8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) September 18, 2007

The Allied Defense Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1-11376	04-2281015
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

8000 Towers Crescent Drive, Suite 260, Vienna, VA	22182
(Address of principal executive offices)	(Zip Code)

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

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 – Financial Information.

Item 2.01 Completion of Acquisition or Disposition of Assets.

     On September 18, 2007, ARC Europe SA (“ARC Europe”), a subsidiary of The Allied Defense Group, Inc. (the “Company”), completed the sale of its VSK Electronics NV subsidiary (“VSK”) to Ving Holdings (Belgium) BVBA, an affiliate of Pacific Equity Partners Pty Ltd (the “Purchaser”). The sale was completed in accordance with the terms and conditions of that certain Stock Purchase Agreement between the Company and the Purchaser dated as of September 6, 2007.

     In the sale, the Company received 33.6 million Euros in cash at closing, subject to a purchase price adjustment to be determined following closing. In addition, 2.0 million Euros was placed in escrow to satisfy any indemnification claims.

     A copy of the press release that the Company issued to announce the closing of the transaction is furnished as Exhibit 99.1.

     In accordance with the requirements under the recently-restructured secured note holders agreement, the Company will notify the note holders of the sale and the note holders have the right to elect for the Company to use a portion of the net proceeds of the sale to redeem a portion of the notes. The pro forma financial information provided in Section 9 of this Form 8-K has been prepared assuming that the funds will be needed and used for general operating purposes.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

(b) Pro forma financial information.

     In accordance with Item 9.01(b)(1) of Form 8-K, the pro forma financial information required by Item 9.01(b) of Form 8-K is attached hereto as Exhibit 9.1.

(c) Exhibits

     2.1 Stock Purchase Agreement by and between ARC Europe and Purchaser dated as of September 6, 2007 (incorporated by reference from the Company’s Form 8-K as filed with the Securities and Exchange Commission on September 10, 2007).

     9.1 Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company as of June 30, 2007 and Unaudited Pro Forma Condensed Consolidated Statements of Operations of the Company for the six months ended June 30, 2007 and 2006 and the years ended December 31, 2006, 2005 and 2004.

     99.1 Press Release of the Company dated September 18, 2007.

SIGNATURES

     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 hereunto duly authorized.

The Allied Defense Group, Inc. (Registrant)

By:

/s/ John J. Marcello John J. Marcello, President and
Chief Executive Officer
Date: September 21, 2007

EX-9.1

Exhibit 9.1

UNAUDITED PRO FORMA FINANCIAL INFORMATION

     The following unaudited pro forma financial statements give effect to the September 18, 2007 sale of VSK. The unaudited pro forma condensed consolidated balance sheet and statements of operations filed with this report are presented for illustrative purposes only. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2007 has been prepared to reflect the sale of VSK as if such sale had taken place on such date, and is not necessarily indicative of the financial position of the Company had the sale occurred on that date. The unaudited pro forma condensed consolidated results of operations for the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005 and 2004, have been prepared assuming that the transaction occurred on January 1, 2006 and are not necessarily indicative of the results of operations for future periods or the results that actually would have been realized had we sold VSK as of those dates. The unaudited pro forma financial statements, including notes thereto, should be read in conjunction with the historical financial statements of the Company included in our Form 10-K for the year ended December 31, 2006 and the unaudited financial statements filed in our Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	June 30, 2007
	Historical			VSK Disposition			Pro Forma
ASSETS
Current Assets
Cash and cash equivalents	$	6,159		$	41,841	(1) (2)	$	48,000
Restricted cash		6,091			—			6,091
Accounts receivable, net		15,524			(8,866	)(2)		6,658
Costs and accrued earnings on uncompleted contracts		15,652			—			15,652
Inventories, net		25,237			(1,854	)(2)		23,383
Prepaid and other current assets		3,778			(1,163	)(2)		2,615
Assets held for sale		3,422			—			3,422
Total current assets		75,863			29,958			105,821
Property, Plant and Equipment, net		31,837			(4,709	)(2)		27,128
Other Assets
Intangible assets, net		9,048			(40	)(2)		9,008
Goodwill		16,335			(5,008	)(2)		11,327
Deferred tax asset		—			12,015	(5)
					(12,015	)(3)		—
Other assets		145			(27	)(2)		118
Total other assets		25,528			(5,075	)		20,453
TOTAL ASSETS	$	133,228		$	20,174		$	153,402
CURRENT LIABILITIES
Bank overdraft facility	$	9,057		$	—		$	9,057
Current maturities of long-term debt		9,216			(182	)(2)		9,034
Accounts payable		16,722			(3,673	)(2)		13,049
Accrued liabilities		16,934			(944	)(2)		15,990
Deferred revenue		1,347			(1,347	)(2)		—
Customer deposits		12,061			(37	)(2)		12,024
Foreign exchange contracts		8			(8	)(2)		—
Income taxes		4,097			(743	)(2)		3,354
Liabilities held for sale		2,443			—			2,443
Total current liabilities		71,885			(6,934	)		64,951
LONG TERM OBLIGATIONS
Long-term debt, less current maturities and unamortized discount		3,496			(204	)(2)		3,292
Senior secured convertible notes		32,607			—			32,607
Deferred tax liability, non-current		15			(15	)(2)		—
Derivative instrument		294			—			294
Other long-term liabilities		576			—			576
Total long-term obligations		36,988			(219	)		36,769
TOTAL LIABILITIES		108,873			(7,153	)		101,720
CONTINGENCIES AND COMMITMENTS
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, 7,800,912 at June 30, 2007		780			—			780
Capital in excess of par value		53,428			—			53,428
Retained deficits		(48,640	)		12,015	(5)
					19,029	(3)		(17,596	)
Accumulated other comprehensive income		18,787			(3,717	)(2)		15,070
Total stockholders’ equity		24,355			27,327			51,682
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	133,228		$	20,174		$	153,402

