<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

                   ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended                                 Commission file number
   SEPTEMBER 30, 1999                                         0-24012          .
-------------------------                                 ----------------------
                           ALLIED DEVICES CORPORATION
           ---------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                  Nevada                             13-3087510
         ------------------------                 -------------------------
         (State of incorporation)                    IRS Employer
                                                    Identification Number)

2365 MILBURN AVENUE, BALDWIN, NEW YORK                          11510
-----------------------------------------                      --------
 (Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code: (516) 223-9100

Securities registered pursuant to Section 12 (b) of the Exchange Act:

Securities registered pursuant to Section 12 (g) of the Exchange Act:

        Title of Class                            Number of Shares Outstanding
                                                    as of December 30, 1999
-----------------------------                    ----------------------------
Common Stock, $.001 par value                             4,847,592

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days
YES X  NO
   ---   ---

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB X
                ---

Issuer's revenues for its most recent fiscal year: $22,827,298

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on December 31, 1999 is approximately
$5,603,296.


<PAGE>


                                     PART I

ITEM 1   -        BUSINESS

                  Allied Devices Corporation ("Allied Devices" or the "Company")
                  is a broad-line manufacturer and distributor of high precision
                  mechanical components and sub-assemblies used in controlling
                  and transmitting motion in industrial and commercial
                  instruments and equipment. The Company has the capability of
                  producing close tolerance parts and intricate assemblies at
                  competitive costs and with short lead times. The Company's
                  business strategy is to provide prompt service and technical
                  support in certain industrial and high technology markets
                  where customers generally expect extended lead times, missed
                  deadlines and otherwise mediocre customer service and
                  technical support.

                  The Company's major product groups include precision motion
                  control and servo assemblies, instrument related fasteners,
                  gears and gear products, and other components and
                  sub-assemblies built to customer specifications. Allied
                  Devices' customers are primarily original equipment
                  manufacturers ("OEMs").

                  Allied Devices' principal marketing tool is its highly
                  effective technical manual of standardized instrument
                  components available through the Company. This catalog is in
                  the hands of buyers and engineers throughout the United States
                  and generates sales nationwide. Management estimates that the
                  Company has distributed more than 90,000 copies of its printed
                  catalog over the last decade, of which approximately 40,000
                  copies were distributed during the last three fiscal years.
                  The current edition was published in November, 1998, and is
                  over 650 pages in length. During 1998, the catalog was fully
                  digitized and formatted for inclusion as live data in the
                  Company's Internet website, making it simple for users to
                  download the Company's standard technical data and drawings.
                  The catalog and its search tools have been accessible on the
                  Internet through a broad range of website links since January,
                  1999.

                  The breadth and standardized nature of the Company's standard
                  product line result in multiple applications in many
                  industries, stimulating demand at the level of both OEMs and
                  distributors. The Company sells to a wide range of industries,
                  principally medical and operating room equipment; laser
                  equipment; robotics; computer peripherals; aerospace
                  instrumentation; factory automation equipment and controls;
                  machine tool builders; research and development facilities;
                  semiconductor equipment makers; high vacuum and spectrometric
                  devices; flow control and metering equipment makers; seals and
                  glands; scientific instrumentation; and optics.

                  A typical customer is an OEM selling high ticket capital goods
                  equipment. The components supplied by Allied Devices going
                  into such equipment generally

                                       1


<PAGE>



                  constitute a small percentage of the OEM's direct cost of
                  manufacturing, typically less than $1000 per unit. Failure to
                  deliver reliable quality in a timely manner can have an impact
                  far in excess of the modest direct cost of the parts. As a
                  result, the majority of Allied Devices' customers deem it
                  imperative that parts supplied be on time and of reliably high
                  quality. While these performance criteria are not contractual
                  requirements, they are critical determinants in the placement
                  of repeat business.

                  Allied Devices has structured itself generally to provide the
                  service of "one stop shopping" for mechanical instrument
                  assemblies and components. Furthermore, the Company's
                  organization and inventory policies are designed to provide
                  fast and timely response to customer orders, and to support
                  "just in time" ("JIT") methods of material sourcing being used
                  by more and more companies. Because the Company's lead times
                  in response to customer orders are generally short (four weeks
                  or less), backlog is not a meaningful indicator of business
                  trends; therefore, no effort is made to monitor backlog
                  closely.

                  Allied Devices' sales volume is not dependent on just a few
                  large customers. The Company draws from a customer list of
                  over 6,000, thereby limiting its exposure to the fortunes of
                  any one industry or group of customers. In each of the past
                  three years, the Company's twenty largest customers have
                  represented as many as ten different industries and account
                  collectively for only about 40% of shipments. Despite this
                  diversity in direct customer relationships, a meaningful share
                  of overall demand in the United States for high precision
                  motion control devices has been driven by the requirements of
                  the semiconductor equipment industry (building chip-making
                  machinery). Fluctuations in demand for such equipment has an
                  indirect but meaningful impact on the Company's shipping
                  volume, as was evident from the severe downturn in that
                  industry in the aftermath of the economic and financial crises
                  in East Asia in 1997-1998. Within the US, the geographic
                  concentration of the Company's customers is relatively low and
                  fluctuates with conditions in each of the regions served.
                  Allied Devices uses independent multi-line manufacturers'
                  representatives to gain national coverage, thereby fielding
                  some 70 salespeople in virtually all significant territories
                  in the United States.

                  As the market for the Company's products has evolved, the
                  Company has met its customers' needs by organizing operations
                  into two functional areas: Catalog Sales and Distribution
                  ("Catalog Operations") and Manufacturing and Subcontracting
                  ("Manufacturing Services"). These two areas of the Company
                  have been defined solely for internal operating effectiveness.
                  Both areas serve the same markets and customer base and do not
                  represent separate business segments.

                  CATALOG OPERATIONS

                  The majority of product sold through Catalog Operations is
                  either manufactured by Catalog Operations or procured from the
                  Manufacturing Services operations of the Company. The product
                  mix includes standard products (as listed in the Company's
                  catalogs) and customized or non-standard products manufactured
                  to

                                       2


<PAGE>


                  the specific requirements of a given customer. What is not
                  manufactured internally is purchased from a broad variety of
                  reliable sources. This operation includes telephone sales,
                  inventory and shipping, gear-making, assembly and light
                  manufacturing operations. This part of the Company also sells
                  certain of its standard catalog products to its major
                  competitors on a wholesale basis. In the aggregate, revenues
                  for the Catalog Operations were approximately as follows for
                  the last five years ended September 30th.

<TABLE>

                           <S>                      <C>
                           1999                     $12,644,000
                           1998                     $14,507,000
                           1997                     $13,604,000
                           1996                     $15,145,000
                           1995                     $13,363,000

</TABLE>

                  The decreases in revenues for 1997 and 1999 were the result of
                  successive sharp downturns in the semiconductor manufacturing
                  equipment sector of the U.S. economy. Historically, such
                  severe downturns have been abnormal for the industries served
                  by Allied. In recent years, the semiconductor equipment sector
                  has emerged as a major consumer, directly and indirectly, for
                  precision mechanical components and sub-assemblies as
                  manufactured by the Company and its competitors. In 1997, the
                  downturn appears to have been caused by excess inventory
                  accumulation and overcapacity, and the duration of the
                  slowdown appears to have been one year. While a recovery in
                  this sector started in fiscal 1998, financial and economic
                  turmoil in Asia during that year caused yet another downturn
                  that continued through fiscal 1999. The Company has undertaken
                  to diversify its business with additional products and more
                  intensive marketing in industries unrelated to the
                  semiconductor equipment sector.

                  CATALOG INDUSTRY COMPETITION

                  The Company competes principally with W.M. Berg Co., a
                  subsidiary of BTR Ltd.; PIC Design, a subsidiary of Wells
                  Benrus; Nordex Inc.; and Sterling Instrument, a division of
                  Designatronics. Each of these companies publishes a catalog
                  similar to that issued by the Company, offering a wide range
                  of mechanical instrument components adhering to a single set
                  of standards. In addition, there are many other companies
                  offering a limited selection of materials or "single product"
                  catalogs, most often not adhering to any widely accepted
                  standards. This marketplace is highly competitive, yet
                  management believes, based upon feedback from vendors and
                  customers, that the Company's operating principles of
                  immediate product availability, excellent quality control,
                  competitive pricing and responsive customer service and
                  technical support have permitted the Company to maintain and
                  improve its market position.

                                       3


<PAGE>


                  MANUFACTURING SERVICES OPERATIONS

                  The Company's strategy has called for manufacturing the
                  majority of the products that it sells. Management believes
                  that such vertical integration ensures superior quality
                  control, timely deliveries, control of priorities and cost
                  efficiencies. During fiscal 1998, the Company added
                  significantly to its manufacturing capacity through
                  acquisition of a state-of-the-art machine shop facility. Thus,
                  Allied now has four manufacturing divisions, each with
                  particular specialties and focus in its capabilities. In order
                  to promote maximum utilization of productive equipment, each
                  manufacturing operation markets and sells its capabilities
                  direct to customers. The following operations comprise
                  Manufacturing Services:

                  Absolute Precision Co.    A sophisticated computer numerically
                  Ronkonkoma ,New York      controlled ("CNC") machine shop
                                            specializing in close tolerance,
                                            intricate machining of small
                                            complex parts that are sold both
                                            direct to end users in the fluid
                                            power and instrument industries and
                                            through Catalog Operations.

                  Adco Devices Co.          A screw-machine house manufacturing
                  Freeport, New York        instrument quality shoulder screws,
                                            thumb screws, nuts, shafting, pins,
                                            knobs and washers. Standard stock
                                            and custom components are sold to
                                            numerous jobbers, distributors and
                                            wholesalers.

                  Astro Instrument Co.      A general machine shop with
                  Joplin, Missouri          diversified CNC and conventional
                                            capabilities,  producing the Kay
                                            Pneumatics  product line and
                                            manufacturing  components  for an
                                            established  customer base in
                                            several industries.

                  APPI, Inc.                A state-of-the-art CNC machining
                  (Atlantic Precision       operation specializing in close
                  Products)                 tolerance, intricate machining
                  Biddeford, Maine          of complex parts, made from exotic
                                            materials, and used in the medical,
                                            fluid flow control, instrument, and
                                            seal/gland industries.

                  Each of the operations in Manufacturing Services produces
                  components sold both through Catalog Operations and to other
                  catalog houses, generally at uniform list prices. In addition,
                  each operation bids for specialized custom manufacturing work
                  in the open market, taking on machining jobs on fixed price
                  contracts. While long production runs are periodically
                  accepted, the structure of Manufacturing Services'
                  organization and facilities is generally oriented to shorter
                  runs with higher margins. Pricing is based on combined
                  material cost and standard hourly shop rates for labor and
                  overhead.

                                       4


<PAGE>



                  Approximate revenues for Manufacturing Services were as
                  follows for the last three years:

<TABLE>
<CAPTION>

                                                                      Year Ended September 30,

                                                       ------------------ ---------------- -------------------
                                                             1999              1998               1997
                                                       ------------------ ---------------- -------------------
                  <S>                                         <C>              <C>                 <C>
                  Sales to Catalog Operations *               $2,102,000       $2,422,000          $2,360,000
                  Sales to Outside Customers                  10,183,000        3,841,000           2,612,000
                  ------------------------------------ ------------------ ---------------- -------------------
                  Total Revenues                             $12,285,000       $6,263,000          $4,972,000
                  ==================================== ================== ================ ===================

</TABLE>

                  * These revenue figures for Catalog Operations represent
                    interdivisional sales that are eliminated in consolidation.

                  Sales to Catalog Operations increase or decrease commensurate
                  with the overall volume of shipments by Catalog Operations.
                  The increases in Sales to Outside Customers in fiscal 1998 and
                  1999 were attributable principally to the acquisition of
                  Atlantic Precision Products in July, 1998. The Company does
                  not report results for Catalog Operations and Manufacturing
                  Services separately, but management believes that both
                  divisions make a positive contribution to operations. While
                  the Company is intensively marketing its Manufacturing
                  Services capability, management believes that existing
                  capacity will support a substantial increase in volume without
                  significant additions to current production facilities.
                  Operations are now primarily single shift, representing an
                  estimated 65% of capacity, giving the Company the flexibility
                  to respond to increases in sales volume. Management intends,
                  on a continuous basis, to examine its manufacturing methods,
                  equipment and tooling, seeking ways to improve the quality and
                  responsiveness of its capacity while minimizing the labor and
                  skill content (and related cost) in its product. The Company
                  has embarked on a program specifically oriented to making such
                  improvements, and management intends to commit the capital
                  necessary to carry out the program consistent with internal
                  and confidential rate-of-return guidelines established by
                  management.

