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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

|ý                                  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------
|OR                                
|o                                  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                        
|For the transition period from
 to

Commission file number 0-4041

ALLIED MOTION TECHNOLOGIES INC.(Exact name of registrant as specified in its charter)

|Colorado(State or other jurisdiction of
incorporation or organization)                       |  | 84-0518115(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|23 Inverness Way East, Suite 150
Englewood, Colorado(Address of principal executive offices) |  | 80112(Zip Code)                               

Registrant's
telephone number, including area code:(303) 799-8520

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:Common Stock, no par value

---

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes o    No ý

As of December 31, 2003, the aggregate market value of voting stock held by non-affiliates of the Registrant, computed by reference to the
average bid and asked prices of such stock approximated $5,799,000.

Number
of shares of the only class of Common Stock outstanding: 5,018,455 as of March 19, 2004



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Table of Contents



|          |  |                                                                                      
|--------- |  | -------------------------------------------------------------------------------------
|PART I.   |  |                                                                                      
|Item 1.   |  | Business                                                                             
|Item 2.   |  | Properties                                                                           
|Item 3.   |  | Legal Proceedings                                                                    
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                  
|PART II.  |  |                                                                                      
|Item 5.   |  | Market for Registrant's Common Equity and Related Stockholder Matters                
|Item 6.   |  | Selected Financial Data                                                              
|Item 7.   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 8.   |  | Financial Statements and Supplementary Data                                          
|          |  | Independent Auditors Report                                                          
|Item 9.   |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|Item 9A.  |  | Controls and Procedures                                                              
|PART III. |  |                                                                                      
|Item 10.  |  | Directors and Executive Officers of the Registrant                                   
|Item 11.  |  | Executive Compensation                                                               
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management                       
|Item 13.  |  | Certain Relationships and Related Transactions                                       
|Item 14.  |  | Principal Accountant Fees and Services                                               
|PART IV.  |  |                                                                                      
|Item 15.  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|          |  | Signatures                                                                           
|          |  | Financial Statement Schedule                                                         

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PART I

Item 1. Business.

Allied Motion Technologies, Inc. (the Company) was organized under the laws of Colorado in 1962. The Company is engaged in the business of designing,
manufacturing and selling motor and servo motion products primarily to the Commercial Motor, Industrial Motion Control and Aerospace and Defense
markets.Prior to July 29, 2002, the Company was also engaged in designing, manufacturing and selling advanced systems and instrumentation to the
worldwide power and process industries. As discussed more fully in Note 2 of the Notes to Consolidated Financial Statements, on July 29, 2002, the Company sold substantially all of its
Power and Process Business, and in March 2003 finalized the sale of the Calibrator Business, completing the sale of all its Power and Process Business, therefore transforming the Company and
focusing all of its resources in the motor and motion products markets (Motion Strategy). The Company operates primarily in the United States and the United Kingdom. Prior to the sale of its Power and
Process Business, the Company also had joint venture investments in China. Prior to October 2002, the Company was known as Hathaway Corporation. In connection with the sale of its Power and
Process Business, the Hathaway name became the property of the buyers. At the October 2002 Annual Meeting of Stockholders, a proposal was approved to amend the Articles of Incorporation to
change the Company's name to Allied Motion Technologies, Inc.

Allied
Motion utilizes its underlying core "Electromagnetic Motion Know How" to provide compact, high performance products as solutions to a variety of motion applications. The served
markets include on and off road vehicles, semi-conductor equipment, packaging, medical, actuation, military, commercial aviation and industrial automation, and fiber-optic based
telecommunications. End products using Allied Motion technology include HVAC systems for trucks, buses and off-road vehicles, medical equipment, processing equipment for the semiconductor
industry, missile and munitions control systems for the military, anti-lock brake and fuel cell applications for the specialty automotive market, satellite tracking systems, MRI scanners,
high definition printers and tunable lasers, wavelength meters and spectrum analyzers for the fiber optic industry as well as various applications in the medical market.

Allied
Motion is organized into three subsidiaries: Emoteq Corporation (EmoteqTulsa, OK), Computer Optical Products, Inc. (COPIChatsworth, CA), and Motor
Products Corporation (Motor ProductsOwosso, MI).

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.

Optical
encoders are manufactured by COPI. 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.

1

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Motor
Products, located in Owosso, Michigan 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.

On
February 10, 2004, the Company signed a merger agreement to acquire Owosso Corporation located in Watertown, New York. The closing of the merger is scheduled for the second
quarter of 2004 and is subject to approval by Owosso's shareholders, the filing of an effective registration statement for the Company's securities and customary closing conditions. Owosso's sole
operating subsidiary, Stature Electric, Inc., manufactures fractional and integral horsepower motors, gear motors, and motor part sets. Significant markets for Stature include commercial
products and equipment, healthcare, recreation and non-automotive transportation. Stature's component products are sold throughout North America and in Europe, primarily to original
equipment manufacturers that use them in their end products.



The Company changed its fiscal year end from June 30 to December 31 effective December 31, 2002; and, 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, 2003 through December 31, 2003   |  | Year 2003                      
|Unaudited results from January 1, 2002 through December 31, 2002 |  | Twelve Month Comparative Period
|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               



The Company maintains a direct sales force. In addition to its own marketing and sales force, the Company has independent sales representatives and agents to sell
its various product lines in certain markets.



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.



The information required by this item is set forth in Note 11 of the Notes to Consolidated Financial Statements contained herein.



All parts and materials used by the Company are in adequate supply. No significant parts or materials are acquired from a single source.

2

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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.



The Company's business is not of a seasonal nature; however, revenues may be influenced by customers' fiscal year ends and holiday seasons.



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.



During Year 2003, the Transition Period, and Fiscal Year 2002, no single customer accounted for more than 10% of total revenues. During Fiscal Year 2001 one
customer accounted for 20% of the Company's consolidated revenue from continuing operations. The customer is a leading manufacturer of test instrumentation for the fiberoptic telecommunications
industry. During Fiscal Year 2002, the customer cancelled a $4.75 million order. The Company's products are still designed into the customer's products, however deliveries of our products have
been halted by the customer because of the economic downturn. The Company is also delivering products to this customer under other orders at this time.



The Company's backlog at December 31, 2003 consisted of sales orders totaling approximately $13,383,000 while backlog at December 31, 2002 was
$13,663,000. In our commercial motors markets, the Company is experiencing an increased number of its customers going 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. Approximately 50% of our customers in commercial
motors markets were on a pull system in 2003 compared to 35% in 2002. Accordingly, this trend will reduce the amount of backlog since these
customers are no longer giving the Company long-term orders that it delivers against over time and, therefore, the amount of backlog compared to prior periods is not necessarily an
accurate indication of the future sales of the Company compared to prior periods.

There
can be no assurance that the Company's backlog can be converted into revenue.



Approximately $86,000 of the Company's backlog as of December 31, 2003 consisted of contracts with the United States Government. 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.



The Company's expenditures on engineering and development for Year 2003 were $1,853,000. For the Transition Period, Fiscal Years 2002, and 2001 engineering and
development from continuing

3

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operations
were $754,000, $846,000, and $962,000, respectively. Of these expenditures, no material amounts were charged directly to customers.



No significant pollution or other types of emission result from the Company's operations and it is not anticipated that the Company's proposed operations will be
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.

See
Item 3 Legal Proceedings and Note 8 of the Notes to Consolidated Financial Statements contained herein for additional information required by this item.



The information required by this item is set forth in Note 11 of the Notes to Consolidated Financial Statements contained herein.



At December 31, 2003 the Company had approximately 343 full-time employees.



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 filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange
Commission.

The
Company has adopted a Code of Ethics for its chief executive officer, president and senior financial officers. A copy of this Code has been filed as an exhibit to this
Form 10-K. The Company intends to make the Code available on the Company's website and to disclose on this website any amendment to this Code. Waivers under this Code, if any, will
be disclosed under the rules of the SEC and the Nasdaq Small Cap Market. A copy of this Code is 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.

Item 2. Properties.

As of December 31, 2003, 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 |  | Tulsa, Oklahoma        |  | 25,000                     |  | Leased         
|Office and manufacturing facility |  | Chatsworth, California |  | 22,000                     |  | Leased         
|Warehouse facility                |  | Tulsa, Oklahoma        |  | 10,000                     |  | Leased         
|Office and manufacturing facility |  | Owosso, Michigan       |  | 82,500                     |  | 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.

4

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Item 3. Legal Proceedings.

In 2001, the Company, with other parties, was named as a defendant in an environmental contamination lawsuit. The lawsuit relates to property that was occupied by
the Company's Power and Process Business over 37 years ago. In connection therewith, the Company agreed to settle the lawsuit and recorded an estimated charge for the settlement and related
legal fees of $1,429,000 ($961,000 net of tax) during the fiscal year ended June 30, 2002. The settlement agreement received court approval during the Transition Period. While the Company
believes that the suit against the Company was without merit, it agreed to the settlement to eliminate future costs of defending itself and the uncertain risks associated with litigation. Additional
information required by this item is set forth in Note 8 of the Notes to Consolidated Financial Statements contained herein.

The
Company is also 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.

Item 4. Submission of Matters to a Vote of Security Holders.

The Company held its annual stockholders' meeting on October 23, 2003. The stockholders voted on one item.

The
stockholders elected E.E. Prince, R.D. Smith, G.D. Hubbard, D.D. Hock and G.J. Pilmanis to serve on the Board of Directors for the coming year. The vote tabulation was as follows:

Nominee

For

Withheld or
Against

Total Shares
Outstanding

% of Shares
Voting ForE.E. Prince

4,494,347

36,708

5,000,234

89.9
%R.D. Smith

4,374,547

156,508

5,000,234

87.5
%G.D. Hubbard

4,331,581

199,474

5,000,234

86.6
%D.D. Hock

4,312,049

219,006

5,000,234

86.2
%G.J. Pilmanis

4,331,581

199,474

5,000,234

86.6
%


5

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Allied Motion's common stock is traded on the Nasdaq Small Cap Market System and trades under the symbol AMOT. The number of holders of record of the Company's
common stock as of the close of business on February 23, 2004 was 552. The Company did not pay or declare any dividends during year 2003, or during the Transition Period, Fiscal Years 2002, and
2001 and the Company's long-term financing agreement prohibits the Company from doing so without prior approval.

The
following table sets forth, for the periods indicated, the high and low prices of the Company's common stock on the Nasdaq Small Cap Market System, as reported by Nasdaq.

Price RangeHigh

LowFiscal year ended June 30, 2002First Quarter

$
3.90

$
2.04Second Quarter


3.25


1.75Third Quarter


3.00


2.60Fourth Quarter


3.15


2.25Transition period ended December 31, 2002First Quarter

$
2.85

$
2.05Second Quarter


2.79


1.70Year ended December 31, 2003First Quarter

$
2.12

$
1.50Second Quarter


2.38


1.50Third Quarter


3.25


1.50Fourth Quarter


5.00


2.93




The following table shows the equity compensation plan information of the Company at December 31, 2003.

|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 |  | 1,323,430                                                                                       |  | $                                                                           | 3.00 |                                                                                                                                            

Item 6. Selected Financial Data.

The following tables summarize data from the Company's financial statements for the fiscal years 1999 through 2003 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

6

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herein.
See Management's Discussion and Analysis for discussion of non-recurring items that affect the comparability of results between periods.

|Statements of Operations Data:                                  |  | For the year ended December 31, 2003 |        | For the Twelve Month Comparative Period ended December 31, 2002 |  
|--------------------------------------------------------------- |  | ------------------------------------ | ------ | --------------------------------------------------------------- | -
|
|Revenues from continuing operations                             |  | $                                    | 39,434 |                                                                 | $
|                                                                |  |                                      |        |                                                                 |  
|Income (loss) from continuing operations                        |  | $                                    | 948    |                                                                 | $
|Operating loss from discontinued operations                     |  |                                      |       |                                                                 |  
|Gain on sale of power and process business, net of income taxes |  |                                      |       |                                                                 |  
|                                                                |  |                                      |        |                                                                 |  
|Net income (loss)                                               |  | $                                    | 948    |                                                                 | $
|                                                                |  |                                      |        |                                                                 |  
|Diluted income (loss) per share from continuing operations      |  | $                                    | 0.19   |                                                                 | $
|                                                                |  |                                      |        |                                                                 |  

|Statements of Operations Data:                                  |  | For the Six Month Transition Period ended December 31, 2002 |        | For the Six
Month
Comparative
Period ended
December 31,
2001 |  
|--------------------------------------------------------------- |  | ----------------------------------------------------------- | ------ | ------------------------------------------------------------ | -
|
|Revenues from continuing operations                             |  | $                                                           | 17,191 |                                                              | $
|                                                                |  |                                                             |        |                                                              |  
|Income from continuing operations                               |  | $                                                           | 45     |                                                              | $
|Operating loss from discontinued operations                     |  |                                                             | (736   | )                                                            |  
|Gain on sale of power and process business, net of income taxes |  |                                                             | 1,019  |                                                              |  
|                                                                |  |                                                             |        |                                                              |  
|Net income (loss)                                               |  | $                                                           | 328    |                                                              | $
|                                                                |  |                                                             |        |                                                              |  
|Diluted income per share from continuing operations             |  | $                                                           | 0.01   |                                                              | $
|                                                                |  |                                                             |        |                                                              |  

|Balance Sheet Data:              |  | At
December 31,
2003 |        | At
December 31,
2002
|-------------------------------- |  | -------------------- | ------ | --------------------
|Total assets                     |  | $                    | 27,497 |                     
|Total current and long-term debt |  | $                    | 2,312  |                     

|                                                           |  | For the fiscal years ended
June 30, |       
|---------------------------------------------------------- |  | ----------------------------------- | ------
|
|
|
|Revenues from continuing operations                        |  | $                                   | 15,723
|                                                           |  |                                     |       
|Income (loss) from continuing operations                   |  | $                                   | (45   
|Operating income (loss) from discontinued operations       |  |                                     | (221  
|                                                           |  |                                     |       
|Net income (loss)                                          |  | $                                   | (266  
|                                                           |  |                                     |       
|Diluted income (loss) per share from continuing operations |  | $                                   | (0.01 
|                                                           |  |                                     |       

|                                 |  | At
June 30,
|-------------------------------- |  | -----------
|
|
|Total assets                     |  | $          
|Total current and long-term debt |  | $          

7

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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, 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.

