UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549   FORM
10-Q þ
QUARTERLY REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
 June, 30, 2007oro
TRANSITION REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period

from                   to Commission
file number 333-124944 ALTRA
INDUSTRIAL MOTION, INC.(Exact name of registrant as specified in its charter) Delaware

30-0283143(State or other
 jurisdiction of incorporation or organization)

(I.R.S. Employer
 Identification No.)14 Hayward Street, Quincy,
 Massachusetts

02171(Address of principal
 executive offices)

(Zip Code) (617)
328-3300(Registrants telephone number, including area code) 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 þ        No o Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
larger accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated filer
o

Accelerated Filer
o

Non-accelerated filer
þ Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o      No þ As
of August 1, 2007, 1,000 shares of Common Stock, $.001 par value per share,
were outstanding.    TABLE OF CONTENTS

Page #PART IFINANCIAL INFORMATION

2Item
 1. Unaudited Condensed Consolidated Financial Statements

2Item
 2. Managements Discussion and Analysis of Financial Condition and Results of
 Operations

21Item
 3. Quantitative and Qualitative Disclosures about Market Risk

26Item
 4. Controls and Procedures

26PART IIOTHER INFORMATION

27Item
 1. Legal Proceedings

27Item
 1A. Risk Factors

27Item
 2. Unregistered Sales of Equity Securities and Use of Proceeds

27Item
 3. Defaults Upon Senior Securities

27Item
 4. Submission of Matters to a Vote of Security Holders

27Item
 5. Other Information

27Item
 6. Exhibits

27SIGNATURES

30EX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.

1

PART IFINANCIAL
INFORMATION

Item 1.
Financial Statements

ALTRA
INDUSTRIAL MOTION, INC.

Condensed
Consolidated Balance Sheets
Dollars in thousands (except share amounts)

June 30,
 2007

December 31,
 2006(unaudited)AssetsCurrent assets:Cash and cash
 equivalents

$
34,373

$
42,527Trade
 receivables, less allowance for doubtful accounts of $2,044 and $2,017


92,706


61,506Inventories, net


106,418


75,769Deferred income
 taxes


7,005


6,783Prepaid expenses
 and other


5,668


7,532Total current
 assets


246,170


194,117Property, plant
 and equipment, net


116,380


82,387Intangible assets,
 net


99,123


59,662Goodwill


121,493


65,397Deferred income
 taxes


2,283


2,135Other assets


7,141


5,670Total assets

$
592,590

$
409,368Liabilities and
 stockholders equityCurrent
 liabilities:Accounts payable

$
41,641

$
34,053Accrued payroll


14,238


14,071Accruals and
 other liabilities


19,196


15,195Taxes payable


4,762


6,549Deferred income
 taxes


1,382


1,382Current portion
 of long-term debt


948


573Total current
 liabilities


82,167


71,823Long-term debt,
 less current portion and net of unaccreted discount and premium


321,341


228,555Deferred income
 taxes


30,034


7,130Pension
 liabilities


13,593


15,169Other post retirement
 benefits


3,132


3,262Other long term
 liabilities


4,279


3,910Commitments and
 Contingencies (See Note 14)





Stockholders
 equity:Common stock
 (1,000 shares authorized, issued & outstanding, $0.001 par value)





Due to parent


24,515


24,724Additional
 paid-in capital


97,829


48,814Retained
 earnings


17,504


9,045Accumulated
 other comprehensive loss


(1,804
)

(3,064
)Total
 stockholders equity


138,044


79,519Total liabilities
 and stockholders equity

$
592,590

$
409,368See
accompanying notes.

2

ALTRA
INDUSTRIAL MOTION, INC.

Condensed
Consolidated Statements of Income and Comprehensive Income
Amounts in thousands
(unaudited)

Quarter
 Ended 
 June 30,

Year to
 Date Ended
 June 30,2007

2006

2007

2006Net
sales

$
163,142

$
119,774

$
295,848

$
234,558Cost of
sales


117,238


87,501


211,896


170,431Gross
profit


45,904


32,273


83,952


64,127Selling,
general
 and administrative expenses


25,035


19,094


45,839


37,821Research and
 development expenses


2,204


1,288


3,498


2,492Restructuring
 charges


198





991


Income from
 operations


18,467


11,891


33,624


23,814Interest
 expense, net


10,692


6,050


19,840


11,226Other
 non-operating expense (income), net


123


72


76


(87
)Income before
 income taxes


7,652


5,769


13,708


12,675Provision for
 income taxes


2,803


1,852


5,068


4,674Net
income

$
4,849

$
3,917

$
8,640

$
8,001Consolidated Statement of
 Comprehensive IncomeForeign
currency
 translation adjustment


821


1,085


1,260


1,557Comprehensive
 income

$
5,670

$
5,002

$
9,900

$
9,558See
accompanying notes.

3

ALTRA
INDUSTRIAL MOTION, INC.
Condensed Consolidated Statements of Cash Flows
Dollars in thousands
(unaudited)

Year to
 Date Ended June 30,2007

2006Cash flows from operating
 activities:Net income

$
8,640

$
8,001Adjustments to
 reconcile net income to cash (used in) provided by operating activities:Depreciation


8,064


4,950Amortization of
 intangible assets


2,468


1,796Amortization and
 write-offs of deferred loan costs


1,857


425Loss on foreign
 currency, net


210


Accretion of
 debt discount and premium, net


415


472Amortization of
 inventory fair value adjustment


651


2,278Loss (gain) on
 sale of fixed assets


112


(7
)Stock based
 compensation


800


65Provision for
 deferred taxes





2,209Changes in
 operating assets and liabilities:Trade receivables


(14,040
)

(3,667
)Inventories


(638
)

(3,181
)Accounts payable and
 accrued liabilities


(14,833
)

(5,231
)Other current assets
 and liabilities


3,515


(446
)Other operating assets
 and liabilities


100


263Net cash (used
 in) provided by operating activities


(2,679
)

7,927Cash flows from investing
 activities:Purchases of
 fixed assets


(4,249
)

(4,110
)Acquisitions,
 net of $5,222 and $441 of cash acquired


(117,484
)

(54,086
)Net cash used in
 investing activities


(121,733
)

(58,196
)Cash flows from financing
 activities:Capital
 contribution from Parent Company


49,015


Proceeds from
 issuance of senior notes





57,625Proceeds from
 issuance of senior secured notes


106,050


Payment of debt
 issuance costs


(3,405
)

(1,928
)Payments on
 senior notes


(33,998
)

Borrowings under
 revolving credit agreement


8,315


5,057Payments on
 revolving credit agreement


(9,120
)

(5,057
)Payments made on
 behalf of Parent Company, net


(1,009
)

(12,619
)Proceeds from
 mortgages





2,510Payments on
 capital leases


(359
)

(61
)Net cash
 provided by financing activities


115,489


45,527Effect of
 exchange rates on cash


769


255Decrease in cash
 and cash equivalents


(8,154
)

(4,487
)Cash and cash
 equivalents, beginning of period


42,527


10,060Cash and cash
 equivalents, end of period

$
34,373

$
5,573Cash paid during the period
for:Interest

$
18,284

$
8,758Income Taxes

$
9,738

$
2,020Non-Cash
Financing:Acquisition of
 capital equipment under capital lease

$
1,655

$
See
accompanying notes.

4

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

1. Organization and Nature of Operations

Headquartered
in Quincy, Massachusetts, Altra Industrial Motion, Inc. (the Company)., is a
leading multi-national designer, producer and marketer of a wide range of
mechanical power transmission products. The Company brings together strong
brands covering over 40 product lines with production facilities in nine
countries and sales coverage in over 70 countries. The Companys leading brands
include Boston Gear, Warner Electric, TB Woods, Formsprag Clutch, Ameridrives
Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall
Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions,
Matrix International, Inertia Dynamics, Huco Dynatork and Warner Linear.

2. Basis of Presentation

The
Company was formed on November 30, 2004 following acquisitions of certain
subsidiaries of Colfax Corporation (Colfax) and The Kilian Company
(Kilian). During 2006, the Company acquired Hay Hall Holdings Limited (Hay
Hall) and Bear Linear (Warner Linear). On April 5, 2007, the Company
acquired TB Woods Corporation (TB Woods).

The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, which
include normal recurring adjustments, necessary to present fairly the unaudited
condensed consolidated financial statements as of June 30, 2007 and for the
quarters and year to date periods ended June 30, 2007 and 2006.

The
Company follows a four, four, five week calendar per quarter with all quarters
consisting of thirteen weeks of operations with the fiscal year-end always on
December 31.

The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the
year-ended December 31, 2006, contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2006.

Certain
prior period amounts have been reclassified in the condensed consolidated
financial statements to conform to the current period presentation.

5

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

3. Acquisition

On
April 5, 2007, the Company acquired all of the outstanding shares of TB Woods
for $24.80 per share, or aggregate consideration of $93.5 million. As part of
the TB Woods Acquisition, the Company retired $18.7 million of TB Woods
indebtedness and paid $9.2 million to retire options under the TB Woods equity
plan. TB Woods is an established designer, manufacturer and marketer of
mechanical and electronic industrial power transmission products.

The
TB Woods Acquisition has been accounted for in accordance with SFAS No. 141.
The closing date of the TB Woods Acquisition was April 5, 2007, and as such,
the Companys consolidated financial statements reflect TB Woods results of
operations from that date forward.

