PART II

Item 5.                        Market for Registrant'sRegistrant’s Common Equity, and Related Stockholder Matters.
Matters and Issuer Purchases of Equity Securities.

Allied Motion'sMotion’s common stock is traded on the Nasdaq Capital Market System and trades under the symbol AMOT. The number of holders of record as reported by the Company'sCompany’s transfer agent of the Company'sCompany’s common stock as of the close of business on March 20, 200613, 2007 was 669.577. The Company did not pay or declare any dividends during years 2006 and 2005 and 2004 and the Company'sCompany’s long-term financing agreement prohibits the Company from doing so without prior approval.

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

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

Overview

Allied Motion designs, manufactures and sells motion products to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial motion control, and aerospace and defense markets. The Company'sCompany’s products are used in demanding applications in medical equipment,  HVAC systems for trucks, busses and off-road vehicles, the specialty automotive market, industrial automation, pumps,  health-fitness, defense, aerospace, semiconductor manufacturing, fiber optic-based telecommunications, printing, and graphic imaging market sectors, to name a few.

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

The Company has made considerable progress in implementing its new corporate strategy, the driving force of which is "Applied“Applied Motion Technology/Know How"How”. The Company'sCompany’s commitment to Allied'sAllied’s Systematic Tools, or AST for short, is driving continuous improvement in quality, delivery, cost and growth. AST utilizes a tool kit to effect desired changes through well defined processes such as Strategy Deployment, Target Marketing, Value Stream Mapping, Material Planning, Standard Work and Single Minute Exchange of Dies.

One of the Company'sCompany’s major challenges is to maintain and improve price competitiveness. The Company'sCompany’s customers are continually being challenged by their markets and competitors to be price competitive and they are requiring their suppliers to deliver the highest quality product at the lowest price possible. In 2004,Currently, the Company began productionis producing some of its motor sub-assemblies and finished products at a sub-contract manufacturing facility in China. During 2005, theThe Company made significant progresswill continue to look for opportunities where production in establishing production of finished productslow cost regions for certain projects are anticipated to result in China, however was delayed in putting into production the programs that we expect will generate a significant profit swing for some of our projects. We anticipate that we will be able to complete these programs in 2006.increased profits.

The Company'sCompany’s products contain certain metals, and the Company has been experiencing increasessignificant fluctuations in the costs of these metals, particularly copper, steel and zinc, which are both key materials in our products. The Company has reacted by aggressively sourcing material at lower cost from Asian markets, combining the sourcing of metals to benefit from volume purchasing and by passing on surcharges to our customers.

The Company has an aggressive motor development plan for five new standalone products and two new product lines that leverage the combined technology base of the Allied Motion companies. The Company continues to focus on new product designs that design-out cost, provide higher performance and meet the needs of our served markets. Early in 2006, the Company announced several new motor designs targeted at various markets. Each of these motors are targeted at precision motor applications. It normally takes twelve months to get new products designed into new customer applications. All product development efforts are focused on adding value for our customers in our served market segments.

Management believes the strategy we have developed for the Company will accomplish our long term goals of increasing shareholder value through the continued strengthening of the foundation necessary to achieve growth in sales and profitability.

Operating Results

Year 2006 compared to 2005

NET INCOME   The Company achieved net income of $1,931,000 or $.28 per diluted share for 2006 compared to $923,000 or $.13 per diluted share for 2005.

EBITDA EBITDA was $7,166,000 for 2006 compared to $5,785,000 for 2005. EBITDA is a non-GAAP measurement that consists of income before interest expense, provision for income taxes and depreciation and amortization. See information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA.

REVENUES   Revenues were $82,768,000 in 2006 compared to $74,302,000 in 2005. This 11% increase is primarily attributable to increased sales in medical, industrial tool and electronics markets and in automotive liquid propane fuel pump applications partially offset by decreases in motors used in HVAC and actuation systems for vehicle markets.

