The market condition as well as the limited investor awareness has stunted the rapid appreciation that we had anticipated by this time in the game! The game that we talk about continues to get better on all fields of interest- yet the share price remains depressed and grounded. In 2007, the completed a major turn-around reducing and re-issuing debt, sold off non-performing divisions, evaluating new business opportunities and strengthening the existing subs that provided ADG with the ingredients to grow and produce solid revenue and earnings growth for 2008 and beyond.


At present, ADG has the largest backlog in its history- that is $150 million funded and at least $80 million unfunded - and according to our continuing discussions with upper management, "more contracts are coming and all divisions are firing". Most of the business is generated from allies within the Middle East, new markets being developed with friendly nations within Central Asia and of course Mecar USA(ammunition service division operating in the USA), which has a backlog that is up 550% over 2007 and growing rapidly. The company just recently announced a joint venture with defense powerhouse Alliant Techsystems (ATK). Last month ADG announced a joint venture within the country of Jordan for ammunition manufacturing and assembly valued at 10s of millions and $5-10 million/yr thereafter for multiple years.

Concerning the electronic security division--the growth potential from that division is basically "blue sky". As governments realize that high security surrounding oil installations, power plants, military installations, government headquarters and public and private areas that attract large groups of people is needed to ensure safety, it is in our opinion that this division will mushroom into growth during the new few years for ADG. At present the "meat and potatoes" of ADG is the Mecar SA division located in Belgium, which is producing the majority of revenue and income resulting from the ammunition side of the business. We also believe that current unfunded contracts will become funded contracts before the end of Q2.

From our ongoing discussions with senior management, we are able to conclude with reasonable certainty that rev for 2008 will reach at least $140 million and net income/share of .75, based upon 8 million shares outstanding as of 2/28/2008 (this does not take into account shares that can be converted via bondholders). It is our belief that upon conversion an additional 2 million plus could be issued during the next couple of years. Based upon 10K results, the current book value is $5.70/share, cash/share equals $4.25 and a combined domestic and foreign "NOL" equals a juicy $16.37/share (shields from the Federal taxes for many years)!

At present, ADG sports an estimated PE of 8.3X 2008 earning estimate and also displays an equally attractive PSR of .35. The company will also receive an additional "kick" because of the currency conversion from euro to dollars. Another facet of this unknown gem is the fact that ADG is relatively recession proof for obvious reasons. The world is the way it is and companies like ADG are in business to protect us.

ADG has reduced debt, disposed on non-performing subs, became cash rich, opened up new markets and built new relationships, ample cash to meet current capital needs, record backlog of almost $250,000,000.00 and has the fundamentals of a super cheap investment which still allows us to call ADG our "stock pick of 2008." We rate Allied Defense Group with a Strong Buy recommendation and still believe by the end of 2008 that the share price should be double the current levels.



Disclosure:
We have not been paid by ADG for our opinion. We may buy, sell and or hold a position in ADG at our own discretion.

PS:
Very bullish toward aljj.pk- excellent press has the potential for .20-.25 net for 08-- stock price .35 awrcf.ob - own it and hold it! abg.to-- great press release concerning property in Kazahstan-13k boepd -very bullish

William Velmer