ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

	June 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Assets
Current Assets:
Current assets:
Cash and cash equivalents	$	10,362		$	21,278		$	14,048		$	15,483
Trade receivables, net of allowance for doubtful accounts of $783 and $611 at June 30, 2016 and December 31, 2015, respectively	31,965			22,710
Inventories, net	30,079			26,175
Trade receivables, net of allowance for doubtful accounts of $367 and $362 at March 31, 2017 and December 31, 2016, respectively							31,035			26,104
Inventories							30,862			31,098
Prepaid expenses and other assets	2,904			3,749			3,044			3,120
Total Current Assets	75,310			73,912
Total current assets							78,989			75,805
Property, plant and equipment, net	38,626			35,315			37,370			37,474
Deferred income taxes	1,533			2,548			845			923
Intangible assets, net	36,288			29,984			33,576			34,252
Goodwill	28,095			17,757			27,740			27,522
Other long term assets	3,902			2,631			3,906			3,943
Total Assets	$	183,754		$	162,147
Total assets							$	182,426		$	179,919
Liabilities and Stockholders’ Equity
Current Liabilities:
Current liabilities:
Debt obligations	21,055			9,860			943			936
Accounts payable	14,492			13,000			14,605			13,204
Accrued liabilities	13,901			11,121			10,520			10,678
Total Current Liabilities	49,448			33,981
Total current liabilities							26,068			24,818
Long-term debt	52,555			57,518			67,592			70,483
Deferred income taxes	2,875			630			3,295			3,266
Deferred compensation arrangements	3,413			2,636
Pension and post-retirement obligations	4,177			2,785			4,220			4,381
Total Liabilities	112,468			97,550
Commitments and Contingencies
Other long term liabilities							4,834			4,685
Total liabilities							106,009			107,633
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 9,396 and 9,276 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	29,078			27,824
Common stock, no par value, authorized 50,000 shares; 9,471 and 9,374 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively							30,621			29,503
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding	—			—			—			—
Retained earnings	51,244			46,650			57,211			54,786
Accumulated other comprehensive loss	(9,036		)	(9,877		)	(11,415		)	(12,003		)
Total Stockholders’ Equity	71,286			64,597
Total stockholders’ equity							76,417			72,286
Total Liabilities and Stockholders’ Equity	$	183,754		$	162,147		$	182,426		$	179,919

See accompanying notes to condensed consolidated financial statements.

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)

	For the three months ended						For the six months ended						For the three months ended
	June 30,						June 30,						March 31,
	2016			2015			2016			2015			2017			2016

Revenues	$	65,835		$	60,479		$	129,510		$	120,059		$	61,354		$	63,675
Cost of goods sold	46,222			42,492			91,620			84,572			43,653			45,170
Gross margin	19,613			17,987			37,890			35,487			17,701			18,505
Operating costs and expenses:
Selling	2,635			2,063			5,059			4,271			2,603			2,424
General and administrative	5,878			5,822			12,287			11,375			5,749			6,409
Engineering and development	4,174			3,707			8,224			7,153			4,191			4,050
Business development	135			—			218			—			—			83
Amortization of intangible assets	828			660			1,607			1,322			793			779
Total operating costs and expenses	13,650			12,252			27,395			24,121			13,336			13,745
Operating income	5,963			5,735			10,495			11,366			4,365			4,760
Other expense (income):
Interest expense	1,590			1,511			3,122			3,026			523			1,532
Other expense, net	(130		)	(19		)	(115		)	(285		)	(10		)	15
Total other expense, net	1,460			1,492			3,007			2,741			513			1,547
Income before income taxes	4,503			4,243			7,488			8,625			3,852			3,213
Provision for income taxes	(1,561		)	(1,118		)	(2,419		)	(2,524		)	(1,195		)	(858		)
Net income	$	2,942		$	3,125		$	5,069		$	6,101		$	2,657		$	2,355

Basic earnings per share:
Earnings per share	$	0.31		$	0.34		$	0.54		$	0.66		$	0.29		$	0.25
Basic weighted average common shares	9,343			9,264			9,312			9,225			9,068			9,273
Diluted earnings per share:
Earnings per share	$	0.31		$	0.34		$	0.54		$	0.66		$	0.29		$	0.25
Diluted weighted average common shares	9,343			9,264			9,312			9,225			9,229			9,273

Net income	$	2,942		$	3,125		$	5,069		$	6,101		$	2,657		$	2,355

Other comprehensive income:
Foreign currency translation adjustment	(1,066		)	917			963			(3,562		)	674			2,029
Change in accumulated (loss) income on derivatives	(17		)	41			(122		)	(59		)
Comprehensive income (loss)	$	1,859		$	4,083		$	5,910		$	2,480
Change in accumulated loss on derivatives													(86		)	(104		)
Comprehensive income													$	3,245		$	4,280

See accompanying notes to condensed consolidated financial statements.

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the six months ended						For the three months ended
	June 30,						March 31,
	2016			2015			2017			2016
Cash Flows From Operating Activities:
Net income	$	5,069		$	6,101		$	2,657		$	2,355
Adjustments to reconcile net income to net cash (used in) provided by operating activities (net of working capital acquired):
Adjustments to reconcile net income to net cash provided by (used in) operating activities (net of working capital acquired in 2016):
Depreciation and amortization	4,850			3,665			2,450			2,270
Deferred income taxes	859			555			(48		)	96
Stock compensation expense	974			926			466			513
Debt issue cost amortization recorded in interest expense							37			—
Other	(314		)	272			248			(217		)
Changes in operating assets and liabilities:
Trade receivables	(8,992		)	(5,975		)	(4,768		)	(6,423		)
Inventories, net	689			(1,514		)
Inventories							221			(16		)
Prepaid expenses and other assets	1,389			(666		)	150			(484		)
Accounts payable	(39		)	1,757			1,302			(748		)
Accrued liabilities	(2,810		)	(1,519		)	(383		)	(4,261		)
Net cash provided by operating activities	1,675			3,602
Net cash provided by (used in) operating activities							2,332			(6,915		)

Cash Flows From Investing Activities:
Consideration paid for acquisition, net of cash acquired ($2,329)	(16,049		)	—			—			(17,000		)
Purchase of property and equipment	(2,382		)	(2,708		)	(1,288		)	(984		)
Net cash used in investing activities	(18,431		)	(2,708		)	(1,288		)	(17,984		)

Cash Flows From Financing Activities:
Borrowings on lines-of-credit, net	9,534			1,398			—			10,859
Principal payments of long-term debt	(3,750		)	(3,000		)	(3,000		)	(1,875		)
Dividends paid to stockholders	(473		)	(468		)	(228		)	(224		)
Stock transactions under employee benefit stock plans	268			223			628			811
Net cash provided by (used in) financing activities	5,579			(1,847		)
Net cash (used in) provided by financing activities							(2,600		)	9,571
Effect of foreign exchange rate changes on cash	261			(824		)	121			366
Net decrease in cash and cash equivalents	(10,916		)	(1,777		)	(1,435		)	(14,962		)
Cash and cash equivalents at beginning of period	21,278			13,113			15,483			21,278
Cash and cash equivalents at end of period	$	10,362		$	11,336		$	14,048		$	6,316

See accompanying notes to condensed consolidated financial statements.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except ~~share and~~ per share data)

1. BASIS OF PREPARATION AND PRESENTATION

Allied Motion Technologies Inc. (Allied Motion or the Company) is engaged in the business of designing, manufacturing and selling motion control solutions, which include integrated system solutions as well as individual motion control products, to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion, automotive control, medical, and aerospace and defense markets.

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

The assets and liabilities of the Company’s ~~international~~foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of ~~international~~foreign subsidiaries that occur as a result of changes in exchange rates between ~~international~~foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive income, a component of stockholders’ equity in the accompanying condensed consolidated balance sheets. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each Technology Unit (“TU”) are included in the results of operations as incurred.

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.

The preparation of financial statements in accordance with U.S. GAAP 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 condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 that was previously filed by the Company.

Error correction

The Company’s quarterly financial statements for each of the quarters included in its Form 10-Qs for the year ended December 31, 2016 contained an error related to the elimination of intercompany cost of sales. The error was corrected as of December 31, 2016, but since the adjustment was not material to any of the quarters the Form 10-Qs will not be amended. Management has determined the effects to be neither quantitatively or qualitatively material to the financial statements included in any of the Form 10-Qs filed during 2016.

The following table illustrates the correction of the error as shown in the statement of operations in Form 10-Q:

Year 2016	First Quarter			Second Quarter			Third Quarter
Net income as reported	$	2,127		$	2,942		$	2,520
Effect on cost of goods sold	(228		)	(251		)	(301		)
Net income as revised	$	2,355		$	3,193		$	2,821

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The following table illustrates the correction of the error as recorded in the Company’s financial statements during the fourth quarter 2016:

Year 2016	Fourth Quarter
Net income as recorded	$	1,489
Effect on cost of goods sold	780
Net income as revised	$	709

The first quarter 2016 financial statements presented have been revised to reflect the error correction. The impact of the correction on basic and fully diluted earnings per share for the first quarter 2016 was an increase of $0.02.

Reclassifications

Certain items in the prior year’s consolidated financial statements and notes to consolidated financial statements have been reclassified to conform to the ~~2016~~2017 presentation.

2. ACQUISITION

~~Acquisition of Heidrive~~

~~In December 2015,~~On January 12, 2016, the Company ~~through its wholly-owned subsidiary, Allied Motion Technologies B.V., entered into a Share Purchase Agreement (the “Purchase Agreement”) to purchase all of~~completed the ~~outstanding equity interests~~acquisition of Heidrive GmbH, a German limited liability company (“Heidrive”) from palero fünf S.à r.l for ~~$22,000 (approximately €20,000), which included certain management performance bonuses to be paid after closing.~~

~~The adjusted purchase price as of January 12, 2016 is $18,378~~$18,534 (€~~16,924)~~17,068). At the end of the first quarter, the adjusted purchase price was $19,329 (€17,800). During the second quarter, the purchase price was reduced by $951 (€876) for a seller concession that was finalized.

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

The purchase price was funded with cash of ~~$7,519 ($8,470 less the Seller concession of $951, or €6,924)~~$8,470 (€7,800) plus $10,859 (€10,000) of borrowings under the Company’s ~~international~~foreign revolving credit ~~facility (Note 9).~~facility.

Heidrive is headquartered in Kelheim, Germany, and has manufacturing facilities located in ~~the~~ Germany and the Czech Republic.

The Company incurred $467 of transaction costs in 2015 and $98 in 2016 related to the acquisition of Heidrive. Transaction costs are included in Business Development expenses on the consolidated statements of income and comprehensive income.

~~The purchase price was allocated to the underlying net assets based on fair value as of the acquisition date, as follows (in thousands):~~

January 12, 2016

Cash

$
2,329

Other current assets

5,652

Property, plant and equipment

4,002

Amortizable intangible assets

7,710

Goodwill

10,025

Current liabilities

(7,696
)
Long-term liabilities

(3,644
)
Net purchase price

$
18,378

~~The~~ purchase price allocation ~~has been revised to reflect an updated valuation~~was finalized during the first quarter of ~~intangible assets and property, plant and equipment. The purchase price allocation may be subject to further adjustment to reflect, among other things, any~~2017. No adjustments ~~to income taxes and~~were made during the ~~offsetting adjustments to goodwill~~.

The intangible assets acquired consist of customer lists, tradename, and technology. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other Technology Units (“TUs”) that will occur as a result of the combined engineering knowledge, the ability of each of the TUs to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize Heidrive’s management knowledge in providing complementary product offerings to the Company’s customers.first quarter 2017.

3. INVENTORIES

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

June 30,
2016

December 31,
2015

Parts and raw materials

$
24,556

$
23,710

Work-in-process

5,076

2,404

Finished goods

5,296

3,730

34,928

29,844

Less reserves

(4,849
)
(3,669
)
Inventories, net

$
30,079

$
26,175

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

	March 31, 2017			December 31, 2016
Parts and raw materials	$	23,136		$	23,978
Work-in-process	7,104			6,628
Finished goods	5,268			4,928
	35,508			35,534
Less reserves	(4,646		)	(4,436		)
Inventories	$	30,862		$	31,098

4.~~PROPERTY, PLANT AND EQUIPMENT~~

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

June 30,
2016

December 31,
2015

Land

$
974

$
970

Building and improvements

9,875

9,771

Machinery, equipment, tools and dies

42,943

37,782

Furniture, fixtures and other

9,986

8,657

63,778

57,180

Less accumulated depreciation

(25,152
)
(21,865
)
Property, plant and equipment, net

$
38,626

$
35,315

Depreciation expense was approximately $1,752 and $1,198 for the quarters ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016 and 2015, depreciation expense was $3,243 and $2,343, respectively.

5.~~GOODWILL~~

~~The change in the carrying amount of goodwill for the quarter ended June 30, 2016 and year ended December 31, 2015 is as follows (in thousands):~~

June 30,

December 31,

2016

2015

Beginning balance

$
17,757

$
18,303

Goodwill acquired (Note 2)

10,025

—

Effect of foreign currency translation

313

(546
)
Ending balance

$
28,095

$
17,757

6.~~INTANGIBLE ASSETS~~

~~Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):~~

June 30, 2016

December 31, 2015

Life

Gross
Amount

Accumulated
amortization

Net Book
Value

Gross
Amount

Accumulated
amortization

Net Book
Value

Customer lists

8 - 15 years

$
38,183

$
(8,996
)
$
29,187

$
34,149

$
(7,785
)
$
26,364

Trade name

10 - 17 years

6,108

(2,040
)
4,068

4,775

(1,793
)
2,982

Design and technologies

8 - 15 years

4,780

(1,765
)
3,015

2,189

(1,570
)
619

Patents

24

(6
)
18

24

(5
)
19

Total

$
49,095

$
(12,807
)
$
36,288

$
41,137

$
(11,153
)
$
29,984

~~Intangible assets acquired from the Heidrive acquisition were approximately $7,710 (Note 2).~~

Amortization expense for intangible assets was $828 and $660 for the quarters ending June 30, 2016 and 2015, respectively; and $1,607 and $1,322 for the six months ended June 30, 2016 and 2015, respectively.

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~Estimated future intangible asset amortization expense as of June 30, 2016 is as follows (in thousands):~~

Estimated
Amortization
Expense

Remainder of 2016

$
1,602

2017

3,204

2018

3,204

2019

3,204

2020

3,204

Thereafter

21,870

Total estimated amortization expense

$
36,288

7. STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company’s Stock Incentive Plans provide for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Restricted Stock

For the ~~six months~~quarter ended ~~June 30, 2016, 101,791~~March 31, 2017, 87,696 shares of unvested restricted stock were awarded at a weighted average market value of ~~$20.02.~~$22.61. Of the restricted shares granted, ~~58,813~~28,025 shares have performance based vesting conditions. The value of the shares is amortized to compensation expense over the related service period, which is normally three years, or over the estimated performance period. Shares of unvested restricted stock are forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.

The following is a summary of restricted stock activity for the ~~six months~~quarter ended ~~June 30, 2016:~~March 31, 2017:

	Number of shares
Outstanding at beginning of period	~~367,199~~308,542
Awarded	~~101,791~~87,696
Vested	(~~105,950~~2,482	)
Forfeited	(~~6,445~~14,169	)
Outstanding at end of period	~~356,595~~379,587

Stock based compensation expense, net of forfeitures of ~~$461~~$466 and ~~$502~~$513 was recorded for the quarter ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. ~~For~~

5.ACCRUED LIABILITIES

Accrued liabilities consist of the ~~six months ended June 30, 2016 and 2015, stock compensation expense, net~~following (in thousands):

	March 31, 2017		December 31, 2016
Compensation and fringe benefits	$	5,473	$	7,379
Warranty reserve	851		830
Income taxes payable	1,224		183
Other accrued expenses	2,972		2,286
	$	10,520	$	10,678

6.DEBT OBLIGATIONS

Debt obligations consisted of ~~forfeitures,~~the following (in thousands):

	March 31, 2017			December 31, 2016
Current Borrowings
China Credit Facility (4.7% at March 31, 2017)	$	943		$	936
Current borrowings	$	943		$	936

Long-term Debt
Revolving Credit Facility, long term (1)	$	68,275		$	71,203
Unamortized debt issuance costs	(683		)	(720		)
Long-term debt	$	67,592		$	70,483

(1) The effective rate of ~~$974 and $926 was recorded, respectively.~~the Revolver is 3.4% at March 31, 2017.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except ~~share and~~ per share data)

8.~~ACCRUED LIABILITIES~~

~~Accrued liabilities consist of the following (in thousands):~~

June 30,
2016

December 31,
2015

Compensation and fringe benefits

$
6,698

$
7,791

Warranty reserve

1,070

780

Other accrued expenses

6,133

2,550

$
13,901

$
11,121

9. ~~DEBT OBLIGATIONS~~

~~Debt obligations consisted of the following (in thousands):~~

June 30,
2016

December 31,
2015

Current Borrowings

Revolving Credit Facility

$
9,829

$
—

China Credit Facility (6.4% at June 30, 2016)

1,570

1,641

Term Loan, current portion, (2.5% at June 30, 2016)

(1
)
9,656

8,219

Current borrowings

$
21,055

$
9,860

Long-term Debt

Term Loan, noncurrent (2.5% at June 30, 2016)

(1
)
$
23,719

$
28,906

Subordinated Notes (14.5%, 13% Cash, 1.5% PIK)

