ALLIED MOTION TECHNOLOGIES INC
Business
Risk Factors
Properties
Legal Proceedings    PART II.
Market for Registrant's Common Equity and Related Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data         Report of Independent Registered Public Accounting Firm
Controls and Procedures    PART III.
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services    PART IV.
Exhibits and Financial Statement Schedules         Signatures         Financial Statement Schedule                     All statements contained herein that are not statements of historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word "believe," "anticipate," "expect," "project," "intend," "will continue," "will likely result," "should" or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results of the Company to differ materially from the forward-looking statements. The risks and uncertainties include international, national and local general business and economic conditions in the Company's motion markets, introduction of new technologies, products and competitors, the ability to protect the Company's intellectual property, the ability of the Company to sustain, manage or forecast its growth and product acceptance, success of new corporation strategies and implementation of defined critical issues designed for growth and improvement in profits, the continued success of the Company's customers to allow the Company to realize revenues from its order backlog and to support the Company's expected delivery schedules, the continued viability of the Company's customers and their ability to adapt to changing technology and product demand, the ability of the Company to meet the technical specifications of its customers, the continued availability of parts and components, increased competition and changes in competitor responses to the Company's products and services, changes in government regulations, availability of financing, the ability of the Company's lenders and financial institutions to provide additional funds if needed for operations or for making future acquisitions or the ability of the Company to obtain alternate financing if present sources of financing are terminated, the ability to attract and retain qualified personnel who can design new applications and products for the motion industry, the ability of the Company to identify and consummate favorable acquisitions to support external growth and new technology, the ability of the Company to establish Chinese manufacturing and component sourcing capabilities, and the ability of the Company to control costs for the purpose of improving profitability. The Company's ability to compete in this market depends upon its capacity to anticipate the need for new products, and to continue to design and market those products to meet customers' needs in a competitive world. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.         New risk factors emerge from time to time 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 its 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. The Company's expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.     PART I          Item 1. Business.              Allied Motion Technologies Inc. (Allied Motion or the Company) was organized under the laws of Colorado in 1962. Allied Motion utilizes its underlying core "Electromagnetic Motion Technology/Know How" to provide compact, high performance products as solutions to a variety of motion applications. The Company is engaged in the business of designing, manufacturing and selling motor and servo motion products to three primary segments, defined as 1) Commercial, 2) Industrial and 3) Aerospace/Defense. On a smaller scale, another segment includes motion control system providers including motor, control and system solution providers as customers for our optical encoder devices. The Company now operates primarily in the United States and Europe.          Commericial Markets include medical mobility, health and fitness, truck, bus, construction and marine vehicles;and commercial grade equipment/tools, Motors, Gearmotors and Blower Assemblies  2       are the primary products sold by Allied into this segment. Industrial Markets include medical equipment and devices, semiconductor equipment, packaging and sorting equipment and printing/imaging equipment; primary products sold to the Industrial Markets include DC and BLDC motor, servo systems and embedded electronic solutions. Aerospace/Defense Customers are the Prime and Sub-Contractors for the Aviation and Defense Markets. All technologies within the company are sold to this segment with a primary emphasis placed on our high resolution feedback and high performance/compact motor solutions.          Examples of the end products using Allied Motion's technology include HVAC and various actuation systems such as RV slide outs, truck tarp roll-out and lift devices for trucks, buses and off-road vehicles, anti-lock brake, fuel cell and LPG pump applications for the specialty automotive market, wheel chairs, professional patient rehab equipment, MRI scanners, diagnostic equipment, portable medical dosage pumps and surgical hand tools in the healthcare and medical market, high definition printers, tunable lasers, and spectrum analyzers for the fiber optic industry processing equipment for the semiconductor industry, commercial grade floor cleaners, polishers and material handling devices for factories and commercial buildings, arc-welders and cable pullers in the construction and repair and maintenance markets and missile/munitions control systems for the military.          Allied Motion is organized into five subsidiaries: Emoteq Corporation (Emoteq—Tulsa, OK), Computer Optical Products, Inc. (COPI—Chatsworth, CA), Motor Products Corporation (Motor Products—Owosso, MI), Stature Electric, Inc. (Stature—Watertown, NY) and Precision Motor Technology B.V. (Premotec—Dordrecht, The Netherlands).          Emoteq designs, manufactures and markets direct current brushless motors, related components, and drive and control electronics as well as a family of static frequency converters for military and aerospace applications and has extensive experience in power electronics design and software development required for the application of specialized drive electronics technology. Markets served include semiconductor manufacturing, industrial automation, medical equipment, and military and aerospace. Emoteq also manufactures precision direct current fractional horsepower motors and certain motor components and spare parts and replacement equipment for general-purpose instrumentation products. Industrial equipment and military products are the major application for the motors.          COPI manufactures optical encoders. They are used to measure rotational and linear movements of parts in diverse applications such as printers, sorting machinery, machine tools, robots, medical equipment, tunable lasers and spectrum analyzers. The primary markets for the optical encoders are in the industrial, computer peripheral manufacturing, medical and telecommunications sectors. COPI also designs, manufactures and markets fiber optic-based encoders with special characteristics, such as immunity to radio frequency interference and high temperature tolerance, suited for industrial, aerospace and military environments. Applications include airborne navigational systems, anti-lock braking transducers, missile flight surface controls and high temperature process control equipment.          Motor Products has been a motor producer for more than sixty years and is a vertically integrated manufacturer of customized, highly engineered sub-fractional horsepower permanent magnet DC and brushless DC motors serving a wide range of original equipment applications. The motors are used in HVAC and actuation systems in a variety of markets including trucks, buses, RV's, off-road vehicles, health, fitness, medical and industrial equipment.          Stature Electric manufactures fractional and integral horsepower motors, gear motors, and motor part sets. Stature's component products are sold throughout North America and in Europe, primarily to original equipment manufacturers (OEM'S) that use them in their end products. Stature Electric excels at engineering, designing, packaging and applying integrated gearing and motor solutions for the commercial and industrial equipment, healthcare, recreation and non-automotive transportation markets.  3               Premotec has been manufacturing small precision electric motors for more than thirty years which utilize four different motor technologies: Brushless DC, Coreless DC, Iron Core DC, and Permanent Magnet Stepper and Synchronous motors, and also offers a range of reduction gearboxes tailored to a number of these motors. The products are manufactured at Premotec's facility in The Netherlands and at a contract manufacturing facility in Eastern Europe. Premotec's products are sold to OEM customers in Europe and the United States and through distributors to smaller OEM's in almost all countries of the European Economic Community. The products are used in a wide variety of industrial, professional and medical applications, such as fuel injection systems, bar code readers, laser scanning equipment, HVAC actuators, dialysis equipment, industrial ink jet printers, waste water treatment, cash dispensers, dosing systems for the pharmaceutical industry, textile manufacturing, document handling equipment and studio television cameras.    Fiscal Year End Change            The Company changed its fiscal year end from June 30 to December 31 effective December 31, 2002; therefore, the Company reported a six-month transition period ending December 31, 2002. The following table describes the periods presented in this Form 10-K.     Period:    Referred to as:   Audited results from January 1, 2005 through December 31, 2005   Year 2005   Audited results from January 1, 2004 through December 31, 2004   Year 2004   Audited results from January 1, 2003 through December 31, 2003   Year 2003   Audited results from July 1, 2002 through December 31, 2002   Transition Period   Unaudited results from July 1, 2001 through December 31, 2001   Six Month Comparative Period   Audited results from July 1, 2001 through June 30, 2002   Fiscal Year 2002   Audited results from July 1, 2000 through June 30, 2001   Fiscal Year 2001      Product Distribution            The Company maintains a direct sales force. In addition to its own marketing and sales force, the Company has independent sales representatives, agents and distributors to sell its various product lines in certain markets.    Competition            The Company faces competition in all of its markets, although the number of competitors varies depending upon the product. The Company believes there are numerous competitors in the motion control market. Competition involves primarily product performance and price, although service and warranty are also important.    Financial Information about Operating Segments            The information required by this item is set forth in Note 12 of the Notes to Consolidated Financial Statements contained herein.    Availability of Raw Materials            All parts and materials used by the Company are in adequate supply. No significant parts or materials are acquired from a single source or for which an alternate source is not also available.    Patents, Trademarks, Licenses, Franchises and Concessions            The Company holds several patents and trademarks regarding components used by the various subsidiaries; however, none of these patents and trademarks are considered to be of major significance.  4        Seasonality of the Business            The Company's business is not of a seasonal nature; however, revenues may be influenced by customers' fiscal year ends and holiday seasons.    Working Capital Items            The Company currently maintains inventory levels adequate for its short-term needs based upon present levels of production. The Company considers the component parts of its different product lines to be readily available and current suppliers to be reliable and capable of satisfying anticipated needs.    Sales to Large Customers            During years 2005, 2004 and 2003, no single customer accounted for more than 10% of total revenues.    Sales Backlog            The Company's backlog at December 31, 2005 consisted of sales orders totaling approximately $25,200,000 while backlog at December 31, 2004 was $21,500,000. In our commercial motors markets, the Company continues to experience an increased number of customers requesting shipments on a "pull system" whereby the Company agrees to maintain available inventory that the customer "pulls" or takes delivery as they need the products. At the time the customer pulls the product, the Company records the order and sale. There can be no assurance that the Company's backlog will be converted into revenue.    Government Sales            Approximately $325,000 of the Company's backlog as of December 31, 2005 consisted of contracts with the United States Government compared to $918,000 in 2004. The Company's contracts with the government contain a provision generally found in government contracts that permits the government to terminate the contract at its option. When the termination is attributable to no fault of the Company, the government would, in general, have to pay the Company certain allowable costs up to the time of termination, but there is no compensation for loss of profits.    Engineering and Development Activities            The Company's expenditures on engineering and development for the years ended December 31, 2005, 2004 and 2003 were $3,526,000, $2,896,000 and $1,853,000, respectively. Of these expenditures, no material amounts were charged directly to customers.    Environmental Issues            No significant pollution or other types of hazardous emission result from the Company's operations and it is not anticipated that the Company's operations will be materially affected by Federal, State or local provisions concerning environmental controls. However, there can be no assurance that any future regulations will not affect the Company's operations.    Foreign Operations            The information required by this item is set forth in Note 12 of the Notes to Consolidated Financial Statements contained herein.  5        Employees            At December 31, 2005 the Company had approximately 515 full-time employees.    Available Information            The Company maintains a website at www.alliedmotion.com. The Company makes available, free of charge on or through its website, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after it electronically files or furnishes such materials to the SEC.          The Company has adopted a Code of Ethics for its chief executive officer, president and senior financial officers regarding their obligations in the conduct of Company affairs. The Company has also adopted a Code of Business Conduct that is applicable to all directors, officers and employees. The Codes are available on the Company's website. The Company intends to disclose on its website any amendment to, or waiver of, the Codes that would otherwise be required to be disclosed under the rules of the SEC and the Nasdaq Capital Market. A copy of both Codes are also available in print to any stockholder upon written request addressed to Allied Motion Technologies Inc., 23 Inverness Way East, Suite 150, Englewood, CO 80112-5711, Attention: Secretary.      Item 1A. Risk Factors.              In addition to the other information contained or incorporated by reference in this document, readers should carefully consider the following risk factors. Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's financial condition and the performance of its business. The Company refers to itself as "we" or "our" in the following risk factors.  Our operating results could fluctuate significantly.         Our quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including:    •the timing of customer orders and the deferral or cancellation of orders previously received; •the level of orders received which can be shipped in a quarter; •fulfilling backlog on a timely basis; •competitive pressures on selling prices; •changes in the mix of products sold; •the timing of investments in engineering and development; •development of and response to new technologies; and •delays in new product qualifications.           As a result of the foregoing and other factors, we have and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price.  Our operating results depend in part on our ability to contain or reduce costs.         Our efforts to maintain and improve profitability depend in part on our ability to reduce the costs of materials, components, supplies and labor, including establishing production capabilities at our Chinese subcontractor. While the failure of any single cost containment effort by itself would most  6       likely not significantly impact our results, we cannot give any assurances that we will be successful in implementing cost reductions and maintaining a competitive cost structure.  There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure.         There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure. We may have to reduce prices in the future to remain competitive. Also, our future profitability will depend in part upon our ability to continue to improve our manufacturing efficiencies and maintain a cost structure that will enable us to offer competitive prices. Our inability to maintain a competitive cost structure could have a material adverse effect on our business, financial condition and results of operations.  Our profits may decline if the price of raw materials continues to rise and we cannot recover the increases from our customers.         We use various raw materials, such as copper, steel and zinc, in our manufacturing operations. The prices of these raw materials have been subject to volatility. As a result of price increases, in 2005 we implemented price surcharges to our customers; however we may be unable to collect surcharges without suffering reductions in unit volume, revenue and operating income. There can be no assurance that we will be able to fully recover the price increases through surcharges in a timely manner.  We may explore additional acquisitions that complement, enhance or expand our business. We may not be able to complete these transactions, and, if completed, we may experience operational and financial risks in connection with our acquisitions that may materially adversely affect our business, financial condition and operating results.         Our future growth may be a function, in part, of acquisitions. We may have difficulty finding these opportunities, or if we do identify these opportunities, we may not be able to complete the transactions for reasons including a failure to secure financing.          To the extent that we are able to complete the transactions, we will face the operational and financial risks commonly encountered with this type of a strategy. These risks include the challenge of integrating acquired businesses while managing the ongoing operations of each business, the challenge of combining the business cultures of each company, and the need to retain key personnel of our existing business and the acquired business. The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the acquired business and our existing business. Members of our senior management may be required to devote considerable amounts of time to the integration process, which will decrease the time they will have to manage our businesses, service existing customers, attract new customers and develop new products. If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could be adversely affected.  We have existing debt and refinancing risks that could affect our cost of operations.         We have both fixed and variable rate indebtedness and may incur indebtedness in the future, including borrowings under our existing or new credit facilities, to finance possible acquisitions and for general corporate purposes. As a result, we are and expect to be subject to risks normally associated with debt financing including:    •that interest rates may rise; •that our cash flow will be insufficient to make required payments of principal and interest; •that any default on our debt could result in acceleration of those obligations;   7          •that we may be unable to refinance or repay the debt as it becomes due; and •that any refinancing will not be on terms as favorable as those of the existing debt.   The following factors could affect our ability to obtain additional financing on favorable terms, or at all:   •our results of operations; •our ratio of debt to equity; •our financial condition; •our business prospects; •changes in interest rates; •general economic conditions and conditions in our industry; and •the perception in the capital markets of our business.           In addition, certain covenants relating to our existing indebtedness impose certain limitations on additional indebtedness. If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures and other expenses. Any such actions could have a material adverse effect on our business, financial condition, results of operations and liquidity.  We may not be able to obtain the capital we need to maintain or grow our business.         Our ability to execute our long-term strategy may depend to a significant degree on our ability to obtain new long-term debt and equity capital. We have no commitments for additional borrowings, other than our existing credit facilities, or for sales of equity. We may be unable to obtain future additional financing on terms acceptable to us, or at all. If we fail to comply with certain covenants relating to our indebtedness, we may need to refinance our indebtedness to repay it. We also may need to refinance our indebtedness at maturity. We may not be able to obtain additional capital on favorable terms to refinance our indebtedness.  The market price of our common stock has been and is likely to continue to be volatile, which may make it difficult for shareholders to resell common stock when they want to and at prices they find attractive.         Our common stock has been and is likely to be highly volatile and there has been limited trading volume in the stock. The volatility could affect our stock irrespective of, or disproportionately to, the operating performance of our company. The fluctuations and limited trading volume may materially adversely affect the market price of our stock and the ability to sell the stock. Most of our outstanding shares are available for resale in the public market without restriction. The sale of a large number of shares could adversely affect the share price.  We are dependent on our key personnel.         We are dependent upon the continued contributions of our senior corporate management, particularly Richard Smith, chief executive officer and chief financial officer, Richard Warzala, president and chief operating officer, and certain other key employees of Allied Motion for our future success. If Mr. Smith, Mr. Warzala or other key employees no longer serve in their positions at Allied Motion, our business, as well as the market price of our common stock, could be substantially adversely affected. We cannot assure you that we will be able to retain the services of Mr. Smith or Mr. Warzala or any other members of our senior management or key employees.  8       Our future success depends in part on the continued service of our engineering and technical personnel and our ability to identify, hire and retain personnel.         There is continued competition for qualified personnel in our markets. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development and growth of our business or to replace personnel who may leave our employ in the future. The failure to retain and recruit key technical personnel could cause additional expense, potentially reduce the efficiency of our operations and could harm our business.  We could incur substantial costs under environmental laws.         Our operations are subject to laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits.  We have pension plan and post-retirement obligations covering some of our domestic employees which could reduce cash flow and negatively impact financial condition.         Our pension plan has a projected benefit obligation in excess of the fair value of plan assets. Our pension plan assets consist primarily of equity and fixed income securities. If the performance of investments in the plan does not meet the Company's assumptions, the excess obligation may increase and the Company may have to record additional costs and/or contribute additional funds to the pension plan. An increase in pension expenses and contributions could decrease the Company's cash available to pay its outstanding obligations and its net income.          Our retiree medical plans are unfunded. We record costs as employees render the services necessary to earn the benefits. The costs are based on estimates including health care cost increases, retirement and mortality. Actual results may vary materially from estimates which could result in an increase to our expense and decrease in net income.  We have a significant amount of goodwill recorded and an impairment writedown would result in lower net income and a reduction in net worth.         Under accounting standards adopted in 2002, we are not required or allowed to amortize the goodwill reflected on our balance sheet. We are required to evaluate goodwill at least annually to determine if there has been an impairment in the value of such goodwill. If we determine that the goodwill is impaired, we would be required to writedown a portion or all of the goodwill which would reduce net income in the period of any writedown.  Anti-takeover provisions in our corporate documents may discourage or prevent a takeover, even if the change of control would be beneficial to shareholders.         