The
Company has not completed its final purchase price allocation. The preliminary
value of the acquired assets, assumed liabilities and identified intangibles
from the acquisition of TB Woods, as presented below, are based upon
managements estimates of fair value as of the date of the acquisition.
Goodwill and intangibles recorded in connection with the acquisition of TB
Woods have not yet been allocated across the business units acquired nor have
the values been finalized. The final purchase price allocations are not
expected to have a material impact on the Companys financial position or
results of operations. The preliminary purchase price allocation is as follows:

Total purchase
 price, including closing costs of approximately $1.6 million

$
123,006Cash and cash
 equivalents


5,522Trade
 receivables


16,606Inventories


29,808Prepaid expenses
 and other


1,791Property, plant
 and equipment


35,764Intangible
 assets


41,431Total assets
 acquired


130,992Accounts
 payable, accrued payroll, and accruals and other current liabilities


21,395Other
 liabilities


43,283Total
 liabilities assumed


64,678Net assets
 acquired


66,314Excess purchase
 price over the fair value of net assets acquired

$
56,692The excess of the purchase price over the fair value
of the net assets acquired was recorded as goodwill.

The estimated amounts recorded as intangible assets
consist of the following:

Customer
 relationships, subject to amortization

$
29,647Trade names and
 trademarks, not subject to amortization


11,784Total intangible
 assets

$
41,431Customer
relationships are subject to amortization over their estimated useful lives
which reflects the anticipated periods over which the Company estimates it will
benefit from the acquired assets. The estimated useful lives have not been
finalized by the Company.

The
following table sets forth the unaudited pro forma results of operations of the
Company for the year to date periods ended June 30, 2007 and 2006 as if the
Company had acquired TB Woods at the beginning of the respective periods. The
pro forma information contains the actual operating results of the Company and
TB Woods with the results prior to April 5, 2007, for TB Woods, adjusted to
include the pro forma impact of (i) the elimination of additional expense as a
result of the fair value adjustment to inventory recorded in connection with
the TB Woods Acquisition; (ii) additional interest expense associated with
debt issued on April 5, 2007 in connection with the TB Woods Acquisition;
(iii) additional depreciation expense as a result of estimated depreciation on

6

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

fair value of fixed assets; (iv) additional expense as
a result of estimated amortization of identifiable intangible assets; (v) and
an adjustment to the tax provision for the tax effect of the above adjustments.
These pro forma amounts do not purport to be indicative of the results that
would have actually been obtained if the acquisitions occurred at the beginning
of the respective periods or that may be obtained in the future.

Quarter to
 Date
 ended
 June 30, 2007

Quarter to
 Date
 ended
 June 30, 2006

Year to
 Date
 ended
 June 30, 2007

Year to
 Date
 ended
 June 30, 2006Total revenues

$
164,505

$
178,943

$
326,181

$
293,727Net income

$
2,210

$
4,681

$
7,748

$
5,693During
2006, the Company purchased all of the outstanding share capital of Hay Hall
for $51.0 million, including $1.8 million of closing costs. The Company
completed its final purchase price allocation during 2006, which resulted in
the Company recording approximately $12.4 million in goodwill. In addition, the
Company recorded $16.4 million in intangible assets.

4. Inventories

Inventories
located at certain subsidiaries acquired in connection with the TB Woods
acquisition are stated at the lower of current cost or market, principally
using the last-in, first-out (LIFO) method. The remaining subsidiaries are
stated at the lower of cost or market, using the first-in, first-out (FIFO)
method. Market is defined as net realizable value. Inventories at June 30, 2007
and December 31, 2006 consisted of the following:

June 30,
 2007

December
 31,
 2006Raw materials

$
40,291

$
29,962Work in process


28,279


19,112Finished goods


51,048


36,858Gross inventories


119,618


85,932LessAllowance for excess, slow-moving and obsolete
 inventory


(13,070
)

(10,163
)LIFO reserve


(130
)

Inventories, net

$
106,418

$
75,769Approximately 18% of total inventories at June 30,
2007 were valued using the LIFO method. In the year to date period ended June
30, 2007, the LIFO reserve increased $0.1 million which increased Cost of Goods
Sold by the same amount.

7

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

5. Goodwill and Intangible Assets

A rollforward of goodwill from December 31, 2006
through June 30, 2007 was as follows:

Goodwill










CostBalance December
 31, 2006










$
65,397Additions
 related to TB Woods acquisition











56,692Impact of
 additional tax contingencies











956Adjustments to
 acquisition related deferred tax liabilities









(2,309
)Impact of
 changes in foreign currency











757Balance June 30,
 2007










$
121,493Other intangibles as of June 30, 2007 and December 31,
2006 consisted of the following:

June
 30, 2007

December 31, 2006Other
 Intangibles

Cost

AccumulatedAmortization

Cost

AccumulatedAmortizationIntangible
 assets not subject to amortization:Tradenames and
 trademarks

$
34,794

$


$
23,010

$
Intangible
 assets subject to amortization:Customer
 relationships


66,761


7,683


37,114


5,679Product
 technology and patents


5,232


1,780


5,232


1,316Impact of
 changes in foreign currency


1,799





1,301


Total intangible
 assets

$
108,586

$
9,463

$
66,657

$
6,995The Company recorded $1.5 million and $1.0 million of
amortization expense for the quarters ended June 30, 2007 and 2006,
respectively and $2.5 million and $1.8 million for the year to date periods
ended June 30, 2007 and 2006, respectively.

The estimated amortization expense for intangible
assets is approximately $5.8 million in each of the next five years and then
$33.5 million thereafter.

6. Warranty Costs

Changes in the carrying amount of accrued product
warranty costs for the year to date periods ended June 30, 2007 and 2006 are as
follows:

June 30,
 2007

June 30,
 2006Balance at
 beginning of period







$
2,083

$
1,876Balance assumed
 with TB Woods acquisition







795


Accrued warranty
 costs








758


825Payments and
 adjustments








(1,261
)

(747
)Balance at end
 of period







$
2,375

$
1,9548

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

7.
Income Taxes


The
effective income tax rates recorded for the periods ended June 30, 2007 and
2006 were recorded based upon managements best estimate of the effective
income tax rates for the entire years. The 2007 tax rate differs from the
statutory rate due to the impact of non-U.S. tax rates and permanent
differences.

The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB No. 109 (FIN 48) at
the beginning of fiscal 2007, which resulted in a decrease of approximately
$0.2 million to the December 31, 2006 retained earnings balance. FIN 48
provides a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions taken or
expected to be taken in income tax returns.
As of January 1, 2007 the Company had $2.3 million of unrecognized tax
benefits of which $1.2 million, if recognized would reduce the Companys
effective tax rate and $0.9 million would result in a decrease in goodwill.

As
a result of the acquisition of TB Woods completed during the second quarter,
the Company increased its unrecognized tax benefits by approximately $3.3
million. At June 30, 2007, the Company
had $6.1 million of unrecognized tax benefits of which $1.7 million if
recognized would reduce the Companys effective tax rate and $4.2 million would
result in a decrease to goodwill.

Included
in the balance of unrecognized tax benefits are amounts related to proposed tax
filing positions currently under review by foreign taxing authorities. The
Company expects this review to be completed by December 31, 2007 however it is
unable to estimate the impact on its unrecognized tax benefits as of June 30,
2007.

The
Company and its subsidiaries file consolidated and separate income tax returns
in the U.S. federal jurisdiction as well as in various state and foreign
jurisdictions. In the normal course of business, the Company is subject to
examination by taxing authorities in all of these jurisdictions. With the
exception of certain foreign jurisdictions, the Company is no longer subject to
income tax examinations for years before 2003 in these major jurisdictions.
Additionally, the Company has indemnification agreements with the sellers of
the Colfax and Hay Hall entities which provide for reimbursement to the Company
for payments made in satisfaction of tax liabilities relating to
pre-acquisition periods.

The
Company recognizes interest and penalties related to unrecognized tax benefits
in income tax expense in the condensed consolidated statements of operations. At
January 1, 2007 and June 30, 2007, the Company had $0.3 million and $1.6
million of accrued interest and penalties, respectively.

8. Pension and Other
Employee Benefits

Defined Benefit
(Pension) and Postretirement Benefit Plans

The Company
sponsors various defined benefit (pension) and postretirement (medical and life
insurance coverage) plans for certain, primarily unionized, active employees
(those in the employment of the Company at or hired since November 30, 2004).
Additionally, the Company assumed all post-employment and post-retirement
welfare benefit obligations with respect to active U.S. employees.