Because of the risks and uncertainties, investors should not place undue reliance on 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.

Overview

Business

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 in use in an ever-greater number of demanding applications in specialty automotive, HVAC, medical,
health-fitness, defense, aerospace, semiconductor

8

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manufacturing,
fiber optic-based telecommunications, printing, and graphic imaging market sectors, to name a few.

Today,
three companies form the core of Allied Motion. The companies, Emoteq, Computer Optical Products and Motor Products 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.

Emoteq
Corporation in Tulsa, Oklahoma develops and manufactures advanced servo motor and drive solutions. Emoteq has developed specialized, high performance servo solutions. As a result,
Emoteq's products are at work in precision equipment applications around the world from semiconductor manufacturing equipment to fuel cell powered vehicles to high performance target tracking systems.

Computer
Optical Products (COPI) in Chatsworth, California solves difficult feedback application problems with innovative optical encoder solutions. Combining their considerable
expertise in mechanical, optical, and electronic technologies, COPI's engineers have developed unique encoding solutions for numerous and diverse applications from pre-press imaging
equipment to missile seeker heads. Integrating their custom high resolution sine-cosine optical encoders with customers' motor actuators is a particular strength of the company.

Motor
Products Corporation in Owosso, Michigan has been supplying fractional horsepower DC motors to original equipment manufacturers in a myriad of industries for over sixty years.
Allied Motion acquired Motor Products in July 2002 to further the Company's strategy to become a leading supplier in the motion industry. Motor Products specializes in the design of custom
brush DC motors for specific customer applications, and supplies them with uniformly high quality in quantities ranging from tens to the tens of thousands. Motor Products motors are in use worldwide
in commercial and industrial applications in HVAC and heat-transfer systems, fans and blowers, pumps, electro-mechanical actuators, and both over-the-road trucks
and buses and off-road vehicles.

Business and Strategy Overview

During 2002, management significantly changed the structure and strategy of the Company. The Company had historically operated in two business segments under the
name Hathaway Corporation: Motion Control and Power and Process. During 2002, the Company sold substantially all its power and process business segment and transformed the Company to a focused motion
company under the name Allied Motion Technologies Inc.

During
2002 and 2003, the Company has made considerable progress in implementing its new corporate strategy, the driving force of which is "Applied Motion Technology/Know How", and in
the transformation of Allied Motion into a growth oriented motion company. To ensure the implementation of all of our critical issues that are necessary to accomplish our overall strategy, we launched
a formal process, called Strategy Deployment, in each Allied Motion operation. The Strategy Deployment process includes the development of action plans and a rigorous and regular implementation review
process to ensure we achieve the objectives of our Strategic Plan.

During
2003, the Company initiated recruitment efforts for various engineering and sales and marketing positions to enhance its ability to increase sales in the future. The overhead cost
reductions and the parallel recruitment efforts are consistent with improving our "Areas of Excellence" and the redeployment of resources in support of our strategy as an Applied Motion
Technology/Know-How company. Key resources have been added in electrical design, mechanical design and in applied marketing and it is our belief these key resources will allow us to
accelerate our current product re-design as well as our new product development efforts. We fully expect our recruiting efforts to

9

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result
in cost effective and innovative new designs and solutions that will provide us with the technology platform to obtain a leadership position in our served market segments.

Also
during 2003 the Company began the re-alignment of its sales team to focus on selected vertical target market segments. Already, this has resulted in a much better
understanding of these markets and through the emphasis on our applications expertise we will now be aligned to provide improved support for our customers in the future which we believe should
contribute to the Company's growth in sales and profitability.

During
2003 (on a pro-forma basis for the year including Motor Products for twelve months of 2002), sales increased by approximately $1 million and operating profits
increased approximately $1.2 million. To accomplish this we utilized what we call a soft implementation of various processes available to our business units through our ever evolving and
expanding set of tools. This tool kit contains a well defined set of processes, training programs and procedures that are fundamental to the way we operate our businesses. We have coined the term
"AST", for Allied's Systematic Tools. Based on Lean and Six Sigma principles, we provide our employees with well defined methods to addresses various assessment, development, execution and process
needs within the Company. These "Tools" include strategy development, strategy deployment, applied marketing, value stream mapping, cellular manufacturing, SMED, Six Sigma, etc. The soft
implementation used during the past year will move to a more vigorous and scheduled implementation in each of our business units in 2004. We believe this will allow us to improve profitability of our
existing operations as well as effectively integrate new acquisitions.

One
of our major challenges, and a risk to our business, is to maintain and improve our price competitiveness. Our 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. For the Company to continue to be competitive in its
markets, we must have the ability to continuously improve our cost of doing business while maintaining and improving the quality and performance of our products. To accomplish this, we have placed
significant emphasis on reducing our costs through the implementation of AST, re-designing products and designing new products for cost improvement and manufacturing efficiency, sourcing
materials and components from global low cost sources and establishing manufacturing capabilities in low cost regions. The continuous improvement in our cost of doing business is an integral part of
our corporate strategy.

Subsequent Acquisition

On February 10, 2004, the Company signed a merger agreement to acquire Owosso Corporation located in Watertown, New York. The closing of the merger is
scheduled for the second quarter of 2004. Owosso's sole operating subsidiary, Stature Electric, manufactures fractional and integral horsepower motors, gear motors, and motor part sets. Significant
markets for Stature include commercial products and equipment, healthcare, recreation and non-automotive transportation. Stature's component products are sold throughout North America and
in Europe, primarily to original equipment manufacturers 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. We utilized the framework of our strategy to ensure Stature Electric and Allied Motion were strategically aligned. The markets they serve and the
technology they bring are both extensions of and expansions to our current company know-how.

The
consideration for the merger of $14 million will consist of the issuance of approximately 532,200 shares of Allied Motion common stock representing approximately 9.6% of the
outstanding shares of the Company after the merger, $1 million of cash payable to Owosso's preferred shareholders, assumption of $4.6 million of Owosso's debt and approximately
$6 million of cash to

10

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settle
the remainder of Owosso's debt and liabilities at closing. Additional subordinated notes for up to $500,000 may be issued by Allied Motion effective January 1, 2005 payable over five
years if Stature achieves certain revenue levels in 2004. In addition, warrants to purchase 300,000 shares of Allied Motion common stock at $4.41 per share will be issued to Owosso's preferred
shareholders. Allied Motion has received a commitment from PNC Business Credit and Silicon Valley Bank for up to $18.1 million to complete the acquisition and for working capital needs. The
closing of the acquisition is subject to approval by Owosso's shareholders, the effectiveness of a Registration Statement for the Allied Motion common shares to be issued and customary closing
conditions.

In
addition to the acquisition of Owosso and Stature Electric, the Company continues to be in active discussions with other companies in pursuing strategic acquisitions to both provide
external growth and to strengthen its technology base.

Outlook

The following will provide a good snapshot of what Allied Motion will focus its plans on in 2004:



Fiscal Year End Change

The Company changed its fiscal year end from June 30 to December 31 effective December 31, 2002; and, therefore, the Company reported a
six-month Transition Period ended December 31, 2002. The following table describes the periods presented in the Management's Discussion and Analysis of Financial Condition and
Results of Operations and in the condensed consolidated financial statements and related notes thereto:

|Period:                                                          |  | Referred to as:                
|---------------------------------------------------------------- |  | -------------------------------
|Audited results from January 1, 2003 through December 31, 2003   |  | Year 2003                      
|Unaudited results from January 1, 2002 through December 31, 2002 |  | Twelve Month Comparative Period
|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               

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Operating Results

Year 2003 compared to Twelve Month Comparative Period

Effective July 29, 2002, the Company sold substantially all of its Power and Process Business and effective March 6, 2003, the Company sold its
Calibrator Business, completing the sale of the Power and Process Business. Together, these two businesses comprised the Company's Power and Process segment as historically reported. See
Note 12 to the accompanying consolidated financial statements for more information regarding these events. In accordance with SFAS No. 144, these businesses have been presented as
discontinued operations in the accompanying consolidated financial statements. As such, the operating results from continuing operations of the Company now only include results from the
Company's Motion Business. All activities related to the Power and Process segment are excluded from continuing operating results and are included in the results from discontinued operations.

NET INCOME    The Company achieved net income of $948,000 or $.19 per diluted share for the year 2003 compared to $225,000 or
$.05 per diluted share for the Twelve Month Comparative Period. The improvement is due to the sale of the Power and Process Business, the addition of Motor Products, improved gross margins through the
successful implementation of lean manufacturing initiatives, including modifying manufacturing processes to reduce costs, and a $442,000 tax benefit related to the realization of a prior year state
income tax refund and resolution of certain income tax related issues.

INCOME FROM CONTINUING OPERATIONS    The Company achieved income from continuing operations of $948,000 or $.19 per diluted
share for the year 2003 compared to a net loss of $59,000 or $.01 per diluted share for the Twelve Month Comparative Period. The improvement is due to the addition of Motor Products, the successful
implementation of lean manufacturing initiatives, including modifying manufacturing processes to reduce costs, and a $442,000 tax benefit related to the realization of a prior year state income tax
refund and resolution of certain income tax related issues.

REVENUES    Revenues were $39,434,000 in year 2003 compared to $25,046,000 for the Twelve Month Comparative Period. Included in
revenues for all of year 2003 and five months of the Twelve Month Comparative Period are revenues related to Motor Products, which was acquired on July 30, 2002. Exclusive of revenues from
Motor Products, revenues increased 7% in year 2003 over the Twelve Month Comparative Period due to our success in expanding into new industry sectors including military and automotive applications. On
a pro forma basis, including Motor Products revenues for the full twelve months ended December 31, 2002, revenues were 3% higher for 2003 compared to the comparable period last year.

GROSS MARGINS    Gross margin as a percentage of revenues decreased to 26% for year 2003 from 27% for the Twelve Month
Comparative Period. The primary reason for this decline is due to the impact of the Motor Products acquisition. Motor Products has not historically achieved as high a gross margin percentage from the
industry sectors to which it sells as is achieved from other industry sectors to which the Company sells its products. Gross margin of 26% in 2003 compares to 22% for the twelve months ended
December 31, 2002 on a pro forma basis, including Motor Products for the full period. This improvement from the pro forma basis is primarily due to cost reductions and improved efficiency
resulting from the implementation of lean manufacturing initiatives, savings in material costs from purchasing material from off-shore sources and from the restructuring of the operations.

SELLING EXPENSES    Selling expenses were $2,022,000 and $1,183,000 in year 2003 and the Twelve Month Comparative Period,
respectively. This increase is primarily due to the impact of Motor Products, increased selling expenses and commissions related to the increase in revenues, and increased expenses related to the
development of a focused marketing strategy including website development.

12

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GENERAL AND ADMINISTRATIVE EXPENSES    General and administrative expenses were $4,596,000 in year 2003 compared to $4,311,000
in the Twelve Month Comparative Period. This increase was due to the impact of acquiring Motor Products, increased salary cost associated with the Company's new president and chief operating officer
and additional incentive bonus charges.

ENGINEERING AND DEVELOPMENT EXPENSES    Engineering and development expenses were $1,853,000 and $1,178,000 for year 2003 and
the Twelve Month Comparative Periods, respectively. This increase was primarily due to the impact of acquiring Motor Products and additional expenditures associated with engineering product
development.

AMORTIZATION AND OTHER    Amortization and other expense was $315,000 in year 2003 and $132,000 in the Twelve Month Comparative
Period. This increase is due to the amortization costs related to the amortizable intangible assets acquired in the Motor Products acquisition.

RESTRUCTURING CHARGE    Restructuring charges were $211,000 and zero for year 2003 and the Twelve Month Comparative Period,
respectively. The restructuring expense relates to moving expenses and severance costs arising from workforce reductions from consolidation of the Company's manufacturing facilities.

INTEREST EXPENSE    Interest expense for year 2003 was $226,000 and for the Twelve Month Comparative Period was $130,000. This
increase is due to the additional borrowings related to the financing of the acquisition of Motor Products.

INCOME TAXES    The provision for income taxes for year 2003 was $19,000 compared to a $17,000 benefit for the Twelve Month
Comparative Period. The effective income tax rate as a percentage of income before income taxes from continuing operations was 2% in year 2003 and 47% in the Six Month Comparative Period. The
difference in the effective tax rate between periods is primarily due to a $442,000 tax benefit related to the realization of a prior year state income tax refund and resolution of certain income tax
related issues.

DISCONTINUED OPERATIONS    Income from discontinued operations was zero in year 2003 compared to $284,000 in the Twelve Month
Comparative Period. Included in the results for the Twelve Month Comparative Period is a pretax gain on the sale of the Power and Process Business of $1,699,000 which closed on July 29, 2002
and a writedown to the carrying value of the Calibrator Business of $259,000. Also included in the Twelve Month Comparative Period is operating income from discontinued operations of $292,000 and a
pretax charge for litigation settlement and legal fees of $1,429,000 to settle an environmental contamination lawsuit filed in 2001 pursuant to which the Company was named as a defendant. The lawsuit
related to property that was occupied by the Company's Power Business over 37 years ago. While the Company believed the suit against the Company was without merit, it agreed to the settlement
to eliminate future costs of defending itself and the risks associated with litigation.