                  MANUFACTURING SERVICES COMPETITION

                  Each of the divisions in Manufacturing Services faces intense
                  competition from the many thousands of machine shops and screw
                  machine houses throughout the United States. Each division
                  endeavors to differentiate itself from its competition on the
                  basis of: i) accepting short-run work; ii) offering short lead
                  times; iii) providing exceptional responsiveness to customer
                  requirements; iv) supporting demand-pull and JIT requirements;
                  and v) conforming consistently to unbending quality standards.

                                       5


<PAGE>


                  QUALITY ASSURANCE

                  Although not legally required to do so in order to conduct its
                  current business, the Company has emphasized rigorous
                  standards of high quality in its products and in its
                  manufacturing methods. In the 1980s, this led to the
                  development of an internal quality control manual that sets
                  forth both policies and procedures used throughout the
                  Company. This manual meets or exceeds the requirements of
                  MIL-STD-45208A, which defines acceptable standards for small
                  business suppliers to the U.S. Government. In fiscal 1999, the
                  Company successfully started the process of qualifying all of
                  its operations for certification to ISO-9002, receiving
                  certification for its Atlantic Precision Products facility in
                  Biddeford, ME. A project is underway for obtaining
                  certification for all of the Company's New York operations to
                  ISO-9002 during fiscal 2000. In management's opinion, loss of
                  qualification under MIL-STD-45208A or ISO-9002 would not have
                  a material impact on the Company's ability to do business;
                  likewise, in management's opinion, such qualification provides
                  an indication to customers and potential customers of the
                  degree of diligence that the Company exercises in adhering
                  rigorously to high standards in pursuit of consistent quality.

                  EXPANSION PLANS

                  Management has developed a plan to expand the size of the
                  Company. The plan has four basic elements: (1) expand the core
                  business through more intensive marketing efforts; (2) add
                  products within the existing line of business; (3) expand
                  beyond the Company's core business into related lines of
                  business through an acquisition program that will not only add
                  volume and capacity but also provide marketing, operating and
                  administrative synergies; and (4) raise additional equity
                  capital as required to reduce the Company's indebtedness,
                  thereby limiting financial leverage while expansion plans are
                  being implemented. Certain elements of management's marketing
                  strategy have been implemented (principally an ongoing
                  advertising campaign and publication of an Internet catalog).
                  In August, 1999, the Company engaged the services of a
                  marketing professional to oversee the implementation of the
                  remaining elements of its marketing plan. In November, 1999,
                  the Company leased a 60,000 square foot space in Hicksville,
                  NY, to consolidate and expand its New York operations,
                  allowing for growth in Catalog Operations and Manufacturing
                  Services over the next several years. At the same time,
                  management is pursuing its acquisition strategy, having
                  completed two acquisitions in fiscal 1998 and having targeted
                  additional strategic candidates for acquisition in fiscal
                  2000. Management has raised (cumulatively) $2,163,000 in
                  equity since the beginning of fiscal 1994, 60% in a private
                  placement and the balance through the exercise of warrants and
                  options. All such equity funds have been applied to working
                  capital. Additional equity funds, if and when raised, will
                  also be applied, at management's discretion, to working
                  capital, thus being available for use in routine operations or
                  for carrying out the Company's expansion plans.

                                       6


<PAGE>


                  MARKETING PROGRAMS

                  The Company has developed a program to stimulate substantial
                  growth within its existing line of business. Feedback from
                  customers and informal market research indicate that Allied
                  Devices does not yet have widespread customer awareness in the
                  markets it serves. Thus, the principal thrust of the Company's
                  plan is to make its target customers and markets more fully
                  aware of the Company's range of capabilities and of the
                  usefulness of standardized components in general. The program
                  is divided into modules and is being implemented as management
                  deems appropriate.

                  The plan includes expansion of the Company's advertising
                  campaign, begun on a restricted budget in 1993. As part of the
                  program, management has undertaken to improve, on a continuous
                  basis, the standards of service and support provided to the
                  Company's customers. Phasing in of expanded engineering
                  support, assembly capabilities, new products, and electronic
                  accessibility for customers are also important elements of the
                  Company's program. Management believes that implementation of
                  its plan will result in accelerated growth of sales and
                  profits.

                  ACQUISITION PROGRAM

                  As part of its plans for growth, management intends to
                  continue with its acquisition program. By its own assessment,
                  management views the market in which it competes as large
                  (over $1 billion), highly fragmented, and poised for
                  consolidation. Strategically, management intends to focus on
                  acquiring businesses with the following characteristics: (a)
                  significant potential for sales growth; (b) high prospects for
                  synergy and/or consolidation in marketing, manufacturing and
                  administrative support functions; (c) relatively high gross
                  margins (30% or more); (d) effective operating management in
                  place; (e) a reputation for quality in its products; and (f)
                  represents lateral or vertical integration. Management has
                  completed two acquisitions and is assessing additional
                  prospective candidates.

                  OTHER FACTORS

                  Raw materials for the Company's operations are readily
                  available from multiple sources, such as bar stock of
                  stainless steel and aircraft grade aluminum from metal
                  distributors. Management expects no change to this situation
                  in the foreseeable future. The technological maturity of the
                  Company's product line has resulted in general stability of
                  demand in its markets and of availability of raw materials at
                  stable prices. No material portion of the Company's business
                  is subject to renegotiation of profits or termination of
                  contracts at the election of the United States government or
                  its prime contractors. Procurement of patents is not material
                  to the Company's present marketing program.

                                       7


<PAGE>


                  REGULATION

                  The Company is not subject to any particular form of
                  regulatory control. The Company does not expect that continued
                  compliance with existing federal, state or local environmental
                  regulations will have a material effect on its capital
                  expenditures, earnings or competitive position.

                  EMPLOYEES

                  The Company currently employs 52 salaried and 186 hourly
                  personnel. Wage rates and benefits are competitive in the
                  labor markets from which the Company draws. Twenty-nine of its
                  hourly employees are represented by two local unions (19 by
                  the National Organization of Industrial Trade Unions ("NOITU")
                  and 10 by Local 999 of the Teamsters). The contract with Local
                  999 expires in August 2000, and the contract with NOITU
                  expires in November 2000. Management intends to negotiate new
                  contracts before the expiration of current contracts. The
                  Company has had no strikes, walkouts or other forms of
                  business disruption attributable to poor labor relations.
                  Relations with employees and the unions are open and
                  constructive.

                  CAPITAL EQUIPMENT

                  The Company uses a wide variety of machinery and equipment in
                  manufacturing and assembly of its product line. While most of
                  the equipment is owned by the Company or its subsidiaries,
                  certain key pieces of equipment are leased. Fourteen leases,
                  covering certain specific CNC machines, have original lease
                  terms ranging from four to five years, with purchase options
                  at the end of each lease. Rates vary from 7.01% to 10%, and
                  expiration dates range from 2000 to 2004. The aggregate value
                  of these leases was $2,720,000 as of September 30, 1999.

                                       8


<PAGE>


ITEM 2   -        PROPERTIES

                  Listed below are the principal plants and offices of the
                  Company. All property occupied by the Company is leased except
                  as otherwise noted. Management plans to consolidate operations
                  currently in Baldwin, NY, Freeport, NY and Ronkonkoma, NY into
                  one building in Hicksville, NY during fiscal year 2000. Thus,
                  the leases in three of the four New York locations to be
                  vacated are on a month-to-month basis through April, 2000; the
                  lease on the fourth will be cancelled at the mutual
                  convenience of the landlord and the Company. The lease for the
                  Hicksville, NY facility was executed in November, 1999.

<TABLE>
<CAPTION>

<S>                       <C>               <C>                      <C>
      Location             Square Feet       Lease Expiration            Principal Activities
----------------------    --------------    --------------------     -----------------------------
Baldwin, NY                      18,000     December, 1999*          Catalog Manufacturing and
                                                                     Distribution Operations
Freeport, NY                     10,000     December, 1999*          Screw Machine Operations
Freeport, NY                      5,200     January, 2000*           Catalog Manufacturing
                                                                     Operations

Hicksville, NY                   60,000     April, 2010              Consolidation of Catalog
                                                                     Operations and
                                                                     Manufacturing Services
Biddeford, ME                    30,000     June, 2003               CNC Machine Shop
Windham, ME                      10,000     June, 2003               CNC Machine Shop
Ronkonkoma, NY                    8,200     April, 2004**            CNC Machine Shop
Joplin, MO                       13,000     (Owned)                  CNC and Conventional
                                                                     Machine Shop

</TABLE>

                    *At the mutual convenience of the respective landlords and
                    the Company, these facilities are occupied on a
                    month-to-month basis pending completion of consolidation
                    into Hicksville. **At the mutual convenience of the landlord
                    and the Company, this lease will be cancelled when the
                    Company completes its move into the Hicksville facility.

ITEM 3   -        LEGAL PROCEEDINGS

                  The Company knows of no material pending legal proceedings
                  (other than routine claims incidental to its business) in
                  which it or any of its officers or directors in their capacity
                  as such is a party.

ITEM 4  -         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------------------------

                  Not applicable.

                                       9


<PAGE>


                                     PART II

ITEM 5   -        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

                  The Company's common stock was originally listed on National
                  Association of Securities Dealers Automated SmallCap Market
                  ("NASDAQ") as of November 17, 1994. Trading in the Company's
                  stock has been active and regular since then. A total of 2,545
                  trades representing approximately 3,927,719 shares (as
                  reported by NASDAQ in their routine statistical summaries)
                  were completed during fiscal 1999. During fiscal 1999, the
                  Board of Directors of the Company approved a plan to
                  repurchase shares from the open market, and pursuant to that
                  plan the Company repurchased 100,350 shares from time to time
                  at an average price of $1.29 per share. As of September 30,
                  1999, the Company had 426 holders of record of its common
                  stock. The Company has nine listed market-makers, and the
                  trading ranges by quarter for fiscal 1999 and 1998 were as
                  follows:

<TABLE>
<CAPTION>

                                                         Fiscal 1999                Fiscal 1998
                                                      High          Low           High         Low
                           <S>                       <C>           <C>           <C>          <C>
                           First Quarter             $1.5155       $1.344        $2.8125      $2.00
                           Second Quarter            $1.672        $1.2345       $2.4375      $1.875
                           Third Quarter             $1.3435       $1.2185       $2.5625      $2.125
                           Fourth Quarter            $1.422        $1.203        $3.00        $1.5312

</TABLE>

                                       10


<PAGE>


ITEM 6   -        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

                  The following selected consolidated financial data have been
                  derived from the audited financial statements of Allied
                  Devices Corporation. The selected financial data should be
                  read in conjunction with the consolidated financial statements
                  and related notes included elsewhere in this Form 10-KSB.

<TABLE>
<CAPTION>

                                                               Year Ended September 30,

                                                           -----------------        --------------
                               <S>                              <C>                   <C>
                                                                  1999                    1998
                                                                  ----                    ----
                               STATEMENT OF
                               OPERATIONS DATA:

                               Net sales                        $ 22,827,298          $18,448,483

                               Net income                       $ 494,994             $ 1,030,673

                               Earnings per share:
                                  Basic                            $    .10                  $.22
                                  Diluted                          $    .10                  $.22
                               Weighted average
                               number of
                               shares
                               outstanding
                                  Basic                           4,913,255             4,699,526
                                  Diluted                         4,966,836             4,763,404


                               BALANCE SHEET DATA:
                               Total assets                     $24,858,026           $22,973,619
                               Working capital                  $ 9,398,931           $ 9,594,752
                               Long-term debt                   $10,931,435           $11,031,687
                               Stockholders' equity             $ 9,481,924           $ 9,116,101

</TABLE>

                                       11


<PAGE>


         RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1999, COMPARED
                 WITH YEAR ENDED SEPTEMBER 30, 1998

                  All statements contained herein that are not historical facts,
                  including, but not limited to, statements regarding the
                  Company's current business strategy, the Company's projected
                  sources and uses of cash, and the Company's plans for future
                  development and operations, are based upon current
                  expectations. These statements are forward-looking in nature
                  and involve a number of risks and uncertainties. Actual
                  results may differ materially. Among the factors that could
                  cause actual results to differ materially are the following:
                  the availability of sufficient capital to finance the
                  Company's business plans on terms satisfactory to the Company;
                  competitive factors; changes in labor, equipment and capital
                  costs; changes in regulations affecting the Company's
                  business; future acquisitions or strategic partnerships;
                  general business and economic conditions; and factors
                  described from time to time in the reports filed by the
                  Company with the Securities and Exchange Commission. The
                  Company cautions readers not to place undue reliance on any
                  such forward-looking statements, which statements are made
                  pursuant to the Private Litigation Reform Act of 1995 and, as
                  a result, are pertinent only as of the date made.