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	Six months ended June 30, 2007
	Historical			VSK Disposition			Pro Forma
Revenues	$	34,505		$	(16,694	)(4)	$	17,811
Cost and expenses
Cost of sales		32,769			(9,435	)(4)		23,334
Selling and administrative		18,998			(3,952	)(4)		15,046
Research and development		3,680			(1,653	)(4)		2,027
Operating loss		(20,942	)		(1,654	)		(22,596	)
Other income (expenses)
Interest income		420			(103	)(4)		317
Interest expense		(8,286	)		80	(4)		(8,206	)
Net (loss) gain on fair value of senior convertible notes and warrants		(7,766	)		—			(7,766	)
Other-net		9			(140	)(4)		(131	)
		(15,623	)		(163	)		(15,786	)
Loss from continuing operations before income taxes		(36,565	)		(1,817	)		(38,382	)
Income tax expense		779			(761	)(4)		18
Loss from continuing operations		(37,344	)		(1,056	)		(38,400	)
Discontinued operations, net of tax		(4,665	)		—			(4,665	)
NET LOSS	$	(42,009	)	$	(1,056	)	$	(43,065	)
Loss per share — basic and diluted:
Net loss from continuing operations	$	(5.74	)				$	(5.90	)
Net loss from discontinued operations		(0.72	)					(0.71	)
Total loss per share — basic and diluted	$	(6.46	)				$	(6.61	)
Weighted average number of common shares:
Basic		6,510,211						6,510,211
Diluted		6,510,211						6,510,211

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	Year ended December 31, 2006
	Historical			VSK Disposition			Pro Forma
Revenues	$	121,680		$	(31,130	)(4)	$	90,550
Cost and expenses
Cost of sales		102,903			(17,647	)(4)		85,256
Selling and administrative		34,520			(7,061	)(4)		27,459
Research and development		7,919			(2,928	)(4)		4,991
Operating loss		(23,662	)		(3,494	)		(27,156	)
Other income (expenses)
Interest income		1,050			(183	)(4)		867
Interest expense		(9,015	)		132	(4)		(8,883	)
Net gain on fair value of senior convertible notes and warrants		1,901			—			1,901
Other-net		1,967			(231	)(4)		1,736
		(4,097	)		(282	)		(4,379	)
Loss from continuing operations before income taxes		(27,759	)		(3,776	)		(31,535	)
Income tax expense		12,598			(1,258	)(4)		11,340
Loss from continuing operations		(40,357	)		(2,518	)		(42,875	)
Discontinued operations, net of tax		(740	)		—			(740	)
NET LOSS	$	(41,097	)	$	(2,518	)	$	(43,615	)
Loss per share — basic and diluted:
Net loss from continuing operations	$	(6.66	)				$	(7.07	)
Net loss from discontinued operations		(0.12	)					(0.12	)
Total loss per share — basic and diluted	$	(6.78	)				$	(7.19	)
Weighted average number of common shares:
Basic		6,065,732						6,065,732
Diluted		6,065,732						6,065,732