Transition Period compared to Six Month Comparative Period

NET INCOME    The Company achieved net income of $328,000 or $.07 per diluted share for the Transition Period compared to a net
loss of $163,000 or $.04 per diluted share for the Six Month Comparative Period.

INCOME FROM CONTINUING OPERATIONS    The Company achieved income from continuing operations of $45,000 or $.01 per diluted share
for the Transition Period compared to $60,000 or $.01 per diluted share for the Six Month Comparative Period.

REVENUES    Revenues were $17,191,000 in the Transition Period compared to $7,868,000 for the Six Month Comparative Period.
Included in revenues for the Transition Period are revenues related to

13

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Motor
Products, which was acquired on July 30, 2002. Exclusive of revenues from Motor Products, revenues increased 3% in the Transition Period over the Six Month Comparative Period due to our
success in expanding into new industry sectors including military and automotive applications.

GROSS MARGINS    Gross margin as a percentage of revenues decreased to 23% for the Transition Period from 30% for the Six Month
Comparative Period. The primary reason for this decline is due to the impact of the Motor Products acquisition. Motor Products margin for the Transition Period was negatively impacted due to the costs
associated with the integration of Ohio's manufacturing lines into the Michigan plant, including the hiring and training of more than 50 new employees. However, with the implementation of lean
manufacturing and off-shore purchasing initiatives, the
Company anticipates Motor Products gross margins to improve to align with the Company's legacy business and for margins to increase company wide.

SELLING EXPENSES    Selling expenses were $726,000 and $444,000 in the Transition Period and Six Month Comparative Period,
respectively. This increase is primarily due to the impact of Motor Products.

GENERAL AND ADMINISTRATIVE EXPENSES    General and administrative expenses were $2,217,000 in the Transition Period compared to
$1,403,000 in the Six Month Comparative Period. This increase was primarily due to the additional $290,000 expense from the acquisition of Motor Products and increased salary costs and expenses of
$233,000 as a result of hiring additional personnel including the president and chief operating officer of the Company. Additionally the increase was due to $154,000 in business development expenses
primarily related to the Company's new strategic development and lean manufacturing initiatives.

ENGINEERING AND DEVELOPMENT EXPENSES    Engineering and development expenses were $754,000 and $422,000 for the Transition and
Six Month Comparative Periods, respectively. This increase was primarily due to the impact of Motor Products.

AMORTIZATION AND OTHER    Amortization and other expense was $131,000 in the Transition Period and $4,000 in the Six Month
Comparative Period. This increase is due to the amortization costs related to the amortizable intangible assets acquired in the Motor Products acquisition.

INTEREST EXPENSE    Interest expense for the Transition Period was $130,000 and for the Six Month Comparative Period was
$10,000. This increase is due to the additional borrowings related to the financing of the acquisition of Motor Products.

PROVISION FOR INCOME TAXES    The provision for income taxes for the Transition Period was $40,000 and for the Six Month
Comparative Period was $26,000. The effective income tax rate as a percentage of income before income taxes from continuing operations was 47% in the Transition Period and 31% in the Six Month
Comparative Period. The difference in the effective tax rate between periods is primarily due to the impact of foreign taxes.

DISCONTINUED OPERATIONS    Income from discontinued operations was $283,000 in the Transition Period compared to a loss from
discontinued operations of $223,000 for the Six Month Comparative Period. Included in the results for the Transition Period is a pre-tax gain on the sale of the Power and Process Business
of $1,699,000 which closed on July 29, 2002 and a pretax write down to the carrying value of the Calibrator Business of $259,000. Included in the results for the Six Month Comparative Period is
a pretax gain on the sale of Si Fang of $674,000, net of selling costs. Operating loss in the Transition Period increased from the Six Month Comparative Period primarily because the
sale of the Power and Process Business closed on July 29,2002 and only one month's activity is included in the results of the Transition Period compared to six months results included in the
Six Month Comparative Period. The month of July has historically been the least profitable month of each fiscal year.

14

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Fiscal year 2002 compared to Fiscal year 2001

NET INCOME    The Company had a net loss of $266,000 or $.06 per diluted share for fiscal year 2002 compared to net income of
$1,996,000 or $.41 per diluted share for fiscal year 2001.

INCOME FROM CONTINUING OPERATIONS    The Company had a loss of $45,000 or $.01 per diluted share for fiscal year 2002 compared
to income of $2,024,000 or $.42 per diluted share for fiscal year 2001. Results for fiscal year 2002 were adversely affected by the economic slowdown, particularly in the semiconductor and
telecommunications markets.

REVENUES    Revenues from continuing operations were $15,723,000 and $21,188,000 in fiscal 2002 and 2001, respectively. The
decrease was primarily due to the overall economic slowdown especially in the semiconductor and telecommunications markets.

GROSS MARGINS    Gross margin as a percentage of revenues decreased to 32% for fiscal year 2002 from 38% for fiscal year 2001.
The decrease in gross margin was due to fixed overhead costs that could not be reduced in direct correlation to reduced revenue.

SELLING EXPENSES    Selling expenses were $901,000 and $1,162,000 in fiscal years 2002 and 2001, respectively. The decrease was
due to decreased commissions and selling expenses related to the decrease in revenues.

GENERAL AND ADMINISTRATIVE EXPENSES    General and administrative expenses were $3,497,000 in fiscal year 2002 compared to
$3,200,000 in fiscal year 2001. This increase was primarily due to increased employee bonus costs.

ENGINEERING AND DEVELOPMENT EXPENSES    Engineering and development expenses were $846,000 and $962,000 for fiscal years 2002
and 2001, respectively. This decrease was due to cost reductions made by the Company in reaction to the economic slowdown.

AMORTIZATION AND OTHER    Amortization and other expense were $5,000 and $57,000 for fiscal years 2002 and 2001, respectively.
This decrease was primarily due to the amortization of the goodwill associated with the July 1, 1998 acquisition of Emoteq UK being completed in fiscal year 2001.

INTEREST EXPENSE    There was no interest expense for fiscal year 2002 compared to $82,000 for fiscal year 2001. The decrease is
due to the elimination of the Company's outstanding debt during the first quarter of fiscal year 2002.

BENEFIT FROM INCOME TAXES    The benefit from income taxes for fiscal year 2002 was $31,000 compared to a provision for income
taxes of $598,000 for fiscal year 2001. The effective income tax rate as a percentage of income before income taxes from continuing operations was a 41% benefit in fiscal year 2002 compared to a 23%
provision in fiscal year 2001. The difference in the effective tax rate between periods is primarily due to expenses not deductible for tax purposes and changes in the valuation allowance against the
balance of deferred tax assets.

DISCONTINUED OPERATIONS    Discontinued operations had a loss of $221,000 for fiscal year 2002 compared to $28,000 for fiscal
year 2001. Included in the results for fiscal year 2002 is a pre-tax charge for litigation settlement and related legal fees of $1,429,000 to settle an environmental contamination lawsuit
filed in 2001 pursuant to which the Company was named as a defendant. The lawsuit related to property that was occupied by the Company's Power Business over 37 years ago. While the Company
believed the suit against the Company was without merit, it agreed to the settlement to eliminate future costs of defending itself and the risks associated with litigation.

15

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Also
included in the results for fiscal year 2002 is the gain on the sale of the Company's investment in the Si Fang joint venture and equity income from the remaining joint venture
investments in China, totaling $833,000 before tax, compared to $1,170,000 equity income from all joint ventures included in fiscal year 2001. Also included in the results for fiscal year 2001 is a
pre-tax restructuring charge of $587,000 related to the restructuring of the Company's Process Business.

Overall,
operating results from discontinued operations decreased in fiscal year 2002 over fiscal year 2001 primarily due to the litigation settlement and reduced income from China joint
venture activities, offset by improved margins achieved in fiscal year 2002 due to changes in product mix sold and the effect of the restructuring charge in fiscal 2001.

Liquidity and Capital Resources

The Company's liquidity position as measured by cash and cash equivalents increased $5,000 during the Year 2003 to a balance of $1,960,000 at December 31,
2003. Cash flow provided by operating activities was $2,152,000 in Year 2003 while cash used in operating activities was $187,000, $1,428,000, and $744,000 in the Twelve Month Comparative Period, the
Transition Period, and the Six Month Comparative Period, respectively. Cash flow provided from operations was $552,000 in fiscal year 2002 and $815,000 in fiscal year 2001. The differences are
primarily due to changes in operating results and working capital changes.

Cash
of $764,000 and $5,584,000 was used in investing activities during Year 2003 and the Twelve Month Comparative Period, respectively. Cash of $5,077,000 was used by investing
activities during the Transition Period, while cash of $2,559,000 and $1,997,000 was generated by investing activities in the Six Month Comparative Period and fiscal year 2002, respectively. Cash of
$1,003,000 was used by investing activities in fiscal year 2001. During Year 2003 the Company made payments of $300,000 related to the acquisition of Motor Products and received $500,000 and $149,000
from the sale of the Power and Process Business and the Calibrator Business, respectively. During the Twelve Month Comparative Period which includes the Transition Period, the Company made payments of
$12,184,000, including acquisition costs, related to the acquisition of Motor Products and received $7,020,000 in payments, net of expenses paid, related to the sale of the Power and Process Business.
The cash generated in the Six Month Comparative Period and fiscal year 2002 includes $3,020,000 cash received from the sale of Si Fang. Purchases of property and equipment were $1,113,000, $865,000,
$423,000, $461,000, $903,000 and $908,000 for Year 2003, the Twelve Month Comparative Period, the Transition Period, the Six Month Comparative Period and fiscal years 2002 and 2001, respectively.
During the Year 2003, the Twelve Month Comparative Period and the Transition Period, restricted cash balances decreased by zero, $445,000 and $510,000, respectively while during the Six Month
Comparative Period, and fiscal years 2002 and 2001, restricted cash balances increased by $55,000, $120,000 and $95,000, respectively.

During
year 2003 financing activities used $1,447,000 in cash while $4,162,000 in cash was provided in the Twelve Month Comparative Period. Financing activities provided $4,104,000 in
cash for the Transition Period but used cash of $349,000, $291,000 and $769,000 in the Six Month Comparative Period and in fiscal years 2002 and 2001, respectively. In 2003, the Company made
$2,000,000 in repayments on the line-of-credit, received $500,000 from new capital leases entered into during year 2003, made repayments of $21,000 on its capital leases and
received $74,000 from stock transactions under employee benefit stock plans. Financing activities for the Twelve Month Comparative Period focused primarily on the activities during the Transition
Period when the Company received proceeds from its line-of-credit and term loan agreements of $4,000,000 and made payments of $167,000 on its term loan. The Company also
received net proceeds of $329,000 related to the activities of the employee benefit stock plans in the Twelve Month Comparative Period. During the Transition Period, besides the
line-of-credit activity and term loan payments discussed above, the Company received net proceeds of $271,000 related to the activities of employee benefit stock plans. During
fiscal year 2002,

16

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$553,000
of cash was used to pay off the line of credit. This was offset by net proceeds from the activities of employee benefit stock plans of $262,000. In fiscal year 2001, the Company made net
repayments of $993,000 to the line of credit, offset by $224,000 of cash received from activities of employee benefit stock plans.

At
December 31, 2003, the Company had $1,833,000 of debt obligations, compared with $4,133,000, zero, and $553,000 at December 31, 2002 and fiscal years ended
June 30, 2002 and 2001, respectively. The December 31, 2003 debt represents borrowings on the Company's current long-term financing agreement (Agreement) with Silicon Valley
Bank (Silicon), which was amended during the Transition Period to increase the Maximum Credit Limit on the line-of-credit to $4,000,000 and to add an additional $1,750,000 term
loan to the Agreement.

Under
the amended Agreement, borrowing on the line-of-credit is restricted to the Maximum Credit Limit which is calculated as the lesser of $4,000,000 or 80% of
the Company's eligible receivables plus the lesser of 1) 25% of the Company's eligible inventory, or 2) 30% of the Company's eligible receivables, or 3) $750,000. The Agreement
was to mature on September 10, 2003 but was amended to extend the maturity date to June 30, 2004. The interest rate on the line-of-credit prior to the year 2003
amendment was equal to the prime rate plus 1.5%, but was lowered to the prime rate plus 1% (5% at December 31, 2003) with the new amendment. The interest rate may be adjusted on a quarterly
basis, but not above prime rate plus 1%, if the Company achieves certain defined financial ratios. In addition to interest, the line bears a monthly unused line fee at 0.375% on the difference between
the amount of the credit limit and the average daily principal balance of the line-of-credit outstanding during the month. The Company borrowed $2,250,000 on July 30,
2002 under this line-of-credit to fund the purchase of Motor Products but made $1,500,000 in repayments during Year 2003. As of December 31, 2003, the amount available
under the line of credit was $2,843,000.

Also
under the amended Agreement, the Company obtained a term loan of $1,750,000. The term loan requires forty-two monthly principal payments of $41,667 plus interest through
February 2, 2006. The loan matures the earlier of February 1, 2006 or the date the line-of-credit terminates which is June 30, 2004. Accordingly, amounts
outstanding under the term loan have been classified as a current liability. The loan bears interest at 8.38%, but may be adjusted on a quarterly basis, but not above 8.38%, if the Company achieves
certain defined financial ratios. The Company borrowed $1,750,000 under this term loan on July 30, 2002 to fund the purchase of Motor Products.

