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September 2, 2005

Securities and Exchange Commission

Attn: Rufus Decker, Branch Chief

Washington, DC 20549-0510

    RE:

    The Allied Defense Group, Inc. — Form 10-K for the Year Ended December 31, 2004

Form 10-Q for the period ended March 31, 2005

File No. 1-11376

Dear Mr. Decker:

In response to the Commission’s letter dated August 16, 2005, The Allied Defense Group, Inc. (the
“Company”) is providing the following responses to the Commission’s request for additional
information regarding our Form 10-K filing for the year ended December 31, 2004 and our Form 10-Q
for the period ended March 31, 2005.

Enclosed are the Commission’s inquiries and the Company’s responses which have been numbered to
correspond to the paragraph numbers contained in the August 16, 2005 letter.

The Company also acknowledges that:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in its
filings;

    •

    Staff comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the filing; and

    •

    the Company may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United States.

You may contact me (703) 847-5268 should there be any further questions.

Sincerely,

Robert P. Dowski

Chief Financial Officer & Treasurer

    Comment Applicable To Your Overall Filing

    1.

    SEC Comment

    Where a comment below requests additional disclosures or other revisions to be made, please
show us in your supplemental response what the revisions will look like. These revisions
should be included in an amendment to your December 31, 2004 Form 10-K.

    Allied

We will include all additional disclosures and revisions in an amendment to our December 31,
2004 Form 10-K. Our additional disclosures and revisions will be set forth under the caption
“Revised Disclosure in Future Filings.” Any related explanations or comments will be set
forth under the caption “Allied.”

    Statement of Cash Flows, page F-11

    2.

    SEC Comment

    We have read your response to comment two from our letter dated July 18, 2005. Please amend
your Form 10-K for the year ended December 31, 2004 to reflect the changes in your cash flow
statement.

    Please include a note in the financial statements included in your amended filing that
discusses the restatement related to the changes in restricted cash and restricted deposits.
In the note please disclose cash flows from operating activities and cash flow from financial
activities as reported and as restated for each period with the reclassified items shown as
reconciling items. You should also disclose the line items in which each amount was
previously included and the line item in which each is now included. Please refer to
paragraphs 13, 36 & 37 of APB 20 for the correction of an error in previously issued financial
statements.

    Your amended Form 10-K should include a revised auditor’s report containing an explanatory
paragraph consistent with AU 420.12.

    Allied

We are in the process of preparing for filing our Form 10K/A for the year ended December 31,
2004 to reflect the changes in our cash flow statements relating to the changes in restricted
cash and restricted deposits. Our additional disclosures and revisions are outlined below.

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    Revised Disclosure in Future Filings

    Statement of Cash Flows

    2004

    2003

    2002

    Cash flows from operating activities

    Net earnings for the year

    $
    3,934

    $
    3,762

    $
    19,236

    Adjustments to reconcile net earnings to net

    Cash from (used in) continuing operating activities

    Depreciation and amortization

    4,551

    4,037

    3,322

    Unrealized losses (gains) on forward contracts

    2,073

    2,646

    (12,809
    )

    Gain on sale of fixed assets

    (44
    )

    (18
    )

    —

    Deferred income taxes

    (856
    )

    2,156

    5,682

    Provision for estimated losses on contracts

    661

    255

    282

    Amortization of debt issue costs and conversion feature

    179

    243

    —

    Common stock awards

    106

    111

    651

    Changes in assets and liabilities

    Restricted cash and restricted deposits

    6,893

    (5,807
    )

    (775
    )

    Accounts receivable

    (10,246
    )

    2,305

    (2,572
    )

    Cost and accrued earnings on uncompleted contracts

    25,635

    (830
    )

    (29,570
    )

    Inventories

    (3,089
    )

    (1,392
    )

    (3,309
    )

    Prepaid expenses and other assets

    274

    (1,609
    )

    532

    Accounts payable and accrued liabilities

    (22,442
    )

    21,488

    18,801

    Customer deposits

    3,100

    (928
    )

    993

    Deferred compensation

    521

    672

    300

    Income taxes

    (370
    )

    (2,188
    )

    455

    6,946

    21,141

    (18,017
    )

    Net cash provided by operating activities

    10,880

    24,903

    1,219

    Cash flows from (used in) financing activities

    Restricted cash and restricted deposits

    (2,000
    )

    —

    —

    Note A – Restatement

Allied has amended its Consolidated Statements of Cash Flow to reclassify a portion of the
changes in restricted cash (related to MECAR’s performance guarantees and other operating
activities) to cash from operating activities. The table below shows the impact of the
restatement.