                  Net sales for fiscal 1999 were $22,827,000 as compared to
                  $18,448,000 in fiscal 1998. This increase of 23.7% was the
                  result of a combination of factors: (1) sales generated by the
                  operations acquired in the second half of fiscal 1998
                  contributed approximately $6.7 million of incremental volume
                  in fiscal 1999; (2) economic and financial instability in East
                  Asia induced a sharp downturn in the semiconductor equipment
                  sector of the U.S. economy, with depressed conditions enduring
                  for effectively all of fiscal 1999, resulting in a decrease in
                  volume estimated by management to be approximately $4.2
                  million; and (3) continued intense marketing efforts resulted
                  in improved sales to companies in other sectors, adding an
                  estimated $1.9 million to shipments during fiscal 1999.
                  Management believes that the Company's marketing strategy,
                  consistently applied, will continue to result in above average
                  growth in sales. The principal contributors to such growth
                  will be, in management's estimation, the following: (1) a
                  continuing series of advertisements in various industry/trade
                  magazines, designed to create more wide-spread awareness of
                  the Company and its products and services; (2) a series of
                  programs of continuous improvement, including qualification
                  for ISO-9002, particularly in the areas of customer service
                  and support; (3) a program to expand the range of support
                  services provided to the Company's larger customers; and (4)
                  diversification of sales to reduce dependence on the
                  semiconductor equipment sector.

                  The Company's gross margin was 34.15% of net sales in fiscal
                  1999, up from 34.07% in fiscal 1998. The lower level of sales
                  activity permitted the Company to manufacture more and
                  purchase less, resulting in the following changes from fiscal
                  1998: (1) net materials expense decreased as a percentage of
                  sales,

                                       12


<PAGE>


                  increasing gross margins by 3.57%; (2) careful management of
                  wages and overtime through the slowdown resulted in lower
                  payroll costs as a percentage of sales, improving gross
                  margins by 0.83%; (3) the Company shipped a lower volume of
                  product on relatively stable costs of factory operations,
                  decreasing gross margins by 2.43%; and (4) additions to
                  production equipment increased depreciation (a non-cash
                  expense) as a percentage of sales, decreasing gross margins by
                  1.89%.

                  The Company did not increase prices materially in fiscal 1999.

                  Selling, general and administrative expenses as a percentage
                  of net sales were 26.3% in fiscal 1999, as compared to 23.2%
                  in fiscal 1998. The following factors account for this change:
                  (1) selling and shipping expenses and commissions decreased as
                  a percentage of net sales by approximately 2.2% as
                  expenditures on marketing were decreased during the downturn
                  in shipping volume; (2) administrative payroll, benefits, and
                  related expenses increased as a percentage of net sales by
                  2.7%, principally as a result of certain termination and
                  lay-off expenses incurred during the downturn; (3) other
                  administrative expenses (collectively) increased as a
                  percentage of net sales by approximately 1.8%, partially as a
                  function of expenses and write-downs related to the Company's
                  impending move and consolidation of New York facilities into
                  one building; and (4) depreciation and amortization (non-cash
                  expenses) increased by 0.8% as a result of goodwill incurred
                  in making the two acquisitions in fiscal 1998.

                  Interest expense increased by $620,000 in fiscal 1999 as a
                  function of higher borrowings incurred to finance the two
                  acquisitions completed in fiscal 1998 .

                  Provision for income taxes in fiscal 1999 was 36.1% of pre-tax
                  income, as compared to 36.2% in fiscal 1998. See the notes to
                  the consolidated financial statements for a reconciliation to
                  the federal statutory rate.

                                       13


<PAGE>


         RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1998 COMPARED
                      WITH YEAR ENDED SEPTEMBER 30, 1997.

                  During fiscal 1998, the Company successfully completed two
                  acquisitions as part of its plan for growth by acquisition.
                  The two companies acquired were as follows:

                  -   Kay Pneumatic Valves, Inc. ("Kay"), manufactures a line
                      of three-way and four-way direction control and power
                      valves with a reputation for exceptional durability and
                      speed. The standard, "off-the-shelf" product is described
                      in a set of detailed catalogs and appears to offer
                      attractive potential as a lateral addition to the
                      Company's other catalog offerings to its targeted
                      markets. Kay's revenues were somewhat over $800,000 in
                      calendar 1997, and management believes that, under the
                      stewardship of prior management, marketing efforts were
                      ineffective and production inefficient. The assets and
                      operations of the business were acquired for $850,000 in
                      cash in January, 1998, and transferred from Long Island
                      to the Company's Astro Instrument facilities in Joplin,
                      Missouri in February, 1998. For the first year,
                      operations were dedicated to establishing acceptable
                      levels of customer service and gaining a thorough
                      understanding of production costs and the existing
                      marketing mix (product focus, pricing, distribution
                      strategy, competition, inventory balancing, and customer
                      service strategy). Since then, management has been
                      developing a marketing plan for aggressive promotion of
                      the Kay product line under the Kay and King trade names.
                  -   Atlantic Precision Products, Inc. ("APPI" or "Atlantic")
                      is a state-of-the-art CNC machining operation with
                      locations in Biddeford and Windham, Maine. APPI sells
                      intricate and complex custom machined components to
                      leading edge customers in the aircraft instrument, flow
                      metering/control, and seal/gland industries, primarily in
                      New England. Sales volume of $9.3 million in calendar 1997
                      was relatively concentrated in 5 customers, with four of
                      those being on Kanban or other dedicated sole-source
                      supply arrangements. Management believes that their
                      manufacturing methods and know-how will permit substantial
                      growth in throughput at Atlantic while, through technology
                      interchange, enabling the Company as a whole to
                      manufacture more efficiently. Consideration at closing for
                      the business was $7.2 million in cash and 250,000 shares
                      of the Company's common stock. Performance consideration
                      is a negotiated percentage of earnings for APPI for each
                      of the first three years of operation as a division of
                      Allied.

                  On the night of April 8, 1998, a fire broke out at the
                  Company's headquarters in Baldwin, New York, destroying all of
                  the Company's central computer and data communications
                  equipment and certain underlying records. The Company thus had
                  to reconstruct those portions of its records which were lost
                  from the remaining hard-copy records and back up files. The
                  result, during the succeeding four months, was a substantial
                  number of late deliveries and a low rate of responsiveness to
                  new business while records were being reconstructed

                                       14


<PAGE>


                  and data was being built into the new system. While it is
                  impossible to determine the exact impact of the fire,
                  management estimates that between $350,000 and $500,000 of
                  business was lost during the recovery period. While many of
                  the Company's customers were patient and tolerated the
                  recovery process, others were not and switched to competitors
                  during this period. Management has launched a program to
                  recover those customers lost in the aftermath of the fire.

                  Net sales for fiscal 1998 were $18,448,000 as compared to
                  $16,216,000 in fiscal 1997. This increase of 13.8% was
                  principally the result of four factors: (1) the added revenues
                  from Kay and Atlantic amounted to $2,225,000, mostly
                  concentrated in the fourth quarter; (2) the fire caused a loss
                  of sales estimated by management at between $350,000 and
                  $500,000; (3) the economic and financial turmoil in East Asia
                  induced a sharp downturn in several capital goods sectors of
                  the U.S. economy beginning in the third quarter of the fiscal
                  year, resulting in a commensurate slowdown for the Company
                  with customers in those industries estimated by management to
                  amount to over $1 million; and (4) on-going marketing
                  initiatives appear to have been effective in stimulating
                  continued growth in other sectors of approximately 10%. In
                  particular, the aerospace instrumentation, medical equipment,
                  robotics and scientific/analytical instrumentation sectors
                  exhibited strength throughout the year.

                  The Company's gross margin was 34.07% of net sales in fiscal
                  1998, down from 36.49% in fiscal 1997. This was principally
                  the result of two elements: (1) materials expense as a
                  percentage of sales decreased, increasing gross margins by
                  0.81%; and (2) factory payroll and overhead as a percentage of
                  sales increased, lowering gross margins by 3.23%. This
                  decrease in margin is attributable to the following factors:

                  -   The consummation and assimilation of the two acquisitions
                      completed during the fiscal year resulted in temporary
                      operating diseconomies while integrating the acquired
                      entities into the Company. Higher levels of payroll and
                      duplication of overhead expenses are common at such times,
                      with the period of transition following each acquisition
                      being approximately six months. Following this, gross
                      margins returned to being more in line with the Company's
                      objectives.
                  -   The fire in April destroyed the Company's production
                      planning and control system. As a direct outcome, during
                      the ensuing five months, the normally orderly flow of
                      production work in Catalog Operations was regularly
                      disrupted by "emergency" production runs made to cover
                      late deliveries of materials. The resultant combination of
                      high levels of overtime and extremely short lot sizes
                      eroded margins during the recovery period (April through
                      September, 1998). Management made a conscious decision to
                      tolerate this temporary condition rather than risk further
                      deterioration of the Company's service performance to its
                      customers.

                                       15


<PAGE>


                  -   When signs of slowdown in certain sectors materialized at
                      the end of the third fiscal quarter, management made a
                      decision to delay taking cost cutting measures until after
                      the end of the fiscal year. This decision was also
                      prompted by management's asserting a higher priority on
                      maintaining service levels than on short term maintenance
                      of gross margins. The lower level of throughput to sales
                      and inventory on relatively fixed costs of factory
                      operations resulted in a decrease in gross margins during
                      the fourth quarter.
                  -   Atlantic's factory operations rely more heavily on
                      state-of-the-art equipment than do the Company's other
                      operations, displacing operating costs with depreciation
                      charges and increasing operating leverage. Atlantic's
                      productivity during the Company's fourth quarter of fiscal
                      1998 was lower than historic norms, as often happens in
                      the six months following an acquisition. Thus,
                      depreciation charges during this quarter were higher
                      without an offset of lower operating costs.

                  The Company did not increase prices materially in fiscal 1998.

                  Selling, general and administrative expenses as a percentage
                  of net sales were 23.2% in fiscal 1998, as compared to 24.8%
                  in fiscal 1997. While actual expenditures in fiscal 1998 were
                  $260,000 higher than in fiscal 1997, such costs did not
                  increase as much as sales volume. The following factors
                  account for this change: (1) selling and shipping expenses and
                  commissions decreased as a percentage of net sales by
                  approximately 0.8% as shipping volume increased while spending
                  on the Company's marketing strategy remained effectively flat;
                  (2) administrative payroll, benefits and expenses increased by
                  $106,000 but decreased as a percentage of net sales by 0.8%;
                  and (3) other administrative expenses (collectively) remained
                  unchanged as a percentage of net sales. Included in
                  administrative expenses were certain non-recurring costs
                  incurred during the third and fourth quarters of fiscal 1998
                  related to recovery from the fire, as extraordinary hours put
                  in by Allied's employees, supplemented by some outside
                  professional help, minimized the potentially disastrous
                  effects of the fire, but at a cost. While the Company's
                  casualty and business interruption insurance reimbursed much
                  of this, management estimates that approximately $100,000 of
                  cost was not recovered from insurance. In addition, there were
                  approximately $70,000 of additional administrative expenses in
                  the fourth quarter that resulted from acquiring Atlantic.

                  Interest expense increased by $184,000 in fiscal 1998, as the
                  Company increased its borrowings to finance the acquisitions
                  of Kay and Atlantic.

                  Provision for income taxes in fiscal 1998 was $584,000, or
                  36.2% of pre-tax income. See the notes to the consolidated
                  financial statements for a reconciliation to the federal
                  statutory rate.

                                       16


<PAGE>


YEAR 2000

                  Neither the Company nor any of its major vendors or critical
                  third party suppliers appear to have experienced any material
                  problems as a result of the advent of the Year 2000. However,
                  there can be no assurances that any Year 2000 compliance
                  measures taken will not fail to function, which failures could
                  have a material adverse effect on the Company's business.