Both
loan facilities are secured by all of the 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 profitability. At December 31, 2003, the Company was in compliance with all covenants.

The
Company's working capital, capital expenditure and debt service requirements, including payment of the litigation settlement, are expected to be funded from cash provided by
operations, the Company's existing cash balance and amounts available under the line of credit facility. The Company believes the capital currently available to it is sufficient for its currently
anticipated needs for the next twelve months, but if additional capital is needed in the future, the Company would pursue additional capital via debt or equity financing. A key component of the
Company's liquidity relates to the availability of amounts under the line of credit with Silicon Valley Bank. Any lack of availability of this facility could have a material adverse impact on the
Company's liquidity position.

In
relation to the proposed acquisition of Owosso Corporation, the Company has received a commitment from PNC Business Credit and Silicon Valley Bank for up to $18.1 million to
complete the acquisition and for working capital needs. The commitment consists of up to $10.5 million of borrowings under a revolving line of credit facility, $3.0 million of borrowings
under a new term loan agreement and a stand-by letter of credit of up to $4.6 million to collateralize industrial revenue bonds.

17

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See
Note 14 of the Consolidated Financial Statements for further information on this proposed acquisition.

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 and lower costs of materials. 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 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 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 our 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 than those
projected by management the recorded reserve may be adjusted, and such adjustments may have a significant impact on our results of operations. Demand for our products can fluctuate significantly, and
in the past we have 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

18

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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, whenever events or changes in circumstances indicate that
such carrying values may not be fully recoverable. Under previous standards, the assets had to be carried at historical cost if the projected cash flows from their use would recover their carrying
amounts on an undiscounted basis and without considering interest. However, if projected cash flows were less than their carrying value, even by one dollar, the long-lived assets had to be
reduced to their estimated fair value. Considerable judgment was and is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived asset.
Effective July 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142 provides a more restrictive fair value test to evaluate goodwill and long-lived asset
impairment. Depending upon future assessments of fair value, there could be impairment recorded related to goodwill and other long-lived assets.

Contractual Commitments

For more information on the Company's contractual obligations on operating leases and contractual commitments, see Notes 4 and 8 to the consolidated financial
statements. At December 31, 2003, the Company's commitments under these obligations were as follows (in thousands):

|Year ended December 31, |  | Operating
Leases |       | Capital
Leases(1) |   | Line of
Credit(2) |  | Term
Loan(3) |     | Litigation
Settlement |   | Total
|----------------------- |  | ---------------- | ----- | ----------------- | - | ----------------- |  | ------------ | --- | --------------------- | - | -----
|2004                    |  | $                | 716   |                   | $ | 166               |  | $            | 750 |                       | $ | 1,083
|2005                    |  |                  | 576   |                   |   | 167               |  |              |    |                       |   |     
|2006                    |  |                  | 432   |                   |   | 156               |  |              |    |                       |   |     
|2007                    |  |                  | 402   |                   |   | 57                |  |              |    |                       |   |     
|2008                    |  |                  | 411   |                   |   |                  |  |              |    |                       |   |     
|Thereafter              |  |                  | 1,769 |                   |   |                  |  |              |    |                       |   |     
|                        |  |                  |       |                   |   |                   |  |              |     |                       |   |      
|                        |  | $                | 4,306 |                   | $ | 546               |  | $            | 750 |                       | $ | 1,083
|                        |  |                  |       |                   |   |                   |  |              |     |                       |   |      

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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 United States 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. Historically, and as of December 31, 2003, the Company has not
used derivative instruments or engaged in hedging activities.

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Interest Rate Risk

The interest payable on the Company's line-of-credit is variable based on the prime rate, and, therefore, affected by changes in market
interest rates. The line-of-credit matures in June 2004. The Company manages interest rate risk by investing excess funds in cash equivalents bearing variable interest
rates that are tied to various market indices. As a result, 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
$7,500 annually.

Foreign Currency Risk

After July 29, 2002, upon the sale of the Power and Process Business, the Company had one wholly-owned subsidiary located in England, but during year 2003,
this subsidiary was merged into its parent company located in the United States. Historically sales from this operation were typically denominated in British Pounds, thereby creating exposures to
changes in exchange rates. The Company did not believe that reasonably possible near-term changes in exchange rates would result in a material effect on future earnings, fair values or
cash flows of the Company, and therefore, chose not to enter into foreign currency hedging instruments.

Item 8. Financial Statements and Supplementary Data.

20

---



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of Allied Motion Technologies Inc.:

We
have audited the accompanying consolidated balance sheets of ALLIED MOTION TECHNOLOGIES INC. (a Colorado corporation) AND SUBSIDIARIES as of December 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders' investment and comprehensive income, and cash flows for the year ended December 31, 2003, the six-month period
ended December 31, 2002, and for each of the years in the two-year period ended June 30, 2002. In connection with our audits of the consolidated financial statements, we also
have audited the consolidated financial statement Schedule II-Valuation and Qualifying Accounts for the year ended December 31, 2003, the six-month period ended
December 31, 2002, and for each of the years in the two-year period ended June 30, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of their operations and their cash flows for the year ended December 31, 2003, the six-month period ended
December 31, 2002, and for each of the years in the two-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of
America. 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.

As
discussed in Note 1 to the consolidated financial statements, Allied Motion Technologies Inc. and subsidiaries adopted the provisions of Statements of Financial
Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," effective July 1, 2002.

| |  | KPMG LLP
| |  | --------

Denver,
Colorado
February 19, 2004

21

---



ALLIED MOTION TECHNOLOGIES INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except per share data)

|                                                            |                                                                                                                                 | December 31,
2003 |        | December 31,
2002
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------ | -----------------
|Assets                                                      |                                                                                                                                 |                   |        |                  
|Current Assets:                                             |                                                                                                                                 |                   |        |                  
|                                                            | Cash and cash equivalents                                                                                                       |                   | $      | 1,960            
|                                                            | Current assets of segment held for sale                                                                                         |                   |        |                 
|                                                            | Trade receivables, net of allowance for doubtful accounts of $106 and $148 at December 31, 2003 and 2002, respectively          |                   |        | 5,971            
|                                                            | Inventories, net                                                                                                                |                   |        | 3,867            
|                                                            | Deferred income taxes                                                                                                           |                   |        | 1,247            
|                                                            | Prepaid expenses and other                                                                                                      |                   |        | 592              
|                                                            |                                                                                                                                 |                   |        |                  
|Total Current Assets                                        |                                                                                                                                 |                   | 13,637 |                  
|Property, plant and equipment, net                          |                                                                                                                                 |                   | 6,423  |                  
|Deferred income taxes                                       |                                                                                                                                 |                   |       |                  
|Goodwill and intangible assets                              |                                                                                                                                 |                   | 7,437  |                  
|                                                            |                                                                                                                                 |                   |        |                  
|Total Assets                                                |                                                                                                                                 | $                 | 27,497 |                  
|                                                            |                                                                                                                                 |                   |        |                  
|Liabilities and Stockholders' Investment                    |                                                                                                                                 |                   |        |                  
|Current Liabilities:                                        |                                                                                                                                 |                   |        |                  
|                                                            | Current liabilities of segment held for sale                                                                                    |                   | $      |                 
|                                                            | Current maturities of capital lease obligations                                                                                 |                   |        | 134              
|                                                            | Debt obligations                                                                                                                |                   |        | 1,833            
|                                                            | Accounts payable                                                                                                                |                   |        | 2,230            
|                                                            | Accrued liabilities and other                                                                                                   |                   |        | 3,059            
|                                                            | Income taxes payable                                                                                                            |                   |        | 445              
|                                                            |                                                                                                                                 |                   |        |                  
|Total Current Liabilities                                   |                                                                                                                                 |                   | 7,701  |                  
|Litigation settlement, net of current portion               |                                                                                                                                 |                   |       |                  
|Long-term capital lease obligations, net of current portion |                                                                                                                                 |                   | 345    |                  
|Deferred income taxes                                       |                                                                                                                                 |                   | 430    |                  
|Pension and post-retirement obligations                     |                                                                                                                                 |                   | 2,962  |                  
|                                                            |                                                                                                                                 |                   |        |                  
|Total Liabilities                                           |                                                                                                                                 |                   | 11,438 |                  
|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; 5,021 and 4,837 shares issued at December 31, 2003 and 2002, respectively |                   |        | 8,383            
|                                                            | Loan receivable from Employee Stock Ownership Plan                                                                              |                   |        | (200             
|                                                            | Retained earnings                                                                                                               |                   |        | 7,797            
|                                                            | Cumulative translation adjustments                                                                                              |                   |        | 79               
|                                                            |                                                                                                                                 |                   |        |                  
|Total Stockholders' Investment                              |                                                                                                                                 |                   | 16,059 |                  
|                                                            |                                                                                                                                 |                   |        |                  
|Total Liabilities and Stockholders' Investment              |                                                                                                                                 | $                 | 27,497 |                  
|                                                            |                                                                                                                                 |                   |        |                  

See
accompanying notes to consolidated financial statements.

22

---

ALLIED MOTION TECHNOLOGIES INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

|                                                             |                                            |   |        | For the
six-month
period ended
December 31,
2002 |   | For the fiscal
years ended
June 30, |      
|------------------------------------------------------------ | ------------------------------------------ | - | ------ | ------------------------------------------------ | - | ----------------------------------- | -----
|
|
|Revenues                                                     |                                            | $ | 39,434 |                                                  | $ | 17,191                              |      
|Cost of products sold                                        |                                            |   | 29,167 |                                                  |   | 13,169                              |      
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Gross margin                                                 |                                            |   | 10,267 |                                                  |   | 4,022                               |      
|Operating costs and expenses:                                |                                            |   |        |                                                  |   |                                     |      
|                                                             | Selling                                    |   |        | 2,022                                            |   |                                     | 726  
|                                                             | General and administrative                 |   |        | 4,596                                            |   |                                     | 2,217
|                                                             | Engineering and development                |   |        | 1,853                                            |   |                                     | 754  
|                                                             | Amortization and other                     |   |        | 315                                              |   |                                     | 131  
|                                                             | Restructuring charges                      |   |        | 211                                              |   |                                     |     
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Total operating costs and expenses                           |                                            |   | 8,997  |                                                  |   | 3,828                               |      
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Operating income (loss)                                      |                                            |   | 1,270  |                                                  |   | 194                                 |      
|Other income (expense), net:                                 |                                            |   |        |                                                  |   |                                     |      
|                                                             | Interest expense                           |   |        | (226                                             | ) |                                     | (130 
|                                                             | Other (expense) income, net                |   |        | (77                                              | ) |                                     | 21   
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Total other (expense) income, net                            |                                            |   | (303   | )                                                |   | (109                                | )    
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Income (loss) before income taxes from continuing operations |                                            |   | 967    |                                                  |   | 85                                  |      
|(Provision) benefit for income taxes                         |                                            |   | (19    | )                                                |   | (40                                 | )    
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Income (loss) from continuing operations                     |                                            |   | 948    |                                                  |   | 45                                  |      
|Discontinued Operations                                      |                                            |   |        |                                                  |   |                                     |      
|Gain on the sale of Power and Process Business, net of tax   |                                            |   |       |                                                  |   | 1,019                               |      
|Operating loss from discontinued operations, net of tax      |                                            |   |       |                                                  |   | (736                                | )    
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Income (loss) from discontinued operations                   |                                            |   |       |                                                  |   | 283                                 |      
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Net income (loss)                                            |                                            | $ | 948    |                                                  | $ | 328                                 |      
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Basic net income (loss) per share:                           |                                            |   |        |                                                  |   |                                     |      
|                                                             | Income (loss) from continuing operations   |   | $      | 0.19                                             |   | $                                   | 0.01 
|                                                             | Income (loss) from discontinued operations |   |        |                                                 |   |                                     | 0.06 
|                                                             |                                            |   |        |                                                  |   |                                     |      
|                                                             | Net income (loss) per share                |   | $      | 0.19                                             |   | $                                   | 0.07 
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Basic weighted average common shares                         |                                            |   | 4,925  |                                                  |   | 4,817                               |      
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Diluted net income (loss) per share:                         |                                            |   |        |                                                  |   |                                     |      
|                                                             | Income (loss) from continuing operations   |   | $      | 0.19                                             |   | $                                   | 0.01 
|                                                             | Income (loss) from discontinued operations |   |        |                                                 |   |                                     | 0.06 
|                                                             |                                            |   |        |                                                  |   |                                     |      
|                                                             | Net income (loss) per share                |   | $      | 0.19                                             |   | $                                   | 0.07 
|                                                             |                                            |   |        |                                                  |   |                                     |      
|Diluted weighted average common shares                       |                                            |   | 5,061  |                                                  |   | 4,970                               |      
|                                                             |                                            |   |        |                                                  |   |                                     |      

See
accompanying notes to consolidated financial statements.

23

---



ALLIED MOTION TECHNOLOGIES INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT  AND COMPREHENSIVE INCOME        (In thousands)

|                            |                                                                | Common Stock |     |   |       |     |   |      |      |   |      
|--------------------------- | -------------------------------------------------------------- | ------------ | --- | - | ----- | --- | - | ---- | ---- | - | -----
|
|
|Balances, June 30, 2000     |                                                                | 4,460        |     | $ | 6,717 |     | $ | (235 | )    | $ | 4,791
|                            | Stock transactions under employee benefit stock plans          |              | 61  |   |       | 149 |   |      | 75   |   |      
|                            | Tax benefit from disqualifying stock dispositions              |              |     |   |       | 178 |   |      |      |   |      
|                            | Shares issued to repurchase subsidiary stock                   |              | 76  |   |       | 309 |   |      |      |   |      
|                            | Foreign currency translation adjustment                        |              |     |   |       |     |   |      |      |   |      
|                            | Net income                                                     |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|                            | Comprehensive income                                           |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|Balances, June 30, 2001     |                                                                | 4,597        |     |   | 7,353 |     |   | (160 | )    |   | 6,787
|                            | Stock transactions under employee benefit stock plans          |              | 93  |   |       | 235 |   |      | 27   |   |      
|                            | Tax benefit from disqualifying stock dispositions              |              |     |   |       | 223 |   |      |      |   |      
|                            | Reclassification of loan to officer                            |              |     |   |       |     |   |      | 133  |   |      
|                            | Foreign currency translation adjustment                        |              |     |   |       |     |   |      |      |   |      
|                            | Net loss                                                       |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|                            | Comprehensive income                                           |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|Balances, June 30, 2002     |                                                                | 4,690        |     |   | 7,811 |     |   |     |      |   | 6,521
|                            | Stock transactions under employee benefit stock plans          |              | 131 |   |       | 225 |   |      |      |   |      
|                            | Issuance of restricted stock                                   |              | 16  |   |       | 42  |   |      |      |   |      
|                            | Stock compensation expense                                     |              |     |   |       | 22  |   |      |      |   |      
|                            | Foreign currency translation adjustment                        |              |     |   |       |     |   |      |      |   |      
|                            | Net income                                                     |              |     |   |       |     |   |      |      |   |      
|                            | Reclassification adjustment for amounts included in net income |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|                            | Comprehensive income                                           |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|Balances, December 31, 2002 |                                                                | 4,837        |     |   | 8,100 |     |   |     |      |   | 6,849
|                            | Stock transactions under employee benefit stock plans          |              | 183 |   |       | 271 |   |      | (200 | ) |      
|                            | Issuance of restricted stock                                   |              | 1   |   |       | 3   |   |      |      |   |      
|                            | Stock compensation expense                                     |              |     |   |       | 9   |   |      |      |   |      
|                            | Foreign currency translation adjustment                        |              |     |   |       |     |   |      |      |   |      
|                            | Net income                                                     |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|                            | Comprehensive income                                           |              |     |   |       |     |   |      |      |   |      
|                            |                                                                |              |     |   |       |     |   |      |      |   |      
|Balances, December 31, 2003 |                                                                | 5,021        |     | $ | 8,383 |     | $ | (200 | )    | $ | 7,797
|                            |                                                                |              |     |   |       |     |   |      |      |   |      

See accompanying notes to consolidated financial statements.

24

---

ALLIED MOTION TECHNOLOGIES INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                                                                   |                                                                                      |                          |                               | For the
six-month
period ended
December 31,
2002 |   | For the fiscal years ended June 30, |        
|-------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------ | ----------------------------- | ------------------------------------------------ | - | ----------------------------------- | -------
|
|
|Cash Flows From Operating Activities:                                                              |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net income (loss)                                                                                  |                                                                                      | $                        | 948                           |                                                  | $ | 328                                 |        
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                                      |                          |                               |                                                  |   |                                     |        
|                                                                                                   | Depreciation and amortization                                                        |                          |                               | 1,359                                            |   |                                     | 555    
|                                                                                                   | Provision for doubtful accounts                                                      |                          |                               | 47                                               |   |                                     | 64     
|                                                                                                   | Provision for obsolete inventory                                                     |                          |                               | 135                                              |   |                                     | 128    
|                                                                                                   | Accrued litigation settlement and legal fees                                         |                          |                               |                                                 |   |                                     |       
|                                                                                                   | Gain on sale of Power and Process Business                                           |                          |                               |                                                 |   |                                     | (1,699 
|                                                                                                   | Equity income from investments in joint ventures, net of dividends                   |                          |                               |                                                 |   |                                     |       
|                                                                                                   | Gain on sale of investment in joint venture                                          |                          |                               |                                                 |   |                                     |       
|                                                                                                   | Deferred income tax provision (benefit)                                              |                          |                               | 440                                              |   |                                     | 107    
|                                                                                                   | Other                                                                                |                          |                               | 100                                              |   |                                     | 23     
|                                                                                                   | Changes in assets and liabilities, net of effects from acquisition and dispositions: |                          |                               |                                                  |   |                                     |        
|                                                                                                   |                                                                                      | (Increase) decrease in - |                               |                                                  |   |                                     |        
|                                                                                                   |                                                                                      |                          | Trade receivables             |                                                  |   | (414                                | )      
|                                                                                                   |                                                                                      |                          | Inventories, net              |                                                  |   | (74                                 | )      
|                                                                                                   |                                                                                      |                          | Prepaid expenses and other    |                                                  |   | (82                                 | )      
|                                                                                                   |                                                                                      | (Decrease) increase in - |                               |                                                  |   |                                     |        
|                                                                                                   |                                                                                      |                          | Accounts payable              |                                                  |   | (201                                | )      
|                                                                                                   |                                                                                      |                          | Accrued liabilities and other |                                                  |   | (106                                | )      
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net cash provided by (used in) operating activities                                                |                                                                                      |                          | 2,152                         |                                                  |   | (1,428                              | )      
|Cash Flows From Investing Activities:                                                              |                                                                                      |                          |                               |                                                  |   |                                     |        
|                                                                                                   | Purchase of property and equipment                                                   |                          |                               | (1,113                                           | ) |                                     | (423   
|                                                                                                   | Payment for the purchase of Motor Products                                           |                          |                               | (300                                             | ) |                                     | (12,184
|                                                                                                   | Proceeds from sale of Power and Process Business                                     |                          |                               | 649                                              |   |                                     | 7,020  
|                                                                                                   | Changes in restricted cash                                                           |                          |                               |                                                 |   |                                     | 510    
|                                                                                                   | Proceeds from sale of joint venture investment                                       |                          |                               |                                                 |   |                                     |       
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net cash (used in) provided by investing activities                                                |                                                                                      |                          | (764                          | )                                                |   | (5,077                              | )      
|Cash Flows From Financing Activities:                                                              |                                                                                      |                          |                               |                                                  |   |                                     |        
|                                                                                                   | Borrowings on line-of-credit and term loan                                           |                          |                               |                                                 |   |                                     | 4,000  
|                                                                                                   | Repayments on line-of-credit and term loan                                           |                          |                               | (2,000                                           | ) |                                     | (167   
|                                                                                                   | Proceeds from capital leases                                                         |                          |                               | 500                                              |   |                                     |       
|                                                                                                   | Repayments on capital leases                                                         |                          |                               | (21                                              | ) |                                     |       
|                                                                                                   | Stock transactions under employee benefit stock plans                                |                          |                               | 74                                               |   |                                     | 271    
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net cash (used in) provided by financing activities                                                |                                                                                      |                          | (1,447                        | )                                                |   | 4,104                               |        
|Effect of foreign exchange rate changes on cash                                                    |                                                                                      |                          | 64                            |                                                  |   | 78                                  |        
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net increase (decrease) in cash and cash equivalents                                               |                                                                                      |                          | 5                             |                                                  |   | (2,323                              | )      
|Cash and cash equivalents at beginning of period                                                   |                                                                                      |                          | 1,955                         |                                                  |   | 4,278                               |        
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Cash and cash equivalents at end of period                                                         |                                                                                      | $                        | 1,960                         |                                                  | $ | 1,955                               |        
|                                                                                                   |                                                                                      |                          |                               |                                                  |   |                                     |        
|Supplemental disclosure of cash flow information:                                                  |                                                                                      |                          |                               |                                                  |   |                                     |        
|Net cash paid (received) during the period for:                                                    |                                                                                      |                          |                               |                                                  |   |                                     |        
|                                                                                                   | Interest                                                                             |                          | $                             | 226                                              |   | $                                   | 128    
|                                                                                                   | Income taxes                                                                         |                          |                               | (254                                             | ) |                                     |       

See accompanying notes to consolidated financial statements.

25

---



ALLIED MOTION TECHNOLOGIES INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Allied Motion Technologies, Inc. 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. Prior to October 2002, the Company was known as Hathaway
Corporation. In connection with the sale of its Power and Process Business (see Note 12), the Hathaway name became the property of the buyers. At the October 2002 Annual Meeting of
Stockholders, the stockholders approved an amendment to the Articles of Incorporation changing the Company's name to Allied Motion Technologies Inc.

On
July 30, 2002, the Company purchased 100% of the stock of Motor ProductsOwosso Corporation and Motor ProductsOhio Corporation (collectively "Motor
Products") from Owosso Corporation, a publicly held corporation, for $11,800,000. Motor Products, located in Owosso, Michigan has been a motor producer for more than fifty 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. The Company
acquired Motor Products to further its Motion Strategy. See Note 2 for further information about the acquisition of Motor Products.



The Board of Directors approved a change in the fiscal year end from June 30 to December 31 which was effective July 1, 2002; and therefore
the Company reported a six month period ended December 31, 2002. The following table describes the periods presented in the Consolidated Financial Statements and related notes thereto:

|Period:                                                        |  | Referred to as:             
|-------------------------------------------------------------- |  | ----------------------------
|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            

The
results of operations for the Six Month Comparative Period (unaudited) are as follows (in thousands, except per share data):

Revenues

$
7,868Gross margin


2,388Operating income


115Income from continuing operations


60Operating loss from discontinued operations


(223
)Net loss


(163
)Basic and diluted income per share from continuing operations


.01Basic and diluted net loss per share


(.04
)


26

---



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 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 in foreign currencies are translated using an average rate.



Restricted cash consists of certificates of deposit that serve as collateral for letters of credit issued on behalf of the Company.



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, 2003

December 31, 2002Parts and raw materials, net

$
2,205

$
2,332Work-in-process, net


1,006


940Finished goods, net


656


681$
3,867

$
3,953


Reserves
established for anticipated losses on excess or obsolete inventories were approximately $881,000 and $1,024,000 at December 31, 2003 and 2002, respectively.



Property, plant and equipment is classified as follows (in thousands):

Useful
lives

December 31, 2003

December 31, 2002Land



$
150

$
150Building and improvements

39 years


1,511


1,479Machinery, equipment, tools and dies

2-8 years


7,800


6,932Furniture, fixtures and other

3-10 years


1,484


1,64310,945


10,204Less accumulated depreciation and amortization




(4,522
)

(3,773
)$
6,423

$
6,431


Depreciation
and amortization 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,

27

---

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 any resulting gain or loss, if any, is reflected in earnings.

Depreciation
expense was approximately $1,044,000, $354,000, $371,000 and $310,000 in year 2003, the Transition Period and fiscal years 2002 and 2001, respectively.



Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. On
July 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles" (SFAS No. 142) and ceased amortization of its goodwill. In
addition, the Company has determined that the classifications of its intangible assets previously acquired and the related useful lives established were not impacted by the provisions of SFAS
No. 142. Goodwill is required to be tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In accordance with SFAS
No. 142, the Company performed its transitional goodwill impairment testing as of July 1, 2002 and determined that no impairments existed at that date. SFAS No. 142 requires a
goodwill impairment test on an annual basis. The Company completed its annual analysis of the fair value of its goodwill at September 30, 2003 and determined there was no indicated impairment
of its goodwill. There can be no assurance that future goodwill impairments will not occur.



Intangible assets, other than goodwill, are recorded at cost and are amortized over their estimated useful lives using the straight-line method.



On July 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 did not address the
accounting for a segment of a business accounted for as a discontinued operation, which resulted in two accounting models for long-lived assets to be disposed of. SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed of by sale, and requires that those long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations or in discontinued operations.

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, even by one dollar, the long-lived assets must be reduced to their estimated fair value.
Considerable judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived asset. No impairments of long-lived assets
were recorded in year 2003, the Transition Period or in the fiscal years ended June 30, 2002 or 2001.

28

---



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 $185,000 and $212,000 as of December 31, 2003 and 2002, respectively.



Accrued liabilities consist of the following (in thousands):

December 31, 2003

December 31, 2002Compensation and fringe benefits

$
1,245

$
1,309Litigation and legal fees (Note 8)


300


425Customer deposits


458


Other accrued expenses


1,056


828$
3,059

$
2,562




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 current exchange rates. Revenues and expenses are translated at average rates prevailing during the period. The resulting translation adjustments are recorded in the other comprehensive
income component of stockholders' investment in the accompanying consolidated balance sheets. Transaction 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 expenses are expensed as incurred.



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 income (loss) per share from continuing operations is computed by dividing net income or loss by the weighted average number of shares of common stock
outstanding. Diluted income or loss per share from continuing operations 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 options determined utilizing the treasury stock method. Outstanding options totaling 136,000, 153,000, and 341,000 had
a dilutive effect for year 2003, the Transition Period and fiscal years 2001,

29

---

respectively.
Stock options to purchase 734,000, 971,000, 890,000, and 240,000 shares of common stock (without regard to the treasury stock method), were excluded from the calculation of diluted
income (loss) per share for year 2003, the Transition Period and fiscal years 2002 and 2001, respectively, since the results would have been anti-dilutive.



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. Adjustments for comprehensive income for
all years presented are limited to cumulative translation adjustments from the translation of the financial statements of the Company's foreign subsidiaries.



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 6. 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 Company's net income (loss) would have been adjusted to the following amounts (in thousands, except per share data):

For the
Transition
Period Ended
December 31,
2002

For the Fiscal
Years Ended
June 30,For the
year Ended
December 31,
20032002

2001Actual net income (loss)

$
948

$
328

$
(266
)
$
1,996Pro forma net (loss) income

$
375

$
71

$
(1,005
)
$
1,364Actual basic net income (loss) per share

$
0.19

$
0.07

$
(0.06
)
$
0.44Pro forma basic net income (loss) per share

$
0.08

$
0.01

$
(0.21
)
$
0.30Actual diluted net income (loss) per share

$
0.19

$
0.07

$
(0.06
)
$
0.41Pro forma diluted net income (loss) per share

$
0.07

$
0.01

$
(0.21
)
$
0.28


Cumulative
compensation cost recognized is adjusted for forfeitures by a reduction of adjusted compensation expense in the period of forfeiture.

30

---

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 Transition Period Ended December 31, 2002For the Fiscal Years Ended June 30,For the
year Ended December 31, 20032002

2001Risk-free interest rate

2.9%

3.9%

3.9%

5.9%Expected dividend yield

0.0%

0.0%

0.0%

0.0%Expected life

6 years

6 years

6 years

6 yearsExpected volatility

102.7%

108.6%

120.7%

89.5%


The
weighted average fair value of options granted, assuming the Black-Scholes option-pricing model, during year 2003, the Transition Period ended December 31, 2002 and fiscal
years ended June 30, 2002 and 2001 was $1.64, $2.00, $2.57, and $4.19, respectively. The total fair value of options granted was $324,000, $461,000, $1,069,000, and $1,897,000 in year 2003, the
Transition Period ended December 31, 2002 and fiscal years ended June 30, 2002 and 2001, respectively. These amounts are being amortized ratably over the vesting periods of the options
for purposes of this disclosure.

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 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.



The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, 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 line-of-credit
approximates its 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 fair market interest rate.



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 basis 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

31

---

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.



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.



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.



Certain prior year balances were reclassified to conform to the current year presentation. Those reclassifications had no impact on net income or stockholders'
investment as previously reported.

2.     MOTOR PRODUCTS ACQUISITION

On July 30, 2002, the Company purchased 100% of the stock of Motor Products from Owosso Corporation, a publicly held corporation, for $11,800,000. The
Company incurred approximately $712,000 in acquisition costs, which resulted in a total purchase price of $12,512,000. The Company paid $11,500,000 in cash at closing and $300,000 was paid in
January 2003 and was included in debt obligations in the accompanying December 31, 2002 balance sheet.

The
Company acquired Motor Products to further its strategy of expanding its motion business. Motor Products was very well aligned with the Company due to the commitment to lean
manufacturing processes and an extensive design and applications engineering knowledge base.

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 respective estimated fair values at the date of acquisition which in part was determined by a third-party appraisal. The net purchase price allocation was as follows (in thousands):

Trade receivables

$
2,927Inventories


2,300Other current assets


56Property, plant and equipment


5,377Amortizable intangible assets


2,670Goodwill


4,861Accrued liabilities and other current liabilities


(2,937
)Pension and post-retirement obligations


(2,742
)Net purchase price

$
12,512


32

---

The
acquired goodwill and intangible assets will be deductible for tax purposes. The amortizable intangible assets will be amortized as discussed in Note 3.

The
accompanying consolidated financial statements include the operating results of Motor Products subsequent to July 30, 2002.

The
following presents the Company's unaudited pro forma financial information from continuing operations for the six months ended December 31, 2002 and the fiscal year ended
June 30, 2002. The pro forma statements of operations give effect to the acquisition of Motor Products as if it had occurred at July 1, 2001. The pro forma financial information is 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 each fiscal period or to
project the Company's results of operations for any future period (in thousands, except per share data).

For the
Transition
Period ended
December 31,
2002

For the Fiscal
Year ended
June 30,
2002Revenues

$
19,303

$
37,746Gross margin


4,230


7,973Operating income (loss)


108


(163
)Loss from continuing operations

$
(23
)
$
(243
)Diluted loss per share from continuing operations

$
.00

$
(.05
)


3.     GOODWILL AND INTANGIBLE ASSETS

Included in goodwill and intangible assets on the Company's consolidated balance sheets are the following intangible assets (in thousands):

December 31,
2003

December 31,
2002

Estimated
LifeGoodwill

$
5,213

$
5,202Amortizable intangible assetsCustomer lists


1,930


1,930

8 yearsTrade name


740


740

10 yearsAccumulated amortization


(446
)

(131
)Total intangible assets


2,224


2,539Total goodwill and intangible assets

$
7,437

$
7,741


The
change in the carrying amount of goodwill for year 2003 is as follows (in thousands):

Balance as of December 31, 2002

$
5,202Goodwill resulting from adjustments to purchase price allocation


11Balance as of December 31, 2003

$
5,213


Amortization
expense for intangible assets for the year 2003 and Transition Period was $315,000 and $131,000, respectively. Estimated amortization expense for intangible assets is
$315,000 for each of the years ended December 31, 2004 through 2008.

33

---

The
impact of not amortizing goodwill, net of taxes, for Fiscal Years 2002 and 2001 would not have a material impact on previously reported results.

4.     DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

December 31,
2003

December 31,
2002Line of credit

$
750

$
2,250Term loan


1,083


1,583Note payable related to acquisition of Motor Products





300Total


1,833


4,133Less current maturities


(1,833
)

(4,133
)Long-term debt obligations

$


$



The
Company has entered into a long-term financing agreement (Agreement) with Silicon Valley Bank (Silicon) which was to mature on May 7, 2003. On July 30,
2002, the Company and Silicon amended the Agreement increasing the credit limit on the line-of-credit to $4,000,000.

Under
the amended Agreement, borrowing on the line-of-credit is restricted to the Maximum Credit Limit which is calculated as the lesser of $4,000,000 or 80% of
the Company's eligible receivables plus the lesser of 1) 25% of the Company's eligible inventory, or 2) 30% of the Company's eligible receivables, or 3) $750,000. The amended
Agreement was to mature on September 10, 2003 but was further amended to extend the maturity date to June 30, 2004. The interest rate on the line-of-credit prior
to the year 2003 amendment was equal to the prime rate plus 1.5%, but was lowered to the prime rate plus 1% (5% at December 31, 2003) with the new amendment. The interest rate may be adjusted
on a quarterly basis, but not above prime rate plus 1%, if the Company achieves certain defined financial ratios. In addition to interest, the line bears a monthly unused line fee of 0.375% on the
calculated difference between the amount of the credit limit and the average daily principal balance of the line-of-credit outstanding during the month. The Company borrowed
$2,250,000 on July 30, 2002 under this line-of-credit to fund the purchase of Motor Products but made $1,500,000 in repayments during year 2003. As of
December 31, 2003, the amount available under the line of credit was $2,843,000.

Also
under the amended Agreement, the Company obtained a term loan of $1,750,000. The term loan requires forty-two monthly principal payments of $41,667 plus interest through
February 1, 2006. The term loan matures the earlier of February 1, 2006 or the date the line-of-credit terminates which is June 30, 2004. Accordingly, all
amounts outstanding under the term loan have been classified as a current liability. The loan bears interest at 8.38%, but may be adjusted on a quarterly basis, but not above 8.38%, if the Company
achieves certain defined financial ratios. The Company borrowed $1,750,000 under this term loan on July 30, 2002 in connection with the purchase of Motor Products.

The
loans are secured by all of the 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 profitability. At December 31, 2003, the Company was in compliance with all covenants.

34

---

5.     INCOME TAXES

The benefit (provision) for income taxes is based on income (loss) before income taxes from continuing operations as follows (in thousands):

For the
Transition
Period ended
December 31,
2002

For the fiscal years ended June 30,For the
year ended
December 31,
20032002

2001Domestic

$
900

$
(287
)
$
(601
)
$
2,693Foreign


67


372


525


(71
)(Loss) income before income taxes from continuing operations

$
967

$
85

$
(76
)
$
2,622


Components
of the total benefit (provision) for income taxes are as follows (in thousands):

For the
Transition
Period ended
December 31,
2002

For the fiscal years ended June 30,For the
year ended
December 31,
20032002

2001Current benefit (provision):Domestic

$
441

$
(103
)
$
(310
)
$
(204
)Foreign


(20
)

(22
)

(505
)

Total current benefit (provision)


421


(125
)

(815
)

(204
)Deferred benefit (provision)domestic


(440
)

(107
)

1,135


(372
)Benefit (provision) for income taxes

$
(19
)
$
(232
)
$
320

$
(576
)


35

---

The
benefit (provision) for income taxes differs from the amount determined by applying the federal statutory rate as follows (in thousands):

For the
Transition
Period ended
December 31,
2002

For the fiscal years ended June 30,For the
year ended
December 31,
20032002

2001Tax benefit (provision) on income from continuing operations, computed at statutory rate

$
(328
)
$
(29
)
$
26

$
(891
)State tax, net of federal benefit


(88
)

(27
)

20


(87
)Nondeductible expenses and goodwill amortization


(48
)

(8
)

(31
)

(10
)Impact of foreign tax rates and credits


3


22





Adjustments to prior year accruals(1)


144








207Prior year state tax refund(2)


298








Change in valuation allowance











186Other





2


16


(3
)Benefit (provision) for income taxes from continuing operations


(19
)

(40
)

31


(598
)Benefit (provision) for income taxes from discontinued operations





(192
)

289


22Benefit (provision) for income taxes

$
(19
)
$
(232
)
$
320

$
(576
)


---

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,
2003

December 31,
2002Deferred tax assets:Allowances and other accrued liabilities

$
597

$
477Tax credit carryforwards


500


572Net operating loss carryforwards


1,035


665Valuation allowance


(352
)

(424
)Net deferred tax assets


1,780


1,290Deferred tax liability:Property, plant and equipment


(868
)

(5
)Intangibles


(95
)

(28
)Net deferred tax liability


(963
)

(33
)Net deferred tax assets

$
817

$
1,257


36

---

The
net deferred tax assets are classified as follows in the accompanying consolidated balance sheets (in thousands):

December 31,
2003

December 31,
2002Current deferred tax assets

$
1,247

$
777Non-current deferred tax assets





480Non-current deferred tax liabilities


(430
)

Net deferred tax assets

$
817

$
1,257


The
Company has domestic tax credit carryforwards of $500,000 expiring in 2005 through 2008 and a domestic net operating loss carryforward of $2,875,000 expiring in 2022 through 2023.
Tax credit carryforwards of $72,000 expired in 2003. As a result, a corresponding reduction in the valuation allowance was recorded.

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 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, 2003. 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 the net deferred tax asset, net of valuation allowances as of December 31,
2003.

6.     STOCK COMPENSATION



At December 31, 2003, there were options outstanding to purchase 1,323,430 shares of common stock and options available for grant to purchase 119,540
shares under the Company's stock option plans. Under the terms of the plans, options may not be granted at less than 85% of fair market value. Generally, all options granted to date have been granted
at fair market value as of the date of grant. Options generally become exercisable evenly over three years starting one year from the date of grant and expire seven years from the date of grant.

As
of June 30, 2002, 112,360 options were granted in excess of the shares authorized under the stock option plans. The Company accounted for the over-issued stock
options using variable plan accounting. Variable plan accounting requires the Company to recognize the difference between the fair market value of the stock and the exercise price of the excess
options issued as compensation expense, to the extent that the fair market value exceeds the exercise price. A portion of the excess option grants were considered "fixed" on July 28, 2002 due
to the forfeiture of 112,360 options related to the sale of the Company's Power and Process Business. The remainder were considered "fixed" on October 24, 2002 when the Company's stockholders
approved an additional 400,000 available for grant. On those dates, compensation cost of $39,000 was calculated based upon the then-current fair market values of the underlying common
stock and will be recognized over the three -year vesting period of the options. Total compensation expense related to these stock options was $9,000 and $11,000 for 2003 and the
Transition Period, respectively.

In
conjunction with the sale of the Power and Process Business, all options held by employees of the business sold became immediately exercisable and expired on the closing date of the
sale or thirty

37

---

days
later. All unexercised options on the expiration dates were forfeited and became eligible for future grant by the Company. The Company recorded compensation expense of $11,000 in the Transition
Period related to the accelerated vesting of these options

Option
activity during year 2003, the Transition Period ended December 31, 2002 and fiscal years ended June 30, 2000 and 2001 was as follows:

Number of
Shares

Weighted
Average
Exercise
Price

Number of
Shares
Exercisable

Weighted
Average
Exercise
PriceOutstanding at June 30, 2000

661,503

$
2.37

410,800

$
2.49Granted

452,700


5.43Forfeited

(32,936
)

3.75Exercised

(28,630
)

1.93Outstanding at June 30, 2001

1,052,637


3.66

460,857


2.36Granted

415,960


2.93Forfeited

(18,600
)

4.25Exercised

(15,000
)

1.62Outstanding at June 30, 2002

1,434,997


3.46

680,814


3.07Granted

230,000


2.39Forfeited

(346,674
)

4.24Exercised

(125,993
)

1.72Outstanding at December 31, 2002

1,192,330


3.21

685,535


3.41Granted

197,000


1.98Forfeited

(65,900
)

3.89Outstanding at December 31, 2003

1,323,430


3.00

836,242


3.35


Exercise
prices for options outstanding and exercisable at December 31, 2003 are as follows:

|                     |                                             | Range of Exercise Prices |           | Total
|-------------------- | ------------------------------------------- | ------------------------ | --------- | -----
|
|Options Outstanding: |                                             |                          |           |      
|                     | Number of options                           |                          | 368,500   |      
|                     | Weighted average exercise price             |                          | $1.82     |      
|                     | Weighted average remaining contractual life |                          | 4.0 years |      
|Options Exercisable: |                                             |                          |           |      
|                     | Number of options                           |                          | 201,500   |      
|                     | Weighted average exercise price             |                          | $1.80     |      



Prior to fiscal year 2001, the Company had granted options for shares of common stock of Emoteq Corporation (Emoteq, a wholly-owned subsidiary) to officers and
key employees of Emoteq. The options were granted with exercise prices equal to the fair value of the underlying common stock on the date of grant, and consisted of time vesting options and
performance vesting options. During fiscal year 2001 all of the outstanding (and also fully vested) stock options were exercised and 223,636 shares of Emoteq common stock, representing 12% ownership
of Emoteq, were issued. Proceeds to the

38

---

Company
from the exercises totaled $498,000. Under the terms of the Emoteq stock option plan and the related stockholders' agreements, the stockholders had a liquidity put option that they could
exercise only after owning the stock for at least six months. If the holder of the shares elected this put option, the Company would be required to purchase the shares of Emoteq at their then current
fair market value. After holding the shares for at least six months, all such holders of Emoteq common stock exercised their put options and consequently, the Company purchased the shares for
$1,006,000, the fair value of the shares, for consideration consisting of Company common stock, notes payable and cash. The Company recorded $352,000 of cost in excess of net assets acquired
(goodwill) related to the purchase of these Emoteq shares. The Emoteq stock option plan and stockholders' agreements were terminated in August 2001.