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	Six months ended June 30, 2006
	Historical			VSK Disposition			Pro Forma
Revenues	$	64,765		$	(14,343	)(4)	$	50,422
Cost and expenses
Cost of sales		50,503			(8,119	)(4)		42,384
Selling and administrative		17,345			(3,619	)(4)		13,726
Research and development		3,409			(1,500	)(4)		1,909
Operating loss		(6,492	)		(1,105	)		(7,597	)
Other income (expenses)
Interest income		286			(78	)(4)		208
Interest expense		(3,715	)		61	(4)		(3,654	)
Net (loss) gain on fair value of senior convertible notes and warrants		1,014			—			1,014
Other-net		959			(85	)(4)		874
		(1,456	)		(102	)		(1,558	)
Loss from continuing operations before income taxes		(7,948	)		(1,207	)		(9,155	)
Income tax expense (benefit)		—			(1,084	)(4)		(1,084	)
Loss from continuing operations		(7,948	)		(123	)		(8,071	)
Discontinued operations, net of tax		(796	)		—			(796	)
NET LOSS	$	(8,744	)	$	(123	)	$	(8,867	)
Loss per share — basic and diluted:
Net loss from continuing operations	$	(1.32	)				$	(1.34	)
Net loss from discontinued operations		(0.13	)					(0.13	)
Total loss per share — basic and diluted	$	(1.45	)				$	(1.47	)
Weighted average number of common shares:
Basic		6,029,251						6,029,251
Diluted		6,029,251						6,029,251

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	Year ended December 31, 2005
	Historical			VSK Disposition				Pro Forma
Revenues	$	106,198		$	(30,761	)	(4)	$	75,437
Cost and expenses
Cost of sales		89,917			(16,480	)	(4)		73,437
Selling and administrative		32,085			(6,570	)	(4)		25,515
Research and development		6,752			(2,682	)	(4)		4,070
Operating loss		(22,556	)		(5,029	)			(27,585	)
Other income (expenses)
Interest income		557			(209	)	(4)		348
Interest expense		(2,563	)		79		(4)		(2,484	)
Other—net		(1,970	)		(258	)	(4)		(2,228	)
		(3,976	)		(388	)			(4,364	)
Loss from continuing operations before income taxes and cumulative effect of accounting change		(26,532	)		(5,417	)			(31,949	)
Income tax expense (benefit)		(35	)		(2,001	)	(4)		(2,036	)
Loss from continuing operations before cumulative effect of accounting change		(26,497	)		(3,416	)			(29,913	)
Discontinued operations, net of tax		(7,130	)		—				(7,130	)
Cumulative effect of accounting change, net of tax benefit of $2,726		(5,293	)		—				(5,293	)
NET LOSS	$	(38,920	)	$	(3,416	)		$	(42,336	)
Loss per share — basic and diluted:
Net loss from continuing operations before cumulative effect of accounting change	$	(4.60	)					$	(5.20	)
Net loss from discontinued operations		(1.24	)						(1.24	)
Cumulative effect of accounting change, net of income taxes		(0.92	)						(0.92	)
Total loss per share — basic and diluted	$	(6.76	)					$	(7.36	)
Weighted average number of common shares:
Basic		5,754,951							5,754,951
Diluted		5,754,951							5,754,951

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Thousands of Dollars, except per share and share data)

	Year ended December 31, 2004
	Historical			VSK Disposition			Pro Forma
Revenues	$	139,766		$	(29,826	)(4)	$	109,940
Cost and expenses
Cost of sales		102,161			(15,166	)(4)		86,995
Selling and administrative		25,964			(6,389	)(4)		19,575
Research and development		4,321			(2,454	)(4)		1,867
Operating income		7,320			(5,817	)		1,503
Other income (expenses)
Interest income		527			(230	)(4)		297
Interest expense		(2,440	)		47	(4)		(2,393	)
Other-net		(663	)		(137	)(4)		(800	)
		(2,576	)		(320	)		(2,896	)
Income (loss) from continuing operations before income taxes		4,744			(6,137	)		(1,393	)
Income tax expense (benefit)		1,720			(2,195	)(4)		(475	)
Income (loss) from continuing operations		3,024			(3,942	)		(918	)
Discontinued operations, net of tax		(1,654	)		—			(1,654	)
NET INCOME (LOSS)	$	1,370		$	(3,942	)	$	(2,572	)
Income (loss) per share — basic:
Net income (loss) from continuing operations	$	0.53					$	(0.16	)
Net loss from discontinued operations		(0.30	)					(0.30	)
Total income (loss) per share — basic	$	0.25					$	(0.46	)
Income (loss) per share — diluted:
Net income (loss) from continuing operations	$	0.53					$	(0.16	)
Net loss from discontinued operations		(0.29	)					(0.30	)
Total income (loss) per share — diluted	$	0.24					$	(0.46	)
Weighted average number of common shares:
Basic		5,568,183						5,568,183
Diluted		5,745,282						5,568,183

The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial data.