                  The statements contained in this Year 2000 readiness
                  disclosure are subject to certain protection under the Year
                  2000 Information and Readiness Disclosure Act.

LIQUIDITY AND CAPITAL RESOURCES

                  The Company's financial condition remained consistent during
                  fiscal 1999 as operations generated net cash of $1,806,000.
                  Financing activities (net) used cash of $949,000 over the
                  course of the year, capital expenditures (net) used $210,000,
                  deferred acquisition financing used $350,000, and repurchase
                  of common stock in the open market used $129,000, with the
                  remaining $168,000 being added to cash on hand. Net working
                  capital decreased by $196,000 to $9,399,000 during the year.
                  The changes in current assets and current liabilities for the
                  year ended September 30, 1999 contributed to the decrease in
                  working capital as follows:

                  -   Accounts receivable (net of reserve for doubtful accounts)
                      increased by $525,000 during the year. This increase was a
                      function of higher sales volume at year-end ($501,000) and
                      a slight increase in the average collection period from 45
                      days at the end of fiscal 1998 to 45.3 days at the end of
                      fiscal 1999 ($24,000).
                  -   Inventories increased by $828,000 during the fiscal year,
                      with the turnover rate increasing from 1.4 times in fiscal
                      1998 to 1.6 times in fiscal 1999. This increase was
                      achieved despite a sharp slowdown with many of the
                      Company's most important customers. Current industrial
                      procurement practices, Kanban and demand-pull ("JIT")
                      systems in particular, leave manufacturers vulnerable to
                      temporary build-ups, since production builds on the basis
                      of forecasted needs as much as three months in advance of
                      actual demand. As an operating principle, management has
                      made prompt service, product availability and quick
                      turnaround of production orders key strategic factors in
                      gaining a strong competitive position in the Company's
                      markets. Substantial inventories are, in management's
                      judgment, a necessity in supporting this strategy and
                      responding to demanding delivery requirements imposed by
                      the Company's customers. As the Company's growth plan
                      continues to unfold, management expects to see continued
                      improvement in the inventory turnover rate.

                                       17


<PAGE>


                  -   Prepaid expenses and other current assets decreased by
                      $115,000 as the result of capitalizing certain prepaid
                      administrative expenses ($27,000), collecting certain
                      casualty losses (previously accrued) from insurance
                      carriers of $266,000, and booking certain deferred income
                      taxes ($124,000).
                  -   Current liabilities, exclusive of current portions of
                      long-term debt and capital lease obligations, increased by
                      $1,011,000 (net), as higher levels of manufacturing
                      activity increased accounts payable by $360,000, the
                      Company's average payment period on accounts payable and
                      accrued expenses was increased from 35 days in fiscal 1998
                      to 42 days in fiscal 1999 (an increase of $370,000), and
                      the Company's income taxes payable increased by $281,000.
                  -   Current portions of long-term debt and capital lease
                      obligations increased by $591,000 (net) as a function of
                      the terms of acquisition and lease financings.
                  -   Cash balances increased by $168,000.

                  Management believes that the Company's working capital as now
                  constituted will be adequate for the needs of the on-going
                  core business (inclusive of acquired entities). During fiscal
                  1999, the Company and its principal lending institution
                  mutually agreed to amend certain terms of its credit facility,
                  reducing its revolving credit facility from $10 million to
                  $7.5 million and modifying certain financial covenants in
                  recognition of industry-wide business conditions. The Company,
                  at the end of fiscal 1999, was using approximately $3,400,000
                  of its revolving credit facility.

                  Management believes that, in light of the Company's expansion
                  objectives, the Company's working capital will not be adequate
                  to provide for all of the on-going cash needs of the business.
                  In particular, management expects to require additional
                  financing to carry out its acquisition objectives. Success in
                  this part of the Company's growth program will rely, in large
                  measure, upon success in completing such additional financing.
                  The Company is not relying on receipt of such funds in its
                  operating budgets or projections. It is important to note
                  that, absent new capital, the Company will not be in a
                  position to undertake some of the most promising elements of
                  management's plans for expansion. In the event that new equity
                  funds are raised, management intends to implement its plans
                  and will do so in keeping with its judgment at that time as to
                  how best to deploy any such capital.

                  Outlay for capital expenditures in fiscal 1999 amounted to
                  $173,000 ($969,000 including capital leases, net of equipment
                  dispositions), as compared to $637,000 ($869,000 including
                  capital leases, net of equipment dispositions) in fiscal 1998.
                  These expenditures represent both facets of the Company's
                  capital spending program: (1) a continuation of management's
                  program of continuous improvement through modernization and
                  automation of facilities ($753,000), and (2) upgrading,
                  support and installation of new computer and communications
                  equipment ($215,000). Capital spending plans for fiscal 2000
                  call for similar levels of investment in software and hardware
                  for the Company's computer

                                       18


<PAGE>


                  system and further additions and upgrades to high-efficiency
                  production machinery. Management expects to fund such spending
                  plans out of working capital and credit facilities.

                  During fiscal 1998, the Company acquired effectively all of
                  the assets, properties, business and rights of, and assumed
                  specified liabilities of Atlantic Precision Products, Inc.
                  Consideration for the assets, net of liabilities, of APPI
                  included a commitment to make supplemental payments of
                  purchase consideration to the seller based on the performance
                  of APPI during each of the first three one-year operating
                  periods following the Closing. The supplemental consideration
                  earned for the first year following closing (12 months ended
                  June 30, 1999) amounted to approximately $939,000, of which
                  $350,000 was paid in cash and the balance in notes payable
                  over three years.

                  VULNERABILITY TO RECESSION

                  The Company's cost structure is largely made up of "fixed
                  costs", with "variable costs" accounting for less than 40% of
                  net sales. The Company could, therefore, experience materially
                  adverse effects on profitability from any marked downturn in
                  sales volume until management was able to reduce fixed costs.
                  Because the Company's delivery lead-times are relatively
                  short, there is, as a result, little backlog at any given
                  time, and the effect of a downturn in sales volume would be
                  felt almost immediately.

                  EXPANSION PLANS

                  Management has developed a plan to expand the size of the
                  Company. Basically, the plan has four elements: (1) expand the
                  core business through more intensive and focused marketing
                  efforts; (2) add products within the existing line of
                  business; (3) expand beyond the Company's core business into
                  related lines of business through an acquisition program that
                  will not only add volume and capacity but also provide
                  marketing, operating and administrative synergies; and (4)
                  raise additional equity capital as required to reduce the
                  Company's indebtedness, thereby limiting financial leverage
                  while expansion plans are being implemented. In August, 1999,
                  the Company engaged the services of a marketing professional
                  to oversee the implementation of the remaining elements of its
                  marketing plan. In November, 1999, the Company leased a 60,000
                  square foot space in Hicksville, NY, to expand and consolidate
                  its New York operations, allowing for growth in Catalog
                  Operations and Manufacturing Services over the next few years.
                  At the same time, management is pursuing its acquisition
                  strategy, having completed two acquisitions in fiscal 1998 and
                  having targeted additional strategic candidates for
                  acquisition in fiscal 2000. Plans to raise additional equity
                  will be carried out when management considers it appropriate
                  to do so and believes market conditions to be favorable to
                  existing stockholders.

                                       19


<PAGE>


                  IMPACT OF INFLATION AND OTHER BUSINESS CONDITIONS

                  Management believes that inflation has no material impact on
                  the operations of the business. The Company has been able to
                  react to increases in material and labor costs through a
                  combination of greater productivity and selective price
                  increases. The Company has no exposure to long-term fixed
                  price contracts.

                  RECENT ACCOUNTING PRONOUNCEMENTS

                  A)  Investment Derivatives and Hedging Activities Income

                  In June 1998, the Financial Accounting Standards Board issued
                  SFAS No. 133, "Accounting for Derivatives and Hedging
                  Activities Income" ("SFAS 133"), which requires the recording
                  of all derivative instruments as assets or liabilities
                  measured at fair value. Among other disclosures, SFAS 133
                  requires that all derivatives be recognized and measured at
                  fair value regardless of the purpose or intent of holding the
                  derivative.

                  SFAS 133 is effective for financial statements for periods
                  beginning after June 15, 2000. To date, the Company has not
                  traded in derivatives or engaged in hedging activities.

ITEM 7   -        FINANCIAL STATEMENTS

         (1)      Financial Statements

                  See index to Financial Statements on Page F-2.

ITEM 8   -        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

                  None

                                       20


<PAGE>


                                    PART III

ITEM 9   -        DIRECTORS AND EXECUTIVE OFFICERS

The Executive Officers and Directors of the Company are as follows:

<TABLE>
<CAPTION>

 NAME                                              AGE                 POSITION(S) HELD WITH COMPANY
 ---------------------------------------------------------------------------------------------------
<S>                                                <C>                 <C>
Mark Hopkinson                                     52                  Chairman of the Board of Directors,
                                                                       President, Chief Executive Officer,
                                                                       Secretary

Salvator Baldi                                     77                  Executive Vice President, Director

Andrew J. Beck                                     51                  Assistant Secretary

P.K. Bartow                                        52                  Director

Christopher T. Linen                               52                  Director

Michael Michaelson                                 77                  Director

Paul M. Cervino                                    45                  Principal Financial Officer, Principal
                                                                       Operating Officer, Principal
                                                                       Accounting Officer, Treasurer

</TABLE>

                                       21


<PAGE>


ITEM 9   -        DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)

                  Brief biographies of the Executive Officers and Directors of
                  the Company are set forth below. All Directors hold office
                  until the next Annual Stockholders' Meeting or until their
                  death, resignation, retirement, removal, disqualification or
                  until their successors have been elected and qualified.
                  Vacancies in the existing Board may be filled by majority vote
                  of the remaining Directors. Officers of the Company serve at
                  the will of the Board of Directors. There are no written
                  employment contracts outstanding.

                  Mark Hopkinson, age 52, has been Chairman of the Board since
                  1981, when he and Mr. Bartow organized the acquisition of the
                  Company. He also served as President of the Company from 1981
                  until March, 1994. He is a graduate of the University of
                  Pennsylvania and of the Harvard Graduate School of Business
                  Administration. Prior to acquiring Allied Devices, he was a
                  management consultant, working originally with Theodore Barry
                  & Associates from 1977 to 1978 and later as an independent and
                  with the Nicholson Group from 1978 to 1981. The focus of his
                  work in the period leading up to 1981 was development of
                  emerging growth companies, both in the United States and in
                  lesser developed countries. He served as an officer in the
                  United States Navy from 1969 to 1972.

                  Salvator Baldi, age 77, was one of the original founders of
                  the Company in 1947. He has been a Director of the Company
                  since February, 1994. The business was started as a general
                  machine shop and developed through the years as a supplier to
                  certain principal competitors of the Company in the market for
                  standardized precision mechanical parts. By the late 1970's,
                  the Company had become a competitor, offering its own catalog
                  of components. He and his partners sold the Company to the
                  investor group assembled by Mr. Hopkinson and Mr. Bartow in
                  October, 1981, with Mr. Baldi remaining with the Company under
                  an employment contract. By the time his contract expired two
                  years later, Mr. Baldi had negotiated to repurchase an
                  interest in the Company. He currently works on an abbreviated
                  work schedule.

                  Andrew J. Beck, age 51, has been a partner with the law firm
                  of Torys Haythe since prior to 1989. He became Assistant
                  Secretary of the Company in March, 1994. Mr. Beck holds a B.A.
                  in economics from Carleton College and a J.D. from Stanford
                  University Law School.

                                       22


<PAGE>


ITEM 9   -        DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)

                  P.K. Bartow, age 52, is President of The InterBusiness
                  Marketing Group. From March, 1994 through November, 1998, he
                  was President of the Company. Prior to 1994, he served as Vice
                  President of the Company from when he and Mr. Hopkinson
                  organized its acquisition in 1981 until March, 1994. While
                  active in management at Allied Devices, Mr. Bartow was
                  Director of Marketing and Sales, and he continues to provide
                  marketing consulting services to the Company. Prior to
                  acquiring Allied Devices, Mr. Bartow had joined the Nicholson
                  Group in 1978, and performed facility and feasibility studies
                  for emerging growth companies. Mr. Bartow received a B.A.
                  degree from Williams College in 1970, and a M.Arch degree from
                  the University of Pennsylvania in 1974.