The
following table represents the components of the net periodic benefit cost
associated with the respective plans for the year to date periods ended and
quarters ended June 30, 2007 and 2006:

  Quarter
          EndedPension
          Benefits
      
      Other
          BenefitsJune
          30, 2007
      
      June
          30, 2006
      
      June
          30, 2007
      
      June
          30, 2006Service
          cost
      
      $
      67
      
      $
      151
      
      $
      18
      
      $
      84Interest
          cost
      
      
      319
      
      
      334
      
      
      49
      
      
      150Expected
          return on plan assets
      
      
      (265
      )
      
      (207
      )
      
      
      
      
      Amortization
          of prior service cost
      
      
      2
      
      
      2
      
      
      (243
      )
      
      (101
      )Amortization
          of net (gain) loss
      
      
      
      
      
      
      
      
      (53
      )
      
      17Net
          periodic benefit cost (income)
      
      $
      123
      
      $
      280
      
      $
      (229
      )
      $
      1509

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Year to Date EndedPension Benefits

Other BenefitsJune 30, 2007

June 30, 2006

June 30, 2007

June 30, 2006Service cost

$
132

$
303

$
36

$
168Interest
 cost


654


669


98


299Expected
 return on plan assets


(533
)

(415
)




Amortization
 of prior service cost


3


3


(487
)

(201
)Amortization
 of net (gain) loss








(105
)

35Net periodic
 benefit cost (income)

$
256

$
560

$
(458
)
$
3019. Long-Term Debt

Revolving Credit
Agreement

The
Company maintains a $30 million revolving borrowings facility with a commercial
bank (the Revolving Credit Agreement). The Revolving Credit Agreement is
subject to certain limitations resulting from the requirement of the Company to
maintain certain levels of collateralized assets, as defined in the Revolving
Credit Agreement. The Company may use up to $10.0 million of its availability
under the Revolving Credit Agreement for standby letters of credit issued on
its behalf, the issuance of which will reduce the amount of borrowings that
would otherwise be available to the Company. The Company may re-borrow any
amounts paid to reduce the amount of outstanding borrowings; however, all
borrowings under the Revolving Credit Agreement must be repaid in full as of
November 30, 2010.

Substantially
all of the Companys assets have been pledged as collateral against outstanding
borrowings under the Revolving Credit Agreement. The Revolving Credit Agreement
requires the Company to maintain a minimum fixed charge coverage ratio (when
availability under the line falls below $12.5 million) and imposes customary
affirmative covenants and restrictions on the Company. The Company was in
compliance with all requirements of the Revolving Credit Agreement at June 30,
2007.

There
were no borrowings under the Revolving Credit Agreement at June 30, 2007 and
December 31, 2006, however, as of both dates, the lender had issued $3.0
million of outstanding letters of credit on behalf of the Company.

In
April 2007, the Company amended the Revolving Credit Agreement. The interest rate on any outstanding
borrowings on the line of credit were reduced to the lenders Prime Rate plus 25
basis points or LIBOR plus 175 basis points.
The rate on all outstanding letters of credit were reduced to 1.5% and
..25% on any unused availability under the Revolving Credit Agreement. All borrowings under the amended plan must
be repaid by November 30, 2010.

TB Woods Revolving
Credit Agreement

As
part of the TB Woods acquisition, the Company refinanced the existing line of
credit agreement with a commercial bank in connection with the acquisition of
TB Woods. The Company refinanced $13.0
million of debt associated with TB Woods line of credit and $6.5 million in
letters credit. As of June 30, 2007,
there was $12.2 million outstanding under the TB Woods Credit Agreement, and
$6.5 million of outstanding letters of credit.

Overdraft Agreements

Certain
of our foreign subsidiaries maintain overdraft agreements with financial
institutions. There were no borrowings as of June 30, 2007 or December 31, 2006
under any of the overdraft agreements.

9% Senior Secured
Notes

On
November 30, 2004, the Company issued 9% Senior Secured Notes (Senior Secured
Notes), with a face value of $165 million. Interest on the Senior Secured
Notes is payable semiannually, in arrears, on June 1 and December 1 of each
year, beginning June 1, 2005, at an annual rate of 9%. The effective interest
rate on the Senior Secured Notes is approximately 10.0%, after consideration of
the amortization of $6.6 million related to initial offer discounts (included
in long-term debt) and $2.8 million of deferred financing costs (included in
other assets). The Senior Secured Notes mature on December 1, 2011 unless
previously redeemed by The Company.

10

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

The
Senior Secured Notes are guaranteed by the Companys U.S. domestic subsidiaries
and are secured by a second priority lien, subject to first priority liens
securing the Revolving Credit Agreement, on substantially all of the Companys
assets. The Senior Secured Notes contain numerous terms, covenants and
conditions, which impose substantial limitations on the Company. The Company
was in compliance with all covenants of the indenture governing the Senior
Secured Notes at June 30, 2007.

In
connection with the acquisition of TB Woods on April 5, 2007, the Company
completed a follow-on offering issuing an additional $105.0 million of the
Senior Secured Notes. The additional
$105.0 million has the same terms and conditions as the previously issued
Senior Secured Notes. The effective
interest rate on the Senior Secured Notes, after the follow-on offering is
approximately 9.6% after consideration of the amortization of $1.1 million
premium and $3.2 million of additional deferred financing costs.

11.25% Senior Notes

On
February 8, 2006, the Company issued 11.25% Senior Notes (Senior Notes), with
a face value of £33 million. Interest on the Senior Notes is payable
semiannually, in arrears, on August 15 and February 15 of each year, beginning
August 15, 2006, at an annual rate of 11.25%. The effective interest rate on
the Senior Notes is approximately 11.7%, after consideration of the $2.5
million of deferred financing costs (included in other assets). The Senior
Secured Notes mature on February 13, 2013.

The Senior Notes
are guaranteed on a senior unsecured basis by the Companys U.S. domestic
subsidiaries. The Senior Notes contain numerous terms, covenants and
conditions, which impose substantial limitations on the Company. The Company
was in compliance with all covenants of the indenture governing the Senior
Notes at June 30, 2007.

In
February 2007, using proceeds from Altra Holdings, Inc.s, our parent,
(Holdings) initial public offering, the Company redeemed £11.6 million
aggregate principal amount of the outstanding Senior Notes, at a redemption
price of 111.25% of the principal amount of the Senior Notes, plus accrued and
unpaid interest. In connection with the redemption The Company expensed $0.8
million of deferred financing costs and incurred $2.6 million of a pre-payment
premium.

In
June 2007, using proceeds from Holdings secondary public offering, the Company
redeemed £5.5 million aggregate principal amount of the outstanding
Senior Notes at a redemption price of 114.5% of the principal amount of the Senior Notes, plus accrued and
unpaid interest. In connection with the
redemption the Company expensed $0.4 million of deferred financing costs and
incurred $0.8 million of pre-payment premium.

The
remaining principal amount of the Senior Notes matures on February 13, 2013,
unless previously redeemed by the Company prior to such maturity date. As of
June 30, 2007, the remaining principal balance outstanding was £15.9
million, or $31.9 million.

Variable Rate Demand
Revenue Bonds

In
connection with the acquisition of TB Woods, the Company assumed the Variable
Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Woods has borrowed approximately $3.0
and $2.3 million by issuing Variable Rate Demand Revenue Bonds under the
authority of the industrial development corporations of the City of San Marcos,
Texas and City of Chattanooga, Tennessee, respectively. These bonds bear variable interest rates and
mature in April 2024 and April 2022.
The bonds were issued to finance production facilities for TB Woods
manufacturing operations in those cities, and are secured by letters of credit
issued under the terms of the TB Woods Credit Agreement.

Mortgage

In
June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany
with a local bank. As of June 30, 2007 and December 31, 2006, the mortgage has
a principal of 1.9 million, or $2.6 million and 2.0 million or $2.6 million,
respectively and an interest rate of 5.75% and is payable in monthly
installments over 15 years.

Capital Leases

The
Company leases certain equipment under capital lease arrangements, whose
obligations are included in both short-term and long-term debt. Capital lease
obligations amounted to approximately $3.1 million and $1.5 million at June 30,
2007 and December 31, 2006, respectively. Assets under capital leases are
included in property, plant and equipment with the related amortization
recorded as depreciation expense.


11

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

10. Stockholders
Equity


The
Company has authorized, issued and outstanding 1,000 shares of $0.001 pat-value
common stock, all of which is held by Holdings, the Companys parent and sole
shareholder.

Stock-Based
Compensation

In
2005 Holdings approved the 2004 Equity Incentive Plan that provides for various
forms of stock-based compensation to officers, senior-level employees and other
persons who make significant contributions to the success of the Company. Awards granted under the 2004 Equity
Incentive Plan are for equity instruments of Holdings. As awards are granted in connection with
services performed for the benefit of the Company, the related compensation
expense is recognized in the accompanying financial statements on a
straight-line basis over the service period of the grant. All awards to date have been in the form of
restricted stock. Compensation expense
recorded during the year to date periods ended June 30, 2007 and 2006 was $0.8
million ($0.5 million net of tax) and $0.1 million (less than $0.1 million, net
of tax), respectively and $0.7 million ($0.4 million, net of tax) and less than
$0.1 million in the quarters ended June 30, 2007 and 2006, respectively.

In
July 2007, the Compensation Committee of Holdings Board of Directors approved
a grant to two of the Companys non-employee directors of 3,326 shares each of
restricted common stock of Holdings.
The fair market value of the restricted shares was calculated using the
total number of shares granted multiplied by the average stock price on the
date of grant of $18.04, for a total compensation charge of approximately $0.1
million. The shares will fully vest on
March 14, 2008. The expense will be
recognized on a straight line basis over the service period.

11. Related-Party
Transactions

Joy Global Sales

One
of the Companys directors, is an Executive of Joy Global, Inc. The Company
sold approximately $2.6 million and $1.7 million in goods to divisions of Joy
Global, Inc. during the year to date periods ended June 30, 2007 and 2006,
respectively. Sales to divisions of Joy Global were $1.2 million and $0.8
million for the quarters ended June 30, 2007 and 2006, respectively. Other than his position as an Executive of
Joy Global, Inc., the Companys director has no interest in sales transactions
between the Company and Joy Global, Inc.