30,000

30,000

Unamortized debt issuance costs

(1,164
)
(1,388
)
Long-term debt

$
52,555

$
57,518

~~(1)~~ ~~The effective rate of the Term Loan including the impact of the related hedges is 2.79%.~~

Credit Agreement

On ~~January 8,~~October 28, 2016, the Company entered into a ~~First Amendment and Consent (the “Amendment”) to the~~ Credit Agreement ~~with Bank of America, N.A., as administrative agent, and the lenders party thereto (as amended, the~~(the “Credit Agreement”) for a $125,000 revolving credit facility (the “Revolving Facility”). ~~Pursuant to the Amendment,~~The Revolving Facility includes a $50,000 accordion amount and has an initial term of five years. HSBC Bank USA, National Association is the administrative agent, HSBC Securities (USA) Inc. is the sole lead arranger and ~~lenders consented to the Company’s acquisition of Heidrive GmbH,~~sole book runner, and that such acquisition would not reduce the acquisition basket under the Credit Agreement. The Amendment also amends the Credit Agreement to increase the revolving credit facility from $15,000 to $30,000Keybank National Association and ~~the international revolving sublimit from $10,000 to $25,000.~~

~~The Credit Agreement provides for the $30,000 Revolving Credit Facility and a $50,000 Term Loan (collectively the “Senior Credit Facilities”) each with a five year term that matures in 2018.~~Wells Fargo Bank, National Association are co-syndication agents.

Borrowings under the ~~Senior~~Revolving Credit ~~Facilities~~Facility are subject to terms defined in the Credit Agreement. Borrowings bear interest at ~~either~~ the ~~Base~~LIBOR Rate plus a margin of ~~0.25%~~1.00% to ~~2.00% (currently 1.50%)~~2.25% or the ~~Eurocurrency~~Prime Rate plus a margin of ~~1.25%~~0% to ~~3.00% (currently 2.00%)~~1.25%, in each case depending on the Company’s ratio of total funded indebtedness to Consolidated EBITDA (the “Total Leverage Ratio”).

~~Principal installments are payable~~ At March 31, 2017, the applicable margin for LIBOR Rate borrowings was 1.75% and the applicable margin for Prime Rate borrowings was 0.75%. In addition, the Company is required to pay a commitment fee of between 0.10% and 0.25% quarterly (currently 0.175%) on the ~~Term Loan in varying percentages quarterly through September 30, 2018 with a balloon payment at maturity. The Senior Credit Facilities are secured by substantially all~~unused portion of the Revolving facility, also based on the Company’s assets. The average outstanding borrowings for 2016 for the Senior Credit Facilities were $47,000. At June 30, 2016, there was approximately $20,200 available under the Senior Credit Facilities. These amounts reflect the face value of the borrowings without adjustment for unamortized debt issue costs.

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~Total Leverage Ratio.

The Credit Agreement contains certain financial covenants related to ~~maximum~~minimum interest coverage and total leverage ~~and minimum fixed charge coverage.~~ratio at the end of each quarter. The Credit Agreement also includes other covenants and restrictions, including limits on the amount of ~~certain types~~additional indebtedness, and restrictions on the Company’s ability to merge, consolidate or sell all or substantially all of ~~capital expenditures.~~its assets. The Company was in compliance with all covenants at ~~June 30, 2016.~~

~~Senior Subordinated Notes~~

Under the Company’s Note Agreement, the Company sold $30,000 of 14.50% Senior Subordinated Notes due October 18, 2019 (the “Notes”) to Prudential Capital Partners IV, L.P. and its affiliates in a private placement. The interest rate on the Notes is 14.50% with 13.00% payable in cash and 1.50% payable in-kind, quarterly in arrears and the outstanding principal amount of the Notes, together with any accrued and unpaid interest is due on October 18, 2019. The Company may prepay the Notes at any time after October 18, 2016, in whole or in part, at 100% of the principal amount. The Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed by certain of the Company’s subsidiaries.

On January 8, 2016, the Company entered into a Consent and Amendment No. 3 to the Note Agreement with Prudential Capital Partners IV, L.P. and its affiliates. Pursuant to the Note Amendment, the note holders consented to the Company’s acquisition of Heidrive GmbH and that such acquisition would not reduce the acquisition basket under the Note Agreement.March 31, 2017.

Other

The China Facility provides credit of approximately ~~$1,810~~$1,450 (Chinese Renminbi (“RMB”) ~~12,000)~~10,000). The China Facility is used for working capital and capital equipment needs at the Company’s China ~~operations, and will mature in November, 2017.~~operations. The average balance for ~~2016~~2017 was ~~$1,620~~$943 (RMB ~~10,600)~~6,500). At ~~June 30, 2016,~~March 31, 2017, there was approximately ~~$240~~$508 (RMB ~~1,570)~~3,500) available under the facility.

~~Maturities of long-term debt are as follows:~~

Total

Remainder of 2016

$
21,054

2017

10,374

2018

13,346

2019

30,000

Total

$
74,774

~~10.~~7. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013, the Company entered into two ~~Interest Rate Swaps~~identical interest rate swaps with a combined notional of $25,000 ~~(representing 50% of the Term Loan balance at that time)~~ that amortize quarterly

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

to a notional of $6,673 at the September 2018 maturity. One of these interest rate swaps is currently active. The Company terminated the other interest rate swap during October 2016 as part of its debt refinancing. In February 2017, the Company entered into three interest rate swaps with a combined notional ~~amount changes over time as loan payments are made. As~~ of ~~June 30, 2016 the amount hedged was $16,688.~~$40,000 that matures in February 2022.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During ~~2016~~2017 and ~~2015,~~2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

directly in earnings. There was no hedge ineffectiveness recorded in the Company’s earnings during the quarters ended ~~June 30, 2016~~March 31, 2017 and ~~2015.~~2016.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company estimates that an additional ~~$95~~$312 will be reclassified as an increase to interest expense over the next year.

Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (in thousands):

Fair Value

Derivative Instrument

Balance Sheet Classification

June 30, 2016

December 31, 2015

Derivative Instruments

Balance Sheet Classification

March 31, 2017

December 31, 2016

Interest Rate Swaps

Other Liabilities

149

Other Liabilities

116

The effect of the Company’s derivative financial instruments on the condensed consolidated statement of income and comprehensive income is as follows (in thousands):

Net deferral in OCI of derivatives (effective portion)

For the quarter ended June 30,

For the six months ended June 30,

Derivative Instruments

2016

2015

2016

2015

Interest Rate Swaps

$
(48
)
$
(9
)
$
(184
)
$
(160
)

Net reclassification from AOCI into income (effective portion)

For the quarter ended June 30,

For the six months ended June 30,

Statement of earnings
classification

2016

2015

2016

2015

Interest expense

$
(30
)
$
(50
)
$
(62
)
$
(101
)

	Net deferral in OCI of derivatives (effective portion)							Net reclassification from AOCI into income (effective portion)
	For the quarter ended March 31,						Statement of earnings	For the quarter ended March 31,
Derivative Instruments	2017			2016			classification	2017			2016
Interest Rate Swaps	$	(134	)	$	(136	)	Interest expense	$	(48	)	$	(32	)

11. ~~FAIR VALUE~~

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

The guidance establishes a framework for measuring fair value which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

~~These two types of inputs create the following three-level fair value hierarchy:~~

~~Level 1:~~	~~Quoted prices for identical assets or liabilities in active markets.~~
~~Level 2:~~	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
~~Level 3:~~	~~Significant inputs to the valuation model that are unobservable.~~

The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the condensed consolidated balance sheets for these assets approximate fair value because of the immediate or short-term maturities of these financial instruments.

The following table presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, respectively, by level within the fair value hierarchy (in thousands):

June 30, 2016

Level 1

Level 2

Level 3

Assets

Pension Plan Assets

$
4,916

$
—

$
—

Other long term assets

3,408

—

—

Interest rate swaps

—

(149
)
—

December 31, 2015

Level 1

Level 2

Level 3

Assets

Pension Plan Assets

$
4,986

$
—

$
—

Other long term assets

2,631

—

—

Interest rate swaps

—

(27
)
—

~~12.~~8. INCOME TAXES

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws and ~~international~~foreign tax holidays, settlements with taxing authorities and foreign currency fluctuations.

The Company has net operating loss ~~and tax credit~~ carryforwards in ~~certain~~an international ~~jurisdictions~~jurisdiction expiring ~~through~~in 2017. The Company evaluates the future realizability of the tax loss and credit carryforwards considering the anticipated future earnings and tax planning strategies in the international jurisdictions.