GROSS MARGINS   Gross margin as a percentage of revenues increased to 24% for 2006 from 22% for 2005. This improvement reflects the increase in sales of the Company’s industrial and electronics markets which provide a higher gross margin from their sales, the cost reductions realized from products being produced at the Company’s contract manufacturing facility in China, and the continuous improvement in efficiencies and productivity from implementation of the Company’s AST tools.

SELLING EXPENSES   Selling expenses were $3,227,000 and $3,265,000 in 2006 and 2005, respectively.  Selling expense as a percentage of revenues decreased to 3.9% in 2006 compared to 4.4% last year. The decrease in selling expenses relates to a decrease in sales upon which commissions are paid and personnel changes.

GENERAL AND ADMINISTRATIVE EXPENSES   General and administrative expenses were $7,782,000 in 2006 compared to $5,952,000 in 2005. Of this 31% increase, 14% related to employee

performance bonuses, 5% related to salaries and employee benefit expenses and 4% related to audit and professional fees.

ENGINEERING AND DEVELOPMENT EXPENSES   Engineering and development expenses were $3,823,000 and $3,526,000 for 2006 and 2005, respectively. The Company continues to focus resources on new product designs and new customer applications to meet the needs of its served markets.

AMORTIZATION OF INTANGIBLE ASSETS   Amortization of intangible assets was $1,012,000 in 2006 and $1,010,000 in 2005.

INTEREST EXPENSE   Interest expense for 2006 was $983,000 and for 2005 was $1,075,000. The decrease in interest is directly attributed to the decrease in outstanding debt obligations partially offset by higher interest rates.

INCOME TAXES   The provision for income taxes was $969,000 for year 2006 compared to $558,000 for 2005. The effective rate differs from the statutory amounts primarily due to the impact of differences in state and foreign tax rates. The effective income tax rate as a percentage of income before income taxes was 33% in 2006 and 38% in 2005. The difference in the effective tax rates between periods was primarily due to a greater portion of income derived from a foreign jurisdiction with a lower tax rate and a reduction in the foreign jurisdiction enacted tax rates.

Operating Results

Year 2005 compared to 2004

NET INCOME—INCOME   The Company achieved net income of $923,000 or $.13 per diluted share for 2005 compared to $2,250,000 or $.36 per diluted share for 2004. Included in net income are results related to Stature Electric and Premotec from the dates of acquisition on May 10, 2004 and August 23, 2004, respectively. Results for both are included for all of 2005.

        EBITDA—EBITDA EBITDA was $5,800,000$5,785,000 for 2005 compared to $6,400,000 for 2004. EBITDA is a non-GAAP measurement that consists of income before interest expense, provision for income taxes and depreciation and amortization. See information included in "Non-GAAP Measures"“Non - GAAP Measures” below for a reconciliation of net income to EBITDA.

        REVENUES—REVENUES   Revenues were $74,302,000 in 2005 compared to $62,738,000 in 2004 or a 18% increase. The incremental revenues achieved by the companies acquired in 2004 increased revenues by 25% which were partially offset by a decrease in revenues from existing businesses of 7%. On a proforma basis, sales from Premotec and Stature increased 8% and consolidated sales decreased 2%. The decrease in existing business is primarily due to revenues related to certain projects last year that were not repeated this year, primarily in the Aerospace/Defense and Electronics markets and changes in customer buying patterns.

GROSS MARGINS—MARGINS   Gross margin as a percentage of revenues was 22% for 2005 and 26% for 2004. The decrease is due to a change in sales mix (significant drop in sales of our higher margin business partially offset by increased sales of lower margin business), the weighting of the lower margins of the acquired businesses, additional costs incurred to set up low cost manufacturing

capability in China and the negative impact of the upward trend in the cost of purchased metal. The Company has proactively responded to the increased metal costs by aggressively sourcing materials from Asian markets, by combining the sourcing of metals for its various manufacturing operations to benefit from volume purchasing and by passing surcharges to its customers. The Company anticipates gross margins will improve company wide as we continue to improve manufacturing efficiencies through the implementation of lean manufacturing, by increasing offshore sourcing of materials and from continued cost reduction efforts to reduce overhead costs and expenses. We also anticipate that we will start realizing improved margins from products manufactured in our low cost manufacturing facilities in 2006. Cost of products sold excludes $324,000 and $170,000 for amortization of acquired designs and technologies for 2005 and 2004, respectively.