Provisions in our articles of incorporation and our by-laws may have the effect of delaying or preventing an acquisition or merger in which we are acquired or a transaction that changes our board of directors. These provisions:    •authorize the board to issue preferred stock without shareholder approval; •prohibit cumulative voting in the election of directors;   9          •limit the persons who may call special meetings of shareholders; •establish advance notice requirements for nominations for the election of directors or for proposing matters that can be acted on by shareholders at shareholder meetings; and •require that, in a vote to approve an acquisition or merger in which the Company is acquired or a transaction that changes the board of directors, the affirmative vote of the holders of two-thirds of the Company's outstanding shares is required, unless the transaction is approved by at least two-thirds of the continuing directors, in which event the provisions require that the affirmative vote of a majority of the holders of the Company's outstanding shares is required.   If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.         We believe that effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. If we are unable to detect or correct any issues in the design or operating effectiveness of internal controls over financial reporting or fail to prevent fraud, current and potential customers and shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock.      Item 2. Properties.              As of December 31, 2005, the Company occupies facilities as follows:     Description / Use    Location   Approximate Square Footage   Owned Or Leased   Corporate headquarters   Englewood, Colorado   3,000   Leased   Office and manufacturing facility   Chatsworth, California   8,500   Leased   Office and manufacturing facility   Tulsa, Oklahoma   25,000   Leased   Office and manufacturing facility   Dordrecht, The Netherlands   36,000   Leased   Office and manufacturing facility   Owosso, Michigan   85,000   Owned   Office and manufacturing facility   Watertown, New York   112,000   Owned            The Company's management believes the above-described facilities are adequate to meet the Company's current and foreseeable needs. All facilities described above are operating at less than full capacity.      Item 3. Legal Proceedings.              The Company is involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant adverse affect on the Company's consolidated financial position or results of operations.      PART II          Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.              Allied Motion's common stock is traded on the Nasdaq Capital Market System and trades under the symbol AMOT. The number of holders of record as reported by the Company's transfer agent of the Company's common stock as of the close of business on March 20, 2006 was 669. The Company did not pay or declare any dividends during years 2005 and 2004 and the Company's long-term financing agreement prohibits the Company from doing so without prior approval.  10               The following table sets forth, for the periods indicated, the high and low prices of the Company's common stock on the Nasdaq Capital Market System, as reported by Nasdaq.         Price Range       High   Low   Year ended december 31, 2005               First Quarter   $ 8.90   $ 6.66   Second Quarter     7.62     3.65   Third Quarter     4.73     3.82   Fourth Quarter     4.50     3.36   Year ended december 31, 2004               First Quarter   $ 6.22   $ 3.56   Second Quarter     5.89     3.86   Third Quarter     6.96     4.75   Fourth Quarter     7.29     5.00    Equity Compensation Plan Information           The following table shows the equity compensation plan information of the Company at December 31, 2005.     Plan category    Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))   Equity compensation plans approved by security holders   1,448,650   $ 3.62   104,107    Stock Repurchase Program Information           Under an employee stock repurchase program first approved by the Board of Directors in fiscal year 1994, the Company may repurchase its common stock from its employees at the current market value. The Company's Agreement with its lenders limits employee stock repurchases to $125,000 per fiscal year. The plan was discontinued effective December 31, 2005.          The following table shows the purchases of stock under this program during the fourth quarter of 2005.     Period    Total Number of Shares Purchased   Average Price Paid per Share   Total Number of Shares Purchased as Part of Publicly Announced Programs   Oct. 1 - Oct. 31, 2005   466   $ 3.87   466   Nov. 1 - Nov. 30, 2005   185   $ 3.50   185   Dec. 1 - Dec. 31, 2005   —     —   —                   Total   651   $ 3.77   651                        Item 6. Selected Financial Data.              The following tables summarize data from the Company's financial statements for the fiscal years 2001 through 2005 and the Transition and Comparative Periods and notes thereto; the Company's complete annual financial statements and notes thereto for the current fiscal year appear in Item 8  11       herein. See Management's Discussion and Analysis of Financial Condition and Results of Operation for discussion of non-recurring items that affect the comparability of results between periods.         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003       In thousands (except per share data)    Statements of Operations Data:                     Revenues from continuing operations   $ 74,302   $ 62,738   $ 39,434                Net income   $ 923   $ 2,250   $ 948                 Diluted income per share from continuing operations   $  ..13   $  ..36   $  0.19                        For the Six Month Transition Period ended December 31, 2002   For the Six Month Comparative Period ended December 31, 2001         In thousands (except per share data)      Statements of Operations Data:                 Revenues from continuing operations   $ 17,191   $ 7,868                 Income from continuing operations   $ 45   $ 60     Operating (loss) from discontinued operations     (736 )   (223 )   Gain on sale of power and process business, net of income taxes     1,019     —                 Net income (loss)   $ 328   $ (163 )               Diluted income per share from continuing operations   $ 0.01   $ 0.01                           For the fiscal years ended June 30,         2002   2001         In thousands (except per share data)      Statements of Operations Data:                 Revenues from continuing operations   $ 15,723   $ 21,188                 Income (loss) from continuing operations   $ (45 ) $ 2,024     Operating (loss) from discontinued operations     (221 )   (28 )               Net income (loss)   $ (266 ) $ 1,996                 Diluted income (loss) per share from continuing operations   $ (0.01 ) $ 0.42                           At December 31, 2005    At December 31, 2004    At December 31, 2003    At December 31, 2002   Balance Sheet Data:                           Total assets   $ 53,337   $ 54,820   $ 27,497   $ 28,348   Total current and long-term debt   $ 12,081   $ 14,407   $ 2,312   $ 4,133             At June 30,       2002   2001   Balance Sheet Data:               Total assets   $ 22,629   $ 20,203   Total current and long-term debt   $ —   $ 553    12             Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.      Overview           Allied Motion designs, manufactures and sells motion products to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, and aerospace and defense markets. The Company's products are used in demanding applications in medical equipment, HVAC systems for trucks, busses and off-road vehicles, the specialty automotive market, industrial automation, pumps, health-fitness, defense, aerospace, semiconductor manufacturing, fiber optic-based telecommunications, printing, and graphic imaging market sectors, to name a few.          Today, five companies form the core of Allied Motion. The companies, Emoteq, Computer Optical Products, Motor Products, Stature Electric and Premotec offer a wide range of standard motors, encoders and drives for original equipment manufacturers (OEM) and end user applications. A particular strength of each company is its ability to design and manufacture custom motion control solutions to meet the needs of its customers.          The Company has made considerable progress in implementing its new corporate strategy, the driving force of which is "Applied Motion Technology/Know How". The Company's commitment to Allied's Systematic Tools, or AST for short, is driving continuous improvement in quality, delivery, cost and growth. AST utilizes a tool kit to effect desired changes through well defined processes such as Strategy Deployment, Target Marketing, Value Stream Mapping, Material Planning, Standard Work and Single Minute Exchange of Dies.          One of the Company's major challenges is to maintain and improve price competitiveness. The Company's customers are continually being challenged by their markets and competitors to be price competitive and they are requiring their suppliers to deliver the highest quality product at the lowest price possible. In 2004, the Company began production of motor sub-assemblies at a sub-contract manufacturing facility in China. During 2005, the Company made significant progress in establishing production of finished products in China, however was delayed in putting into production the programs that we expect will generate a significant profit swing for some of our projects. We anticipate that we will be able to complete these programs in 2006.          The Company's products contain certain metals, and the Company has been experiencing increases in the costs of these metals, particularly copper, steel and zinc, which are both key materials in our products. The Company has reacted by aggressively sourcing material at lower cost from Asian markets, combining the sourcing of metals to benefit from volume purchasing and by passing on surcharges to our customers.          The Company has an aggressive motor development plan for five new standalone products and two new product lines that leverage the combined technology base of the Allied Motion companies. The Company continues to focus on new product designs that design-out cost, provide higher performance and meet the needs of our served markets. Early in 2006, the Company announced several new motor designs targeted at various markets. Each of these motors are targeted at precision motor applications. It normally takes twelve months to get new products designed into new customer applications. All product development efforts are focused on adding value for our customers in our served market segments.          Management believes the strategy we have developed for the Company will accomplish our long term goals of increasing shareholder value through the continued strengthening of the foundation necessary to achieve growth in sales and profitability.  13       Operating Results   Year 2005 compared to 2004          For the year ended December 31,                 Increase (decrease)     (in thousands)        2005   2004   $   %     Revenues   $ 74,302   $ 62,738   $ 11,564   18 %   Cost of products sold (exclusive of amortization of acquired product designs and technologies intangibles)     58,118     46,280     11,838   26 %                     Gross margin     16,184     16,458     (274 ) (0 )%                     Gross margin percentage     22 %   26 %   —   —                        Operating costs and expenses:                                 Selling     3,265     2,557     708   28 %     General and administrative     5,952     6,226     (274 ) (4 )%     Engineering and development     3,526     2,896     630   22 %     Amortization of intangible assets     1,010     647     363   56 %     Restructuring charges     —     10     (10 ) (100 )%                     Total operating costs and expenses     13,753     12,336     1,417   11 %                     Operating income     2,431     4,122     (1,691 ) (41 )%    Other income (expense), net:                                 Interest expense     (1,075 )   (696 )   379   55 %     Other (expense) income, net     125     (17 )   (142 ) (835 )%                     Total other (expense) income, net     (950 )   (713 )   237   33 %                     Income before income taxes     1,481     3,409     (1,928 ) (57 )%   Provision for income taxes     558     1,159     (601 ) (52 )%                     Net income   $ 923   $ 2,250   $ (1,327 ) (59 )%                              NET INCOME—The Company achieved net income of $923,000 or $.13 per diluted share for 2005 compared to $2,250,000 or $.36 per diluted share for 2004. Included in net income are results related to Stature Electric and Premotec from the dates of acquisition on May 10, 2004 and August 23, 2004, respectively. Results for both are included for all of 2005.          EBITDA—EBITDA was $5,800,000 for 2005 compared to $6,400,000 for 2004. EBITDA is a non-GAAP measurement that consists of income before interest expense, provision for income taxes and depreciation and amortization. See information included in "Non-GAAP Measures" below for a reconciliation of net income to EBITDA.          REVENUES—Revenues were $74,302,000 in 2005 compared to $62,738,000 in 2004 or a 18% increase. The incremental revenues achieved by the companies acquired in 2004 increased revenues by 25% which were partially offset by a decrease in revenues from existing businesses of 7%. On a proforma basis, sales from Premotec and Stature increased 8% and consolidated sales decreased 2%. The decrease in existing business is primarily due to revenues related to certain projects last year that were not repeated this year, primarily in the Aerospace/Defense and Electronics markets and changes in customer buying patterns.          GROSS MARGINS—Gross margin as a percentage of revenues was 22% for 2005 and 26% for 2004. The decrease is due to a change in sales mix (significant drop in sales of our higher margin business partially offset by increased sales of lower margin business), the weighting of the lower margins of the acquired businesses, additional costs incurred to set up low cost manufacturing  14       capability in China and the negative impact of the upward trend in the cost of purchased metal. The Company has proactively responded to the increased metal costs by aggressively sourcing materials from Asian markets, by combining the sourcing of metals for its various manufacturing operations to benefit from volume purchasing and by passing surcharges to its customers. The Company anticipates gross margins will improve company wide as we continue to improve manufacturing efficiencies through the implementation of lean manufacturing, by increasing offshore sourcing of materials and from continued cost reduction efforts to reduce overhead costs and expenses. We also anticipate that we will start realizing improved margins from products manufactured in our low cost manufacturing facilities in 2006. Cost of products sold excludes $324,000 and $170,000 for amortization of acquired designs and technologies for 2005 and 2004, respectively.          SELLING EXPENSES—Selling expenses were $3,265,000 and $2,557,000 in 2005 and 2004, respectively. Of this 28% increase, selling expenses from existing businesses decreased 3% and incremental expenses from Stature and Premotec contributed 31% of this increase. The decrease in selling expense from existing businesses is due to cost reduction efforts and recruiting expenses incurred in 2004 that did not repeat in 2005.          GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses were $5,952,000 in 2005 compared to $6,226,000 in 2004 or a decrease of 4%. Of the 4% decrease, 14% was attributed to a decrease in incentive bonus expense and 4% was attributed to a decrease from cost reduction efforts in existing businesses offset by a 14% increase from the impact of acquiring Stature and Premotec.          ENGINEERING AND DEVELOPMENT EXPENSES—Engineering and development expenses were $3,526,000 and $2,896,000 for 2005 and 2004, respectively. Of the 22% increase in engineering and development expenses, 20% was due to the acquisitions of Stature and Premotec and 2% was due to additional expenditures associated with new product development.          AMORTIZATION OF INTANGIBLE ASSETS—Amortization of intangible assets was $1,010,000 in 2005 and $647,000 in 2004. This increase was due to the amortization costs related to the amortizable intangible assets acquired in the Stature and Premotec acquisitions during 2004.          RESTRUCTURING CHARGE—Restructuring charges were zero and $10,000 in 2005 and 2004, respectively. The charges in 2004 relate primarily to severance costs arising from workforce reductions from consolidation of the Company's manufacturing facilities.          INTEREST EXPENSE—Interest expense for 2005 was $1,075,000 and for 2004 was $696,000. The increase in interest was directly attributed to the increased outstanding balance on the borrowings related to the financing of the acquisitions of Stature and Premotec.          INCOME TAXES—The provision for income taxes was $558,000 for year 2005 compared to $1,159,000 for 2004. The effective income tax rate as a percentage of income before income taxes from continuing operations was 38% in 2005 and 34% in 2004. The difference in the effective tax rate between periods was primarily due to resolution of certain income tax related issues offset by less of an effect of reduction in enacted tax rates in a foreign jurisdiction.  15       Year 2004 compared to 2003          For the year ended December 31,                 Increase (decrease)     (in thousands)        2004   2003   $   %     Revenues   $ 62,738   $ 39,434   $ 23,304   59 %   Cost of products sold (exclusive of amortization of acquired product designs and technologies intangibles)     46,280     29,167     17,113   59 %                     Gross margin     16,458     10,267     6,191   60 %                     Gross margin     26 %   26 %   —   —                        Operating costs and expenses:                                 Selling     2,557     2,022     535   26 %     General and administrative     6,226     4,596     1,630   35 %     Engineering and development     2,896     1,853     1,043   56 %     Amortization of intangible assets     647     315     332   105 %     Restructuring charges     10     211     (201 ) (95 )%                     Total operating costs and expenses     12,336     8,997     3,339   37 %                     Operating income     4,122     1,270     2,852   225 %   Other income (expense), net:                             Interest expense     (687 )   (226 )   461   204 %     Other expense, net     (26 )   (77 )   (51 ) (66 )%                     Total other expense, net     (713 )   (303 )   410   135 %                     Income before income taxes     3,409     967     2,442   253 %   Provision for income taxes     1,159     19     1,140   60 %                     Net income   $ 2,250   $ 948   $ 1,302   137 %                              NET INCOME—The Company achieved net income of $2,250,000 or $.36 per diluted share for 2004 compared to $948,000 or $.19 per diluted share for 2003. Included in the results for 2003 was a tax credit of $298,000 related to the realization of a prior year state income tax refund. Included in net income for 2004 are results related to Stature Electric and Premotec from the dates of acquisition on May 10, 2004 and August 23, 2004, respectively.          During 2003, the Company sold its Calibrator Business. In accordance with SFAS No. 144, the business is included as a discontinued operation; however results of operations for the discontinued business were zero and no gain or loss from the sale was recorded due to the previous writedown of the carrying value of the business to its estimated fair value.          EBITDA—EBITDA was $6,400,000 for 2004 compared to $2,550,000 for 2003. EBITDA is a non-GAAP measurement that consists of income before interest expense, provision for income taxes and depreciation and amortization. See information included in "Non-GAAP Measures" below for a reconciliation of net income to EBITDA.          REVENUES—Revenues were $62,738,000 in 2004 compared to $39,434,000 in 2003 or a 59% increase. Of this 59% increase in revenues, 17% came from the Company's existing businesses and the remaining 42% came from incremental revenues provided by Stature and Premotec, the companies acquired during 2004.          GROSS MARGINS—Gross margin as a percentage of revenues was 26% for 2004 and 2003. This reflects improved margins of 2% from existing businesses offset by lower weighted average margins of  16       the two acquisitions. Cost of products sold excludes $170,000 and zero for amortization of acquired designs and technologies for 2005 and 2004, respectively.          SELLING EXPENSES—Selling expenses were $2,557,000 and $2,022,000 in 2004 and 2003, respectively. This increase was primarily due to the acquisitions of Stature and Premotec.          GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses were $6,226,000 in 2004 compared to $4,596,000 in 2003. The increased administration costs related to the acquisitions of Stature and Premotec made up approximately $1,000,000 of this increase. The remainder of the increase of $630,000 relates to additional incentive bonuses earned and to the increase in the contribution to the Employee Stock Ownership Plan.          ENGINEERING AND DEVELOPMENT EXPENSES—Engineering and development expenses were $2,896,000 and $1,853,000 for 2004 and 2003, respectively. Of the $1,043,000 increase in engineering and development expenses, $667,000 was due to the acquisitions of Stature and Premotec and the remaining $376,000 was due to additional expenditures associated with new product development.          AMORTIZATION OF INTANGIBLE ASSETS—Amortization of intangible assets expense was $647,000 in 2004 and $315,000 in 2003. This increase was due to the amortization costs related to the amortizable intangible assets acquired in the Stature and Premotec acquisitions.          RESTRUCTURING CHARGE—Restructuring charges were $10,000 and $211,000 in 2004 and 2003, respectively. The charges relate primarily to severance costs arising from workforce reductions from consolidation of the Company's manufacturing facilities.          INTEREST EXPENSE—Interest expense for 2004 was $687,000 and for 2003 was $226,000. The increase in interest was directly attributed to the increased outstanding balance on the borrowings related to the financing of the acquisitions of Stature and Premotec.          INCOME TAXES—The provision for income taxes for year 2004 was $1,159,000 compared to $19,000 for 2003. The effective income tax rate as a percentage of income before income taxes from continuing operations was 34% in 2004 and 2% in year 2003. The difference in the effective tax rate between periods was primarily due to a $442,000 tax benefit realized in 2003 related to the realization of a prior year state income tax refund and resolution of certain income tax related issues.  Non-GAAP Measures           EBITDA is not a defined term under U.S. generally accepted accounting principles (non-GAAP measures). Non-GAAP measures should not be considered in isolation or as a substitute for net income or cash flow data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.          EBITDA is provided for information purposes only and should not be viewed as indicative of actual or future results. EBITDA is presented because the Company believes that certain investors may use it as supplemental information to evaluate a company's ability to service its indebtedness. EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.  17               The Company's calculation of EBITDA for 2005, 2004 and 2003 is as follows:     (in thousands)    For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003   Net income   $ 923   $ 2,250   $ 948   Interest expense     1,075     696     226   Provision for income tax     558     1,159     19   Depreciation and amortization     3,229     2,328     1,359                Income before interest expense, provision for income taxes and depreciation and amortization (EBITDA)   $ 5,785   $ 6,433   $ 2,552                 Liquidity and Capital Resources           The Company's liquidity position as measured by cash and cash equivalents increased $168,000 during 2005 to a balance of $624,000 at December 31, 2005. During 2005, operations provided $3,671,000 in cash. Cash provided by operations included net income of $923,000 plus non-cash charges for depreciation and amortization of $3,229,000, provisions for doubtful accounts, obsolete inventory and deferred income taxes totaling $602,000 and other non-cash charges of $254,000. Cash was used to increase inventories by $644,000 in support of increased sales volume and anticipation of production of motor sub-assemblies at a sub-contract manufacturing facility in China. Cash used in operations also included an increase in trade receivables of $1,065,000 and increases in accounts payable of $1,051,000 reflecting increased sales levels. Accrued liabilities and other decreased $610,000 which mainly represented the payment in 2005 of the incentive bonus awards earned in 2004. Offsetting these uses was an increase in prepaid and other current assets of $69,000.          Net cash used in investing activities was $2,371,000 and $17,719,000 for 2005 and 2004, respectively. The Company paid $275,000 and $13,563,000, in years 2005 and 2004, respectively, related to the acquisition of Stature and zero and $3,253,000 in years 2005 and 2004, respectively, related to the acquisition of Premotec. Purchases of property and equipment were $2,096,000 and $953,000 during the years 2005 and 2004, respectively. During 2005, approximately $1,000,000 of the $2,096,000 in purchases related to the set-up of motor manufacturing in China. The Company does not expect the level of purchases related to our China manufacturing capability to continue at this level.          Net cash used in financing activities was $1,132,000 for the year 2005 compared to net cash provided of $12,937,000 for 2004. The Company had no new borrowings under term loans this year compared to borrowings of $10,314,000 in 2004. The Company repaid $2,236,000 and $2,132,000 on term loans for the years 2005 and 2004, respectively. In June 2004, Allied Motion received $1,000,000 for the issuance of 198,177 shares of common stock under the terms of a Stock Purchase Agreement. The purchasers of these shares were certain trusts and pension plans, the beneficiaries of which are Michel Robert and members of his immediate family. The aggregate purchase price for the shares represented the fair value of the stock at the time the Company received the purchase price. Cash was also provided from stock transactions under various employee benefit stock plans of $655,000 and $123,000 and repayment on a loan to the Company's Employee Stock Ownership plan of $155,000 and $45,000 in 2005 and 2004 respectively.          