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As filed with the Securities and Exchange Commission on March 26, 2004

Registration No. 333-113585



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Amendment No. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


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

Colorado
(State or other jurisdiction of
incorporation or organization)
  3825
(Primary standard industrial
classification code number)
  84-0518115
(I.R.S. Employer
Identification No.)

23 Inverness Way East, Suite 150
Englewood, Colorado 80112
(303) 799-8520
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

RICHARD D. SMITH, Chief Executive Officer
Allied Motion Technologies Inc.
23 Inverness Way East, Suite 150
Englewood, Colorado 80112
(303) 799-8520
(Name, address, including zip code, and telephone number,
including area code, of agent for service)



With copies to:
JAMES J. TANOUS, Esq.   ELAM M. HITCHNER, III, Esq.
Jaeckle Fleischmann & Mugel, LLP   Pepper Hamilton LLP
800 Fleet Bank Building   3000 Two Logan Square
Twelve Fountain Plaza   Philadelphia, Pennsylvania 19103-2799
Buffalo, New York 14202-2292   (215) 981-4000
(716) 856-0600    

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement is declared effective and all other conditions to the merger (the "Merger") of Owosso Corporation ("Owosso" or the "Company") with and into AMOT, Inc., a wholly-owned subsidiary of Allied Motion Technologies Inc. (the "Registrant" or "Allied Motion"), pursuant to the Agreement and Plan of Merger described in the enclosed proxy statement/prospectus have been satisfied or waived.


        If the securities registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o


CALCULATION OF REGISTRATION FEE


Title of Each Class of
Securities to be Registered

  Amount to
be Registered

  Proposed Maximum
Aggregate Offering
Price Per Unit

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(5)


Common Stock   532,125(2)   N/A   $178,262(1)   $  22.59

Warrants   300,000(3)   N/A   $1,305,000(6)   $165.34

Subordinated Debt Securities   $500,000(4)       $500,000        $  63.35

Total           $1,983,262   $251.28

(1)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f) and Rule 457(c) under the Securities Act, based on the product of (a) 532,125 and (b) $.335, the average of the bid and asked price for shares of Owosso Common Stock, as reported on the Over-the-Counter Bulletin Board on March 9, 2004.

(2)
This Registration Statement relates to the common stock, no par value per share, of the Registrant (the "Allied Motion Common Stock") estimated to be issuable to holders of Owosso's no par value common stock (the "Owosso Common Stock") and holders of preferred stock, $0.01 par value per share, of Owosso (the "Owosso Preferred Stock" and, together with Owosso Common Stock, the "Owosso Stock") in connection with the Merger. The number of shares to be registered pursuant to this Registration Statement is based upon the maximum number of shares of Allied Motion Common Stock expected to be issued in connection with the Merger, calculated as (a) the product of 5,824,306, the aggregate number of shares of Owosso Common Stock outstanding on March 9, 2004 and an exchange ratio of .068 per share of Allied Motion Common Stock for each share of Owosso Common Stock and (b) the product of 1,071,428, the aggregate number of shares of Owosso Preferred Stock outstanding on March 9, 2004 and an exchange ratio of .127 per share of Allied Motion Common Stock for each share of Owosso Preferred Stock.

(3)
Based on the maximum number of warrants to purchase the Registrant's common stock expected to be issued in connection with the Merger, calculated as the product of (a) 1,071,428, the aggregate number of shares of Owosso Preferred Stock outstanding on March 9, 2004 and (b) an exchange ratio of 0.28 per share of Owosso Preferred Stock.

(4)
This is the maximum principal amount of subordinated debt securities that may be issued to holders of Owosso Preferred Stock in connection with the Merger.

(5)
Previously paid on March 15, 2004. The registration fee has been calculated pursuant to Section 6(b) of the Securities Act and Fee Advisory #7 for Fiscal Year 2004 issued by the Securities and Exchange Commission (SEC) on January 26, 2004 by multiplying .00012670 by the proposed maximum aggregate offering price (as computed in accordance with Rule 457 under the Securities Act solely for the purpose of determining the registration fee of the securities registered hereby).

(6)
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) based on the product of (a) 300,000 and (b) $4.35, the average of the high and low prices for Allied Motion Common Stock on March 9, 2004.


        The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




GRAPHIC   GRAPHIC

PROSPECTUS OF ALLIED
MOTION TECHNOLOGIES INC.

 

PROXY STATEMENT OF
OWOSSO CORPORATION

MERGER PROPOSAL

To the Shareholders of Owosso Corporation:

        You are cordially invited to attend a Special Meeting of shareholders of Owosso Corporation ("Owosso") to be held at the offices of Pepper Hamilton LLP, 30th Floor, Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania, on April 27, 2004, at 10:00 a.m., local time.

        At the Special Meeting, you will be asked to adopt and approve the merger agreement dated February 10, 2004 pursuant to which Owosso has agreed to merge with and into AMOT, Inc., a wholly-owned subsidiary of Allied Motion Technologies Inc., a publicly-traded Colorado corporation ("Allied Motion"). If the merger is completed, each outstanding share of Owosso's no par value common stock (other than shares held by holders who validly perfect appraisal rights under Pennsylvania law) will be exchanged for .068 of a share of the no par value common stock of Allied Motion (the "Allied Motion Common Stock"). Each outstanding share of Owosso's $.01 par value Class A convertible preferred stock (the "Owosso Preferred Stock") will be exchanged for:

        In the event that the custom motors and gear motors design and manufacturing business currently operated by Owosso's wholly-owned subsidiary, Stature Electric Inc., achieves certain gross revenue during the calendar year ending December 31, 2004, Allied Motion will also issue up to $500,000 in subordinated promissory notes on a prorated basis to holders of Owosso Preferred Stock. In connection with the consummation of the merger, Allied Motion expects to issue approximately 532,200 shares of Allied Motion Common Stock, representing approximately 9.6% of the Allied Motion Common Stock outstanding as of February 10, 2004.

        After careful consideration, the Owosso Board of Directors unanimously adopted and approved the merger agreement and has determined that the merger agreement and the transactions contemplated thereby are fair to and in the best interests of Owosso. The Owosso Board of Directors recommends that you vote "FOR" the adoption and approval of the merger agreement.

        At the special meeting, shares of Owosso Common Stock and Owosso Preferred Stock will vote together as a single class, with each share of Owosso Common Stock having one vote and each share of Owosso Preferred Stock having one vote for each share of Owosso Common Stock into which it is then convertible, and the adoption and approval of the merger agreement will require the affirmative vote of at least a majority of such shares cast at the special meeting. In addition, the affirmative vote at the special meeting of a majority of the outstanding shares of Owosso Preferred Stock, voting as a single class, is required to approve and adopt the merger agreement.

        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the adoption and approval of the merger agreement, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso



Preferred Stock, as applicable, in favor of the adoption and approval of the merger agreement to certain representatives of Allied Motion.

        Allied Motion Common Stock is listed on the NASDAQ Small Cap Market under the symbol "AMOT," and Owosso Common Stock is quoted on the OTCBB under the symbol "OWOS.BB." Based upon the closing price of Allied Motion Common Stock on the NASDAQ Small Cap Market on March 25, 2004, the last practicable trading day date before the printing of this proxy statement/prospectus, Allied Motion Common Stock had a value of $4.04 per share. You should be aware that, because the number of shares of Allied Motion Common Stock you will receive in connection with the merger is based on a fixed exchange ratio, the value of Allied Motion Common Stock is subject to change.

        The Owosso Board of Directors has fixed the close of business on March 26, 2004 as the record date for the determination of Owosso shareholders entitled to notice of, and to vote at, the Special Meeting.

        This document is a prospectus of Allied Motion relating to the issuance of shares of Allied Motion Common Stock in connection with the merger and a proxy statement for Owosso to use in soliciting proxies for the Special Meeting.

        We strongly urge you to read and consider carefully this proxy statement/prospectus in its entirety, including the matters discussed in this proxy statement/prospectus under the section entitled "Risk Factors" beginning on page 7.

        Whether or not you plan to attend the Special Meeting in person, please take the time to vote your shares. You may vote your shares by completing, signing and dating the enclosed proxy card(s) and promptly returning the card(s) in the accompanying prepaid envelope.

   
George B. Lemmon, Jr.
President and Chief Executive Officer

        NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE ALLIED MOTION COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

        This joint proxy statement/prospectus is dated March 26, 2004, and is first being mailed to Owosso shareholders on or about March 30, 2004.



GRAPHIC

22543 Fisher Road
P.O. Box 6660
Watertown, New York 13601


NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To be held on April 27, 2004


To the Shareholders of Owosso Corporation:

        Owosso Corporation ("Owosso") will hold a special meeting of its shareholders at the offices of Pepper Hamilton LLP, 30th Floor, Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania, local time, on April 27, 2004 at 10:00 a.m., for the following purposes:

        These items are more fully described in the proxy statement/prospectus that accompanies this notice. We encourage you to read the proxy statement/prospectus carefully.

        Only holders of Owosso's Common Stock or Preferred Stock at the close of business on March 26, are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. At the special meeting, shares of Owosso Common Stock and Owosso Preferred Stock will vote together as a single class, with each share of Owosso Common Stock having one vote and each share of Owosso Preferred Stock having one vote, or one vote for each share of Owosso Common Stock into which each share of Owosso Preferred Stock is then convertible, and the adoption and approval of the merger agreement will require the affirmative vote of at least a majority of such shares cast at the special meeting. In addition, the affirmative vote at the special meeting of a majority of the outstanding shares of Owosso Preferred Stock, voting as a single class, is required to approve and adopt the merger agreement.

        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the adoption and approval of the merger agreement, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso Preferred Stock, as applicable, in favor of the adoption and approval of the merger agreement to certain representatives of Allied Motion.

        All Owosso shareholders are cordially invited to attend the special meeting. Whether or not you expect to attend the special meeting in person, please complete, date, sign and return the enclosed proxy card(s) as promptly as possible to ensure your representation at the special meeting. We have enclosed a postage prepaid envelope for that purpose. It is important that you return your proxy to ensure the satisfaction of the quorum requirements for the conduct of business at the special meeting of shareholders. You may revoke your proxy in the manner described in the accompanying proxy



statement/prospectus at any time before the proxy has been voted at the special meeting. Even if you have given your proxy, you may still vote in person if you attend the special meeting.

    By Order of the Board of Directors

 

 

George B. Lemmon, Jr.
President and Chief Executive Officer

March 26, 2004

        PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.



IMPORTANT

        This document, which is sometimes referred to as this proxy statement/prospectus, constitutes a proxy statement of Owosso Corporation to its shareholders and a prospectus of Allied Motion Technologies Inc. for the shares of Allied Motion Common Stock that Allied Motion will issue to Owosso shareholders in connection with the merger.

        Except as otherwise specifically noted, references to "shares of Owosso Common Stock" or "Owosso common shares" refer to shares of Owosso Common Stock, par value $0.01 per share; references to "shares of Owosso Preferred Stock" or "Owosso preferred shares" refer to shares of Owosso Class A Convertible Preferred Stock, par value $0.01 per share; and references to "outstanding shares of Owosso Common Stock," "outstanding Owosso common shares," "outstanding shares of Owosso Preferred Stock" or "outstanding Owosso preferred shares" do not include shares held by Owosso or by any wholly-owned subsidiary of Owosso.

        Except as otherwise specifically noted, references to "shares of Allied Motion Common Stock" refer to shares of Allied Motion Common Stock, no par value per share, and references to "outstanding shares of Allied Motion Common Stock" do not include shares held by Allied Motion or by any wholly-owned subsidiary of Allied Motion.

        Selected information from this proxy statement/prospectus is highlighted in this proxy statement/prospectus under the section entitled "Questions and Answers About the Merger" beginning on page i and "Summary" beginning on page 1. However, these sections do not include all of the information that may be important to you. To better understand the merger agreement and the merger contemplated by the merger agreement, and for a complete description of their legal terms, you should carefully read this entire proxy statement/prospectus, including the appendices.



Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
  The Companies
  The Merger
  Owosso Stock Options
  Interests of Certain Persons in the Merger
  Votes Required; Voting Agreements
  Reasons for the Merger
  Recommendations to Owosso Shareholders
  Non-Solicitation Covenant
  Conditions to Completion of the Merger
  Termination of the Merger Agreement
  Termination Fee
  Resale of Allied Motion Common Stock
  Accounting Treatment
  Comparison of Shareholder Rights
  Appraisal Rights
  Tax Consequences
  Certain Historical and Pro Forma Per Share Data
  Comparative Per Share Market Price Information and Dividend Policy
RISK FACTORS
  Risk Factors Relating to the Merger
  Risk Factors Relating to Allied Motion
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
THE OWOSSO SPECIAL MEETING
  Time and Place; Purposes
  Record Date
  Recommendation of the Owosso Board of Directors
  Quorum; Votes Required for Approval
  Voting; Revocation of Proxies
  Persons Making the Solicitation; Solicitation Expenses
  Voting Securities and Principal Holders Thereof
THE MERGER
  Background to the Merger
  Recommendation of the Owosso Board of Directors
  Owosso's Reasons for the Merger
  Allied Motion's Reasons for the Merger
  Material United States Federal Income Tax Consequences
  Appraisal Rights
  Effects on the Market for Owosso Common Stock
  Exchange Act Registration
  Accounting Treatment for the Merger
  Resale of Allied Motion Common Stock
  Leased Employee Agreement
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MATERIAL CONTACTS BETWEEN ALLIED MOTION AND OWOSSO
THE MERGER AGREEMENT
  General Terms of the Merger Agreement
  Treatment of Securities in the Merger
  Exchange of Certificates
  Issuance of Subordinated Notes
 

  Representations and Warranties
  Covenants
  Acquisition Transactions
  Owosso Shareholder Approval
  NASDAQ Quotation
  Indemnification; Insurance
  Employee Matters
  Additional Covenants
  Conditions to the Merger
  Termination of the Merger Agreement; Effects of Termination
  Amendment; Extension; Waiver
  Assignment
  Fees and Expenses
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
INFORMATION ABOUT ALLIED MOTION
  Business
  Properties
  Legal Proceedings
  Comparative Per Share Market Price Information and Dividend Policy
  Allied Motion Selected Historical Consolidated Financial Data
  Management's Discussion and Analysis of Financial Condition and Results of Operations
  Quantitative and Qualitative Disclosures About Market Risk
  Independent Auditors' Report
  Allied Motion Consolidated Balance Sheets
  Allied Motion Consolidated Statements of Operations
  Allied Motion Consolidated Statements of Stockholders' Investment
  Allied Motion Consolidated Statements of Cash Flows
  Allied Motion Notes to Consolidated Financial Statements
  Directors of Allied Motion
  Executive Officers of Allied Motion
  Summary of Compensation of Executive Officers
  Option Grants in Last Fiscal Year
  Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
  Employment Agreements With Executive Officers
  Change in Control Arrangements
  Compensation Committee Interlocks and Insider Participation
  Compensation of Directors
INFORMATION ABOUT OWOSSO CORPORATION
  Business
  Properties
  Legal Proceedings
  Owosso Selected Historical Consolidated Financial Data
  Condensed Consolidated Statements of Operations (Unaudited)
  Condensed Consolidated Balance Sheets (Unaudited)
  Condensed Consolidated Statements of Cash Flows (Unaudited)
  Notes to Condensed Consolidated Financial Statements (Unaudited)
  Independent Auditors' Report
  Owosso Consolidated Statements of Operations
  Owosso Consolidated Balance Sheets
  Owosso Consolidated Statements of Changes in Stockholders' (Deficit) Equity
  Owosso Consolidated Statements of Cash Flows
  Notes to Owosso's Consolidated Financial Statements
  Management's Discussion and Analysis of Financial Condition and Results of Operations
  Quantitative and Qualitative Disclosures About Market Risk
 

COMPOSITION OF THE BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT OF THE SURVIVING CORPORATION
DESCRIPTION OF ALLIED MOTION CAPITAL STOCK
  Authorized Capitalization
  Voting Rights
  Dividends
  Rights Upon Liquidation
  Relationship to Preferred Stock
  Transfer Agent
DESCRIPTION OF THE WARRANTS
  General
  Exercise of Warrants
  No Rights or Obligations As Shareholders
  Adjustments
  Consolidation, Merger, etc.
  Reservation of Common Stock
DESCRIPTION OF THE SUBORDINATED NOTES
  General
  Subordination
  Events of Default
COMPARISON OF SHAREHOLDER RIGHTS
  Corporate Governance
  Authorized Capital Stock
  Board Authority to Issue Capital Stock
  Voting Power of Capital Stock
  Board of Directors
  Shareholder Meetings
  Voting Rights with respect to Extraordinary Corporate Transactions
  Indemnification of Directors, Officers and Employees
  Limitation of Liability of Directors
  Dissenters' and Appraisal Rights
  Payment of Dividends
  Additional Rights of Owosso Preferred Stock Holders
  Business Combinations and Anti-Takeover Provisions
SHAREHOLDER PROPOSALS
WHERE YOU CAN FIND MORE INFORMATION
LEGAL MATTERS
EXPERTS
MISCELLANEOUS
APPENDIX A   Agreement and Plan of Merger, dated as of February 10, 2004, by and among Allied Motion Technologies Inc., AMOT, Inc. and Owosso Corporation.

APPENDIX B

 

Dissenter's Rights Provisions (Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of 1988, as amended).


QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:
What am I being asked to vote on?

A:
Owosso shareholders are being asked to approve and adopt the Agreement and Plan of Merger, dated as of February 10, 2004, by and among Allied Motion, Owosso and AMOT, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of Allied Motion. Under the merger agreement, Owosso would merge with and into AMOT with AMOT surviving the merger as a wholly-owned subsidiary of Allied Motion, as more fully described below in this proxy statement/prospectus.

Q:
What will happen to my shares of Owosso Common Stock and Owosso Preferred Stock after the merger?

A:
Following completion of the merger and in the absence of proper exercise of appraisal rights with respect to your shares of Owosso Common Stock, your shares of Owosso Preferred Stock and Owosso Common Stock will represent solely the right to receive the merger consideration described below, and trading in shares of Owosso Common Stock on the OTC Bulletin Board will cease. Price quotations for Owosso Common Stock will no longer be available, and Owosso will cease filing periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

Q:
Does the Owosso board of directors recommend the approval of the merger agreement?

A:
Yes. The Owosso Board of Directors has unanimously approved the merger and recommends that you vote "FOR" the adoption and approval of the merger agreement. As more fully described in this proxy statement/prospectus, the Owosso board of directors considered many factors in deciding to recommend the adoption and approval of the merger agreement, including the risk of remaining independent and the value of the merger consideration as compared to remaining independent.

Q:
Why has the merger been proposed?

A:
As more fully described in this proxy statement/prospectus, the Owosso Board of Directors has proposed the merger because, in its business judgment, it believes that the merger represents the strategic alternative that is in the best interest of Owosso and is even more favorable to Owosso than Owosso's continuing to operate as an independent company.

Q:
What will I receive in exchange for my shares of Owosso Common Stock and Owosso Preferred Stock?

A:
If you own shares of Owosso Common Stock, you will receive .068 of a share of Allied Motion Common Stock in exchange for each share of Owosso Common Stock owned at the time we complete the merger (unless you properly exercise appraisal rights). If you own shares of Owosso Preferred Stock, in exchange for each share of Owosso Preferred Stock owned at the time we complete the merger you will receive:

    cash in the amount of $.9333,

    .127 of a share of Allied Motion Common Stock, and

    warrants to purchase .28 of a share of Allied Motion Common Stock.

i


Q:
Where will shares of Allied Motion Common Stock be traded?

A:
Allied Motion Common Stock is currently traded on the NASDAQ Small Cap Market under the symbol "AMOT."

Q:
What will happen to my options to purchase shares of Owosso Common Stock?

A:
Prior to the effective time of the merger, Owosso will accelerate the vesting of all outstanding options and, upon consummation of the merger, each option holder will be entitled to receive a payment from Owosso in cash for each vested stock option he or she then holds equal to the excess, if any, of $.30 over the exercise price for each vested stock option. For a more detailed description of the conversion of Owosso stock options in connection with the merger, see the section of this proxy statement/prospectus entitled "The Merger—Stock Options" beginning on page 32.

Q:
What vote of Owosso shareholders is needed to approve and adopt the merger agreement?

A:
At the special meeting, shares of Owosso Common Stock and Owosso Preferred Stock will vote together as a single class, with each share of Owosso Common Stock having one vote and each share of Owosso Preferred Stock having one vote, or one vote for each share of Owosso Common Stock into which each share of Owosso Preferred Stock is then convertible, and the adoption and approval of the merger agreement will require the affirmative vote of at least a majority of such shares cast at the special meeting. In addition, the affirmative vote at the special meeting of a majority of the outstanding shares of Owosso Preferred Stock, voting as a single class, is required to approve and adopt the merger agreement.
Q:
Are the Allied Motion shareholders also required to approve the merger agreement?

A:
Allied Motion has determined that the approval of the merger agreement by its shareholders is not necessary.

Q:
When and where will Owosso hold the special meeting of Owosso shareholders?

A:
Owosso will hold the special meeting of Owosso shareholders at the offices of Pepper Hamilton LLP, 30th Floor, Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania, on April 27, 2004, beginning at 10:00 a.m., local time.

Q:
What rights do I have if I oppose the merger?

A:
You can vote against the merger by indicating a vote against the proposal on your proxy card(s) and signing and mailing your proxy card(s), or by voting against the merger in person at the special meeting. Under Pennsylvania law, dissenting Owosso shareholders have the right to receive the appraised value of their shares of common stock in connection with the proposed merger. For

ii


Q:
Will Owosso shareholders be taxed on the Allied Motion Common Stock that they receive in exchange for their shares of Owosso Common Stock and Owosso Preferred Stock?

A:
Yes. It is intended that the merger constitute a taxable sale of assets and liquidation of Owosso under the Internal Revenue Code, and Allied Motion and Owosso have agreed to treat the merger consistently with this intention for all purposes at all times prior to and following the closing of the transactions contemplated by the merger agreement, unless required to do otherwise by law. For a more detailed description of the tax consequences to you of the merger, see the section of this proxy statement/prospectus entitled "The Merger—Material United States Federal Income Tax Consequences" beginning on page 22.

Q:
What do I need to do now?

A:
After carefully reviewing this proxy statement/prospectus, indicate on your proxy card(s) how you want to vote on the merger agreement. Please note that Owosso is providing separate proxy cards for holders of Owosso Common Stock and Owosso Preferred Stock. If you hold both Owosso Common Stock and Owosso Preferred Stock, please complete and return both of the provided proxy cards. Then sign, date and mail your proxy card(s) in the enclosed return envelope as soon as possible, so that your shares may be represented at the special meeting.
Q:
If my shares of Owosso Common Stock are held in street name by my broker, will my broker automatically vote my shares for me?

A:
No. Your broker will vote your shares only if you provide instructions on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Without instructions, your shares will not be voted on the proposed merger agreement.

Q:
May I change my vote even after submitting a proxy card?

A:
Yes. If you are a holder of record, there are three ways you can change your proxy instructions after you have submitted your proxy card. First, you may send a written notice revoking your proxy to the person to whom you submitted your proxy. Second, you may complete and submit a new proxy card. The latest proxy actually received by Owosso before the special meeting of Owosso shareholders will be counted, and any earlier proxies will be revoked. Third, you may attend the Owosso special meeting and vote in person. Any earlier proxy will thereby be revoked. However, simply attending the meeting without voting will not revoke your proxy.

iii


Q:
What happens if I sell my shares of Owosso Common Stock or Owosso Preferred Stock before the special meeting?

A:
The record date for the Owosso special meeting is earlier than the expected completion date of the merger. If you held your shares of Owosso Common Stock or Owosso Preferred Stock on the record date but have transferred those shares after the record date and before the merger, you will retain your right to vote at the Owosso special meeting but not the right to receive the merger consideration. The right to receive the merger consideration will pass to the person to whom you transferred your shares of Owosso Common Stock or Owosso Preferred Stock.

Q:
Should I send in my Owosso stock certificates now?

A:
No. After the merger is completed, we will send you written instructions for exchanging your Owosso stock certificates.

Q:
When do you expect to complete the merger?

A:
Owosso and Allied Motion are working to complete the merger as quickly as possible. We currently expect to complete the merger in the second quarter of 2004, although we cannot assure you that all conditions to the completion of the merger will be satisfied by then.

Q:
Who should I contact if I have questions about the merger and need additional copies of the proxy statement?

A:
If you have more questions about the merger or would like additional copies of the accompanying proxy statement/prospectus, you should contact:

        Owosso has supplied all information contained in this proxy statement/prospectus relating to Owosso, and Allied Motion has supplied all information contained in this proxy statement/prospectus relating to Allied Motion.

iv



SUMMARY

        The following summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the merger and the merger agreement, you should carefully read this entire document. See the section of this proxy statement/prospectus entitled "Where You Can Find More Information" beginning on page 157.

        Throughout this proxy statement/prospectus when we use the term "we," "us," or "our," we are referring to both Allied Motion and Owosso.


The Companies

Allied Motion Technologies Inc.
23 Inverness Way East, Suite 150
Englewood, CO 80112
Phone: (303) 799-8520

        Allied Motion Technologies Inc. (NASDAQ: AMOT), formerly known as Hathaway Corporation, and which is referred to in this proxy statement/prospectus as Allied Motion, designs, manufactures and sells motor and servo motion products primarily for the Commercial Motor, Industrial Motion Control, and Aerospace and Defense markets. Three companies form the core of Allied Motion: Computer Optical Products, Inc.; Emoteq Corporation; and Motor Products Corporation.