SELLING EXPENSES—EXPENSES   Selling expenses were $3,265,000 and $2,557,000 in 2005 and 2004, respectively. Of this 28% increase, selling expenses from existing businesses decreased 3% and incremental expenses from Stature and Premotec contributed 31% of this increase. The decrease in selling expense from existing businesses is due to cost reduction efforts and recruiting expenses incurred in 2004 that did not repeat in 2005.

GENERAL AND ADMINISTRATIVE EXPENSES—EXPENSES   General and administrative expenses were $5,952,000 in 2005 compared to $6,226,000 in 2004 or a decrease of 4%. Of the 4% decrease, 14% was attributed to a decrease in incentive bonus expense and 4% was attributed to a decrease from cost reduction efforts in existing businesses offset by a 14% increase from the impact of acquiring Stature and Premotec.

ENGINEERING AND DEVELOPMENT EXPENSES—EXPENSES   Engineering and development expenses were $3,526,000 and $2,896,000 for 2005 and 2004, respectively. Of the 22% increase in engineering and development expenses, 20% was due to the acquisitions of Stature and Premotec and 2% was due to additional expenditures associated with new product development.

AMORTIZATION OF INTANGIBLE ASSETS—ASSETS   Amortization of intangible assets was $1,010,000 in 2005 and $647,000 in 2004. This increase was due to the amortization costs related to the amortizable intangible assets acquired in the Stature and Premotec acquisitions during 2004.

RESTRUCTURING CHARGE—CHARGE   Restructuring charges were zero and $10,000 in 2005 and 2004, respectively. The charges in 2004 relate primarily to severance costs arising from workforce reductions from consolidation of the Company'sCompany’s manufacturing facilities.

INTEREST EXPENSE—EXPENSE   Interest expense for 2005 was $1,075,000 and for 2004 was $696,000. The increase in interest was directly attributed to the increased outstanding balance on the borrowings related to the financing of the acquisitions of Stature and Premotec.

INCOME TAXES—TAXES   The provision for income taxes was $558,000 for year 2005 compared to $1,159,000 for 2004. The effective income tax rate as a percentage of income before income taxes from continuing operations was 38% in 2005 and 34% in 2004. The difference in the effective tax rate between periods was primarily due to resolution of certain income tax related issues offset by less of an effect of reduction in enacted tax rates in a foreign jurisdiction.

Year 2004 compared to 2003

        NET INCOME—The Company achieved net income of $2,250,000 or $.36 per diluted share for 2004 compared to $948,000 or $.19 per diluted share for 2003. Included in the results for 2003 was a tax credit of $298,000 related to the realization of a prior year state income tax refund. Included in net income for 2004 are results related to Stature Electric and Premotec from the dates of acquisition on May 10, 2004 and August 23, 2004, respectively.

        During 2003, the Company sold its Calibrator Business. In accordance with SFAS No. 144, the business is included as a discontinued operation; however results of operations for the discontinued business were zero and no gain or loss from the sale was recorded due to the previous writedown of the carrying value of the business to its estimated fair value.

        EBITDA—EBITDA was $6,400,000 for 2004 compared to $2,550,000 for 2003. EBITDA is a non-GAAP measurement that consists of income before interest expense, provision for income taxes and depreciation and amortization. See information included in "Non-GAAP Measures" below for a reconciliation of net income to EBITDA.

        REVENUES—Revenues were $62,738,000 in 2004 compared to $39,434,000 in 2003 or a 59% increase. Of this 59% increase in revenues, 17% came from the Company's existing businesses and the remaining 42% came from incremental revenues provided by Stature and Premotec, the companies acquired during 2004.