At December 31, 2005, the Company had $11,809,000 of debt obligations representing borrowings on lines-of-credit, term loans and an overdraft facility.          Under the domestic revolving line-of-credit agreement (Agreement), the Company has available the lesser of (a) $10,500,000 or (b) the sum of 85% of eligible trade accounts receivable (excluding Premotec) and 50% of eligible inventory, as defined in the Agreement. The line-of-credit expires in  18       May 2007, unless extended. Under the Agreement, the Company utilizes lock-box arrangements whereby remittances from customers reduce the outstanding debt, and therefore the line-of-credit balance has been classified as a current liability. Borrowings under the line-of-credit bear interest at a rate equal to the bank's prime rates plus 1% (8.25% as of December 31, 2005).          Under the foreign line-of-credit agreement (Foreign Agreement), the Company has available the lesser of (a) EUR 1.25 million, or (b) 85% of eligible trade accounts receivable of Premotec as defined in the Foreign Agreement. The line-of-credit expires in August 2006, unless extended. Borrowings under the line-of-credit bear interest at a rate equal to the bank's base rate plus 1.75%, with a minimum of 4.75% (4.75% at December 31, 2005). Under the Foreign Agreement, remittances from customers reduce the outstanding debt, therefore the balance has been classified as a current liability.          The EUR 200,000 bank overdraft facility bears an interest rate equal to the bank's base rate plus 2%, with a minimum of 4.75% (4.75% at December 31, 2005). The facility has no expiration date.          The Company also has various term loans obtained in connection with its acquisitions. All borrowings are collateralized by substantially all assets of the Company.          The loan agreements prohibit the Company from paying dividends and require that the Company maintain compliance with certain covenants related to tangible net worth and profitability. As of December 31, 2005, the Company was in compliance with such covenants. As of December 31, 2005, the amount available under the lines-of-credit and overdraft facility was $5,226,000.          The Company's working capital, capital expenditure and debt service requirements are expected to be funded from cash provided by operations and amounts available under the line-of-credit facilities. The Company believes the capital currently available to it is sufficient for its currently anticipated needs for at least the next twelve months. If additional capital is needed in the future, the Company would pursue additional capital via debt or equity financings. A key component of the Company's liquidity relates to the availability of amounts under its lines-of-credit. Any lack of availability of these facilities could have a material adverse impact on the Company's liquidity position.  Price Levels and the Impact of Inflation           Prices of the Company's products have not increased significantly as a result of inflation during the past several years, primarily due to competition. The effect of inflation on the Company's costs of production has been minimized through production efficiencies, lower costs of materials and surcharges passed on to customers. The Company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates. As the Company's manufacturing activities mainly utilize semi-skilled labor, which is relatively plentiful in the areas surrounding the Company's production facilities, the Company does not anticipate substantial inflation-related increases in the wages of the majority of its employees.  Critical Accounting Policies           The Company has prepared its financial statements in conformity with accounting principles generally accepted in the United States, and these statements necessarily include some amounts that are based on informed judgments and estimates of management. The Company's significant accounting policies are discussed in Note 1 to the consolidated financial statements. The policies are reviewed on a regular basis. The Company's critical accounting policies are subject to judgments and uncertainties which affect the application of such policies. The Company uses historical experience and all available information to make these judgments and estimates. As discussed below the Company's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or  19       assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. The Company's critical accounting policies include:          The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is based on historical experience and judgments based on current economic and customer specific factors. Significant judgments are made by management in connection with establishing the Company's customers' ability to pay at the time of shipment. Despite this assessment, from time to time, the Company's customers are unable to meet their payment obligations. The Company continues to monitor customers' credit worthiness, and use judgment in establishing the estimated amounts of customer receivables which may not be collected. A significant change in the liquidity or financial position of the Company's customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.          Inventory is valued at the lower of cost or market. The Company monitors and forecasts expected inventory needs based on sales forecasts. Inventory is written down or written off when it becomes obsolete or when it is deemed excess. These determinations involve the exercise of significant judgment by management. If actual market conditions are significantly different from those projected by management the recorded reserve may be adjusted, and such adjustments may have a significant impact on the Company's results of operations. Demand for the Company's products can fluctuate significantly, and in the past the Company has recorded substantial charges for inventory obsolescence.          The Company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements, and for operating loss and tax credit carryforwards. Realization of the recorded deferred tax assets is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdiction in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards. A valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets will not be realized. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.          The Company reviews the carrying values of its long-lived assets, including goodwill and identifiable intangibles, in accordance with SFAS No. 142. SFAS No. 142 provides a fair value test to evaluate goodwill and long-lived asset impairment. As part of the review, the Company estimates future cash flows. Depending upon future assessments of fair value and estimated future cash flows, there could be impairment recorded related to goodwill and other long-lived assets.          The Company provides pension and postretirement benefits for certain domestic retirees and records the cost of the obligations based on estimates. The net periodic costs are recognized as employees render the services necessary to earn the benefits. Several assumptions are used to calculate the expense and liability related to the plans including the discount rate, the expected rate of return on plan assets, the future rate of compensation increases and health care cost increases. The discount rate is selected based on a bond pricing model that relates to the projected future cash flows of benefit obligations. Actuarial assumptions used are based on demographic factors such as retirement and mortality. Actual results could vary materially from the Company's actuarial assumptions, which may have an impact on the amount of reported expense or liability for pension or postretirement benefits.  Recent Accounting Pronouncements           In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS no. 123 (revised 2004), Share-Based Payment. SFAS 123R is a revision of FASB No. 123 "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends SFAS No. 95, "Statement of Cash Flows". SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options to be recognized in the  20       income statement based on their fair values. The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. Pro forma disclosure is no longer an alternative. The provisions of this statement will become effective in our first quarter of 2006.          SFAS 123R permits public companies to adopt its requirements using one of two methods:    1.A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. 2.A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosure either (a) all prior periods presented or (b) prior interim periods of the year of adoption.           The Company will utilize the modified prospective method when it adopts SFAS 123R.          As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. The impact on net earnings as a result of the adoption of SFAS No. 123R is not expected to be significant based on options outstanding and unvested at December 31, 2005. The Company will adopt SFAS No. 123R starting on January 1, 2006.  Contractual Commitments           For more information on the Company's contractual obligations on operating leases and contractual commitments, see Notes 5 and 9 to the consolidated financial statements. At December 31, 2005, the Company's commitments under these obligations were as follows (in thousands):     Year ended December 31,    Operating Leases   Capital Leases(1)   Lines-of- Credit(2)   Term Loans(3)   Interest on Debt Obligations(4)   Total   2006   $ 598   $ 205   $ 4,981   $ 2,174   $ 884   $ 8,842   2007     431     93     —     3,990     153     4,667   2008     438     4     —     379     14     835   2009     354     —     —     285     8     647   2010     252     —     —     —     —     252   Thereafter     632     —     —     —     —     632                             $ 2,705   $ 302   $ 4,981   $ 6,828   $ 1,059   $ 15,875                            (1)The capital lease commitments include amounts representing interest. (2)The domestic and foreign lines-of-credit mature in May 2007 and August 2006, respectively but can be extended. (3)Maturities for the term loans are discussed more thoroughly in Note 5. (4)The interest rates used are the rates in effect at December 31, 2005.  21      Item 7A. Quantitative and Qualitative Disclosures About Market Risk           Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company due to adverse changes in financial and commodity market prices and rates. The Company is exposed to market risk in the areas of changes in interest rates and changes in foreign currency exchange rates as measured against the United States dollar. These exposures are directly related to its normal operating and funding activities.  Interest Rate Risk           The interest payable on the Company's domestic and foreign lines-of-credit and its foreign term loan are variable based on the prime rate and Euribor, and are effected by changes in market interest rates. The Company does not believe that reasonably possible near-term changes in interest rates will result in a material effect on future earnings, fair values or cash flows of the Company. A change in the interest rate of 1% on the Company's variable rate debt would have the impact of changing interest expense by approximately $89,000 annually.  Foreign Currency Risk           On August 23, 2004, the Company completed the acquisition of Premotec, located in The Netherlands. Sales from this operation are denominated in Euros, thereby creating exposures to changes in exchange rates. The changes in the Euro/U.S. exchange rate may positively or negatively affect the Company's sales, gross margins, net income and retained earnings. The Company does not believe that reasonably possible near-term changes in exchange rates will result in a material effect on future earnings, fair values or cash flows of the Company.      Item 8. Financial Statements and Supplementary Data.      22             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      The Board of Directors and Stockholders of Allied Motion Technologies Inc.:          We have audited the accompanying consolidated balance sheets of Allied Motion Technologies Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' investment and comprehensive income, and cash flows for the years ended December 31, 2005, 2004 and 2003. In connection with our audits of the consolidated financial statements, we have also audited the consolidated financial statement Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2005, 2004 and 2003. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.          We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.          In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Motion Technologies Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the years ended December 31, 2005, 2004 and 2003, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.  Denver, Colorado March 20, 2006  23             ALLIED MOTION TECHNOLOGIES INC.         CONSOLIDATED BALANCE SHEETS  (In thousands, except per share data)             December 31, 2005   December 31, 2004     Assets                 Current Assets:                   Cash and cash equivalents   $ 624   $ 456       Trade receivables, net of allowance for doubtful accounts of $281 and $235 at December 31, 2005 and 2004, respectively     10,087     9,353       Inventories, net     9,185     9,382       Deferred income taxes     402     1,186       Prepaid expenses and other     577     518                 Total Current Assets     20,875     20,895     Property, plant and equipment, net     12,939     13,301     Deferred income taxes     582     —     Goodwill and intangible assets, net     18,941     20,624                 Total Assets   $ 53,337   $ 54,820                 Liabilities and Stockholders' Investment                 Current Liabilities:                   Current maturities of capital lease obligations   $ 180   $ 183       Debt obligations     7,155     6,904       Accounts payable     5,543     4,669       Accrued liabilities and other     3,877     5,316       Income taxes payable     664     687                 Total Current Liabilities     17,419     17,759     Long-term capital lease obligations, net of current portion     92     241     Debt obligations, net of current portion     4,654     7,079     Deferred income taxes     1,862     2,304     Pension and post-retirement obligations     3,503     3,077                 Total Liabilities     27,530     30,460      Commitments and Contingencies                    Stockholders' Investment:                     Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding     —     —       Common stock, no par value, authorized 50,000 shares; 6,369 and 6,070 shares issued and outstanding at December 31, 2005 and 2004, respectively     15,110     14,169       Deferred compensation     (119 )   —       Loan receivable from Employee Stock Ownership Plan     —     (155 )     Retained earnings     10,970     10,047       Other comprehensive income (loss)     (154 )   299                 Total Stockholders' Investment     25,807     24,360                 Total Liabilities and Stockholders' Investment   $ 53,337   $ 54,820                  See accompanying notes to consolidated financial statements.  24          ALLIED MOTION TECHNOLOGIES INC.         CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share data)             For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Revenues   $ 74,302   $ 62,738   $ 39,434     Cost of products sold (exclusive of amortization of acquired product designs and technologies intangibles)     58,118     46,280     29,167                    Gross margin     16,184     16,458     10,267      Operating costs and expenses:                            Selling     3,265     2,557     2,022       General and administrative     5,952     6,226     4,596       Engineering and development     3,526     2,896     1,853       Amortization of intangible assets     1,010     647     315       Restructuring charges     —     10     211                    Total operating costs and expenses     13,753     12,336     8,997                    Operating income     2,431     4,122     1,270      Other income (expense), net:                            Interest expense     (1,075 )   (696 )   (226 )     Other income (expense), net     125     (17 )   (77 )                  Total other expense, net     (950 )   (713 )   (303 )                  Income before income taxes     1,481     3,409     967     Provision for income taxes     558     1,159     19                     Net income   $  923   $  2,250   $  948                    Basic net income per share:                         Net income per share   $ .15   $ .40   $ 0.19                      Basic weighted average common shares     6,245     5,581     4,925                     Diluted net income per share:                            Net income per share   $ .13   $ .36   $ 0.19                      Diluted weighted average common shares     6,869     6,185     5,061                     See accompanying notes to consolidated financial statements.  25             ALLIED MOTION TECHNOLOGIES INC.         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT  AND COMPREHENSIVE INCOME  (In thousands)             Common Stock           Other Comprehensive Income Adjustments                 Retained Earnings   Comprehensive Income         Shares   Amount   Other     Balances, December 31, 2002   4,837   $ 8,100   $ —   $ 6,849   $ 28             Stock transactions under employee benefit stock plans   183     271     (200 )                       Issuance of restricted stock   1     3                               Stock compensation expense         9                               Foreign currency translation adjustment                           51   $ 51       Net income                     948           948                                            Comprehensive income                               $ 999                             Balances, December 31, 2003   5,021     8,383     (200 )   7,797     79             Stock transactions under employee benefit stock plans   52     156     45                         Issuance of restricted stock   198     1,000                               Stock compensation expense         13                               Stock issued for acquisition of Owosso Corporation   536     2,421                               Stock issued for acquisition of Premotec   263     1,471                               Stock warrants issued for acquisition of Owosso Corporation         725                               Foreign currency translation adjustment                           220   $ 220       Net income                     2,250           2,250                                            Comprehensive income                               $ 2,470                             Balances, December 31, 2004   6,070     14,169     (155 )   10,047     299             Stock transactions under employee benefit stock plans and option exercises   259     780                               Payment on loan to Employee Stock Ownership Plan               155                         Issuance of restricted stock   40     155     (155 )                       Stock compensation expense         6     36                         Additional minimum pension liability, net of tax                           (122 ) $ (122 )     Foreign currency translation adjustment                           (331 )   (331 )     Net income                     923           923                                            Comprehensive income                               $ 470                               Balances, December 31, 2005   6,369   $ 15,110   $ (119 ) $ 10,970   $ (154 )                                     See accompanying notes to consolidated financial statements.  26          ALLIED MOTION TECHNOLOGIES INC.         CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)             For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Cash Flows From Operating Activities:                       Net income   $ 923   $ 2,250   $ 948     Adjustments to reconcile net income to net cash provided by (used in) operating activities:                         Depreciation and amortization     3,229     2,328     1,359       Provision for doubtful accounts     146     52     47       Provision for obsolete inventory     586     136     135       Deferred income tax provision     (130 )   901     440       Loss on disposition of assets     84     164     114       Tax effect of non-qualifying option exercises     124     44     —       Other     46     (39 )   (14 )     Changes in assets and liabilities, net of effects from acquisitions and dispositions:                           Increase in trade receivables     (1,065 )   (618 )   (414 )       Increase in inventories, net     (644 )   (2,050 )   (74 )       Decrease (increase) prepaid expenses and other     (69 )   637     (82 )       (Decrease) increase accounts payable     1,051     (203 )   (201 )       Decrease in accrued liabilities and other     (610 )   (329 )   (106 )                  Net cash provided by operating activities     3,671     3,273     2,152     Cash Flows From Investing Activities:                            Purchase of property and equipment     (2,096 )   (953 )   (1,113 )     Cash paid for acquisition of Motor Products     —     —     (300 )     Proceeds from sale of Power and Process Business     —     50     649       Net cash paid for acquisition of Owosso Corporation     (275 )   (13,563 )   —       Net cash paid for acquisition of Premotec     —     (3,253 )   —                    Net cash used in investing activities     (2,371 )   (17,719 )   (764 )   Cash Flows From Financing Activities:                            Borrowings (repayments) on lines-of-credit, net     441     3,736     (500 )     Borrowings on term loans     —     10,314     —       Repayments on term loans     (2,236 )   (2,132 )   (1,500 )     Proceeds from sales/leaseback     50     —     500       Repayments on capital leases     (197 )   (149 )   (21 )     Issuance of restricted stock     —     1,000     —       Repayment on loan to Employee Stock Ownership Plan     155     45     —       Stock transactions under employee benefit stock plans     655     123     74                    Net cash (used in) provided by financing activities     (1,132 )   12,937     (1,447 )   Effect of foreign exchange rate changes on cash     —     5     64                    Net increase (decrease) in cash and cash equivalents     168     (1,504 )   5     Cash and cash equivalents at beginning of period     456     1,960     1,955                    Cash and cash equivalents at end of period   $ 624   $ 456   $ 1,960                    Supplemental disclosure of cash flow information:                          Net cash paid (received) during the period for:                         Interest   $ 1,085   $ 687   $ 226       Income taxes     (384 )   (57 )   (254 )     Acquisitions     —     16,816     300      See accompanying notes to consolidated financial statements.  27             ALLIED MOTION TECHNOLOGIES INC.         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES     Business            Allied Motion Technologies Inc. (Allied Motion or the Company) is engaged in the business of designing, manufacturing and selling motion control products to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, and aerospace and defense markets.    Principles of Consolidation            The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.    Cash and Cash Equivalents            Cash and cash equivalents include instruments which are readily convertible into cash (original maturities of three months or less) and which are not subject to significant risk of changes in interest rates. Cash flows from foreign currency transactions are translated using an average rate.    Accounts Receivable            Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future.    Inventories            Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or market, as follows (in thousands):         December 31, 2005   December 31, 2004     Parts and raw materials   $ 7,739   $ 7,510     Work-in-process     1,418     1,485     Finished goods     1,710     1,883                       10,867     10,878     Less reserves     (1,682 )   (1,496 )                   $ 9,185   $ 9,382                  28        Property, Plant and Equipment            Property, plant and equipment is classified as follows (in thousands):         Useful lives   December 31, 2005   December 31, 2004     Land       $ 332   $ 332     Building and improvements   5-39 years     4,537     4,395     Machinery, equipment, tools and dies   2-8 years     15,271     13,366     Furniture, fixtures and other   3-10 years     764     1,134                               20,904     19,227     Less accumulated depreciation         (7,965 )   (5,926 )                           $ 12,939   $ 13,301                              Depreciation expense is provided using the straight-line method over the estimated useful lives of the assets. Amortization of building improvements and leased equipment is provided using the straight-line method over the life of the lease term or the life of the assets, whichever is shorter. Maintenance and repair costs are charged to operations as incurred. Major additions and improvements are capitalized. The cost and related accumulated depreciation of retired or sold property are removed from the accounts and the resulting gain or loss, if any, is reflected in earnings.          Depreciation expense was approximately $2,219,000, $1,681,000 and $1,044,000, in 2005, 2004 and 2003, respectively.    Goodwill            Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is required to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The Company completed its annual analysis of the fair value of its goodwill at October 31, 2005 and determined there was no indicated impairment of its goodwill. There can be no assurance that future goodwill impairments will not occur.    