Owosso Corporation
22543 Fisher Road, PO Box 6660
Watertown, NY 13601
Phone: (315) 782-5910

        Owosso Corporation (OTCBB: OWOS.BB), which is referred to in this proxy statement/prospectus as Owosso, conducts business through it sole operating subsidiary, Stature Electric, Inc. Stature Electric, Inc., which is referred to in this proxy statement/prospectus as "Stature", which represents Owosso's historical motors segment, is a custom designer and manufacturer of motors and gear motors, including alternate current (AC), direct current (DC) and universal.

AMOT, Inc.
c/o Allied Motion Technologies Inc.
23 Inverness Way East, Suite 150
Englewood, CO 80112
Phone: (303) 799-8520

        AMOT, Inc., a Pennsylvania corporation, which is referred to in this proxy statement/prospectus as AMOT, is a wholly-owned subsidiary of Allied Motion created solely for the purpose of effecting the merger.


The Merger

        In the merger, Owosso will merge with and into AMOT, with AMOT continuing as the surviving corporation after the merger as a direct or indirect wholly-owned subsidiary of Allied Motion. In the merger, each share of Owosso Common Stock (unless the holder properly exercises appraisal rights) will be converted into the right to receive .068 of a share of Allied Motion Common Stock and each share of Owosso Preferred Stock will be converted into:

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In addition, in the event that the custom motors and gear motors design and manufacturing business currently operated by Stature achieves certain gross revenue during the calendar year ending December 31, 2004, Allied Motion will also issue subordinated promissory notes up to $500,000 on a prorated basis to holders of Owosso Preferred Stock. Any Owosso shareholder entitled to receive a fractional share of Allied Motion Common Stock after giving effect to the conversion of all Owosso shares owned by the shareholder will receive a cash payment instead of the fractional share. In the transaction, Allied Motion expects to issue approximately 532,200 shares of Allied Motion Common Stock, representing approximately 9.6% of the Allied Motion Common Stock outstanding as of February 10, 2004.

        The merger agreement is the legal document that governs the merger and the other transactions contemplated by the merger agreement. We have attached the merger agreement as Appendix A to this proxy statement/prospectus. We urge you to read it carefully in its entirety.


Owosso Stock Options

        Prior to the effective time of the merger, Owosso will accelerate the vesting of all outstanding options and, upon consummation of the merger, each option holder will be entitled to receive a payment from Owosso in cash for each vested stock option he or she then holds equal to the excess, if any, of $.30 over the exercise price for each vested stock option. For a more detailed description of the conversion of Owosso stock options in connection with the merger, see the section of this proxy statement/prospectus entitled "The Merger—Stock Options" beginning on page 32.


Interests of Certain Persons in the Merger

        You should be aware that a number of directors and officers of Owosso have interests in the merger that may be different from, or in addition to, your interests as a shareholder of Owosso. Certain executive officers and directors of Owosso will have a continuing equity interest in Allied Motion following the merger. Further, the directors and officers of Owosso have an interest in continuing rights to liability insurance and indemnification for losses relating to his or her service as an officer or director of Owosso before the merger. For a more detailed description of the interests of certain persons in the merger, see the section of this proxy statement/prospectus entitled "Interests of Certain Persons in the Merger" beginning on page 27.


Votes Required; Voting Agreements

        At the special meeting, shares of Owosso Common Stock and Owosso Preferred Stock will vote together as a single class, with each share of Owosso Common Stock having one vote and each share of Owosso Preferred Stock having one vote, or one vote for each share of Owosso Common Stock into which each share of Owosso Preferred Stock is then convertible, and the adoption and approval of the merger agreement will require the affirmative vote of at least a majority of such shares cast at the special meeting. In addition, the affirmative vote at the special meeting of a majority of the outstanding shares of Owosso Preferred Stock, voting as a single class, is required to approve and adopt the merger agreement.

        As of the record date for the special meeting, directors and executive officers of Owosso and their affiliates, as a group, beneficially owned and had the right to vote 2,610,743 shares of Owosso Common Stock and 518,433 shares of Owosso Preferred Stock, representing an aggregate of approximately 45.4% of the total voting power of the Owosso common shares and Owosso preferred shares entitled to vote at the special meeting, voting together as a single class with the Owosso preferred shares voting on an as-converted basis, and approximately 48.4% of the Owosso Preferred Stock voting as a separate class. Owosso expects the directors and sole executive officer of Owosso and their affiliates to vote their Owosso Common Stock and Owosso Preferred Stock in favor of the approval of the merger agreement.

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        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the merger, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso Preferred Stock, as applicable, in favor of the merger agreement to certain representatives of Allied Motion.


Reasons for the Merger

        The board of directors of Owosso believes that the merger is fair to, and in the best interests of, Owosso and its shareholders. For a description of the factors on which the board of directors based its determination, see the section of this proxy statement/prospectus entitled "The Merger—Owosso's Reasons for the Merger" beginning on page 18.

        The board of directors of Allied Motion believes that the merger is in the best interests of Allied Motion and its shareholders. For a description of the factors on which the board of directors based its determination, see the section of this proxy statement/prospectus entitled "The Merger—Allied Motion's Reasons for the Merger" beginning on page 20.


Recommendations to Owosso Shareholders

        The board of directors of Owosso unanimously approved the merger agreement and the transactions contemplated by the merger agreement, and unanimously recommends that Owosso shareholders vote at the special meeting "FOR" approval of the merger agreement.

        You should refer to the factors considered by the Owosso board of directors in making its decision to approve the merger agreement as described in detail in the sections of this proxy statement/prospectus entitled "The Merger—Recommendation of the Owosso Board of Directors" beginning on page 18 and "The Merger—Owosso's Reasons for the Merger" beginning on page 18.


Non-Solicitation Covenant

        Owosso has agreed in the merger agreement not to initiate, solicit, negotiate, knowingly encourage or provide confidential information to facilitate any proposal or offer to acquire the business, properties or assets of Owosso and its subsidiaries, or capital stock of Owosso or any of its subsidiaries. This covenant is subject to exceptions in connection with unsolicited bona fide written offers for potential or proposed acquisition transactions under specified circumstances, which are described more fully under the section of this proxy statement/prospectus entitled "The Merger Agreement—Covenants—Acquisition Transactions" beginning on page 36.


Conditions to Completion of the Merger

        Owosso and Allied Motion will not complete the merger unless a number of conditions are satisfied or waived, including adoption and approval of the merger agreement by the Owosso shareholders and other closing conditions described more fully under the section of this proxy statement/prospectus entitled "The Merger Agreement—Conditions to the Merger" beginning on page 39.


Termination of the Merger Agreement

        Owosso and Allied may terminate the merger agreement by mutual agreement, and the merger agreement may otherwise be terminated under certain other circumstances described more fully under

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the section of this proxy statement/prospectus entitled "The Merger Agreement—Termination of the Merger Agreement; Effects of Termination" beginning on page 40.


Termination Fee

        Owosso has agreed to pay Allied Motion a fee equal to $500,000 if the merger agreement is terminated under certain circumstances as more fully under the section of this proxy statement/prospectus entitled "The Merger Agreement—Termination of the Merger Agreement; Effects of Termination" beginning on page 40.


Resale of Allied Motion Common Stock

        All of the shares of Allied Motion Common Stock that Owosso shareholders receive in connection with the merger may be sold immediately, subject to certain restrictions imposed under Rule 145 of the Securities Act of 1933 with respect to shares received by affiliates of Owosso.

        In connection with the merger, each of The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese will execute agreements pursuant to which they will agree not to sell any shares of Allied Motion Common Stock for a period of 180 days without the prior written consent of Allied. George Lemmon, Jr. will execute a similar agreement containing a restrictive term of 365 days.


Accounting Treatment

        Allied Motion will account for the merger under the purchase method of accounting in accordance with accounting principles generally accepted in the United States.


Comparison of Shareholder Rights

        Upon the completion of the merger, each Owosso shareholder will become a shareholder of Allied Motion. Colorado law and Allied Motion's certificate of incorporation and bylaws govern the rights of Allied Motion shareholders, which may differ in some respects from Owosso shareholders' rights under Pennsylvania law and Owosso's articles of incorporation and bylaws. For a summary of these material differences, see the discussion under the section of this proxy statement/prospectus entitled "Comparison of Shareholder Rights" beginning on page 147.


Appraisal Rights

        Under Pennsylvania law, holders of Owosso Common Stock will be entitled to appraisal rights. Holders of Owosso Preferred Stock are not entitled to appraisal rights. For a detailed discussion of the appraisal rights of holders of Owosso Common Stock, see the section of this proxy statement/prospectus entitled "The Merger—Appraisal Rights" beginning on page 23.


Tax Consequences

        It is intended that the merger constitute a taxable sale of assets and liquidation of Owosso under the Internal Revenue Code, and Allied Motion and Owosso have agreed to treat the merger consistently with this intention for all purposes at all times prior to and following the closing, unless required to do otherwise by law. For a more detailed description of the tax consequences of the merger, see the section of this proxy statement/prospectus entitled "The Merger—Material United States Federal Income Tax Consequences" beginning on page 22.

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Certain Historical and Pro Forma Per Share Data

        The following table presents historical per share data for Allied Motion as of and for the year ended December 31, 2003, and for Owosso as of and for the year ended October 26, 2003 and as of and for the quarter ended February 1, 2004. The table also presents combined pro forma per share data for Allied Motion and equivalent pro forma per share data for Owosso as of and for the year ended December 31, 2003. The pro forma per share data, which is presented for comparative purposes only, assumes for income statement purposes that the merger had been completed at the beginning of the fiscal period presented and assumes for balance sheet purposes that the merger had been completed on December 31, 2003. The unaudited pro forma per share data does not reflect any payment that may be required to be made in connection with the exercise of dissenters' rights by holders of Owosso Common Stock in connection with the merger. Allied Motion did not declare any cash dividends on its common stock during the periods presented.

        The unaudited comparative per share data does not purport to be, and you should not rely on it as, indicative of:

        It is important that when you read this information, you read along with it the separate financial statements and accompanying notes of Allied Motion and Owosso that are included in this proxy statement/prospectus. It is also important that you read the pro forma combined condensed financial information and accompanying notes included in this proxy statement/prospectus beginning on page 43 under "Unaudited Pro Forma Combined Condensed Financial Statements of Allied Motion."

 
  Allied Motion
Historical Per Share
Data

  Owosso Historical
Per Share Data

  Combined Allied
Motion Pro Forma Per
Share Data

  Owosso Equivalent Pro
Forma Per Share Data(1)

 
Book value per share                          
  December 31, 2003   $ 3.20     N/A   $ 3.46   $ 0.23  
  October 26, 2003     N/A   ($ 0.51 )   N/A     N/A  
  February 1, 2004     N/A   ($ 0.64 )   N/A     N/A  

Earnings (loss) per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 
  Year ended December 31, 2003   $ 0.19     N/A   ($ 0.94 ) ($ 0.06 )
  Year ended October 26, 2003     N/A   ($ 1.00) (2)   N/A     N/A  
  Quarter ended February 1, 2004     N/A   ($ 0.07) (2)   N/A     N/A  

(1)
The Owosso equivalent pro forma per share data was calculated by multiplying the applicable combined Allied Motion pro forma per share data by 0.068, the exchange ratio in the merger.

(2)
Per share data excludes the effect of a preferred stock dividend.


Comparative Per Share Market Price Information and Dividend Policy

        Shares of Allied Motion Common Stock are listed on The NASDAQ Small Cap Market. Shares of Owosso Common Stock are quoted on Over-the-Counter Bulletin Board. On February 9, 2004, the last

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trading day before the announcement of the proposed merger, the Allied Motion Common Stock closed at $4.40 per share, and the Owosso Common Stock closed at $0.06 per share. On March    , 2004, the Allied Motion Common Stock closed at $4.04 per share, and the Owosso Common Stock closed at $0.263 per share. The Owosso Preferred Stock is not listed or quoted on any exchange. For further information, see page 52.

        Allied Motion has not declared or paid cash dividends on shares of Allied Motion Common Stock, and Owosso has not declared or paid cash dividends on shares of Owosso Common Stock or Owosso Preferred Stock. Allied Motion currently intends to retain any future earnings to fund operations and the continued development of its business, and, thus, does not expect to pay any cash dividends on the Allied Motion Common Stock in the foreseeable future. Future cash dividends, if any, will be determined by Allied Motion's Board of Directors and will be based upon Allied Motion's earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors.

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RISK FACTORS

        By receiving Allied Motion Common Stock in connection with the merger, you will be subject to the risks of ownership of that security. Unless the context requires otherwise, the use of the term "combined company" in this proxy statement/prospectus refers to the combined company of Allied and AMOT after giving effect to the merger.


Risk Factors Relating to the Merger

The price of Allied Motion Common Stock following the merger may fluctuate widely and rapidly and prevent shareholders from selling their stock at a profit.

        In the merger, each share of Owosso Common Stock will be converted into the right to receive .068 of a share of Allied Motion Common Stock, and each share of Owosso Preferred Stock will be converted into the right to receive:

Allied Motion and Owosso will not adjust the exchange ratio as a result of any change in the market price of Allied Motion Common Stock between the date of this proxy statement/prospectus and the date the Owosso shareholders receive shares of Allied Motion Common Stock in exchange for shares of Owosso Common Stock or Owosso Preferred Stock. The market price of Allied Motion Common Stock will likely be different, and may be lower, on the date Owosso shareholders receive shares of Allied Motion Common Stock from the market price of shares of Allied Motion Common Stock today.

        Since January 1, 2003 and through March 25, 2004 the market price of Allied Motion Common Stock, has ranged from a low of $1.50 per share to a high of $5.46 per share. Fluctuations may occur, among other reasons, in response to:

        The trading price of Allied Motion Common Stock could continue to be subject to wide fluctuations in response to the factors set forth above and other factors, many of which are beyond Allied Motion's control. The stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. Owosso shareholders are urged to obtain current market quotations for Allied Motion Common Stock and Owosso Common Stock prior to voting to adopt and approve the merger agreement.

Difficulties associated with integrating Allied Motion and Owosso could affect the combined company's ability to realize cost savings.

        Allied Motion and Owosso expect the combined company to realize cost savings and other financial and operating benefits from the merger, but there can be no assurance regarding when or the extent to which the combined company will be able to realize these benefits. There are a number of

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risks and challenges involved with integrating Owosso's business and operations with Allied Motion's businesses, each of which could be difficult to overcome. These risks and challenges include:

        Current and potential employees of Owosso may be unsure about their role following the merger. Other current or potential employees could decide that they do not wish to work for a subsidiary of Allied Motion following completion of the merger. The combination of these two factors could impair the combined company's ability to attract and retain key employees. Difficulties associated with integrating Allied Motion and Owosso would have an adverse effect on the combined company's ability to realize the expected financial and operational benefits of the merger.

The sole executive officer and directors of Owosso have interests in the merger that may differ from the interests of Owosso shareholders generally.

        When you consider the recommendation of Owosso's board of directors to adopt the merger agreement, you should also remember that Owosso's sole executive officer and directors participate in arrangements that provide them with interests in the merger that are different from, or are in addition to, your interests in the merger. These interests include the right of Owosso's directors to indemnification and insurance coverage for acts or omissions occurring before the merger is completed. These interests could make it more likely that Owosso's directors and sole executive officer will support the merger. You should consider carefully whether these interests might have influenced Owosso's directors and sole executive officer to support and recommend the merger and decide for yourself whether the merger is in your best interests.

The sale of a substantial amount of Allied Motion Common Stock after the merger could adversely affect the market price of Allied Motion Common Stock.

        All of the shares of Allied Motion Common Stock that Owosso shareholders receive in the merger may be sold immediately, subject to certain restrictions imposed under Rule 145 of the Securities Act of 1933 with respect to shares received by "affiliates" of Owosso within the meaning of Rule 145. Substantially all of the outstanding shares of Allied Motion Common Stock are freely tradable (subject to certain Rule 144 restrictions in the case of Allied Motion affiliates). The sale of a substantial amount of Allied Motion Common Stock after the merger could adversely affect its market price. It could also impair Allied Motion's ability to raise money through the issuance of more stock or other forms of capital. In addition, the issuance of shares of Allied Motion Common Stock by Allied Motion after the merger could adversely affect its market price.

The merger agreement requires Owosso to pay Allied Motion a termination fee of $500,000 in certain instances, which could deter a third party from proposing an alternative transaction to the merger.

        Under the terms of the merger agreement, Owosso may be required to pay to Allied Motion a termination fee of $500,000 if the merger agreement is terminated under certain circumstances. The effect of this termination fee may discourage competing bidders from presenting proposals to acquire or merge with Owosso that may be more favorable to Owosso and its shareholders than the terms of the merger. For a more complete description of the termination rights of each party and the termination fee payable under the merger agreement, see the section of this proxy statement/prospectus entitled "The Merger Agreement—Termination of the Merger Agreement; Effects of Termination" beginning on page 40. In addition, Owosso will incur significant costs associated with the merger, including legal, accounting, financial printing and financial advisory fees. Many of these fees must be

8



paid regardless of whether the merger is completed. For a more complete discussion regarding the payment of fees associated with the merger, see the section of this proxy statement/prospectus entitled "The Merger Agreement—Fees and Expenses" beginning on page 42.


Risk Factors Relating to Allied Motion

Allied Motion depends on its key personnel.

        Allied Motion is dependent upon the continued contributions of its senior corporate management, particularly Richard Smith, chief executive officer and chief financial officer, Richard Warzala, president and chief operating officer, and certain key employees of Allied Motion for its future success. If Mr. Smith or Mr. Warzala no longer serve in their positions at Allied Motion, Allied Motion's business, as well as the market price of Allied Motion Common Stock, could be substantially adversely affected. Allied Motion cannot assure you that it will be able to retain the services of Mr. Smith or Mr. Warzala or any other members of its senior management or key employees.

Allied Motion may experience operational and financial risks in connection with its acquisitions.

        Allied Motion's future growth may be a function, in part, of acquisitions. To the extent that Allied Motion grows through acquisitions, it will face the operational and financial risks commonly encountered with that type of a strategy. Allied Motion would also face operational risks, such as failing to assimilate the operations and personnel of the acquired businesses, disrupting its ongoing business, dissipating its limited management resources and impairing its relationships with employees and customers of acquired businesses as a result of changes in ownership and management.

Allied Motion has existing debt and refinancing risks that could affect its cost of operations.

        Allied Motion has both fixed and variable rate indebtedness and may incur indebtedness in the future, including borrowings under its existing or new credit facilities, to finance possible acquisitions and for general corporate purposes. As a result, Allied Motion is and expects to be subject to the risks normally associated with debt financing including:


Allied Motion's operating results are likely to fluctuate significantly.

        Allied Motion's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including:

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        As a result of the foregoing and other factors, Allied Motion has and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, operating results and stock price.

Allied Motion's operating results depend in part on its ability to contain or reduce costs.

        Allied Motion's efforts to maintain and improve profitability depend in part on its ability to reduce costs of materials, components, supplies and labor. While the failure of any single cost containment effort by itself would not significantly impact Allied Motion's results, we cannot make any assurances that we will continue to be successful in implementing cost reductions and maintaining a competitive cost structure.


CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS

        This proxy statement/prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For those statements, both Allied Motion and Owosso claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to Allied Motion's and Owosso's anticipated financial performance, business prospects, new developments and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "should," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks" or similar expressions. These forward-looking statements are necessarily estimates reflecting the best judgment of each company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that could have a material adverse effect on the merger and/or on each company's respective businesses, financial condition or results of operations. Other unknown or unpredictable factors also could have material adverse effects on Allied Motion's and Owosso's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this proxy statement/prospectus may not occur. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this proxy statement/prospectus.

        Neither Allied Motion nor Owosso is under any obligation, and neither Allied Motion nor Owosso intends, to make publicly available any update or other revisions to any of the forward-looking statements contained in this proxy statement/prospectus to reflect circumstances existing after the date of this proxy statement/prospectus or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.

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THE OWOSSO SPECIAL MEETING

        This proxy statement/prospectus is furnished to Owosso shareholders in connection with the solicitation of proxies by Owosso's board of directors from the holders of Owosso Common Stock and Owosso Preferred Stock for use at the special meeting of Owosso shareholders. This proxy statement/prospectus is also furnished to Owosso shareholders as a prospectus of Allied Motion in connection with the issuance by Allied Motion of shares of Allied Motion Common Stock and warrants to purchase Allied Motion Common Stock to Owosso shareholders in connection with the merger.

        We are first furnishing this proxy statement/prospectus to Owosso's shareholders on or about March 30, 2004.


Time and Place; Purposes

        Owosso will hold the special meeting on April 27, 2004 at 10:00 a.m., local time, at the offices of Pepper Hamilton LLP, 30th Floor, Two Logan Square, Eighteenth and Arch Streets, Philadelphia, Pennsylvania. At the special meeting (and any adjournment or postponement of the meeting), Owosso common shareholders and Owosso preferred shareholders will be asked to consider and vote upon a proposal to approve and adopt the merger agreement.


Record Date

        The board of directors of Owosso has fixed the close of business on March 26, 2004 as the record date for the determination of the holders of Owosso Common Stock and Owosso Preferred Stock entitled to receive notice of and to vote at the special meeting. Only holders of record of shares of Owosso Common Stock and Owosso Preferred Stock on the record date are entitled to vote at the special meeting. On the record date, there were 5,824,306 shares of Owosso Common Stock outstanding and 1,071,428 shares of Owosso Preferred Stock outstanding.


Recommendation of the Owosso Board of Directors

        The board of directors of Owosso unanimously approved the merger agreement and the transactions contemplated by the merger agreement and declared them advisable, and unanimously recommends that shareholders vote at the special meeting "FOR" approval and adoption of the merger agreement.


Quorum; Votes Required for Approval

        The presence, in person or by proxy, of the holders of a majority of the votes eligible to be cast by the holders of Owosso Common Stock and Owosso Preferred Stock is necessary to constitute a quorum at the special meeting.

        At the special meeting, shares of Owosso Common Stock and Owosso Preferred Stock will vote together as a single class, with each share of Owosso Common Stock having one vote and each share of Owosso Preferred Stock having one vote, or one vote for each share of Owosso Common Stock into which each share of Owosso Preferred Stock is then convertible, and the adoption and approval of the merger agreement will require the affirmative vote of at least a majority of such shares cast at the special meeting. In addition, the affirmative vote at the special meeting of a majority of the outstanding shares of Owosso Preferred Stock, voting as a single class, is required to approve and adopt the merger agreement.

        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso

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Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the merger, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso Preferred Stock, as applicable, in favor of the merger agreement to certain representatives of Allied Motion.

        As of the record date for the special meeting, directors and executive officers of Owosso and their affiliates, as a group, beneficially owned and had the right to vote 2,610,743 shares of Owosso Common Stock and 518,433 shares of Owosso Preferred Stock, representing an aggregate of approximately 45.4% of the total voting power of the Owosso common shares and Owosso preferred shares entitled to vote at the special meeting, voting together as a single class with the Owosso preferred shares voting on an as-converted basis, and approximately 48.4% of the Owosso Preferred Stock voting as a separate class. Owosso expects directors and executive officers of Owosso and their affiliates to vote their Owosso Common Stock and Owosso Preferred Stock in favor of the approval of the merger agreement.


Voting; Revocation of Proxies

        You may cause your Owosso shares to be voted by returning the enclosed proxy card(s) by mail or voting in person at the special meeting. Please note that Owosso is providing separate proxy cards for holders of Owosso Common Stock and Owosso Preferred Stock, and that any shareholder who holds both Owosso Common Stock and Owosso Preferred Stock should receive two different proxy cards, both of which the shareholder will need to complete, sign and return to have all shares of Owosso Common Stock and Owosso Preferred Stock held by such holder represented by proxy at the special meeting. The proxies will vote all shares of Owosso Common Stock and Owosso Preferred Stock represented by properly executed proxy cards received before or at the special meeting, unless revoked, in accordance with the instructions indicated on those proxy cards. If you do not indicate instructions for a proposal on a properly executed and delivered proxy, the proxies will vote the shares covered by the proxy "FOR" the proposal. We urge you to mark your proxy card(s) to indicate how to vote your shares.

        Abstentions may be specified on the proposal. Owosso will count a properly executed proxy marked "ABSTAIN" as present for purposes of determining whether there is a quorum. In the event that you submit a proxy marked "ABSTAIN" with respect to the proposal, your vote will not be taken into consideration and all shares of Owosso Common Stock or Owosso Preferred Stock subject to the proxy will not be counted for purposes of determining the number of votes cast.

        If your shares are held in the name of a bank, broker or a nominee, you should follow the instructions provided by your bank, broker or nominee when voting your shares or when granting or revoking a proxy. Absent specific instructions from you, your broker is not permitted to vote your shares. A "broker non-vote" occurs when a bank, broker or nominee does not vote on a proposal because it does not have discretionary voting power for that proposal and it has not received instructions from the beneficial owner on how to vote on that proposal. Owosso will count broker non-votes as present and represented at the special meeting for purposes of determining a quorum, but the bank, broker or nominee will not vote those shares on any proposal submitted to shareholders.

        If you are a holder of record, you may revoke your proxy at any time before it is voted by:

        Your attendance at the special meeting will not by itself revoke your proxy.

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        Owosso is not aware of any business to be acted on at the special meeting, except as described in this proxy statement/prospectus. If any other matters are properly presented at the special meeting, or any adjournment of the special meeting, the persons appointed as proxies or their substitutes will have discretion to vote or act on the matter according to their best judgment and applicable law.


Persons Making the Solicitation; Solicitation Expenses

        The proxies of the shareholders of Owosso are being solicited by Owosso's board of directors. Owosso will pay its own costs of soliciting proxies and will share equally with Allied Motion the expenses incurred in connection with the printing and mailing of this proxy statement/prospectus. Owosso will also request banks, brokers and other nominees of shares of Owosso's common stock beneficially owned by others to send this proxy statement/prospectus to, and obtain proxies from, the beneficial owners and will, upon request, reimburse the holders for their reasonable expenses in so doing. In addition to this solicitation by mail, officers and regular employees of Owosso may solicit proxies in person or by mail, telephone, facsimile or other means of electronic transmission. We will not pay any additional compensation to directors, officers or employees for such solicitation efforts.