The Allied Defense Group, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)

BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial statements give effect to the pro forma adjustments necessary to reflect the disposition of VSK Electronics NV as if the disposition was effective for the periods presented in the unaudited pro forma condensed consolidated statements of operations and as of June 30, 2007, in the unaudited pro forma condensed consolidated balance sheet. The Company’s historical amounts represent the Company’s consolidated balance sheets and statements of operations derived from our Annual report on Form 10-K for the years ended December 31, 2006, 2005 and 2004 and quarterly reports on Forms 10-Q for the periods ended June 30, 2007 and 2006.

PRO FORMA ADJUSTMENTS

The unaudited pro forma condensed consolidated statements of operations and balance sheet reflect the effect of the following pro forma adjustments:

(1) To record the net cash received upon the sale of VSK, as follows:

Gross cash proceeds, including $62 related to working capital adjustments	$	49,066
Funds held in escrow		(2,760	)
Investment banker, legal, accounting and other transaction costs, including management incentives		(2,968	)
Net cash received		43,338
Less: VSK’s cash balance at 6/30/2007		(1,497	)
Net proforma adjustment to cash	$	41,841

(2)	To remove the assets, liabilities and accumulated other comprehensive income of VSK at June 30, 2007.
(3)	To record the estimated gain on the sale of VSK, as follows:

Net cash received	$	43,338
Net assets sold		(16,011	)
Other comprehensive income related to VSK		3,717
Gain before income taxes		31,044
Income taxes*		(12,015	)
Net gain †	$	19,029

*	- This income tax amount is not expected to be paid, as the gain from the sale of VSK was offset by existing net operating loss carryforwards. This $12,015 benefit will be reported as a reduction of the income tax provision for continuing operations.
†	- The Stock Purchase Agreement requires a total of $2,760 be held in escrow pending the resolution of certain contingencies. Such amounts have been excluded from the net pro forma gain calculation in the table above. If these contingencies are resolved in favor of the Company, the additional consideration received will serve to increase the Company’s gain on the sale of VSK.

The Allied Defense Group, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars)

(4)	To remove revenue and expenses of VSK for the six months ended June 30, 2007 and 2006, and the years ended December 31, 2006, 2005 and 2004.
(5)	To reverse the valuation allowance recorded against the deferred tax benefit related to $35,338 of net operating loss carryforwards previously determined to expire unused.

EX-99.1

Exhibit 99.1

The Allied Defense Group, Inc.

FOR IMMEDIATE RELEASE	For More Information, Contact:
September 18, 2007	Crystal B. Leiderman
	Director, Investor Relations 800-847-5322

THE ALLIED DEFENSE GROUP CLOSES SALE OF

THE VSK GROUP

VIENNA, Virginia, September 18, 2007 – The Allied Defense Group, Inc. (AMEX:ADG) announces it has closed the previously announced sale of its Belgium subsidiary, The VSK Group, to Xtralis Pty Ltd. Xtralis Pty Ltd is a global leader in security surveillance systems.

ADG received €33.6 million (approximately $46.6 million) at closing and another €2.0 million (approximately $2.8 million) has been deposited into escrow in accordance with the Stock Purchase Agreement, for a total of €35.6 million (approximately $49.4 million).

Major General (Ret) John J. Marcello, President and Chief Executive Officer of The Allied Defense Group said, “The close of this transaction marks a key strategic event for ADG. The proceeds from VSK’s sale will be available to reduce our debt with the balance added to working capital. ADG continues to restructure and recapitalize to maximize value for all of our shareholders.”

The Allied Defense Group, Inc. was advised by Houlihan Lokey in connection with the transaction.

About The Allied Defense Group, Inc.

The Allied Defense Group, Inc. is a diversified international defense and security firm which: develops and produces conventional ammunition marketed to defense departments worldwide; designs, produces and markets sophisticated electronic and microwave security systems principally for European and North American markets; manufactures battlefield effects simulators and other training devices for the military; and designs and produces state-of-the-art weather and navigation software, data, and systems for commercial and military customers.

For more information, please visit the Company web site:
www.allieddefensegroup.com

Certain statements contained herein are “forward looking” statements as such term is defined in the Private Securities Litigation Reform Act of 1995. Because statements include risks and uncertainties, actual results may differ materially from those expressed or implied and include, but are not limited to, those discussed in filings by the Company with the Securities and Exchange Commission.