        GROSS MARGINS—Gross margin as a percentage of revenues was 26% for 2004 and 2003. This reflects improved margins of 2% from existing businesses offset by lower weighted average margins of

the two acquisitions. Cost of products sold excludes $170,000 and zero for amortization of acquired designs and technologies for 2005 and 2004, respectively.

        SELLING EXPENSES—Selling expenses were $2,557,000 and $2,022,000 in 2004 and 2003, respectively. This increase was primarily due to the acquisitions of Stature and Premotec.

        GENERAL AND ADMINISTRATIVE EXPENSES—General and administrative expenses were $6,226,000 in 2004 compared to $4,596,000 in 2003. The increased administration costs related to the acquisitions of Stature and Premotec made up approximately $1,000,000 of this increase. The remainder of the increase of $630,000 relates to additional incentive bonuses earned and to the increase in the contribution to the Employee Stock Ownership Plan.

        ENGINEERING AND DEVELOPMENT EXPENSES—Engineering and development expenses were $2,896,000 and $1,853,000 for 2004 and 2003, respectively. Of the $1,043,000 increase in engineering and development expenses, $667,000 was due to the acquisitions of Stature and Premotec and the remaining $376,000 was due to additional expenditures associated with new product development.

        AMORTIZATION OF INTANGIBLE ASSETS—Amortization of intangible assets expense was $647,000 in 2004 and $315,000 in 2003. This increase was due to the amortization costs related to the amortizable intangible assets acquired in the Stature and Premotec acquisitions.

        RESTRUCTURING CHARGE—Restructuring charges were $10,000 and $211,000 in 2004 and 2003, respectively. The charges relate primarily to severance costs arising from workforce reductions from consolidation of the Company's manufacturing facilities.

        INTEREST EXPENSE—Interest expense for 2004 was $687,000 and for 2003 was $226,000. The increase in interest was directly attributed to the increased outstanding balance on the borrowings related to the financing of the acquisitions of Stature and Premotec.

        INCOME TAXES—The provision for income taxes for year 2004 was $1,159,000 compared to $19,000 for 2003. The effective income tax rate as a percentage of income before income taxes from continuing operations was 34% in 2004 and 2% in year 2003. The difference in the effective tax rate between periods was primarily due to a $442,000 tax benefit realized in 2003 related to the realization of a prior year state income tax refund and resolution of certain income tax related issues.

Non-GAAP Measures

        EBITDA is not a defined term under U.S. generally accepted accounting principles (non-GAAP measures). Non-GAAP measures should not be considered in isolation or as a substitute for net income or cash flow data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.

EBITDA is provided for information purposes only and shouldis not be viewed as indicativea measure of actual or future results.financial performance under generally accepted accounting principles. The Company believes EBITDA is presentedoften 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. Accordingly, the Company believes that certain investors may use itEBITDA provides helpful information about the operating performance of its business, apart from the expenses associated with its physical assets or capital structure. EBITDA is frequently used as supplemental information to evaluate a company's ability to service its indebtedness.one of the bases for comparing businesses in the Company’s industry. EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company'sCompany’s calculation of EBITDA for 2005, 2004year ended December 31, 2006 and 20032005 is as follows:follows (in thousands):

Liquidity and Capital Resources

The Company'sCompany’s liquidity position as measured by cash and cash equivalents increased $168,000$45,000 during 20052006 to a balance of $624,000$669,000 at December 31, 2005.2006. The increase compares to a $168,000 increase in the same period last year. During 2005,2006, operations provided $3,671,000$3,634,000 in cash. Cash provided by operations included net income of $923,000$1,931,000 plus non-cash charges for depreciation and amortization of $3,229,000,$3,283,000, provisions for doubtful accounts, obsolete inventory and deferred income taxes totaling $602,000$1,290,000 and other non-cash charges of $254,000.$240,000. Cash was usedprovided by operating activities included increases in trade receivables and inventories of $203,000 and $1,849,000, respectively. These increases are primarily due to increase inventories by $644,000 in support of increased sales volume and anticipation of production of motor sub-assemblies at a sub-contract manufacturing facility in China.business levels. Cash used in operations also included an increase in trade receivables of $1,065,000 and increasesdecreases in accounts payable of $1,051,000 reflecting increased sales levels. Accruedand in accrued liabilities and other decreased $610,000 which mainly represented the payment in 2005 of the incentive bonus awards earned in 2004. Offsetting these uses was an increase in prepaid$878,000 and other current assets of $69,000.$147,000, respectively.

Net cash used in investing activities was $1,422,000 and $2,371,000 for 2006 and $17,719,000 for 2005, and 2004, respectively. The Company paid $275,000zero and $13,563,000,$275,000, in years 20052006 and 2004,2005, respectively, related to the acquisition of Stature and zero and $3,253,000 in years 2005 and 2004, respectively, related to the acquisition of Premotec.Stature. Purchases of property and equipment were $2,096,000$1,422,000 and $953,000$2,096,000 during the years 2006 and 2005, and 2004, respectively. During 2005, approximately $1,000,000 of the $2,096,000 in purchases related to the set-up of motor manufacturing in China. The Company does not expect the level of purchases related to our China manufacturing capability to continue at this level.

Net cash used in financing activities was $2,174,000 compared to $1,132,000 for the years 2006 and 2005, respectively. Net repayments on lines-of-credit for the year 2006 were $88,000 compared to net borrowings for the year 2005 compared to net cash provided of $12,937,000 for 2004. The Company had no new borrowings under term loans this year compared to borrowings of $10,314,000 in 2004.$441,000. The Company repaid $2,236,000$2,198,000 and $2,132,000$2,236,000 on term loans

for the years 2006 and 2005, respectively. The Company repaid $201,000 and 2004,$197,000 on capital leases in 2006 and 2005, respectively. In June 2004, Allied MotionProceeds received $1,000,000from capital leases were $52,000 and $50,000 for the issuance of 198,177 shares of common stock under the terms of a Stock Purchase Agreement. The purchasers of these shares were certain trusts2006 and pension plans, the beneficiaries of which are Michel Robert and members of his immediate family. The aggregate purchase price for the shares represented the fair value of the stock at the time the Company received the purchase price.2005, respectively. Cash was also provided from stock transactions under various employee benefit stock plans of $261,000 and $655,000, respectively for 2006 and $123,0002005, and repayment on a loan to the Company'sCompany’s Employee Stock Ownership plan of $155,000 and $45,000 in 2005 and 2004 respectively.2005.

At December 31, 2005,2006, the Company had $11,809,000$9,698,000 of debt obligations representing borrowings on lines-of-credit,line-of-credit and term loans and an overdraft facility.loans.

Under the domestic revolving line-of-credit agreement (Agreement), the Company has available the lesser of (a) $10,500,000$10,500,000 or (b) the sum of 85% of eligible trade accounts receivable (excluding Premotec) and 50% of eligible inventory, as defined in the Agreement. The line-of-credit expires in

May 2007, unless extended. Under the Agreement, the Company utilizes lock-box arrangements whereby remittances from customers reduce the outstanding debt, and therefore the line-of-credit balance has been classified as a current liability. Borrowings under the line-of-credit bear interest at a rate equal to the bank's prime rates plus 1% (8.25% asAs of December 31, 2005).2006, the amount available under the domestic line-of-credit was $3,747,000.

Under the foreign line-of-credit agreement (Foreign Agreement), the Company has available the lesser of (a) EUR 1.25 million ($1.65 million as of December 31, 2006), or (b) 85% of eligible trade accounts receivable of Premotec as defined in the Foreign Agreement. The line-of-credit expires in August 2006, unless extended. Borrowings under the line-of-credit bear interest at a rate equal to the bank'sbank’s base rate plus 1.75%, with a minimum of 4.75% (4.75%(6.00% at  December 31, 2005)2006). Under the Foreign Agreement, remittances from customers reduce the outstanding debt, therefore the balance has been classified as a current liability. As of December 31, 2006, the amount available under the foreign line-of-credit was $1,305,000.

The EUR 200,000Company has a bank overdraft facility bears anpayable to a foreign bank with no monthly repayments required, interest rate equal todue at the bank'sbank’s base rate plus 2%, with a minimum of 4.75% (4.75%5.25% (6.25% as of December 31, 2006), due on demand, secured by Premotec’s inventory. As of December, 2006, the amount available under the overdraft facility was $264,000. Effective February 1, 2007, the Company terminated the foreign line-of-credit agreement and increased the amount available under its foreign bank overdraft facility to EUR 750,000 ($990,000 at December 31, 2005)2006 exchange rate). The facility has no expiration date.Borrowings under the new line-of-credit bear interest at a rate equal to the bank’s base rate plus 1.5%, with a minimum of 4.75%.

The Company also has various term loans obtained in connection with its acquisitions. All borrowings are collateralized by substantially all assets of the Company.

The loan agreements prohibit the Company from paying dividends and require that the Company maintain compliance with certain covenants related to tangible net worth and profitability. As of December 31, 2005,2006, the Company was in compliance with such covenants. As of December 31, 2005,2006, the amount available under the lines-of-credit and overdraft facility was $5,226,000.$5,316,000.

The Company'sCompany’s working capital, capital expenditure and debt service requirements are expected to be funded from cash provided by operations and amounts available under the line-of-credit facilities. The Company’s domestic line-of-credit expires in May 2007. The Company is currently in discussions with lenders regarding its global debt financing needs. The Company believes it will be successful in obtaining debt financing facilities and that such debt financing facilities and the Company’s capital currently available to it is sufficient forto meet its currently anticipated needs for at least the next twelve months. If additional capital is needed in the future, the Company would pursue additional capital via debt or equity financings. A key component of the Company'sCompany’s liquidity relates to the availability of amounts under its lines-of-credit. Any lack of availability of these facilities could have a material adverse impact on the Company'sCompany’s liquidity position. There can be no assurances that such financing will be available to the Company on acceptable terms, or at all.

Price Levels and the Impact of Inflation

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

Critical Accounting Policies

The Company has prepared its financial statements in conformity with accounting principles generally accepted in the United States, and these statements necessarily include some amounts that are based on informed judgments and estimates of management. The Company'sCompany’s significant accounting policies are discussed in Note 1 to the consolidated financial statements. The policies are reviewed on a regular basis. The Company'sCompany’s critical accounting policies are subject to judgments and uncertainties which affect the application of such policies. The Company uses historical experience and all available information to make these judgments and estimates. As discussed below the Company'sCompany’s financial position or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or

assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. The Company'sCompany’s critical accounting policies include:

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

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

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

be realized. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are changed.

The Company reviews the carrying values of its long-lived assets, including goodwill and identifiable intangibles, in accordance with SFAS No. 142.144. SFAS No. 142144 provides a fair value test to evaluate goodwill and long-lived asset impairment. As part of the review, the Company estimates future cash flows. Depending upon future assessments of fair value and estimated future cash flows, there could be impairment recorded related to goodwill and other long-lived assets.

The Company provides pension and postretirement benefits for certain domestic retirees and records the cost of the obligations based on estimates. The net periodic costs are recognized as employees render the services necessary to earn the benefits. Several assumptions are used to calculate the expense and liability related to the plans including the discount rate, the expected rate of return on plan assets, the future rate of compensation increases and health care cost increases. The discount rate is selected based on a bond pricing model that relates to the projected future cash flows of benefit obligations. Actuarial assumptions used are based on demographic factors such as retirement and mortality. Actual results could vary materially from the Company'sCompany’s actuarial assumptions, which may have an impact on the amount of reported expense or liability for pension or postretirement benefits.