        Owosso shareholders should not send in any stock certificates with their proxy cards. Owosso common shareholders and Owosso preferred shareholders will receive a transmittal letter with instructions for the surrender of their Owosso stock certificates as soon as practicable after completion of the merger.


Voting Securities and Principal Holders Thereof

        The following table sets forth information, as of March 25, 2004, with respect to the beneficial ownership of shares of Owosso Common Stock and Owosso Preferred Stock by each person who is known to Owosso to be the beneficial owner of more than five percent of either class of stock, by each director or nominee for director, by Owosso's sole executive officer, and by all directors and the sole

13



executive officer as a group. Unless otherwise indicated, each person listed has sole voting power and sole investment power over the shares indicated.

 
  Common Stock
  Class A Convertible
Preferred Stock

 
Name(1)

  Amount and
Nature of
Beneficial
Ownership

  Percent of
Class
Outstanding

  Amount and
Nature of
Beneficial
Ownership

  Percent of
Class
Outstanding

  Percent
of Voting
Power

 
Executive Officers and Directors:                      
George B. Lemmon, Jr.   2,455,015 (2) 42.6 %     35.6 %
Harry E. Hill   39,642 (3)   *       *
Lowell P. Huntsinger   7,142 (4)   * 518,433   48.4 % 7.6 %
Eugene P. Lynch   24,142 (5)   *       *
Harry Holiday, III   84,802     *       *
All directors and executive officers as a group (5 persons)   2,610,743 (6) 44.8 % 518,433   48.4 % 45.4 %

Other Shareholders:

 

 

 

 

 

 

 

 

 

 

 
John R. Reese
c/o Lazard Asset Management LLC
30 Rockefeller Plaza
New York, NY 10112-6300
  524,602 (7) 9.0 %     7.6 %
Morris R. Felt
34348 NYS Route 12
Clayton, NY 13624
      * 259,216   24.2 % 3.8 %
Randall V. James
11620 Court of Palms
Unit 204
Ft. Myers, FL 33908
  16,090     * 293,779   27.4 % 4.5 %
John F. Northway, Sr. Trust,
U/A/D July 23, 1984
1150 Cleveland Street
Clearwater, FL 33755
  687,949 (8) 11.8 %     10.0 %
Innisfree Capital, L.L.C.
324 East 50th Street
New York, NY 10022
  549,600 (9) 9.4 %     8.0 %

*
Less than 1%

(1)
Unless otherwise indicated, the address of each person named in the table is: c/o Owosso Corporation, 22543 Fisher Road, P.O. Box 6660, Watertown, New York 13601. In connection with the merger agreement, the John F. Northway, Sr. Trust and each of Messrs. Lemmon, Jr., Reese, Huntsinger, Felt and James entered into voting agreements with Allied Motion pursuant to which each agreed to vote such person's shares of Owosso Common Stock or Owosso Preferred Stock, as applicable, in favor of the merger agreement and has granted an irrevocable proxy to vote such person's shares of Owosso Common Stock or Owosso Preferred Stock, as applicable, in favor of the merger agreement to certain representatives of Allied Motion.

(2)
Includes 130,800 shares of Owosso Common Stock purchasable upon the exercise of stock options and 2,090,671 shares of Owosso Common Stock held by a limited partnership of which a limited partnership controlled by Mr. Lemmon is the general partner. 217,538 shares are held by Mr. Lemmon, Jr. jointly with his wife.

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(3)
Includes 13,000 shares of Owosso Common Stock purchasable upon the exercise of stock options. 1,000 shares are held by Mr. Hill as custodian for his children.

(4)
Includes 15,000 shares of Owosso Common Stock purchasable upon the exercise of stock options.

(5)
Includes 11,000 shares of Owosso Common Stock purchasable upon the exercise of stock options. 5,000 shares are deemed to be beneficially owned by Mr. Lynch as a trustee of a trust under which the children of Mr. Lemmon, Jr. are beneficiaries.

(6)
Includes 233,800 shares of Owosso Common Stock purchasable upon the exercise of stock options.

(7)
12,000 shares are deemed to be beneficially owned by Mr. Reese as trustee under a trust under which his family members are beneficiaries. 512,602 shares are held by Mr. Reese jointly with his wife.

(8)
All of these shares are held by the Northway Family Limited Partnership, of which John F. Northway, Sr. Trust is the General Partner. The Trustees of the John F. Northway, Sr. Trust are First National Trust Company of Florida and Martha Johnson. As Co-Trustees, First National Trust Company of Florida and Martha Johnson may be deemed to be beneficial owners.

(9)
Information with respect to beneficial ownership is based upon information furnished by the shareholder pursuant to Schedule 13G/A filed with the SEC, dated February 21, 2003. Innisfree Capital L.L.C. reports shared voting power and shared dispositive power. The shares are owned directly by Innisfree Partners, L.P., a Delaware limited partnership ("IP"). They are also beneficially owned by Innisfree Capital, L.L.C., a Delaware limited liability company ("IC"), which serves as the general partner and investment manager of IP, and by James B. Dinneen, Jr., who is the managing member of IC.

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THE MERGER

        This section of the proxy statement/prospectus describes certain aspects of the merger agreement and the proposed merger. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this proxy statement/prospectus and is incorporated herein by reference. We urge you to read the merger agreement carefully in its entirety.


Background to the Merger

        In 1998, Owosso formulated a long-term plan to concentrate on value-added components for industry. In connection with its implementation of that plan, Owosso began a series of divestitures beginning with the sale of the four businesses comprising its historical Agricultural Equipment segment. The sale of the last of those businesses was completed in January 2001 with the divestiture of Sooner Trailer Manufacturing Company. During that time, however, Owosso experienced a significant downturn in its operating results, and at the end of fiscal 2000 was out of compliance with various covenants under its bank credit facility.

        In March 2001, the Owosso board of directors formed a special committee for the purpose of evaluating the merits of a possible sale of the Company, a refinancing of the Company's existing debt and preferred stock, and to explore the possibility of other strategic alternatives designed to enhance shareholder value. The special committee began discussing these alternatives with Banc of America Securities LLC, which is sometimes referred to in this proxy statement/prospectus as "BOA", an investment banking firm familiar with Owosso and the industry in which it operates. As part of its efforts to gauge and solicit interest in the business of Owosso, BOA arranged introductory investment conferences between Owosso and certain potential buyers.

        These preliminary meetings and subsequent contacts resulted in several prospective buyers expressing interest in purchasing either Owosso's Coils segment or Owosso's Motors segment. However, none of the prospective buyers expressed an interest in purchasing Owosso's entire business. After analyzing the offers received by the various potential buyers solicited by BOA, Owosso's board of directors determined that it was in the best interest of the company to discontinue discussions regarding a potential sale transaction at that time.

        Throughout fiscal 2001, Owosso remained out of compliance with financial covenants, including maintenance of minimum operating profit, under its bank credit facility. As a result, Owosso and its lenders entered into a series of amendments to the facility, and in each case Owosso's lenders agreed to forebear from exercising their rights and remedies under the facility.

        In order to meet the lenders' requirements for reduced outstanding balances and to secure the lenders' agreement to forebear, Owosso engaged in a series of divestitures of its operating subsidiaries. On October 26, 2001, Owosso completed the sale of the assets of the remaining businesses in its Coils segment. In July, 2002, Owosso sold its Motor Products subsidiaries, Motor Products Owosso Corporation and Motor Products Ohio Corporation, which are referred to collectively in this proxy statement/prospectus as "Motor Products", to Allied Motion. As a result of these transactions, Stature was left as Owosso's lone operating subsidiary.

        At the time of its purchase of Motor Products, Allied Motion expressed an interest in purchasing Stature. Owosso's board of directors determined at that time that it was in the best interest of the company to decline pursuing a potential sale transaction with Allied Motion and instead attempt to refinance Owosso's existing credit facility and develop Owosso independently as the manufacturing markets began to recover from an industry-wide economic decline.

        Following the divestiture of Motor Products through June 2003, Owosso attempted to refinance its credit facility without success. At the same time, Stature's operating results continued to decline. As a

16



result, the Company entered into additional amendments to its credit facility, and in each case Owosso's lenders agreed to continue to forebear from exercising their rights and remedies under the facility despite Owosso's noncompliance with financial covenants.

        During their meeting on June 5, 2003, Owosso's board of directors discussed the viability of Stature and the strategic direction of Owosso in light of the company's inability to refinance its credit facility. Evaluating the company's weakened capital structure and greatly reduced sales base, and recognizing the general loss of Owosso's ability to leverage investment expenses, attract talented management, and compete on a global basis, the board decided that it would be in the best interest of Owosso to explore a potential sale of the company to Allied Motion in order to enhance shareholder value. Following the June 5, 2003 meeting, George B. Lemmon, Jr., the company's President and Chief Executive Officer, initiated telephone conversations with representatives of Allied Motion to ascertain their interest in a possible transaction involving Owosso.

        On July 28, 2003, members of Owosso's board of directors and each of the holders of Owosso preferred shares traveled to Owosso, Michigan to visit with the executive officers of Allied Motion and to visit the facilities of Owosso's former subsidiaries comprising Motor Products. During the visit, the Owosso directors and the Owosso Preferred Stock holders gained a better understanding of Allied Motion's operating strategy and philosophies as well as the changes that had been implemented at Motor Products since its acquisition by Allied Motion. The group of Owosso directors present were enthusiastic about Allied Motion's operating approach, its executive management team and the changes that had been implemented at Motor Products. The group felt that Owosso and Stature would achieve better future growth as a part of Allied Motion rather than on a stand-alone business, and recommended to the full Owosso board that the company pursue discussions with Allied Motion regarding a potential sale transaction. Subsequent to the July 28, 2003 meeting, George B. Lemmon, Jr. and certain executive officers of Allied Motion began discussions regarding the terms of a potential sale transaction.

        The tentative terms of a proposed sale transaction were submitted to Owosso's board of directors for consideration during special meetings held via teleconference on August 19 and 22, 2003. At the August 22, 2003 meeting, the tentative terms were approved and the board authorized Owosso's management to negotiate a definitive agreement between the parties.

        On August 28, 2003, Owosso and Allied Motion signed a non-binding letter of intent in which it was agreed that Allied Motion would acquire Owosso in a merger transaction. The letter of intent also granted Allied Motion an exclusive period in which to conduct due diligence and negotiate and sign a definite merger agreement with Owosso. On October 17, 2003, prior to the end of the period of exclusivity, Allied Motion informed Owosso that it would not be able to complete the transaction under the terms outlined in the letter of intent as a result of the findings produced by their due diligence investigation.

        On November 17, 2003, after several weeks of discussions and negotiations, Owosso and Allied Motion signed a new non-binding letter of intent, which did not include any term of exclusivity, superseding the letter of intent dated August 28, 2003 and outlining revised terms and conditions relating to a potential merger transaction.

        Between November 17, 2003 and February 9, 2004, Owosso, directly and through its advisors, continued negotiations with Allied Motion to finalize the terms of a definitive merger agreement. During this time, Owosso received indications of interest from multiple third parties regarding a potential purchase of Stature. Owosso's board determined that it would be in the best interest of Owosso to continue negotiations with Allied Motion regarding a sale transaction involving Owosso's entire business rather than to explore a potential sale transaction involving only Stature.

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        On February 9, 2004, the Owosso board of directors held a special meeting to review and discuss the potential transaction with Allied Motion and the terms and conditions of the merger agreement. After considering the terms of the proposed transaction and considering the advice of its advisors, the Owosso board of directors unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement.

        On February 10, 2004, Allied Motion and Owosso signed the merger agreement, and both parties issued press releases announcing the execution of the merger agreement.


Recommendation of the Owosso Board of Directors

        On February 10, 2004, the Owosso board:

        The board of directors of Owosso unanimously recommends that shareholders vote at the special meeting "FOR" adoption and approval of the merger agreement.


Owosso's Reasons for the Merger

        The Owosso board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. Rather, the directors made their respective determinations based on the totality of the information presented to them, and the judgments of individual members of the board may have been influenced to a greater or lesser degree by different factors. In reaching its determination to recommend that shareholders vote in favor of the merger agreement, the Owosso board consulted with management and its legal counsel and considered the following material factors:

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        In addition to those set forth above, in the course of its deliberations, the Owosso board considered a number of additional factors relevant to the merger, including:

        The potential negative factors the Owosso board considered include:

19


        The Owosso board concluded, however, that many of these risks could be managed or mitigated by Owosso or by the surviving company or were unlikely to have a material effect on the merger or the surviving company, and that, overall, the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger.

        The foregoing discussion of factors considered by the Owosso board is not meant to be exhaustive but includes the material factors considered by the board in approving the merger agreement and the transactions contemplated by the merger agreement and in recommending that shareholders approve the merger agreement.


Allied Motion's Reasons for the Merger

        The board of directors of Allied Motion believes that the merger is fair to and in the best interests of Allied Motion and its shareholders. In reaching this determination, Allied Motion's board consulted with management, as well as its financial advisors, legal counsel and accountants, and considered a number of factors. The material factors considered by Allied Motion's Board in reaching the foregoing conclusions are described below.

        In making its determination with respect to the merger, Allied Motion's board considered the following factors, all of which the board deemed favorable, in approving the merger:

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        Allied Motion's board also considered the following factors, all of which the board considered negative, in its deliberations concerning the merger:


        In the opinion of Allied Motion's board, the factors listed above represent the material potential risks and adverse consequences to Allied Motion's existing shareholders which could occur as a result of the transaction. In considering the merger, the board considered the impact of these risks and consequences on Allied Motion's existing shareholders. In the opinion of the board, however, these

21


potential risks and consequences were outweighed by the potential positive factors considered by the board which are described above. Accordingly, the Allied Motion board voted to approve the merger.


Material United States Federal Income Tax Consequences

        The following is a summary of certain U.S. federal income tax consequences of the merger to the holders of Owosso Common Stock and Owosso Preferred Stock. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended, referred to in this proxy statement/prospectus as the "tax code", applicable Treasury regulations promulgated under the tax code by the Internal Revenue Service, referred to in this proxy statement/prospectus as the "IRS", and rulings and judicial interpretations of the IRS, all as in effect as of the date of this proxy statement/prospectus and all of which are subject to change occurring after this date, possibly with retroactive effect. There can be no assurance that future legislative, judicial or administrative action will not affect the accuracy of the statements or conclusions in this joint proxy statement/prospectus.

        This summary does not address all the U.S. federal income tax considerations that may be relevant to Owosso shareholders, particularly holders subject to special treatment under the tax code, including without limitation, persons who are dealers in securities, who are subject to the alternative minimum tax provisions of the tax code, who are foreign persons, insurance companies, tax-exempt organizations, financial institutions, or broker-dealers, who hold their shares as part of a hedge, straddle, conversion or other risk-reduction transaction, or who acquired their shares in connection with the exercise of employee stock options or otherwise as compensation.

        The following summary does not address the tax consequences of the merger under foreign, state or local tax laws.

        Unlike many mergers involving a stock for stock exchange, the exchange of Allied Motion Common Stock for Owosso Common Stock pursuant to the terms of the merger agreement will be a taxable transaction for federal income tax purposes.

        A shareholder of Owosso who exchanges Owosso Common Stock for Allied Motion Common Stock pursuant to the merger will recognize gain or loss equal to the difference between:

Gain or loss must be determined separately for each block of Owosso Common Stock surrendered pursuant to the merger. For purposes of federal tax law, a block consists of shares of Owosso Common Stock acquired by the shareholder at the same time and price. An Owosso shareholder who exercises dissenters' rights of appraisal and who receives a cash payment for his or her shares of Owosso stock pursuant to the Pennsylvania statute governing such rights will be treated as having received such payment in redemption of such stock. Such redemption will be subject to the conditions and limitations of Section 302 of the Internal Revenue Code.

        A shareholder of Owosso who exchanges Owosso Preferred Stock pursuant to the merger will recognize gain or loss equal to the difference between:

22


        Gain or loss recognized by an Owosso shareholder exchanging his or her Owosso Common Stock or Owosso Preferred Stock pursuant to the merger agreement or exchanging Owosso Common Stock pursuant to the exercise of dissenters' rights of appraisal will be capital gain or loss if such Owosso Common Stock or Owosso Preferred Stock is a capital asset in the hands of such shareholder. If the Owosso Common Stock or Owosso Preferred Stock has been held for more than one year, the gain or loss will be long-term.

        Neither Owosso nor Allied Motion has requested or will request a ruling from the IRS as to any of the tax effects to Owosso's shareholders of the merger, and no opinion of counsel has been or will be rendered to Owosso's shareholders with respect to any of the tax effects of the merger to Owosso's shareholders.

        An Owosso shareholder may be subject, under some circumstances, to backup withholding at a rate of 28% with respect to the amount of cash, if any, received as a holder of Owosso Common Stock instead of a fraction of a share of Allied Motion Common Stock in the merger and the amount of cash received as a holder of Owosso Preferred Stock, unless the shareholder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with applicable requirements of the backup withholding rules. Any amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the holder's U.S.federal income tax liability, provided the required information is furnished to the IRS.

        Determining the actual tax consequences of the merger to an Owosso shareholder may be complicated. The consequences will depend on the shareholder's specific situation and on variables not within the control of Owosso or Allied Motion.

        The federal income tax discussion set forth above is based upon current law and is intended for general information only. You are urged to consult your tax advisor concerning the specific tax consequences of the merger to you, including the applicability and effect of state, local or other tax laws and of any proposed changes in those tax laws and the Internal Revenue Code.


Appraisal Rights

        Under Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of 1988, holders of shares of Owosso Common Stock have the right to dissent from the merger and obtain a cash payment of the "fair value" of their shares in cash in the event that the merger is consummated. The term "fair value" means the value of a share of Owosso Common Stock immediately before consummation of the merger taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the merger. Neither Allied Motion nor Owosso can assure you as to the

23


methodology a court would use to determine fair value or how a court would select which elements of value are to be included in this determination. The value so determined could be more or less than the consideration to be paid for each share of Owosso Common Stock in the merger. A copy of the applicable statute is included as Appendix B to this proxy statement/prospectus. The following summary of the provisions is qualified in its entirety by reference to Appendix B.

        If you wish to exercise dissenters' rights, you must do all of the following:

        Voting against, abstaining from voting, or failing to vote on the approval and adoption of the merger agreement will not constitute written notice of an intent to demand payment for shares of Owosso Common Stock within the meaning of Subchapter D. You must send a separate, written notice of demand which includes your name, address and telephone number to:

        In the event that, after filing a written notice to demand payment of fair value, you vote for approval and adoption of the merger agreement, or you deliver a proxy in connection with the special meeting that does not specify a vote against, or an abstention from voting on, approval and adoption of the merger agreement, you will have waived your dissenters' rights and will have nullified any written notice of an intent to demand payment that you previously submitted. However, failure to submit a proxy specifying a vote against or abstention from voting on the merger after filing a written notice to demand payment of fair value will not waive your dissenters' rights.

        You may assert dissenters' rights as to less than all of the shares registered in your name only if you dissent with respect to all shares owned by any one beneficial owner and you disclose the name and address of each person on whose behalf you are dissenting. The rights of a partial dissenter are determined as if the shares as to which the record holder dissents and the record holder's remaining shares were registered in the names of different shareholders. A beneficial owner may assert dissenters' rights as to shares held on the beneficial owner's behalf only if the beneficial owner submits to Owosso the record holder's written consents to the dissent no later than the time the beneficial owner asserts his or her dissenters' rights. A beneficial owner may not dissent with respect to less than all shares of the same class or series owned by the beneficial owner, whether or not the shares owned by the beneficial owner are registered in the beneficial owner's name.

        If the merger agreement is approved and adopted, Owosso will deliver a further notice to all holders who have satisfied the foregoing requirements. This notice will instruct the holder on the procedure for obtaining payment and will include a copy of Subchapter D. Failure to strictly follow the procedures set forth in Subchapter D regarding perfection of dissenters' rights may result in a loss of the right to payment.

        The foregoing is only a summary of the rights of a dissenting shareholder of Owosso. If you intend to dissent from the merger, you should carefully review the applicable provisions of Subchapter D and

24



should also consult with your attorney. Your failure to follow precisely the procedures summarized above may result in loss of your dissenters' rights. No additional notice of the events giving rise to dissenters' rights or any steps associated with asserting those rights will be furnished to you, except as indicated above or otherwise required by law.

        Appraisal rights in connection with the merger are not available with respect to shares of Owosso Preferred Stock under Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of 1988.


Effects on the Market for Owosso Common Stock

        Following the merger, we intend to cause the shares of Owosso Common Stock to no longer be quoted on the OTC Bulletin Board. Following this event, shares of Owosso Common Stock will no longer be publicly traded and Owosso will no longer file periodic reports under the Exchange Act.


Exchange Act Registration

        Shares of Owosso Common Stock are currently registered under the Exchange Act. Following the merger, we will file a Form 15 with the SEC requesting the suspension and termination of registration of shares of Owosso Common Stock under the Exchange Act.


Accounting Treatment for the Merger

        Allied Motion will account for the merger under the purchase method of accounting in accordance with accounting principles generally accepted in the United States. Accordingly, the cost to acquire shares of Owosso Common Stock and Owosso Preferred Stock in excess of the carrying value of Owosso's assets and liabilities will be allocated to Owosso's assets and liabilities based on their fair values, with any excess being allocated to goodwill and any identified intangible assets. The determination of asset lives and required purchase accounting adjustments reflected in this document, including the allocation of the purchase price to the assets and liabilities of Owosso based on their respective fair values, is preliminary. For additional information, see the notes accompanying the Unaudited Pro Forma Combined Condensed Financial Statements of Allied Motion contained in this proxy statement/prospectus.


Resale of Allied Motion Common Stock

        Shares of Allied Motion Common Stock issued in connection with the merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares of Allied Motion Common Stock issued to any Owosso shareholder that is, or is expected to be, an "affiliate" of Allied Motion or Owosso for purposes of Rule 145 under the Securities Act (or Rule 144 under the Securities Act in the case of Owosso shareholders, if any, who become affiliates of Allied Motion). Persons that may be deemed to be "affiliates" of Allied Motion or Owosso for these purposes generally include individuals or entities that control, are controlled by, or are under common control with, Allied Motion or Owosso, and will include the directors and the sole executive officer of Owosso. The merger agreement requires Owosso to use its reasonable best efforts to cause each of its affiliates to execute a written agreement with Allied Motion to the effect that such affiliate will not transfer any shares of Allied Motion Common Stock received as a result of the merger, except pursuant to an effective registration statement under the Securities Act or in a transaction not required to be registered under the Securities Act.

        This proxy statement/prospectus does not cover resales of shares of Allied Motion Common Stock received by any person in connection with the merger, and Allied Motion has not authorized any

25



person to make any use of this proxy statement/prospectus in connection with any resale of shares of Allied Motion Common Stock.

Leased Employee Agreement

        Subsequent to the execution of the merger agreement, Allied Motion, Owosso, Stature and Ron Wenzel entered into an agreement pursuant to which Allied Motion agreed to lease Mr. Wenzel to Owosso on an interim basis prior to the effective time of the merger. Under the terms of the agreement, Mr. Wenzel, who was recently hired by Allied Motion to manage Stature after consummation of the merger, will provide executive management services related to the production, marketing and sale of products manufactured by Stature at its Watertown, New York facility. During the term of the agreement, Owosso and Stature are obligated to pay Allied Motion an amount equal to Mr. Wenzel's salary, the cost of his fringe benefits and certain employment related expenses.

        The agreement is terminable at the option of Owosso or Allied Motion. In the event that Allied Motion terminates the agreement, Owosso has the right to elect to extend its term for a period of ninety days by delivering written notice to Allied Motion and Mr. Wenzel.

26




INTERESTS OF CERTAIN PERSONS IN THE MERGER

        In considering the recommendation of Owosso's board of directors with respect to the merger agreement, Owosso's shareholders should be aware that some of Owosso's executive officers, directors and significant shareholders have interests in the merger and have arrangements that are different from, or in addition to, those of Owosso's shareholders generally. These interests and arrangements may create potential conflicts of interest. Owosso's board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decisions to approve the merger agreement and to recommend that Owosso's common and preferred shareholders vote in favor of approving the merger agreement.

Ownership of Directors and Officers

        As of the record date of the special meeting, directors and executive officers of Owosso beneficially owned in the aggregate 2,610,743 shares of Owosso's common stock, representing approximately 44.8% of the outstanding common stock, and 518,433 shares of Owosso Preferred Stock, representing approximately 48.4% of the outstanding preferred stock. Collectively, these Owosso common shares and Owosso preferred shares represented approximately 45.4% of the total voting power of the Owosso common shares and Owosso preferred shares as of the record date for the special meeting, voting together as a single class with the Owosso preferred shares voting on an as-converted basis. For a detailed discussion of Owosso stock held by directors, the sole executive officer and significant shareholders of Owosso, see the section of this proxy statement/prospectus entitled "The Owosso Special Meeting—Voting Securities and Principal Holders Thereof" beginning on page 13.

        Upon completion of the merger, the shares of Owosso Common Stock and Owosso Preferred Stock held by each of the directors and the sole executive officer of Owosso will be converted into shares of Allied Motion Common Stock on the same basis as all other shares of Owosso Common Stock and Owosso Preferred Stock.

Voting Agreements

        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the merger, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso Preferred Stock, as applicable, in favor of the approval and adoption of the merger agreement to certain representatives of Allied Motion.