Management Agreement

The
Company entered into an advisory services agreement with Genstar Capital, L.P.
(Genstar), whereby Genstar agreed to provide certain management, business
strategy, consulting, financial advisory and acquisition related services to
the Company. Pursuant to the agreement, the Company was required to pay to Genstar
an annual consulting fee of $1.0 million (payable quarterly, in arrears at the
end of each calendar quarter), reimbursement of out-of-pocket expenses incurred
in connection with the advisory services and an advisory fee of 2.0% of the
aggregate consideration relating to any acquisition or dispositions completed
by the Company. The Company recorded $0.3 million in management fees, included
in selling, general and administrative expenses for the quarter ended June 30,
2006 and $0.5 million for the year to date period ended June 30, 2006. Genstar
also received a one-time transaction fee of $1.0 million for the Hay Hall
acquisition and it is reflected in selling, general and administrative expenses
for the year to date period ended and quarter ended June 30, 2006. In December
2006, the Genstar management agreement was terminated. There are no amounts in
accruals or other liabilities payable to Genstar as of June 30, 2007.

12. Concentrations of
Credit, Business Risks and Workforce

Financial
instruments, which are potentially subject to concentrations of credit risk,
consist primarily of trade accounts receivable. The Company manages this risk
by conducting credit evaluations of customers prior to delivery or commencement
of services. When the Company enters into a sales contract, collateral is
normally not required from the customer. Payments are typically due within
thirty days of billing. An allowance for potential credit losses is maintained,
and losses have historically been within managements expectations.

Credit
related losses may occur in the event of non-performance by counterparties to
financial instruments. Counterparties typically represent international or well
established financial institutions.

No
one customer represented 10% or more of the Companys sales for the quarters
ended or year to date periods ended June 30, 2007 and 2006.

Approximately
22.8% of the Companys labor force (14.0% and 59.7% in the United States and
Europe, respectively) is represented by collective bargaining agreements.

12

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

13 Geographic
Information

The
Company operates in a single business segment for the development,
manufacturing and sales of mechanical power transmission products. The
Companys chief operating decision maker reviews consolidated operating results
to make decisions about allocating resources and assessing performance for the
entire Company. Net sales to third parties and property, plant and equipment by
geographic region are as follows (in thousands):

Net Sales
 Quarter Ended
 June 30,

Year to Date Period Ended
 June 30,

Property, Plant and EquipmentJune
 30,
 2007



December
 31,
 20062007

2006

2007

2006North
 America (primarily U.S.)

$
117,997

$
80,756

$
211,176

$
163,994

$
84,930

$
50,673Europe


39,276


35,018


74,256


62,624


29,675


29,865Asia and
 other


5,869


4,000


10,416


7,940


1,775


1,849Total

$
163,142

$
119,774

$
295,848

$
234,558

$
116,380

$
82,387Net
sales to third parties are attributed to the geographic regions based on the
country in which the shipment originates. Amounts attributed to the geographic
regions for long-lived assets are based on the location of the entity, which
holds such assets.

The net assets
of foreign subsidiaries at June 30, 2007 and December 31, 2006 were $65.8
million and $46.8 million, respectively.

The
Company has not provided specific product line sales as our general purpose
financial statements do not allow us to readily determine groups of similar
product sales.

14. Commitments and Contingencies

General Litigation

The
Company is involved in various pending legal proceedings arising out of the
ordinary course of business. None of these legal proceedings is expected to
have a material adverse effect on the financial condition of the Company. With
respect to these proceedings, management believes that it will prevail, has
adequate insurance coverage or has established appropriate reserves to cover
potential liabilities. Any costs that management estimates may be paid related
to these proceedings or claims are accrued when the liability is considered
probable and the amount can be reasonably estimated. There can be no assurance,
however, as to the ultimate outcome of any of these matters, and if all or
substantially all of these legal proceedings were to be determined adversely to
the Company, there could be a material adverse effect on the financial
condition of the Company.

We have been
indemnified for certain pre-existing legal and environmental matters for
matters prior to acquisitions.

15. Restructuring,
Asset Impairment and Transition Expenses

Beginning
in the first quarter of 2007, the Company adopted a restructuring program
intended to improve operational efficiency by reducing headcount, consolidating
its operating facilities and relocating manufacturing to lower cost areas. The
restructuring charges for the quarter and year to date periods ended June 30,
2007 were approximately $0.2 million and $1.0 million, respectively.

The
Companys asset impairment and losses on sales of assets for the manufacturing
consolidation program for the year to date period ended June 30, 2007 were $0.1
million. The Company does not expect any additional asset impairment and losses
on sale of assets through the completion of this program.

The
Companys total transition expense for the manufacturing consolidation program
for the year to date period ended and quarter ended June 30, 2007 was
approximately $0.9 million and $0.2 million, respectively. The Company expects
to incur during 2007 an additional $0.1 million of transition costs in
connection with the completion of this program.

The
Companys total restructuring expense, excluding non-cash loss on disposal of
fixed assets, by major component for the year to date period ended June 30,
2007 and costs that are expected to be incurred through the completion of the
program, were as follows:

13

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Costs incurred
 year to date period
 ended June 30,
 2007

Expected costs
 through program
 completionMoving and
 relocation costs

$
521

$
Severance


224


30Other


129


Total
 expenditures

$
874

$
30The following

is a
reconciliation of the accrued restructuring costs between December 31, 2006 and
June 30, 2007:

Balance at
 December 31, 2006

$
Restructuring
 expenses incurred


991Cash
 payments


(755
)Non-cash
 loss on disposal of fixed assets


(117
)Balance at
 June 30, 2007

$
119In
connection with the Companys acquisition of TB Woods, the Company adopted a
restructuring program intended to consolidate operating facilities and reduce
duplicate staffing. The estimated costs of this restructuring program were
recorded as a part of purchase accounting and increased goodwill.

The following

is a summary of
accruals related to such restructuring activities:

Balance at
 December 31, 2006

$
Restructuring
 accruals established as part of purchase accounting related to severance


952Cash
 payments


(852
)Balance at
 June 30, 2007

$
100This is a
preliminary estimate of costs associated with this restructuring program.

16. Subsequent Event

On
August 6, 2007, the Company redeemed ₤12.0 million aggregate principal
amount of the outstanding Senior Notes at a redemption price of 113.5% of the
principal amount of the Senior Notes, plus accrued and unpaid interest. In
connection with the redemption the Company incurred $3.3 million of pre-payment
premium. Subsequent to the redemption, ₤3.9 million, or $7.9 million of
Senior Notes remain outstanding

17. Guarantor
Subsidiaries

The
following tables present separately the financial position, results of
operations, and cash flows for the Company: (a) the subsidiaries of the Company
that are guarantors of the Senior Secured Notes, which are all 100% owned U.S.
domestic subsidiaries of the Company (Guarantor Subsidiaries), and (b) the
subsidiaries of the Company that are not guaranteeing the Senior Secured Notes,
which include all non-domestic subsidiaries of the Company (Non-Guarantor
Subsidiaries). Separate financial statements of the Guarantor Subsidiaries are
not presented because their guarantees are full and unconditional and joint and
several, and the Company believes separate financial statements and other
disclosures regarding the Guarantor Subsidiaries are not material to investors.

14

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Balance Sheets of the
Company
June 30, 2007

June 30, 2007Issuer

Guarantor

Non-Guarantor

Eliminations

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$
34,024

$
(3,893
)
$
4,242

$


$
34,373Trade receivables, less allowance for
 doubtful accounts





56,096


36,610





92,706Loans receivable from related parties





54,034





(54,034
)

Inventories, less allowances for obsolete
 materials





71,938


34,480





106,418Deferred income taxes





3,431


3,574





7,005Prepaid expenses and other


(214
)

2,536


3,346





5,668Total current assets


33,810


184,142


82,252


(54,034
)

246,170Property, plant and equipment, net





79,406


36,974





116,380Intangible assets, net





76,450


22,673





99,123Goodwill





94,716


26,777





121,493Deferred income taxes





2,027


256





2,283Other assets


6,585


470


85





7,141Investments in subsidiaries


403,633








(403,633
)

$
444,028

$
437,211

$
169,017

$
(457,667
)
$
592,590Liabilities and stockholders

equityCurrent liabilities:Accounts payable


284

$
23,031

$
18,326




$
41,641Accrued payroll


180


8,009


6,049





14,238Accruals and other current liabilities


5,463


8,164


5,569





19,196Taxes payable


(740
)

4,951


551





4,762Deferred income taxes








1,382





1,382Current portion of capital leases and
 short-term bank borrowings





495


453





948Loans payable to related parties


1,765





52,269


(54,034
)

Total current liabilities


6,952


44,650


84,599


(54,034
)

82,167Long-term debt, less current portion


298,699


19,061


3,581





321,341Deferred income taxes





21,576


8,458





30,034Pension liabilities





10,215


3,378





13,593Other post-retirement benefits





3,132








3,132Other long-term liabilities


333


737


3,208





4,279Total liabilities


305,984


99,371


103,224


(54,034
)

454,546Total stockholders equity


138,044


337,840


65,793


(403,633
)

138,044$
444,028

$
437,211

$
169,017

$
(457,667
)
$
592,59015

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Balance Sheets of the
Company
December 31, 2006

December 31, 2006Issuer

Guarantor

Non
 Guarantor

Eliminations

ConsolidatedAssetsCurrent assets:Cash and cash equivalents

$
41,016

$
(5,488
)
$
6,999

$


$
42,527Trade receivables, less allowance for
 doubtful accounts





37,780


23,726





61,506Loan receivable from related parties


9,866


36,681





(46,547
)

Inventories, less allowances for obsolete
 materials





50,573


25,196





75,769Deferred income taxes





7,159


(376
)




6,783Prepaid expenses and other


1,875


3,353


2,340





7,532Total current assets


52,757


130,058


57,849


(46,547
)

194,117Property, plant and equipment, net





48,762


33,625





82,387Intangible assets, net





36,708


22,954





59,662Goodwill





41,660


23,737





65,397Deferred income taxes





2,120


15





2,135Other assets


5,302


279


89





5,670Investments in subsidiaries


258,221








(258,221
)

$
316,280

$
259,587

$
138,269

$
(304,768
)
$
409,368Liabilities and stockholders

equityCurrent liabilities:Accounts payable

$


$
18,316

$
15,737

$


$
34,053Accrued payroll


2,469


6,089


5,513





14,071Accruals and other current liabilities


5,346


7,053


2,796





15,195Taxes payable





1,509


1,105





6,549Deferred income taxes








1,382





1,382Current portion of long-term debt





254


319





573Loans payable to related parties








46,547


(46,547
)

Total current liabilities


11,750


33,221


73,399


(46,547
)

71,823Long-term debt, less current portion


225,011


349


3,195





228,555Deferred income taxes





(1,156
)

8,286





7,130Pension liabilities





11,797


3,372





15,169Other post-retirement benefits





3,262








3,262Other long-term liabilities





682


3,228





3,910Total liabilities


236,761


48,155


91,480


(46,547
)

329,849Total stockholders equity


79,519


211,432


46,789


(258,221
)

79,519$
316,280

$
259,587

$
138,269

$
(304,768
)
$
409,36816

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Statements of
Operations of the Company
Quarter ended June 30, 2007

Quarter ended June 30, 2007Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedNet sales

$


$
119,613

$
57,126

$
(13,597
)
$
163,142Cost of
 sales





88,305


42,530


(13,597
)

117,238Gross profit





31,308


14,596





45,904Selling,
 general and administrative expenses





15,700


9,335





25,035Research and
 development expenses





1,262


942





2,204Restructuring
 charges





36


162





198Income from
 operations





14,310


4,157





18,467Interest
 expense, net


8,332


385


1,975





10,692Other
 non-operating (income) expense, net


(115
)

(93
)

331





123Equity in
 earnings of subsidiaries


13,066








(13,066
)

Income
 before income taxes


4,849


14,018


1,851


(13,066
)

7,652Provision
 for income taxes





2,365


438





2,803Net income

$
4,849

$
11,653

$
1,413

$
(13,066
)
$
4,849Condensed Consolidating Statements of
Operations of the Company
Year to date ended June 30, 2007

Year to Date ended June 30, 2007Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedNet sales

$


$
213,237

$
102,664

$
(20,053
)
$
295,848Cost of
 sales





156,310


75,639


(20,053
)

211,896Gross profit





56,927


27,025





83,952Selling,
 general and administrative expenses





28,356


17,483





45,839Research and
 development expenses





1,956


1,542





3,498Restructuring
 charges





613


378





991Income from
 operations





26,002


7,622





33,624Interest
 expense (income), net


15,507


418


3,915





19,840Other
 non-operating (income) expense, net


(151
)

(118
)

345





76Equity in
 earnings of subsidiaries


23,996








(23,996
)

Income
 before income taxes


8,640


25,702


3,362


(23,996
)

13,708Provision
 for income taxes





4,061


1,007





5,068Net income

$
8,640

$
21,641

$
2,355

$
(23,996
)
$
8,64017

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Statements of
Operations of the Company
Quarter to Date ended June 30, 2006

Quarter ended June 30, 2006Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedNet sales

$


$
81,350

$
40,938

$
(2,514
)
$
119,774Cost of
 sales





59,605


30,410


(2,514
)

87,501Gross profit





21,745


10,528





32,273Selling,
 general and administrative expenses





11,614


7,480





19,094Research and
 development expenses





712


576





1,288Income from
 operations





9,419


2,472





11,891Interest
 expense (income), net


6,692


95


(737
)




6,050Other
 non-operating (income) expense, net


238


(25
)

(141
)




72Equity in
 earnings of subsidiaries


10,847








(10,847
)

Income
 before income taxes


3,917


9,349


3,350


(10,847
)

5,769Provision
 for income taxes





1,761


91





1,852Net income

$
3,917

$
7,588

$
3,259

$
(10,847
)
$
3,917Condensed Consolidating Statements of
Operations of the Company
Year to Date ended June 30, 2006

Year to Date ended June 30, 2006Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedNet sales

$


$
165,964

$
74,069

$
(5,475
)
$
234,558Cost of
 sales





121,296


54,610


(5,475
)

170,431Gross profit





44,668


19,459





64,127Selling,
 general and administrative expenses


1,005


23,458


13,358





37,821Research and
 development expenses





1,378


1,114





2,492Income
 (loss) from operations


(1,005
)

19,832


4,987





23,814Interest
 expense (income), net


11,099


42


85





11,226Other
 non-operating (income) expense, net


238


(135
)

(190
)




(87
)Equity in
 earnings of subsidiaries


20,343








(20,343
)

Income
 before income taxes


8,001


19,925


5,092


(20,343
)

12,675Provision
 for income taxes





3,772


902





4,674Net income

$
8,001

$
16,153

$
4,190

$
(20,343
)
$
8,00118

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Statements of Cash
Flows of the Company
Year to Date ended June 30, 2007

Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedCash flows from operating
activities:Net income

$
8,640

$
21,641

$
2,355

$
(23,996
)
$
8,640Undistributed equity in earnings
of
 subsidiaries


(23,996
)







23,996


Adjustments to reconcile net
income to cash
 provided by (used in) operating activities:Depreciation





5,212


2,852





8,064Amortization of
intangible assets





1,698


770





2,468Amortization
and write-off of deferred loan
 costs


1,857











1,857Accretion of
debt discount and premium


415











415Loss (gain) on
foreign currency


(151
)




361





210Amortization of
inventory fair value
 adjustment








651





651Loss on sale of
fixed assets








112





112Stock based
compensation


800











800Changes in
operating assets and
 liabilities:Trade
receivables





(7,704
)

(6,336
)




(14,040
)Inventories





695


(1,333
)




(638
)Accounts
payable and accrued liabilities


(7,554
)

(6,288
)

(991
)




(14,833
)Other current
assets and liabilities


3,232


526


(243
)




3,515Other
operating assets and liabilities


265


(126
)

(39
)




100Net cash
provided by (used in) operating
 activities


(16,492
)

15,654


(1,841
)




(2,679
)Cash flows from investing
activities:Purchases of fixed
assets





(3,191
)

(1,058
)




(4,249
)Acquisition, net of cash
acquired


(117,484
)










(117,484
)Net cash used in investing
activities


(117,484
)

(3,191
)

(1,058
)




(121,733
)Cash flows from financing
activities:Capital contribution from Parent
Company


49,015











49,015Proceeds from issuance of senior
secured
 notes


106,050











106,050Payment of debt issuance
costs


(3,405
)










(3,405
)Payments on senior
notes


(33,998
)










(33,998
)Borrowings under revolving credit
 agreements


8,315











8,315Payments on revolving credit
agreements


(8,315
)

(805
)







(9,120
)Payments made on behalf of
Parent Company


(1,009
)










(1,009
)Change in affiliate
debt


10,331


(9,984
)

(347
)




Change in capital
leases





(79
)

(280
)




(359
)Net cash provided by (used in)
financing
 activities


126,984


(10,868
)

(627
)




(115,489
)Effect of exchange rates on
cash








769





769Increase (decrease) in cash and
cash
 equivalents


(6,992
)

1,595


(2,757
)




(8,154
)Cash and cash equivalents,
beginning of the
 period


41,016


(5,488
)

6,999





42,527Cash and cash equivalents, end
of period

$
34,024

$
(3,893
)
$
4,242

$


$
34,37319

ALTRA INDUSTRIAL MOTION, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Dollars in thousands, unless otherwise noted

Condensed Consolidating Statements of Cash
Flows of the Company
Year to Date Ended June 30, 2006

Issuer

Guarantor

Non-
 Guarantor

Eliminations

ConsolidatedCash flows from operating
activities:Net
income

$
8,001

$
16,153

$
4,190

$
(20,343
)
$
8,001Undistributed
equity in earnings of
 subsidiaries


(20,343
)







20,343


Adjustments to
reconcile net income to cash
 (used in) provided by operating activities:Depreciation





3,284


1,666





4,950Amortization of
intangible assets





1,139


657





1,796Amortization of
deferred loan costs


425











425Accretion of
debt discount


472











472Amortization of
inventory fair value
 adjustment





245


2,033





2,278Gain on sale of
fixed assets








(7
)




(7
)Stock based
compensation


65











65Provision for
deferred taxes





2,083


126





2,209Changes in
operating assets and
 liabilities:Trade
receivables





(1,008
)

(2,659
)




(3,667
)Inventories





(2,298
)

(883
)




(3,181
)Accounts
payable and accrued liabilities


2,972


(4,866
)

(3,337
)




(5,231
)Other current
assets and liabilities


(186
)

727


(987
)




(446
)Other
operating assets and liabilities


1,116


(776
)

(77
)




(263
)Net cash (used
in) provided by operating
 activities


(7,478
)

14,683


722





7,927Cash flows from investing
activities:Purchases of
fixed assets





(3,354
)

(756
)




(4,110
)Acquisitions,
net of cash acquired





(9,251
)

(44,835
)




(54,086
)Net cash used in investing
activities





(12,605
)

(45,591
)




(58,196
)Cash flows from financing
activities:Proceeds from
issuance of senior notes


57,625











57,625Payment of debt
issuance costs


(1,928
)










(1,928
)Payments made
on behalf of Parent company


(12,619
)










(12,619
)Borrowings
under revolving credit
 agreements


5,057











5,057Payments under
revolving credit agreements


(5,057
)










(5,057
)Proceeds from
mortgages








2,510





2,510Change in
affiliate debt


(42,148
)

(1,530
)

43,678





Change in
capital leases





(106
)

45





(61
)Net cash (used in) provided by
financing
 activities


930


(1,636
)

46,233





45,527Effect of exchange rates on
cash








255





255Increase (decrease) in cash and
cash
 equivalents


(6,548
)

442


1,619





(4,487
)Cash and cash equivalents,
beginning of the
 period


8,819


(2,713
)

3,954





10,060Cash and cash equivalents, end
of period

$
2,271

$
(2,271
)
$
5,573

$


$
5,57320

Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations

The
following discussion of the financial condition and results of operations of
Altra Industrial Motion, Inc. should be read together with the audited financial
statements of Altra Industrial Motion, Inc. and its Predecessor and related
notes included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2006 and the Form S-4 filed with the Securities and Exchange
Commission on August 9, 2007. The following discussion includes forward-looking
statements. For a discussion of important factors that could cause actual
results to differ materially from the results referred to in the
forward-looking statements, see Forward-Looking Statements. in the Companys
Annual Report on Form 10-K for the year ended December 31, 2006 and the Form
S-4 filed with the Securities and Exchange Commission on August 9, 2007.

General

We
are a leading multinational designer, producer and marketer of a wide range of
mechanical power transmission products. Our product portfolio includes
industrial clutches and brakes, enclosed gear drives, open gearing, couplings,
machined-race bearings, belted drives and other related products which are sold
across a wide variety of industries. Our products serve a wide variety of end
markets including general industrial, material handling, mining, power
generation, transportation, automotive and turf and garden. We primarily sell
our products to OEMs such as John Deere, Carrier and General Electric and
through long-standing relationships with industrial distributors such as Motion
Industries, Applied Industrial Technologies, Kaman Industrial Technologies,
Bearing Distributions, Inc. and W.W. Grainger.

Recent Acquisition

On
April 5, 2007, the Company completed its acquisition of TB Woods Corporation
(TB Woods) pursuant to a cash tender offer for all of the outstanding shares
of TB Woods common stock for $24.80 per share. This was followed by a short
form merger (the Merger) of Forest Acquisition Corporation, the Companys
wholly-owned subsidiary, with and into TB Woods. This resulted in TB Woods
becoming a wholly-owned subsidiary of the Company. In connection with the
merger, all remaining outstanding shares of TB Woods common stock (other than
those held by shareholders who properly perfect dissenters rights under
Delaware law), were converted into the right to receive the same $24.80 cash
price per share paid in the tender offer (net of the holder without interest
and less any required withholding taxes).

Critical Accounting Policies

The
preparation of our condensed consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make judgments, assumptions and
estimates that affect our reported amounts of assets, revenues and expenses, as
well as related disclosure of contingent assets and liabilities. Management
believes there have been no significant changes in our critical accounting
policies since December 31, 2006. See the discussion of critical accounting
policies in our Annual Report on Form 10-K for the year ended December 31,
2006.

Recent Accounting Pronouncements

In
June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109,
which prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company adopted FIN 48 on January 1,
2007. See Note 7 to the condensed consolidated financial statements for the
impact of adoption of this pronouncement.

Non-GAAP Financial Measures

The
discussion of EBITDA (earnings before interest, income taxes, depreciation and
amortization) included in the discussion of Results of Operations below is
being provided because management considers EBITDA to be an important measure
of financial performance. Among other things, management believes that EBITDA
provides useful information for our investors because it is useful for
trending, analyzing and benchmarking the performance and value of our business.
Management also believes that EBITDA is useful in assessing current performance
compared with our historical performance because significant line items within
our statements of operations such as depreciation, amortization and interest
expense are significantly impacted by acquisitions. Internally, EBITDA is used
as a financial measure to assess the operating performance and is an important
measure in our incentive compensation plans.

EBITDA
has important limitations, and should not be considered in isolation or as a
substitute for analysis of our results as reported under generally accepted
accounting principles in the United States (GAAP). For example, EBITDA does
not reflect:

21


cash expenditures, or future requirements, for
 capital expenditures or contractual commitments;
changes in, or cash requirements for, working
 capital needs;
the significant interest expense, or the cash
 requirements necessary to service interest or principal payments, on debts;
tax distributions that would represent a reduction
 in cash available to us; and
any cash requirements for assets being depreciated
 and amortized that may have to be replaced in the future.EBITDA
is not a recognized measurement under GAAP, and when analyzing our operating performance,
investors should use EBITDA in addition to, and not as an alternative for,
operating income and net income (each as determined in accordance with GAAP).
Because not all companies use identical calculations, our presentation of
EBITDA may not be comparable to similarly titled measures of other companies.
The amounts shown for EBITDA also differ from the amounts calculated under
similarly titled definitions in our debt instruments, which are further
adjusted to reflect certain other cash and non-cash charges and are used to
determine compliance with financial covenants and our ability to engage in
certain activities, such as incurring additional debt and making certain
restricted payments.

To
compensate for the limitations of EBITDA we utilize several GAAP measures to
review our performance. These GAAP measures include, but are not limited to,
net income, operating income, cash provided by (used in) operations, cash
provided by (used in) investing activities and cash provided by (used in) financing
activities. These important GAAP measures allow our management to, among other
things, review and understand our uses of cash period to period, compare our
operations with competitors on a consistent basis and understand the revenues
and expenses matched to each other for the applicable reporting period. We
believe that the use of these GAAP measures, supplemented by the use of EBITDA,
allows us to have a greater understanding of our performance and allows us to
adapt to changing trends and business opportunities.

Results of Operations

  Quarter
          Ended
      
      
      Year
          to Date EndedJune
          30, 2007
      
      June
          30, 2006
      
      June
          30, 2007
      
      June
          30, 2006Net
          sales
      
      $
      163,142
      
      $
      119,774
      
      $
      295,848
      
      $
      234,558Cost
          of sales
      
      
      117,238
      
      
      87,501
      
      
      211,896
      
      
      170,431Gross
          profit
      
      
      45,904
      
      
      32,273
      
      
      83,952
      
      
      64,127Gross
          profit percentage
      
      
      28.1
      %
      
      26.9
      %
      
      28.4
      %
      
      27.3
      %Selling,
          general and administrative expenses
      
      
      25,035
      
      
      19,094
      
      
      45,839
      
      
      37,821Research
          and development expenses
      
      
      2,204
      
      
      1,288
      
      
      3,498
      
      
      2,492Restructuring
          charges
      
      
      198
      
      
      
      
      
      991
      
      
      Income
          from operations
      
      
      18,467
      
      
      11,891
      
      
      33,624
      
      
      23,814Interest
          expense, net
      
      
      10,692
      
      
      6,050
      
      
      19,840
      
      
      11,226Other
          non-operating income, net
      
      
      123
      
      
      72
      
      
      76
      
      
      (87
      )Income
          before income taxes
      
      
      7,652
      
      
      5,769
      
      
      13,708
      
      
      12,675Provision
          for income taxes
      
      
      2,803
      
      
      1,852
      
      
      5,068
      
      
      4,674Net
          income
      
      $
      4,849
      
      $
      3,917
      
      $
      8,640
      
      $
      8,001Quarter Ended June 30, 2007 Compared with Quarter Ended June
30, 2006

Net
sales.Net sales increased by $43.4 million, or 36.2%, from
$119.8 million for the quarter ended June 30, 2006 to $163.1 million for the
quarter ended June 30, 2007. The increase in sales was primarily due to the
inclusion of TB Woods which contributed $29.8 million. Without including the
impact of Hay Hall, acquired February 10, 2006, Warner Linear, acquired May 18,
2006 and TB Woods acquired April 5, 2007, sales increased 10.6%. The remaining
increase was driven by price increases, new product initiatives, continued
strength in key late cycle markets, defense applications and global clutch
brake sales.

Gross
profit.Gross profit increased by $13.6 million, or 42.2%,
from $32.3 million (26.9% of net sales), for the quarter ended June 30, 2006 to
$45.9 million (28.1% of net sales) for the same period of 2007. The increase is
primarily due to the inclusion of TB

22

Woods during the second quarter 2007, additional low
cost country material sourcing and implementation of productivity improvements
at recently acquired businesses.

Selling,
general and administrative expenses.Selling, general and
administrative expenses increased by $5.9 million, or 31.1%, from $19.1 million
for the quarter ended June 30, 2006 to $25.0 million for the quarter ended June
30, 2007. The increase in selling, general and administrative expenses is
primarily due to the inclusion of TB Woods and Warner Linear for the full
quarter ended June 30, 2007, additional amortization of intangible assets
associated with the TB Woods acquisition and increased costs associated with
being a public company, partially offset by the termination of the management
advisory fee agreement.

Research
and development expenses.Research and development expenses
increased $0.9 million or 71.1% from $1.3 million to $2.2 million. The increase
in research and development expense is due to the inclusion of TB Woods in the
quarter ended June 30, 2007.

RestructuringDuring the first quarter of 2007, we initiated a
restructuring program intended to improve operational efficiency by reducing
headcount, consolidating our operating facilities and relocating manufacturing
to lower cost areas. We recorded approximately $0.2 million of restructuring
expense in the second quarter of 2007.

EBITDA.To reconcile net income to EBITDA for the quarter ended June
30, 2007, we added back to net income $2.8 million provision of income taxes,
$10.7 million of interest expense and $6.1 million of depreciation and
amortization expenses. To reconcile net income to EBITDA for the quarter ended
June 30, 2006, we added back to net income $1.9 million provision of income
taxes, $6.1 million of interest expense and $3.8 million of depreciation and
amortization expenses. Taking into account the foregoing adjustments, our
resulting EBITDA was $24.4 million for the quarter ended June 30, 2007 and
$15.6 million for the quarter ended June 30, 2006. The increase is due to the
acquisition of TB Woods and Warner Linear, price increases, volume, and cost
savings measures.

Interest
expense.We recorded interest expense of $10.7 million during
the quarter ended June 30, 2007, which was an increase of $4.6 million, from
the quarter ended June 30, 2006. The increase was due to $2.4 million of
interest associated with the Senior Secured Notes that were issued in the
second quarter of 2007, the $1.6 million pre-payment premium and the $0.3 million
amortization of deferred financing costs associated with the pay-down of the
Senior Notes. For a description of the Senior Secured Notes and the Senior
Notes please see Note 9 to our Condensed Consolidated Financial Statements in
Item I of this Form 10-Q.

Provision
for income taxes.The provision for income taxes was $2.8
million, or 36.6%, of income before taxes, for the quarter ended June 30, 2007,
versus a provision of $1.9 million, or 32.1%, of income before taxes, for the
quarter ended June 30, 2006. The 2007 provision as a percentage of income
before taxes was higher than that of 2006, primarily due to a greater
proportion of taxable income in jurisdictions having higher statutory tax
rates. Additionally, the Companys overall estimated effective tax rate for all
of 2006 is lower than the rate recorded in the first quarter of 2006 and
therefore the second quarter rate was driven down to get the year to date
effective rate at the estimated full year rate.

Year to Date Ended June 30, 2007 Compared with Year to Date
Ended June 30, 2006

Net
sales.Net sales increased by $61.3 million, or 26.1%, from
$234.6 million for the year to date period ended June 30, 2006 to $295.8
million for the year to date period ended June 30, 2007. Without including the
impact of Hay Hall, acquired February 10, 2006 Warner Linear, acquired May 18,
2006, and TB Woods acquired April 5, 2007, sales increased 9.4%. The increase
is due to price increases, new product initiatives, continued strength in key
late cycle markets, defense applications and global clutch brake sales.

Gross
profit.Gross profit increased by $19.8 million, or 30.9%,
from $64.1 million (27.3% of net sales), for the year to date period ended June
30, 2006 to $84.0 million (28.4% of net sales) for the same period of 2007. The
increase is primarily due to the inclusion of Hay Hall, TB Woods and Warner
Linear for the full year to date period ended June 30, 2007, additional low
cost country material sourcing and implementation of productivity improvements
at recently acquired businesses.

Selling,
general and administrative expenses.Selling, general and
administrative expenses increased by $8.0 million, or 21.2%, from $37.8 million
for the year to date period ended June 30, 2006 to $45.8 million for the year
to date period ended June 30, 2007. The increase in selling, general and
administrative expenses is primarily due to the inclusion of TB Woods, Hay
Hall and Warner Linear for the full year to date period ended June 30, 2007,
additional amortization of intangible assets associated with the TB Woods
acquisition and increased costs associated with being a public company,
partially offset by the termination of the management advisory fee agreement.

Research
and development expenses.Research and development expenses
increased $1.0 million, or 40.4%, from $2.5 million to $3.5 million. The
increase is mainly due to the inclusion of TB Woods in the year to date period
ended June 30, 2007.

23

RestructuringDuring the first quarter of 2007, we adopted a restructuring
program intended to improve operational efficiency by reducing headcount,
consolidating our operating facilities and relocating manufacturing to lower
cost areas. We incurred approximately $1.0 million of restructuring expense in
the year to date period ended June 30, 2007.

EBITDA.To reconcile net income to EBITDA for the year to date period
ended June 30, 2007, we added back to net income $5.1 million provision of
income taxes, $19.8 million of interest expense and $10.6 million of
depreciation and amortization expenses. To reconcile net income to EBITDA for
the year to date period ended June 30, 2006, we added back to net income $4.7
million provision of income taxes, $11.2 million of interest expense and $6.7
million of depreciation and amortization expenses. Taking into account the
foregoing adjustments, our resulting EBITDA was $44.1 million for the year to
date period ended June 30, 2007 and $30.6 million for the year to date period ended
June 30, 2006. The increase is due to the acquisitions of TB Woods, Hay Hall
and Warner Linear, price increases, volume, cost savings measures and the
termination of the management advisory services agreement.

Interest
expense.We recorded interest expense of $19.8 million during
the year to date period ended June 30, 2007, which was an increase of $8.6
million, from the year to date period ended June 30, 2006. The increase was due
to the interest associated with the Senior Notes being outstanding for an
additional six weeks during the first quarter of 2007, the $1.6 million
pre-payment premium and $0.3 million of amortization of deferred financing
costs associated with the pay-down of the Senior Notes issued during the second
quarter of 2007. The increase was partially offset by a decrease in interest on
the Senior Notes after the February redemption. For a description of the Senior
Notes and Senior Secured Notes, please see Note 9 to our Condensed Consolidated
Financial Statements in Item I of this Form 10-Q.

Provision
for income taxes.The provision for income taxes was $5.1
million, or 37.0%, of income before taxes, for the year to date period ended
June 30, 2007, versus a provision of $4.7 million, or 36.9%, of income before
taxes, for the year to date period ended June 30, 2006.

Liquidity and Capital Resources

Net Cash

Cash
and cash equivalents totaled $34.4 million at June 30, 2007 compared to $42.5
million at December 31, 2006. Net cash used in operating activities for the
year to date period ended June 30, 2007 resulted mainly from cash provided by
net income of $8.6 million and the add-back of non-cash depreciation,
amortization, stock based compensation, amortization of inventory fair value
adjustment, disposal of fixed assets, loss on foreign currency, accretion of
debt discount and deferred financing costs of $14.3 million offset by a net
increase in operating assets of $11.1 million and a net decrease in operating
liabilities of $14.8 million.

Net
cash used in investing activities of $121.7 million for the year to date period
ended June 30, 2007 resulted from $117.5 million used in the purchase of TB
Woods and $4.2 million used in the purchases of property, plant and equipment
primarily for investment in manufacturing equipment.

Net
cash provided by financing activities of $115.5 million for the year to date
period ended June 30, 2007 consisted primarily of proceeds from the issuance of
Senior Secured Notes for $106.1 million, a capital contribution, from Holdings
of $49.0 million and borrowings from the revolving line of credit of $8.3
million. This was offset by the payment of debt issuance costs of $3.4 million,
payments on the revolving line of credit for $9.1 million, the payment of $34.0
million on the Senior Notes, payments made on behalf of Holdings of $1.0
million and payments of capital lease obligations of $0.4 million.

Net
cash flow used in operating activities, for the year to date period ended June
30, 2006 resulted mainly from cash provided by net income of $6.9 million and
the add-back of non-cash depreciation, amortization, accretion and deferred
financing costs of $8.0 million, stock based compensation of $0.1 million,
deferred tax expense of $2.2 million, non-cash amortization of $1.8 million and
$2.3 million for inventory step-ups recorded as part of the Hay Hall
Acquisition and a net increase in operating liabilities of $0.2 million, offset
by cash used from a net increase in operating assets of $12.5 million.

Net
cash used in investing activities of $58.2 million for the quarter ended June
30, 2006 resulted from $50.3 million used in the purchase of Hay Hall, $3.5
million for the purchase of Bear Linear and $4.1 million used in the purchases
of property, plant and equipment primarily for investment in manufacturing
equipment and for the consolidation of our IT infrastructure.

Net
cash provided by financing activities of $45.5 million for the year to date
period ended June 30, 2006 resulted primarily from the proceeds of $57.6
million from the issuance of the Senior Notes in connection with the Hay Hall
Acquisition, proceeds from mortgages of $2.5 million offset by payments made on
behalf of Holdings of $12.6 million and payment of debt issuance cost of $1.9
million.



24

Liquidity

Our
primary source of liquidity will be cash flow from operations and borrowings
under our senior revolving credit facility. See footnote 9 to the Condensed
Consolidated financial statements for explanation of our senior revolving
credit facility. We expect that our primary ongoing requirements for cash will
be for working capital, debt service, capital expenditures and pension plan
funding.

We
incurred substantial indebtedness in connection with the Colfax Corporation,
Hay Hall and TB Woods Acquisitions. As of June 30, 2007, taking into account
these transactions, we had approximately $322.3 million of total indebtedness
outstanding (including capital leases and mortgages). We expect our interest
expense, arising from our existing debt, to be approximately $31.2 million on
an annual basis, through the maturity of the Senior Secured Notes, in 2011.

Our
senior revolving credit facility provides for senior secured financing of up to
$30.0 million, including $10.0 million available for letters of credit. As of
June 30, 2007, there were no outstanding borrowings and $3.0 million of
outstanding letters of credit under our senior revolving credit facility.

We
had $12.2 million outstanding on the TB Woods revolving credit facility as of
June 30, 2007. No additional borrowing are allowed under this agreement.