Intangible Assets            Intangible assets, other than goodwill, are recorded at cost and are amortized over their estimated useful lives using the straight-line method.    Impairment of Long-Lived Assets            The Company reviews the carrying values of its long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Under SFAS No. 144, long-lived assets must be carried at historical cost if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest. However, if projected cash flows are less than their carrying value, the long-lived assets must be reduced to their estimated fair value. Considerable judgment is required to project such cash flows and, if required,  29      estimate the fair value of the impaired long-lived asset. No impairments of long-lived assets were recorded in 2005, 2004 or 2003.    Warranty            The Company offers warranty coverage for its products for periods ranging from 12 to 18 months after shipment, with the majority of its products for 12 months. The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs. The assumptions used to estimate warranty accruals are reevaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Estimated warranty costs are recorded at the time of sale of the related product, and are considered a cost of sale. Accrued warranty costs were $307,000 and $375,000 as of December 31, 2005 and 2004, respectively.          Changes in the Company's reserve for product warranty claims during 2005 and 2004, were as follows (in thousands):         December 31, 2005   December 31, 2004     Warranty reserve at beginning of the year   $ 375   $ 185     Warranty expenditures     (171 )   (142 )   Provision     113     101     Additions due to acquisitions     —     223     Effect of foreign currency translation     (10 )   8                 Warranty reserve at end of year   $ 307   $ 375                    Accrued Liabilities            Accrued liabilities consist of the following (in thousands):         December 31, 2005   December 31, 2004   Compensation and fringe benefits   $ 2,494   $ 3,428   Litigation and legal fees (Note 9)     145     255   Customer deposits     38     32   Warranty reserve     307     375   Other accrued expenses     893     1,226                 $ 3,877   $ 5,316                Foreign Currency Translation            In accordance with SFAS No. 52, "Foreign Currency Translation," the assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Revenue and expense transactions use an average rate prevailing during the month of transaction. The resulting comprehensive income is recorded in the other comprehensive income translation adjustment component of stockholders' investment in the accompanying consolidated balance sheets. Transaction  30      gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.    Engineering and Development Costs            Engineering and development costs are expensed as incurred.    Revenue Recognition            The Company recognizes revenue when products are shipped or delivered (shipping terms may be either FOB shipping point or destination) and title has passed to the customer, persuasive evidence of an arrangement exists, the selling price is fixed or determinable, and collectibility is reasonably assured.    Basic and Diluted Income per Share from Continuing Operations            Basic income per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding. Diluted income per share is determined by dividing the net income or loss by the sum of (1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of stock awards determined utilizing the treasury stock method. Outstanding options totaling 624,000, 604,000, and 136,000 had a dilutive effect for years 2005, 2004 and 2003, respectively. Stock options to purchase 241,000, 130,000 and 734,000 shares of common stock, were excluded from the calculation of diluted income per share for years 2005, 2004 and 2003, respectively, since the results would have been anti-dilutive.    Comprehensive Income            Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by and distributions to stockholders. Comprehensive income consisted of cumulative translation adjustments from the translation of the financial statements of the Company's foreign subsidiary and an additional minimum pension liability (see Note 10) for year 2005. Adjustments for comprehensive income for years 2004 and 2003 are comprised only of cumulative translation adjustments.    Stock-Based Compensation            The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. All options granted under these plans have an exercise price equal to the market value of the underlying common stock on the date of grant and therefore no stock-based compensation cost is reflected in net income (loss), except as discussed in Note 8. Had compensation cost for these plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an Amendment of FASB Statement No. 123", the  31      Company's net income (loss) would have been adjusted to the following amounts (in thousands, except per share data):         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Net income:                         Reported net income   $ 923   $ 2,250   $ 948       Stock-based compensation expense, net of taxes   $ (130 ) $ (1,231 ) $ (573 )                    Pro forma net income   $ 793   $ 1,019   $ 375                    Basic net income per share:                         Reported basic net income per share   $ 0.15   $ 0.40   $ 0.19       Pro forma basic net income per share   $ 0.13   $ 0.18   $ 0.08      Diluted net income per share:                            Reported diluted net income per share   $ 0.13   $ 0.36   $ 0.19       Pro forma diluted net income per share   $ 0.12   $ 0.16   $ 0.07              Cumulative compensation cost recognized is adjusted for forfeitures by a reduction of adjusted compensation expense in the period of forfeiture.          For SFAS No. 123 purposes, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:         For the year ended December 31, 2004   For the year ended December 31, 2003   Risk-free interest rate   3.7%   2.9%   Expected dividend yield   0.0%   0.0%   Expected life   5 years   6 years   Expected volatility   91.1%   102.7%            There were no options granted during 2005. The weighted average fair value of options granted, assuming the Black-Scholes option-pricing model, during 2004 and 2003 was $3.81 and $1.64, respectively. The total fair value of options granted was $1,290,000 and $324,000 in 2004 and 2003, respectively. These amounts are being amortized over the vesting periods of the options for purposes of this disclosure.          The weighted average fair value of employee stock purchase rights issued pursuant to the Employee Stock Purchase Plan during 2005, 2004 and 2003 was $.66, $2.45 and $1.62, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at the date of issuance and the employee purchase price.          The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different than those of  32       traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.    Fair Values of Financial Instruments            The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturities of these financial instruments. The carrying amount of the lines-of-credit and variable term loans approximate their fair value because the underlying instrument is a variable rate note that reprices frequently. The carrying amount of the term loan approximates its fair value because the fixed interest rate is a current market interest rate.    Income Taxes            The current provision for income taxes represents actual or estimated amounts payable or refundable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax base of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, and for operating loss and tax credit carryforwards. A valuation allowance may be provided to the extent management deems it is more likely than not that deferred tax assets will not be realized. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income, in the appropriate taxing jurisdictions, during the periods in which temporary differences become deductible. Management believes that it is more likely than not that the Company will realize the benefits of these temporary differences and operating loss and tax credit carryforwards, net of valuation allowances.    Concentration of Credit Risk            Trade receivables subject the Company to the potential for credit risk. To reduce this risk, the Company performs evaluations of its customers' financial condition and creditworthiness at the time of sale, and updates those evaluations when necessary. No single customer makes up more than 10% of trade receivables.    Use of Estimates            The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  33        Reclassifications            Certain prior year balances were reclassified to conform to the current year presentation. Those reclassifications had no impact on net income, stockholders' investment or cash flows from operations as previously reported.  2. OWOSSO MERGER           On May 10, 2004, the Company completed the merger of Owosso Corporation, and its sole remaining operating subsidiary Stature Electric, Inc. located in Watertown, New York, with a wholly owned subsidiary of the Company pursuant to the terms of the Agreement and Plan of Merger dated February 10, 2004. The consideration for the merger of $17.1 million consisted of $1 million of cash payable to Owosso's preferred shareholders, $11.7 million of cash for Owosso's debt, liabilities and transaction costs, $1.2 million in fees and expenses incurred by the Company, the issuance of 535,527 shares of the Company's common stock (fair value of $2,421,000) and the issuance of warrants to purchase 300,000 shares of Allied Motion common stock at $4.41 per share (valued at $725,000 using the Black Scholes Model) which were issued to Owosso's preferred shareholders. There were no additional notes issued by Allied Motion related to the acquisition. Allied Motion financed the cash portion of the acquisition price with existing cash, borrowings of $8.25 million under new term loan agreements and borrowings under its revolving line-of-credit. The Company merged with Owosso to further the Company's strategy to expand its penetration into the motion control market.          The merger was accounted for using the purchase method of accounting, and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based on their respective estimated fair values at the date of acquisition. The net purchase price allocation was as follows (in thousands):     Cash   $ 99     Trade receivables     2,058     Inventories     1,676     Prepaid expenses and other     328     Property, plant and equipment     6,485     Amortizable intangible assets     3,744     Goodwill     5,502     Accounts payable     (1,545 )   Accrued liabilities and other current liabilities     (1,224 )            Net purchase price   $ 17,123                       The amortization of acquired goodwill and intangible assets are deductible for tax purposes. The amortizable intangible assets are amortized as discussed in Note 4.          The accompanying consolidated financial statements include the operating results of Stature Electric, Owosso's remaining sole operating subsidiary, subsequent to May 10, 2004.          The following presents the Company's unaudited pro forma financial information for the year ended December 31, 2004 and 2003 after certain pro forma adjustments giving effect to the acquisition of Owosso Corporation as if it had occurred at January 1, 2003. The pro forma financial information is  34       for informational purposes only and does not purport to present what the Company's results would actually have been had the acquisition actually occurred at the beginning of the fiscal period or to project the Company's results of operations for any future period (in thousands, except per share data).         For the year ended December 31,         2004   2003     Revenues   $ 70,002   $ 57,149     Gross margin     17,172     13,118     Operating income (loss)     3,041     (5,066 )   Net income (loss)     1,236     (5,155 )   Diluted net income (loss) per share     .20     (.94 )    3. PREMOTEC ACQUISITION           On August 23, 2004, the Company completed the acquisition of Precision Motor Technology B.V. (Premotec), located in Dordrecht, The Netherlands from Premotec Holding B.V., both limited liability companies incorporated in The Netherlands, pursuant to the Stock Purchase Agreement dated July 23, 2004. Neither the companies acquired nor the seller was related to the Company, and there is no material relationship between those companies and the Company, other than in respect of this acquisition. The acquisition was completed to achieve European presence to provide additional opportunities for the sale and support of the all of the Company's products while increasing purchasing volume provided by Premotec to enhance the Company's strategic sourcing opportunities. The purchase price was EUR 3.75 million plus expenses (approximately $5 million total purchase price). The cash portion of the consideration of EUR 2.5 million (U.S. $3.1 million) was funded by a term loan, a line of credit and an overdraft facility from a Netherlands bank and is discussed more thoroughly in Note 6 below. The remaining portion of the consideration of EUR 1.25 million (U.S. $1,471,000) was funded by the issue of 263,231 shares of the Company's common stock (at market value) to the seller, Premotec Holding B.V. The expenses of the acquisition were funded from the Company's cash balances and amounts available under the lines of credit.          The acquisition was accounted for using the purchase method of accounting, and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based on their  35       respective estimated fair values at the date of acquisition. The net purchase price allocation was as follows (in thousands):     Cash   $ 82     Trade receivables     649     Inventories     1,740     Prepaid expenses and other     426     Property, plant and equipment     1,165     Amortizable intangible assets     1,869     Goodwill     2,283     Accounts payable     (1,142 )   Accrued liabilities and other current liabilities     (1,054 )   Long-term capital lease obligations     (47 )   Deferred income taxes     (971 )            Net purchase price   $ 5,000                       The amortization of acquired goodwill and intangible assets are non-deductible for tax purposes in accordance with tax regulations in The Netherlands. The amortizable intangible assets are amortized as discussed in Note 4.  4. GOODWILL AND INTANGIBLE ASSETS           Included in goodwill and intangible assets in the Company's consolidated balance sheets are the following intangible assets (in thousands):         December 31, 2005   December 31, 2004   Estimated Life   Goodwill   $ 12,818   $ 13,246                     Amortizable intangible assets:                     Customer lists     4,371     4,506   8 years     Trade names     1,340     1,340   10 years     Designs and technologies     2,494     2,631   8 years     Accumulated amortization     (2,082 )   (1,099 )                     Total net intangible assets     6,123     7,378                     Total goodwill and net intangible assets   $ 18,941   $ 20,624                      36              The change in the carrying amount of goodwill for 2005 is as follows (in thousands):         December 31, 2005   December 31, 2004   Balance at beginning of period   $ 13,246   $ 5,213   Goodwill resulting from acquisition of Owosso Corporation     —     5,502   Goodwill resulting from acquisition of Premotec     —     2,283   Effect of foreign currency translation     (326 )   248   Other     (102 )   —             Balance at end of period   $ 12,818   $ 13,246                      Total amortization expense for intangible assets for the years 2005, 2004, and 2003 was $1,010,000, $647,000 and $315,000 respectively. Amortization expense of designs and technologies included in total amortization expense for the years 2005, 2004 and 2003 was $324,000, $170,000 and zero, respectively. Estimated amortization expense for intangible assets is $1,008,000 for each of the years ended December 31, 2006 through 2009 and $908,000 for 2010.  37       5. DEBT OBLIGATIONS           Debt obligations consisted of the following (in thousands):         December 31, 2005   December 31, 2004     Domestic revolving line-of-credit (A)   $ 4,434   $ 3,615     Foreign revolving line-of-credit (B)     547     626     Bank overdraft facility payable to bank with no monthly repayments required, interest due at the bank's base rate plus 2%, minimum of 4.75% (4.75% as of December 31, 2005), due on demand, secured by Premotec's inventory; EUR 200 ($237 at December 31, 2005 exchange rate) was available at December 31, 2005     —     422     Term loan payable to bank in monthly installments of $90 plus interest at 8.68%, due in May 2007, secured by machinery and equipment     1,535     2,618     Term loan payable to bank in monthly installments of $59 plus interest at the bank's prime rate plus 0.75% (8.0% as of December 31, 2005), plus balloon payment of $2,863, due in May 2007, secured by buildings, machinery and equipment     3,872     4,585     Term loan payable to bank in quarterly installments of EUR 80 ($95 at December 31, 2005 exchange rate) plus interest at 4.74% until August, 2006, then at EURIBOR plus 2.5% with a minimum of 4.75%, due in July 2009, secured by Allied Motion Technologies, B.V. shares     1,421     2,074     Term loan payable to bank, paid in full in January 2005     —     43                 Total     11,809     13,983     Less current maturities     (7,155 )   (6,904 )               Long-term debt obligations   $ 4,654   $ 7,079                    (A)Under the domestic revolving line-of-credit agreement (Agreement), the Company has available the lesser of (a)$10,500,000 or (b) the sum of 85% of eligible trade accounts receivable (excluding Premotec) and 50% of eligible inventory, as defined in the Agreement. The line-of-credit expires in May 2007, unless extended. Under the Agreement, the Company utilizes lock-box arrangements whereby remittances from customers reduce the outstanding debt, and therefore the line-of-credit balance has been classified as a current liability. Borrowings under the line-of-credit bear interest at a rate equal to the bank's prime rates plus 1% (8.25% as of December 31, 2005). All borrowings are collateralized by substantially all assets of the Company. The Agreement prohibits the Company from paying dividends and requires that the Company maintain compliance with certain covenants related to tangible net worth and fixed charge coverage. As of December 31, 2005, the Company was in compliance with such covenants. As of December 31, 2005, the amount available under the domestic line-of-credit was $4,656,000. (B)Under the foreign line-of-credit agreement (Foreign Agreement), the Company has available the lesser of (a) EUR 1.25 million, or (b) 85% of eligible trade accounts receivable of Premotec as defined in the Foreign Agreement. The line-of-credit expires in August 2006, unless extended. Borrowings under the line-of-credit bear interest at a rate equal to the bank's base rate plus 1.75%, with a minimum of 4.75% (4.75% at December 31, 2005). Under the Foreign Agreement, remittances from customers reduce the outstanding debt, therefore the balance has been classified  38       as a current liability. As of December 31, 2005, the amount available under the foreign line-of-credit was $333,000.           Future maturities of debt obligations are as follows as of December 31, 2005:     2006   $ 7,155   2007     3,990   2008     379   2009     285              $ 11,809           6. INCOME TAXES           The provision for income taxes is based on income before income taxes from continuing operations as follows (in thousands):         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003   Domestic   $ 782   $ 3,151   $ 900   Foreign     699     258     67                Income before income taxes   $ 1,481   $ 3,409   $ 967                         Components of the total provision for income taxes are as follows (in thousands):         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Current provision (benefit):                         Domestic   $ 73   $ 131   $ (441 )     Foreign     324     127     20                      Total current provision (benefit)     396     258     (421 )   Deferred provision (benefit):                         Domestic     274     1,063     440       Foreign     (112 )   (162 )   —                      Total deferred provision     162     901     440                    Provision for income taxes   $ 558   $ 1,159   $ 19                     39                The provision for income taxes differs from the amount determined by applying the federal statutory rate as follows (in thousands):         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Tax provision, computed at statutory rate   $ 504   $ 1,159   $ 328     State tax, net of federal impact     62     150     88     Nondeductible expenses     28     30     48     Permanent tax deductions     (24 )   (109 )   —     Adjustments to prior year accruals(1)     52     —     (144 )   Effect of changes in enacted tax law     (18 )   (124 )   —     Prior year state tax refund(2)     —     —     (298 )   Change in valuation allowance     (37 )   —     —     Other     (9 )   53     (3 )                  Provision for income taxes   $ 558   $ 1,159   $ 19                       (1)Adjustments relate to the resolution of certain prior year income tax related issues. (2)Refund relates to the realization of a prior year state income tax refund for Motor Products from periods prior to the acquisition.          The tax effects of significant temporary differences and credit and operating loss carryforwards that give rise to the net deferred tax assets are as follows (in thousands):         December 31, 2005   December 31, 2004     Deferred tax assets:                   Allowances and other accrued liabilities   $ 645   $ 303       Restricted stock     13     —       Tax credit carryforwards     233     233       Net operating loss carryforwards     408     1,002                   Total deferred tax assets     1,299     1,538       Valuation allowance     (315 )   (352 )                 Net deferred tax assets     984     1,186                 Deferred tax liabilities:                   Property, plant and equipment     (1,081 )   (1,170 )     Goodwill and intangibles     (781 )   (1,134 )                 Total deferred tax liabilities     (1,862 )   (2,304 )               Net deferred tax liabilities   $ (878 ) $ (1,118 )                40              The net deferred tax liabilities are classified as follows in the accompanying consolidated balance sheets (in thousands):         December 31, 2005   December 31, 2004     Current deferred tax assets   $ 402   $ 1,186     Non-current deferred tax assets     582     —     Non-current deferred tax liabilities     (1,862 )   (2,304 )               Net deferred tax assets   $ (878 ) $ (1,118 )                        The Company has domestic tax credit carryforwards of $233,000 expiring in 2006 and 2007 and a domestic net operating loss carryforward of $1,132,000 expiring in 2023 through 2024.          Realization of the Company's net deferred tax asset is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from utilization of net operating losses and tax credit carryforwards. The Company has recorded a valuation allowance due to the uncertainty related to the realization of certain deferred tax assets existing at December 31, 2005. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. Management believes that it is more likely than not that the Company will realize the benefits of its net deferred tax assets, net of valuation allowances as of December 31, 2005.  7. STOCK COMPENSATION     Allied Motion Stock Incentive Plan            The Company's Stock Incentive Plan provides for the granting of stock awards, including stock options, stock appreciation rights and restricted stock, to employees and non-employee directors of the Company.  41              Option and restricted stock activity during years 2005, 2004 and 2003, was as follows:             Stock Options   Restricted Stock         Common Stock available for grant   Number of Shares   Weighted Average Exercise Price   Number of Shares     Balances, December 31, 2002   270,640   1,192,330   3.21           Granted   (197,000 ) 197,000               Forfeited   45,900   (65,900 )                               Balances, December 31, 2003   119,540   1,323,430   3.00           Additional shares authorized   400,000   —               Granted   (404,600 ) 404,600               Forfeited   3,500   (11,000 )             Exercised   —   (29,160 )                               Balances, December 31, 2004   118,440   1,687,870   3.48           Granted   (47,000 )         47,000       Forfeited   32,667   (38,317 )     (3,000 )     Exercised   —   (200,903 )     —                        Balances, December 31, 2005   104,107   1,448,650   3.62   44,000                                 Exercise prices for options outstanding and exercisable at December 31, 2005 are as follows:         Range of Exercise Prices   Total       $1.13-$2.90   $3.20-$4.83   $5.46-$6.72   $1.13-$6.72   Options Outstanding:                     Number of options   718,500   488,900   241,250   1,448,650     Weighted average exercise price   $2.44   $4.15   $6.03   $3.62     Weighted average remaining contractual life   3.2 years   5.1 years   4.6 years   4.1 years   Options Exercisable:                     Number of options   704,500   480,233   241,250   1,425,983     Weighted average exercise price   $2.45   $4.17   $6.03   $3.64            Under the terms of the plan, options may not be granted at less than 85% of fair value. All options granted to date have been granted at fair value as of the date of grant. Options granted through December 31, 2003 generally become exercisable evenly over three years starting one year from the date of grant and expire seven years from the date of grant. Options granted in 2004 became exercisable on December 31, 2004.          During 2005, 47,000 shares of nonvested restricted stock were awarded with a value of $3.91 per share. The value at the date of grant is amortized to compensation expense over the related three year vesting period. During 2005, compensation expense of $36,000 was recorded. None of the restricted shares awarded are vested as of December 31, 2005. The shares will vest one-third in each of 2006, 2007 and 2008.  