382		103,566
Ronald H. Griffith		4,819,358		93,590
J. R. Sculley		4,690,270		222,678
Harry H. Warner		4,818,806		94,142
Gilbert F. Decker		4,817,806		95,142

The Company’s shareholders ratified the appointment of Grant Thornton LLP as the Company’s independent auditors for 2004. The following votes were cast in connection with such ratification:

For	Against		Abstain
4,868,813		36,758		7,377

27

The Allied Defense Group, Inc.
PART II – OTHER INFORMATION
June 30, 2004

Item 6 Exhibits and Reports on Form 8-K

(a)	Reports on Form 8-K
	On April 30, 2004, the Company filed a Form 8-K reporting execution and delivery of a new employment agreement with Wayne F. C. Hosking, Jr., the Company’s Vice President for Corporate Strategic Development.
	On May 5, 2004, the Company filed a Form 8-K providing its financial results for the year ended March 31, 2004.
	On June 2, 2004, the Company filed a Form 8-K reporting its senior secured financing facility.

(b)	Exhibit No.	Description of Exhibits
	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
	3.3	Rights Agreement between Allied and Mellon Investor Services, LLC (Incorporated by reference from Form 8-K filed in June 2001).
	10.1	Employment Agreement between Allied and John G. Meyer, Jr. (Incorporated by reference from Form 8-K filed in March 2001 and Form 8-K filed in August 2001).
	10.2	Employment Agreement letter amendments between Allied and John G. Meyer, Jr.
	10.3	Employment Agreement between Allied and Charles A. Hasper (Incorporated by reference from Form 8-K filed in August 2001).
	10.4	Employment Agreement letter amendment between Allied and Charles A. Hasper.
	10.5	Employment Agreement between Allied and Monte L. Pickens (Incorporated by reference from Form 8-K filed in April 2003).
	10.6	Employment Agreement letter amendment between Allied and Monte L. Pickens.
	10.7	Employment Agreement between Allied and Wayne F. C. Hosking, Jr. (Incorporated by reference from Form 8-K filed in April 2004).
	10.8	Employment Agreement between Allied and John J. Marcello
	10.9	2001 Equity Incentive Plan, as amended (Incorporated by reference from Proxy Statements filed in April 2001 and April 2002).
	10.10	8% Convertible Debenture, Series A and related documents (Incorporated by reference from Form 8-K filed in July 2002).
	10.11	Credit Agreement for MECAR S.A. (Incorporated by reference from Form 10-Q filed in August 2002).
	10.12	Award/Contract dated as of March 1, 2002, by and between MECAR S.A. and U.S. Government (Incorporated by reference from Form 10-Q filed in August 2002).

28

The Allied Defense Group, Inc.
PART II – OTHER INFORMATION
June 30, 2004

(b)	Exhibit No.	Description of Exhibits
	10.13	Employee Stock Purchase Plan, as amended (Incorporated by reference from Form 10-Q filed in November 2002).
	10.14	Lease Agreement, as amended (Incorporated by reference from Form 10-Q filed in November 2002).
	10.15	Form of Indemnity Agreement for Directors and Executive Officers (Incorporated by reference from Form 10-Q filed in November 2002).
	10.16	International Distribution Agreement (Incorporated by reference from Form 10-Q filed in November 2002).
	10.17	Deferred Compensation Plan for Non-Employee Directors.
	10.18	Loan and Security Agreement among Wilton Funding, LLC and Allied and certain of its subsidiaries (Incorporated by reference from Form 8-K filed in June 2004).
	21	List of Subsidiaries (Incorporated by reference from Form 10-K filed in March 2004)
	23	Consent of Independent Certified Public Accountants (Incorporated by reference from Form 10-K filed in March 2004)
	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

29

The Allied Defense Group, Inc.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE ALLIED DEFENSE GROUP, INC.
	/s/ Charles A. Hasper
Date: April 25, 2005	Charles A. Hasper,
	Chief Financial Officer and
	Treasurer

30