The effective income tax rate as a percentage of income before income taxes was ~~34.7%~~31.0% and ~~26.3% for~~26.7% in the ~~second~~first quarter 2017 and 2016, ~~and 2015, respectively and 32.3% and 29.3% for~~respectively. The 2016 effective tax rate is revised from 28.7% to 26.7% to reflect the ~~six months ended June 30, 2016 and 2015, respectively.~~increase in income resulting from the error correction described in Note 1. The effective tax rate for the ~~second quarter~~first quarters of 2017 and 2016 ~~contains a discrete tax provision~~is net of ~~0.1% ($7) and for the first six months of 2016 contains~~ a discrete tax benefit of ~~2.0% ($153)~~(2.3%) and (5.0%), respectively, related to the ~~adoption~~recognition of ~~ASU 2016-09.~~ excess tax benefits for share-based payment awards.

The effective rate before discrete ~~item for 2016 and 2015~~items varies from the statutory rate due to permanent differences in state taxes and the difference in US and ~~international~~foreign tax rates and the mix of ~~international~~foreign and domestic income.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except ~~share and~~ per share data)

The Company adopted ASU No. ASU No. 2016-09 prospectively as of January 1, 2016 and ASU No. 2015-17 retrospectively in the second quarter 2016. These pronouncements impact the accounting and disclosure for income taxes (refer to Note 17).

~~13.~~~~COMMITMENTS AND CONTINGENCIES~~

~~Warranty~~

The Company offers warranty coverage for its products. The length of the warranty period for its products varies significantly based on the product being sold. 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.

~~Changes in the Company’s reserve for product warranty claims for the quarter ended June 30, 2016 and the year ended December 31, 2015 were as follows (in thousands):~~

June 30,
2016

December 31,
2015

Warranty reserve at beginning of the year

$
780

$
786

Warranty reserves acquired

297

—

Provision

31

142

Warranty expenditures

(49
)
(123
)
Effect of foreign currency translation

11

(25
)
Warranty reserve at end of the period

$
1,070

$
780

~~Litigation~~

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

~~14.~~9. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated Other Comprehensive Income for the ~~quarter~~quarters ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ is comprised of the following (in thousands):

Defined Benefit
Plan Liability

Cash Flow
Hedges

Foreign
Currency
Translation
Adjustment

Total

At March 31, 2016

$
(688
)
$
(131
)
$
(7,133
)
$
(7,952
)
Unrealized loss on cash flow hedges

—

(48
)
—

(48
)
Amounts reclassified from AOCI

—

30

—

30

Foreign currency translation loss

—

—

(1,066
)
(1,066
)
At June 30, 2016

$
(688
)
$
(149
)
$
(8,199
)
$
(9,036
)

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except share and per share data)~~

	Defined Benefit Plan Liability			Cash Flow Hedges			Foreign Currency Translation Adjustment			Total
At December 31, 2016	$	(822	)	$	(30	)	$	(11,151	)	$	(12,003	)
Unrealized loss on cash flow hedges	—			(134		)	—			(134		)
Amounts reclassified from AOCI	—			48			—			48
Foreign currency translation gain	—			—			674			674
At March 31, 2017	$	(822	)	$	(116	)	$	(10,477	)	$	(11,415	)

Defined Benefit
Plan Liability

Cash Flow
Hedges

Foreign
Currency
Translation
Adjustment

Total

At March 31, 2015

$
(853
)
$
(102
)
$
(9,307
)
$
(10,262
)
Unrealized loss on cash flow hedges

—

(9
)
—

(9
)
Amounts reclassified from AOCI

—

50

—

50

Foreign currency translation gain

—

—

917

917

At June 30, 2015

$
(853
)
$
(61
)
$
(8,390
)
$
(9,304
)

~~Accumulated Other Comprehensive Income for the six months ended June 30, 2016 and 2015 is comprised of the following (in thousands):~~

Defined Benefit
Plan Liability

Cash Flow
Hedges

Foreign
Currency
Translation
Adjustment

Total

At December 31, 2015

$
(688
)
$
(27
)
$
(9,162
)
$
(9,877
)
Unrealized loss on cash flow hedges

—

(184
)
—

(184
)
Amounts reclassified from AOCI

—

62

—

62

Foreign currency translation gain

—

—

963

963

At June 30, 2016

$
(688
)
$
(149
)
$
(8,199
)
$
(9,036
)

Defined Benefit
Plan Liability

Cash Flow
Hedges

Foreign
Currency
Translation
Adjustment

Total

At December 31, 2014

$
(853
)
$
(2
)
$
(4,828
)
$
(5,683
)
Unrealized loss on cash flow hedges

—

(160
)
—

(160
)
Amounts reclassified from AOCI

—

101

—

101

Foreign currency translation loss

—

—

(3,562
)
(3,562
)
At June 30, 2015

$
(853
)
$
(61
)
$
(8,390
)
$
(9,304
)

	Defined Benefit Plan Liability			Cash Flow\| Hedges			Foreign Currency Translation Adjustment			Total
At December 31, 2015	$	(688	)	$	(27	)	$	(9,162	)	$	(9,877	)
Unrealized loss on cash flow hedges	—			(136		)	—			(136		)
Amounts reclassified from AOCI	—			32			—			32
Foreign currency translation gain	—			—			2,029			2,029
At March 31, 2016	$	(688	)	$	(131	)	$	(7,133	)	$	(7,952	)

The realized ~~(gain) loss~~gains relating to the Company’s interest rate swap hedges were reclassified from ~~Accumulated Other Comprehensive Income~~accumulated other comprehensive income and included in ~~Interest Expense~~interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

~~15.~~10. DIVIDENDS PER SHARE

The Company declared a quarterly dividend of $0.025 per share in ~~each of~~ the first quarter of 2017 and ~~second quarters of 2016 and 2015.~~2016. Total dividends declared were $235 in the first ~~six~~three months of ~~2016~~2017 and ~~2015~~2016.

11.EARNINGS PER SHARE

Basic and diluted weighted-average shares outstanding are as follows:

	Three months Ended March 31,
	2017	2016
Basic weighted average shares outstanding	9,068	9,273
Dilutive effect of equity awards	161	—
Diluted weighted average shares outstanding	9,229	9,273

For the three months ended March 31, 2017 there were ~~$475 and $464, respectively.~~2,187 common shares subject to equity-based awards excluded from the calculation of diluted earnings per share as they would be anti-dilutive.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except ~~share and~~ per share data)

~~16.~~12. SEGMENT INFORMATION

ASC Topic “Segment Reporting” 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 the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, 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 “Segment Reporting” 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 “Segment Reporting” can be found in the accompanying condensed consolidated financial statements and within this note.

The Company’s wholly owned ~~international~~foreign subsidiaries, located in The Netherlands, Sweden, Germany, Portugal, China and Mexico are included in the accompanying condensed consolidated financial statements.

Financial information related to the ~~international~~foreign subsidiaries is summarized below (in thousands):

For the three months ended

For the six months ended

June 30,

June 30,

2016

2015

2016

2015

Revenues derived from international subsidiaries

$
26,313

$
20,791

$
51,920

$
38,218

	For the three months ended
	March 31,
	2017		2016
Revenues derived from foreign subsidiaries	$	25,285	$	25,607

Identifiable ~~international~~foreign assets were ~~$79,715~~$78,255 and ~~$56,444~~$73,378 as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Revenues derived from ~~international~~foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe.

Sales to customers outside of the United States by all subsidiaries were ~~$29,659~~$28,170 and ~~$21,714~~$28,575 during the ~~quarter~~quarters ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015, respectively; and $58,234 and $41,528 for the six months ended June 30, 2016 and 2015,~~ respectively.

For ~~second~~first quarter ~~2016~~2017 and ~~2015,~~2016, one customer accounted for 19% and ~~23%~~18% of revenues, ~~respectively;~~respectively and as of March 31, 2017 for ~~the year to date 2016 and 2015 for 19% and 23%, respectively. As of June 30, 2016 and December 31, 2015, this customer represented 16%~~20% of trade receivables. ~~For second quarter 2015,~~As of March 31, 2017, another customer accounted for 10% of ~~revenues; and as of June 30, 2016 and December 31, 2015, this customer represented 14% and 16% of~~ trade ~~receivables, respectively.~~receivables.

~~17.~~13. RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements

~~Effective January 1, 2016,~~In July 2015, the ~~Company adopted ASU 2016-09,~~ ~~“Compensation — Stock Compensation (Topic 718).”~~ ~~The~~ FASB issued ASU ~~2016-09~~No. 2015-11, “Simplifying the Measurement of Inventory.” The standard applies to inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of the standard at the lower of cost and net realizable value. Net realizable value is the estimated selling price in ~~March 2016 as part~~the ordinary course of ~~its simplification initiative~~business, less reasonably predictable costs of completion, disposal and ~~affects all entities that issue share-based payment awards to their employees.~~transportation. The amendments in ~~this update cover such areas as~~ASU 2015-11 more closely align the ~~recognition~~measurement of ~~excess tax benefits and deficiencies,~~inventory in U.S. GAAP with the ~~classification~~measurement of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows.inventory in International Financial Reporting Standards (IFRS). The ~~amendments are~~standard is effective for ~~annual periods, and interim reporting periods within those annual periods,~~fiscal years beginning after December 15, ~~2016 using either prospective,~~2016. The Company adopted ASU 2015-11 effective January 1, 2017 and it had no impact on its consolidated financial statements.