Insurance; Indemnification

        For a period of not less than one year and not more than three years after the effective time of the merger, Allied Motion will cause to be maintained in effect a directors' and officers' liability insurance policy. Additionally, from and after the effective time of the merger, the surviving corporation will indemnify and hold harmless each present and former director and officer of Owosso or any of its subsidiaries, against any costs (including reasonable attorneys' fees), judgments incurred in connection with any threatened, pending or completed claim, action or suit existing or occurring at or before the effective time. For a more detailed discussion regarding the insurance coverage and indemnification rights to be received by Owosso's directors and officers in connection with the merger, see the section of this proxy statement/prospectus entitled "The Merger Agreement—Indemnification; Insurance" beginning on page 37.

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Salary Continuation Agreement

        On October 1, 2001, Owosso entered into a two-year Executive Salary Continuation Agreement with George B. Lemmon, Jr., Owosso's President and Chief Executive Officer. The initial term of the Agreement but was subsequently extended through July 1, 2004. The agreement provides that after a termination of employment at any time during a change of control period, the agreement will remain in effect until all of the obligations of the parties are satisfied or have expired. In the event of the termination of employment of Mr. Lemmon during the two year period following a change of control, Owosso will pay to Mr. Lemmon, in a lump sum, an amount equal to eighteen months' base salary, the aggregate fair market value of Owosso's common shares subject to all stock options outstanding and unexercised as of the date of termination of employment, whether vested or unvested, granted to Mr. Lemmon, over the aggregate exercise price of all such stock options in respect of which the fair market value exceeds the exercise price, as well as provide certain other benefits, including eighteen months of medical, dental, life and disability benefits. If Mr. Lemmon's employment is terminated other than during the two year period following a change of control, Owosso will pay Mr. Lemmon's base salary for twelve months thereafter as well as provide certain other benefits, including out-placement services and twelve months of medical, dental, life and disability benefits, as long as such termination was not for cause, which is defined as willful misconduct or gross negligence which has had an adverse effect on Owosso's business, operations, assets or properties so as to materially adversely affect the financial condition of Owosso and its subsidiaries taken as a whole.

        In connection with the merger, Mr. Lemmon's Executive Salary Continuation Agreement will be amended to modify the timing (but not the amounts) of payments made under the Agreement.


MATERIAL CONTACTS BETWEEN ALLIED MOTION AND OWOSSO

        Allied and Owosso have had a commercial relationship since July 30, 2002, when Allied acquired 100% of the stock of Motor Products from Owosso.

        Other than contacts relating to the merger agreement and the merger, which are described in the section of this proxy statement/prospectus entitled "Background of the Merger" beginning on page 16, there have been no material contacts between Allied and Owosso since July 30, 2002.

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THE MERGER AGREEMENT

        This section of the proxy statement/prospectus describes certain aspects of the merger agreement and the proposed merger. The following description does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this proxy statement/prospectus and is incorporated in this proxy statement/prospectus by reference. We urge you to read the merger agreement carefully in its entirety.


General Terms of the Merger Agreement

        On February 10, 2004, Allied Motion, Owosso and AMOT entered into the merger agreement. The merger provided for by the merger agreement will become effective upon the filing of a properly executed certificate of merger with the Department of State of the Commonwealth of Pennsylvania in accordance with the Pennsylvania Business Corporation Law. The effective time of the merger is sometime referred to in this proxy statement/prospectus as the "effective time."

        At the effective time, Owosso will be merged with and into AMOT, with AMOT surviving as a direct or indirect wholly-owned subsidiary of Allied Motion, and the separate existence of Owosso will cease. AMOT as it will exist following the completion of the merger is sometime referred to as the "surviving corporation" in this proxy statement/prospectus. At the effective time:

        Prior to the effective time, Stature will merge with and into Owosso.


Treatment of Securities in the Merger

Owosso Common Stock and Preferred Stock

        The merger agreement provides that each share of Owosso Common Stock outstanding immediately prior to the effective time (other than shares as to which appraisal rights have been properly exercised) will at the effective time be converted into the right to receive .068 of a fully paid and nonassessable share of Allied Motion Common Stock (which, together with the cash in lieu of any fractional share of Allied Motion Common Stock described below, we sometimes refer to in this proxy statement/prospectus as the "common merger consideration.") However, any shares of Owosso Common Stock held in the treasury of Owosso or owned by Allied Motion will be cancelled without any payment for those shares.

        In addition, each share of Owosso Preferred Stock outstanding immediately prior to the effective time will, at the effective time, be converted into the right to receive:

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However, any shares of Owosso Preferred Stock held in the treasury of Owosso or owned by Allied Motion will be cancelled without any payment for those shares.

        In the event that the custom motors and gear motors design and manufacturing business currently operated by Stature achieves certain gross revenue during the calendar year ending December 31, 2004, Allied Motion will also issue up to $500,000 in subordinated promissory notes on a prorated basis to holders of Owosso Preferred Stock.

        Allied Motion will not issue any fractional shares of Allied Motion Common Stock in the merger; instead, a cash payment will be made to the holders of shares of Owosso Common Stock and/or Owosso Preferred Stock who would otherwise be entitled to receive a fractional share of Allied Motion Common Stock. For a more detailed discussion regarding the treatment of fractional shares, see the section of this proxy statement/prospectus entitled "The Merger Agreement—Cash Instead of Fractional Shares" beginning on page 31.

        As a result of the merger, all shares of Owosso Common Stock and Owosso Preferred Stock will no longer be outstanding and will be cancelled.

        If, between the date of the merger agreement and the effective time, the outstanding shares of Allied Motion Common Stock or Owosso Common Stock or Owosso Preferred Stock are changed into a different number of shares or a different class by reason of any reclassification, recapitalization, reorganization, split-up, stock dividend (including any dividend or distribution of securities convertible into, or exercisable or exchangeable for, Allied Motion Common Stock or Owosso Common Stock or preferred stock), stock combination, exchange of shares, readjustment or otherwise, then the exchange ratio will be adjusted to preserve the economic effect of the merger to Owosso shareholders.

Appraisal Rights

        Shares of a holder of Owosso Common Stock who has properly demanded appraisal rights will not be converted into common merger consideration unless the holder loses his right to appraisal. Owosso must promptly notify Allied Motion of any demands for appraisal of shares and Allied Motion is entitled to participate in any negotiations or proceedings with respect to such demands. Owosso may not make any payments or settlement offers with respect to appraisal demands without Allied Motion's prior written consent and Owosso must make any and all payments resulting from such demands out of its own funds. For a more detailed discussion regarding appraisal rights of Owosso Common Stock, see the section of this proxy statement/prospectus entitled "The Merger—Appraisal Rights" beginning on page 23.


Exchange of Certificates

Exchange Agent and Exchange Procedures

        Allied Motion will appoint an exchange agent for purposes of administering the payment of the merger consideration. Prior to the effective time, Allied Motion will deposit with the exchange agent, for the benefit of the holders of shares of Owosso Common Stock and Owosso Preferred Stock, the merger consideration.

        As soon as practicable after the effective time, the exchange agent will mail to each holder of record of an Owosso certificate a letter of transmittal and instructions for exchanging the holder's Owosso certificates for the merger consideration. After receipt of the transmittal forms, each holder of an Owosso Common Stock certificate or an Owosso Preferred Stock certificate will be able to surrender his, her or its certificate to the exchange agent, and the holder will receive in exchange a

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book-entry statement reflecting (or, if requested, certificates representing) that number of whole shares of Allied Motion Common Stock to which the holder is entitled, together with:


In the event of a transfer of ownership of shares of Owosso Common Stock or Owosso Preferred Stock which is not registered on the transfer records of Owosso, a book-entry statement reflecting (or a certificate representing) the proper number of shares of Allied Motion Common Stock, any cash instead of fractional shares of Allied Motion Common Stock and applicable dividends and distributions may be issued and paid to a transferee if the Owosso certificate representing the applicable Owosso shares is presented to the exchange agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. The consideration to be issued in the merger will be delivered by the exchange agent as promptly as practicable following surrender of a Owosso certificate and any other required documents. No interest will be payable on the merger consideration, regardless of any delay in making payments.

Dividends and Other Distributions

        Holders of shares of Owosso Common Stock or Owosso Preferred Stock will not be entitled to receive any dividends or distributions payable by Allied Motion with respect to Allied Motion Common Stock until they exchange their Owosso certificates for shares of Allied Motion Common Stock. After they deliver their Owosso certificates to the exchange agent, those shareholders will receive, subject to applicable law, the amount of dividends or other distributions on Allied Motion Common Stock having a record date after the effective time previously paid and, at the appropriate payment date, the amount of dividends or other distributions on Allied Motion Common Stock with a record date after the effective time and a payment date after the surrender of such Owosso certificates, without interest.

Cash Instead of Fractional Shares

        No fractional shares of Allied Motion Common Stock will be issued upon the surrender of Owosso certificates. No dividend or distribution will relate to any fractional share of Allied Motion Common Stock that would otherwise be issuable in the merger, and those fractional shares of Allied Motion Common Stock will not entitle the owner to any voting rights of a Allied Motion shareholder.

        Holders of shares of Owosso Common Stock or Owosso Preferred Stock otherwise entitled to fractional shares of Allied Motion Common Stock, if any, will receive a cash payment instead of the fractional share of Allied Motion Common Stock they would otherwise be entitled to receive upon surrender of their Owosso certificates. Following completion of the merger, the exchange agent will determine the excess of the number of whole shares of Allied Motion Common Stock delivered to the exchange agent by Allied Motion for distribution to Owosso shareholders over the aggregate number of whole shares of Allied Motion Common Stock to be distributed to Owosso shareholders. The exchange agent will then, on behalf of the former Owosso shareholders, sell the excess shares of Allied Motion Common Stock at the then-prevailing prices on the open market, in the manner provided for in the merger agreement, and make the proceeds available for distribution to the former holders of shares of Owosso Common Stock and/or Owosso Preferred Stock otherwise entitled to fractional shares of Allied Motion Common Stock upon surrender of their Owosso certificates. Allied Motion will pay all commissions, transfer taxes and other associated out-of-pocket transaction costs relating to the sale by the exchange agent of shares of Allied Motion Common Stock.

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Return of Exchange Fund

        Any shares or cash held by the exchange agent on behalf of the former holders of shares of Owosso Common Stock or Owosso Preferred Stock that remains undistributed to the former Owosso shareholders for one year after the effective time will be delivered to Allied Motion and former Owosso shareholders that have not validly exchanged Owosso certificates for the merger consideration will be required to look as a general creditor only to Allied Motion for payment of the merger consideration, subject to applicable law.

        Each of the exchange agent, the surviving corporation and Allied Motion will be entitled to deduct and withhold from the consideration otherwise payable under the merger agreement to any holder of Owosso certificates any amounts that it is required to deduct and withhold with respect to the making of such payments under the Internal Revenue Code and the rules and regulations promulgated under the Internal Revenue Code, or any provisions of state, local or foreign law. To the extent that amounts are so withheld by the exchange agent, the surviving corporation or Allied Motion, the withheld amounts will be treated for all purposes of the merger agreement as having been paid to the holder of the shares of Owosso Common Stock or Owosso Preferred Stock, as the case may be, in respect of which the deduction and withholding was made.

Lost Certificates

        In the event any certificate is lost, stolen or destroyed, the exchange agent will issue in exchange for such lost, stolen or destroyed certificate the applicable merger consideration for which the certificate would have been exchanged under the merger agreement, provided that the person claiming that such certificate was lost, stolen or destroyed makes an affidavit of that fact and, if reasonably required by Allied Motion, posts a bond in such amount as Allied Motion may determine is reasonably necessary as indemnity against any claim that may be made against Allied Motion with respect to such certificate.

Stock Options

        Prior to the effective time, Owosso's Board of Directors must take any and all steps necessary to cancel any outstanding stock options or similar rights. Prior to the effective time of the merger, Owosso will accelerate the vesting of all outstanding options and, upon consummation of the merger, each option holder will be entitled to receive a payment from Owosso in cash for each vested stock option he or she then holds equal to the excess, if any, of $.30 over the exercise price for each vested stock option.


Issuance of Subordinated Notes

        In the event that the custom motors and gear motors design and manufacturing business currently operated by Stature achieves certain gross revenue during the calendar year ending December 31, 2004, Allied Motion will issue up to $500,000 in subordinated promissory notes on a prorated basis to holders of Owosso Preferred Stock.


Representations and Warranties

        In the merger agreement, Owosso and Allied Motion (along with AMOT) made representations and warranties to each other about their respective companies related to, among other things:

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        Owosso also made additional representations and warranties to Allied Motion and AMOT related to state anti-takeover law. Allied Motion and AMOT have also represented and warranted that AMOT is a corporation formed solely for the purpose of consummating the merger and has not engaged in any business activity that was not contemplated in the merger agreement.

        The representations and warranties given by Owosso, Allied Motion and AMOT will not survive completion of the merger.


Covenants

        The merger agreement contains customary covenants as well as specific covenants relating to the conduct of the respective parties' businesses pending completion of the merger.

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Conduct of Business Prior to the Merger

        Owosso agreed that, except as expressly contemplated or permitted by the merger agreement, Owosso and any subsidiary will conduct their businesses in the ordinary course consistent with past practices, and will use their best efforts to:

        In addition, subject to certain exceptions, Owosso has agreed (as to itself and its subsidiaries) that, without Allied Motion's prior written consent, it will not take any of the following actions prior to the completion of the merger:

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        The term "material adverse effect," as used in the merger agreement, refers, with respect to Owosso or Allied Motion, as the case may be, to any change or effect that is or would reasonably be expected to be materially adverse to

except that a material adverse effect will not be deemed to include the impact of any change or effect relating to or arising from the execution, announcement or consummation of the merger agreement and the transactions contemplated by the merger agreement, including any impact on relationships, contractual or otherwise, with customers, suppliers or employees.

        Allied Motion has agreed that, prior to the completion of the merger:

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        In addition, Owosso and Allied Motion have agreed to use their reasonable best efforts until the effective time to ensure the qualification of the merger as a taxable sale of assets and liquidation of Owosso under the Internal Revenue Code.


Acquisition Transactions

        Owosso has agreed to immediately cease any existing discussions or negotiations with any parties (other than Allied Motion) with respect to any offer or other proposal to acquire the business, properties or assets of Owosso and its subsidiaries, or capital stock of Owosso or any of its subsidiaries, in each case whether by merger, purchase of assets, tender offer or otherwise (we refer in this proxy statement/prospectus to a transaction that meets these criteria as an "acquisition transaction").

        If Owosso receives a written proposal to enter into an acquisition transaction prior to the effective time that was not solicited after the date of the merger agreement which the Owosso board of directors or the special committee of the board determines in good faith, after consultation with their legal and financial advisors, is or could reasonably be expected to lead to delivery of a superior proposal, then Owosso may:

        Prior to taking any of these actions, the Owosso board of directors or the special committee of the board must determine that such actions are required, after consulting with and taking into consideration the advice of their legal advisors, to comply with their fiduciary duties to Owosso. Owosso must also notify Allied Motion before it takes any such action, provide copies of any information provided to the person making the acquisition proposal, and enter into a confidentiality and standstill agreement with the person making the acquisition proposal.

        For purposes of the merger agreement, the term "superior proposal" means an acquisition proposal not solicited or encouraged, directly or indirectly, after the date of the merger agreement by Owosso, any of Owosso's representatives or other affiliates and which, in the good faith determination of Owosso's board of directors or the special committee of the board, taking into account, to the extent deemed appropriate by the Owosso board or the special committee, such interests and factors that may be considered under Pennsylvania law and the advice of a financial advisor of nationally recognized reputation, that:

        If the Owosso board or the special committee determines that an acquisition proposal is a superior proposal, then the board or the special committee may do any of the following if they determine, after consulting with and taking into consideration the advice of their legal advisors, that such action is required to comply with their fiduciary duties to Owosso:

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        Prior to taking any of these actions, Owosso must negotiate for not less than five business days with Allied Motion to revise the merger agreement so that the superior proposal is no longer a superior proposal, if Allied Motion so requests.

        As discussed below, Allied Motion and Owosso have the right to terminate the merger agreement if Owosso takes or fails to take certain actions with respect to a superior proposal and under certain other circumstances.


Owosso Shareholder Approval

        Owosso has agreed to use its reasonable best efforts to cause a special meeting of its shareholders to be held as soon as reasonably practicable for the purpose of obtaining the required shareholder approvals of the merger agreement. Owosso's board of directors is required to use its reasonable best efforts to obtain from its shareholders the votes required by Pennsylvania law or Owosso's charter in favor of the approval of the merger agreement and any other related matters required to be approved in connection with the merger, and to recommend to Owosso's shareholders that they so vote at the shareholder meeting or any adjournment or postponement of the meeting. However, Owosso's board of directors will not be required to use its reasonable best efforts to obtain those approvals or to make or continue to make such recommendations if Owosso's board of directors, after having received and considered the advice of, and after consultation with, its independent, outside legal counsel, determines that such action would cause the members of Owosso's board of directors to breach their fiduciary duties under applicable law. Unless the merger agreement is earlier terminated, Owosso is required to submit the merger agreement to its shareholders for approval at a duly held shareholder meeting, whether with or without the recommendation of its board of directors.

        In connection with the merger agreement, each of George B. Lemmon, Jr., The John F. Northway, Sr. Trust, Lowell Huntsinger, Morris R. Felt, Randall V. James and John Reese entered into agreements with Allied Motion pursuant to which they agreed to vote their shares of Owosso Common Stock (representing, in the aggregate, approximately 63.37% of the outstanding shares of Owosso Common Stock) and Owosso Preferred Stock (representing, in the aggregate, 100% of the outstanding shares of Owosso Preferred Stock) in favor of the merger, and have granted an irrevocable proxy to vote their shares of Owosso Common Stock and Owosso Preferred Stock, as applicable, in favor of the merger agreement to certain representatives of Allied Motion. These agreements and the obligations of the shareholders under the agreements will terminate at the effective time of the merger or after the termination of the merger agreement in certain limited circumstances (as described in the section below entitled "Termination of the Merger Agreement; Effects of Termination"), whichever is earlier.


NASDAQ Quotation

        Allied Motion has agreed to use its reasonable best efforts to cause the shares of Allied Motion Common Stock issuable in the merger (including the shares of Allied Motion Common Stock reserved for issuance upon exercise of the warrants given to holders of Owosso Preferred Stock) to be eligible for quotation on the NASDAQ Small Cap Market (or other market or exchange on which Allied Motion Common Stock is then traded or quoted) before the effective time.


Indemnification; Insurance

        For a period of not less than one year and not more than three years after the effective time, Allied Motion will cause to be maintained in effect a directors' and officers' liability insurance policy, underwritten by a reputable insurance company, with policy limits of not less than one million dollars ($1,000,000) and not more than three million dollars ($3,000,000), covering the directors and officer of Owosso.

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        From and after the effective time, the surviving corporation will indemnify and hold harmless each present and former director and officer of Owosso or any of its subsidiaries, determined as of the effective time, against any costs (including reasonable attorneys' fees), judgments incurred in connection with any threatened, pending or completed claim, action or suit existing or occurring at or before the effective time. The surviving corporation will assume all rights of the indemnified parties to indemnification and exculpation from liabilities for acts or omissions occurring at or before the effective time as provided in the respective articles of incorporation or bylaws (or comparable organizational documents) of Owosso or any of its subsidiaries as in effect on the date of the merger agreement. Any indemnification agreements or arrangements of Owosso or any of its subsidiaries provided to Allied Motion prior to the date of the merger agreement will survive the merger and will continue in full force and effect in accordance with their terms. The rights of the indemnified parties under these agreements will not be amended in any manner that would adversely affect those rights, unless the modification is required by law.

        For two years after the effective time, the articles of incorporation and bylaws of the surviving corporation will contain provisions no less favorable to the indemnified parties described above with respect to indemnification and to limitation of certain liabilities of directors and officers than are contained as the date of the merger agreement in Owosso's charter and bylaws, and the certificate of incorporation and bylaws (or comparable organizational documents) of each subsidiary of the surviving corporation will contain the current provisions regarding indemnification of directors and officers. These provisions will not be amended, repealed or otherwise modified in a manner that would adversely affect the rights of the indemnified parties under those instruments.

        In the event that Allied Motion or the surviving corporation or their respective successors or assigns consolidate with or merge into another person and are not the continuing or surviving corporation or entity of such consolidation or merger or transfer or convey all or substantially all of their properties and assets to any person, then Allied Motion and the surviving corporation will ensure that proper provision be made so that the successors and assigns of Allied Motion or the surviving corporation assume the obligations of Allied Motion and the surviving corporation in the merger agreement relating to indemnification of directors and officers of Owosso and its subsidiaries.


Employee Matters

        From and after the effective time, Allied Motion has agreed to cause the surviving corporation to fulfill all employment, bonus, consulting, termination, severance, change in control and indemnification agreements that had been disclosed to Allied Motion as of the date of the merger agreement to which Owosso or any subsidiary was a party. The surviving corporation may amend, suspend or terminate any of these agreements to the extent permitted under the terms of the agreement.

        Allied Motion and the surviving corporation will cause their respective employee benefit and compensation plans that cover any of Owosso's employees who remain employed by the surviving corporation as of the effective time to count service that has been recognized by Owosso and its affiliates, without duplication of benefits, for purposes of determining eligibility to participate and vesting, but not benefit accrual, to the same extent such service was recognized under any similar Owosso benefit plan. However, the obligations of Allied Motion and the surviving corporation described in the previous sentence will not apply to newly established plans for which prior service is not taken into account.

        With respect to benefit plans that would otherwise be applicable to newly hired employees, Allied Motion and the surviving corporation will cause all waiting periods and pre-existing conditions and proof of insurability provisions for all conditions that any Owosso employee who remains employed by the surviving corporation as of the effective time has as of the effective time to be waived for such employee to the same extent such provisions are waived or satisfied under Owosso's benefit plans for

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the year in which the merger occurs. Allied Motion and the surviving corporation will give any Owosso employee who remains employed by the surviving corporation as of the effective time credit, for purposes of Allied Motion's and the surviving corporation's vacation and/or other paid leave benefit programs, for such employee's accrued and unpaid vacation and/or paid leave balance as of the effective time.


Additional Covenants

        Owosso and Allied Motion have agreed to other customary covenants in the merger agreement, relating to, among other matters:


Conditions to the Merger

        The respective obligations of Allied Motion and Owosso to effect the merger are subject to the satisfaction or waiver of a number of customary conditions before completion of the merger, including all of the following:

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        The obligations of Allied Motion to effect the merger are subject to the satisfaction or waiver of a number of additional conditions, including the following:


Termination of the Merger Agreement; Effects of Termination

        The merger agreement may be terminated at any time before the effective time:

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        Owosso agrees to pay to Allied Motion a fee equal to $500,000, as follows:

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        The voting agreements executed in connection with the merger agreement and the obligations of the shareholders under the voting agreements will terminate at the effective time of the merger or the 90th day after the termination of the merger agreement, whichever is earlier. If the merger agreement is terminated as specified in paragraph 3 or paragraph 5 of the list above, the voting agreements and the obligations of shareholders under the voting agreements will terminate immediately.


Amendment; Extension; Waiver

Amendment

        The merger agreement may be amended by Allied Motion and Owosso in a written instrument signed by both parties prior to the effective time. However, after adoption of the merger agreement by Owosso's shareholders, no amendment may be made which by law requires further approval of the shareholders of Owosso without the further approval of Owosso's shareholders.

Extension; Waiver

        At any time prior to the effective time, Allied Motion and Owosso may, in writing, extend the time for the performance of any of the obligations or other acts of the other party, waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement and waive compliance with any of the agreements or conditions contained in the merger agreement. However, after any approval of the transactions contemplated by the merger agreement by Owosso's shareholders, there may not be, without further approval of Owosso's shareholders, any extension or waiver of the merger agreement which reduces the amount or changes the form of the consideration to be delivered to the holders of Owosso securities under the merger agreement, other than as contemplated by the merger agreement.


Assignment

        The merger agreement and any rights, interests or obligations associated with it may not be assigned by any party to the merger agreement without the prior written consent of the other parties to the merger agreement. If consent is provided, the agreement will be binding on any successors and assigns.


Fees and Expenses

        Except as set forth in the section of this proxy statement/prospectus entitled "The Merger Agreement—Termination of the Merger Agreement; Effects of Termination" beginning on page 40, all costs and expenses incurred in connection with the merger agreement and the related transactions will be paid by the party incurring the expenses. However, the costs and expenses of printing and mailing this proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger will be divided equally between Allied Motion and Owosso.

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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS

        The following unaudited pro forma condensed combined consolidated financial statements are presented to show the combination of Allied Motion and Owosso as if they had been combined for the year ended December 31, 2003. The unaudited pro forma combined condensed consolidated financial statements are based on the assumptions set forth in the related notes and should be read in conjunction with the separate historical consolidated financial statements of Allied Motion and Owosso and related notes thereto.

        Allied Motion's most recent fiscal year end is December 31, 2003, while Owosso's most recent fiscal year end is October 26, 2003. The unaudited pro forma condensed combined consolidated statement of operations for the year ended December 31, 2003 includes Allied Motion for the year ended December 31, 2003 and Owosso for the year ended October 26, 2003 with pro forma adjustments for acquisition debt and allocation of purchase price. The unaudited pro forma condensed combined consolidated balance sheet as of December 31, 2003 is presented as if the acquisition of Owosso had occurred on December 31, 2003 and combines Allied Motion's balance sheet as of December 31, 2003 with Owosso's balance sheet as of February 1, 2004, the date of Owosso's most recently completed fiscal quarter.