    As previously

    Year Ended December 31, 2004

    As restated

    Adjustment

    reported

    Cash flows from operating activities

    Restricted cash and restricted deposits

    6,893

    6,893

    —

    Cash flows used in financing activities

    Restricted cash and restricted deposits

    (2,000
    )

    (6,893
    )

    4,893

    Net Impact on Cash

    4,893

    —

    4,893

    As previously

    Year Ended December 31, 2003

    As restated

    Adjustment

    reported

    Cash flows from operating activities

    Restricted cash and restricted deposits

    (5,807
    )

    (5,807
    )

    —

    Cash flows from financing activities

    Restricted cash and restricted deposits

    —

    5,807

    (5,807
    )

    Net Impact on Cash

    (5,807
    )

    —

    (5,807
    )

    As previously

    Year Ended December 31, 2002

    As restated

    Adjustment

    reported

    Cash flows from operating activities

    Restricted cash and restricted deposits

    (775
    )

    (775
    )

    —

    Cash flows from financing activities

    Restricted cash and restricted deposits

    —

    775

    (775
    )

    Net Impact on Cash

    (775
    )

    —

    (775
    )

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    Note H – Goodwill, page F-23

    3.

    SEC Comment

    We have read your response to comment three from our letter dated July 18, 2005. It is our
understanding that you have not obtained patent protection for your technology and that you
expect to be the only provider this technology. Please clarify whether this is accurate. If
so, please tell us whether you have considered the possibility of competitors entering the
market during the period covered by your projection, thereby affecting your current cash flow
projections. If applicable, please provide us with additional information to help us
understand why you believe the significant return you anticipate on your research and
development investment will not induce competitors to enter the market

    Allied

We are seeking patent protection for our internally-developed AXYOM technology. A
Provisional Patent Application (# 60/622,676) was prepared and filed on October 28, 2004. The
full application will be filed before the October 27, 2005 deadline. It is highly unlikely a
competitor will be able to duplicate, or quickly circumvent, our approach because it would
require a lengthy new design effort, including substantial development/testing time and
capital expenditures. Nonetheless, our revenue projections were discounted for that
possibility or the possibility that a new technical breakthrough might occur at a competitor,
permitting them to provide the same antenna functions in a new, higher performance/lower cost
way.

    The externally-developed technology that we recently acquired consists of the complete designs
for three antenna systems and full associated documentation. That IP was purchased on an
exclusive basis and will not be available to others. But, because those designs have been in
the public domain it is unlikely they can be patent protected.

    We have not taken the position that competitors won’t be enticed to enter the market.
In fact, we have discounted our revenue projections to compensate for such realities where
appropriate.

    4.

    SEC Comment

    We note the significant revenue growth assumptions used in your forecast came from the
business unit. Please note that paragraph 24 of SFAS 142 requires that your cash flow
estimate incorporate assumptions that marketplace participants would use in their estimates.
Please tell us, in detail, the assumption underlying the volume and price figures used in
sheet labeled FINSALDET. Please address the effect of competitive pressure on pricing over
time. For each assumption, please provide discussion to help us understand why it would be
assumed by a marketplace participant.

    Allied

    The sheet labeled FINSALDET breaks out volume and unit pricing by year by product. For each
product line – designated X, Polar L, LRIT and GEOL we have made specific assumptions – based
on our knowledge of the marketplace segments — about price and volume activity.

    Pricing – Price assumptions are specific to each product line. In some cases  — X
band — we expect there to be significant downward pressure on out year pricing. X band is the
latest technology and least mature market segment. Prices have declined over the past 24-36
months from an initial system price of $0.75 to $1.0M to the current levels in the $0.3M
range. We expect further price erosion as outlined in the table – though we expect the price
reductions to plateau and diminish in velocity. This is based on expected competitive forces
and market penetration dynamics. In other

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    product lines (Polar, LRIT, GEO) we expect prices to remain fairly flat in 2005 dollars.
These are more mature markets using older S and L band technology. New feature and
functionality is being added each year for these systems which we believe will help stabilize
pricing. Competitive pricing pressure is low since these are mature products for all
producers and new entrants in these frequencies will be less likely. While there is always a
threat of predatory pricing or other market anomalies – we feel the price assumptions we have
made relative to the pricing projections are reasonable based on past and projected future
market trend and projected competitive behavior. Service revenue is expected to escalate
based on the higher overall volumes – even though it is expressed in the table as “1” unit of
service with an escalating “price”. An alternative presentation would be to show cumulative
volumes and a unit price per unit of volume.

    Volumes: Overall volumes estimates are based on an internal assessment of volumes for
each type of product/market segment – taking into account the advantages of our technology,
segment specific penetration dynamics, possible competitive pressure, pricing assumptions and
overall market trends. Volume forecasts were estimated at the business unit level and those
estimates were reduced significantly for the final analysis – especially in the out years.
Out year growth in the L and S band segments is being driven by projected 2nd and
3rd world market expansion and by upgrades/replacements from existing users that
want to stay within their existing frequency band. X band continues to experience market
growth in primary markets by new adopters and traditional users who want to leverage its new
capabilities.

    Price and volume forecasting is not exact science. Even forecasts for the next 12-18 months
can be difficult and subject to variances. Overall we think this is a strong and growing
market and that our projections are conservative. ADG has looked at all the product,
marketplace and macro factors it can reasonably estimate to come up with these projections. We
believe they are in line with other marketplace participants with similar product
capabilities. They are also the basis for own investments in R&D, facilities and
sales/marketing resources.

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