42               In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which supersedes APB Opinion 25 and related interpretations. SFAS 123R requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is effective for all interim periods beginning after December 15, 2005 and, thus, will be effective for the Company beginning with the first quarter of 2006. For outstanding awards accounted for under APB No. 25 or SFAS No. 123, stock compensation expense must be recognized in earnings for the portion of those awards for which the requisite service has not yet been rendered, based upon the grant date fair value of such awards calculated under SFAS 123.    Allied Motion Employee Stock Purchase Plan            Until December 31, 2005, the Employee Stock Purchase Plan (ESPP) provided for the issuance of shares of capital stock through payroll deductions. Employees who choose to participate in the ESPP receive an option to purchase capital stock at a discount equal to the lower of 85 percent of the fair market value of the capital stock on the first or last day of an offering period. Employees purchased 58,000, 29,000 and 37,000 shares under the ESPP during 2005, 2004 and 2003, respectively.    Allied Motion Employee Stock Ownership Plan            The Company sponsors an Employee Stock Ownership Plan (ESOP) that covers all U.S. employees who work over 1,000 hours per year. The terms of the ESOP require the Company to make an annual contribution equal to the greater of i) the Board established percentage of pretax income before the contribution (5% in 2005, 2004 and 2003) or ii) the annual interest payable on any note outstanding to the Company. Company contributions to the Plan were $78,000, $181,000 and $51,000 accrued for 2005, 2004 and 2003, respectively. Contributions were used to repay the loan as discussed below and/or acquire newly issued shares of the Company. During 2005 and 2003, contributions were used to acquire 2,000 and 17,000 shares, respectively.          During 2003, the Company loaned $200,000 to the ESOP so that the ESOP could acquire 130,719 newly issued shares of the Company's common stock. The shares issued to the ESOP were pledged as collateral for the debt. Company contribution amounts are used in the following year to repay the debt or acquire new shares for the plan. During 2005 and 2004, accrued contributions used to repay the loan balance were $155,000 and $45,000, respectively. During 2005, the loan balance was repaid in full. As the debt was repaid, shares were released from collateral and allocated to active employees, based on the proportion of debt service paid in the year compared to the total debt service estimated for the current and future years.    Allied Motion Employee Stock Repurchase Program            Up until December 31, 2005, the Company offered a stock repurchase program whereby up to $125,000 per year could be used to repurchase shares of common stock from employees at fair value. The Company repurchased 2,000, 6,000 and 2,000 shares during 2005, 2004 and 2003 respectively. This program ended December 31, 2005.  8. LOANS RECEIVABLE FOR STOCK           At December 31, 2004 the Company had $155,000 receivable from its ESOP. This represents the unpaid balance of the original $200,000 the Company loaned to the Plan during 2003. The note bore  43       an annual interest rate of 5.75% and was scheduled to mature May 31, 2018. The ESOP used contributions from the Company to repay the loan balance. On March 15, 2005, the 2004 contribution amount of $181,000 was used to repay the loan balance and purchase 2,000 shares of newly issued shares of the Company.  9. COMMITMENTS AND CONTINGENCIES     Operating Leases            At December 31, 2005, the Company maintains leases for certain facilities and equipment. The Company has entered into facility agreements, some of which contain provisions for future rent increases. The total amount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to "Deferred rent obligation," which is included in "Accrued liabilities and other" in the accompanying Balance Sheet. Minimum future rental commitments under all non-cancelable operating leases are as follows (in thousands):     Year ending December 31,    Total   2006   $ 598   2007     431   2008     438   2009     354   2010     252   Thereafter     632              $ 2,705                   Rental expense was $715,000, $551,000, and $468,000 in Years 2005, 2004 and 2003, respectively.    Capital Leases            The Company leases certain machinery and equipment under agreements that are classified as capital leases. The cost of equipment under capital leases included in the accompanying consolidated balance sheets as property, plant and equipment was $680,000 and $610,000 at December 31, 2005 and 2004, respectively. Accumulated amortization of the leased equipment at December 31, 2005 and December 31, 2004 was $229,000 and $106,000, respectively. Amortization of assets under capital leases is included in depreciation expense.  44              The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2005, are as follows (in thousands):     Year ending December 31,        2006   $ 205   2007     93   2008     4          Total minimum lease payments     302   Less: amount representing interest and other     30          Present value of net minimum lease payments     272   Less: Current maturities of capital lease obligations     180          Long-term capital lease obligations   $ 92             Severance Benefit Agreements            The Company has entered into annually renewable severance benefit agreements with seven key employees which, among other things, provide inducement to the employees to continue to work for the Company during and after any period of threatened takeover. The agreements provide the employees with specified benefits upon the subsequent severance of employment in the event of change in control of the Company and are effective for 24 months thereafter. The amount of salary and bonus that could be required to be paid under these contracts, if such events occur, totaled approximately $1,822,000 and $1,731,000, respectively as of December 31, 2005 and 2004. In addition to the salary, severance benefits include payment of 20% of annual salary for life, disability, accident and health insurance for 24 months and a pro-rata calculation of bonus for the current year.    Litigation            The Company is involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant adverse affect on the Company's consolidated financial position or results of operations.  10. PENSION AND POSTRETIREMENT WELFARE PLANS     Pension Plan            Motor Products has a defined benefit pension plan covering substantially all of its hourly union employees hired prior to April 10, 2002. The benefits are based on years of service, the employee's compensation during the last three years of employment, and accumulated employee contributions.  45              The following tables provide a reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the Consolidated Balance Sheet at December 31, 2005 and December 31, 2004 (in thousands):         December 31, 2005   December 31, 2004     Change in projected benefit obligation:                 Projected benefit obligation at beginning of period   $ 3,882   $ 3,245     Service cost     113     90     Employee contributions     14     13     Interest cost     214     197     Actuarial loss     74     542     Benefits paid     (201 )   (205 )               Projected benefit obligation at end of period   $ 4,096   $ 3,882                 Change in plan assets:                 Fair value of plan assets at beginning of period   $ 3,238   $ 3,131     Actual return on plan assets     168     299     Employee contributions     14     13     Benefits and expenses paid     (201 )   (205 )               Fair value of plan assets at end of period   $ 3,219   $ 3,238                           December 31, 2005    December 31, 2004     Excess of projected benefit obligation over fair value of plan assets   $ 877   $ 644     Unrecognized loss     (263 )   (74 )               Accrued pension cost   $ 614   $ 570     Additional minimum liability     191     —                     $ 805   $ 570                          The accumulated benefit obligation for the pension plan was $4,024,000 at December 31, 2005 and $3,773,000 at December 31, 2004.          Components of net periodic pension expense included in the consolidated statements of operations for years 2005, 2004 and 2003 are as follows (in thousands):         For the year ended December 31, 2005   For the year ended December 31, 2004   For the year ended December 31, 2003     Service cost   $ 113   $ 90   $ 85     Interest cost on projected benefit obligation     214     197     185     Expected return on assets     (282 )   (273 )   (241 )                  Net periodic pension expense   $ 45   $ 14   $ 29                     46              The weighted average assumptions used to determine benefit obligations were as follows:         December 31, 2005   December 31, 2004   Discount rate   5.50%   5.75%   Rate of compensation increases   5.00%   5.00%            The weighted average assumptions used to determine net periodic benefit cost are as follows:         For the year ended December 31, 2005   For the year ended December 31, 2004   Discount rate   5.50%   5.75%   Expected long-term rate of return on plan assets   9.00%   9.00%   Rate of compensation increases   5.00%   5.00%            Quarterly contributions were not required for 2005. The minimum required contribution for 2005 of $74,446 will be paid by the date the Company files its U.S. income tax return or September 15, 2006, whichever is earlier. The Company expects to contribute approximately $75,000 to the pension plan for 2006.          The pension plan assets allocation at December 31, 2005 and 2004 were as follows:         December 31, 2005   December 31, 2004   Cash equivalents   4%   1%   Equity securities   71%   70%   Fixed income securities   25%   29%             Total   100%   100%                      The pension assets are managed by an outside investment manager. The Company's investment policy with respect to pension assets is to make investments solely in the interest of the participants and beneficiaries of the plans and for the exclusive purpose of providing benefits accrued and defraying the reasonable expenses of administration. The Company strives to maintain investment diversification to assist in minimizing the risk of large losses.    Postretirement Welfare Plan            Motor Products provides postretirement medical insurance and life insurance benefits to employees hired before January 1, 1994 who retire from Motor Products. Partial contributions from retirees are required for the medical insurance benefits. The Company's portion of the medical insurance premiums are funded from the general assets of the Company. The Company recognizes the expected cost of providing such post-retirement benefits during employees' active service periods.  47              The following tables provide a reconciliation of the change in the accumulated postretirement benefit obligation and the net amount recognized in the Consolidated Balance Sheet at December 31, 2005 and December 31, 2004 (in thousands):         December 31, 2005   December 31, 2004     Change in postretirement benefit obligation:                 Accumulated postretirement benefit obligation at beginning of period   $ 3,522   $ 2,136     Service cost     68     46     Interest cost     191     146     Actuarial loss     2,464     1,272     Benefits paid     (122 )   (78 )               Accumulated postretirement benefit obligation at end of period   $ 6,123   $ 3,522                  Accrued postretirement benefit cost at the beginning of period   $  2,502   $  2,388     Net periodic postretirement cost     300     192     Employer contribution     (122 )   (78 )   Other     18     —                 Accrued postretirement benefit cost at end of period   $ 2,698   $ 2,502                          In determining the accumulated postretirement benefit obligation at December 31, 2005, the Company's blended insurance premium rate for all active and retiree participants in the Company's medical insurance plans was used. The blended rate is higher than the rate would be for retiree participants only. The Company intends to re-determine the rate to use for 2006 based on a revision of retiree benefits.          Net periodic postretirement benefit costs included in the consolidated statements of operations for years 2005, 2004 and 2003, and are as follows (in thousands):         For the year ended December 31,         2005   2004   2003     Service cost   $ 68   $ 46   $ 61     Interest cost     191     146     122     Amortization of loss (gain)     41     —     (5 )                  Total   $ 300   $ 192   $ 178                     48              For measurement purposes, an annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to the ultimate rate by a said year, and remain at that level thereafter, per the following:         December 31, 2005   December 31, 2004   Annual rate of increase per capita of covered health care benefits   11.25%   12.00%   Ultimate rate   5.00%   5.00%   Year ultimate rate is reached   2014   2013            Postretirement medical liabilities can be extremely sensitive to changes in the assumed rate of future medical increases, and, therefore the healthcare cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed healthcare cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 2005 by $1,233,800 and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for year 2005 by $59,600. Decreasing the assumed healthcare postretirement benefit obligation as of December 31, 2005 by 1% decreases the accumulated postretirement benefit obligation by $953,600 and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for year 2005 by $45,200. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 5.50% and 5.75% as of December 31, 2005 and 2004, respectively. The weighted average discount rate used to determine the net periodic postretirement benefit cost was 5.50% for 2005 and 5.75% for 2004.          The Company expects to contribute approximately $79,000 to the postretirement welfare plan during 2006.  11. RESTRUCTURING CHARGES           Restructuring charges include the costs associated with the Company's strategy of reducing its facility requirements and implementing lean manufacturing initiatives. These charges consist of costs that are incremental to the Company's ongoing operations and, for Years 2004 and 2003, include employee termination related charges. The Company recorded restructuring charges of zero, $10,000 and $211,000 for the years ended December 31, 2005, 2004 and 2003, respectively.          At December 31, 2005, there were no outstanding liabilities related to the restructuring charges included in accrued liabilities and other in the consolidated balance sheet.  12. SEGMENT INFORMATION           SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires disclosure of operating segments, which as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.          The Company operates in one segment for the manufacture and marketing of motion control products for original equipment manufacturers and end user applications. In accordance with SFAS No. 131, the Company's chief operating decision maker has been identified as the Office of the President and Chief Operating Officer, which reviews operating results to make decisions about  49       allocating resources and assessing performance for the entire company. SFAS No. 131, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under SFAS No. 131 due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by SFAS No. 131 can be found in the accompanying consolidated financial statements and within this note.          The Company's wholly owned foreign subsidiary, Premotec, located in Dordrecht, The Netherlands and is included in the accompanying consolidated financial statements. Financial information related to the foreign subsidiary is summarized below (in thousands):         For the year ended and as of December 31,       2005   2004   2003   Revenues derived from foreign subsidiaries   $ 13,790   $ 5,018   $ 773   Identifiable assets     7,981     8,927     34            Sales to customers outside of the United States were $20,096,000 $13,737,000, and $7,371,000, in years 2005, 2004 and 2003.          During Years 2005 and 2004, no single customer accounted for more than 10% of total revenues.  13. ISSUANCE OF RESTRICTED STOCK           During 2004, the Company issued 198,177 shares of unregistered restricted common stock under the terms of a Stock Purchase Agreement. The purchasers of these shares were certain trusts and pension plans, the beneficiaries of which are Michel Robert and members of his immediate family. The $1,000,000 aggregate purchase price for the shares represented the fair value of the stock at the time the Company received the purchase price. Subsequent to the issuance of shares, Mr. Robert was appointed as a director of the Company.  14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)           Selected quarterly financial data for each of the four quarters in years 2005, 2004 and 2003 is as follows (in thousands, except per share data):     Year 2005    First Quarter   Second Quarter   Third Quarter   Fourth Quarter   Revenues   $ 18,455   $ 18,913   $ 18,043   $ 18,891   Gross margin     4,088     4,224     4,198     3,674   Net income     168     368     383     4   Basic income per share     .03     .06     .06     .00   Diluted income per share     .02     .05     .06     .00    50          Year 2004     First Quarter    Second Quarter    Third Quarter    Fourth Quarter   Revenues   $ 11,248   $ 15,104   $ 18,042   $ 18,344   Gross margin     3,047     4,064     4,563     4,784   Net income     427     608     612     603   Basic income per share     .09     .11     .10     .10   Diluted income per share     .08     .10     .09     .09        Year 2003     First Quarter    Second Quarter    Third Quarter    Fourth Quarter   Revenues   $ 9,176   $ 9,736   $ 9,838   $ 10,684   Gross margin     2,203     2,553     2,292     3,219   Net Income (loss)     (149 )   302     403     392   Basic income (loss) per share     (.03 )   .06     .08     .08   Diluted income (loss) per share     (.03 )   .06     .08     .07    51             Item 9A. Controls and Procedures.              The Company's controls and procedures include those designed to ensure that material information is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure. As of December 31, 2005 the Company's chief executive officer and chief financial officer evaluated the effectiveness of the Company's disclosure controls and procedures designed to ensure that information is recorded, processed, summarized and reported in a timely manner as required by Exchange Act reports such as this Form 10-K and concluded that they are effective.          There has not been any change in the Company's internal controls over financial reporting during the quarter ended December 31, 2005 that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting.      PART III          Item 10. Directors and Executive Officers of the Registrant.              The Company's definitive proxy statement which will be filed with the SEC pursuant to Registration 14A within 120 days of the end of the Company's fiscal year is incorporated herein by reference.      Item 11. Executive Compensation.              The Company's definitive proxy statement which will be filed with the SEC pursuant to Registration 14A within 120 days of the end of the Company's fiscal year is incorporated herein by reference.      Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.              The Company's definitive proxy statement which will be filed with the SEC pursuant to Registration 14A within 120 days of the end of the Company's fiscal year is incorporated herein by reference. Also incorporated by reference is the information in the table under the heading "Equity Compensation Plan" included in Item 5 of the Form 10-K.      Item 13. Certain Relationships and Related Transactions.              Prior to its termination by mutual consent on April 28, 2005 the Company entered into a Consulting Agreement, effective September 1, 1998, with Eugene E. Prince, who resigned from the offices of President and Chief Executive Officer on August 13, 1998 and retired from employment with the Company effective August 31, 1998. Under the Consulting Agreement, he would be compensated for providing consulting services to the Company as requested by the Chief Executive Officer. During years 2005, 2004 and 2003, the Transition Period and fiscal year 2002, Mr. Prince was not paid for providing any consulting services.      Item 14. Principal Accountant Fees and Services              The Company's definitive proxy statement which will be filed with the SEC pursuant to Registration 14A within 120 days of the end of the Company's fiscal year is incorporated herein by reference.  52           PART IV          Item 15. Exhibits and Financial Statement Schedules.       a)The following documents are filed as part of this Report:   1.Financial Statements   a)Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004. b)Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003. c)Consolidated Statements of Stockholders' Investment and Comprehensive Income for the years 2005, 2004 and 2003. d)Consolidated Statements of Cash Flows for the years 2005, 2004 and 2003. e)Notes to Consolidated Financial Statements. f)Report of Independent Registered Public Accounting Firm.   2.Financial Statement Schedules    II.    Valuation and Qualifying Accounts.    3.Exhibits      Exhibit No.   Subject    3.1    Restated Articles of Incorporation filed with the Colorado Secretary of State on November 13, 1989. (Incorporated by reference to Exhibit 3.1 to the Company's Form S-3 Registration Statement as filed on September 17, 2004.)    3.2    Amendment to Articles of Incorporation filed with the Colorado Secretary of State on September 29, 1993. (Incorporated by reference to Exhibit 3.2 to the Company's Form S-3 Registration Statement as filed on September 17, 2004.)    3.3    Amendment to Articles of Incorporation filed with the Colorado Secretary of State on October 31, 2002. (Incorporated by reference to Exhibit 3.3 to the Company's Form S-3 Registration Statement as filed on September 17, 2004.)    3.4    By-laws of the Company, amended and restated as of February 16, 2006.     10.0*    The Amended 1991 Incentive and Nonstatutory Stock Option Plan dated August 1, 1998. (Incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended June 30, 1998.)     10.1*    Year 2000 Stock Incentive Plan. (Incorporated by reference to Exhibit A to the Company's Proxy Statement dated September 21, 2000.)     10.2*    2001 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit B to the Company's Proxy Statement dated September 21, 2000.)    10.3    Stock Purchase Agreement among Motor Products—Owosso Corporation, Motor Products—Ohio Corporation, Owosso Corporation and Hathaway Motion Control Corporation. (Incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for the fiscal year ended June 30, 2002.)             53          10.4    Agreement and Plan of Merger, dated as of February 10, 2004, by and among Allied Motion Technologies Inc., AMOT Inc. and Owosso Corporation. (Incorporated by reference to the Company's Form S-4/A as filed on March 26, 2004.)    10.5    Share Purchase Agreement dated July 23, 2004 by and among Premotec Holding B.V., Premotec Beheer B.V., Allied Motion Technologies Netherlands BV, and Allied Motion Technologies Inc. (Incorporated by reference to Exhibit 2 to the Company's Form 8-K dated August 23, 2004.)     10.6*    Amendment No. 1 to the Year 2000 Stock Incentive Plan. (Incorporated by reference to Exhibit B to the Company's Proxy Statement dated September 30, 2002.)     10.7*    Employment Agreement between Allied Motion Technologies Inc. and Richard D. Smith, effective August 1, 2003. (Incorporated by reference to Exhibit 10.11 to the Company's Form 10-K for the year ended December 31, 2003.)     10.8*    Change of Control Agreement between Allied Motion Technologies Inc. and Richard D. Smith, effective July 24, 2003. (Incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the year ended December 31, 2003.)     10.9*    Employment Agreement between Allied Motion Technologies Inc. and Richard S. Warzala, effective March 1, 2003. (Incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 2003.)     10.10*    Change of Control Agreement between Hathaway Corporation and Richard S. Warzala, effective May 1, 2002. (Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K for the year ended December 31, 2003.)     10.11*    Amendment No. 2 to the Year 2000 Stock Incentive Plan. (Incorporated by reference to Exhibit B to the Company's Proxy Statement dated March 29, 2004.)    10.12    Revolving Credit and Security Agreement dated May 7, 2004 between Allied Motion Technologies Inc. and certain subsidiaries of Allied Motion Technologies, PNC Bank, National Association and Silicon Valley Bank. (Incorporated by reference to Exhibit 99.1 to the Company's Form 8-K dated February 8, 2005.)    10.13    Term Loan and Security Agreement dated May 7, 2004 between Allied Motion Technologies Inc. and certain subsidiaries of Allied Motion Technologies and PNC Bank, National Association. (Incorporated by reference to Exhibit 99.2 to the Company's Form 8-K dated February 8, 2005.)    10.14    Term Loan and Security Agreement dated May 7, 2004 between Allied Motion Technologies Inc. and certain subsidiaries of Allied Motion Technologies and Silicon Valley Bank. (Incorporated by reference to Exhibit 99.3 to the Company's Form 8-K dated February 8, 2005.)    10.15    First Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents dated as of August 23, 2004. (Incorporated by reference to Exhibit 99.4 to the Company's Form 8-K dated February 8, 2005.)             54          10.16    Second Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents dated as of November 15, 2004. (Incorporated by reference to Exhibit 99.5 to the Company's Form 8-K dated February 8, 2005.)    