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except ~~share and~~ per share data)

retrospective or modified retrospective transition method, depending on the area covered in this update. As permitted within the amendment, the Company elected to early adopt and prospectively apply the provisions of this amendment as of January 1, 2016. As a result of the adoption, a tax benefit of $160 was recorded in the first quarter.

~~Effective April 1, 2016, the Company adopted ASU 2015-17,~~ ~~“Balance Sheet Classification of Deferred Taxes.”~~ Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The Update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We early adopted this ASU for the first quarter of 2016, and we applied it retrospectively to 2015 for comparability, which resulted in the reclassification of $3,318 and $2,551 of current deferred tax assets to noncurrent as of June 30, 2016 and December 31, 2015.

~~Effective January 1, 2016 the Company adopted ASU No. 2015-16, “~~~~Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments~~.” This standard requires that an entity recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 did not have a material impact on the Company’s condensed consolidated financial statements.

~~Effective January 1, 2016, the Company adopted ASU 2015-03, “~~~~Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~” on a retrospective basis. The updated accounting guidance requires debt issuance costs to be presented as a deduction from the corresponding debt liability instead of the historical presentation as an unamortized debt issuance asset. The impacts of adopting the new standard as of December 31, 2015, were a decrease in other assets and a decrease in long term debt of $1,388.

Recently issued accounting pronouncements

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The objective of ASU 2016-15 is to reduce existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. If early adopted, an entity must adopt all the amendments in the same period. The Company is currently evaluating the impact of the adoption of ASU 2016-15 on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently assessing the impact this guidance will have on its ~~condensed consolidated financial statements.~~

~~In July 2015, the FASB issued ASU No. 2015-11, “~~~~Simplifying the Measurement of Inventory~~.” The standard applies to inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of the standard at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments in ASU 2015-11 more closely align the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The standard is effective for fiscal years beginning after December 15, 2016. ASU 2015-11 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, ““Revenue from Contracts with ~~Customers,”~~Customers” which ~~amended~~is a comprehensive new revenue recognition ~~guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to~~model. Under ASU 2014-09, a company will recognize revenue ~~to depict the transfer of~~when it transfers promised goods or services to customers in an amount that reflects the consideration to which ~~an entity~~the company expects to be entitled in exchange for those goods orand services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance will beASU 2014-09 is effective for ~~the Company~~our interim and annual reporting periods beginning ~~in the first quarter of fiscal year~~January 1, 2018, and is to be adopted using ~~one of two prescribed~~either a full retrospective ~~methods.~~or modified retrospective transition method. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We do not ~~permitted. The Company has not yet selected a transition method, or determined~~plan to early adopt the ~~effect~~guidance. We currently anticipate adopting the new standard under the modified retrospective approach. We are still in the process of reviewing our contracts, and are continuing to evaluate the ~~standard~~exact impact the update will have on ~~its ongoing~~recording revenue in our consolidated financial ~~reporting.~~statements and related disclosures.

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

All statements contained herein that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and ~~international~~foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our the ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and the additional risk factors discussed under “Item 1A. Risk Factors” in Part II of this report and in the Company’s Annual Report in Form 10-K. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these ~~forward-looking~~forward- looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company’s expectations, beliefs and projections are ~~expressed in good faith~~the and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.

Overview

We are a global company that designs, manufactures and sells precision and specialty motion control components and systems used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense, Electronics and Industrial. We are headquartered in Amherst, NY, and have operations in the United States, Canada, Mexico, Europe and Asia. We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology. We sell component and integrated motion control solutions to end customers and original equipment manufacturers (“OEMs”) through our own direct sales force and authorized manufacturers’ representatives and distributors. Our products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, and other motion control-related products.

Financial overview

~~The Company achieved a 9% increase in sales for~~Cost discipline and the ~~second quarter~~effectiveness of ~~2016 compared~~our refinancing last year enabled net income growth on moderately softer revenue. We continued to ~~the prior year. Results for the second quarter of 2016 were favorably impacted by~~grow our ~~acquisition of Heidrive. Sales to our medical,~~ aerospace and defense and ~~industrial markets had strong growth. Our~~medical market sales helping to offset sustained weakness in certain applications within our vehicle market. Encouragingly, sales to those vehicle market ~~declined slightly primarily due~~applications appear to end-of-life wind downs of several projects. Earnings were 6% lower in the second quarter of 2016 compared to the prior year which reflects higher operating costs from increased investment in engineering and development for multi-product motion system offerings, the additional expense related to the Heidrive acquisition and the investments we continue to make to realign our organization for greater efficiency and accelerated growth.

As we advance our global growth strategy and transformation to a precision motion control solutions provider, we are expanding our opportunity pipeline with new applications and new customers while focusing our resources toward higher margin, multi-product solutions. We expect in time both scale and revenue diversity will help to diminish the variability of sales to specific markets and customers within quarters.have stabilized.

We continue to develop custom applications created for specific customer needs that utilize our extensive technical and engineering knowledge. We are applying this capability to expand our customers and our geographic reach. We are seeing tractionmake solid strides with our ~~efforts in new projects, with some moving into~~multi-product, fully integrated solutions that are leading to increased business such as our recently announced vehicle market win. Also, we continue to build a pipeline of exciting market-based application opportunities. Sales cycles are long and the time from being selected for the solution development to full rate production ~~this year and others planned for 2017 and beyond. Our attention is~~can be longer, yet we are building a scalable foundation which can deliver strong returns on ~~executing our strategy in what appears to be a continuing slow growth economic environment.~~those investments.

Operating Results

Quarter ended ~~June 30, 2016~~March 31, 2017 compared to quarter ended ~~June 30, 2015~~March 31, 2016

	For the quarter ended						2016 vs. 2015
	June 30,						Variance					For the quarter ended March 31,						2017 vs. 2016 Variance
(in thousands)	2016			2015			$			%		2017			2016			$			%
Revenues	$	65,835		$	60,479		$	5,356		9	%	$	61,354		$	63,675		$	(2,321	)	(4	)%
Cost of goods sold	46,222			42,492			3,730			9	%	43,653			45,170			(1,517		)	(3	)%
Gross margin	19,613			17,987			1,626			9	%	17,701			18,505			(804		)	(4	)%
Gross margin percentage	29.8		%	29.7		%						28.9		%	29.1		%
Operating costs and expenses:
Selling	2,635			2,063			572			28	%	2,603			2,424			179			7	%
General and administrative	5,878			5,822			56			1	%	5,749			6,409			(660		)	(10	)%
Engineering and development	4,174			3,707			467			13	%	4,191			4,050			141			3	%
Business development	135			—			135			100	%	—			83			(83		)	100	%
Amortization of intangible assets	828			660			168			25	%	793			779			14			2	%
Total operating costs and expenses	13,650			12,252			1,398			11	%	13,336			13,745			(409		)	(3	)%
Operating income	5,963			5,735			228			4	%	4,365			4,760			(395		)	(8	)%
Interest expense	1,590			1,511			79			5	%	523			1,532			(1,009		)	(66	)%
Other income (expense)	(130		)	(19		)	(111		)	584	%	(10		)	15			(25		)	(167	)%
Total other expense	1,460			1,492			(32		)	(2	)%	513			1,547			(1,034		)	(67	)%
Income before income taxes	4,503			4,243			260			6	%	3,852			3,213			639			20	%
Provision for income taxes	(1,561		)	(1,118		)	(443		)	40	%	(1,195		)	(858		)	(337		)	39	%
Net Income	$	2,942		$	3,125		$	(183	)	(6	)%	$	2,657		$	2,355		$	302		13	%

Effective tax rate	34.7		%	26.3		%	8		%	32	%	31.0		%	26.7		%	4		%	16	%
Diluted earnings per share	$	0.31		$	0.34		$	(0.03	)	(9	)%	$	0.29		$	0.25		$	0.04		16	%
Bookings	$	68,347		$	64,523		$	3,824		6	%	$	60,459		$	66,391		$	(5,932	)	(9	)%
Backlog	$	80,742		$	75,605		$	5,137		7	%	$	77,954		$	81,704		$	(3,750	)	(5	)%

NET INCOME: Net income ~~decreased~~increased during the ~~second~~first quarter ~~as a result of a shift~~due to savings in ~~the mix of income to international jurisdictions with higher tax rates. Heidrive is included~~interest expense resulting from our debt refinancing in ~~our results as of January 12, 2016.~~October 2016 and lower operating expenses, offset by lower gross margin resulting from decreased volumes.

EBITDA AND ADJUSTED EBITDA: EBITDA was ~~$8,673~~$6,825 for the ~~second~~first quarter of ~~2016~~2017 compared to ~~$7,612~~$7,015 for the same quarter last year. Adjusted EBITDA was ~~$8,446~~$7,291 and ~~$8,114~~$7,611 for the ~~second~~first quarter of ~~2016~~2017 and ~~2015, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for~~

income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock compensation expense and certain other items. Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.

