ALNT

Business Context and Reporting Period

This Form 10-Q covers the quarter ended September 30, 2002, for Hathaway Corporation (subsequently renamed Allied Motion Technologies, Inc.). The company underwent a significant strategic transformation during the period, selling its Power and Process Business on July 29, 2002, and acquiring Motor Products on July 30, 2002. Consequently, the company is now focused solely on the Motion Control Business. The Board also approved a change in the fiscal year-end from June 30 to December 31, effective December 31, 2002.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues from continuing operations increased 120% to $8.02 million, driven primarily by the inclusion of Motor Products revenues. Excluding Motor Products, organic revenue grew 9.5%.
• Margin Compression: Gross margin percentage declined from 27% to 24% due to the lower margins of the newly acquired Motor Products business.
• Profitability: The company reported a net income of $191,000, a reversal from the $238,000 net loss in the prior year. This was largely due to a $1,007,000 after-tax gain on the sale of the Power and Process Business, offsetting a $13,000 operating loss from continuing operations.
• Balance Sheet: Total assets increased to $29.4 million from $22.6 million, reflecting the acquisition of Motor Products ($12.4 million purchase price) and the addition of goodwill and intangible assets. Cash decreased by $1.75 million due to acquisition costs and working capital changes.
• Debt: The company incurred $3.96 million in debt (line of credit and term loan) to finance the Motor Products acquisition, compared to no such debt in the prior period.

Guidance, Outlook, and Risks

• Outlook: Management expects modest top-line growth in the coming year. A new corporate strategy focusing on "Technology/Know How" and lean manufacturing initiatives is expected to drive organic growth and improve operating profits.
• Backlog: Total sales order backlog was $11.76 million as of September 30, 2002, compared to $3.65 million in the prior year.
• Acquisitions: The company remains active in discussions for strategic acquisitions to support external growth.
• Liquidity: The company relies on cash from operations and a $4 million line of credit (with $1.72 million available as of period end) to fund operations and debt service. Interest rates on debt are variable and tied to the prime rate and the company's Quick Ratio.
• Risks: Key risks include the ability to integrate Motor Products, customer concentration, foreign currency exposure (British Pound), and the realization of deferred tax assets. An environmental lawsuit settlement of approximately $1.4 million (recorded in the prior quarter) is being paid in installments.

Investor Verification Checklist

• Integration of Motor Products: Verify the actual contribution of Motor Products to revenue and margins versus pro forma estimates.
• Discontinued Operations: Confirm the final net proceeds from the sale of the Power and Process Business, as closing adjustments may alter the $6.44 million received to date.
• Debt Covenants: Monitor compliance with the Quick Ratio covenants required by the Silicon Valley Bank credit facility to avoid interest rate increases or default.
• Calibrator Business Disposal: Track the progress of the planned sale of the Calibrator Business, which is currently held for sale.
• Goodwill Valuation: Review the final evaluation of goodwill and intangible assets acquired from Motor Products, which is expected to be completed by December 31, 2002.