10.17    Third Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents dated as of July 11, 2005.    10.18    Fourth Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents dated as of November 1, 2005.    14.1    Code of Ethics for chief executive officer, president and senior financial officers adopted October 23, 2003. (Incorporated by reference to Exhibit 14.1 to the Company's Form 10-K for the year ended December 31, 2003.)    21    List of Subsidiaries    23    Consent of KPMG LLP.    31.1    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a—14(a) or 15d—14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    31.2    Certification of the President and Chief Operating Officer pursuant to Rule 13a—14(a) or 15d—14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    32    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *Denotes management contract or compensatory plan or arrangement.  55             SIGNATURES              Pursuant to the requirements of Section 13 or 15(d) 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.         ALLIED MOTION TECHNOLOGIES INC.        By:  /s/  RICHARD D. SMITH       Richard D. Smith Chief Executive Officer, Chief Financial Officer and Director  Date: March 24, 2006            Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.     Signatures    Title   Date                 /s/  RICHARD D. SMITH       Richard D. Smith   Chief Executive Officer, Chief Financial Officer and Director   March 24, 2006    /s/  DELWIN D. HOCK       Delwin D. Hock    Chairman of the Board of Directors    March 24, 2006    /s/  EUGENE E. PRINCE       Eugene E. Prince    Director    March 24, 2006    /s/  GEORGE J. PILMANIS       George J. Pilmanis    Director    March 24, 2006    /s/  GRAYDON D. HUBBARD       Graydon D. Hubbard    Director    March 24, 2006    /s/  MICHEL M. ROBERT       Michel M. Robert    Director    March 24, 2006    56             ALLIED MOTION TECHNOLOGIES INC.         SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS  (In thousands)             Balance at Beginning of Period   Charged to Costs and Expenses   Deductions from Reserves   Other   Balance at End of Period   Year Ended December 31, 2005:                                   Reserve for bad debts   $ 235   $ 146   $ (92 ) $ (8 ) $ 281     Reserve for excess or obsolete inventories   $ 1,496   $ 586   $ (348 ) $ (52 ) $ 1,682     Valuation allowance for deferred tax assets   $ 352   $ —   $ (37 ) $ —   $ 315                      Year Ended December 31, 2004:                                        Reserve for bad debts   $ 106   $ 61   $ (32 ) $ 100   $ 235     Reserve for excess or obsolete inventories   $ 805   $ 136   $ (242 ) $ 797   $ 1,496     Valuation allowance for deferred tax assets   $ 352   $ 59   $ (59 ) $ —   $ 352                      Year Ended December 31, 2003:                                        Reserve for bad debts   $ 148   $ 47   $ (89 ) $ —   $ 106     Reserve for excess or obsolete inventories   $ 1,024   $ 135   $ (354 ) $ —   $ 805     Valuation allowance for deferred tax assets   $ 424   $ —   $ (72 ) $ —   $ 352                       57            EX-3.4 2 a2168753zex-3_4.htm EX 3.4       QuickLinks  -- Click here to rapidly navigate through this document     Exhibit 3.4           Amended and Restated as of February 16, 2006            BYLAWS  OF  ALLIED MOTION TECHNOLOGIES INC.      ARTICLE I. OFFICES   § 1.1 Business Office.           The principal office of the corporation shall be located at any place either within or outside the state of Colorado as designated in the corporation's most current Annual Report filed with the Colorado Secretary of State. The corporation may have such other offices, either within or without the State of Colorado as the board of directors may designate or as the business of the corporation may require from time to time.  § 1.2 Registered Office.           The registered office of the corporation required by C.R.S. § 7-105-101 may, but need not, be identical with the principal office (if located within Colorado). The address of the registered office may be changed from time to time.  ARTICLE II. SHAREHOLDERS   § 2.1 Annual Shareholder Meeting.           The annual meeting of the shareholders shall be held within 180 days after the close of the corporation's fiscal year at a time and date as is determined by the board of directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting.  § 2.2 Special Shareholder Meetings.           (a)   Authority. Special meetings of the shareholders, for any purpose or purposes described in the meeting notice, may be called by the president or by the board of directors and shall be called by the president at the request of the holders of not less than one-tenth of all outstanding votes of the corporation entitled to be cast on any issues at the meeting.          (b)   Procedure. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board of directors of the corporation. No business may be transacted at such special meeting other than specified in such notice. The board of directors shall determine the time and place of such special meeting, which shall be held not less than 30 nor more than 120 days after the date of the receipt of the request. The chairman shall cause notice to be given to the shareholders entitled to vote. If the notice is not given within 60 days after the receipt of the request, the persons or person requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held.  1       § 2.3 Place of Shareholder Meeting.           Meetings of shareholders may be held in or out of the state of Colorado at locations fixed by the board of directors. If no designation is made the place of meeting shall be the principal office of the corporation in the state of Colorado.  §2.4 Notice of Shareholder Meeting.           (a)   Time, Place, Purpose, Effective. Written notice stating the place, date, and hour of the meeting shall be given not less than 10 nor more than 60 days before the date of the meeting, except that (i) if the number of authorized shares is to be increased, at least 30 days notice shall be given, or (ii) any other notice requirement of the Colorado Business Corporation Act (herein referred to as the "Act") shall be provided. Notice of a special meeting shall include a description of the purpose or purposes of the meeting. Notice of an annual meeting need not include a description of the purpose or purposes of the meeting unless required by the Act, the articles of incorporation or these bylaws. Notice shall be given personally or by mail, private carrier, telegraph, teletype, electronically transmitted facsimile or other form of wire or wireless communication by or at the direction of the chairman or the president or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Notice shall be deemed to be effective at the earlier of: (i) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid; (ii) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (iii) when received; or (iv) 5 days after deposit in the United States mail if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders.          (b)   Undeliverable Notice. No notice need be sent to any shareholder if three successive notices mailed to the last known address of such shareholder have been returned as undeliverable until such time as another address for such shareholder is made known to the corporation by such shareholder. In order to be entitled to receive notice of any meeting, a shareholder shall advise the corporation in writing of any change in such shareholder's mailing address as shown on the corporation's books and records.          (c)   Adjourned Meeting. When a meeting is adjourned to another date, time or place, notice need not be given of the new date, time or place if the new date, time or place of such meeting is announced before adjournment at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which may have been transacted at the original meeting. If the adjournment is for more than 120 days, or if a new record date is fixed for the adjourned meeting, a new notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting as of the new record date.  § 2.5 Waiver of Notice.           A shareholder may waive notice of a meeting before or after the time and date of the meeting by a writing signed by such shareholder. Such waiver shall be delivered to the corporation for filing with the corporate records. Further, by attending a meeting either in person or by proxy a shareholder waives objection to lack of notice or defective notice of the meeting unless the shareholder objects at the beginning of the meeting to the holding of the meeting or the transaction of business at the meeting because of lack of notice or defective notice. By attending the meeting, the shareholder also waives any objection to consideration at the meeting of a particular matter not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented.  2       § 2.6 Fixing of Record Date.           (a)   Meetings, Distributions. For the purpose of determining shareholders entitled to (i) notice of or vote at any meeting of shareholders or any adjournment thereof, (ii) receive distributions or share dividends, or (iii) demand a special meeting, or to make a determination of shareholders for any other proper purpose, the board of directors may fix a future date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days, and, in case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed by the directors, the record date shall be the date on which notice of the meeting is mailed to shareholders, or the date on which the resolution of the board of directors providing for a distribution is adopted, as the case may be. When a determination of shareholders entitled to vote at any meeting of shareholders is made as provided in this section such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.          (b)   Consent Action, Shareholder Demands. The record date for determining the shareholders entitled to take action without a meeting shall be the date a writing upon which the action is taken is first received by the corporation. The record date for determining shareholders entitled to demand a special meeting shall be the date of the earliest of any of the demands pursuant to which the meeting is called.  § 2.7 Organization of Shareholder Meeting.           (a)   Officers of the Meeting. The chairman of the board of directors shall preside at each meeting of shareholders or, if a chairman of the board of directors has not been appointed or is absent, the chief executive officer or president, in that order, if present, shall preside. In the absence of any such officers, any director present shall preside and if there be more than one director present, a director chosen by majority vote of those directors present shall preside. If no presiding officer is selected as provided above, the meeting shall be chaired by a person chosen by the vote of a majority in interest of the shareholders present in person or represented by proxy and entitled to vote thereat. The secretary or in his or her absence an assistant secretary or in the absence of the secretary and all assistant secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof.          (b)   Conduct of Meeting. The board of directors of the corporation shall be entitled to make such rules or regulations for conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting including, without limitation, establishing (i) an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof, (v) limitations on the time allotted to questions or comment by participants, and (vi) regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure.          (c)   Business Brought Before the Meeting. At an annual meeting of the shareholders only such business shall be conducted as shall have been properly brought before the meeting. To be properly  3       brought before an annual meeting business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors, or (iii) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, including any proposal relating to the nomination of a person under § 2.15 to be elected to the Board of Directors of the corporation, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal office of the corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting of shareholders;  provided, however, that in the event no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the shareholder to be timely must be so received at a reasonable time before the solicitation is made. A shareholder's notice to the secretary shall set forth: (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director, the information required to be provided pursuant to § 2.15, (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (iii) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (iv) the class and number of shares of the corporation which are beneficially owned by the shareholder, and (v) any material interest of the shareholder in such business. Notwithstanding the foregoing, in order to include information with respect to a shareholder proposal in the proxy statement and form of proxy for a shareholder's meeting, shareholders must provide notice as required by the regulations promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"). Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this § 2.7(c). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this § 2.7(c), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.  § 2.8 Recognition Procedure for Beneficial Owners.           The board of directors may adopt by resolution a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. The resolution may set forth (i) the types of nominees to which it applies, (ii) the rights or privileges that the corporation will recognize in a beneficial owner, which may include rights and privileges other than voting, (iii) the form of certification and the information to be contained therein, (iv) if the certification is with respect to a record date, the time within which the certification must be received by the corporation, (v) the period for which the nominee's use of the procedure is effective, and (vi) such other provisions with respect to the procedure as the board deems necessary or desirable. Upon receipt by the corporation of a certificate complying with the procedure established by the board of directors, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the registered holders of the number of shares specified in place of the shareholder making the certification.  § 2.9 Shareholder List.           The secretary shall make a complete record of the shareholders entitled to vote at each meeting of shareholders arranged in alphabetical order, with the address of and the number of shares held by each. The list must be arranged by voting group (if such exists), and within each voting group by class or series of shares. The shareholder list must be available for inspection by any shareholder beginning  4       at the earlier of 10 days before the meeting or 2 business days after notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder, his agent or attorney, is entitled on written demand to inspect and, subject to the requirements of § 2.17, to copy the list during regular business hours, and at his expense, during the period it is available for inspection. The corporation shall maintain the shareholder list in written form or in another form capable of conversion into written form within a reasonable time.  § 2.10 Shareholder Quorum and Voting Requirements.           Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.          If voting by two or more voting groups on a matter is permitted or required, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.          Once a share is represented for any purpose at a meeting it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.          If a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required.  § 2.11 Proxies.           At all meetings of shareholders a shareholder may vote by proxy by signing an appointment form or similar writing, either personally or by his duly authorized attorney-in-fact. A shareholder may also appoint a proxy by transmitting or authorizing the transmission of a telegram, teletype or other electronic transmission providing a written statement of the appointment to the proxy, a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the corporation. The transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. The proxy appointment form or similar writing shall be filed with the secretary of the corporation before or at the time of the meeting. The appointment of a proxy is effective when received by the corporation and is valid for eleven months unless a different period is expressly provided in the appointment form or similar writing.          Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original appointment for any purpose for which the original appointment could be used.          Revocation of a proxy does not affect the right of the corporation to accept the proxy's authority unless (i) the corporation had notice that the appointment was coupled with an interest and notice that such interest has been extinguished is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment, or (ii) other notice of the revocation of the appointment is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. Other notice of revocation may, in the discretion of the corporation, be deemed to include the appearance at a  5       shareholders' meeting of the shareholder who granted the proxy and his voting in person on any matter subject to a vote at such meeting.          The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.          The corporation shall not be required to recognize an appointment made irrevocable if it has received a writing revoking the appointment signed by the shareholder (including a shareholder who is successor to the shareholder who granted the proxy) either personally or by his attorney-in-fact, notwithstanding that the revocation may be a breach of an obligation of the shareholder to another person not to revoke the appointment.          Subject to § 2.13 and any express limitation on the proxy's authority appearing on the appointment form, the corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.  § 2.12 Voting of Shares.           Each outstanding share entitled to vote shall be entitled to one vote and each fractional share shall be entitled to a corresponding fractional vote upon each matter submitted to a vote at a meeting of shareholders.          Except as provided by specific court order, no shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting;  provided, however, the prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.  § 2.13 Corporation's Acceptance of Votes.           (a)   Corresponds to Name of Shareholder. If the name signed on a vote, consent, waiver, proxy appointment or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and give it effect as the act of the shareholder.          (b)   Does not Correspond. If the name signed on a vote, consent, waiver, proxy appointment or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and give it effect as the act of the shareholder if:           (1)   the shareholder is an entity as defined in the Act and the name signed purports to be that of an officer or agent of the entity;          (2)   the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;          (3)   the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;   6                (4)   the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;          (5)   two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners; or          (6)   the acceptance of the vote, consent, waiver, proxy appointment or proxy appointment revocation is otherwise proper under rules established by the corporation that are not inconsistent with this § 2.13(b).           (c)   Rejection Upon Reasonable Doubt. The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.          (d)   Not Liable In Damages. The corporation and its officer or agent who accept or reject a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.          (e)   Corporate Action Valid. Corporate action based on the acceptance or rejection of a vote, consent, waiver, proxy appointment or proxy appointment revocation under this section is valid unless a court of competent jurisdiction determines otherwise.  § 2.14 Informal Action by Shareholders.           Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if all of the shareholders entitled to vote consent to such action in writing. Action taken under this section has the same effect as action taken at a meeting and may be described as such in any document.  § 2.15 Notification of Nominations of Directors.           Only persons who are nominated in accordance with the procedures set forth in this § 2.15 shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of shareholders by or at the direction of the board of directors, or by any shareholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this § 2.15. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to a timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (c) of § 2.7. Such shareholder's notice shall set forth (i) as to each person, if any, whom the shareholder proposes to nominate for election or reelection as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the shareholder and each nominee or any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the shareholders, and (E) any other information relating to such person that is required to be disclosed in solicitation of proxies for elections of directors, or as otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to be named in the Proxy Statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such shareholder giving notice, the information required to be provided pursuant to paragraph (c) of §  7        2.7. At the request of the board of directors, any person nominated by a shareholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this § 2.15. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.  § 2.16 Voting for Directors.           At each election for directors, every shareholder entitled to vote at such election has the right to vote in person or by proxy. Each shareholder may vote one vote per share for as many persons as there are directors to be elected and for whose election the shareholder has the right to vote. That number of candidates equaling the number of directors to be elected having the highest number of votes cast in favor of their election shall be elected to the board of directors; provided, however, to be elected directors must receive the affirmative vote of the holders of at least two-thirds of the shares of the corporation entitled to vote thereon.  § 2.17 Shareholder's Rights to Inspect Corporate Records.           (a)   Absolute Inspection Rights. If he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, a shareholder (or his agent or attorney) has the right to inspect and copy, during regular business hours, any of the following records, all of which the corporation shall keep at its principal office:           (1)   its articles of incorporation;          (2)   its bylaws;          (3)   the minutes of all shareholders' meetings and records of all action taken by shareholders without a meeting for the past three years;          (4)   all written communications within the past three years to shareholders as a group or to the holders of any class or series of shares as a group;          (5)   a list of the names and business addresses of its current directors and officers;          (6)   its most recent corporate report delivered to the Secretary of State; and          (7)   its most recent annual financial statements and its most recently published financial statement showing in reasonable detail its assets and liabilities and results of its operations.           (b)   Conditional Inspection Right. In addition to the rights set forth in § 2.17(a) a shareholder who has been a shareholder for at least 3 months immediately preceding the demand to inspect or copy, or is a shareholder of at least 5% of all of the outstanding shares of any class of shares of the corporation as of the date the demand is made, is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if (i) the shareholder gives the corporation written demand at least 5 business days before the date on which the shareholder wishes to inspect and copy such records, (ii) such demand is made in good faith and for a proper purpose, (iii) the shareholder describes with reasonable particularity the purpose and the records the shareholder desires to inspect and, (iv) the records are directly connected with the described purpose:           (1)   excerpts from minutes of any meeting of the board of directors or from records of any action taken by the board of directors without a meeting, minutes of any meeting of the   8       shareholders or records of any action taken by the shareholders without a meeting, excerpts of records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, and waivers of notice of any meeting of the shareholders or the board of directors or any committee of the board of directors;          (2)   accounting records of the corporation; and          (3)   a record of the names and addresses of shareholders of the corporation.           (c)   Copy Costs. The right to copy records includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records.          (d)   Beneficial Owner. For purposes of this § 2.17 the term "shareholder" shall include a beneficial owner whose shares are held in a voting trust and any other beneficial owner who establishes beneficial ownership.  ARTICLE III. BOARD OF DIRECTORS   § 3.1 General Powers.           All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors.  § 3.2 Number, Tenure, and Qualifications of Directors.           (a)   Number. As provided in the articles, the authorized number of directors shall be not less than 3 nor more than 6. The current number of directors shall be within the limits specified above, and as determined by resolution adopted by the shareholders or directors.          (b)   Tenure. Each director shall hold office until the next annual meeting of shareholders or until removed; provided, however, if a director's term expires the director shall continue to serve until a successor shall have been elected and qualified, or until there is a decrease in the number of directors. No person shall be nominated to a term of office on the Company's Board of Directors who has attained the age of 75 or more before the first day of the proposed term of office; however, the Board of Directors shall have discretion to make exceptions to the mandatory retirement policy if special circumstances warrant such an exception.          (c)   Qualifications. Directors do not need to be residents of Colorado or shareholders of the corporation.  § 3.3 Regular Meetings of the Board of Directors.           A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.  § 3.4 Special Meetings of the Board of Directors.           Special meetings of the board of directors may be called by or at the request of the chairman or any two directors. The chairman of the board of directors may fix any place as the place for holding any special meeting of the board of directors, or such meeting may be held by telephone.  9        § 3.5 Notice of, and Waiver of Notice for, Special Director Meetings.           Notice of the date, time and place of any special meeting of directors shall be given at least three days previously thereto either orally or in writing. Oral notice is effective when communicated. If mailed, notice of any director meeting shall be deemed to be effective at the earlier of: (i) when received; (ii) five days after deposited in the United States mail, addressed to the director's business office, with postage thereon prepaid; or (iii) the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the director. Any director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the corporation for filing with the corporate records. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice, and does not thereafter vote for or assent to action taken at the meeting. Unless required by the articles of incorporation, neither the business to be transacted at, nor the purpose of, any special meeting of the directors need be specified in the notice or waiver of notice of such meeting.  § 3.6 Quorum.           A majority of the current number of directors fixed pursuant to § 3.2 shall constitute a quorum for the transaction of business at any meeting of the board of directors.  § 3.7 Manner of Acting.           The act of the majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors unless the articles require a greater number or percentage.          Any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.          A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (i) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting; or (ii) he contemporaneously requests that his dissent or abstention from specific action taken be entered in the minutes of the meeting; or (iii) he delivers written notice of his dissent or abstention to specific action to the presiding officer of the meeting, before its adjournment, or to the corporation promptly after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.  § 3.8 Director Action Without a Meeting.           Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors take the action, and each one signs a written consent describing the action taken. Action taken by consents is effective when the last director signs the consent unless before such time a director has revoked his consent by a writing received by the secretary and unless the consent specifies a different effective date. A signed consent has the effect of a meeting vote and may be described as such in any document.  10       § 3.9 Removal of Directors.           The shareholders may remove one or more directors at a meeting if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause. A director may be removed only by a vote of at least two-thirds of the shares then entitled to vote at an election of directors.  § 3.10 Board of Director Vacancies.           If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy, the board of directors may fill the vacancy, or if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. When a vacancy has been filled as permitted by this § 3.10 by action of the board of directors or by the directors remaining in office even though fewer than a quorum before action by the shareholders, the shareholders may thereafter act to fill such vacancy only by first removing the director in question.          A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.          The term of a director elected by directors to fill a vacancy expires at the next shareholders' meeting at which directors are elected. If elected by the shareholders the director shall hold office for the unexpired term of his predecessor in office. However, if his term expires the director shall continue to serve until his successor is elected and qualifies or until there is a decrease in the number of directors.  § 3.11 Director Compensation.           By resolution of the board of directors each independent director may be paid compensation and be reimbursed for expenses for attendance at board and corporate meetings and may receive additional compensation for other services to the corporation.  § 3.12 [Omitted.]   § 3.13 Director Committees.           (a)   Creation of Committees. The board of directors may create one or more committees and appoint members of the board of directors to serve on them. Each committee must have two or more members, who serve at the pleasure of the board of directors.          (b)   Required Procedures. Sections 3.4, 3.5, 3.6, 3.7 and 3.8, which govern meetings, notice and waiver of notice, quorum, manner of acting, and action without meetings of the board of directors, apply to committees and their members.          (c)   Authority. Each committee shall make recommendations to the board of directors on such subjects as are stated in the resolution creating the committee and no committee shall have authority to act for the board of directors.  ARTICLE IV. OFFICERS   § 4.1 Number of Officers.           The officers of the corporation shall include, if and when appointed by the board of directors, a chairman of the board of directors (sometimes referred to herein as "chairman") a chief executive officer, a president, a chief operating officer, an executive vice president, one or more vice presidents, a  11       secretary, a chief financial officer, a treasurer and a controller. Such other officers and assistant officers as may be deemed necessary may be appointed by the board of directors. The board of directors may assign such additional titles to one or more of the officers as it deems appropriate. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation, except that an individual may not hold the office of secretary and either the office of chief executive officer or president.  § 4.2 Appointment and Term of Office.           The officers of the corporation shall be appointed by the board of directors to serve at the pleasure of the board of directors. The designation of a specified term grants to the officer no contract rights, and the board can remove the officer at any time prior to the termination of such term. If no term is specified, they shall hold office until they resign, die, or are removed.  § 4.3 Removal of Officers.           Any officer or agent may be removed by the board of directors at any time, without notice, with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer or agent shall not of itself create contract rights.  § 4.4 Chairman.           The chairman of the board of directors shall preside at all meetings of the shareholders and of the board of directors at which he is present. The chairman shall have such further powers and perform such duties as are incident to his office or as may be granted to or required of him by the board of directors or by these bylaws including the following:           1.     Provide leadership to the board          2.     Assist the board in the discharge of its duties          3.     Together with the CEO and with input from the other directors, determine the agenda and structure for board and shareholders' meetings          4.     Act as liaison between the board and management          5.     Undertake to see that the corporation develops and implements effective corporate governance principles and procedures          6.     Oversee the development and implementation of an effective corporate strategy          7.     Recommend the proper committee structure including assignments of members and committee chairmen   § 4.5 Chief Executive Officer.           The chief executive officer is the most senior officer of the corporation, and shall have all power and authority implied by that position. He shall have, subject only to direction of the board of directors, supervision and final authority over all other officers except the chairman, and all of the business, property, affairs and policies of the corporation. In the absence of authority granting the power to another officer, the chief executive officer may vote any shares of another corporation which are owned by this corporation. The chief executive officer shall preside at all meetings of the shareholders and of the board of directors when the chairman is not present. Subject to the oversight and supervision of the board of directors, the chief executive officer shall supervise and control the management of the corporation in accordance with these bylaws. Unless another officer is specifically  12       authorized to do so, he may sign and execute all authorized bonds, certificates for shares, contracts, checks or other obligations in the name of the corporation. All other officers of the corporation, except the chairman, shall report to the chief executive officer from time to time, and shall be subject to supervision by the chief executive officer. The chief executive officer shall have general charge of the operation of the business of the corporation including finance and stockholder relations. In general, the chief executive officer shall perform all duties incident to the office and such other duties as may be prescribed by the board of directors from time to time.  § 4.6 President.           Subject to the oversight and supervision of the chief executive officer and the board of directors, and to other provisions of these bylaws, the president shall have general charge of the operation of the business of the corporation. Unless another officer is specifically authorized to do so, the president may sign and execute all authorized bonds, certificates for shares, contracts, checks or other obligations in the name of the corporation. He shall do and perform such other duties as from time to time may be assigned to him by the chief executive officer. The president reports to the chief executive officer. He shall keep the chief executive officer and the board of directors fully informed and shall freely consult with them concerning the business of the corporation in his charge.  § 4.7 Chief Operating Officer           The chief operating officer shall report to the president of the corporation and shall be responsible for the day-to-day operations of the corporation. He shall do and perform such other duties as from time to time may be assigned to him by the president or the chief executive officer.  § 4.8 Executive Vice President.           In the absence of the president, or in the event of his death, inability or refusal to act, the executive vice president shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president.  § 4.9 Vice Presidents.           If there be more than one vice president, the chief executive officer or the board of directors may designate their seniority (such as first vice president, senior vice president, etc.) and/or the particular department of the corporation of which they shall have charge. The vice presidents in order of their seniority by designation, or if not so designated, in the order of their seniority by appointment, shall perform the duties of the executive vice president in his absence or during his inability to act. If there is no executive vice president, then the vice presidents, in order of their seniority by designation, or if not so designated, then the order of their seniority by appointment, shall perform the duties of the president in his absence or during his inability to act. The vice presidents shall have such other duties and powers as may be assigned to or vested in them by the chief executive officer, the president or the board of directors or by the job description relating to any duties associated with management of a particular department.  § 4.10 Secretary.           The secretary shall: (i) keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (iii) be custodian of the corporate records and of any seal of the corporation and if there is a seal of the corporation, see that it is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (iv) when requested or required, authenticate any records of the corporation; (v) keep a register of the  13       post office address of each shareholder which shall be furnished to the secretary by such shareholder; (vi) sign with the chief executive officer or the president certificates for shares of the corporation the issuance of which shall have been authorized by resolution of the board of directors; (vii) have general charge of the stock transfer books of the corporation; and (viii) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to the secretary by the chief executive officer or by the board of directors.  § 4.11 Chief Financial Officer.           The chief financial officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the board of directors or the chief executive officer. The chief financial officer shall perform other duties commonly incident to the office and shall also perform such other duties and such other powers as the board of directors or the chief executive officer shall designate from time to time. The individual holding the office of chief executive officer may perform the duties of chief financial officer and may direct the treasurer or any assistant treasurer, or the controller or any assistant controller to assume and perform the duties of the chief financial officer.  § 4.12 Treasurer.           The treasurer shall: (i) have charge and custody of and be responsible for all funds and securities of the corporation; (ii) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositories as shall be selected by the board of directors; and (iii) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the chief executive officer or by the board of directors. If required by the board of directors, and at company expense, the treasurer shall give a bond for the faithful discharge of duties in such sum and with such surety or sureties as the board of directors shall determine.  § 4.13 Assistant Secretaries and Assistant Treasurers.           The assistant secretaries, when authorized by the board of directors, may sign with the president or a vice president certificates for shares of the corporation the issuance of which shall have been authorized by resolution of the board of directors. The assistant treasurers shall, if required by the board of directors, and at company expense, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the chief executive officer or the board of directors.  § 4.14 Controller.           The controller shall keep financial records for the corporation and report the financial condition of the corporation as requested from time to time.  § 4.15 Salaries.           The compensation of the officers shall be fixed by or in the manner determined by the board of directors.  14       ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES   § 5.1 Indemnification of Directors.           The corporation shall indemnify any individual made a party to a proceeding because he is or was a director of the corporation against liability incurred in the proceeding, but only if the corporation has authorized the payment in accordance with C.R.S. § 7-109.106(1) and a determination has been made in accordance with the procedures set forth in C.R.S. § 7-109-106(2) that the director met the standards of conduct in paragraph (a), (b), and (c) below.          (a)   Standard of Conduct The individual shall demonstrate that:           (1)   he conducted himself in good faith; and          (2)   he reasonably believed:           (i)    in the case of conduct in his official capacity with the corporation that his conduct was in its best interests; and          (ii)   in all other cases, that his conduct was at least not opposed to its best interests; and           (3)   in the case of any criminal proceeding he had no reasonable cause to believe his conduct was unlawful.           (b)   No Indemnification Permitted in Certain Circumstances. The corporation shall not indemnify a director under this § 5.1:           (1)   in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or          (2)   in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.           (c)   Indemnification in Derivative Actions Limited. Indemnification permitted under this § 5.1 in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.  § 5.2 Advance Expenses for Directors.           If a determination is made, following the procedures of C.R.S. § 7-109-106(2), that the director has met the following requirements; and if an authorization of payment is made, following the procedures and standards set forth in C.R.S. § 7-109-106(1), the corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:           (1)   the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in § 5.1(a);          (2)   the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct (which undertaking must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment); and          (3)   a determination is made that the facts then known to those making the determination would not preclude indemnification under § 5.1.   15         § 5.3 Indemnification of Officers, Agents, and Employees Who Are Not Directors.           The corporation shall indemnify and advance expenses to any officer of the corporation or of any of its subsidiaries or any general manager of any division of the corporation which indemnitee is not a director of the corporation to the maximum extent not inconsistent with public policy. The corporation may indemnify and advance expenses to any employee, fiduciary, or agent of the corporation who is not a director of the corporation if not inconsistent with public policy, as determined by the general or specific action of the board of directors.  ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER   § 6.1 Certificates for Shares.           (a)   Content. Certificates representing shares of the corporation shall at a minimum state on their face the name of the corporation and that it is formed under the laws of Colorado, the name of the person to whom issued, and the number and class of shares and the designation of the series, if any, the certificate represents, and be in such form as determined by the board of directors. Such certificates shall be signed (either manually or by facsimile) by the president or a vice-president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified.          (b)   Legend as to Class or Series. The designations, relative rights, preferences and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.          (c)   Transferring Shares. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor as provided in § 6.1(d)          (d)   Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.  § 6.2 Registration of the Transfer of Shares.           Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer the record owner shall surrender the shares to the corporation for cancellation properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.  16       § 6.3 Restrictions on Transfer of Shares Permitted.           The board of directors (or shareholders) may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into or carrying a right to subscribe for or acquire shares). A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.          A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate. Unless so noted a restriction is not enforceable against a person without knowledge of the restriction.  ARTICLE VII. DISTRIBUTIONS   § 7.1 Distributions.           The board of directors may authorize, and the corporation may make, distributions (including dividends on its outstanding shares) in the manner and upon the terms and conditions provided by law and in the corporation's articles of incorporation.  § 7.2 Dividend Reserves.           Before payment of any dividend there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the board of directors shall think best in the interests of the corporation, and the board of directors may modify or abolish any such reserve in the manner in which it was created.  ARTICLE VIII. CORPORATE SEAL   § 8.1 Corporate Seal.           The board of directors may provide a corporate seal which may be circular in form and have inscribed thereon any designation including the name of the corporation, Colorado as the state of incorporation, and the words "Corporate Seal."  ARTICLE IX. AMENDMENTS   § 9.1 Amendments.           The corporation's board of directors may amend or repeal the corporation's bylaws unless (i) such power is reserved exclusively to the shareholders, or (ii) the bylaws prohibit the board of directors from doing so. The corporation's shareholders may amend the bylaws even though the bylaws may also be amended by its board of directors.  17      QuickLinks BYLAWS OF ALLIED MOTION TECHNOLOGIES INC.        EX-10.17 3 a2168753zex-10_17.htm EX 10.17       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 10.17       THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT,  TERM LOAN AND SECURITY AGREEMENTS, AND RELATED DOCUMENTS              This Third Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents ("Agreement") is executed by ALLIED MOTION TECHNOLOGIES, INC. ("Allied Motion"), MOTOR PRODUCTS CORPORATION ("Motor Products"), ALLIED MOTION CONTROL CORPORATION ("Allied Motion Control"), EMOTEQ CORPORATION ("Emoteq"), COMPUTER OPTICAL PRODUCTS, INC. ("Computer Optical"), AMOT I, INC. ("AMOT I"), AMOT II, INC. ("AMOT II"), AMOT III, INC. ("AMOT III"), STATURE ELECTRIC, INC. f/k/a AMOT, Inc. ("New Stature"), AHAB INVESTMENT COMPANY ("Ahab"), PNC BANK, NATIONAL ASSOCIATION ("Agent") as agent for itself, Silicon Valley Bank, and any other lenders under the Revolving Credit Agreement (collectively "Lenders"), PNC BANK, NATIONAL ASSOCIATION ("PNC"), and SILICON VALLEY BANK ("SVB") for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, as of July 11, 2005. Hereinafter, Allied Motion, Motor Products, Allied Motion Control, Emoteq, Computer Optical, AMOT I, AMOT II, AMOT III, New Stature, and Ahab may be referred to individually as a "Borrower" and collectively as the "Borrowers".  Recitals           A.    Borrowers executed and delivered to Agent and Lenders a Revolving Credit and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Revolving Credit and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "Revolving Credit Loan Agreement" and the Revolving Credit Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "Revolving Credit Loan Documents".          B.    Borrowers executed and delivered to PNC a Term Loan and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Term Loan and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "PNC Term Loan Agreement" and the PNC Term Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "PNC Term Loan Documents.          C.    Borrower executed and delivered to SVB a Term Loan and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Term Loan and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "SVB Term Loan Agreement" and the SVB Term Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "SVB Term Loan Documents".          D.    Borrowers wish to modify the Revolving Credit Loan Documents, PNC Term Loan Documents, and SVB Term Loan Documents (collectively "Loan Documents") as set forth in this Agreement.          E.    Agent, Lenders, PNC and SVB are unwilling to modify the Loan Documents unless Borrowers execute and agree to abide by the terms and conditions set forth in this Agreement.  Agreements           1.     Borrowers hereby acknowledge the validity and enforceability of the Loan Documents and reaffirm the truth and accuracy of all of the representations, warranties and other statements contained in the Loan Documents as of the date of this Agreement.               2.     The outstanding principal balance on Borrowers' obligations to Lenders under the Revolving Credit Loan Documents amounted to approximately $5,166,609.47 as of June 20, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Revolving Credit Loan Documents.          3.     The outstanding principal balance on Borrowers' obligations to PNC under the PNC Loan Documents amounted to approximately $4,228,320.00 as of June 20, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Loan Documents.          4.     The outstanding principal balance on Borrowers' obligations to SVB under the SVB Loan Documents amounted to approximately $2,076,388.86 as of June 20, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Loan Documents.          5.     All references to "Borrower" and "Borrowers" in the Loan Documents shall be references to "Borrower" and "Borrowers," as such terms are defined in this Agreement.          6.     Section 2.1(a)(y)(ii)(B) of the Revolving Credit Loan Agreement shall be amended to read:   (B) $3,000,000.00 in the aggregate at any one time, minus           7.     Section 7.6 of the Revolving Credit Loan Agreement and the PNC Term Loan Agreement shall be amended to read:   7.6 Capital Expenditures. Contract for, purchase or make any expenditure or commitments for fixed or capital assets (including capitalized leases) in any fiscal year in an aggregate amount for all Borrowers in excess of $4,000,000.00.           8.     The first sentence of Section 3.4(a) of the Revolving Credit Loan Agreement shall be amended to read:   Borrowers shall pay Agent a collateral evaluation fee equal to $2,000.00 per month commencing on the first day of the month commencing August 1, 2005 and on the first day of each month thereafter during the Term.           9.     Notwithstanding anything to the contrary contained in the Loan Documents, Agent, Lenders, PNC and SVB hereby acknowledge and agree that:           (a)   A portion of Borrowers' tool and die equipment (possessing a net book value of $500,000.00 or less in the aggregate may be located at the business premises of Borrowers' subcontractors at any time; and          (b)   A portion of Borrowers' manufacturing equipment (not consisting of tool and die equipment) possessing a net book value of $1,300,000.00 or less in the aggregate may be located at the business premises of Borrowers' subcontractors in the Peoples' Republic of China at any time.           10.   Notwithstanding anything to the contrary contained in the Loan Documents, Agent, Lenders, PNC and SVB hereby acknowledge and agree that any pledge of or security interest in Borrowers' rights, title and interests in Allied Motion Technologies, B.V.'s stock belonging to them shall be limited to sixty-five percent (65%) of the such outstanding stock at any time.          11.   Borrowers hereby release, waive and forever discharge Agent, Lenders, PNC, SVB and their shareholders, directors, officers, employees, and agents from all known and unknown, absolute and contingent, claims, defenses, setoffs, counterclaims, causes of action, actions, suits or other legal proceedings of any kind existing or accrued as of the date of this Agreement.          12.   Borrowers shall be, jointly and severally, liable for the payment and performance of all of their present and future obligations under the Loan Documents and all of such obligations shall be secured by all of the collateral described in the Loan Documents.  2               13.   Borrowers, jointly and severally, hereby represent and warrant to and covenant with Lenders, PNC and SVB that Lender's, PNC's and SVB's liens, security interests, encumbrances and claims against the collateral described in the Loan Documents shall continue to be prior and superior to any other liens, security interests, encumbrances or claims of any kind except for those specifically provided otherwise in the Loan Documents. Borrowers, jointly and severally, represent and warrant to Lenders, PNC and SVB that no event of default exists under the Loan Documents as of the date of this Agreement and no material adverse changes have occurred in Borrowers' financial condition since the date of the last financial statements provided to Agent.          14.   The Loan Documents shall remain in full force and effect except as amended by this Agreement and any additional Loan Documents.          15.   Borrowers, jointly and severally, shall pay Lenders, PNC and SVB a $20,000.00 loan modification fee simultaneously with the execution and delivery of this Agreement. In addition, Borrowers, jointly and severally, shall pay all of Agent's, Lenders', PNC's and SVB's attorneys' fees and other expenses incurred in connection with the negotiation, drafting, execution, filing and recording of this Agreement and any related Loan Documents. The amounts described in this paragraph shall be in addition to, and not in lieu of, the interest, fees and other charges owing under the Loan Documents.          16.   Borrowers shall take any additional actions and execute and deliver to Lender any additional documents reasonably requested by Lender to carry out the intent and purposes of this Agreement and any related Loan Documents.          17.   This Agreement and any related documents shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.          18.   This Agreement shall be governed by the laws of the State of Colorado.          19.   The parties hereto consent to the jurisdiction and venue of any Court located in the City and County of Denver, State of Colorado, in the event of any litigation pertaining to this Agreement or any related Loan Document or the enforcement of any liability, obligation, right or remedy described therein.          20.   This Agreement may be executed in counterparts and shall be effective when at least one (1) counterpart has been executed by each party hereto.          21.   This Agreement and the various documents described herein represent the complete and integrated understanding between the parties pertaining to the subject matter hereof. All prior and contemporaneous understandings and agreements, written or oral, express or implied, shall be of no further force and effect to the extent inconsistent herewith.          22.   THE PARTIES HERETO WAIVE THEIR RESPECTIVE RIGHTS TO DEMAND A JURY TRIAL IN THE EVENT OF ANY LITIGATION PERTAINING TO THIS AGREEMENT, ANY RELATED LOAN DOCUMENTS, OR THE ENFORCEMENT OF ANY LIABILITY, OBLIGATION, RIGHT OR REMEDY DESCRIBED THEREIN.           ALLIED MOTION TECHNOLOGIES INC.         By:          Name:   Richard D. Smith       Title:   Chief Executive Officer                 3               MOTOR PRODUCTS CORPORATION         By:          Name:   Richard D. Smith       Title:   Vice President         ALLIED MOTION CONTROL CORPORATION         By:          Name:   Richard D. Smith       Title:   President         EMOTEQ CORPORATION         By:          Name:   Richard D. Smith       Title:   President         COMPUTER OPTICAL PRODUCTS, INC.         By:          Name:   Richard D. Smith       Title:   President         AMOT I, INC.         By:          Name:   Richard D. Smith       Title:   President         AMOT II, INC.         By:          Name:   Richard D. Smith       Title:   President         AMOT III, INC.         By:          Name:   Richard D. Smith       Title:   President                4               STATURE ELECTRIC, INC. f/k/a AMOT, Inc.         By:          Name:   Richard D. Smith       Title:   President         AHAB INVESTMENT COMPANY         By:          Name:   Richard D. Smith       Title:   President         PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR ITSELF, SILICON VALLEY BANK AND ANY OTHER LENDERS UNDER THE REVOLVING CREDIT LOAN AGREEMENT         By:          Name:           Title:             PNC BANK, NATIONAL ASSOCIATION         By:          Name:           Title:             SILICON VALLEY BANK         By:          Name:           Title:        5      QuickLinks THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT, TERM LOAN AND SECURITY AGREEMENTS, AND RELATED DOCUMENTS        EX-10.18 4 a2168753zex-10_18.htm EX 10.18       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 10.18       FOURTH AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT,  TERM LOAN AND SECURITY AGREEMENTS, AND RELATED DOCUMENTS              This Fourth Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents ("Agreement") is executed by ALLIED MOTION TECHNOLOGIES, INC. ("Allied Motion"), MOTOR PRODUCTS CORPORATION ("Motor Products"), ALLIED MOTION CONTROL CORPORATION ("Allied Motion Control"), EMOTEQ CORPORATION ("Emoteq"), COMPUTER OPTICAL PRODUCTS, INC. ("Computer Optical"), AMOT I, INC. ("AMOT I"), AMOT II, INC. ("AMOT II"), AMOT III, INC. ("AMOT III"), STATURE ELECTRIC, INC. f/k/a AMOT, Inc. ("New Stature"), AHAB INVESTMENT COMPANY ("Ahab"), PNC BANK, NATIONAL ASSOCIATION ("Agent") as agent for itself, Silicon Valley Bank, and any other lenders under the Revolving Credit Agreement (collectively "Lenders"), PNC BANK, NATIONAL ASSOCIATION ("PNC"), and SILICON VALLEY BANK ("SVB") for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, as of November 1, 2005. Hereinafter, Allied Motion, Motor Products, Emoteq, Computer Optical, AMOT I, AMOT II, AMOT III, New Stature, and Ahab may be referred to individually as a "Borrower" and collectively as the "Borrowers."  Recitals           A.    Borrowers executed and delivered to Agent and Lenders a Revolving Credit and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Revolving Credit and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "Revolving Credit Loan Agreement" and the Revolving Credit Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "Revolving Credit Loan Documents".          B.    Borrowers executed and delivered to PNC a Term Loan and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Term Loan and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "PNC Term Loan Agreement" and the PNC Term Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "PNC Term Loan Documents.          C.    Borrower executed and delivered to SVB a Term Loan and Security Agreement and other loan documents on and after May 7, 2004. Hereinafter, the Term Loan and Security Agreement and any amendments, modifications, replacements or substitutions thereto may be referred to collectively as the "SVB Term Loan Agreement" and the SVB Term Loan Agreement, any related loan documents, and any amendments, modifications, replacements or substitutions to any of the foregoing may be referred to collectively as the "SVB Term Loan Documents".          D.    Borrowers wish to modify the Revolving Credit Loan Documents, PNC Term Loan Documents, and SVB Term Loan Documents (collectively "Loan Documents") as set forth in this Agreement.          E.    Agent, Lenders, PNC and SVB are unwilling to modify the Loan Documents unless Borrowers execute and agree to abide by the terms and conditions set forth in this Agreement.  Agreements           1.     Borrowers hereby acknowledge the validity and enforceability of the Loan Documents and reaffirm the truth and accuracy of all of the representations, warranties and other statements contained in the Loan Documents as of the date of this Agreement.               2.     The outstanding principal balance on Borrowers' obligations to Lenders under the Revolving Credit Loan Documents amounted to approximately $4,737,432.33 as of November 1, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Revolving Credit Loan Documents.          3.     The outstanding principal balance on Borrowers' obligations to PNC under the PNC Loan Documents amounted to approximately $3,990,880.00 as of November 1, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Loan Documents.          4.     The outstanding principal balance on Borrowers' obligations to SVB under the SVB Loan Documents amounted to approximately $1,624,999.96 as of November 1, 2005 and interest, fees, and expenses are accruing thereon as set forth in the Loan Documents.          5.     Section 6.6 of the Revolving Credit Loan Agreement hereby are amended to read:   6.6 Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage ratio of not less than (a) 1.25 to 1.00 for the period from the date of this Agreement to September 29, 2005, (b) 1.10 to 1.00 for the period from on September 30, 2005 to March 31, 2006; and (c) 1.25 to 1.00 at all times after March 31, 2006, in each case, measured as of the end of each calendar quarter. The calculations of Fixed Charge Coverage Ratio shall not include: (i) on and after September 30, 2004, the results of operations from the date of acquisition and the assets or liabilities of Allied Motion Technologies B.V. or any of its Dutch affiliates; or (ii) on and after September 30, 2005, non-financed capital expenditures pertaining to the commencement of Borrowers' business operations in the Peoples' Republic of China that have been or shall be incurred in calendar year 2005.           6.     Sections 5 and 6 of the First Amendment to Revolving Credit and Security Agreement, Term Loan and Security Agreements, and Related Documents among Borrowers, Agent, and Lenders dated as of August 19, 2004 hereby are amended to read:   5. Notwithstanding anything to the contrary contained in the Loan Documents but subject to the terms and conditions set forth in Section 6 below, Agent, Lenders, PNC and SVB hereby acknowledge and agree that:          (a)   Allied Motion shall be entitled to form and own 100% of the outstanding stock of Allied Motion Technologies B.V. ("Allied Motion B.V.");          (b)   Allied Motion B.V. shall be entitled to acquire 100% of Premotec Beheer, B.V.'s ("Beheer") stock;          (c)   Allied Motion B.V. shall be entitled to obtain a loan ("First Fortis Bank Loan") in the principal amount of 1,600,000.00 Euros or less in the aggregate from Fortis Bank (Nederland) N.V. ("Fortis Bank") and Precision Motor Technology B.V. ("Precision Motor") shall be entitled to obtain a loan ("Second Fortis Bank Loan") in the principal amount of 200,000 Euros or less in the aggregate from Fortis Bank (collectively, "Fortis Bank Loans");          (d)   Precision Motor shall be entitled to obtain a loan ("Fortis Commercial Loan") in the principal amount of 1,500,000.00 Euros or less in the aggregate from Fortis Commercial Finance, N.V. ("Fortis Commercial");          (e)   Precision Motor shall be entitled to lease equipment containing a purchase price of 250,000 Euros or less from Fortis Bank ("Fortis Bank Lease");          (f)    Allied Motion shall be entitled to pay $450,000.00 or less of the closing costs associated with Allied Motion's purchase of Beheer's stock, the First Fortis Bank Loan, and the Fortis Commercial Loan; and          (g)   Allied Motion shall be entitled to guaranty the payment of Allied Motion B.V.'s and Precision Motors' obligations to Fortis Bank and Fortis Commercial under the First Fortis Bank   2        Loan, Second Fortis Bank Loan, Fortis Commercial Loan, and Fortis Bank Lease (hereinafter, Allied Motion B.V., Precision Motors, and any related Dutch affiliates may be referred to collectively as the "Dutch Subsidiaries").  6. The acknowledgment and consent of Agent, Lenders, PNC and SVB to the actions described in Section 5 above is subject to the following conditions:          (a)   Allied Motion B.V.'s purchase price for 100% of the outstanding Beheer stock does not exceed 3,750,000 Euros (excluding closing costs) in the aggregate;          (b)   the principal amount of the First Fortis Bank Loan does not exceed 1,600,000.00 Euros in the aggregate at any time and the principal amount of the Second Fortis Bank Loan does not exceed $200,000 Euros in the aggregate at any time at any time after November 1, 2005 (unless Borrowers and the Dutch Subsidiaries obtain the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion);          (c)   the principal amount of the Fortis Commercial Loan does not exceed 1,500,000.00 Euros in the aggregate at any time after November 1, 2005 (unless Borrowers and Dutch Subsidiaries obtain the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion);          (d)   the purchase price of the leased equipment under the Fortis Bank Lease does not exceed 250,000 Euros at any time (unless Borrowers and Dutch Subsidiaries obtain the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion);          (e)   the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial Loan, and Fortis Bank Lease are not guarantied by any of the Borrowers except for Allied Motion;          (f)    the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial Loan, and Fortis Bank Lease are not secured by any of the Borrowers' assets;          (g)   the Dutch Subsidiaries do not obtain any loans or other financing arrangements except for the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial loan, Fortis Bank Lease, and trade credit in the ordinary course of business without obtaining the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion. Nothing contained herein shall limit the Dutch Subsidiaries from raising additional capital through the issuance and sale of additional stock;          (h)   Except for the $450,000.00 in closing costs and Allied Motion's unsecured guaranty of the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial Loan, and Fortis Bank Lease, no Borrower provides any Dutch Subsidiary with any monies or other things of value (except for the sale of goods and provision of services in arm's length transactions that are incurred in the ordinary course of business), secures, or otherwise becomes responsible for the payments and/or performance of any Dutch Subsidiary's indebtedness, liabilities or other obligations to any person or entity without obtaining the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion. In the event that any Dutch Subsidiary receives any monies or other things of value from any Borrower that are prohibited by the preceding sentence, the Dutch Subsidiary shall hold such monies or other things of value in trust for Agent, Lenders, PNC and SVB and promptly remit such monies or other things of value to Agent for the benefit of Agent, Lenders, PNC and SVB whereupon such monies or other things of value shall be applied against the outstanding indebtedness, liabilities and other obligations owing to Agent, Lenders, PNC and SVB under the Loan Documents in any order determined by Agent, PNC and SVB;          (i)    Borrowers and the Dutch Subsidiaries provide Agent, PNC and SVB with accurate and complete copies of the First Fortis Bank Loan documents, Second Fortis Bank Loan documents,   3        Fortis Commercial Loan documents, and Fortis Bank Lease documents and any amendments, modifications, replacements or substitutions thereto promptly upon the execution of such documents;          (j)    Borrowers and the Dutch Subsidiaries refrain from amending, modifying, replacing or substituting the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial Loan, and/or Fortis Bank Lease without obtaining the prior written consent of Agent, PNC and SVB which may be withheld in their sole discretion; and          (k)   The occurrence of any event of default upon the First Fortis Bank Loan, Second Fortis Bank Loan, Fortis Commercial Loan, Fortis Bank Lease, or any other financing arrangements for the Dutch Subsidiaries that are guarantied or secured by any Borrower or its assets shall constitute an additional event of default under the Loan Documents.           7.     Borrowers hereby represent and warrant to Agent and Lenders that Premotec Beheer, B.V. has been merged into Allied Motion Technologies B.V.          8.     Borrowers hereby release, waive and forever discharge Lender and its shareholders, directors, officers, employees, and agents from all known and unknown, absolute and contingent, claims, defenses, setoffs, counterclaims, causes of action, actions, suits or other legal proceedings of any kind existing or accrued as of the date of this Agreement.          9.     Borrowers shall be, jointly and severally, liable for the payment and performance of all of their present and future obligations under the Loan Documents and all of such obligations shall be secured by all of the collateral described in the Loan Documents.          10.   Borrowers, jointly and severally, hereby represent and warrant to and covenant with Lender that Lender's liens, security interests, encumbrances and claims against the collateral described in the Loan Agreement and other Loan Documents shall continue to be prior and superior to any other liens, security interests, encumbrances or claims of any kind except for those specifically provided otherwise in the Loan Documents. Borrowers, jointly and severally, represent and warrant to Lender that no event of default exists under the Loan Documents as of the date of this Agreement and no material adverse changes have occurred in Borrowers' financial condition since the date of the last financial statements provided to Agent.          11.   The Loan Documents shall remain in full force and effect except as amended by this Agreement and any additional Loan Documents.          12.   Borrowers, jointly and severally, shall pay Lenders a loan modification fee in the amount of Fifteen Thousand and No/100 Dollars ($15,000.00) and all of Agent's, Lenders', PNC's and SVB's attorneys' fees and other expenses incurred in connection with the negotiation, drafting, execution, filing and recording of this Agreement and any related Loan Documents. The amounts described in this paragraph shall be in addition to, and not in lieu of, the interest, fees and other charges owing under the Loan Documents.          13.   Borrowers shall take any additional actions and execute and deliver to Lender any additional documents reasonably requested by Lender to carry out the intent and purposes of this Agreement and any related Loan Documents.          14.   This Agreement and any related documents shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto.          15.   This Agreement shall be governed by the laws of the State of Colorado.          16.   The parties hereto consent to the jurisdiction and venue of any Court located in the City and County of Denver, State of Colorado, in the event of any litigation pertaining to this Agreement or any  4       related Loan Document or the enforcement of any liability, obligation, right or remedy described therein.          17.   This Agreement may be executed in counterparts and shall be effective when at least one (1) counterpart has been executed by each party hereto.          18.   This Agreement and the various documents described herein represent the complete and integrated understanding between the parties pertaining to the subject matter hereof. All prior and contemporaneous understandings and agreements, written or oral, express or implied, shall be of no further force and effect to the extent inconsistent herewith.          19.   THE PARTIES HERETO WAIVE THEIR RESPECTIVE RIGHTS TO DEMAND A JURY TRIAL IN THE EVENT OF ANY LITIGATION PERTAINING TO THIS AGREEMENT, ANY RELATED LOAN DOCUMENTS, OR THE ENFORCEMENT OF ANY LIABILITY, OBLIGATION, RIGHT OR REMEDY DESCRIBED THEREIN.           ALLIED MOTION TECHNOLOGIES INC.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary and Treasurer         MOTOR PRODUCTS CORPORATION         By:          Name:   Susan M. Chiarmonte       Title:   Secretary and Treasurer         ALLIED MOTION CONTROL CORPORATION         By:          Name:   Susan M. Chiarmonte       Title:   Secretary and Treasurer         EMOTEQ CORPORATION         By:          Name:   Susan M. Chiarmonte       Title:   Secretary and Treasurer         COMPUTER OPTICAL PRODUCTS, INC.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary and Treasurer                 5               AMOT I, INC.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary         AMOT II, INC.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary         AMOT III, INC.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary         STATURE ELECTRIC, INC. f/k/a AMOT, Inc.         By:          Name:   Susan M. Chiarmonte       Title:   Secretary         AHAB INVESTMENT COMPANY         By:          Name:   Susan M. Chiarmonte       Title:   Secretary         PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR ITSELF, SILICON VALLEY BANK AND ANY OTHER LENDERS UNDER THE REVOLVING CREDIT LOAN AGREEMENT         By:          Name:   John Wattinger       Title:   Vice President                6               PNC BANK, NATIONAL ASSOCIATION         By:          Name:   John Wattinger       Title:   Vice President         SILICON VALLEY BANK         By:          Name:   Renee S. Hudnall       Title:   Relationship Manager    7      QuickLinks FOURTH AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT, TERM LOAN AND SECURITY AGREEMENTS, AND RELATED DOCUMENTS        EX-21 5 a2168753zex-21.htm EXHIBIT 21       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 21       LIST OF SUBSIDIARIES      Computer Optical Products, Inc., COPI, a Colorado Corporation  Emoteq Corporation, a Colorado Corporation  Motor Products Corporation, a Delaware Corporation  Stature Electric, Inc., a Pennsylvania Corporation  Precision Motor Technology B.V., Premotec, incorporated in The Netherlands       QuickLinks  LIST OF SUBSIDIARIES         EX-23 6 a2168753zex-23.htm EXHIBIT 23       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 23       CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      The Board of Directors and Stockholders of Allied Motion Technologies Inc.:  We consent to the incorporation by reference in the registration statements (Nos. 33-37473, 33-44997, 333-21337, 333-55344 and 333-122281) on Form S-8 and in the registration statement (No.333-119090) on Form S-3 of Allied Motion Technologies Inc. of our report dated March 20, 2006, with respect to the consolidated balance sheets of Allied Motion Technologies Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' investment and comprehensive income and cash flows for the years ended December 31, 2005, 2004 and 2003, and the related financial statement schedule, which report appears in the December 31, 2005 annual report on Form 10-K of Allied Motion Technologies Inc.  KPMG LLP  Denver, Colorado March 24, 2006       QuickLinks  CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         EX-31.1 7 a2168753zex-31_1.htm EXHIBIT 31.1       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 31.1       CERTIFICATION      I, Richard D. Smith, certify that:   1.I have reviewed this annual report on Form 10-K of Allied Motion Technologies Inc. (the "registrant"); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:    (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Omitted; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and   5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):    (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.        Date: March 24, 2006   /s/  RICHARD D. SMITH              Richard D. Smith Chief Executive Officer, Chief Financial Officer and Director         QuickLinks CERTIFICATION        EX-31.2 8 a2168753zex-31_2.htm EXHIBIT 31.2       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 31.2       CERTIFICATION      I, Richard S. Warzala, certify that:   1.I have reviewed this annual report on Form 10-K of Allied Motion Technologies Inc. (the "registrant"); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:    (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Omitted; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and   5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):    (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.        Date: March 24, 2006   /s/  RICHARD S. WARZALA              Richard S. Warzala President and Chief Operating Officer         QuickLinks CERTIFICATION        EX-32 9 a2168753zex-32.htm EXHIBIT 32       QuickLinks  -- Click here to rapidly navigate through this document  Exhibit 32       Certification of Periodic Financial Reports  Pursuant to 18 U.S.C. Section 1350     Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Allied Motion Technologies Inc. (the "Company") certifies to his knowledge that:    (1)The Annual Report on Form 10-K of the Company for the year ended December 31, 2004 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2)The information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.       Date: March 24, 2006   /s/  RICHARD D. SMITH              Richard D. Smith Chief Executive Officer, Chief Financial Officer and Director         QuickLinks Certification of Periodic Financial Reports Pursuant to 18 U.S.C. Section 1350        -----END PRIVACY-ENHANCED MESSAGE-----