~~REVENUES: For the quarter, strong sales in most markets helped to counter lower sales in our vehicle market.~~

~~Sales to U.S. customers were 55% of total sales for the second quarter compared with 64% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.~~

~~ORDER BACKLOG: The increase in bookings in the second quarter of~~ 2016, compared to the second quarter of 2015 is largely due to the growth in most of our markets. The backlog increase as of June 30, 2016 compared to at June 30, 2015 was also attributable to market growth.

~~GROSS MARGIN: The 9% gross margin increase in second quarter 2016 compared to second quarter 2015 was largely due to additional volume attributable to the acquisition of Heidrive.~~

SELLING EXPENSES: Selling expenses increased in the second quarter of 2016 compared to the same period of 2015 primarily due to the acquisition of Heidrive. Selling expenses as a percentage of revenues were 4% and 3% in the second quarter of 2016 and 2015, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 1% in the second quarter 2016 from the second quarter 2015 largely due to the acquisition of Heidrive, offset by insurance recoveries related to a fire at one of our international locations. As a percentage of revenues, general and administrative expenses decreased to 9% for the period ended June 30, 2016 compared to 10% for the same period in 2015.

ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 13% in the second quarter of 2016 compared to the same quarter last year. The increase is due to the ramp up of a significant development project to meet the future needs of a target market for Allied Motion and the acquisition of Heidrive. As a percentage of revenues, engineering and development expenses were 6% for both the second quarter of 2016 and 2015.

BUSINESS DEVELOPMENT COSTS: The Company incurred $135 of business development costs during the second quarter partially related to the acquisition of Heidrive GmbH on January 12, 2016. Business development costs are typically acquisition related expenses for due diligence and legal services.

AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets increased in the second quarter of 2016 compared to the second quarter of 2015 due to the amortization of Heidrive intangible assets.

~~INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 34.7% and 26.3% in the second quarters of 2016 and 2015, respectively.~~ ~~The effective tax rate for the second quarter 2016 contains a discrete tax provision of 0.1% ($7) related to the adoption of ASU 2016-09,~~ ~~“Compensation — Stock Compensation (Topic 718)~~~~.” Refer to Note 12 of the~~ ~~Unaudited Notes to Condensed Consolidated Financial Statements~~ for information. The effective rate before discrete item for 2016 varies from the statutory rate due to permanent differences, state taxes and the difference in US and international tax rates and the mix of international and domestic income. The effective tax rate for the second quarter of 2015 was lower than the statutory rate primarily due to differences in state and foreign tax rates and changes in the estimated valuation allowance.

~~Six months ended June 30, 2016 compared to six months ended June 30, 2015~~

For the six months ended

2016 vs. 2015

June 30,

Variance

(in thousands)

2016

2015

$

%

Revenues

$
129,510

$
120,059

$
9,451

8
%
Cost of goods sold

91,620

84,572

7,048

8
%
Gross margin

37,890

35,487

2,403

7
%
Gross margin percentage

29.3
%
29.6
%

Operating costs and expenses:

Selling

5,059

4,271

788

18
%
General and administrative

12,287

11,375

912

8
%
Engineering and development

8,224

7,153

1,071

15
%
Business development

218

—

218

100
%
Amortization of intangible assets

1,607

1,322

285

22
%
Total operating costs and expenses

27,395

24,121

3,274

14
%
Operating income

10,495

11,366

(871
)
(8
)%
Interest expense

3,122

3,026

96

3
%
Other income (expense)

(115
)
(285
)
170

(60
)%
Total other expense

3,007

2,741

266

10
%
Income before income taxes

7,488

8,625

(1,137
)
(13
)%
Provision for income taxes

(2,419
)
(2,524
)
105

(4
)%
Net Income

$
5,069

$
6,101

$
(1,032
)
(17
)%

Effective tax rate

32.3
%
29.3
%
3
%
10
%
Diluted earnings per share

$
0.54

$
0.66

$
(0.12
)
(18
)%
Bookings

$
134,738

$
122,666

$
12,072

10
%
Backlog

$
80,742

$
75,605

$
5,137

7
%

NET INCOME: Net income decreased during 2016 reflecting a higher effective tax rate due to a shift in income to international jurisdictions with higher rates, increased engineering and development costs and investments in IT infrastructure.

~~EBITDA AND ADJUSTED EBITDA: EBITDA was $15,460 for 2016 compared to $15,316 last year. Adjusted EBITDA was $15,829 and $16,242 for 2016 and 2015,~~ respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock compensation expense and certain other items. Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.

REVENUES: For ~~2016,~~ the ~~increase~~quarter, the decrease in revenues reflects ~~the increased~~decreased sales in ~~most of our~~the Vehicle, Distribution, Industrial and Electronics markets, ~~that~~partially offset by higher sales in the ~~lower sales for the vehicle market.~~Aerospace & Defense and Medical markets.

Sales to U.S. customers were ~~55%~~54% of total sales for ~~2016~~the quarter compared with ~~65%~~55% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. Sales volume decreased by 2% for the quarter and there was a 2% decline in sales due to the dollar strengthening against the foreign currencies where we do business, primarily the Euro and the Swedish Krona.

ORDER BACKLOG: The ~~increase~~decrease in bookings in ~~2016~~the first quarter of 2017 compared to ~~2015~~the first quarter of 2016 is largely

due to ~~growth~~the softening of demand in ~~most~~our Vehicle market. The backlog decrease as of March 31, 2017 compared to at March 31, 2016 was also attributable to the decline in our ~~markets.~~Vehicle market orders.

GROSS MARGIN: The ~~7% increase in~~4% gross margin compression in ~~2016~~first quarter 2017 compared to ~~2015~~first quarter 2016 was ~~largely~~primarily due to ~~the increase in volume attributable to the Heidrive acquisition.~~volume.

SELLING EXPENSES: Selling expenses increased in ~~2016~~the first quarter of 2017 compared to ~~2015~~the same period of 2016 primarily due to increased investment and growth of the ~~acquisition of Heidrive.~~One Allied Sales Organization. Selling expenses as a percentage of revenues were 4% ~~for 2016~~in the first quarter of 2017 and ~~2015.~~2016.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses ~~increased~~decreased by 8%10% in ~~2016~~the first quarter 2017 from ~~2015~~the first quarter 2016 largely due to ~~the acquisition of Heidrive, partially offset by insurance recoveries related to a fire at one of our international locations.~~lower incentive compensation expense. As a percentage of revenues, general and administrative expenses ~~was~~decreased to 9% for the period ended March 31, 2017 compared to 10% for ~~2016 and 2015.~~the same period in 2016.

ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by ~~15%~~3% in ~~2016~~the first quarter of 2017 compared to ~~2015.~~the same quarter last year. The increase is primarily due to the ~~acquisition of Heidrive and the~~continued ramp up of ~~a significant~~ development ~~project~~projects to meet the future needs of a target ~~market for Allied Motion.~~markets. As a percentage of revenues, engineering and development expenses were 7% and 6% for ~~both~~the first quarter of 2017 and 2016, ~~and 2015.~~respectively.

BUSINESS DEVELOPMENT COSTS: The Company incurred ~~$218~~$83 of business development costs during the first quarter 2016 ~~partially~~ related to the acquisition of ~~Heidrive GmbH on January 12, 2016. Business development costs are typically acquisition related expenses for due diligence and legal services.~~Heidrive.

AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense was flat in the first quarter of ~~intangible assets increased in 2016~~2017 compared to ~~2015 due to~~ the ~~amortization~~first quarter of ~~Heidrive intangible assets.~~2016.

INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was ~~32.3%~~31.0% and ~~29.3%~~26.7% in the first quarter 2017 and 2016, ~~and 2015,~~ respectively. The effective tax rate for the first ~~six months~~quarters of 2017 and 2016 ~~contains~~is net of a discrete tax benefit of ~~2.0% ($153)~~(2.3%) and (5.0%), respectively, related to the ~~adoption~~recognition of ~~ASU 2016-09. Refer to Note 12 of the~~ ~~Unaudited Notes to Condensed Consolidated Financial Statements~~excess tax benefits for ~~information.~~share-based payment awards. The effective rate ~~before discrete item for 2016~~ varies from the statutory rate due to permanent differences in state taxes and the difference in US and ~~international~~foreign tax rates and the mix of ~~international~~foreign and domestic income. ~~The year to date effective tax rate for 2015 was lower than the statutory rate primarily due to differences in state and foreign tax rates and changes in the estimated valuation allowance.~~

Non-GAAP Measures

EBITDA and Adjusted EBITDA are provided for information purposes only and are not measures of financial performance under GAAP.

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information in evaluating the operating results of the Company as distinct from results that include items that are not indicative of ongoing operating results; in particular, those charges and credits that are not directly related to operating unit performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for net income determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net income determined in accordance with GAAP.

The Company believes EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our debt financings, as well as our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry.

The Company also believes that Adjusted EBITDA provides helpful information about the operating performance of its business. Adjusted EBITDA excludes stock compensation expense, as well as certain income or expenses which are not indicative of the ongoing performance of the Company. EBITDA and Adjusted EBITDA do not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure

for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of EBITDA and Adjusted EBITDA for the ~~three~~quarters ended March 31, 2017 and ~~six months ended June 30,~~ 2016 ~~and 2015~~ is as follows (in thousands):

	For the three months ended					For the six months ended
��											For the three months ended
	June 30,					June 30,					March 31,
	2016			2015		2016			2015		2017		2016
Net income as reported	$	2,942		$	3,125	$	5,069		$	6,101	$	2,657	$	2,355
Interest expense	1,590			1,511		3,122			3,026		523		1,532
Provision for income tax	1,561			1,118		2,419			2,524		1,195		858
Depreciation and amortization	2,580			1,858		4,850			3,665		2,450		2,270
EBITDA	8,673			7,612		15,460			15,316		6,825		7,015
Stock compensation expense	461			502		974			926		466		513
Business Development Costs	135			—		218			—
Insurance recoveries	(823		)	—		(823		)	—
Business development costs											—		83
Adjusted EBITDA	$	8,446		$	8,114	$	15,829		$	16,242	$	7,291	$	7,611

Liquidity and Capital Resources

The Company’s liquidity position as measured by cash and cash equivalents decreased by ~~$10,916~~$1,435 to a balance of ~~$10,362~~$14,048 at ~~June 30, 2016~~March 31, 2017 from December 31, ~~2015.~~2016.

	Six months ended									Quarter ended March 31,						2017 vs. 2016
	June 30,						2016 vs. 2015			2017			2016			$
	2016			2015			$
Net cash provided by operating activities	$	1,675		$	3,602		$	(1,927	)
Net cash provided by (used in) operating activities										$	2,332		$	(6,915	)	$	9,247
Net cash used in investing activities	(18,431		)	(2,708		)	(15,723		)	(1,288		)	(17,984		)	16,696
Net cash provided by (used in) financing activities	5,579			(1,847		)	7,426
Net cash (used in) provided by financing activities										(2,600		)	9,571			(12,171		)
Effect of foreign exchange rates on cash	261			(824		)	1,085			121			366			(245		)
Net decrease in cash and cash equivalents	$	(10,916	)	$	(1,777	)	$	(9,139	)	$	(1,435	)	$	(14,962	)	$	13,527

Cash decreased in the first full quarter of 2016, largely to accommodate the working capital needs of the Heidrive acquisition. During ~~2016,~~ the ~~decrease~~first quarter 2017, the increase in cash provided by operating activities is primarily due to ~~lower net income combined with an increase in working~~well managed capital needs at the operating unit level, primarily within accrued liabilities, accounts payable and trade ~~receivables and accounts payable. The receivables increase reflects higher sales in 2016 compared to 2015.~~receivables.

The significant cash used for investing activities in 2016 reflects the acquisition of Heidrive during the quarter. During the first ~~quarter. The cash paid for the acquisition was $16,049 net~~quarter of ~~cash acquired. During 2016,~~2017, purchases of property and equipment were ~~$2,382~~$1,288 compared to ~~$2,708~~$984 for ~~2015.~~the first quarter of 2016.

~~Net~~The change in cash ~~provided by~~used in financing activities ~~was higher in~~reflects the 2016 ~~than 2015 due to the~~ use of the ~~international~~foreign revolver of $10,859 (€10,000) to partially finance the Heidrive ~~acquisition in~~acquisition. During the first ~~quarter. During the second~~ quarter of ~~2016,~~2017, we made payments of ~~$3,105 (€2,500) for the international revolver. Borrowings of $1,500 have been made in 2016 on the US revolver.~~

~~We have made $3,750 of payments in 2016~~$3,000 for our ~~Term Loan~~Senior Revolver obligation. At ~~June 30, 2016,~~March 31, 2017, we had ~~$73,204 in~~$67,592 of obligations under the ~~Credit Agreement and the Note Agreement (without adjustment for unamortized debt issuance costs).~~Senior Revolver.

The Credit Agreement contains certain financial covenants related to ~~maximum~~minimum interest coverage and total leverage ~~and minimum fixed charge coverage.~~ratio at the end of each quarter. The Credit Agreement also includes other covenants and restrictions, including limits on the amount of ~~certain types~~additional indebtedness, and restrictions on the ability to merge, consolidate or sell all or substantially all of ~~capital expenditures. The Company was~~our assets. We were in compliance with all covenants at ~~June 30, 2016.~~March 31, 2017.

As of ~~June 30, 2016,~~March 31, 2017, the amount available to borrow under the Credit Agreement was approximately ~~$20,200.~~

$56,725.

~~The average~~

There were no additional borrowings for the China Facility balance for ~~2016~~the first quarter of 2017 from December 31, 2016. The balance at March 31, 2017 was ~~$1,620~~$943 (RMB ~~10,600)~~6,500). At ~~June 30, 2016,~~March 31, 2017, there was approximately ~~$240~~$508 (RMB ~~1,570)~~3,500) available under the facility.

During ~~2016,~~the quarter ended March 31, 2017, the Company paid dividends of $0.025 per ~~share in each of the first two quarters, or $0.05 for the first six months of 2016.~~share. The Company’s working capital, capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the Credit Agreement.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Foreign Currency

We have ~~international~~foreign operations in The Netherlands, Sweden, Germany, China, Portugal, ~~Germany,~~ Canada, Czech Republic and Mexico, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Yuan Renminbi, Canadian dollar and Mexican pesos, respectively. We continuously evaluate our foreign currency risk and will take action from time to time in order to best mitigate these risks. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately ~~$2,600~~$2,800 on our ~~second~~first quarter ~~sales and $5,100 on our year to date~~2017 sales. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies. We estimate that foreign currency exchange rate fluctuations during the ~~three and six months~~quarter ended ~~June 30, 2016 increased~~March 31, 2017 decreased sales in comparison to ~~the same periods in 2015~~quarter ended March 31, 2016 by approximately ~~$400 and $100, respectively.~~$1,200.

We translate all assets and liabilities of our ~~international~~foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the Condensed Consolidated Financial Statements as Comprehensive Income. The translation adjustment was a ~~loss of $1,066 and a~~ gain of ~~$920~~approximately $700 and $2,000 for the ~~second~~first quarter of ~~2016~~2017 and ~~2015, respectively. The translation adjustment was a gain of $963 and loss of $3,560 for the year to date~~ 2016, ~~and 2015 periods,~~ respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our ~~international~~foreign subsidiaries. Net foreign currency transaction gains and losses included in ~~Other~~other income, net amounted to a ~~gain of $69 and a~~ loss of ~~$44~~$70 and $100 for the ~~second~~first quarter of 2017 and 2016, ~~and 2015,~~ respectively. ~~For the year to date 2016, a $25 loss has been recognized in Other income, net compared to a $148 gain for 2015.~~ A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately ~~$4,800~~$4,700 on our foreign net assets as of ~~June 30, 2016.~~March 31, 2017.

Interest Rates

Interest rates on our ~~Credit~~Revolving Facility are based on the ~~Base~~LIBOR plus a margin of 1.00% to 2.25% (currently 1.75%) or the Prime Rate plus a margin of ~~0.25%~~0% to ~~2.00%~~1.25% (currently ~~1.50%~~0.75%) or, in each case depending on the ~~Eurocurrency Rate plus a margin~~Company’s ratio of ~~1.25%~~total funded indebtedness to ~~3.00% (currently 2.0%). The Company uses~~Consolidated EBITDA. We use interest rate derivatives to add stability to interest expense and to manage ~~its~~our exposure to interest rate movements. ~~The Company~~We primarily ~~uses~~use interest rate swaps as part of ~~its~~our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013, the Company entered into two ~~Interest Rate Swaps~~interest rate swaps with a combined notional of $25,000 (representing 50% of the Term Loan balance at that time) that amortize quarterly to a notional of $6,673 at maturity. ~~This swap is accounted for~~The notional amount changes over time as loan payments are made. As a ~~cash flow hedge. Refer to Note 7~~requirement of the ~~Unaudited Notes to Condensed Consolidated Financial Statements~~ ~~for information about our derivative financial instruments.~~debt refinance, one of the swaps was liquidated. In February 2017, we entered into three interest rate swaps with a combined notional of $40,000 that matures in February 2022.