        The unaudited pro forma condensed combined financial statements give effect to:

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        In accordance with Statement of Financial Accounting Standards No. 141 "Business Combinations" (SFAS 141), the acquisition of Owosso will be recorded as a purchase for accounting purposes. The preliminary adjustments to net assets and goodwill which are shown in these unaudited condensed combined pro forma financial statements are based upon Allied Motion's current estimates. Allied Motion is in the process of obtaining valuations for inventory, property, plant and equipment and intangibles related to trade name and customer lists which could modify the amounts to be recorded as part of the acquisition.

        The pro forma adjustments do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma adjustments also do not give effect to the pro rata effect of the issuance of up to an additional $500,000 of subordinated promissory notes if Owosso's revenues for the year ending December 31, 2004 are between $18,370,000 and $19,600,000.

        The historical and pro forma loss from continuing operations for Owosso included in these pro forma condensed combined consolidated financial statements for the year ended December 31, 2003 includes an impairment of goodwill for Owosso in the amount of $5,331,000.

        The pro forma financial information is for informational purposes only and does not purport to present what the Company's results would actually have been had these transactions actually occurred on the dates presented or to project the combined company's results of operations or financial position for any future period.

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ALLIED MOTION TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS

(In thousands, except per share data)

 
  Historical
For the Year Ended

   
   
 
 
  December 31,
2003
Allied Motion

  October 26,
2003
Owosso

  Pro Forma
Adjustments

  Pro Forma
 
Revenues   $ 39,434   $ 17,715   $   $ 57,149  
Cost of products sold     29,167     14,374     490   (a)   44,031  
   
 
 
 
 
Gross margin     10,267     3,341     (490 )   13,118  
Operating costs and expenses:                          
  Selling     2,022     711         2,733  
  General and administrative     4,596     2,594         7,190  
  Engineering and development     1,853     176         2,029  
  Amortization of intangibles and other     526     400     (25) (a)   901  
  Goodwill impairment expense         5,331         5,331   (b)
   
 
 
 
 
Total operating costs and expenses     8,997     9,212     (25 )   18,184  
   
 
 
 
 
Operating income (loss)     1,270     (5,871 )   (465 )   (5,066 )
Other income (expense), net     (303 )   (586 )   62   (c)   (827 )
   
 
 
 
 
Income (loss) before income taxes     967     (6,457 )   (403 )   (5,893 )
Benefit (provision) for income taxes     (19 )   604     153   (d)   738  
   
 
 
 
 
Income (loss) from continuing operations   $ 948   $ (5,853 ) $ (250 ) $ (5,155 )
   
 
 
 
 
Basic income (loss) per share from continuing operations   $ 0.19               $ (0.94 )
   
             
 
Diluted income (loss) per share from continuing operations   $ 0.19               $ (0.94 )
   
             
 
Basic weighted average shares outstanding     4,925                 5,457  
   
             
 
Diluted weighted average shares outstanding     5,061                 5,457  
   
             
 

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ALLIED MOTION TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
BALANCE SHEET

(In thousands)

 
  Historical
   
   
 
 
  December 31,
2003
Allied
Motion

  February 1,
2004
Owosso

  Pro Forma
Adjustments

  Pro Forma
 
ASSETS                          
Current Assets                          
  Cash and cash equivalents   $ 1,960   $ 659   $ 1,315   (e) $ 3,934  
  Trade receivables, net     5,971     2,121         8,092  
  Inventories, net     3,867     1,974         5,841  
  Assets held for sale, net         350     (350 )(f)    
  Deferred income taxes     1,247     240     (240 )(g)   1,247  
  Prepaid expenses and other     592     237         829  
   
 
 
 
 
Total current assets     13,637     5,581     725     19,943  
Property, plant and equipment, net     6,423     4,542     2,450   (h)   13,415  
Goodwill     5,213     3,074     321   (h)   8,608  
Intangible assets     2,224     4,700     (1,700 )(h)   5,224  
Other assets         130         130  
   
 
 
 
 
Total Assets   $ 27,497   $ 18,027   $ 1,796   $ 47,320  
   
 
 
 
 
LIABILITIES & STOCKHOLDERS' INVESTMENT                          
Current Liabilities                          
  Accounts payable   $ 2,230   $ 1,885   $   $ 4,115  
  Accrued liabilities and other     3,504     2,189     471   (i)   6,164  
  Current maturities of capital lease obligations     134             134  
  Debt obligations     1,833     11,161     (11,100 )(j)   1,894  
   
 
 
 
 
Total current liabilities     7,701     15,235     (10,629 )   12,307  
   
 
 
 
 
Long-term debt         85     12,002   (j)   12,087  
Long-term capital lease obligations     345             345  
Common stock put option         600     (600 )(k)    
Deferred income taxes     430     1,446     (1,446 )(g)   430  
Accrued preferred stock dividends         4,379     (4,379 )(k)    
Pension and post-retirement obligations     2,962             2,962  
   
 
 
 
 
Total liabilities     11,438     21,745     (5,052 )   28,131  
   
 
 
 
 
Stockholders' Investment                          
Convertible stock         15,000     (15,000 )(l)    
Common stock     8,383     20,839     (18,434 )(l)   10,788  
Warrants to purchase common stock             725   (l)   725  
Loan receivable from ESOP     (200 )           (200 )
Retained earnings (accumulated deficit)     7,797     (39,557 )   39,557   (l)   7,797  
Cumulative translation adjustment     79             79  
   
 
 
 
 
Total Stockholders' Investment (Deficit)     16,059     (3,718 )   6,848     19,189  
   
 
 
 
 
Total Liabilities & Stockholders' Investment   $ 27,497   $ 18,027   $ 1,796   $ 47,320  
   
 
 
 
 

46



ALLIED MOTION TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

        The accompanying unaudited pro forma condensed combined consolidated financial statements reflect the acquisition of 100% of the common and preferred stock of Owosso Corporation (Owosso) by Allied Motion Technologies Inc. (Allied Motion).

        The accompanying unaudited pro forma condensed combined statements of operations for the year ended December 31, 2003 assumes that the acquisition of Owosso occurred as of January 1, 2003. The accompanying unaudited pro forma combined balance sheet as of December 31, 2003 assumes that the acquisition of Owosso occurred on December 31, 2003.

        The purchase price for the acquisition of Owosso was $15,278,000 which includes assumed debt of $10,148,000, Allied Motion common stock issued of $2,405,000, warrants issued to purchase Allied Motion common stock valued at $725,000, $1,000,000 in cash for all of Owosso's preferred stock and $1,000,000 in closing costs. The valuation of the warrants to be issued is preliminary and based on a Black-Scholes valuation model. Allied Motion intends to engage an independent third party to value these warrants after the closing of the acquisition. This independent valuation could significantly change the final value placed on these warrants. In addition, all Owosso stock options will be vested and cashed out, but because of the current exercise prices, the cash to be paid out is not significant.

Note 2—Pro Forma Adjustments

        The unaudited pro forma condensed combined consolidated financial statements reflect the following pro forma adjustments:

Statement of Operations—

47


Balance Sheet—


Repayment of Owosso debt   $ (5,598,000 )
Repayment Allied Motion debt     (1,833,000 )
Proceeds from new debt agreements     9,431,000  
Payment to Owosso preferred shareholders     (1,000,000 )
Proceeds from sale of building by Owosso     315,000  
   
 
Pro forma adjustment   $ 1,315,000  
   
 

Common stock issued (approximately 532,200 shares at $4.52 per share)   $ 2,405,000  
Fair value of warrants issued (300,000 warrants; exercise price of $4.41)     725,000  
Assumed debt of Owosso     10,148,000  
Cash payment to Owosso preferred shareholders     1,000,000  
Closing costs     1,000,000  
   
 
  Total purchase price     15,278,000  
Less net cash received     (974,000 )
Remaining amounts allocated on a fair value basis to the following:        
  Trade receivables     (2,121,000 )
  Inventories     (1,974,000 )
  Prepaid expenses and other     (237,000 )
  Property, plant and equipment     (6,992,000 )
  Intangible assets     (3,000,000 )
  Other assets     (130,000 )
  Accounts payable     1,885,000  
  Accrued liabilities and other     1,660,000  
   
 
  Goodwill   $ 3,395,000  
   
 

48



 
  Historical
balance

  Repay
  Not
assumed

  New debt
agreements

  Pro forma
balance

  Projected
interest
rate

 
Allied Motion                                    
  Revolving credit   $ 750   $ (750 ) $   $ 5,681   $ 5,681   5.0 %
  Term loan     1,083     (1,083 )       3,000     3,000   7.8 %
  Subordinated notes                 750     750   6.5 %
   
 
                       
    Total Allied Motion   $ 1,833   $ (1,833 )                      
   
 
                       
Owosso                                    
  Revolving credit   $ 4,650   $ (4,650 )                
  Industrial revenue bonds     4,550                 4,550   1.0 %
  Subordinated debt     2,046     (948 )   (1,098 )            
   
 
                       
    Total Owosso   $ 11,246   $ (5,598 )                      
   
 
 
 
 
     
Total debt   $ 13,079   $ (7,431 ) $ (1,098 ) $ 9,431   $ 13,981      
   
 
 
 
 
     

        It is estimated that $12,087,000 of the pro forma debt balance will be long-term and $1,894,000 will be classified as current based on the terms of the new debt agreements.

49



INFORMATION ABOUT ALLIED MOTION

Business

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

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

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

        Emoteq designs, manufactures and markets direct current brushless motors, related components, and drive and control electronics as well as a family of static frequency converters for military and aerospace applications and has extensive experience in power electronics design and software development required for the application of specialized drive electronics technology. Markets served include semiconductor manufacturing, industrial automation, medical equipment, and military and aerospace. Emoteq also manufactures precision direct current fractional horsepower motors and certain motor components and spare parts and replacement equipment for general-purpose instrumentation products. Industrial equipment and military products are the major application for the motors.

        Optical encoders are manufactured by COPI. They are used to measure rotational and linear movements of parts in diverse applications such as printers, sorting machinery, machine tools, robots, medical equipment, tunable lasers and spectrum analyzers. The primary markets for the optical encoders are in the industrial, computer peripheral manufacturing, medical and telecommunications sectors. COPI also designs, manufactures and markets fiber optic-based encoders with special characteristics, such as immunity to radio frequency interference and high temperature tolerance, suited for industrial, aerospace and military environments. Applications include airborne navigational systems, anti-lock braking transducers, missile flight surface controls and high temperature process control equipment.

50



        Motor Products, located in Owosso, Michigan has been a motor producer for more than sixty years and is a vertically integrated manufacturer of customized, highly engineered sub-fractional horsepower permanent magnet DC and brushless DC motors serving a wide range of original equipment applications. The motors are used in HVAC and actuation systems in a variety of markets including trucks, buses, RV's, off-road vehicles, health, fitness, medical and industrial equipment.

        Fiscal Year End Change.    Allied Motion changed its fiscal year end from June 30 to December 31 effective December 31, 2002; and, therefore, Allied Motion reported a six-month transition period ending December 31, 2002. The following table describes the periods presented in this proxy statement/prospectus.

Period:

  Referred to as:
Audited results from January 1, 2003 through December 31, 2003   Year 2003
Unaudited results from January 1, 2002 through December 31, 2002   Twelve Month Comparative Period
Audited results from July 1, 2002 through December 31, 2002   Transition Period
Unaudited results from July 1, 2001 through December 31, 2001   Six Month Comparative Period
Audited results from July 1, 2001 through June 30, 2002   Fiscal Year 2002
Audited results from July 1, 2000 through June 30, 2001   Fiscal Year 2001

        Product Distributions.    Allied Motion maintains a direct sales force. In addition to its own marketing and sales force, Allied Motion has independent sales representatives and agents to sell its various product lines in certain markets.

        Competition.    Allied Motion faces competition in all of its markets, although the number of competitors varies depending upon the product. Allied Motion believes there are numerous competitors in the motion control market. Competition involves primarily product performance and price, although service and warranty are also important.

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

        Availability of Raw Materials.    All parts and materials used by Allied Motion are in adequate supply. No significant parts or materials are acquired from a single source.

        Seasonality of the Business.    Allied Motion's business is not of a seasonal nature; however, revenues may be influenced by customers' fiscal year ends and holiday seasons.

        Working Capital Items.    Allied Motion currently maintains inventory levels adequate for its short-term needs based upon present levels of production. Allied Motion considers the component parts of its different product lines to be readily available and current suppliers to be reliable and capable of satisfying anticipated needs.

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

        Sales Backlog.    Allied Motion's backlog at December 31, 2003 consisted of sales orders totaling approximately $13,383,000 while backlog at December 31, 2002 was $13,663,000. In our commercial

51



motors markets, Allied Motion is experiencing an increased number of its customers going on a "pull system" whereby Allied Motion agrees to maintain available inventory that the customer "pulls" or takes delivery as they need the products. At the time the customer pulls the product, Allied Motion records the order and sale. Approximately 50% of Allied Motion's customers in commercial motors markets were on a pull system in 2003 compared to 35% in 2002. Accordingly, this trend will reduce the amount of backlog since these customers are no longer giving Allied Motion long-term orders that it delivers against over time and, therefore, the amount of backlog compared to prior periods is not necessarily an accurate indication of the future sales of Allied Motion compared to prior periods.

        There can be no assurance that Allied Motion's backlog can be converted into revenue.

        Government Sales.    Approximately $86,000 of Allied Motion's backlog as of December 31, 2003 consisted of contracts with the United States Government. Allied Motion's contracts with the government contain a provision generally found in government contracts that permits the government to terminate the contract at its option. When the termination is attributable to no fault of Allied Motion, the government would, in general, have to pay Allied Motion certain allowable costs up to the time of termination, but there is no compensation for loss of profits.

        Engineering and Development Activities.    Allied Motion's expenditures on engineering and development for Year 2003 were $1,853,000. For the Transition Period, Fiscal Years 2002, and 2001 expenditures for engineering and development from continuing operations were $754,000, $846,000, and $962,000, respectively. Of these expenditures, no material amounts were charged directly to customers.

        Environmental Issues.    No significant pollution or other types of emission result from Allied Motion's operations and it is not anticipated that the Company's proposed operations will be materially affected by Federal, State or local provisions concerning environmental controls. However, there can be no assurance that any future regulations will not affect Allied Motion's operations.

        See "Legal Proceedings" below and Note 8 of the Notes to Consolidated Financial Statements for additional information regarding environmental issues.

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

        Employees.    As of December 31, 2003, Allied Motion had approximately 343 full-time employees.


Properties

        As of December 31, 2003, Allied Motion occupies its administrative offices and manufacturing facilities as follows:

Description / Use

  Location
  Approximate Square Footage
  Owned or
Leased

Corporate headquarters   Englewood, Colorado   3,000   Leased
Office and manufacturing facility   Tulsa, Oklahoma   25,000   Leased
Office and manufacturing facility   Chatsworth, California   22,000   Leased
Office and manufacturing facility   Tulsa, Oklahoma   10,000   Leased
Office and manufacturing facility   Owosso, Michigan   82,500   Owned

        Allied Motion's management believes the above-described facilities are adequate to meet the company's current and foreseeable needs. All facilities described above are operating at less than full capacity.

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Legal Proceedings

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

        Allied Motion is also involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant or "material" adverse effect on Allied Motion's consolidated financial position or results of operations.


Comparative Per Share Market Price Information and Dividend Policy

        The following table sets forth for the calendar quarters indicated the range of the high and low bid information for Allied Motion Common Stock and Owosso Common Stock as quoted on the NASDAQ SmallCap Market. The Owosso Common Stock was de-listed from the NASDAQ SmallCap Market on July 8, 2003 and information presented below for such subsequent periods represent the high and the low over-the-counter market bid quotations for Owosso Common Stock. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 
  Allied Motion Common Stock
  Owosso Common Stock
 
  High
  Low
  High
  Low
2004                        
  Through March 25, 2004   $ 5.46   $ 3.80   $ 0.35   $ 0.06
2003                        
  Fourth Quarter     4.47     3.05     0.12     0.05
  Third Quarter     3.06     1.50     0.21     0.04
  Second Quarter     2.14     1.50     0.58     0.15
  First Quarter     2.11     1.58     0.43     0.22
2002                        
  Fourth Quarter     2.79     1.70     0.66     0.35
  Third Quarter     2.85     2.05     0.80     0.46
  Second Quarter     3.15     2.25     0.80     0.38
  First Quarter     3.00     2.60     0.52     0.23
2001                        
  Fourth Quarter     3.25     1.75     0.83     0.18
  Third Quarter     3.90     2.04     1.09     0.52
  Second Quarter     4.84     3.10     1.37     0.75
  First Quarter     6.94     2.94     1.50     0.94

        On February 9, 2004, the last trading day before we announced the merger, Allied Motion Common Stock closed at $4.40 per share and Owosso Common Stock closed at $0.06 per share. On March 25, 2004, the last practicable trading day before the printing of this proxy statement/prospectus, Allied Motion Common Stock closed at $4.04 per share and Owosso Common Stock closed at $0.263 per share. You may obtain more recent stock price quotes from most newspapers or other financial sources, and we encourage you to do so.

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        As of March 25, 2003, there were approximately 552 holders of record of Allied Motion Common Stock and approximately 114 holders of record of Owosso Common Stock.

        As a result of the merger, there will be no change in the number of shares of Allied Motion Common Stock held by the officers and directors of Allied Motion or any person who is known to be the beneficial owner of more than five percent of Allied Motion's Common Stock. The percentage of present holdings by such officers, directors and more than five percent shareholders will be reduced as a result of the issuance of Allied Motion Common Stock pursuant to the merger and such percentage reduction will be proportional to all other holders of Allied Motion Common Stock.

        Allied Motion has not declared or paid cash dividends on shares of Allied Motion Common Stock, and Owosso has not declared or paid cash dividends on shares of Owosso Common Stock. Allied Motion currently intend to retain any future earnings to fund operations and the continued development of its business, and, thus, does not expect to pay any cash dividends on the Allied Motion Common Stock in the foreseeable future. Future cash dividends, if any, will be determined by Allied Motion's Board of Directors and will be based upon Allied Motion's earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors.

        Equity Compensation Plan.    The following table shows the equity compensation plan information of Allied Motion at December 31, 2003.

Plan category

  Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)

  Weighted-average exercise price of outstanding options, warrants and rights
(b)

  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)

Equity compensation plans approved by security holders   1,323,430   $ 3.00   119,540


Allied Motion Selected Historical Consolidated Financial Data

        The following tables summarize data from Allied Motion's financial statements for the fiscal years 1999 through 2003 and the Transition and Comparative Periods and notes thereto; Allied Motion's complete financial statements and notes thereto are set forth herein.

Statements of Operations Data:

  For the year ended December 31, 2003
  For the Twelve Month Comparative Period ended December 31, 2002
 
 
  In thousands (except per share data)

 
Revenues from continuing operations   $ 39,434   $ 25,046  
   
 
 
Income (loss) from continuing operations   $ 948   $ (59 )
Operating loss from discontinued operations         (735 )
Gain on sale of power and process business, net of income taxes         1,019  
   
 
 
Net income (loss)   $ 948   $ 225  
   
 
 
Diluted income (loss) per share from continuing operations   $ 0.19   $ (0.01 )
   
 
 

54


Statements of Operations Data:

  For the Six Month Transition Period ended December 31, 2002
  For the Six
Month
Comparative
Period ended
December 31,
2001

 
 
  In thousands (except per share data)

 
Revenues from continuing operations   $ 17,191   $ 7,868  
   
 
 
Income from continuing operations   $ 45   $ 60  
Operating loss from discontinued operations     (736 )   (223 )
Gain on sale of power and process business, net of income taxes     1,019      
   
 
 
Net income (loss)   $ 328   $ (163 )
   
 
 
Diluted income per share from continuing operations   $ 0.01   $ 0.01  
   
 
 
Balance Sheet Data:

  At
December 31,
2003

  At
December 31,
2002

Total assets   $ 27,497   $ 28,348
Total current and long-term debt   $ 2,312   $ 4,133
 
  For the fiscal years ended
June 30,

 
Statements of Operations Data:

 
  2002
  2001
  2000
  1999
 
 
  In thousands (except per share data)

 
Revenues from continuing operations   $ 15,723   $ 21,188   $ 18,591   $ 12,980  
   
 
 
 
 
Income (loss) from continuing operations   $ (45 ) $ 2,024   $ 1,918   $ (641 )
Operating income (loss) from discontinued operations     (221 )   (28 )   (443 )   (884 )
   
 
 
 
 
Net income (loss)   $ (266 ) $ 1,996   $ 1,475   $ (1,525 )
   
 
 
 
 
Diluted income (loss) per share from continuing operations   $ (0.01 ) $ 0.42   $ 0.40   $ (0.15 )
   
 
 
 
 
 
  At
June 30,

Balance Sheet Data:

  2002
  2001
  2000
  1999
Total assets   $ 22,629   $ 20,203   $ 19,937   $ 16,398
Total current and long-term debt   $   $ 553   $ 1,546   $ 1,308

55



Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Business

        Allied Motion designs, manufactures and sells motion products to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, and aerospace and defense markets. Allied Motion's products are in use in an ever-greater number of demanding applications in specialty automotive, HVAC, medical, health-fitness, defense, aerospace, semiconductor manufacturing, fiber optic-based telecommunications, printing, and graphic imaging market sectors, to name a few.

        Today, three companies form the core of Allied Motion. The companies, Emoteq, Computer Optical Products and Motor Products offer a wide range of standard motors, encoders and drives for original equipment manufacturers (OEM) and end user applications. A particular strength of each company is its ability to design and manufacture custom motion control solutions to meet the needs of its customers.

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

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

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

Business and Strategy Overview

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

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

56



process includes the development of action plans and a rigorous and regular implementation review process to ensure we achieve the objectives of our Strategic Plan.

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

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

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

        One of our major challenges, and a risk to our business, is to maintain and improve our price competitiveness. Our customers are continually being challenged by their markets and competitors to be price competitive and they are requiring their suppliers to deliver the highest quality product at the lowest price possible. For Allied Motion to continue to be competitive in its markets, we must have the ability to continuously improve our cost of doing business while maintaining and improving the quality and performance of our products. To accomplish this, we have placed significant emphasis on reducing our costs through the implementation of AST, re-designing products and designing new products for cost improvement and manufacturing efficiency, sourcing materials and components from global low cost sources and establishing manufacturing capabilities in low cost regions. The continuous improvement in our cost of doing business is an integral part of our corporate strategy.

Subsequent Acquisition

        On February 10, 2004, Allied Motion signed a merger agreement to acquire Owosso. The closing of the merger is scheduled for the second quarter of 2004. Owosso's sole operating subsidiary, Stature Electric, manufactures fractional and integral horsepower motors, gear motors, and motor part sets. Significant markets for Stature include commercial products and equipment, healthcare, recreation and non-automotive transportation. Stature's component products are sold throughout North America and in Europe, primarily to original equipment manufacturers that use them in their end products.

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        Stature Electric excels at engineering, designing, packaging and applying integrated gearing and motor solutions for the commercial and industrial equipment, healthcare, recreation and non-automotive transportation markets. We utilized the framework of our strategy to ensure Stature Electric and Allied Motion were strategically aligned. The markets they serve and the technology they bring are both extensions of and expansions to our current company know-how.

        The consideration for the merger of $14 million will consist of the issuance of approximately 532,200 shares of Allied Motion common stock representing approximately 9.6% of the outstanding shares of Allied Motion after the merger, $1 million of cash payable to Owosso's preferred shareholders, assumption of $4.6 million of Owosso's debt and approximately $6 million of cash to settle the remainder of Owosso's debt and liabilities at closing. Additional subordinated notes for up to $500,000 may be issued by Allied Motion effective January 1, 2005 payable over five years if Stature achieves certain revenue levels in 2004. In addition, warrants to purchase 300,000 shares of Allied Motion common stock at $4.41 per share will be issued to Owosso's preferred shareholders. Allied Motion has received a commitment from PNC Business Credit and Silicon Valley Bank for up to $18.1 million to complete the acquisition and for working capital needs. The closing of the acquisition is subject to approval by Owosso's shareholders, the effectiveness of a Registration Statement for the Allied Motion common shares to be issued and customary closing conditions.

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

Outlook

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

Operating Results

Year 2003 compared to Twelve Month Comparative Period

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

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Motion's Motion Business. All activities related to the Power and Process segment are excluded from continuing operating results and are included in the results from discontinued operations.

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

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

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

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

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

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

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

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

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

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

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

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

Transition Period compared to Six Month Comparative Period

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

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

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        REVENUES    Revenues were $17,191,000 in the Transition Period compared to $7,868,000 for the Six Month Comparative Period. Included in revenues for the Transition Period are revenues related to Motor Products, which was acquired on July 30, 2002. Exclusive of revenues from Motor Products, revenues increased 3% in the Transition Period over the Six Month Comparative Period due to Allied Motion's success in expanding into new industry sectors including military and automotive applications.

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

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

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

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

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

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

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

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

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in the results of the Transition Period compared to six months results included in the Six Month Comparative Period. The month of July has historically been the least profitable month of each fiscal year.

Fiscal year 2002 compared to Fiscal year 2001

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

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

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

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

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

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

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

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

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

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

        DISCONTINUED OPERATIONS    Discontinued operations had a loss of $221,000 for fiscal year 2002 compared to $28,000 for fiscal year 2001. Included in the results for fiscal year 2002 is a pre-tax charge for litigation settlement and related legal fees of $1,429,000 to settle an environmental contamination lawsuit filed in 2001 pursuant to which Allied Motion was named as a defendant. The lawsuit related to property that was occupied by Allied Motion's Power Business over 37 years ago.

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While Allied Motion believed the suit against Allied Motion was without merit, it agreed to the settlement to eliminate future costs of defending itself and the risks associated with litigation.