                  Christopher T. Linen, age 52, became a Director of the Company
                  during fiscal 1997. He is currently principal of Christopher
                  Linen & Company, through which he has invested in a series of
                  early stage, internet and technology-related enterprises.
                  Prior to this, from 1975 until 1996, he was an executive with
                  Time Inc. (later Time Warner Inc.) where he managed a series
                  of six subsidiaries or divisions in Asia, Latin America, the
                  United States, and worldwide. Prior to that, he was Assistant
                  Financial Director of the Italhai Holding Company, Ltd.
                  (Bangkok), during which tenure he was Publisher of the Bangkok
                  World, an English language daily newspaper. He is a director
                  of Starmedia Networks Inc., Chairman of Nirvana Soft Inc., and
                  a Trustee of The Family Academy, an experimental public
                  school. He holds a B.A. from Williams College and attended the
                  Graduate School of Business Administration at New York
                  University.

                  Michael Michaelson, age 77, has been a Director of the Company
                  since 1990. He has been President and sole stockholder of
                  Rainwater Associates, Inc. since 1979, providing management
                  and marketing consultation services to clients principally in
                  publishing and related industries. He is also on the board of
                  directors of Retail Entertainment Group, Inc., a public
                  company. From 1986 to 1989, he was Chairman of the Council on
                  Economic Priorities. From 1977 to 1979, he was co-founder and
                  Chairman of the Board of Games Magazine, which was sold to
                  Playboy magazine in 1979. From 1970 to 1978, Mr. Michaelson
                  worked for Publishers Clearing House, where he was Senior Vice
                  President. From 1968 to 1970, he was President and Founder of
                  Campus Subscriptions, Inc. Mr. Michaelson served in the United
                  States Army in the South Pacific during World War II, where he
                  was a Company Commander in the 35th infantry, 25th division
                  and received the Bronze Star and the Purple Heart. He received
                  a B.S. degree from New York University in 1948.

                  Paul M. Cervino, age 45, has been the Chief Operating Officer
                  of the Company since November, 1998. From January, 1996 until
                  October, 1998, he served as Chief Financial Officer. Prior to
                  1996, he was employed by Sotheby's Holdings, Inc., an
                  international art auction house. From 1992 to 1995, he was a
                  member of the European Board of Directors and Chief Financial
                  Officer of Sotheby's Europe and Asia, operating in London.
                  From 1985 to 1992, he was a Director and Chief Financial and
                  Administrative Officer of Sotheby's North America. From 1976
                  to 1985, he worked for Sotheby's in various other financial
                  capacities.

                                       23


<PAGE>


ITEM 10  -        EXECUTIVE COMPENSATION

                  The following table sets forth the salary and bonus
                  compensation paid during the fiscal years ended September 30,
                  1999, 1998 and 1997 to the Chairman and Chief Executive
                  Officer of the Company. No other Executive Officer of the
                  Company received fiscal 1999 salary and bonus compensation
                  which exceeded $100,000. The Company's Directors receive
                  $1,250 per quarter and 25,000 options per year for their
                  services as such and reimbursement for any expenses they may
                  incur in connection with their services as Directors.

<TABLE>
<CAPTION>

                                  "Summary Compensation Table"

--------------------------------------------------------------------------------------------------
Name and Principal      Fiscal Year       Salary            Other Annual   Long Term Compensation
Position                                                    Compensation    Awards-Options/ SAR's

--------------------------------------------------------------------------------------------------
<S>                         <C>          <C>                          <C>                  <C>
Mark Hopkinson,             1999         $123,725                     $0                   22,000
Chairman and Chief
Executive Officer
                            1998         $110,005                     $0                        0
                            1997         $97,221                      $0                   27,400

</TABLE>

                  Under the terms of the Company's 1993 Incentive Stock Option
                  Plan, the following options were granted to the Chief
                  Executive Officer of the Company during fiscal year 1999

<TABLE>
<CAPTION>

                             "Option/SAR Grants in Last Fiscal Year"

--------------------------------------------------------------------------------------------------
Name                           Number of       % of Total Options    Exercise or     Expiration
                               Securities          Granted to         Base Price        Date
                               Underlying     Employees in Fiscal       ($/Sh)
                            Options Granted           Year

--------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>              <C>             <C>
Mark Hopkinson                   22,000               10%              $1.063          4/7/09

                  Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values.

</TABLE>

<TABLE>

<CAPTION>

Name                          Shares         Value                Number of                 Value of
                           Acquired on    Realized               Securities                Unexercised
                           Exercise (#)      ($)                 Underlying               In-the-Money
                                                                Unexercised              Options/SARs at
                                                              Options/SARs at               FY-End ($)
                                                                 FY-End (#)                Exercisable/
                                                               Exercisable/               Unexercisable
                                                              Unexercisable
--------------------------------------------------------------------------------------------------
<S>                        <C>             <C>                  <C>                    <C>

Mark Hopkinson               -             $ -                  54,000/0               $44,036/$0

</TABLE>

                  (1) In-the-money options are those for which the fair market
                  value of the underlying Common Stock exceeds the exercise
                  price of the option. The value of the in-the-money options is
                  determined in accordance with regulations of the Securities
                  and Exchange Commission by subtracting the aggregate exercise
                  price of the option from the aggregate year-end value of the
                  underlying Common Stock.

                  No compensation to management has been waived or accrued to
                  date.

                                       24


<PAGE>


                  Under the terms of its employee stock option plan (adopted in
                  October, 1993 and amended in December, 1995 and March, 1998),
                  the Board of Directors is empowered at its discretion to award
                  options to purchase an aggregate of 1,500,000 shares of the
                  Company's common stock to key employees. Prior to fiscal 1999,
                  the Company had granted options to purchase an aggregate of
                  1,107,000 shares to key employees and Directors, with exercise
                  prices ranging from $0.35 to $3.00 per share. During fiscal
                  1999, the Company granted options to purchase 219,000 shares
                  of the Company's common stock, at exercise prices ranging from
                  $1.063 to $1.25, to 14 individuals (one executive, two
                  Directors and nine non-executive managers). In January, 1999,
                  all Directors and certain Officers voluntarily surrendered
                  974,400 options awarded to them in prior years as part of a
                  comprehensive review of the compensation of Directors and
                  Officers.

ITEM 11  -        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The following table sets forth the number and percentage of
                  the Company's shares of Common Stock owned of record and
                  beneficially by each person or entity owning more than 5% of
                  such shares and by all executive officers and directors, as a
                  group at September 30, 1999:

<TABLE>
<CAPTION>

                                Name                                         Number of     Current
                                                                             Shares Owned  Percentage
                                <S>                                          <C>           <C>
                                -------------------------------------------- ------------- -------------
                                Mark Hopkinson(1) (3) (7)
                                2365 Milburn Avenue                               809,571     16.50%
                                PO Box 502
                                Baldwin, NY  11510

                                P.K. Bartow (2) (4) (7)                           625,688     12.90%
                                2365 Milburn Ave.
                                PO Box 502
                                Baldwin, NY  11510

                                Salvator Baldi (1) (5) (7)                        531,473     10.96%
                                2365 Milburn Ave.
                                PO Box 502
                                Baldwin, NY  11510

                                Michael Michaelson (2)(6)(7)                      123,584     2.52%
                                2365 Milburn Ave.
                                PO Box 502
                                Baldwin, NY  11510

                                Christopher T. Linen (2)(9)                       140,000     2.86%
                                203 Poverty Hollow Road
                                Redding, CT 06896

                                Andrew J. Beck (8)                                  6,000     0.12%
                                71 Willow Street, Apt. 1
                                Brooklyn, NY  11201

                                Paul M. Cervino (8) (10)                          133,600     2.69%
                                2365 Milburn Ave.
                                PO Box 502
                                Baldwin, NY  11510

                                All Executive Officers and                      2,369,916     46.19%
                                Directors as a Group (7 persons)

</TABLE>

                                       25


<PAGE>


ITEM 11  -        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT (CONTINUED)

                  (1)      Officer and Director

                  (2)      Director only.

                  (3)      Mark Hopkinson is General Partner of the Hopkinson
                           Family Partnership (in which he has exclusive
                           management rights), which owns 700,000 of the shares
                           included herein. Also included in Mr. Hopkinson's
                           shareholdings are 5,660 shares represented by
                           warrants exercisable by Mr. Hopkinson until December
                           31, 1999 and 54,000 shares represented by currently
                           exercisable options. These warrants expired
                           unexercised in fiscal 2000. Mr. Hopkinson disclaims
                           beneficial ownership of 15,700 shares owned by his
                           wife.

                  (4)      Included in Mr. Bartow's shareholdings are 1,722
                           shares represented by warrants exercisable by Mr.
                           Bartow until December 31, 1999. These warrants
                           expired unexercised in fiscal 2000. Mr. Bartow
                           disclaims ownership of 15,000 shares owned by members
                           of his immediate family.

                  (5)      Included in Mr. Baldi's  shareholdings  are 898
                           shares  represented  by warrants  exercisable  by Mr.
                           Baldi until  December 31, 1999.  These warrants
                           expired unexercised in fiscal 2000.

                  (6)      Included in Mr. Michaelson's shareholdings are 2,584
                           shares represented by warrants exercisable by Mr.
                           Michaelson until December 31, 1999 and 50,000 shares
                           represented by currently exercisable options. These
                           warrants expired unexercised in fiscal 2000. Mr.
                           Michaelson disclaims ownership of 160,000 shares
                           owned by his wife.

                  (7)      As consideration for various services rendered to the
                           Company in the period 1983 until 1990, the Company
                           issued certain stockholders warrants to purchase up
                           to 340,000 shares of common stock at prices ranging
                           from $0.30 per share to $0.70 per share. 329,136 of
                           those warrants have been exercised, prior to their
                           expiration, and 10,864 of those warrants remained
                           exercisable at September 30, 1999. All warrants
                           unexercised at the end of fiscal 1999 expired
                           unexercised in fiscal 2000.

                  (8)      Officer only.

                  (9)      Includes 50,000 shares represented by currently
                           exercisable options.

                  (10)     Includes 118,000 shares represented by options, some
                           currently exercisable and others vesting in periods
                           out through fiscal 2002.

                                       26


<PAGE>


ITEM 12  -        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  In August 1987, certain officers and stockholders purchased
                  unsecured 10% promissory notes from Allied Devices in the
                  aggregate amount of $157,680: Mark Hopkinson, $75,000; P.K.
                  Bartow; $25,000; Salvator Baldi, $7,680; Michael Michaelson,
                  $25,000; and Edward G. Lord, $25,000. In December 1994, all
                  such notes were retired by paying 10% of the principal amount
                  due in cash, the balance in the form of new 10% unsecured
                  promissory notes due December 31, 1995, and granting warrants
                  to purchase Common Stock at the rate of one warrant per $20 of
                  principal on the notes being retired, as follows:

<TABLE>
<CAPTION>

                                                                                  Principal
                                                                                   Value of           Number of
                                                          Cash Paid               New Notes            Warrants
                                                          ---------               ---------            --------
                  <S>                                       <C>                    <C>                      <C>
                  Salvator Baldi                            $ 1,796.59             $ 16,169.32              898

                  P.K. Bartow                               $ 3,445.14             $ 31,006.25            1,722

                  Mark Hopkinson                            $11,319.74             $101,877.69            5,660

                  Michael Michaelson                        $ 5,167.71             $ 46,509.37            2,584

</TABLE>

                  Each warrant was exercisable at a price of $2.00 per warrant
                  into one share of Common Stock until December 31, 1999. The
                  notes were retired during fiscal 1996. The warrants expired
                  unexercised.



ITEM 13  -        EXHIBITS AND REPORTS ON FORM 8-K

                   (a)   Exhibits

                         The exhibits required to be filed as a part of the form
                         are listed in the attached Index to Exhibits.

                   (b)   Reports on Form 8-K

                         No reports on Form 8-K were filed in the last quarter
                         of fiscal 1999.

                                       27


<PAGE>


                                   SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                     ALLIED DEVICES CORPORATION

                                                     /s/ Mark Hopkinson
                                                     ---------------------
                                                     Mark Hopkinson
                                                     Chairman of the Board

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.