We
made capital expenditures of approximately $4.2 million and $4.1 million in the
quarters ended June 30, 2007 and June 30, 2006, respectively. These capital
expenditures will support on-going business needs.

We
have cash funding requirements associated with our pension plan which are
estimated to be $1.6 million during the remainder of 2007, $3.8 million in
2008, and $1.9 million thereafter.

Our
ability to make scheduled payments of principal and interest, to fund planned
capital expenditures and to meet our pension plan funding obligations will
depend on our ability to generate cash in the future. Based on our current
level of operations, we believe that cash flow from operations and available
cash, together with available borrowings under our senior revolving credit
facility will be adequate to meet our future liquidity requirements for at
least the next two years. However, our ability to generate cash is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. See the section entitled Changes in general economic
conditions or the cyclical nature of our markets could harm our operations and financial performancein
our Annual Report on Form 10-K for the year ended December 31, 2006 for further
discussion.

We
cannot assure you that our business will generate sufficient cash flow from operations,
that any revenue growth or operating improvements will be realized or that
future borrowings will be available under our senior secured credit facility in
an amount sufficient to enable us to service our indebtedness, including the
notes, or to fund our other liquidity needs. In addition, we cannot assure you
that we will be able to refinance any of our indebtedness, including our senior
revolving credit facility and the notes as they become due. Our ability to
access capital in the long term will depend on the availability of capital
markets and pricing on commercially reasonable terms at the time we are seeking
funds. See Our substantial level of indebtedness could adversely affect our
financial condition, harm our ability to react to changes to our business and
prevent us from fulfilling our obligations on the notes. in our Annual Report
on Form 10-K for the year ended December 31, 2006 for further discussion. In
addition, our ability to borrow funds under our senior revolving credit
facility will depend on our ability to satisfy the financial and non-financial
covenants contained in that facility.

Contractual Obligations

During
the year to date period ended June 30, 2007 the Company redeemed ₤11.6
million and ₤5.5 million aggregate principal amount of their outstanding
Senior Notes. As of June 30, 2007, the remaining principal balance was
₤15.9 million, or approximately $31.9 million. In August, 2007, the
Company redeemed ₤12.0 million aggregate principal amount of the outstanding
Senior Notes at a redemption price of 113.5% of the principal amount of the
Senior Notes, plus accrued and unpaid interest. Subsequent to the redemption,
₤3.9 million, or $7.9 million of Senior Notes remain outstanding The
remaining principal balance is due February 2013.

In
April 2007, we completed a follow-on offering of an aggregate of $105.0 million
of the existing Senior Secured Notes. As of June 30, 2007, the remaining
principal balance was $270.0 million. The balance is due in December 2011.

In
connection with the TB Woods acquisition, we assumed $5.3 million of variable
rate demand revenue bonds. $3.0 million of these bonds mature in 2024 and $2.3
million mature in 2022. In addition, we refinanced concurrent with the
acquisition $13.0 million of TB Woods revolving credit agreement. Payments of
$0.8 million are due over the remainder of 2007. $1.5 million, $1.5 million,
$8.8 million are due in 2008, 2009 and 2010, respectively.

25

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Information
concerning market risk is contained in the Managements Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 2006. There were no material changes in our exposure to
market risk from December 31, 2006.

Item 4.
Controls and Procedures

Our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act)), as of June 30, 2007.

In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives.

Based
on our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.

There
has been no change in our internal control over financial reporting (as defined
in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) that occurred
during our fiscal quarter ended June 30, 2007, that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

26

PART IIOTHER INFORMATION

Item 1.
Legal Proceedings

The
Company is involved in various pending legal proceedings arising out of the
ordinary course of business. None of these legal proceedings is expected to
have a material adverse effect on the financial condition of the Company. With
respect to these proceedings, management believes that it will prevail, has
adequate insurance coverage or has established appropriate reserves to cover
potential liabilities. There can be no assurance, however, as to the ultimate
outcome of any of these matters, and if all or substantially all of these legal
proceedings were to be determined adversely to the Company, there could be a
material adverse effect on the financial condition of the Company.

Item 1A.
Risk Factors

The
reader should carefully consider the Risk Factors listed in our Annual Report
on Form 10-K for the year ended December 31, 2006 and the Form S-4 filed
with the Securities and Exchange Commission on August 9, 2007. These
factors could cause our actual results to differ materially from those stated
in forward looking statements contained in this Form 10-Q and elsewhere.
Management does not believe there have been any material changes in our risk
factors as stated in our Annual Report on Form 10-K for the year ended December
31, 2006 other than those contained in
the risk factors section of the Companys Form S-4 filed with the Securities
and Exchange Commission on August 9, 2007 (which is incorporated by reference).

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.
Defaults Upon Senior Securities

None.

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

None

Item 5.
Other Information

None.

Item 6.
Exhibits

The following exhibits are filed as part of this
report:

27

EXHIBIT INDEX

Exhibit
 Number
Description2.1(1)
Agreement and Plan of
 Merger, dated as of February 17, 2007, among Altra Holdings, Inc., Forest
 Acquisition Corporation and TB Woods Corporation.2.2(2)
Amendment No. 1 to the
 Agreement and Plan of Merger, dated as of March 11, 2007, among Altra Holdings, Inc., Forest Acquisition Corporation and TB Woods
Corporation.3.1(3)
Certificate of
 Incorporation of the Registrant.3.3(3)
Bylaws of the
 Registrant.4.1(4)
Indenture, dated as of
 November 30, 2004, among Altra Industrial Motion, Inc., the Guarantors party
 thereto and The Bank of New York Trust Company, N.A. as trustee.4.2(5)
First Supplemental
 Indenture, dated as of February 7, 2006, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York Trust Company, N.A. as
 trustee.4.3(6)
Second Supplemental
 Indenture, dated as of February 8, 2006, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York Trust Company, N.A. as
 trustee.4.4(5)
Third Supplemental
 Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York Trust Company, N.A. as
 trustee.4.5(7)
Fourth Supplemental
 Indenture, dated as of March 21, 2007, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York Trust Company, N.A. as
 trustee.4.6(8)
Fifth Supplemental
 Indenture, dated as of April 5, 2007, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York Trust Company, N.A. as
 trustee.4.7(4)
Form of 9% Senior
 Secured Notes due 2011.4.8(4)
Registration Rights
 Agreement, dated as of November 30, 2004, among Altra Industrial Motion,
 Inc., Jefferies & Company, Inc., and the subsidiary guarantors party
 thereto.4.9(9)
Registration Rights
 Agreement, dated as of April 5, 2007, among Altra Industrial Motion, Inc.,
 Jefferies & Company, Inc., and the subsidiary guarantors party thereto.4.10(6)
Indenture, dated as of
 February 8, 2006, among Altra Industrial Motion, Inc., the guarantors party
 thereto, The Bank of New York, as trustee and paying agent and The Bank of
 New York (Luxembourg) SA, as Luxembourg paying agent.4.11(5)
First Supplemental
 Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York as trustee.4.12(7)
Second Supplemental
 Indenture, dated as of March 26, 2007, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York, as trustee.4.13(8)
Third Supplemental
 Indenture, dated as of April 5, 2007, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and The Bank of New York, as trustee.4.14(6)
Form of 111⁄4% Senior Notes due 2013.4.15(6)
Registration Rights
 Agreement, dated as of February 8, 2006, among Altra Industrial Motion, Inc.,
 the guarantors party thereto, and Jefferies International Limited, as initial
 purchasers.28

10.2(9)
Fifth Amendment to, and
 Consent and Waiver under, Credit Agreement and Joinder to Loan Documents,
 dated as of April 5, 2007, among Altra Industrial Motion, Inc., the financial
 institutions listed therein, as Lenders, and Wells Fargo Foothill, Inc.31.1*
Certification of Chief
 Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
Certification of Chief
 Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1**
Certification of Chief
 Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
Certification of Chief
 Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Filed herewith.**
Furnished herewith.(1)          Incorporated
by reference to Altra Holdings, Inc.s Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 20, 2007.

(2)          Incorporated
by reference to Altra Holdings, Inc.s Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 13, 2007.

(3)          Incorporated
by reference Altra Industrial Motion, Inc.s Registration Statement on Form 10,
as amended (No. 333-124944), filed with the Securities and Exchange Commission
on May 16, 2005.

(4)          Incorporated
by reference to Altra Industrial Motion, Inc. Registration Statement on Form
S-4 (File No. 333-124944) filed with the Securities and Exchange Commission on
May 16, 2005.

(5)          Incorporated
by reference to Altra Industrial Motion, Inc.s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on May 15, 2006.

(6)          Incorporated
by reference to Altra Industrial Motion, Inc.s Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 14, 2006.

(7)          Incorporated
by reference to Altra Industrial Motion, Inc.s Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 26, 2007.

(8)          Incorporated
by reference to Altra Industrial Motion, Inc.s Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 11, 2007.

(9)          Incorporated
by reference to Altra Industrial Motion, Inc.s Registration Statement on Form
S-4 (File No. 333-142692-06) filed with the Securities and Exchange Commission
on May 8, 2007.

29

SIGNATURES

Pursuant
to the requirements 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.

ALTRA INDUSTRIAL MOTION, INC.August 14, 2007
By:
/s/ Michael L. HurtName:
Michael L. HurtTitle
Chairman and Chief Executive OfficerAugust 14, 2007
By:
/s/ David WallName:
David WallTitle:
VP Finance and Chief Financial Officer30