As of ~~June 30, 2016,~~March 31, 2017, we had ~~$33,375~~$67,592 outstanding under the ~~Term Loan,~~Revolving Facility, of which ~~$16,688~~$46,578 is currently being hedged. Refer to Note 6 of theNotes to Condensed Consolidated Financial Statements for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the Base Rate on the ~~$16,688~~$16,884 of unhedged floating rate debt outstanding at ~~June 30, 2016~~March 31, 2017 would have an impact of approximately ~~$45~~$42 on our interest expense for the ~~second~~first quarter ~~2016 and $91 for the year to date 2016.~~2017.

Item 4. Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~June 30, 2016.~~March 31, 2017. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on management’s evaluation of our disclosure controls and procedures as of ~~June 30, 2016,~~March 31, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

During the quarter ~~and six months~~ ended ~~June 30, 2016,~~March 31, 2017, with the exception of Heidrive, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Note regarding acquisition

In making our assessment of the Company’s internal control over financial reporting as of ~~June 30, 2016,~~March 31, 2017, we have excluded the operations of Heidrive. We are currently assessing the control environment of this acquired business. Our consolidated financial statements reflect Heidrive’s results of operations from January 12, 2016. Heidrive’s net sales constituted approximately ~~12%~~13% of our net sales for the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017 and ~~Heidrive’s assets constituted~~ approximately 7% of the Company’s total assets as of ~~June 30, 2016.~~March 31, 2017.

PART II. OTHER INFORMATION

Item 1A. ~~Risk Factors~~RISK FACTORS

There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, ~~2015,~~2016, except to the extent factual information disclosed elsewhere in this form 10-Q relates to such risk factors. For a full discussion of these risk factors, please refer to “Item 1A. Risk Factors” in the ~~2015~~2016 Annual Report in Form 10-K.

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

Period

Number of
Shares
Purchased

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs

04/01/16 to 04/30/16

1,885
(1)
$
19.82

—

—

05/01/16 to 05/31/16

25,674
(1)
17.99

—

—

06/01/16 to 06/30/16

—

—

—

—

Total

27,559

$
18.12

—

—

~~(1)~~ As permitted under the Company’s equity compensation plan, these shares were withheld by the Company to satisfy tax withholding obligations for employees in connection with the vesting of stock. Shares withheld for tax withholding obligations do not affect the total number of shares available for repurchase under any approved common stock repurchase plan. At June 30, 2016, the Company did not have an authorized stock repurchase plan in place.

Item 5. Other Information

~~None.~~The Company held its annual stockholders’ meeting on May 3, 2017. At the annual meeting, the stockholders of the Company (i) elected the seven director nominees, (ii) approved, on an advisory basis, the compensation awarded to the Company’s Named Executive Officers, (iii) approved the Company’s 2017 Omnibus Incentive Plan and (iv) ratified the appointment of EKS&H LLLP as the Company’s independent registered public accounting firm for the 2016 fiscal year.

The results of the voting for the seven director nominees were as follows:

Nominee	For	Against	Abstentions	Broker Non-votes
Richard D. Federico	5,460,506	175,543	193,283	1,886,409
Gerald J. Laber	5,541,965	94,084	193,283	1,886,409
Alexis P. Michas	5,541,965	94,084	193,283	1,886,409
Richard D. Smith	5,540,302	95,747	193,283	1,886,409
James J. Tanous	5,394,339	241,710	193,283	1,886,409
Richard S. Warzala	5,513,083	122,966	193,283	1,886,409
Michael R. Winter	5,474,397	161,652	193,283	1,886,409

The results for the advisory vote on executive compensation were as follows:

For		Against		Abstentions		Broker Non-Votes
5,447,105		190,126		192,101		1,886,409

The results of the voting for the approval of the Company’ 2017 Omnibus Incentive Plan were as follows:

For		Against		Abstentions
4,535,489		1,101,505		192,338

The results of the voting for the ratification of EKS&H as the Company’s independent registered public accounting firm for the 2016 fiscal year were as follows:

For		Against		Abstentions
7,498,079		19,468		198,194

Item 6. Exhibits

(a) Exhibits

10.1 First Amendment to Credit Agreement, dated as of March 28, 2017, among Allied Motion Technologies, Inc. and Allied Motion Technologies B.V., as borrowers, HSBC Bank USA, National Association, as administrative agent, and the lenders party thereto (filed herewith).

31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 The following materials from Allied Motion Technologies Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2016,~~March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive income, (iii) condensed consolidated statements of cash flows and (iv) the notes to the consolidated financial statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE:	~~August 4, 2016~~May 3, 2017	ALLIED MOTION TECHNOLOGIES INC.
		By:
			~~By:~~	~~/s/~~/s/ Michael R. Leach
		Michael R. Leach
		Chief Financial Officer

2520

Colorado		~~84-0518115~~
(State or other jurisdiction of incorporation or organization)		84-0518115 (I.R.S. Employer Identification No.)

495 Commerce Drive, Amherst, New York (Address of principal executive offices)		14228 (Zip Code)

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o ~~(Do not check if a smaller~~ ~~reporting company)~~		Smaller reporting company o
(Do not check if a smaller reporting company)		Emerging growth company o

			~~Page No.~~

PART I. FINANCIAL INFORMATION		Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — Unaudited	1

	Condensed Consolidated Statements of Operations and Comprehensive Income — Unaudited	2

	Condensed Consolidated Statements of Cash Flows — Unaudited	3

	Notes to Condensed Consolidated Financial Statements - Unaudited	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1612

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2216

Item 4.	Controls and Procedures	2316

PART II.			OTHER INFORMATION

Item 1A.	Risk Factors	2317

Item 5.	Other Information	2418

Item 6.	Exhibits	2419

	January 12, 2016
Cash	$	2,329
Other current assets	5,652
Property, plant and equipment	4,002
Amortizable intangible assets	7,710
Goodwill	10,025
Current liabilities	(7,696		)
Long-term liabilities	(3,644		)
Net purchase price	$	18,378

	June 30, 2016			December 31, 2015
Land	$	974		$	970
Building and improvements	9,875			9,771
Machinery, equipment, tools and dies	42,943			37,782
Furniture, fixtures and other	9,986			8,657
	63,778			57,180
Less accumulated depreciation	(25,152		)	(21,865		)
Property, plant and equipment, net	$	38,626		$	35,315

	June 30,		December 31,
	2016		2015
Beginning balance	$	17,757	$	18,303
Goodwill acquired (Note 2)	10,025		—
Effect of foreign currency translation	313		(546		)
Ending balance	$	28,095	$	17,757

		June 30, 2016							December 31, 2015
	Life	Gross Amount		Accumulated amortization			Net Book Value		Gross Amount		Accumulated amortization			Net Book Value
Customer lists	8 - 15 years	$	38,183	$	(8,996	)	$	29,187	$	34,149	$	(7,785	)	$	26,364
Trade name	10 - 17 years	6,108		(2,040		)	4,068		4,775		(1,793		)	2,982
Design and technologies	8 - 15 years	4,780		(1,765		)	3,015		2,189		(1,570		)	619
Patents		24		(6		)	18		24		(5		)	19
Total		$	49,095	$	(12,807	)	$	36,288	$	41,137	$	(11,153	)	$	29,984

	Estimated Amortization Expense
Remainder of 2016	$	1,602
2017	3,204
2018	3,204
2019	3,204
2020	3,204
Thereafter	21,870
Total estimated amortization expense	$	36,288

	Total
Remainder of 2016	$	21,054
2017	10,374
2018	13,346
2019	30,000
Total	$	74,774

	Net deferral in OCI of derivatives (effective portion)
	For the quarter ended June 30,						For the six months ended June 30,
Derivative Instruments	2016			2015			2016			2015
Interest Rate Swaps	$	(48	)	$	(9	)	$	(184	)	$	(160	)

	June 30, 2016
	Level 1		Level 2			Level 3
Assets
Pension Plan Assets	$	4,916	$	—		$	—
Other long term assets	3,408		—			—
Interest rate swaps	—		(149		)	—

	June 30, 2016			December 31, 2015
Warranty reserve at beginning of the year	$	780		$	786
Warranty reserves acquired	297			—
Provision	31			142
Warranty expenditures	(49		)	(123		)
Effect of foreign currency translation	11			(25		)
Warranty reserve at end of the period	$	1,070		$	780

	Defined Benefit Plan Liability			Cash Flow Hedges			Foreign Currency Translation Adjustment			Total
At March 31, 2016	$	(688	)	$	(131	)	$	(7,133	)	$	(7,952	)
Unrealized loss on cash flow hedges	—			(48		)	—			(48		)
Amounts reclassified from AOCI	—			30			—			30
Foreign currency translation loss	—			—			(1,066		)	(1,066		)
At June 30, 2016	$	(688	)	$	(149	)	$	(8,199	)	$	(9,036	)

Period	Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
04/01/16 to 04/30/16	1,885	(1)	$	19.82	—	—
05/01/16 to 05/31/16	25,674	(1)	17.99		—	—
06/01/16 to 06/30/16	—		—		—	—
Total	27,559		$	18.12	—	—