SIGNATURES                      TITLE                                      DATE

/s/ Mark Hopkinson
------------------------        Chairman of the Board, President,
Mark Hopkinson                   Principal Executive Officer,
                                 and Director
/s/ Salvator Baldi
------------------------        Executive Vice President
Salvator Baldi                   and Director

/s/ Philip Key Bartow
------------------------        Director
Philip Key Bartow

/s/ Michael Michaelson
------------------------        Director
Michael Michaelson

/s/ Christopher T. Linen
------------------------        Director
Christopher T. Linen

/s/ Paul M. Cervino
------------------------       Principal Financial Officer,
Paul M. Cervino                 Principal Operating Officer,
                                Principal Accounting Officer,
                                Treasurer

                                       28


<PAGE>


             CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders' and Board of Directors of
Allied Devices Corporation
Baldwin, New York

We hereby consent to the incorporation by reference and inclusion in the
Prospectuses constituting part of the Registration Statements filed on Form S-8
on April 6, 1994 and April 8, 1996 of our report dated January 12, 2000 relating
to the consolidated financial statements of Allied Devices Corporation and
subsidiaries appearing in the Company's Annual Report on Form 10-KSB for the
year ended September 30, 1999.



BDO SEIDMAN, LLP
Melville, New York

January 13, 2000


<PAGE>



                           ALLIED DEVICES CORPORATION
                                     AND SUBSIDIARIES





                                               CONSOLIDATED FINANCIAL STATEMENTS
                                         YEARS ENDED SEPTEMBER 30, 1999 AND 1998




<PAGE>



                           ALLIED DEVICES CORPORATION
                                     AND SUBSIDIARIES


                                               CONSOLIDATED FINANCIAL STATEMENTS
                                         YEARS ENDED SEPTEMBER 30, 1999 AND 1998



                                                                             F-1

<PAGE>

                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                                           INDEX


<TABLE>


<S>                                                               <C>
        REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS               F-3


        CONSOLIDATED FINANCIAL STATEMENTS

           Balance sheets                                                F-4

           Statements of income                                          F-5

           Statements of stockholders' equity                            F-6

           Statements of cash flows                                      F-7

           Notes to financial statements                          F-8 - F-24

</TABLE>


                                                                             F-2

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Stockholders' and Board of Directors of
Allied Devices Corporation
Baldwin, New York


We have audited the accompanying consolidated balance sheets of Allied Devices
Corporation and subsidiaries as of September 30, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allied Devices
Corporation and subsidiaries at September 30, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.



BDO Seidman, LLP



Melville, New York

January 12, 2000

                                                                             F-3

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES

                                                                  BALANCE SHEETS

<TABLE>
<CAPTION>


SEPTEMBER 30,                                                                        1999               1998
-----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>
ASSETS
CURRENT:
   Cash                                                                           $    443,039    $    275,238
   Accounts receivable, net of allowance for doubtful
       accounts of $57,000 and $42,000, respectively                                 3,050,884       2,526,068
   Inventories                                                                       9,731,773       8,903,220
   Prepaid expenses and other current assets                                           126,902         366,057
   Deferred income taxes                                                               165,000          41,000
-----------------------------------------------------------------------------------------------------------------
        TOTAL CURRENT ASSETS                                                        13,517,598      12,111,583
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED
   DEPRECIATION AND AMORTIZATION                                                     7,335,000       7,607,246
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET OF
   ACCUMULATED AMORTIZATION OF $648,560 AND $412,569                                 3,584,512       2,880,523
OTHER ASSETS                                                                           420,916         374,267
-----------------------------------------------------------------------------------------------------------------
                                                                                  $ 24,858,026    $ 22,973,619
-----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
   Accounts payable                                                               $  1,867,578    $  1,243,306
   Income taxes payable                                                                280,778            --
   Accrued expenses and other                                                          392,772         286,900
   Current portion of long-term debt and capital lease obligations                   1,577,539         986,625
-----------------------------------------------------------------------------------------------------------------
        TOTAL CURRENT LIABILITIES                                                    4,118,667       2,516,831
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS                                        10,931,435      11,031,687
DEFERRED INCOME TAXES                                                                  326,000         309,000
-----------------------------------------------------------------------------------------------------------------
        TOTAL LIABILITIES                                                           15,376,102      13,857,518
-----------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTES 2, 8, 9 AND 10)
STOCKHOLDERS' EQUITY
   Common stock, $.001 par value, authorized
       25,000,000 shares, issued and outstanding 4,947,942
       and 4,947,942                                                                     4,948           4,948
   Additional paid-in capital                                                        3,624,721       3,624,721
   Retained earnings                                                                 5,981,426       5,486,432
-----------------------------------------------------------------------------------------------------------------
       SUBTOTAL                                                                      9,611,095       9,116,101
    Treasury stock, at cost (100,350 shares)                                          (129,171)           --
-----------------------------------------------------------------------------------------------------------------
      TOTAL STOCKHOLDERS' EQUITY                                                     9,481,924       9,116,101
-----------------------------------------------------------------------------------------------------------------
                                                                                  $ 24,858,026    $ 22,973,619
-----------------------------------------------------------------------------------------------------------------

</TABLE>

                   SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                             F-4

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                            STATEMENTS OF INCOME

<TABLE>
<CAPTION>


 YEAR ENDED SEPTEMBER 30,                                                        1999          1998
---------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>
NET SALES                                                                 $22,827,298   $18,448,483

COST OF SALES                                                              15,031,821    12,163,602
---------------------------------------------------------------------------------------------------

   GROSS PROFIT                                                             7,795,477     6,284,881

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                6,013,032     4,282,634
---------------------------------------------------------------------------------------------------

   INCOME FROM OPERATIONS                                                   1,782,445     2,002,247

INTEREST EXPENSE, NET                                                       1,007,807       387,574
---------------------------------------------------------------------------------------------------

   INCOME BEFORE PROVISION FOR TAXES ON INCOME                                774,638     1,614,673

TAXES ON INCOME                                                               279,644       584,000
---------------------------------------------------------------------------------------------------

NET INCOME                                                                $   494,994   $ 1,030,673
---------------------------------------------------------------------------------------------------

NET INCOME PER SHARE - BASIC                                              $       .10   $       .22
---------------------------------------------------------------------------------------------------

NET INCOME PER SHARE - DILUTED                                            $       .10   $       .22
---------------------------------------------------------------------------------------------------

</TABLE>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-5

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                              STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                  Common Stock $0.001 par
                                           value
                                  ------------------------------
                                                                 Additional                                 Total
                                   Number of                      Paid-in     Treasury       Retained    Stockholders'
                                    Shares           Amount       Capital      Stock         Earnings       Equity
----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>           <C>             <C>          <C>           <C>
BALANCE, SEPTEMBER 30,
 1997                               4,609,942   $     4,610   $ 2,565,559     $    --      $ 4,455,759   $ 7,025,928



   NET INCOME                            --            --            --            --        1,030,673     1,030,673

   STOCK ISSUED IN
      CONJUNCTION WITH
       APPI ACQUISITION               250,000           250       891,250          --             --         891,500

   PROCEEDS FROM THE
    EXERCISE OF OPTIONS
    AND WARRANTS AND
    VALUE OF WARRANTS
    GRANTED IN
    CONJUNCTION WITH
    BANK FINANCING                     88,000            88       167,912          --             --         168,000
----------------------------------------------------------------------------------------------------------------------

BALANCE, SEPTEMBER 30,
 1998                               4,947,942         4,948     3,624,721          --        5,486,432     9,116,101

   NET INCOME                            --            --            --            --          494,994       494,994

   TREASURY STOCK  ACQUIRED                                                    (129,171)          --        (129,171)
----------------------------------------------------------------------------------------------------------------------

BALANCE, SEPTEMBER 30,
 1999                               4,947,942   $     4,948   $ 3,624,721     $(129,171)   $ 5,981,426   $ 9,481,924

</TABLE>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-6

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                        STATEMENTS OF CASH FLOWS
                                                                       (NOTE 12)

<TABLE>
<CAPTION>


 YEAR ENDED SEPTEMBER 30,                                                                1999           1998
------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                     $   494,994    $ 1,030,673
------------------------------------------------------------------------------------------------------------
   Adjustments to reconcile net income to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                               1,622,679        701,362
        Deferred income taxes                                                        (107,000)       134,000
        Gain on sale and involuntary conversion of equipment                           (2,300)      (142,825)
   Changes in assets and liabilities, net of effects from acquisitions:
        (Increase) decrease in:
           Accounts receivable                                                       (524,816)       468,422
           Inventories                                                               (828,553)      (906,249)
           Prepaid expenses and other current assets                                  239,155       (298,451)
           Other assets                                                               (99,307)       (30,740)
        Increase (decrease) in:
           Accounts payable and accrued expenses                                      730,144       (211,628)
           Income taxes payable                                                       280,778       (145,263)
------------------------------------------------------------------------------------------------------------
        Total adjustments                                                           1,310,780       (431,372)
------------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES                                   1,805,774        599,301
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                              (212,344)      (636,907)
   Business acquisitions, net of cash acquired                                       (350,000)    (8,280,674)
   Proceeds from sale and inventory conversion of equipment                             2,500        219,886
------------------------------------------------------------------------------------------------------------
        NET CASH USED IN INVESTING ACTIVITIES                                        (559,844)    (8,697,695)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from term note                                                               --        6,250,000
   Increase in revolving credit borrowings                                            150,000      1,325,000
   Proceeds from financing of equipment                                                  --        1,067,400
   Principal payments on long-term debt and capital lease obligations              (1,043,608)      (291,408)
   Treasury stock acquired                                                           (129,171)          --
   Net proceeds from sale of common stock, options and warrants                          --           71,000
   Deferred financing costs                                                           (55,350)      (210,454)
------------------------------------------------------------------------------------------------------------
      NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                          (1,078,129)     8,211,538
------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH                                                                  167,801        113,144
CASH, BEGINNING OF PERIOD                                                             275,238        162,094
------------------------------------------------------------------------------------------------------------
CASH, AT  END OF PERIOD                                                           $   443,039    $   275,238
------------------------------------------------------------------------------------------------------------

</TABLE>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                             F-7

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS



   1. SUMMARY OF
      ACCOUNTING POLICIES     (A) BUSINESS

                                  The Company is comprised of Allied
                                  Devices Corporation ("ADCO"), and its
                                  wholly-owned subsidiaries, Empire-
                                  Tyler Corporation ("Empire") and APPI,
                                  Inc. ("APPI"), (collectively the
                                  "Company").

                                  The Company is engaged primarily in the
                                  manufacture and distribution of standard
                                  and custom precision mechanical assemblies
                                  and components and a line of screw machine
                                  products. The Company sells all of its
                                  products to the same base of customers
                                  located throughout the United States.
                                  Because the Company's product line
                                  comprises a comparable group of precision
                                  manufactured parts sold to a similar
                                  customer base, it considers itself to be
                                  engaged in a single business segment.

                              (B) BASIS OF PRESENTATION

                                  The consolidated financial statements
                                  include the accounts of ADCO and its
                                  subsidiaries. All significant
                                  intercompany balances and transactions
                                  have been eliminated.

                              (C) INVENTORIES

                                  Inventories are valued at the lower of
                                  cost (last-in, first-out (LIFO)
                                  method) or market. Management
                                  periodically analyzes inventories for
                                  obsolescence and records writeoffs as
                                  required. Such writeoffs have
                                  historically been immaterial.

                              (D) DEPRECIATION AND AMORTIZATION

                                  Property, plant and equipment is stated at
                                  cost. Depreciation and amortization of
                                  property, plant and equipment is computed
                                  using the straight-line method over the
                                  estimated useful lives of the assets. The
                                  estimated lives are as follows:

                                  Machinery and equipment             8-10 years
                                  Tools, molds and dies                  8 years
                                  Furniture, fixtures and office
                                   equipment                           5-7 years
                                  Buildings and improvements            30 years
                                  Leasehold improvements              Lease term


                                                                             F-8

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                              (E) INCOME TAXES

                                  The Company and its subsidiaries file a
                                  consolidated federal income tax return and
                                  separate state income tax returns.

                                  Deferred tax assets and liabilities are
                                  recognized for the future tax consequences
                                  attributable to differences between the
                                  financial statement carrying amounts of
                                  existing assets and liabilities and their
                                  respective tax bases and tax credit
                                  carryforwards. Deferred tax assets and
                                  liabilities are measured using enacted tax
                                  rates expected to apply to taxable income in
                                  the years in which those temporary differences
                                  are expected to be recovered or settled. The
                                  effect on deferred tax assets and liabilities
                                  of a change in tax rate is recognized in
                                  income in the period that includes the
                                  enactment date.

                              (F) EARNINGS PER SHARE

                                  Basic earnings per share is computed by
                                  dividing income available to common
                                  shareholders by the weighted average shares
                                  outstanding for the period and reflect no
                                  dilution for the potential exercise of stock
                                  options and warrants. Diluted earnings per
                                  share reflect, in periods in which they have a
                                  dilutive effect, the dilution which would
                                  occur upon the exercise of stock options and
                                  warrants. A reconciliation of the shares used
                                  in calculating basic and diluted earnings per
                                  share follows:

<TABLE>
<CAPTION>

                                  YEAR ENDED SEPTEMBER 30,        1999      1998
                                  ----------------------------------------------
                                  <S>                        <C>       <C>
                                  Weighted average shares
                                    outstanding - basic      4,913,524 4,699,526
                                  Dilutive effect of options
                                    and warrants                35,022    63,878
                                  ----------------------------------------------
                                  Weighted average shares
                                    outstanding - diluted    4,948,546 4,763,404
                                  ----------------------------------------------

</TABLE>

                                  Options and warrants totaling 282,864 and
                                  988,500 at September 30, 1999 and 1998,
                                  respectively, were antidilutive and,
                                  accordingly, excluded from the diluted
                                  calculation.


                                                                             F-9

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                              (G) INTANGIBLE ASSETS

                                  The excess of cost over the fair value of net
                                  assets acquired is being amortized over
                                  periods of 15 years (for the 1998
                                  acquisitions, see Note 2) and 20 years (for
                                  prior acquisitions).

                              (H) LONG-LIVED ASSETS

                                  The Company reviews the carrying values of its
                                  long-lived and identifiable intangible assets
                                  for possible impairment whenever events or
                                  changes in circumstances indicate that the
                                  carrying amount of the assets may not be
                                  recoverable. Any long-lived assets held for
                                  disposal are reported at the lower of their
                                  carrying amounts or fair value less cost to
                                  sell.

                              (I) REVENUE RECOGNITION

                                  Sales are recognized upon shipment of
                                  products. All sales are shipped F.O.B.
                                  shipping point and are not sold subject to a
                                  right of return unless the products are
                                  defective. The Company's level of returns
                                  arising from defective products has
                                  historically been immaterial.

                              (J) USE OF ESTIMATES

                                  In preparing financial statements in
                                  conformity with generally accepted accounting
                                  principles, management is required to make
                                  estimates and assumptions that affect the
                                  reported amounts of assets and liabilities and
                                  the disclosure of contingent assets and
                                  liabilities at the dates of the financial
                                  statements and the reported amounts of
                                  revenues and expenses during the reporting
                                  periods. Actual results could differ from
                                  those estimates.


                                                                            F-10

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                              (K) FAIR VALUE FINANCIAL INSTRUMENTS

                                  The carrying amounts of financial instruments,
                                  including cash and short-term debt,
                                  approximated fair value as of September 30,
                                  1999 and 1998. The carrying value of long-term
                                  debt, including the current portion,
                                  approximates fair value as of September 30,
                                  1999 and 1998 based upon the borrowing rates
                                  currently available to the Company for bank
                                  loans with similar terms and average
                                  maturities.

                              (L) CONCENTRATIONS OF CREDIT RISK

                                  The Company extends credit based on an
                                  evaluation of the customer's financial
                                  condition, generally without requiring
                                  collateral. Exposure to losses on receivables
                                  is principally dependent on each customer's
                                  financial condition. The Company monitors its
                                  exposure for credit losses and maintains
                                  allowances for anticipated losses. No
                                  individual customer is considered to be a
                                  significant risk.

                              (M) RECENT ACCOUNTING PRONOUNCEMENTS

                                  (I) INVESTMENT DERIVATIVES AND HEDGING
                                      ACTIVITIES

                                      In June 1998, the Financial Accounting
                                      Standards Board issued SFAS No. 133,
                                      "Accounting for Derivative Investments and
                                      Hedging Activities" ("SFAS 133"), which
                                      requires the recording of all derivative
                                      instruments as assets or liabilities
                                      measured at fair value. Among other
                                      disclosures, SFAS 133 requires that all
                                      derivatives be recognized and measured at
                                      fair value regardless of the purpose or
                                      intent of holding the derivative.

                                      SFAS 133 is effective for financial
                                      statements for periods beginning after
                                      June 15, 2000. To date, the Company has
                                      not traded in derivatives or engaged in
                                      hedging activities.


                                                                            F-11

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                              (N) RESTATEMENTS

                                  Certain prior year amounts have been restated
                                  to conform to the current year presentation.

   2. ACQUISITIONS            (A) On July 8, 1998, with an effective date of
                                  July 1, 1998, the Company acquired the assets
                                  and business of Atlantic Precision Products,
                                  Inc. ("APPI"), a manufacturer of high
                                  precision, machined components for original
                                  equipment manufacturers with advanced
                                  engineering requirements. The price of net
                                  assets (including assumption of specified
                                  liabilities) was made up of cash, stock, and
                                  performance consideration. The consideration
                                  was $7,237,500 in cash and 250,000 shares of
                                  the Company's common stock. The common stock
                                  portion of the consideration was recorded at
                                  the value guaranteed by the Company ($4 per
                                  share), discounted to its present value. The
                                  Company also capitalized approximately
                                  $190,000 of costs related to the acquisition.
                                  The purchase price exceeded the fair value of
                                  the net assets acquired (principally machinery
                                  and equipment and inventory) by $2,846,026.
                                  This excess has been recorded as goodwill
                                  which is being amortized over a fifteen year
                                  period.

                                  The Company financed this acquisition using
                                  proceeds from a new credit agreement with its
                                  bank (see Note 5).


                                                                            F-12

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                                  The performance consideration is a
                                  stipulated percentage of the future
                                  earnings (as defined) for APPI for three
                                  years. The Company's policy with respect to
                                  any such contingent consideration is to
                                  record a liability for such amounts as the
                                  defined earnings are achieved. As of
                                  September 30, 1999, contingent
                                  consideration of $ 938,803 has been
                                  recorded, as additional goodwill. As of
                                  September 30, 1999, $ 350,000 has been paid
                                  and $ 588,803 has been delivered in the
                                  form of a three year note, subordinated to
                                  the bank credit facility (Note 5), due
                                  September 30, 2002 bearing interest at 7%
                                  per annum, in accordance with the terms of
                                  the asset purchase agreement. All such
                                  contingent consideration is subject to a
                                  subordination agreement between the seller
                                  and the lending institution (Note 5).

                                  The acquisition of APPI was accounted for by
                                  the purchase method of accounting and,
                                  accordingly, the operating results of APPI
                                  have been included in the Company's results of
                                  operations from the effective date.

                                  The summarized unaudited pro forma results set
                                  forth below project results assuming the
                                  acquisition had occurred as of the beginning
                                  of the following period:

<TABLE>
<CAPTION>

                                  YEAR ENDED SEPTEMBER 30,                1998
                                  ----------------------------------------------
                                  <S>                              <C>
                                  Net sales                        $24,660,580
                                  Net income                         1,290,135
                                  Net income per share - basic     $       .26
                                  Net income per share - diluted   $       .26

</TABLE>

                              (B) In January 1998, the Company acquired Kay
                                  Pneumatic Valves Inc. ("Kay") for $850,000 in
                                  cash. Kay's assets were comprised principally
                                  of inventories and fixed assets. The
                                  operations of Kay prior to acquisition were
                                  not material and, accordingly, pro forma
                                  operational results have not been presented
                                  herein.


                                                                            F-13

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS




   3. INVENTORIES                 Inventories are summarized as:

<TABLE>
<CAPTION>

SEPTEMBER 30,                                         1999          1998
------------------------------------------------------------------------
<S>                                            <C>           <C>
Raw materials                                  $ 1,312,565   $ 1,056,504
Work-in-process                                  1,041,542       964,563
Finished goods                                   8,990,642     8,392,905
------------------------------------------------------------------------
                                                11,344,749    10,413,972
Less: adjustment to LIFO                         1,612,976     1,510,752
------------------------------------------------------------------------
                                               $ 9,731,773   $ 8,903,220
------------------------------------------------------------------------

</TABLE>

                                  The adjustment to LIFO represents the
                                  excess of current cost ((valued at
                                  first-in, first-out) (FIFO)) over the LIFO
                                  value of the inventories. The company's
                                  LIFO reserve increased $ 102,224 and $
                                  200,331 for the years ended September 30,
                                  1999 and 1998, respectively.

   4. PROPERTY, PLANT             Property, plant and equipment consists of:
      AND EQUIPMENT

<TABLE>
<CAPTION>

SEPTEMBER 30,                                      1999          1998
---------------------------------------------------------------------
<S>                                         <C>           <C>
Machinery and equipment                     $11,067,498   $10,231,675
Tools, molds and dies                         1,944,329     1,913,027
Furniture, fixtures and office equipment        614,197       607,312
Leasehold improvements                          116,955       322,615
Building and improvements                        94,520        94,520
Land                                              5,000         5,000
---------------------------------------------------------------------
                                             13,842,499    13,174,149
Less: accumulated depreciation and
          amortization                        6,507,499     5,566,903
---------------------------------------------------------------------
                                            $ 7,335,000   $ 7,607,246
---------------------------------------------------------------------

</TABLE>


                                                                            F-14

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                                  Included in machinery and equipment and office
                                  equipment at September 30, 1999 and 1998 is
                                  approximately $3,712,000 and $2,922,000,
                                  respectively, of equipment under capital lease
                                  agreements (Note 7). At September 30, 1999 and
                                  1998, the related accumulated amortization
                                  amounts were approximately $698,000 and
                                  $326,000, respectively. Depreciation expense
                                  for the years ended September 30, 1999 and
                                  1998 was approximately $1,280,000 and
                                  $625,000, respectively.


   5. CREDIT FACILITIES           In July 1998, the Company entered into a new
                                  credit agreement with its existing lender and
                                  repaid all amounts due with respect to its
                                  previous credit facility. The new credit
                                  agreement provided for a revolving credit loan
                                  and a term note. During fiscal 1999, the
                                  revolving credit facility was amended.

                                  Under the amended terms of the three year
                                  revolving credit loan, the Company may borrow
                                  up to the lesser of $7,500,000 or 85% of
                                  eligible receivables and 60% of eligible
                                  inventory to a maximum of $5,000,000. Interest
                                  is computed at the higher of the bank's prime
                                  lending rate (8.25% at September 30, 1999) or
                                  the Federal Funds Rate plus 1/2%. The Company
                                  is required to pay a commitment fee on the
                                  average unused portion of the revolving credit
                                  commitment of 1/4% per annum. Borrowings under
                                  the revolving credit loan were $3,400,000 and
                                  $3,250,000 at September 30, 1999 and 1998,
                                  respectively. The revolving credit loan
                                  matures in July 2001.


                                                                            F-15

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                                  Under the terms of the five and one-half
                                  year (66 months) term note, the Company
                                  originally borrowed $6,250,000. Interest
                                  thereon is computed at the higher of the
                                  bank's prime rate plus 1/4% or the Federal
                                  Funds Rate plus 1/2%. The term note is payable
                                  in twenty quarterly installments of principal
                                  beginning in March 1999. The quarterly
                                  principal installments increase ratably
                                  from $150,000 per quarter during the first
                                  year to $400,000 per quarter for the last
                                  year plus a final installment of $950,000
                                  on December 31, 2003. The proceeds of the
                                  term note and portion of the funds drawn
                                  against the revolving credit loan were used
                                  to finance the APPI acquisition (Note 2).
                                  In conjunction with the issuance of the term
                                  note, the Company issued the lender warrants
                                  to purchase 125,000 shares of its common stock
                                  (Note 9). The value of the warrants totaled
                                  $97,000 and was accounted for as deferred
                                  financing costs (included in other assets) and
                                  is being amortized over the term of the credit
                                  agreement.

                                  Borrowings under the credit facility are
                                  secured by a first priority security interest
                                  in the Company's assets. In addition, the
                                  Company must meet certain financial covenants.

   6. ACCRUED EXPENSES AND        Accrued expenses consist of the following:
      OTHER

<TABLE>
<CAPTION>

SEPTEMBER 30,                                   1999       1998
---------------------------------------------------------------
<S>                                         <C>        <C>
Commissions                                 $ 73,871   $ 69,603
Payroll and related                          177,091     63,531
Other                                        141,810    153,766
---------------------------------------------------------------
                                            $392,772   $286,900
---------------------------------------------------------------

</TABLE>


                                                                            F-16

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


   7. LONG-TERM DEBT              Long-term debt consists of:
      AND CAPITAL LEASE
      OBLIGATIONS

<TABLE>
<CAPTION>

SEPTEMBER 30,                                      1999          1998
---------------------------------------------------------------------
<S>                                         <C>           <C>
Revolving credit loan (Note 5)              $ 3,400,000   $ 3,250,000

Term note (Note 5)                            5,800,000     6,250,000

Acquisition note (Note 2)                       588,803          --

Capital lease obligations with varying
  monthly payments and interest rates
  ranging from 7.01% to 10.0% per annum
  maturing 2000 through 2004; secured
  by an interest in specific machinery
  and equipment (Note 4)                      2,720,171     2,518,312
---------------------------------------------------------------------

      Subtotal                               12,508,974    12,018,312

Less: current maturities                      1,577,539       986,625
---------------------------------------------------------------------

Long-term debt and capital lease
   obligations                              $10,931,435   $11,031,687
---------------------------------------------------------------------

</TABLE>


The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of September 30, 1999:

<TABLE>

<S>                                                         <C>
 2000                                                       $  870,609
 2001                                                          812,738
 2002                                                          809,290
 2003                                                          556,916
 2004                                                          116,762
----------------------------------------------------------------------
Total minimum lease payments                                 3,166,315
Less: amount representing interest                             446,144
----------------------------------------------------------------------
Present value of net minimum lease payments                 $2,720,171
----------------------------------------------------------------------

</TABLE>


                                                                            F-17

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


The following is a schedule of long-term debt  maturities (including capital
lease obligations) as of September 30, 1999:

<TABLE>

<S>                                                          <C>
2000                                                         $ 1,577,539
2001                                                           5,074,000
2002                                                           2,502,557
2003                                                           2,129,344
2004                                                           1,225,534
------------------------------------------------------------------------
                                                             $12,508,974
------------------------------------------------------------------------

</TABLE>


   8. LEASES                      The Company rents facilities in Baldwin,
                                  Ronkonkoma and Freeport, New York and in
                                  Biddeford and Windham, Maine under various
                                  operating lease agreements expiring through
                                  June 2003. In addition, the Company also
                                  leases certain machinery and equipment and
                                  office equipment under various capital lease
                                  agreements expiring through 2004 (Note 7).
                                  Rent expense amounted to approximately
                                  $660,000 and $325,000 for the fiscal years
                                  ended September 30, 1999 and 1998,
                                  respectively. Future minimum rental payments
                                  for operating leases as of September 30, 1999
                                  are as follows:

<TABLE>

<S>                                              <C>
                       2000                      $378,000
                       2001                       210,000
                       2002                       210,000
                       2003                       158,000

                       ----------------------------------
                                                 $956,000
                       ----------------------------------

</TABLE>


   9. STOCKHOLDERS'           (A) WARRANTS
      EQUITY

                                  At September 30, 1999, the Company had 135,864
                                  stock warrants outstanding. The warrants to
                                  purchase the Company's common stock were held
                                  by the following parties:


                                                                            F-18

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                     <C>
           Officers/stockholders/consultants (1)         10,864
           Bank (2)                                     125,000
---------------------------------------------------------------
                                                        135,864
---------------------------------------------------------------

</TABLE>

                                  (1) Each warrant held by members of management
                                      and certain stockholders grant them the
                                      right to purchase one share of common
                                      stock at $2.00 per share. These warrants
                                      have a remaining contractual life of 0.3
                                      years.

                                  (2) As discussed in Note 5, the Company issued
                                      warrants to its secured lender to purchase
                                      125,000 shares of common stock at an
                                      exercise price of $2.00 per share. These
                                      warrants expire on July 7, 2003.



                              (B) INCENTIVE STOCK OPTION PLAN

                                  In October 1993, the Board of Directors
                                  adopted an incentive stock option plan. The
                                  Plan, as amended in December 1995 and March
                                  1998 allows the Board of Directors to issue
                                  options to purchase an aggregate of 1,500,000
                                  shares of the Company's common stock to key
                                  employees.


                                                                            F-19

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS

                                  As of September 30, 1999, the Company had
                                  issued options to purchase an aggregate of
                                  400,500 shares of the Company's common
                                  stock to employees and members of the
                                  Company's Board of Directors. The Company
                                  estimates the fair value of each stock option
                                  at the grant date by using the Black-Scholes
                                  option-pricing model with the following
                                  weighted average assumptions used for grants
                                  in 1999 and 1998: no dividend yield, expected
                                  volatility of 46.00%, risk free interest
                                  rates of 4.80% to 5.80%, with an expected
                                  life of 7.5 years. If compensation cost for
                                  the Company's Stock Option Plan had been
                                  determined in accordance with SFAS No. 123,
                                  net income would have been reduced in 1999
                                  and 1998 by approximately $94,000 and
                                  $18,000, respectively, and net income per
                                  share would have been $.08 and $.21 for
                                  each year, respectively.

                                  The following table summarizes information
                                  about stock options outstanding at September
                                  30, 1999:

<TABLE>
<CAPTION>

                           Options Outstanding            Options Exercisable
                  ------------------------------------  -----------------------
                     Number       Weighted    Weighted     Number     Weighted
                  Outstanding     Average     Average   Exercisable   Average
                                 Remaining    Exercise                Exercise
                                Contractual     Price                   Price
                                Life (years)
--------------------------------------------------------------------------------
<S>                    <C>               <C>      <C>        <C>          <C>
Exercise Prices:
   $ .35                 4,600           5.5      $ .35        4,600      $ .35
   $ 2.00-3.00          45,000           6.6       2.92       45,000       2.92
   $ .35 - 2.44         79,400           7.5       1.80       62,900       1.65
   $ 1.88-2.25          50,000           8.4       1.94       34,000       1.92
   $ 1.06-1.31         221,500           9.6       1.15      156,300       1.18
--------------------------------------------------------------------------------
                       400,500           8.7      $1.57      302,800      $1.61
--------------------------------------------------------------------------------

</TABLE>

Changes in qualified and non-qualified options and warrants outstanding are
summarized as follows:


                                                                            F-20

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                             Warrants                             Options
                       ------------------------- --------------------------------------------

                       Shares    Exercise Price   Shares      Option price       Weighted
                                                               per share        average
                                                                             exercise price
 ---------------------------------------------- ----------- ---------------- ---------------
<S>                     <C>      <C>              <C>        <C>                      <C>
 Outstanding
 September 30, 1997     120,864  $  .30- $ 4.25   1,176,400  $  .35 - $ 3.00          $ 2.32

    Granted             125,000          $ 2.00      50,000  $ 1.88 - $ 2.25          $ 1.94

    Cancelled                 -              -     (135,000) $ 2.35 - $ 3.00          $ 2.43

    Exercised           (50,000)          $ .30     (38,000) $ 1.00 - $ 2.00          $ 1.47
 ---------------------------------------------- ----------- ---------------- ---------------

 Outstanding
 September 30, 1998     195,864  $ 2.00-  $4.25   1,053,400  $  .35 - $ 3.00          $ 2.32

    Granted                   -              -      221,500  $ 1.06 - $ 1.31          $ 1.15

    Cancelled                 -              -     (874,400) $ 2.25 - $ 3.00          $ 2.37


    Exercised                 -              -            -                -               -

    Expired              60,000  $ 3.25-  $4.25           -                -               -
 ---------------------------------------------- ----------- ---------------- ---------------

 Outstanding
 September 30, 1999     135,864           $2.00     400,500  $  .35 - $ 3.00          $ 1.56

 ---------------------------------------------- ----------- ---------------- ---------------

</TABLE>

At September 30, 1999, there were 302,800 options exercisable at a weighted
average exercise price of $1.61. The weighted average fair value of options
granted during fiscal 1999 and 1998 was $.70 and $1.94, respectively.


   10. COMMITMENTS                The Company has a discretionary 401(k) plan.
                                  For the years ended September 30, 1999 and
                                  1998, the Company contributed $ 26,915 and
                                  $3,442, respectively.

   11. TAXES ON INCOME            Provisions for income taxes (benefit) on
                                  income in the consolidated statement of
                                  operations consist of the following:

                                                                            F-21

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30,                         1999         1998
------------------------------------------------------------------
<S>                                         <C>          <C>
Current:
   Federal                                  $ 359,644    $ 425,000
   State                                       27,000       25,000
------------------------------------------------------------------
Total current:                                386,644      450,000
------------------------------------------------------------------
Deferred:
   Federal                                    (90,000)     113,000
   State                                      (17,000)      21,000
------------------------------------------------------------------
                                             (107,000)     134,000
------------------------------------------------------------------
Total taxes on income                       $ 279,644    $ 584,000
------------------------------------------------------------------

</TABLE>

Deferred tax (assets) liabilities consist of the following:

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30,                         1999         1998
------------------------------------------------------------------
<S>                                         <C>          <C>
Tax depreciation in excess of
 book                                       $ 662,000    $ 548,000

Investment tax credit
 carryforward                                (181,000)    (198,000)

Alternative minimum tax credit               (155,000)        --

Provision for accounts receivable             (22,000)     (16,000)

Provision on note receivable
  (included in other assets)                  (32,000)     (35,000)

Inventory capitalization                      (39,000)     (30,000)

Accrued bonus                                 (37,500)        --

Other temporary differences - net             (34,500)     (16,000)
------------------------------------------------------------------

Deferred tax liabilities                      161,000      253,000

Valuation allowance                              --         15,000
------------------------------------------------------------------

Net deferred tax liabilities                $ 161,000    $ 268,000
------------------------------------------------------------------

</TABLE>


                                                                           F-22

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS

The provision for income taxes on income before taxes differs from the
amounts computed applying the applicable Federal statutory rates due to the
following:

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30,                        1999       1998
---------------------------------------------------------------
<S>                                          <C>       <C>
Provision for Federal income taxes at
  the statutory rates                        $263,400  $549,000

Increase (decrease):

   State taxes, net of Federal tax
      benefit                                   6,600    30,000

   Other                                        9,644     5,000
---------------------------------------------------------------
Provision for taxes on income                $279,644  $584,000
---------------------------------------------------------------

</TABLE>

   12. CASH FLOWS

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30,                          1999       1998
-----------------------------------------------------------------
<S>                                          <C>         <C>
Supplemental disclosure of cash flow
  information

   Cash paid during the year:

      Interest                               $1,018,000  $378,293
-----------------------------------------------------------------

      Income taxes                           $ 56,380    $561,575
-----------------------------------------------------------------

Supplemental schedule of non-cash investing
  and financing:

   Equipment acquired under capital
      lease                                   $795,000   $232,000

   Value of warrants issued in
      connection with financing                   --     $ 97,000

</TABLE>


                                                                           F-23

<PAGE>


                                                      ALLIED DEVICES CORPORATION
                                                                AND SUBSIDIARIES


                                                   NOTES TO FINANCIAL STATEMENTS


                                  In connection with the business acquisitions
                                  (Note 2), the Company used cash as follows:

<TABLE>
<CAPTION>


SEPTEMBER 30,                                                     1998
----------------------------------------------------------------------
<S>                                                         <C>
Fair value of assets acquired, excluding cash*              $9,827,036

Less liabilities assumed**                                   1,546,362
----------------------------------------------------------------------

   Net cash paid (including acquisition costs)              $8,280,674
----------------------------------------------------------------------

</TABLE>


                                  *excludes non-cash portion of purchase price
                                  relating to stock issued totaling $891,500.

                                  **the Company also refinanced approximately
                                  $1,233,000 of the assumed capitalized leases
                                  in conjunction with this acquisition. In
                                  fiscal 1999, in connection with the above
                                  acquisition, the Company incurred an
                                  additional non-cash charge of $ 588,803,
                                  relating to contingent consideration earned
                                  in connection with this acquisition.


   13. SUBSEQUENT EVENTS          In November 1999, the Company entered into a
                                  new lease for a new manufacturing facility
                                  that expires in April 2010 and requires total
                                  minimum rental payments of $4,999,000.


                                                                           F-24