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

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

Liquidity and Capital Resources

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

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

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

63



employee benefit stock plans in the Twelve Month Comparative Period. During the Transition Period, besides the line-of-credit activity and term loan payments discussed above, Allied Motion received net proceeds of $271,000 related to the activities of employee benefit stock plans. During fiscal year 2002, $553,000 of cash was used to pay off the line of credit. This was offset by net proceeds from the activities of employee benefit stock plans of $262,000. In fiscal year 2001, Allied Motion made net repayments of $993,000 to the line of credit, offset by $224,000 of cash received from activities of employee benefit stock plans.

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

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

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

        Both loan facilities are secured by all of the assets of Allied Motion. The Agreement prohibits Allied Motion from paying dividends and requires that Allied Motion maintain compliance with certain covenants related to tangible net worth and profitability. At December 31, 2003, Allied Motion was in compliance with all covenants.

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

        In relation to the proposed acquisition of Owosso, Allied Motion has received a commitment from PNC Business Credit and Silicon Valley Bank for up to $18.1 million to complete the acquisition and for working capital needs. The commitment consists of up to $10.5 million of borrowings under a

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revolving line of credit facility, $3.0 million of borrowings under a new term loan agreement and a stand-by letter of credit of up to $4.6 million to collateralize industrial revenue bonds.

Price Levels and the Impact of Inflation

        Prices of Allied Motion's products have not increased significantly as a result of inflation during the past several years, primarily due to competition. The effect of inflation on Allied Motion's costs of production has been minimized through production efficiencies and lower costs of materials. Allied Motion anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates. As Allied Motion's manufacturing activities mainly utilize semi-skilled labor, which is relatively plentiful in the areas surrounding Allied Motion's production facilities, Allied Motion does not anticipate substantial inflation-related increases in the wages of the majority of its employees.

Critical Accounting Policies

        Allied Motion has prepared its financial statements in conformity with accounting principles generally accepted in the United States, and these statements necessarily include some amounts that are based on informed judgments and estimates of management. Allied Motion's significant accounting policies are discussed in Note 1 to the consolidated financial statements. Allied Motion's critical accounting policies are subject to judgments and uncertainties which affect the application of such policies. Allied Motion uses historical experience and all available information to make these judgments and estimates. As discussed below Allied Motion's financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Allied Motion's critical accounting policies include:

        Allied Motion maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance is based on historical experience and judgments based on current economic and customer specific factors. Significant judgments are made by management in connection with establishing our customers' ability to pay at the time of shipment. Despite this assessment, from time to time, Allied Motion's customers are unable to meet their payment obligations. Allied Motion continues to monitor customers' credit worthiness, and use judgment in establishing the estimated amounts of customer receivables which may not be collected. A significant change in the liquidity or financial position of Allied Motion's customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.

        Inventory is valued at the lower of cost or market. Allied Motion monitors and forecasts expected inventory needs based on sales forecasts. Inventory is written down or written off when it becomes obsolete or when it is deemed excess. These determinations involve the exercise of significant judgment by management. If actual market conditions are significantly different than those projected by management the recorded reserve may be adjusted, and such adjustments may have a significant impact on our results of operations. Demand for our products can fluctuate significantly, and in the past we have recorded substantial charges for inventory obsolescence

        Allied Motion records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements, and for operating loss and tax credit carryforwards. Realization of the recorded deferred tax assets is dependent upon Allied Motion generating sufficient taxable income in the appropriate tax jurisdiction in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards. A valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets

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will not be realized. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.

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

Contractual Commitments

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

Year ended December 31,

  Operating
Leases

  Capital
Leases(1)

  Line of
Credit(2)

  Term
Loan(3)

  Litigation
Settlement

  Total
2004   $ 716   $ 166   $ 750   $ 1,083   $ 250   $ 2,965
2005     576     167                 743
2006     432     156                 588
2007     402     57                 459
2008     411                     411
Thereafter     1,769                     1,769
   
 
 
 
 
 
    $ 4,306   $ 546   $ 750   $ 1,083   $ 250   $ 6,935
   
 
 
 
 
 

(1)
The capital lease commitments include amounts representing interest.

(2)
The line of credit Agreement matures on June 30, 2004 but can be extended upon agreement by Silicon.

(3)
The term loan matures the earlier of February 1, 2006 or the date the line-of-credit terminates which is currently June 2004. Assuming Allied Motion's line of credit will be renewed annually, the required principal payments would be $500,000 in 2004, $500,000 in 2005 and $83,000 in 2006. This allows for the term loan to be repaid over a forty-two month period.


Quantitative and Qualitative Disclosures About Market Risk

        Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of Allied Motion due to adverse changes in financial and commodity market prices and rates. The company is exposed to market risk in the areas of changes in United States interest rates and changes in foreign currency exchange rates as measured against the United States dollar. These exposures are directly related to its normal operating and funding activities. Historically, and as of December 31, 2003, the company has not used derivative instruments or engaged in hedging activities.

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Interest Rate Risk

        The interest payable on Allied Motion's line-of-credit is variable based on the prime rate, and, therefore, affected by changes in market interest rates. The line-of-credit matures in June 2004. Allied Motion manages interest rate risk by investing excess funds in cash equivalents bearing variable interest rates that are tied to various market indices. As a result, Allied Motion does not believe that reasonably possible near-term changes in interest rates will result in a material effect on future earnings, fair values or cash flows of the company. A change in the interest rate of 1% on Allied Motion's variable rate debt would have the impact of changing interest expense by approximately $7,500 annually.

Foreign Currency Risk

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

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INDEPENDENT AUDITORS' REPORT

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

        We have audited the accompanying consolidated balance sheets of ALLIED MOTION TECHNOLOGIES INC. (a Colorado corporation) AND SUBSIDIARIES as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' investment and comprehensive income, and cash flows for the year ended December 31, 2003, the six-month period ended December 31, 2002, and for each of the years in the two-year period ended June 30, 2002. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement Schedule II-Valuation and Qualifying Accounts for the year ended December 31, 2003, the six-month period ended December 31, 2002, and for each of the years in the two-year period ended June 30, 2002. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Motion Technologies Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the year ended December 31, 2003, the six-month period ended December 31, 2002, and for each of the years in the two-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

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

    KPMG LLP

Denver, Colorado
February 19, 2004

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ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 
  December 31,
2003

  December 31,
2002

Assets            
Current Assets:            
  Cash and cash equivalents   $ 1,960   $ 1,955
  Current assets of segment held for sale         684
  Trade receivables, net of allowance for doubtful accounts of $106 and $148 at December 31, 2003 and 2002, respectively     5,971     5,481
  Inventories, net     3,867     3,953
  Deferred income taxes     1,247     777
  Prepaid expenses and other     592     846
   
 
Total Current Assets     13,637     13,696
Property, plant and equipment, net     6,423     6,431
Deferred income taxes         480
Goodwill and intangible assets     7,437     7,741
   
 
Total Assets   $ 27,497   $ 28,348
   
 
Liabilities and Stockholders' Investment            
Current Liabilities:            
  Current liabilities of segment held for sale   $   $ 535
  Current maturities of capital lease obligations     134    
  Debt obligations     1,833     4,133
  Accounts payable     2,230     2,375
  Accrued liabilities and other     3,059     2,562
  Income taxes payable     445     713
   
 
Total Current Liabilities     7,701     10,318
Litigation settlement, net of current portion         250
Long-term capital lease obligations, net of current portion     345    
Deferred income taxes     430    
Pension and post-retirement obligations     2,962     2,803
   
 
Total Liabilities     11,438     13,371

Commitments and Contingencies

 

 

 

 

 

 

Stockholders' Investment:

 

 

 

 

 

 
  Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding        
  Common stock, no par value, authorized 50,000 shares; 5,021 and 4,837 shares issued at December 31, 2003 and 2002, respectively     8,383     8,100
  Loan receivable from Employee Stock Ownership Plan     (200 )  
  Retained earnings     7,797     6,849
  Cumulative translation adjustments     79     28
   
 
Total Stockholders' Investment     16,059     14,977
   
 
Total Liabilities and Stockholders' Investment   $ 27,497   $ 28,348
   
 

See accompanying notes to consolidated financial statements.

69



ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 
   
  For the
six-month
period ended
December 31,
2002

  For the fiscal
years ended
June 30,

 
 
  For the
year ended
December 31,
2003

 
 
  2002
  2001
 
Revenues   $ 39,434   $ 17,191   $ 15,723   $ 21,188  
Cost of products sold     29,167     13,169     10,620     13,118  
   
 
 
 
 
Gross margin     10,267     4,022     5,103     8,070  

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 
  Selling     2,022     726     901     1,162  
  General and administrative     4,596     2,217     3,497     3,200  
  Engineering and development     1,853     754     846     962  
  Amortization and other     315     131     5     57  
  Restructuring charges     211              
   
 
 
 
 
Total operating costs and expenses     8,997     3,828     5,249     5,381  
   
 
 
 
 
Operating income (loss)     1,270     194     (146 )   2,689  
Other income (expense), net:                          
  Interest expense     (226 )   (130 )       (82 )
  Other (expense) income, net     (77 )   21     70     15  
   
 
 
 
 
Total other (expense) income, net     (303 )   (109 )   70     (67 )
   
 
 
 
 
Income (loss) before income taxes from continuing operations     967     85     (76 )   2,622  
(Provision) benefit for income taxes     (19 )   (40 )   31     (598 )
   
 
 
 
 
Income (loss) from continuing operations     948     45     (45 )   2,024  
Discontinued Operations                          
Gain on the sale of Power and Process Business, net of tax         1,019          
Operating loss from discontinued operations, net of tax         (736 )   (221 )   (28 )
   
 
 
 
 
Income (loss) from discontinued operations         283     (221 )   (28 )
   
 
 
 
 
Net income (loss)   $ 948   $ 328   $ (266 ) $ 1,996  
   
 
 
 
 
Basic net income (loss) per share:                          
  Income (loss) from continuing operations   $ 0.19   $ 0.01   $ (0.01 ) $ 0.45  
  Income (loss) from discontinued operations         0.06     (0.05 )   (0.01 )
   
 
 
 
 
  Net income (loss) per share   $ 0.19   $ 0.07   $ (0.06 ) $ 0.44  
   
 
 
 
 
Basic weighted average common shares     4,925     4,817     4,644     4,493  
   
 
 
 
 
Diluted net income (loss) per share:                          
  Income (loss) from continuing operations   $ 0.19   $ 0.01   $ (0.01 ) $ 0.42  
  Income (loss) from discontinued operations         0.06     (0.05 )   (0.01 )
   
 
 
 
 
  Net income (loss) per share   $ 0.19   $ 0.07   $ (0.06 ) $ 0.41  
   
 
 
 
 
Diluted weighted average common shares     5,061     4,970     4,644     4,834  
   
 
 
 
 

See accompanying notes to consolidated financial statements.

70



ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
AND COMPREHENSIVE INCOME

(In thousands)

 
  Common Stock
   
   
   
   
 
 
  Loans
Receivable
For Stock

  Retained
Earnings

  Cumulative
Translation
Adjustments

  Comprehensive
Income

 
 
  Shares
  Amount
 
Balances, June 30, 2000   4,460   $ 6,717   $ (235 ) $ 4,791   $ 34        
  Stock transactions under employee benefit stock plans   61     149     75                    
  Tax benefit from disqualifying stock dispositions         178                          
  Shares issued to repurchase subsidiary stock   76     309                          
  Foreign currency translation adjustment                           (186 ) $ (186 )
  Net income                     1,996           1,996  
                               
 
  Comprehensive income                               $ 1,810  
   
 
 
 
 
 
 
Balances, June 30, 2001   4,597     7,353     (160 )   6,787     (152 )      
  Stock transactions under employee benefit stock plans   93     235     27                    
  Tax benefit from disqualifying stock dispositions         223                          
  Reclassification of loan to officer               133                    
  Foreign currency translation adjustment                           324   $ 324  
  Net loss                     (266 )         (266 )
                               
 
  Comprehensive income                               $ 58  
   
 
 
 
 
 
 
Balances, June 30, 2002   4,690     7,811         6,521     172        
  Stock transactions under employee benefit stock plans   131     225                          
  Issuance of restricted stock   16     42                          
  Stock compensation expense         22                          
  Foreign currency translation adjustment                           134   $ 134  
  Net income                     328           328  
  Reclassification adjustment for amounts included in net income                           (278 )   (278 )
                               
 
  Comprehensive income                               $ 184  
   
 
 
 
 
 
 
Balances, December 31, 2002   4,837     8,100         6,849     28        
  Stock transactions under employee benefit stock plans   183     271     (200 )                  
  Issuance of restricted stock   1     3                          
  Stock compensation expense         9                          
  Foreign currency translation adjustment                           51   $ 51  
  Net income                     948           948  
                               
 
  Comprehensive income                               $ 991  
   
 
 
 
 
 
 
Balances, December 31, 2003   5,021   $ 8,383   $ (200 ) $ 7,797   $ 79        
   
 
 
 
 
       

See accompanying notes to consolidated financial statements.

71



ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
   
  For the
six-month
period ended
December 31,
2002

  For the fiscal years ended June 30,
 
 
  For the
year ended
December 31,
2003

 
 
  2002
  2001
 
Cash Flows From Operating Activities:                          
Net income (loss)   $ 948   $ 328   $ (266 ) $ 1,996  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                          
  Depreciation and amortization     1,359     555     754     831  
  Provision for doubtful accounts     47     64     84     150  
  Provision for obsolete inventory     135     128     674     79  
  Accrued litigation settlement and legal fees             1,300      
  Gain on sale of Power and Process Business         (1,699 )        
  Equity income from investments in joint ventures, net of dividends             (159 )   (977 )
  Gain on sale of investment in joint venture             (674 )    
  Deferred income tax provision (benefit)     440     107     (1,135 )   372  
  Other     100     23     247     176  
  Changes in assets and liabilities, net of effects from acquisition and dispositions:                          
    (Increase) decrease in -                          
      Trade receivables     (414 )   1,036     (76 )   12  
      Inventories, net     (74 )   (215 )   (747 )   (530 )
      Prepaid expenses and other     (82 )   (49 )   (290 )   (130 )
    (Decrease) increase in -                          
      Accounts payable     (201 )   (23 )   134     (340 )
      Accrued liabilities and other     (106 )   (1,683 )   706     (824 )
   
 
 
 
 
Net cash provided by (used in) operating activities     2,152     (1,428 )   552     815  
Cash Flows From Investing Activities:                          
  Purchase of property and equipment     (1,113 )   (423 )   (903 )   (908 )
  Payment for the purchase of Motor Products     (300 )   (12,184 )        
  Proceeds from sale of Power and Process Business     649     7,020          
  Changes in restricted cash         510     (120 )   (95 )
  Proceeds from sale of joint venture investment             3,020      
   
 
 
 
 
Net cash (used in) provided by investing activities     (764 )   (5,077 )   1,997     (1,003 )
Cash Flows From Financing Activities:                          
  Borrowings on line-of-credit and term loan         4,000         124  
  Repayments on line-of-credit and term loan     (2,000 )   (167 )   (553 )   (1,117 )
  Proceeds from capital leases     500              
  Repayments on capital leases     (21 )            
  Stock transactions under employee benefit stock plans     74     271     262     224  
   
 
 
 
 
Net cash (used in) provided by financing activities     (1,447 )   4,104     (291 )   (769 )
Effect of foreign exchange rate changes on cash     64     78     109     (60 )
   
 
 
 
 
Net increase (decrease) in cash and cash equivalents     5     (2,323 )   2,367     (1,017 )
Cash and cash equivalents at beginning of period     1,955     4,278     1,911     2,928  
   
 
 
 
 
Cash and cash equivalents at end of period   $ 1,960   $ 1,955   $ 4,278   $ 1,911  
   
 
 
 
 
Supplemental disclosure of cash flow information:                          
Net cash paid (received) during the period for:                          
  Interest   $ 226   $ 128   $ 6   $ 94  
  Income taxes     (254 )       90     179  

See accompanying notes to consolidated financial statements.

72



ALLIED MOTION TECHNOLOGIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Allied Motion Technologies, Inc. is engaged in the business of designing, manufacturing and selling motion control products to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, and aerospace and defense markets. Prior to October 2002, the Company was known as Hathaway Corporation. In connection with the sale of its Power and Process Business (see Note 12), the Hathaway name became the property of the buyers. At the October 2002 Annual Meeting of Stockholders, the stockholders approved an amendment to the Articles of Incorporation changing the Company's name to Allied Motion Technologies Inc.

        On July 30, 2002, the Company purchased 100% of the stock of Motor Products—Owosso Corporation and Motor Products—Ohio Corporation (collectively "Motor Products") from Owosso Corporation, a publicly held corporation, for $11,800,000. Motor Products, located in Owosso, Michigan has been a motor producer for more than fifty years and is a vertically integrated manufacturer of customized, highly engineered sub-fractional horsepower permanent magnet DC and brushless DC motors serving a wide range of original equipment applications. The motors are used in HVAC and actuation systems in a variety of markets including trucks, buses, RV's, off-road vehicles, health, fitness, medical and industrial equipment. The Company acquired Motor Products to further its Motion Strategy. See Note 2 for further information about the acquisition of Motor Products.

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

Period:

  Referred to as:
Audited results from January 1, 2003 through December 31, 2003   Year 2003
Audited results from July 1, 2002 through December 31, 2002   Transition Period
Unaudited results from July 1, 2001 through December 31, 2001   Six Month Comparative Period
Audited results from July 1, 2001 through June 30, 2002   Fiscal Year 2002
Audited results from July 1, 2000 through June 30, 2001   Fiscal Year 2001

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

Revenues   $ 7,868  
Gross margin     2,388  
Operating income     115  
Income from continuing operations     60  
Operating loss from discontinued operations     (223 )
Net loss     (163 )
Basic and diluted income per share from continuing operations     .01  
Basic and diluted net loss per share     (.04 )

73


        The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

        Cash and cash equivalents include instruments which are readily convertible into cash (original maturities of three months or less) and which are not subject to significant risk of changes in interest rates. Cash flows in foreign currencies are translated using an average rate.

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

        Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or market, as follows (in thousands):

 
  December 31, 2003
  December 31, 2002
Parts and raw materials, net   $ 2,205   $ 2,332
Work-in-process, net     1,006     940
Finished goods, net     656     681
   
 
    $ 3,867   $ 3,953
   
 

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

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

 
  Useful
lives

  December 31, 2003
  December 31, 2002
 
Land       $ 150   $ 150  
Building and improvements   39 years     1,511     1,479  
Machinery, equipment, tools and dies   2-8 years     7,800     6,932  
Furniture, fixtures and other   3-10 years     1,484     1,643  
       
 
 
          10,945     10,204  
Less accumulated depreciation and amortization         (4,522 )   (3,773 )
       
 
 
        $ 6,423   $ 6,431  
       
 
 

        Depreciation and amortization expense is provided using the straight-line method over the estimated useful lives of the assets. Amortization of building improvements and leased equipment is provided using the straight-line method over the life of the lease term or the life of the assets,

74



whichever is shorter. Maintenance and repair costs are charged to operations as incurred. Major additions and improvements are capitalized. The cost and related accumulated depreciation of retired or sold property are removed from the accounts and any resulting gain or loss, if any, is reflected in earnings.

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

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

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

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

        The Company reviews the carrying values of its long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Under SFAS No. 144, long-lived assets must be carried at historical cost if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest. However, if projected cash flows are less than their carrying value, even by one dollar, the long-lived assets must be reduced to their estimated fair value. Considerable judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived asset. No impairments of long-lived assets were recorded in year 2003, the Transition Period or in the fiscal years ended June 30, 2002 or 2001.

75



        The Company offers warranty coverage for its products for periods ranging from 12 to 18 months after shipment, with the majority of its products for 12 months. The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs. The assumptions used to estimate warranty accruals are reevaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Estimated warranty costs are recorded at the time of sale of the related product, and are considered a cost of sale. Accrued warranty costs were $185,000 and $212,000 as of December 31, 2003 and 2002, respectively.

        Accrued liabilities consist of the following (in thousands):

 
  December 31, 2003
  December 31, 2002
Compensation and fringe benefits   $ 1,245   $ 1,309
Litigation and legal fees (Note 8)     300     425
Customer deposits     458    
Other accrued expenses     1,056     828
   
 
    $ 3,059   $ 2,562
   
 

        In accordance with SFAS No. 52, "Foreign Currency Translation," the assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars using current exchange rates. Revenues and expenses are translated at average rates prevailing during the period. The resulting translation adjustments are recorded in the other comprehensive income component of stockholders' investment in the accompanying consolidated balance sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

        Engineering and development expenses are expensed as incurred.

        The Company recognizes revenue when products are shipped or delivered (shipping terms may be either FOB shipping point or destination) and title has passed to the customer, persuasive evidence of an arrangement exists, the selling price is fixed or determinable, and collectibility is reasonably assured.

        Basic income (loss) per share from continuing operations is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding. Diluted income or loss per share from continuing operations is determined by dividing the net income or loss by the sum of (1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of stock options determined utilizing the treasury stock method. Outstanding options totaling 136,000, 153,000, and 341,000 had a dilutive effect for year 2003, the Transition Period and fiscal years 2001,

76


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

        Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by and distributions to stockholders. Adjustments for comprehensive income for all years presented are limited to cumulative translation adjustments from the translation of the financial statements of the Company's foreign subsidiaries.

        The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. All options granted under these plans have an exercise price equal to the market value of the underlying common stock on the date of grant and therefore no stock-based compensation cost is reflected in net income (loss), except as discussed in Note 6. Had compensation cost for these plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an Amendment of FASB Statement No. 123", the Company's net income (loss) would have been adjusted to the following amounts (in thousands, except per share data):

 
   
  For the
Transition
Period Ended
December 31,
2002

  For the Fiscal
Years Ended
June 30,

 
  For the
year Ended
December 31,
2003

 
  2002
  2001
Actual net income (loss)   $ 948   $ 328   $ (266 ) $ 1,996
Pro forma net (loss) income   $ 375   $ 71   $ (1,005 ) $ 1,364

Actual basic net income (loss) per share

 

$

0.19

 

$

0.07

 

$

(0.06

)

$

0.44
Pro forma basic net income (loss) per share   $ 0.08   $ 0.01   $ (0.21 ) $ 0.30

Actual diluted net income (loss) per share

 

$

0.19

 

$

0.07

 

$

(0.06

)

$

0.41
Pro forma diluted net income (loss) per share   $ 0.07   $ 0.01   $ (0.21 ) $ 0.28

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

77



        For SFAS No. 123 purposes, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 
   
  For the Transition Period Ended December 31, 2002
   
   
 
   
  For the Fiscal Years Ended June 30,
 
  For the
year Ended December 31, 2003

 
  2002
  2001
Risk-free interest rate   2.9%   3.9%   3.9%   5.9%
Expected dividend yield   0.0%   0.0%   0.0%   0.0%
Expected life   6 years   6 years   6 years   6 years
Expected volatility   102.7%   108.6%   120.7%   89.5%

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

        The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

        The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, trade receivables, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturities of these financial instruments. The carrying amount of the line-of-credit approximates its fair value because the underlying instrument is a variable rate note that reprices frequently. The carrying amount of the term loan approximates its fair value because the fixed interest rate is a current fair market interest rate.

        The current provision for income taxes represents actual or estimated amounts payable or refundable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, and for operating loss and tax credit carryforwards. A valuation allowance may be provided to the extent management deems it is more likely than not that deferred tax assets will not be realized. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income, in the appropriate taxing jurisdictions, during the periods in which temporary differences become deductible. Management believes that it is more

78


likely than not that the Company will realize the benefits of these temporary differences and operating loss and tax credit carryforwards, net of valuation allowances.

        Trade receivables subject the Company to the potential for credit risk. To reduce this risk, the Company performs evaluations of its customers' financial condition and creditworthiness at the time of sale, and updates those evaluations when necessary.

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

2.     MOTOR PRODUCTS ACQUISITION

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

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

        The acquisition was accounted for using the purchase method of accounting, and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based on their respective estimated fair values at the date of acquisition which in part was determined by a third-party appraisal. The net purchase price allocation was as follows (in thousands):

Trade receivables   $ 2,927  
Inventories     2,300  
Other current assets     56  
Property, plant and equipment     5,377  
Amortizable intangible assets     2,670  
Goodwill     4,861  
Accrued liabilities and other current liabilities     (2,937 )
Pension and post-retirement obligations     (2,742 )
   
 
Net purchase price   $ 12,512  
   
 

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

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

        The following presents the Company's unaudited pro forma financial information from continuing operations for the six months ended December 31, 2002 and the fiscal year ended June 30, 2002. The pro forma statements of operations give effect to the acquisition of Motor Products as if it had occurred at July 1, 2001. The pro forma financial information is for informational purposes only and does not purport to present what the Company's results would actually have been had the acquisition actually occurred at the beginning of each fiscal period or to project the Company's results of operations for any future period (in thousands, except per share data).

 
  For the
Transition
Period ended
December 31,
2002

  For the Fiscal
Year ended
June 30,
2002

 
Revenues   $ 19,303   $ 37,746  
Gross margin     4,230     7,973  
Operating income (loss)     108     (163 )
Loss from continuing operations   $ (23 ) $ (243 )
Diluted loss per share from continuing operations   $ .00   $ (.05 )

3.     GOODWILL AND INTANGIBLE ASSETS

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

 
  December 31,
2003

  December 31,
2002

  Estimated
Life

Goodwill   $ 5,213   $ 5,202    
   
 
   
Amortizable intangible assets                
  Customer lists     1,930     1,930   8 years
  Trade name     740     740   10 years
  Accumulated amortization     (446 )   (131 )  
   
 
   
Total intangible assets     2,224     2,539    
   
 
   
Total goodwill and intangible assets   $ 7,437   $ 7,741    
   
 
   

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

Balance as of December 31, 2002   $ 5,202
Goodwill resulting from adjustments to purchase price allocation     11
   
Balance as of December 31, 2003   $ 5,213
   

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

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

4.     DEBT OBLIGATIONS

        Debt obligations consisted of the following (in thousands):

 
  December 31,
2003

  December 31,
2002

 
Line of credit   $ 750   $ 2,250  
Term loan     1,083     1,583  
Note payable related to acquisition of Motor Products         300  
   
 
 
Total     1,833     4,133  
Less current maturities     (1,833 )   (4,133 )
   
 
 
Long-term debt obligations   $   $  
   
 
 

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

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

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

        The loans are secured by all of the assets of the Company. The Agreement prohibits the Company from paying dividends and requires that the Company maintain compliance with certain covenants related to tangible net worth and profitability. At December 31, 2003, the Company was in compliance with all covenants.

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5.     INCOME TAXES

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

 
   
  For the
Transition
Period ended
December 31,
2002

  For the fiscal years ended June 30,
 
 
  For the
year ended
December 31,
2003

 
 
  2002
  2001
 
Domestic   $ 900   $ (287 ) $ (601 ) $ 2,693  
Foreign     67     372     525     (71 )
   
 
 
 
 
(Loss) income before income taxes from continuing operations   $ 967   $ 85   $ (76 ) $ 2,622  
   
 
 
 
 

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

 
   
  For the
Transition
Period ended
December 31,
2002

  For the fiscal years ended June 30,
 
 
  For the
year ended
December 31,
2003

 
 
  2002
  2001
 
Current benefit (provision):                          
  Domestic   $ 441   $ (103 ) $ (310 ) $ (204 )
  Foreign     (20 )   (22 )   (505 )    
   
 
 
 
 
Total current benefit (provision)     421     (125 )   (815 )   (204 )
Deferred benefit (provision)—domestic     (440 )   (107 )   1,135     (372 )
   
 
 
 
 
Benefit (provision) for income taxes   $ (19 ) $ (232 ) $ 320   $ (576 )
   
 
 
 
 

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

 
   
  For the
Transition
Period ended
December 31,
2002

  For the fiscal years ended June 30,
 
 
  For the
year ended
December 31,
2003

 
 
  2002
  2001
 
Tax benefit (provision) on income from continuing operations, computed at statutory rate   $ (328 ) $ (29 ) $ 26   $ (891 )
State tax, net of federal benefit     (88 )   (27 )   20     (87 )
Nondeductible expenses and goodwill amortization     (48 )   (8 )   (31 )   (10 )
Impact of foreign tax rates and credits     3     22          
Adjustments to prior year accruals(1)     144             207  
Prior year state tax refund(2)     298              
Change in valuation allowance                 186  
Other           2     16     (3 )
   
 
 
 
 
Benefit (provision) for income taxes from continuing operations     (19 )   (40 )   31     (598 )
Benefit (provision) for income taxes from discontinued operations         (192 )   289     22  
   
 
 
 
 
Benefit (provision) for income taxes   $ (19 ) $ (232 ) $ 320   $ (576 )
   
 
 
 
 

(1)
Adjustments relate to the successful resolution of certain prior year income tax related issues.

(2)
Refund relates to the realization of a prior year state income tax refund for Motor Products from periods prior to the acquisition.

        The tax effects of significant temporary differences and credit and operating loss carryforwards that give rise to the net deferred tax assets are as follows (in thousands):

 
  December 31,
2003

  December 31,
2002

 
Deferred tax assets:              
  Allowances and other accrued liabilities   $ 597   $ 477  
  Tax credit carryforwards     500     572  
  Net operating loss carryforwards     1,035     665  
  Valuation allowance     (352 )   (424 )
   
 
 
Net deferred tax assets     1,780     1,290  
   
 
 
Deferred tax liability:              
  Property, plant and equipment     (868 )   (5 )
  Intangibles     (95 )   (28 )
   
 
 
  Net deferred tax liability     (963 )   (33 )
   
 
 
Net deferred tax assets   $ 817   $ 1,257  
   
 
 

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

 
  December 31,
2003

  December 31,
2002

Current deferred tax assets   $ 1,247   $ 777
Non-current deferred tax assets         480
Non-current deferred tax liabilities     (430 )  
   
 
Net deferred tax assets   $ 817   $ 1,257
   
 

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

        Realization of the Company's net deferred tax asset is dependent upon the Company generating sufficient taxable income in the appropriate tax jurisdictions in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit carryforwards. The Company has recorded a valuation allowance due to the uncertainty related to the realization of certain deferred tax assets existing at December 31, 2003. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed. Management believes that it is more likely than not that the Company will realize the benefits of the net deferred tax asset, net of valuation allowances as of December 31, 2003.

6.     STOCK COMPENSATION

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

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

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

84



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

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

 
  Number of
Shares

  Weighted
Average
Exercise
Price

  Number of
Shares
Exercisable

  Weighted
Average
Exercise
Price

Outstanding at June 30, 2000   661,503   $ 2.37   410,800   $ 2.49
  Granted   452,700     5.43          
  Forfeited   (32,936 )   3.75          
  Exercised   (28,630 )   1.93          
   
               
Outstanding at June 30, 2001   1,052,637     3.66   460,857     2.36
  Granted   415,960     2.93          
  Forfeited   (18,600 )   4.25          
  Exercised   (15,000 )   1.62          
   
               
Outstanding at June 30, 2002   1,434,997     3.46   680,814     3.07
  Granted   230,000     2.39          
  Forfeited   (346,674 )   4.24          
  Exercised   (125,993 )   1.72          
   
               
Outstanding at December 31, 2002   1,192,330     3.21   685,535     3.41
  Granted   197,000     1.98          
  Forfeited   (65,900 )   3.89          
   
               
Outstanding at December 31, 2003   1,323,430     3.00   836,242     3.35
   
               

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

 
  Range of Exercise Prices
  Total
 
  $1.13 – $2.34
  $2.40 – $2.90
  $3.20 – $6.72
  $1.13 – $6.72
Options Outstanding:                
  Number of options   368,500   557,170   397,760   1,323,430
  Weighted average exercise price   $1.82   $2.61   $4.63   $3.00
  Weighted average remaining contractual life   4.0 years   4.9 years   6.2 years   5.0 years
Options Exercisable:                
  Number of options   201,500   303,170   331,572   836,242
  Weighted average exercise price   $1.80   $2.68   $4.91   $3.35

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

85


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

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

 
  Number of Shares
  Weighted Average
Exercise Price

 
  Time
Vested

  Performance
Vested

  Time
Vested

  Performance
Vested

Outstanding at June 30, 2000   168,118   55,518   $ 2.46   $ 1.51
  Exercised   (168,118 ) (55,518 )   2.46     1.51
   
 
 
 
Outstanding at June 30, 2001            
   
 
 
 

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

7.     LOANS RECEIVABLE FOR STOCK

        The Leveraged Employee Stock Ownership Plan and Trust (the Plan) allows eligible Company employees to participate in ownership of the Company. The $200,000 receivable at December 31, 2003 represents the full amount the Company loaned to the Plan during year 2003 so that the Plan could acquire from the Company 130,719 newly issued shares of the Company's common stock. The note bears an annual interest rate of 5.75% and is scheduled to mature May 31, 2018. The terms of the Plan require the Company to make an annual contribution equal to the greater of i) the Board established percentage of pretax income before the contribution (5% in year 2003, the Transition Period and fiscal years 2002 and 2001) or ii) the annual interest payable on the note. Company contributions to the Plan were $51,000, $29,000, $37,000 and $133,000 in year 2003, the Transition Period and fiscal years 2002 and 2001, respectively.

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8.     COMMITMENTS AND CONTINGENCIES

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

Year ending December 31,

  Total
2004   $ 716
2005     576
2006     432
2007     402
2008     411
Thereafter     1,769
   
    $ 4,306
   

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

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

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

Year ending December 31,

   
2004   $ 166
2005     167
2006     156
2007     57
   
Total minimum lease payments     546
Less: amount representing interest     67
   
Present value of net minimum lease payments     479
Less: Current maturities of capital lease obligations     134
   
Long-term capital lease obligations   $ 345
   

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

87


the Company during and after any period of threatened takeover. The agreements provide the employees with specified benefits upon the subsequent severance of employment in the event of change in control of the Company and are effective for 24 months thereafter. The maximum amount of salary that could be required to be paid under these contracts, if such events occur, totaled approximately $1,848,000 as of December 31, 2003. In addition to the salary above, severance benefits include payment of 20% of annual salary for life, disability, accident and health insurance for 24 months and a pro-rata calculation of bonus for the current year.

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

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

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

        The Company is also involved in certain actions that have arisen out of the ordinary course of business. Management believes that resolution of the actions will not have a significant adverse affect on the Company's consolidated financial position or results of operations.

9.     PENSION AND POSTRETIREMENT WELFARE PLANS

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

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        In accordance with SFAS No. 132, Employers Disclosure About Pensions and Other Post-Retirement Benefits, the following tables provide a reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the Consolidated Balance Sheet at December 31, 2003 and December 31, 2002 (in thousands):

 
  December 31,
2003

  December 31,
2002

 
Change in projected benefit obligation:              
Projected benefit obligation at beginning of period*   $ 3,073   $ 3,370  
Service cost     85     41  
Employee contributions     13     6  
Interest cost     185     89  
Actuarial loss (gain)     82     (359 )
Benefits paid     (193 )   (74 )
   
 
 
Projected benefit obligation at end of period   $ 3,245   $ 3,073  
   
 
 
Change in plan assets:              
Fair value of plan assets at beginning of period*   $ 2,770   $ 2,858  
Actual return (loss) on plan assets     541     (20 )
Employee contributions     13     6  
Benefits and expenses paid     (193 )   (74 )
   
 
 
Fair value of plan assets at end of period   $ 3,131   $ 2,770  
   
 
 

*
Beginning of period for December 31, 2002 was July 30, 2002, the date of the Motor Products acquisition.

 
  December 31,
2003

  December 31,
2002

Excess of projected benefit obligation over fair value of plan assets   $ 114   $ 303
Unrecognized gain     441     223
   
 
Accrued pension cost   $ 555   $ 526
   
 

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

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

 
  For the
year ended
December 31,
2003

  For the
Transition
Period ended
December 31,
2002

 
Service cost   $ 85   $ 41  
Interest cost on projected benefit obligation     185     89  
Expected return on assets     (241 )   (115 )
   
 
 
Net periodic pension expense   $ 29   $ 15  
   
 
 

89


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

 
  December 31,
2003

  December 31,
2002

 
Discount rate   6.00 % 6.25 %
Rate of compensation increases   5.00 % 5.00 %

        The weighted average assumptions used to determine net periodic benefit cost are as follows:

 
  For the year ended
December 31,
2003

  For the Transition Period ended
December 31,
2002

 
Discount rate   6.00 % 6.25 %
Expected long-term rate of return on plan assets   9.00 % 10.00 %
Rate of compensation increases   5.00 % 5.00 %

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

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

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

 
  December 31,
2003

  December 31,
2002

 
Cash equivalents   1 % 1 %
Equity securities   65 % 69 %
Fixed income securities   34 % 30 %
   
 
 
Total   100 % 100 %
   
 
 

        The pension assets are managed by an outside investment manager. The Company's investment policy with respect to pension assets is to make investments solely in the interest of the participants and beneficiaries of the plans and for the exclusive purpose of providing benefits accrued and defraying the reasonable expenses of administration. The Company strives to maintain investment diversification to assist in minimizing the risk of large losses.

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

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        The following tables provide a reconciliation of the change in the accumulated postretirement benefit obligation and the net amount recognized in the Consolidated Balance Sheet at December 31, 2003 and December 31, 2002 (in thousands):

 
  December 31,
2003

  December 31,
2002

 
Change in postretirement benefit obligation:              
Accumulated postretirement benefit obligation at beginning of period*   $ 2,327   $ 2,230  
Service cost     61     21  
Interest cost     122     59  
Actuarial loss (gain)     (295 )   50  
Benefits paid     (79 )   (33 )
   
 
 
Accumulated postretirement benefit obligation at end of period   $ 2,136   $ 2,327  
   
 
 

Accumulated postretirement benefit obligation

 

$

2,136

 

$

2,327

 
Unrecognized net gain (loss) attributable to assumption changes during the year     271     (50 )
   
 
 
Accrued postretirement benefit cost   $ 2,407   $ 2,277  
   
 
 

*
Beginning of period for December 31, 2002 was July 30, 2002, the date of the Motor Products acquisition.

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

 
  For the
year ended
December 31,
2003

  For the
Transition
Period ended
December 31,
2002

Service cost   $ 61   $ 21
Interest cost     122     59
Amortization of (Gain) loss     (5 )  
   
 
Total   $ 178   $ 80
   
 

        For measurement purposes, an annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to the ultimate rate by a said year, and remain at that level thereafter, per the following:

 
  December 31,
2003

  December 31,
2002

 
Annual rate of increase per capita of covered health care benefits   9.50 % 9.50 %
Ultimate rate   4.00 % 4.25 %
Year ultimate rate is reached   2014   2013  

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        The healthcare cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed healthcare cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 2003 by $438,000 and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for year 2003 by $45,600. Decreasing the assumed healthcare postretirement benefit obligation as of December 31, 2003 by 1% decreases the accumulated postretirement benefit obligation by $333,500 and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for year 2003 by $34,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 6.00% and 6.25% as of December 31, 2003 and 2002, respectively. The weighted average discount rate used to determine the net periodic postretirement benefit cost was 6.00% for 2003 and 6.25% for 2002.

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

10.   RESTRUCTURING CHARGES

        Restructuring charges include the costs associated with the Company's strategy of reducing its facility requirements and implementing lean manufacturing initiatives. These charges consist of costs that are incremental to the Company's ongoing operations and, for Year 2003, include employee termination related charges.

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

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

11.   SEGMENT INFORMATION

        SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires disclosure of operating segments, which as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

        The Company operates in one segment for the manufacture and marketing of motion control products for original equipment manufacturers and end user applications. In accordance with SFAS No. 131, the Company's chief operating decision maker has been identified as the Office of the Chief Executive Officer, which reviews operating results to make decisions about allocating resources and assessing performance for the entire company. SFAS No. 131, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under SFAS No. 131 due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by SFAS No. 131 can be found in the accompanying consolidated financial statements and within this note.

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

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

   
   
 
  For the
year ended
and as of
December 31,
2003

  For the fiscal years ended and as of
June 30,

 
  2002
  2001
Revenues derived from foreign subsidiary   $ 773   $ 735   $ 1,399   $ 289
Identifiable assets     34     1,296     1,179     209

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

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

12.   DISCONTINUED OPERATIONS

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

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

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

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

93



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

 
  For the
Transition
Period ended
December 31,
2002

  For the fiscal years ended June 30,
 
 
  2002
  2001
 
Revenues   $ 1,342 (a) $ 26,336   $ 27,198  
   
 
 
 
Income (loss) from discontinued operations:                    
  Gain on the sale of Power and Process, net of tax provision of $680   $ 1,019   $   $  
   
 
 
 
  Operating results:                    
    Loss from operations     (1,224 )   (510 )   (50 )
    Tax benefit     488     289     22  
   
 
 
 
  Operating loss from discontinued operations     (736 )   (221 )   (28 )
   
 
 
 
Income (loss) from discontinued operations   $ 283   $ (221 ) $ (28 )
   
 
 
 

(a)
Includes one month Power and Process Business revenues and six months Calibrator Business revenues.

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

Current assets of segment held for sale      
  Trade receivables, net   $ 165
  Inventories, net     351
  Property, plant and equipment     97
  Prepaid expenses and other     71
   
  Total   $ 684
   
Current liabilities of segment held for sale      
  Accounts payable   $ 53
  Accrued liabilities     450
  Product warranty reserve     32
   
  Total   $ 535
   

13.   INVESTMENTS IN JOINT VENTURES

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

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

 
  For the fiscal years ended June 30,
 
  2002
  2001
Share of income under equity method of accounting   $ 159   $ 1,170
Gain on sale of investment in Si Fang     674    

14.   SUBSEQUENT EVENTS (UNAUDITED)

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

15.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

Year 2003

  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

Revenues   $ 9,176   $ 9,736   $ 9,838   $ 10,684
Gross margin     2,203     2,553     2,292     3,219
Income (loss) from continuing operations     (149 )   302     403     392
Diluted (loss) income per share from continuing operations     (0.03 )   0.06     0.08     0.07
Transition Period

  First
Quarter

  Second
Quarter

Revenues   $ 8,020   $ 9,171
Gross margin     1,896     2,126
Income (loss) from continuing operations     (52 )   97
Income from discontinued operations     243     40
Diluted (loss) income per share from continuing operations     (0.01 )   0.02

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Fiscal year 2002

  First
Quarter

  Second
Quarter

  Third
Quarter

  Fourth
Quarter

 
Revenues   $ 3,646   $ 4,222   $ 4,051   $ 3,804  
Gross margin     996     1,392     1,290     1,425  
Income (loss) from continuing operations     (73 )   133     (57 )   (48 )
Income (loss) from discontinued operations     (165 )   (57 )   364     (363 )
Diluted (loss) income per share from continuing operations     (0.01 )   0.02     (0.01 )   (0.01 )

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

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ALLIED MOTION TECHNOLOGIES, INC.

FINANCIAL STATEMENT SCHEDULE

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

 
  Balance at
Beginning
of Period

  Charged to
Costs and
Expenses

  Deductions
from
Reserves

  Additions
due to
Acquisition

  Balance
at End of
Period

Year Ended December 31, 2003:                              
  Reserve for bad debts   $ 148   $ 47   $ (89 ) $   $ 106
  Reserve for excess or obsolete inventories   $ 1,024   $ 135   $ (278 ) $   $ 881
  Valuation allowance for deferred tax assets   $ 424   $   $ (72 ) $   $ 352
   
 
 
 
 
Transition Period Ended December 31, 2002:                              
  Reserve for bad debts   $ 64   $ 52   $ (9 ) $ 41   $ 148
  Reserve for excess or obsolete inventories   $ 697   $ 92   $ (224 ) $ 459   $ 1,024
  Valuation allowance for deferred tax assets   $ 424   $   $   $   $ 424
   
 
 
 
 
Year Ended June 30, 2002:                              
  Reserve for bad debts   $ 60   $ 34   $ (30 ) $   $ 64
  Reserve for excess or obsolete inventories   $ 690   $ 247   $ (240 ) $   $ 697
  Valuation allowance for deferred tax assets   $ 424   $   $   $   $ 424
   
 
 
 
 
Year Ended June 30, 2001:                              
  Reserve for bad debts   $ 54   $ 9   $ (3 ) $   $ 60
  Reserve for excess or obsolete inventories   $ 579   $ 111   $   $   $ 690
  Valuation allowance for deferred tax assets   $ 610   $ (186 ) $   $   $ 424
   
 
 
 
 

97



Directors of Allied Motion

Name

  Age
  Position with Allied Motion
Eugene E. Prince   71   Chairman of the Board of Directors
Richard D. Smith   56   Chief Executive Officer, Chief Financial Officer and Director
Delwin D. Hock   68   Director
Graydon D. Hubbard   69   Director
George J. Pilmanis   65   Director

        Mr. Prince has served as a director of Allied Motion since October 1975 and as Chairman of the Board of Directors since January 1981. He served as President of the company from October 1975 and as Chief Executive Officer from September 1976 until his resignation from those offices on August 13, 1998. He retired from his employment with the company effective August 13, 1998 but served as a paid consultant through November 1999. Pursuant to his consulting agreement, as long as Mr. Prince owns at least 10% of the issued shares of Allied Motion, the Board of Directors shall nominate him for election to the Board of Directors. If he is elected, the Board of Directors will request that he be nominated for Chairman of the Board of Directors.

        Mr. Smith has served as a director of Allied Motion since August 1996. He has served as Chief Executive Officer since August 13, 1998. He served as President from August 13, 1998 until May 2002. He was Executive Vice President from August 1993 until August 1998. Mr. Smith served as Vice-President of Finance from June 1983 to August 1993. He has served as Chief Financial Officer since June 1983. Pursuant to Mr. Smith's employment agreement, as long as he is the Chief Executive Officer of the company and is willing to serve, the Board of Directors will nominate him for election to the Board.

        Mr. Hock has served as a director of Allied Motion since February 1997. He retired from his position as Chief Executive Officer of Public Service Company of Colorado, a gas and electric utility, in January 1996 and as Chairman of the Board of Directors in July 1997. From September 1962 to January 1996, Mr. Hock held various management positions at Public Service Company. He serves as a director on six separate entities overseeing the operation of funds in the American Century Investors fund complex.

        Mr. Hubbard has served as a director of Allied Motion since 1991. He is a retired certified public accountant and was a partner of Arthur Andersen LLP, the company's former independent public accountants, in its Denver office for more than five years prior to his retirement in November 1989. Mr. Hubbard is also an author.

        Mr. Pilmanis has served as a director of Allied Motion since 1993. For more than five years prior to his retirement in April 2003 he was chairman and president of Balriga International Corp., a privately held company concerned with business development in the Far East and Eastern Europe. In 2001 and 2003 he also served as Executive Director of the Foreign Investors Council in Latvia.


Executive Officers of Allied Motion

Name

  Age
  Position with Allied Motion
Richard D. Smith   56   Chief Executive Officer, Chief Financial Officer and Director
Richard S. Warzala   50   President and Chief Operating Officer

        Information with respect to Mr. Smith's employment experience is provided above.

        Mr. Warzala was appointed President of Allied Motion in May 2002 and has been employed by the company since October 2001. From March 2000 through March 2001, Mr. Warzala served as President of the Motion Components Group for Danaher Corporation. In 1993, he was named President of API

98



Motion, a subsidiary of American Precision Industries, Inc., and continued as President until 2000, when it was acquired by Danaher. From 1976 to 1993, he held various management positions at American Precision Industries, Inc.


Summary of Compensation of Executive Officers

        The following table shows the compensation earned by the Chief Executive Officer and the President of Allied Motion. The transition period reflects the change in Allied Motion's fiscal year effective December 31, 2002.

 
   
   
   
  Long-Term Compensation Awards
   
 
 
   
  Annual Compensation
   
 
Name & Principal position

   
  Securities underlying options
  All other compensation
 
  Period
  Salary
  Bonus
 
Richard D. Smith,
CEO
  2003
Transition
2002
2001
  $
$
$
$
235,000
117,500
233,333
223,125
  $
$
$
$
112,614
0
0
180,000
  40,000
0
90,000
90,000
  $
$
$
$
16,323
3,704
20,540
17,245
(1)



Richard S. Warzala,
President and COO

 

2003
Transition
2002

 

$
$
$

225,000
112,500
117,500

 

$
$
$

107,821
0
0

 

40,000
200,000
200,000

 

$
$
$

17,553
2,919
2,014

(2)


(1)
All other compensation for Mr. Smith during year 2003 consists of Allied Motion contributions to defined contribution plans of $5,478, and Allied Motion paid life insurance premiums of $10,845.

(2)
All other compensation for Mr. Warzala during year 2003 consists of Allied Motion contributions to defined contribution plans of $5,478, and Allied Motion paid life insurance premiums of $12,075.


Option Grants in Last Fiscal Year

        The following table provides a summary of all stock options granted to the Chief Executive Officer and the President of Allied Motion in 2003. It also shows a calculation of the potential realizable value if the fair market value of shares of Allied Motion's common stock were to appreciate at either a 5% or 10% annual rate over the period of the option term.

 
  Individual Grants
   
   
 
   
  Percent of
total options
granted to
employees
in fiscal
year

   
   
  Potential realizable value at assumed annual rates of stock price appreciation for option term(3)
 
  Number of securities underlying options granted(1)
   
   
Name

  Exercise or base price
($/Sh)(2)

   
  Expiration date
  5%($)
  10%($)
Richard Smith   40,000   20.0   $ 1.77   02/13/2010   $ 28,823   $ 28,823

Richard Warzala

 

40,000

 

20.0

 

$

1.77

 

02/13/2010

 

$

28,823

 

$

28,823

(1)
The grants permit the exercise of options in exchange for shares of Allied Motion Common Stock as well as for cash. In connection with a merger, sale of assets, share exchange, or change of control of the company, the options become immediately vested and the Committee may allow surrender for cash, substitution or cancellation.

(2)
Exercise price was established at quoted market price for Allied Motion Common Stock on the date of grant.

99


(3)
The potential realizable value is calculated assuming the fair market value of common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised at the exercise price and the common stock received is sold on the last day of the term of the option for the appreciated price. The 5% and 10% rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent Allied Motion's estimate or projection of future increases in the price of common stock.


Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

        The following table sets forth information regarding option exercises and unexercised stock options held as of December 31, 2003 by the Chief Executive Officer and the President of Allied Motion:

 
  Shares
Acquired
on
Exercise
(#)

   
  Number of Unexercised Options at period end (#)
  Value of Unexercised
In-the-Money Options at period end ($)(1)

Name

  Value Realized ($)
  Exercisable
  Unexercisable
  Exercisable
  Unexercisable
Richard D. Smith     $   440,000     $ 651,188   $

Richard S. Warzala

 


 

$


 

188,500

 

251,500

 

$

264,765

 

$

303,135

(1)
Fair market value of unexercised in-the-money options at period end is based on the closing price of $3.93 for Allied Motion Common Stock on December 31, 2003.


Employment Agreements With Executive Officers

        During the transition period ended December 31, 2002, Allied Motion had an employment agreement with Richard D. Smith, Chief Executive Officer, which became effective August 13, 1998 for a term of five years. A revised Agreement with Mr. Smith became effective August 1, 2003. Effective March 1, 2003, Allied Motion entered into an employment agreement with Mr. Richard S. Warzala. The agreements have an initial term of five years and continue subsequently on a year-to-year basis unless Allied Motion or the officer gives termination notice at least 60 days prior to expiration of the initial or subsequent terms. The agreements contain the provisions outlined below.

        Base Salary.    The agreements provide an annual base salary of not less than $235,000 for Mr. Smith (effective September 2001) and $225,000 for Mr. Warzala, and may be reviewed annually for increase on a merit basis.

        Annual Bonus.    Annual incentive bonuses are paid based on achieving performance criteria established annually by the Board of Directors. The performance criteria will recognize the overall financial performance of Allied Motion and the improvements made in financial results.

        Long-Term Incentive Payment Plan.    Allied Motion utilizes stock options for long-term incentives. In making its recommendations for grants of stock options, the Compensation Committee of Allied Motion's Board of Directors considers, among other things, officer's responsibilities and their efforts and performance in relation to the business plan and forecast. It also considers development of the company's business and products, performance of the company's products in the marketplace, impact of the company's products and product development on future prospects for the company, market performance of the company's common stock, the relationship between the benefits of stock options and improving shareholder value, the current level of stock options held, the shares available for option and the total shares under option grants. The Compensation Committee also considers customary business practices and long-term incentive plan benefits granted in comparison to such benefits provided to other executives in similar positions.

        Other Provisions.    Mssrs. Smith and Warzala participate in other benefits and perquisites as are generally provided by Allied Motion to its employees. In addition, Allied Motion provides each

100



executive officer with $500,000 of life insurance for which the executive may designate the beneficiaries and an automobile.

        In the event of death, disability or termination by Allied Motion prior to a change in control, other than for cause, the agreements provide for limited continuation of salary and insurance benefits and for bonus prorations or settlements.


Change in Control Arrangements

        Allied Motion has entered into agreements with Mr. Smith and Mr. Warzala pursuant to which, upon termination by Allied Motion (other than for cause as defined in the agreement) or by the executive for good reason (as defined in the agreement) within 90 days prior to or 24 months following a change in control of the company, they are entitled to receive a severance payment equal to 2.5 times the sum of current annual base salary plus the amount paid under the Annual Bonus Plan for the preceding fiscal year, and an allocation for incentive compensation for the current year up to the date of termination and a monthly payment for a two year period to acquire insurance benefits. The agreements expire on December 31 of each year, however, they are extended automatically on January 1 of each year for a term of two years, unless notice of non-renewal is given by Allied Motion not later than the September 30 immediately preceding renewal. Allied Motion has similar agreements (providing lower severance multiples) with other key executives. The change in control agreements are applicable to a change in control of the company or of the subsidiary or division for which the executive is employed and require the key executives to remain in the employ of the company for a specified period in the event of a potential change in control of the company and provide employment security to them in the face of current pressures to sell the company or in the event of take-over threats, so that they can devote full time and attention to the company's efforts free of concern about discharge in the event of a change in control of the company. These agreements are common at other public companies. They are not excessive and are within industry standards. The Board of Directors has considered termination of these agreements and determined that the reasons for executing change in control agreements continue to be valid and concluded that notices of non-renewal would not be in the best interests of shareholders.


Compensation Committee Interlocks and Insider Participation

        The Compensation Committee of Allied Motion's Board of Directors is comprised of Messrs. Pilmanis, Hock and Hubbard who are all non-employees. There are no relationships that would result in a compensation committee interlock.


Compensation of Directors

        The Allied Motion Board of Directors holds four regular full day meetings each year. Non-employee directors are compensated at the rate of $3,600 per full day meeting of the board, $1,100 for each additional one-half day meeting, $500 per hour for a telephone meeting, $1,100 per committee meeting, and $1,100 per half day for official travel to locations outside the Denver area.

        Non-employee board members are compensated at the rate of $275 per hour for the time spent consulting with the company at the request of the Board of Directors or the Executive Officers, preparing minutes of the Audit or Compensation Committees and on special assignment of such committees.

        The Company entered into a Consulting Agreement with Mr. Prince effective after his retirement from employment on August 31, 1998. Under the Agreement, Mr. Prince will provide consulting services to the Company on matters as requested by the Executive Officers. He will be compensated at the rate of $250 per hour. During 2003, Mr. Prince was not paid for providing any consulting services.

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INFORMATION ABOUT OWOSSO CORPORATION

Business

        Owosso was incorporated in Pennsylvania and organized as a holding company in 1994. The holding company structure separated the administrative and financing activities of Owosso from the activities of its operating subsidiaries. As of July 30, 2002, Owosso had one operating subsidiary, Stature, representing Owosso's historical "Motors segment." Stature is a custom designer and manufacturer of motors and gear motors, including AC, DC, and Universal. Established in 1974 in Watertown, New York, Stature is a progressive company, which emphasizes a partnership approach in all aspects of its business.

        In 1998, Owosso formulated a long-term plan to concentrate on value-added components for industry. In connection with its implementation of that plan, Owosso began a series of divestitures beginning with the sale of the four businesses comprising its historical Agricultural Equipment segment. The sale of the last of those businesses was completed in January 2001 with the divestiture of Sooner Trailer Manufacturing Company ("Sooner Trailer"). During that time, however, Owosso experienced a significant downturn in its operating results and at the end of fiscal 2000 was out of compliance with covenants under its bank credit facility.

        Throughout fiscal 2001, Owosso remained out of compliance with financial covenants, including maintenance of minimum operating profit, under its bank credit facility. As a result, Owosso and its lenders entered into a series of amendments to the facility during fiscal 2001, 2002 and 2003, and in each case Owosso's lenders agreed to forebear from exercising their rights and remedies under the facility. In order to meet the lenders' requirements for reduced outstanding balances and to secure the lenders' agreement to forebear, Owosso engaged in a series of divestitures of its operating subsidiaries, concluding with the sale of its Motor Products subsidiaries, Motor Products Owosso Corporation and Motor Products Ohio Corporation in July of 2002. As disclosed under Note 11 "Long-term Debt," the amendments to the bank credit facility modified the interest rates charged, called for reductions in the outstanding balance during calendar 2001, 2002 and 2003, added additional reporting requirements, suspended payments of principal and interest on subordinated debt, prohibited the payment of preferred or common dividends, prohibited the purchase of Owosso's stock and added a covenant requiring the maintenance of minimum operating profit. On March 23, 2004, Owosso entered into a further amendment to the facility which extended the maturity date to June 30, 2004.

        Owosso intends to dispose of during fiscal 2004, the real estate at Owosso's former Snowmax Corporation subsidiary to a newly formed L.L.C., of which one of the three partners will be George B. Lemmon, Jr., Owosso's present CEO. Proceeds from this sale is expected to be around $312,000.

        Management believes that, along with the sale of asset, available cash and cash equivalents, cash flows from operations and available borrowings under Owosso's bank credit facility will be sufficient to fund Owosso's operating activities, investing activities and debt maturities through March 2004. It is management's intent to refinance Owosso's bank credit facility prior to its maturity in March 2004. However, there can be no assurance that management's plans will be successfully executed.

        On July 30, 2002, Owosso completed the sale of all of the outstanding stock of its Motor Products subsidiaries, manufacturers of fractional and integral horsepower motors. The purchase price paid by Allied Motion for the outstanding stock of Motor Products consisted of $11.5 million in cash and a promissory note in the principal amount of $300,000, paid six months after closing. Net cash proceeds of $10.7 million from the sale, after payment of certain transaction costs, were utilized to reduce outstanding bank debt. As a result of this transaction, Owosso presently has only one operating subsidiary, Stature.

        Owosso's historical Other segment included Dura-Bond Bearing Company ("Dura-Bond") and Cramer Company ("Cramer"). Dura-Bond manufactured replacement camshaft bearings, valve seats

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and shims for the automotive after-market. On November 2, 2000, Owosso completed the sale of the stock of Dura-Bond to a joint venture formed by Melling Tool Company of Jackson, Michigan and Engine Power Components, Inc. of Grand Haven, Michigan (the "Joint Venture"). The Joint Venture acquired the stock of Dura-Bond for approximately $4.6 million, the net assets of which included debt of approximately $5.0 million. Based upon the terms of the sale, Owosso recorded, in the fourth quarter of fiscal 2000, a pretax charge of $1.2 million to adjust the carrying value of Dura-Bond's assets to their estimated fair value.

        Cramer manufactured timers and subfractional horsepower motors for use in commercial applications. On December 4, 2000, Owosso completed the sale of the assets associated with the timer and switch line of Cramer to Capewell Components, LLC of South Windsor, Connecticut for cash of approximately $2.0 million, plus the assumption of approximately $400,000 in liabilities. As a result of the sale, the name of Owosso was changed from M.H. Rhodes, Inc. to Cramer Company. In connection with the sale of the timer and switch line and the anticipated sale of the remainder of the operating assets (excluding the real estate) of Cramer, Owosso recorded, in the fourth quarter of fiscal 2000, a pretax charge of $1.6 million to adjust the carrying value for the Cramer assets to their estimated fair value, based upon an estimated sales price of the assets. Such charge represented the write-down of goodwill of $400,000 and the write-down of other non-current assets of $1.2 million and was included in "Write-down of net assets held for sale" in the consolidated statements of operations for fiscal 2000. On September 23, 2001, Owosso sold substantially all of the remaining operating assets (excluding the real estate) of Cramer to the Chestnut Group of Wayne, Pennsylvania for cash proceeds of $565,000, plus the assumption of $317,000 in liabilities. In connection with that sale, Owosso recorded a further adjustment to the carrying value of the Cramer assets resulting in a pre-tax charge of $1.1 million, recorded in the third fiscal quarter of 2001. Owosso recorded a pretax charge of $270,000 in the fourth quarter of 2002 to adjust the carrying value for the Cramer real estate to the estimated fair value, based upon an estimated sales price of the assets and was included in "Write-down of net assets held for sale" in the consolidated statements of operations for fiscal 2002.

        Owosso's historical Coils segment manufactured heat exchange coils and included Astro Air Coils, Inc. ("Astro Air"), Snowmax, Inc. ("Snowmax"), and Astro Air UK, Limited ("Astro UK"). Astro UK was a joint venture with Owosso's largest customer, Bergstrom, Inc. On May 9, 2001, the sale of substantially all of the assets of Astro UK to ACR Heat Transfer Limited of Norfolk, England for cash of £450,000 (approximately $643,000) was completed. Based upon the terms of the sale, Owosso recorded, in the second quarter of 2001, a pretax charge of $700,000 to adjust the carrying value of Astro UK's assets to their estimated realizable value. No additional gain or loss was recorded upon completion of the sale. Proceeds from the sale were utilized to reduce Owosso's bank credit facility.

        On October 26, 2001, Owosso completed the sale of the assets of the remaining businesses in its Coils segment, Astro Air and Snowmax (together, the "Coils Subsidiaries"). The sale of the Coils Subsidiaries was effectuated pursuant to an Asset Purchase Agreement, dated as of October 26, 2001, by and among the Coils Subsidiaries, Astro Air, Inc., and Rex Dacus, the manager of the Coils segment and the person from whom Owosso acquired the assets and operations of Astro Air Coils, Inc. in 1998. Proceeds from the sale of $5.6 million were utilized to reduce Owosso's bank credit facility. Astro Air, Inc. also assumed approximately $3.7 million of liabilities. Owosso recorded a pretax charge of $9.3 million related to this sale in the fourth quarter of 2001. Owosso recorded a charge of $520,000 net of taxes in the fourth quarter of 2002 to adjust the carrying value for the real estate assets to the estimated fair value, based upon an estimated sales price of the assets. Owosso has reported the results of the Coils segment as discontinued operations for all periods presented in the consolidated statements of operations.

        On January 24, 2001, Owosso completed the sale of stock of Sooner Trailer to the McCasland Investment Group and certain members of Sooner Trailer's management for cash of $11.5 million, subject to certain post-closing adjustments based on changes in working capital, plus the assumption of

103



debt of approximately $670,000. In May 2001, Owosso received approximately $2.0 million related to such post-closing adjustments. In connection with the anticipated sale, Owosso recognized a loss of $8.6 million in the fourth quarter of 2000 to adjust the carrying value of Sooner Trailer's assets to their estimated fair value based on an expected sales price. No additional gain or loss was recorded upon completion of the sale. Sooner Trailer had been included in Owosso's historical Agricultural Equipment segment (formerly known as the Trailers and Agricultural Equipment segment). Accordingly, Owosso has reported the results of Sooner Trailer as discontinued operations for all periods presented in the consolidated statements of operations.

        Products Liability Insurance.    Owosso currently maintains product liability insurance coverage of $1.0 million per occurrence and $2.0 million in aggregate annual coverage, and an umbrella policy for an additional $20.0 million of blanket liability protection per occurrence. There can be no assurance that such insurance will be sufficient to cover potential product liability claims or that Owosso will be able to maintain such insurance or obtain product liability insurance in the future at a reasonable cost.

        Competition.    Owosso's business is highly competitive. Competition is based primarily on design and application engineering capabilities and product reliability and quality, as well as price.

        Availability of Raw Materials.    Owosso obtains raw materials, component parts and supplies from a variety of sources, generally from more than one supplier. In certain cases, where it has an impact on improving quality control or cost control, Owosso obtains raw materials and component parts from sole source suppliers. Owosso anticipates it will have no significant problems with respect to sources or availability of the raw materials or component parts essential to the conduct of its business.

        Seasonality of the Business.    No material portion of Owosso's business is seasonal, nor was any historical segment's seasonal.

        Sales to Large Customers.    A significant portion of Owosso's sales are concentrated among a small number of customers. Sales to the two largest customers represented approximately 26%, 14% and 15% of total sales from continuing operations for 2003, 2002 and 2001, respectively. Owosso is no longer selling to the second largest customer in 2003 that accounted for 9% of it's sales.

        Sales Backlog.    Owosso's backlog of unfilled orders for the historical Motors segment was $6.4 million as of December 12, 2003, as compared to $5.5 million as of December 12, 2002.

        Environmental Issues.    Owosso is subject to federal, state and local environmental regulations with respect to its operations. Owosso believes that it is operating in substantial compliance with applicable environmental regulations. Manufacturing and other operations at Owosso's facilities may result, and may have resulted, in the discharge and release of hazardous substances and waste from time to time. Owosso routinely responds to such incidents as deemed appropriate pursuant to applicable federal, state and local environmental regulations. Under applicable federal, state and local environmental laws, ordinances and regulations, a current or previous owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, in, under or discharged from such property.

        In connection with Owosso's divestitures of its operating businesses over the past four years, it has agreed to indemnify buyers from and against certain known and unknown environmental liabilities. In addition, Owosso may be liable for the costs of removal or remediation of hazardous or toxic substances on, in, under or discharged from it's current or previously owned real property under applicable federal, state and local environmental laws, ordinances and regulations.

        A subsidiary of Owosso is a party to a consent decree with the State of Connecticut pursuant to which it has agreed to complete its environmental investigation of the site on which its Old Saybrook facility was previously located and conduct any remedial measures which may be required. Based upon

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the amounts recorded as liabilities, Owosso believes that the ultimate resolution of this matter will not have a material adverse effect on the financial results of Owosso.

        Employees.    Owosso has approximately 170 employees and believes that its relationship with its employees is good.


Properties

        Owosso's principal executive offices and manufacturing, warehousing and distribution facility are located at 22543 Fisher Road, Watertown, New York. This facility consists of approximately 112,000 square feet, of which 107,800 square feet are dedicated to manufacturing, warehousing and distribution, with the remaining portion dedicated to office space. This facility is utilized by Stature, Owosso's sole remaining business, and is subject to a mortgage securing a $4.6 million industrial revenue bond financing.

        Owosso's former principal executive offices, located at 2200 Renaissance Boulevard, King of Prussia, Pennsylvania, were under lease to expire in September 2006 with a base rent of approximately $305,000 per year. Owosso successfully negotiated a lease surrender agreement in December 2003 at a cost of $280,000 and vacated the office space in January 2004. Owosso paid $89,000 covering rent through March 2004. The landlord also has the right to negotiate an existing letter of credit held by the landlord as security under the lease and retain the proceeds therefrom in the amount of $191,000 on the termination date.

        Owosso continues to own a 90,000 square foot manufacturing facility located in Kilgore, Texas, which housed Owosso's former Snowmax subsidiary. During fiscal 2004, Owosso intends to dispose of this facility. An entity controlled by Mr. Lemmon, Owosso's President, CEO and Chairman, has expressed interest in purchasing such real estate, however no binding agreement has been entered into and any such sale will be subject to the approval of Owosso's audit committee. Based on current negotiations, Owosso estimates proceeds of approximately $312,000 if successful in completing the sale.

        Owosso believes that its machinery, plants and offices are in satisfactory operating condition and are adequate for Owosso's current needs.


Legal Proceedings

        As discussed above, Owosso is a party to various legal proceedings concerning environmental regulations. In addition, Owosso is a party to various lawsuits arising in the ordinary course of business, none of which are expected to be material with respect to the business assets or continuing operations of Owosso.

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Owosso Selected Historical Consolidated Financial Data

        The information set forth below, which has been derived from Owosso's audited consolidated financial statements, has been restated to reflect the Coils segment and Agricultural Equipment as discontinued operations and should be read in conjunction with Owosso's consolidated financial statements and notes thereto and the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" below.

 
  Fiscal Year Ended
 
 
  Oct. 26,
2003

  Oct. 27,
2002(2)

  Oct. 28,
2001

  Oct. 29,
2000

  Oct. 31,
1999(1)

 
 
  (in thousands, except share amounts)

 
STATEMENT OF OPERATIONS DATA:                                
Net sales   $ 17,715   $ 36,901   $ 54,326   $ 75,204   $ 84,214  
Cost of products sold     14,374     31,242     43,897     59,429     65,009  
   
 
 
 
 
 
Gross profit     3,341     5,659     10,429     15,775     19,205  
Selling, general and administrative expenses     3,881     8,224     11,183     13,240     16,305  
Goodwill impairment expense     5,331                  
Write-down of net assets held for sale         381     1,100     2,800      
   
 
 
 
 
 
Income (loss) from operations     (5,871 )   (2,946 )   (1,854 )   (265 )   2,900  
Interest expense     708     1,588     4,335     5,069     4,947  
Gain on sale of business         (6,055 )            
Other (income) expense     (122 )       (110 )   530     (444 )
   
 
 
 
 
 
Income (loss) from continuing operations before income taxes     (6,457 )   1,521     (6,079 )   (5,864 )   (1,603 )
Income tax benefit     (604 )   (4,197 )   (1,968 )   (1,082 )   (658 )
   
 
 
 
 
 
Income (loss) from continuing operations     (5,853 )   5,718     (4,111 )   (4,782 )   (945 )
Discontinued operations:                                
  Income (loss) from discontinued operations         (520 )   (2,073 )   (290 )   2,722  
  Loss on disposal of discontinued operations             (10,040 )   (8,600 )    
Cumulative effect of accounting change             (67 )        
   
 
 
 
 
 
Net income (loss)     (5,853 )   5,198     (16,291 )   (13,672 )   1,777  
Dividends and accretion on preferred stock     (1,370 )   (1,349 )   (1,316 )   (1,121 )   (1,095 )
   
 
 
 
 
 
Net income (loss) available to common Shareholders   $ (7,223 ) $ 3,849   $ (17,607 ) $ (14,793 ) $ 682  
   
 
 
 
 
 
Basic and diluted income (loss) available for common shareholders from continuing operations per share     (1.24 ) $ 0.75   $ (0.93 ) $ (1.01 ) $ (0.35 )
Weighted average number of common shares outstanding (basic)     5,824     5,824     5,866     5,844     5,826  

 


 

Fiscal Year Ended

 
  Oct. 26,
2003

  Oct. 27,
2002(2)

  Oct. 28,
2001

  Oct. 29,
2000

  Oct. 31,
1999(1)

 
  (in thousands)

OTHER DATA:                              
Capital expenditures   $ 171   $ 132   $ 757   $ 1,195   $ 3,789
Depreciation and amortization     1,432     3,840     3,867     5,025     4,984

 


 

Fiscal Year Ended

 
  Oct. 26,
2003

  Oct. 27,
2002(2)

  Oct. 28,
2001

  Oct. 29,
2000

  Oct. 31,
1999(1)

BALANCE SHEET DATA:                              
Total assets   $ 18,380   $ 27,970   $ 46,394   $ 81,163   $ 105,345
Total short-term and long-term obligations     11,096     13,545     29,604     49,968     54,222
Stockholders' (deficit) equity     (2,971 )   4,252     403     18,432     33,984

(1)
Includes the results of operations of the Owosso's former Parker Industries subsidiary through its disposition on March 5, 1999. Fiscal 1999 included 53 weeks, while the other years presented included 52 weeks.

(2)
The results include Motor Products which was sold July, 30, 2002. See "Information about Owosso Corporation—Business" above for further information on the sale of Motor Products.

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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 
  Three Months Ended
 
 
  February 1,
2004

  January 26,
2003

 
Net sales   $ 4,522,000   $ 4,601,000  
Costs of products sold     3,703,000     3,755,000  
   
 
 
Gross profit     819,000     846,000  
Selling, general and administrative expenses     1,184,000     928,000  
   
 
 
Loss from operations     (365,000 )   (82,000 )
Interest expense     165,000     214,000  
   
 
 
Loss before income taxes     (530,000 )   (296,000 )
Income tax benefit     (128,000 )   (62,000 )
   
 
 
Net loss     (402,000 )   (234,000 )
Dividends on preferred stock     345,000     341,000  
   
 
 
Net loss available for common shareholders   $ (747,000 ) $ (575,000 )
   
 
 
Net loss per share   $ (0.13 ) $ (0.10 )
   
 
 
Basic and diluted weighted average number of common shares outstanding     5,824,000     5,824,000  
   
 
 

See notes to condensed consolidated financial statements.

107



OWOSSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
  February 1,
2004

  October 26,
2003

 
ASSETS              
CURRENT ASSETS:              
  Cash and cash equivalents   $ 258,000   $ 309,000  
  Restricted cash     401,000     400,000  
  Receivables, net     2,121,000     2,323,000  
  Inventories, net     1,974,000     1,745,000  
  Net assets held for sale     350,000     350,000  
  Prepaid expenses and other     237,000     251,000  
  Deferred taxes     240,000     240,000  
   
 
 
    Total current assets     5,581,000     5,618,000  
PROPERTY, PLANT AND EQUIPMENT, NET     4,542,000     4,755,000  
GOODWILL     3,074,000     3,074,000  
CUSTOMER LIST, NET     4,700,000     4,800,000  
OTHER ASSETS     130,000     133,000  
   
 
 
  TOTAL ASSETS   $ 18,027,000   $ 18,380,000  
   
 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT              
CURRENT LIABILITIES:              
  Accounts payable—trade   $ 1,885,000   $ 1,918,000  
  Accrued compensation and benefits     564,000     504,000  
  Accrued expenses     1,625,000     1,753,000  
  Current portion of long-term debt     11,161,000     10,968,000  
   
 
 
    Total current liabilities     15,235,000     15,143,000  
LONG-TERM DEBT, LESS CURRENT PORTION     85,000     128,000  
COMMON STOCK PUT OPTION     600,000     600,000  
DEFERRED TAXES     1,446,000     1,446,000  
ACCRUED PREFERRED STOCK DIVIDENDS     4,379,000     4,034,000  
COMMITMENTS AND CONTINGENCIES (Note 14)              
   
 
 
    Total liabilities     21,745,000     21,351,000  
   
 
 
SHAREHOLDERS' DEFICIT     (3,718,000 )   (2,971,000 )
   
 
 
  TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT   $ 18,027,000   $ 18,380,000  
   
 
 

See notes to condensed consolidated financial statements.

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OWOSSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
  Three Months Ended
 
 
  February 1,
2004

  January 26,
2003

 
OPERATING ACTIVITIES:              
  Net loss   $ (402,000 ) $ (234,000 )
  Adjustments to reconcile net loss to net cash (used in) provided by operating activities:              
    Depreciation     242,000     269,000  
    Amortization     100,000     100,000  
    Other     0     0  
    Changes in operating assets and liabilities which (used) provided cash     (115,000 )   12,000  
   
 
 
    Net cash (used in) provided by operating activities     (175,000 )   147,000  
   
 
 
INVESTING ACTIVITIES:              
  Purchases of property, plant and equipment     (29,000 )   (21,000 )
  Decrease in other assets     3,000     6,000  
   
 
 
    Net cash used in investing activities     (26,000 )   (15,000 )
   
 
 
FINANCING ACTIVITIES:              
  Net borrowings (payments) on line of credit     150,000     (500,000 )
  Payments on long-term debt     0     (62,000 )
   
 
 
    Net cash provided by (used in) financing activities     150,000     (562,000 )
   
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS     (51,000 )   (430,000 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     309,000     524,000  
   
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 258,000   $ 94,000  
   
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:              
  Interest paid   $ 114,000   $ 197,000  
   
 
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:              
  Dividends payable   $ 345,000   $ 341,000  
   
 
 

See notes to condensed consolidated financial statements.

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OWOSSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     NATURE OF BUSINESS

        Owosso—The consolidated financial statements represent the consolidated financial position, results of operations and cash flows of Owosso and its subsidiaries.

        Owosso has one operating subsidiary, Stature, representing Owosso's historical Motors segment. Stature is a custom designer and manufacturer of motors and gear motors both AC and DC, established in 1974 in Watertown, New York. Significant markets for Stature, or the Motors segment, include commercial products and equipment, healthcare, recreation and non-automotive transportation. The products are sold throughout North America and in Europe, primarily to original equipment manufacturers who use them in their end products.

        Financial Statements—The condensed consolidated balance sheet as of February 1, 2004 and the condensed consolidated statements of operations and cash flows for the three months ended February 1, 2004 and January 26, 2003 have been prepared by Owosso, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows as of February 1, 2004 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Owosso's October 26, 2003 Annual Report on Form 10-K.

        New Accounting Pronouncements—In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinat