| ALLIED MOTION TECHNOLOGIES INC Item 1A Risk Factors |
| In addition to the other information contained or incorporated by reference in this document, readers should carefully consider the following risk factors |
| Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Companyapstas financial condition and the performance of its business |
| The Company refers to itself as "e we "e or "e our "e in the following risk factors |
| Our operating results could fluctuate significantly |
| Our quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including: • the timing of customer orders and the deferral or cancellation of orders previously received; • the level of orders received which can be shipped in a quarter; • fulfilling backlog on a timely basis; • competitive pressures on selling prices; • changes in the mix of products sold; • the timing of investments in engineering and development; • development of and response to new technologies; and • delays in new product qualifications |
| As a result of the foregoing and other factors, we have and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price |
| Our efforts to maintain and improve profitability depend in part on our ability to reduce the costs of materials, components, supplies and labor, including establishing production capabilities at our Chinese subcontractor |
| While the failure of any single cost containment effort by itself would most 6 _________________________________________________________________ likely not significantly impact our results, we cannot give any assurances that we will be successful in implementing cost reductions and maintaining a competitive cost structure |
| There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure |
| There is substantial price competition in our industry, and our success and profitability will depend on our ability to maintain a competitive cost and price structure |
| We may have to reduce prices in the future to remain competitive |
| Also, our future profitability will depend in part upon our ability to continue to improve our manufacturing efficiencies and maintain a cost structure that will enable us to offer competitive prices |
| Our inability to maintain a competitive cost structure could have a material adverse effect on our business, financial condition and results of operations |
| Our profits may decline if the price of raw materials continues to rise and we cannot recover the increases from our customers |
| We use various raw materials, such as copper, steel and zinc, in our manufacturing operations |
| The prices of these raw materials have been subject to volatility |
| As a result of price increases, in 2005 we implemented price surcharges to our customers; however we may be unable to collect surcharges without suffering reductions in unit volume, revenue and operating income |
| There can be no assurance that we will be able to fully recover the price increases through surcharges in a timely manner |
| We may explore additional acquisitions that complement, enhance or expand our business |
| We may not be able to complete these transactions, and, if completed, we may experience operational and financial risks in connection with our acquisitions that may materially adversely affect our business, financial condition and operating results |
| Our future growth may be a function, in part, of acquisitions |
| We may have difficulty finding these opportunities, or if we do identify these opportunities, we may not be able to complete the transactions for reasons including a failure to secure financing |
| To the extent that we are able to complete the transactions, we will face the operational and financial risks commonly encountered with this type of a strategy |
| These risks include the challenge of integrating acquired businesses while managing the ongoing operations of each business, the challenge of combining the business cultures of each company, and the need to retain key personnel of our existing business and the acquired business |
| The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the acquired business and our existing business |
| Members of our senior management may be required to devote considerable amounts of time to the integration process, which will decrease the time they will have to manage our businesses, service existing customers, attract new customers and develop new products |
| If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could be adversely affected |
| We have existing debt and refinancing risks that could affect our cost of operations |
| We have both fixed and variable rate indebtedness and may incur indebtedness in the future, including borrowings under our existing or new credit facilities, to finance possible acquisitions and for general corporate purposes |
| As a result, we are and expect to be subject to risks normally associated with debt financing including: • that interest rates may rise; • that our cash flow will be insufficient to make required payments of principal and interest; • that any default on our debt could result in acceleration of those obligations; 7 _________________________________________________________________ • that we may be unable to refinance or repay the debt as it becomes due; and • that any refinancing will not be on terms as favorable as those of the existing debt |
| The following factors could affect our ability to obtain additional financing on favorable terms, or at all: • our results of operations; • our ratio of debt to equity; • our financial condition; • our business prospects; • changes in interest rates; • general economic conditions and conditions in our industry; and • the perception in the capital markets of our business |
| In addition, certain covenants relating to our existing indebtedness impose certain limitations on additional indebtedness |
| If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures and other expenses |
| Any such actions could have a material adverse effect on our business, financial condition, results of operations and liquidity |
| Our ability to execute our long-term strategy may depend to a significant degree on our ability to obtain new long-term debt and equity capital |
| We have no commitments for additional borrowings, other than our existing credit facilities, or for sales of equity |
| We may be unable to obtain future additional financing on terms acceptable to us, or at all |
| If we fail to comply with certain covenants relating to our indebtedness, we may need to refinance our indebtedness to repay it |
| We also may need to refinance our indebtedness at maturity |
| We may not be able to obtain additional capital on favorable terms to refinance our indebtedness |
| The market price of our common stock has been and is likely to continue to be volatile, which may make it difficult for shareholders to resell common stock when they want to and at prices they find attractive |
| Our common stock has been and is likely to be highly volatile and there has been limited trading volume in the stock |
| The volatility could affect our stock irrespective of, or disproportionately to, the operating performance of our company |
| The fluctuations and limited trading volume may materially adversely affect the market price of our stock and the ability to sell the stock |
| Most of our outstanding shares are available for resale in the public market without restriction |
| The sale of a large number of shares could adversely affect the share price |
| We are dependent on our key personnel |
| We are dependent upon the continued contributions of our senior corporate management, particularly Richard Smith, chief executive officer and chief financial officer, Richard Warzala, president and chief operating officer, and certain other key employees of Allied Motion for our future success |
| Warzala or other key employees no longer serve in their positions at Allied Motion, our business, as well as the market price of our common stock, could be substantially adversely affected |
| Warzala or any other members of our senior management or key employees |
| 8 _________________________________________________________________ Our future success depends in part on the continued service of our engineering and technical personnel and our ability to identify, hire and retain personnel |
| There is continued competition for qualified personnel in our markets |
| We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development and growth of our business or to replace personnel who may leave our employ in the future |
| The failure to retain and recruit key technical personnel could cause additional expense, potentially reduce the efficiency of our operations and could harm our business |
| We could incur substantial costs under environmental laws |
| Our operations are subject to laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes and the cleanup of contaminated sites |
| Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities |
| We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party claims for property damage and personal injury as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits |
| We have pension plan and post-retirement obligations covering some of our domestic employees which could reduce cash flow and negatively impact financial condition |
| Our pension plan has a projected benefit obligation in excess of the fair value of plan assets |
| Our pension plan assets consist primarily of equity and fixed income securities |
| If the performance of investments in the plan does not meet the Companyapstas assumptions, the excess obligation may increase and the Company may have to record additional costs and/or contribute additional funds to the pension plan |
| An increase in pension expenses and contributions could decrease the Companyapstas cash available to pay its outstanding obligations and its net income |
| Our retiree medical plans are unfunded |
| We record costs as employees render the services necessary to earn the benefits |
| The costs are based on estimates including health care cost increases, retirement and mortality |
| Actual results may vary materially from estimates which could result in an increase to our expense and decrease in net income |
| We have a significant amount of goodwill recorded and an impairment writedown would result in lower net income and a reduction in net worth |
| Under accounting standards adopted in 2002, we are not required or allowed to amortize the goodwill reflected on our balance sheet |
| We are required to evaluate goodwill at least annually to determine if there has been an impairment in the value of such goodwill |
| If we determine that the goodwill is impaired, we would be required to writedown a portion or all of the goodwill which would reduce net income in the period of any writedown |
| Anti-takeover provisions in our corporate documents may discourage or prevent a takeover, even if the change of control would be beneficial to shareholders |
| Provisions in our articles of incorporation and our by-laws may have the effect of delaying or preventing an acquisition or merger in which we are acquired or a transaction that changes our board of directors |
| These provisions: • authorize the board to issue preferred stock without shareholder approval; • prohibit cumulative voting in the election of directors; 9 _________________________________________________________________ • limit the persons who may call special meetings of shareholders; • establish advance notice requirements for nominations for the election of directors or for proposing matters that can be acted on by shareholders at shareholder meetings; and • require that, in a vote to approve an acquisition or merger in which the Company is acquired or a transaction that changes the board of directors, the affirmative vote of the holders of two-thirds of the Companyapstas outstanding shares is required, unless the transaction is approved by at least two-thirds of the continuing directors, in which event the provisions require that the affirmative vote of a majority of the holders of the Companyapstas outstanding shares is required |
| If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud |
| We believe that effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud |
| If we are unable to detect or correct any issues in the design or operating effectiveness of internal controls over financial reporting or fail to prevent fraud, current and potential customers and shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock |