ALLIED DEFENSE GROUP INC

As of December 31, 2010, the Company provided for U.S. tax on foreign earnings of approximately $25,475 that are expected to be repatriated. As of June 30, 2013, approximately $13,757 had been successfully repatriated and the remaining amount will be repatriated upon the release of the escrow.

As of June 30, 2013 and December 31, 2012, the Company had no unrecognized tax benefits. No additional income tax is expected to be payable in repatriating the remaining amount. As of June 30, 2013, the fair value of net deferred tax assets is zero due to full valuation allowance. In early August 2013, the Company received a refund of $132 based on its 2012 US Income Tax Return. For the quarter ended June 30, 2013, there were no interest or penalties recorded.

In late 2012, the SEC advised that it will not pursue an enforcement action against the Company and in early August 2013, the DOJ advised that it has decided to close its inquiry into this matter.

Furthermore, under the Agreement, the Company has agreed to indemnify Chemring and certain of its related parties from any losses, fines or penalties arising out of, among other things, the completed contracts of Mecar and Mecar USA. We have escrowed $15 million of the cash consideration paid to the Company in the sale to secure our indemnification obligations under the Agreement. These escrowed funds will not be available to the Company for distribution to our stockholders, or otherwise, until released to the Company pursuant to the terms of the Agreement.

Net assets in liquidation at June 30, 2013 are $43.269 million compared to $43.256 million at December 31, 2012. The net assets in liquidation per share as of June 30, 2013 and December 31, 2012 are $5.25. The net assets per share as of June 30, 2013 increased to $5.25 as compared to $5.22 as of March 31, 2013.

The estimate of costs to be incurred in liquidation was decreased by $0.256 million in the second quarter of 2013, primarily as a result of a change in estimated taxes due. Prior to June 2013, the expected tax liability associated with the liquidation accounting was $0.350 million. Of this amount, $0.200 million was paid in 2011. The tax expense was recorded in 2010 and the remaining balance of $0.150 million was a component of estimated net costs to be incurred during liquidation. Due to the significant additional losses incurred in 2012, the Company is expecting a tax refund of $0.132 million with its 2012 US Income Tax Return, and reversed the accrual of $0.150 million, as the Company does not expect to have a future tax liability.