Option
activity for the Emoteq plan during the fiscal year ended June 30, 2001 was as follows:

Number of Shares

Weighted Average
Exercise PriceTime
Vested

Performance
Vested

Time
Vested

Performance
VestedOutstanding at June 30, 2000

168,118

55,518

$
2.46

$
1.51Exercised

(168,118
)
(55,518
)

2.46


1.51Outstanding at June 30, 2001












Prior
to the exercise of the Emoteq stock options, the Company accounted for the performance vested options under variable plan accounting.

7.     LOANS RECEIVABLE FOR STOCK

The Leveraged Employee Stock Ownership Plan and Trust (the Plan) allows eligible Company employees to participate in ownership of the Company. The $200,000
receivable at December 31, 2003 represents the full amount the Company loaned to the Plan during year 2003 so that the Plan could acquire from the Company 130,719 newly issued shares of the
Company's common stock. The note bears an annual interest rate of 5.75% and is scheduled to mature May 31, 2018. The terms of the Plan 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 year 2003, the Transition Period and fiscal years 2002 and
2001)or ii) the annual interest payable on the note. Company contributions to the Plan were $51,000, $29,000, $37,000 and $133,000 in year 2003,
the Transition Period and fiscal years 2002 and 2001, respectively.

39

---



8.     COMMITMENTS AND CONTINGENCIES



At December 31, 2003, the Company maintains leases for certain facilities and equipment. Minimum future rental commitments under all
non-cancelable operating leases are as follows (in thousands):

Year ending December 31,

Total2004

$
7162005


5762006


4322007


4022008


411Thereafter


1,769$
4,306


Rental
expense was $703,000, $243,000, $531,427 and $557,427 in Year 2003, the Transition Period and fiscal years 2002 and 2001, respectively.



The Company leases certain machinery and equipment under agreements that are classified as capital leases. The cost of equipment under capital leases is included
in the accompanying consolidated balance sheet as property, plant and equipment and was $500,000 and zero at December 31, 2003 and 2002, respectively. Accumulated amortization of the leased
equipment at December 31, 2003 and December 31, 2002 was $18,000 and zero, respectively. Amortization of assets under capital leases is included in depreciation expense.

The
future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2003, are as follows (in thousands):

Year ending December 31,2004

$
1662005


1672006


1562007


57Total minimum lease payments


546Less: amount representing interest


67Present value of net minimum lease payments


479Less: Current maturities of capital lease obligations


134Long-term capital lease obligations

$
345




The Company has entered into annually renewable severance benefit agreements with certain key employees which, among other things, provide inducement to the
employees to continue to work for

40

---

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 maximum amount of salary that could be required to be paid under these contracts, if such events occur, totaled
approximately $1,848,000 as of December 31, 2003. In addition to the salary above, 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.



Effective September 1, 1998, the Company entered into a consulting agreement (Consulting Agreement) with the Chairman of the Board of Directors who is a
major stockholder. Under the Consulting Agreement, he will be compensated for providing consulting services to the Company as requested by the Chief Executive Officer. During Year 2003, the Transition
Period and fiscal years 2002 and 2001 there was no compensation paid to the Chairman of the Board under the Consulting Agreement.



Under an employee stock repurchase program approved by the Board of Directors, the Company may repurchase its common stock from its employees at the current
market value. The Company's Agreement with Silicon limits employee stock repurchases to $125,000 per fiscal year. The number of shares repurchased under the program was 1,968 for Year 2003 and zero
for the Transition Period and fiscal years 2002 and 2001.



In 2001, the Company was named, with other parties, as a defendant in an environmental contamination lawsuit. During the Transition Period, the Company agreed to
settle this lawsuit. Accordingly, as of June 30, 2002, an estimated charge for the settlement and related legal fees of $1,429,000 ($961,000, net of tax) was recorded. This charge is included
in the results of discontinued operations. The lawsuit relates to property that was occupied by the Company's Power business over thirty-seven years ago. While the Company believes the suit was
without merit, it agreed to the settlement to eliminate the future costs of defending itself and the uncertainty and risks associated with litigation. As of December 31, 2003, the amount of
settlement, exclusive of legal costs, remaining to be paid was $250,000 included in Accrued liabilities and other in the accompanying consolidated balance sheet.

The
Company is also 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.

9.     PENSION AND POSTRETIREMENT WELFARE PLANS



Motor Products has a defined benefit pension plan covering substantially all of its hourly union employees. The benefits are based on years of service, the
employee's compensation during the last three years of employment, and accumulated employee contributions.

41

---

In
accordance with SFAS No. 132, Employers Disclosure About Pensions and Other Post-Retirement Benefits, 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, 2003 and December 31, 2002 (in thousands):

December 31,
2003

December 31,
2002Change in projected benefit obligation:Projected benefit obligation at beginning of period*

$
3,073

$
3,370Service cost


85


41Employee contributions


13


6Interest cost


185


89Actuarial loss (gain)


82


(359
)Benefits paid


(193
)

(74
)Projected benefit obligation at end of period

$
3,245

$
3,073Change in plan assets:Fair value of plan assets at beginning of period*

$
2,770

$
2,858Actual return (loss) on plan assets


541


(20
)Employee contributions


13


6Benefits and expenses paid


(193
)

(74
)Fair value of plan assets at end of period

$
3,131

$
2,770


---

December 31,
2003

December 31,
2002Excess of projected benefit obligation over fair value of plan assets

$
114

$
303Unrecognized gain


441


223Accrued pension cost

$
555

$
526


The
accumulated benefit of obligation for the pension plan was $3,165,000 at December 31, 2003 and $2,969,000 at December 31, 2002.

Components
of net periodic pension expense included in the consolidated statement of operations for the year 2003 and Transition Period are as follows:

For the
year ended
December 31,
2003

For the
Transition
Period ended
December 31,
2002Service cost

$
85

$
41Interest cost on projected benefit obligation


185


89Expected return on assets


(241
)

(115
)Net periodic pension expense

$
29

$
15


42

---

The
weighted average assumptions used to determine benefit obligations were as follows:

December 31,
2003

December 31,
2002Discount rate

6.00
%
6.25
%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,
2003

For the Transition Period ended
December 31,
2002Discount rate

6.00
%
6.25
%Expected long-term rate of return on plan assets

9.00
%
10.00
%Rate of compensation increases

5.00
%
5.00
%


The
Company does not expect to fund the pension plan in 2004.

The
expected rate of return is based on the targeted asset allocation of 65% equity securities and 35% fixed income securities.

The
pension plan assets allocation at December 31, 2003 and 2002 were as follows:

December 31,
2003

December 31,
2002Cash equivalents

1
%
1
%Equity securities

65
%
69
%Fixed income securities

34
%
30
%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.



Motor Products provides postretirement medical benefits and life insurance benefits to current and former employees hired before January 1, 1994 who retire
from Motor Products. No contributions from retirees are required and the plan is funded on a pay-as-you-go basis. The Company recognizes the expected cost of
providing such post-retirement benefits during employees' active service periods.

43

---

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, 2003 and December 31, 2002 (in thousands):

December 31,
2003

December 31,
2002Change in postretirement benefit obligation:Accumulated postretirement benefit obligation at beginning of period*

$
2,327

$
2,230Service cost


61


21Interest cost


122


59Actuarial loss (gain)


(295
)

50Benefits paid


(79
)

(33
)Accumulated postretirement benefit obligation at end of period

$
2,136

$
2,327Accumulated postretirement benefit obligation

$
2,136

$
2,327Unrecognized net gain (loss) attributable to assumption changes during the year


271


(50
)Accrued postretirement benefit cost

$
2,407

$
2,277


---

Net
periodic postretirement benefit costs included in the Consolidated Statement of Operations for year 2003 and the Transition Period is as follows (in thousands):

For the
year ended
December 31,
2003

For the
Transition
Period ended
December 31,
2002Service cost

$
61

$
21Interest cost


122


59Amortization of (Gain) loss


(5
)

Total

$
178

$
80


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,
2003

December 31,
2002Annual rate of increase per capita of covered health care benefits

9.50
%
9.50
%Ultimate rate

4.00
%
4.25
%Year ultimate rate is reached

2014

2013


44

---

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, 2003 by $438,000 and the aggregate of the service cost and interest cost components of the net
periodic postretirement benefit cost for year 2003 by $45,600. Decreasing the assumed healthcare postretirement benefit obligation as of December 31, 2003 by 1% decreases the accumulated
postretirement benefit obligation by $333,500 and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for year 2003 by $34,000. The weighted
average discount rate used in determining the accumulated postretirement benefit obligation was 6.00% and 6.25% as of
December 31, 2003 and 2002, respectively. The weighted average discount rate used to determine the net periodic postretirement benefit cost was 6.00% for 2003 and 6.25% for 2002.

The
Company expects to contribute approximately $85,000 to the postretirement welfare plan during 2004. The accrued postretirement benefit cost has been reflected as a
non-current liability due to the insignificance of estimates to be funded in 2004.

10.   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 Year 2003, include employee termination related charges.

The
Company recorded restructuring charges of $211,000 in Year 2003, primarily associated with workforce reductions which were paid in the first half of the year.

At
December 31, 2003, there were no outstanding liabilities related to the restructuring charges included in accrued liabilities and other in the consolidated balance sheet.

11.   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 Chief Executive Officer, which reviews operating results to make decisions about 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.

45

---

The
Company's wholly-owned foreign subsidiary in the United Kingdom was merged into the Emoteq subsidiary during Year 2003 and is included in the accompanying consolidated financial
statements. Financial information related to the foreign subsidiary is summarized below (in thousands):

For the
Transition
Period ended
and as of
December 31,
2002For the
year ended
and as of
December 31,
2003

For the fiscal years ended and as of
June 30,2002

2001Revenues derived from foreign subsidiary

$
773

$
735

$
1,399

$
289Identifiable assets


34


1,296


1,179


209


Sales
to international customers were $7,371,000, $3,572,000, $4,880,000, and $6,451,000 in year 2003, the Transition Period and fiscal years 2002 and 2001, respectively.

During
Year 2003, the Transition Period and Fiscal Year 2002, no single customer accounted for more than 10% of total revenues. During fiscal years 2001 one customer accounted for 20% of
the Company's consolidated revenue from continuing operations.

12.   DISCONTINUED OPERATIONS

On July 29, 2002, the Company sold substantially all the assets of its Power and Process Business to Qualitrol Power Products, LLC (Qualitrol Power) and
its affiliate Danaher UK Industries, Limited (DUKI). Both Qualitrol Power and DUKI are direct or indirect subsidiaries of Danaher Corporation, a publicly traded corporation under the symbol DHR. The
Power and Process Business was comprised of power instrumentation products, systems and automation products, and process instrumentation products. It also included investments in two Chinese joint
ventures; a 25% interest in Kehui and a 40% interest in HPMS, which were also sold (See Note 13).

Proceeds
from the sale of substantially all of the Power and Process Business were $8,182,000 plus the assumption of certain related liabilities. Selling costs incurred were $1,278,000.
The after tax gain on the sale was $1,019,000. The Company received net proceeds of $7,020,000 in the Transition Period and $500,000 in the year 2003.

The
remaining assets of the Power and Process Segment related to the Company's Calibrator Business. On March 6, 2003, the Company completed the sale of its Calibrator Business to
a subsidiary of Martel Electronics Corp. The proceeds consisted of $200,000 received on March 6, 2003 plus $50,000 due on March 6, 2004. The amount due is included in prepaid expenses
and other current assets in the accompanying December 31, 2003 balance sheet. After consideration of selling costs of $51,000 incurred in the first quarter of 2003, the net proceeds on the sale
were $199,000. Due to a writedown of the carrying value of the Calibrator Business to its estimated fair value at September 30, 2002, there was no gain or loss recorded on the finalization of
the sale.

In
accordance with SFAS No. 144, the consolidated financial statements of the Company have been recast to present these businesses as discontinued operations. Accordingly, the
revenues, costs and expenses and assets and liabilities of these discontinued operations have been excluded from the respective captions in the accompanying Consolidated Statements of Operations and
Balance Sheets and have been reported in the various statements under the captions, "Income (loss) from discontinued operations", "Current assets of segment held for sale" and "Current liabilities of
segment held for sale" for all periods. In addition, certain of these Notes have been recast for all periods to reflect the discontinuance of these operations.

46

---

Summary
results for the discontinued operations are as follows (in thousands):

For the
Transition
Period ended
December 31,
2002

For the fiscal years ended June 30,2002

2001Revenues

$
1,342
(a)
$
26,336

$
27,198Income (loss) from discontinued operations:Gain on the sale of Power and Process, net of tax provision of $680

$
1,019

$


$
Operating results:Loss from operations


(1,224
)

(510
)

(50
)Tax benefit


488


289


22Operating loss from discontinued operations


(736
)

(221
)

(28
)Income (loss) from discontinued operations

$
283

$
(221
)
$
(28
)


---

Amounts
included in the December 31, 2002 Consolidated Balance Sheet for discontinued operations are as follows (in thousands):

Current assets of segment held for saleTrade receivables, net

$
165Inventories, net


351Property, plant and equipment


97Prepaid expenses and other


71Total

$
684Current liabilities of segment held for saleAccounts payable

$
53Accrued liabilities


450Product warranty reserve


32Total

$
535


13.   INVESTMENTS IN JOINT VENTURES

The Company had three joint venture investments in Chinaa 20% interest in Hathaway Si Fang Protection and Control Company, Ltd. (Si Fang), a
25% interest in Zibo Kehui Electric Company Ltd. (Kehui) and a 40% interest in Hathaway Power Monitoring Systems Company, Ltd. (HPMS). The Company accounted for these investments using
the equity method of accounting. On July 29, 2002, the Company sold its investments in Kehui and HPMS as part of the sale of its Power and Process Business. On July 5, 2001, the Company
sold its investment in Si Fang for $3,020,000 in cash. The Company recorded a pretax gain on this sale, net of selling costs, of $674,000.

47

---

The
Company recorded the following in its consolidated statements of operations, all of which are now included in the results of discontinued operations (in thousands):

For the fiscal years ended June 30,2002

2001Share of income under equity method of accounting

$
159

$
1,170Gain on sale of investment in Si Fang


674





14.   SUBSEQUENT EVENTS (UNAUDITED)

On February 10, 2004, the Company signed a merger agreement to acquire Owosso Corporation (OTCBB: OWOS) located in Watertown, New York. Owosso's sole
operating subsidiary is Stature Electric, Inc. The merger consideration of $14 million will consist of the issuance of approximately 532,200 shares of Allied Motion common stock
representing approximately 9.6% of the outstanding shares of the Company after the merger, $1 million of cash payable to Owosso's preferred shareholders, assumption of $4.6 million of
Owosso's debt and approximately $6 million of cash to settle the remainder of Owosso's debt and liabilities at closing. Additional subordinated notes for up to $500,000 may be issued by Allied
Motion effective January 1, 2005 payable over five years if Stature achieves certain
revenue levels in 2004. In addition, warrants to purchase 300,000 shares of Company common stock at $4.41 per share will be issued to Owosso's preferred shareholders. The Company has received a
commitment from PNC Business Credit and Silicon Valley Bank for up to $18.1 million to complete the acquisition and for working capital needs. The closing of the acquisition is subject to
approval by Owosso's shareholders, the effectiveness of a registration statement for the Company's securities and customary closing conditions.

15.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for each of the four quarters in year 2003, the two quarters in the Transition Period and the four quarters in fiscal year 2002
is as follows (in thousands, except per share data):

Year 2003

First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterRevenues

$
9,176

$
9,736

$
9,838

$
10,684Gross margin


2,203


2,553


2,292


3,219Income (loss) from continuing operations


(149
)

302


403


392Diluted (loss) income per share from continuing operations


(0.03
)

0.06


0.08


0.07


Transition Period

First
Quarter

Second
QuarterRevenues

$
8,020

$
9,171Gross margin


1,896


2,126Income (loss) from continuing operations


(52
)

97Income from discontinued operations


243


40Diluted (loss) income per share from continuing operations


(0.01
)

0.02


48

---

Fiscal year 2002

First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterRevenues

$
3,646

$
4,222

$
4,051

$
3,804Gross margin


996


1,392


1,290


1,425Income (loss) from continuing operations


(73
)

133


(57
)

(48
)Income (loss) from discontinued operations


(165
)

(57
)

364


(363
)Diluted (loss) income per share from continuing operations


(0.01
)

0.02


(0.01
)

(0.01
)


---

Included
in the results of discontinued operations for the fourth quarter of fiscal year 2002 is a pretax charge for litigation settlement and related legal fees of $1,429,000.

49

---

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

There were no disagreements with KPMG LLP on accounting and financial disclosure matters.

On
July 17, 2002, the Company replaced Arthur Andersen LLP ("Arthur Andersen") as the principal accountant for the Company and its affiliates. For the previous two fiscal years,
the reports of Arthur Andersen on the Company's consolidated financial statements did not contain an adverse opinion nor a disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to replace Arthur Andersen was approved by the Company's Board of Directors.

In
connection with the audits of the Company's financial statements for each of the two fiscal years ending June 30, 2000 and June 30, 2001 and in the subsequent interim
period preceding Arthur Andersen's replacement, there were no disagreements on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make references to the matter in its reports. For a complete discussion, refer to the
Form 8-K filed by the Company on July 18, 2002.

On
July 17, 2002, the Company engaged as its new principal accountant KPMG LLP ("KPMG") for the fiscal year ending June 30, 2002. The decision to retain KPMG LLP was
approved by the Company's Board of Directors upon the recommendation of its Audit Committee. During the two fiscal years preceding and through the date of their appointment, the Company has not
consulted with KPMG on matters of the type contemplated by Item 304 (a) (2) (i) and (ii) of Regulation S-K. All of the fiscal periods included in this
Form 10-K have been audited by KPMG LLP because of the requirement to restate the financial statements for discontinued operations.

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, 2003 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 significant changes in the Company's internal controls over financial reporting during the quarter ended December 31, 2003 that has materially affected or
is reasonably likely to materially affect, the Company's internal control over financial reporting.

50

---

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information required by this item is set forth in the sections entitled "Election of Directors", "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation.

Information required by this item is set forth in the section entitled "Executive Compensation" in the Company's Proxy Statement and is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Information required by this item is set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Effective September 1, 1998, the Company entered into a Consulting Agreement 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. Mr. Prince is the Chairman of the Board of Directors and a major
stockholder of the Company. Under the Consulting Agreement, he will be compensated for providing consulting services to the Company as requested by the Chief Executive Officer. During year 2003, the
Transition Period and fiscal years 2002 and 2001, Mr. Prince was not paid for providing any consulting services.

Item 14. Principal Accountant Fees and Services

Information required by this item is set forth in the section entitled "Principal Accountant Fees and Services", in the Company's Proxy Statement and is
incorporated herein by reference.

51

---

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.



|Exhibit No. |  | Subject                                                                                                                                                                                                                                                                         |  | Page
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|2.1         |  | Agreement and Plan of Merger, dated as of February 10, 2004, by and among Allied Motion Technologies Inc., AMOT Inc. and Owosso Corporation.                                                                                                                                    |  | *   
|3.1         |  | Restated Articles of Incorporation.                                                                                                                                                                                                                                             |  | *   
|3.2         |  | Amendment to Articles of Incorporation dated September 24, 1993.                                                                                                                                                                                                                |  | *   
|3.3         |  | By-laws of the Company adopted August 11, 1994.                                                                                                                                                                                                                                 |  | *   
|10.1        |  | Loan and Security Agreement dated May 7, 1998 between Hathaway Corporation and certain subsidiaries of Hathaway Corporation and Silicon Valley Bank. Incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the fiscal
year ended June 30, 1998.             |  | *   
|10.2        |  | Schedule to Loan and Security Agreement dated May 7, 1998 between Hathaway Corporation and certain subsidiaries of Hathaway Corporation and Silicon Valley Bank. Incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for
the fiscal year ended June 30, 1998. |  | *   
|10.3        |  | 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.                                                                              |  | *   
|10.4        |  | Consulting Agreement between Hathaway Corporation and Eugene E. Prince dated September 1, 1998.                                                                                                                                                                                 |  | *   
|            |  |                                                                                                                                                                                                                                                                                 |  |     

52

---

|10.5  |  | Year 2000 Stock Incentive Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated September 21, 2000.                                                                                                                                                                                                                                               |  | *
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|10.6  |  | Asset Purchase Agreement By and Among Qualitrol Power Products, LLC, Danaher UK Industries Limited, Hathaway Systems Corporation, Hathaway Industrial Automation, Inc., Hathaway Process Instrumentation Corporation, Hathaway Systems, Ltd. and
Hathaway Corporation. Incorporated by reference to Appendix A to the Company's Definitive Proxy Statement dated June 24, 2002. |  | *
|10.7  |  | Stock Purchase Agreement among Motor ProductsOwosso Corporation, Motor ProductsOhio Corporation, Owosso Corporation and Hathaway Motion Control Corporation. Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 2002.                                                                                                                   |  | *
|10.8  |  | Amendment dated July 10, 2002 to Loan Documents for Silicon Valley Bank. Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2002.                                                                                                                                                                                                         |  | *
|10.9  |  | Amendment dated July 30, 2002 to Loan Documents for Silicon Valley Bank. Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2002.                                                                                                                                                                                                         |  | *
|10.10 |  | Amendment No. 1 to the Hathaway Corporation Year 2000 Stock Incentive Plan. Incorporated by reference to Exhibit B to the Company's Proxy Statement dated September 30, 2002.                                                                                                                                                                                                   |  | *
|10.11 |  | Employment Agreement between Allied Motion Technologies, Inc. and Richard D. Smith, effective August 1, 2003.                                                                                                                                                                                                                                                                   |  |  
|10.12 |  | Change of Control Agreement between Allied Motion Technologies, Inc. and Richard D. Smith, effective July 24, 2003.                                                                                                                                                                                                                                                             |  |  
|10.13 |  | Employment Agreement between Allied Motion Technologies, Inc. and Richard S. Warzala, effective March 1, 2003.                                                                                                                                                                                                                                                                  |  |  
|10.14 |  | Change of Control Agreement between Hathaway Corporation and Richard S. Warzala, effective May 1, 2002.                                                                                                                                                                                                                                                                         |  |  
|10.15 |  | Amendment dated September 26, 2003 to Loan Documents for Silicon Valley Bank.                                                                                                                                                                                                                                                                                                   |  |  
|10.16 |  | Amendment dated February 19, 2004 to Loan Documents for Silicon Valley Bank.                                                                                                                                                                                                                                                                                                    |  |  
|14.1  |  | Code of Ethics for chief executive officer, president and senior financial officers adopted October 23, 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.                                                                                                                                                  |  |  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                 |  |  

53

---

|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.                                |  | 

---



54

---





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                              
| |  | Date: March 22, 2004            

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. SMITHRichard D. Smith     |  | Chief Executive Officer, Chief Financial Officer and Director |  | March 22, 2004
|/s/EUGENE E. PRINCEEugene E. Prince     |  | Chairman of the Board of Directors                            |  | March 22, 2004
|/s/GEORGE J. PILMANISGeorge J. Pilmanis |  | Director                                                      |  | March 22, 2004
|/s/DELWIN D. HOCKGeorge J. Pilmanis     |  | Director                                                      |  | March 22, 2004
|/s/GRAYDON D. HUBBARDDelwin D. Hock     |  | Director                                                      |  | March 22, 2004

55

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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 |      | Additions
due to
Acquisition |   | Balance
at End of
Period
|------------------------------------------ | ------------------------------------------- | ------------------------------ | - | ----------------------------- |  | ------------------------ | ---- | ---------------------------- | - | ------------------------
|Year Ended December 31, 2003:              |                                             |                                |   |                               |  |                          |      |                              |   |                         
|                                           | Reserve for bad debts                       |                                | $ | 148                           |  | $                        | 47   |                              | $ | (89                     
|                                           | Reserve for excess or obsolete inventories  |                                | $ | 1,024                         |  | $                        | 135  |                              | $ | (278                    
|                                           | Valuation allowance for deferred tax assets |                                | $ | 424                           |  | $                        |     |                              | $ | (72                     
|                                           |                                             |                                |   |                               |  |                          |      |                              |   |                         
|Transition Period Ended December 31, 2002: |                                             |                                |   |                               |  |                          |      |                              |   |                         
|                                           | Reserve for bad debts                       |                                | $ | 64                            |  | $                        | 52   |                              | $ | (9                      
|                                           | Reserve for excess or obsolete inventories  |                                | $ | 697                           |  | $                        | 92   |                              | $ | (224                    
|                                           | Valuation allowance for deferred tax assets |                                | $ | 424                           |  | $                        |     |                              | $ |                        
|                                           |                                             |                                |   |                               |  |                          |      |                              |   |                         
|Year Ended June 30, 2002:                  |                                             |                                |   |                               |  |                          |      |                              |   |                         
|                                           | Reserve for bad debts                       |                                | $ | 60                            |  | $                        | 34   |                              | $ | (30                     
|                                           | Reserve for excess or obsolete inventories  |                                | $ | 690                           |  | $                        | 247  |                              | $ | (240                    
|                                           | Valuation allowance for deferred tax assets |                                | $ | 424                           |  | $                        |     |                              | $ |                        
|                                           |                                             |                                |   |                               |  |                          |      |                              |   |                         
|Year Ended June 30, 2001:                  |                                             |                                |   |                               |  |                          |      |                              |   |                         
|                                           | Reserve for bad debts                       |                                | $ | 54                            |  | $                        | 9    |                              | $ | (3                      
|                                           | Reserve for excess or obsolete inventories  |                                | $ | 579                           |  | $                        | 111  |                              | $ |                        
|                                           | Valuation allowance for deferred tax assets |                                | $ | 610                           |  | $                        | (186 | )                            | $ |                        
|                                           |                                             |                                |   |                               |  |                          |      |                              |   |                         

56

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