Recent Accounting Pronouncements

In December 2004, the Financial Standards Board (“FASB”) issued Statement of Financial Accounting Standards Board (FASB) issued SFAS no.No. 123 (revised 2004), Share-Based Payment. Payment (“SFAS 123R123R”), which is a revision of FASBStatement of Financial Accounting Standards No. 123, "AccountingAccounting for Stock-Based Compensation"Compensation (“SFAS 123”) and supersedes APB Opinion No. 25, "AccountingAccounting for Stock Issued to Employees"Employees, and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. SFAS 123R requires measurement of all employee stock-based compensation awards using a fair-value method and the recording of such expense in the consolidated financial statements. The Company selected the Black-Scholes option-pricing model as the most appropriate fair-value method for stock option awards and will recognize compensation cost on a straight-line basis over the awards’ vesting periods. The Company adopted SFAS 123R on January 1, 2006. See note 5 for further detail.

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory Costs (“SFAS 151”), which amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing. This statement requires abnormal amounts of idle facility expense, freight, handling costs and wasted material to be excluded from inventory costing and instead included as period expenses. In addition, this standard requires the allocation of fixed production overhead to be based on normal capacity of the production facilities. The Company adopted the standard on January 1, 2006 and it did not have an impact on our consolidated financial statements.

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” The Interpretation requires that realization of an uncertain income tax position must be “more likely than not” (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements. Further, the Interpretation prescribes the benefit to be recorded in the financial statements as the amount most likely to be realized assuming a review by tax authorities having all relevant information and applying current conventions. The Interpretation also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. The Interpretation is effective in the first quarter 2007 for Allied Motion and the Company plans to adopt the Interpretation when required. The Interpretation is currently being evaluated by Allied Motion for its full impact. At this time, the Company believes it has properly and adequately provided for all income tax positions and therefore expects minimal impact from adopting the Interpretation.

In September 2006, the FASB issued SFAS No. 95, "Statement158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of Cash Flows"FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS No. 123RThis statement requires all share-based payments to employees, including grantsrecognition of employee stock optionsthe overfunded or underfunded status of defined benefit pension and other postretirement plans as an asset or liability in the statement of financial position and changes in that funded status to be recognized in the

comprehensive income statement based on their fair values.in the year in which the changes occur. The amountrecognition provisions of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchangeSFAS 158 are effective for years ending after December 15, 2006. See note 7—Pension and Postretirement Welfare Plans for the award. Pro forma disclosure is no longer an alternative. The provisions of this statement will become effective in our first quarter of 2006.

        SFAS 123R permits public companies to adopt its requirements using one of two methods:

1.

A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date.



2.

A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosure either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

        The Company will utilize the modified prospective method when it adopts SFAS 123R.

        As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. The impact on net earnings as a resulteffect of the adoption of SFAS No. 123R is not expected158. SFAS No. 158 also prescribes the measurement date of a plan to be significant based on options outstanding and unvested atthe date of its year-end balance sheet effective for years ending after December 31, 2005.15, 2008. The Company will adopt SFASnot be effected by adopting the latter component of the Standard.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 123R starting on108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. The Company implemented SAB 108 January, 1 2006.2006 and it did not have an impact on our consolidated financial statements.

In September 2006, the Financial Accounting Standards Board issued FASB No. 157, “Fair Value Measurements.” FAS 157 is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by GAAP; it does not create or modify any current GAAP requirements to apply fair value accounting. The Standard provides a single definition for fair value that is to be applied consistently for all accounting applications, and also generally describes and prioritizes according to reliability the methods and inputs used in valuations. FAS 157 prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in GAAP. The new measurement and disclosure requirements of FAS 157 are effective for Allied Motion in the first quarter 2008. The Company expects no significant impact from adopting the Standard.

Contractual Commitments

For more information on the Company'sCompany’s contractual obligations on operating leases and contractual commitments, see Notes 53 and 96 to the consolidated financial statements. At December 31, 2005,2006, the Company'sCompany’s commitments under these obligations were as follows (in thousands):

(1)