<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, 1996                                     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 under Section 12 (g) of the Exchange Act:

        Title Class                                Number of Shares Outstanding
                                                       as of December 13, 1996
----------------------------                      ----------------------------

Common Stock, $.001 par value                        4,401,842

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 there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B  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 ____

Issuer's revenues for its most recent fiscal year: $17,793,072

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price on December 13, 1996 is approximately
$5,058,478.

<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 used in the manufacture and maintenance of 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 are generally
          accustomed to extended lead times, missed deadlines and otherwise poor
          customer service and support.

          The Company's major product groups include precision servo and drive-
          train assemblies, gears and gear products, instrument related
          fasteners, and related 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 85,000
          copies of its catalog over the last decade, of which approximately
          35,000 copies were distributed during the last three fiscal years.
          The current edition, published in 1994, is over 650 pages in length.
          Management intends to update and re-issue the catalog during fiscal
          1997 as part of its overall marketing plan.

          The breadth and standardized nature of the product line result in
          multiple applications in most industries, stimulating demand at the
          level of both OEMs and distributors.  The Company sells to a wide
          range of industries, such as medical and operating room equipment;
          aerospace instrumentation; robotics; laser equipment; computer
          peripherals; factory automation equipment and controls; machine tool
          builders; research and development facilities; semiconductor equipment
          makers; nuclear control devices; 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 constitute a small percentage of the OEM's direct
          cost of manufacturing, typically $300 to $600 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.


                                        2

<PAGE>

ITEM 1 -  BUSINESS (continued)

          Allied Devices has structured itself as far as possible to provide the
          service of "one stop shopping" for mechanical instrument components.
          Further, the Company's organization and inventory policies are
          designed to provide fast and timely response to customer orders, and
          to support "just in time" methods of purchasing 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 accurately. Based on new orders, the Company
          is projecting growth in revenues of approximately 15% and availability
          of related incremental cash flow in planning for fiscal 1997.

          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 minimizing its vulnerability 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 30% of
          shipments.  Geographic concentration 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 dividing operations into two 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.  What is not manufactured
          internally is purchased from a broad variety of reliable sources under
          distributorship agreements or similar arrangements.  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 three
          years ended September 30th.

               1996                     $15,145,000
               1995                     $13,363,000
               1994                     $10,509,000


                                        3

<PAGE>

          CATALOG INDUSTRY COMPETITION

          The Company competes directly 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 set
          of 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.

          MANUFACTURING SERVICE OPERATIONS

          The Company's strategy has called for manufacturing the majority of
          the products that it sells.  Management believes that such vertical
          integration ensures quality control, timely deliveries, control of
          priorities and cost efficiencies.  As a result, the Company has
          several manufacturing divisions, each with specialized capabilities.
          In order to promote maximum utilization of productive equipment, each
          manufacturing operation markets its surplus machine time
          independently.  The following operations, which are divisions of
          Allied Devices, comprise Manufacturing Services:

          Absolute Precision Co.        A sophisticated computer numerically
               Ronkonkoma, New York     controlled ("CNC") machine shop
                                        specialized in close tolerance,
                                        intricate machining of complex parts
                                        that are sold direct to end users 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 diversified
               Joplin, Missouri         CNC and conventional capabilities,
                                        dealing principally with an established
                                        customer base in several industries.

          Each of the support operations in Manufacturing Services contributes
          to the Company's line of standard components and sells them to Catalog
          Operations and to other catalog houses 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 runs are periodically accepted, the structure
          of Manufacturing Services' organization and production facilities
          favors 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:
                                           Year Ended September 30,
                                  ------------------------------------------
                                      1996           1995           1994
                                  ------------------------------------------

           Sales to Catalog
           Operations *            $2,812,000     $2,319,000     $1,703,000

           Sales to outside
           Customers                2,648,000      2,158,000      1,671,000
          ------------------------------------------------------------------
           Total Revenues          $5,460,000     $4,477,000     $3,374,000
          ------------------------------------------------------------------
          ------------------------------------------------------------------

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

            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 has stepped up efforts to market its Manufacturing Services,
            management believes that existing capacity will be sufficient to
            support a substantial increase in volume without adding to current
            production facilities.  Operations are now generally single shift,
            representing an estimated 60% of capacity, giving the Company the
            flexibility to respond to increases in sales volume.

          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; and iv)
          conforming consistently to unbending quality standards.

          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.  This has
          led to the development of an internal quality control manual that sets
          forth both policy 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 management's opinion, loss of qualification under MIL-
          STD-45208A 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 to
          acceptable procedures in pursuit of consistent quality.  The Company's
          measuring instruments are calibrated to standards traceable to the
          National Bureau of Standards.


                                        5

<PAGE>

          To ensure consistent awareness and application of quality procedures,
          the Company has established an on-going program of meetings, lessons
          and training sessions through its quality assurance manager,
          disseminating information on policies, procedures and new
          developments. Management has begun to develop and implement a program
          of continuous improvement in pursuit of qualification under "Total
          Quality Management" and ISO-9000 (a voluntary set of standards and
          guidelines provided by the International Standards Organization),
          which program is in its early stages.  The Company intends to complete
          the program and apply for ISO certification during its fiscal year
          1997.

          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 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 but provide marketing, operating and
          administrative synergies; and (4) raise additional equity capital as
          required to reduce the Company's indebtedness, thereby lowering
          financial leverage while expansion plans are being implemented.
          Certain elements of management's marketing plans have been carried out
          (principally an advertising campaign and publication of an expanded
          catalog), while others are in development.  Management is pursuing its
          acquisition strategy but has not yet entered into any agreements with
          any potential acquisition candidates.  During fiscal 1994, the Company
          raised approximately $1,298,000 of new equity capital through the
          private placement of Common Stock, applying virtually all of the funds
          raised to reduction of indebtedness.  During fiscal 1995, the Company
          raised approximately $81,000 of new equity capital from the exercise
          of 62,500 Class B Warrants, applying such funds to working capital.
          Likewise, during fiscal 1996, the Company raised approximately $56,000
          from the exercise of warrants.  Additional 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.

          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 have
          widespread customer awareness in the markets it serves.  Thus the
          principal thrust of the Company's plan is to make its target markets
          more aware of the Company's range of capabilities and 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.


                                        6

<PAGE>

          ACQUISITION PROGRAM

          As part of its plans for growth, management intends to carry out an
          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 begun the
          process of assessing 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.

          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 62 salaried and 106 hourly personnel.
          Wage rates and benefits are competitive in the labor markets from
          which the Company draws.  Thirty-two of its hourly employees are
          represented by two local unions (19 by the National Organization of
          Industrial Trade Unions ("NOITU") and 13 by Local 999 of the
          Teamsters).  The three year contract with Local 999 expires in August
          1997, and the three year contract with NOITU expires in November 1997.
          Management knows of no material issues that would enter into
          negotiations for renewal of either of its collective bargaining
          agreements.  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.


                                        7

<PAGE>

          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.  Eight leases, covering seven CNC
          machines and the Company's computer system, have original lease terms
          ranging from three to five years, with purchase options at the end of
          each lease.  Rates vary from 8.5% to 13.9%, and expiration dates range
          from 1998 to 2000.  The principal amount outstanding under these
          leases was approximately $395,000 as of September 30, 1996.


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.


<TABLE>
<CAPTION>
              Location          Square        Lease Expiration       Principal Activities
                                 Feet
            ----------------  ----------     ------------------   --------------------------
          <S>                 <C>            <C>                  <C>
          Baldwin, NY          16,000        December 1996*       Catalog Manufacturing and
                                                                  Distribution Operations

          Freeport, NY         10,000        November 1996*       Screw Machine Operations

          Freeport, NY          5,200        February 1998        Catalog Manufacturing
                                                                  Operations

          Ronkonkoma, NY        7,200        June 1998            CNC Machine Shop

          Joplin, MO           13,000        (Owned)              CNC and Conventional
                                                                  Machine Shop
</TABLE>

     *    New leases for facilities in Baldwin, NY, and Freeport, NY are in
          negotiation.  In both cases, the Company has been a tenant for over 10
          years, and management foresees no difficulty in arriving at terms
          satisfactory to both the Company and its respective landlords.


                                        8

<PAGE>

ITEM 3 -  LEGAL PROCEEDINGS

          The Company knows of no litigation pending, threatened, or
          contemplated, or unsatisfied judgements, or any proceedings 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.




                                     PART II


ITEM 5 -  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

          The Company's common stock was listed on NASDAQ SmallCap Market
          ("NASDAQ") as of November 17, 1994.  Trading in the Company's stock
          has been generally active since then, with a total of 2,127 trades
          during fiscal 1996 representing approximately 7,004,100 shares (as
          reported by NASDAQ in their monthly statistical summaries).  As of
          September 30, 1996, the Company had 413 holders of record of its
          common stock.  The Company has 19 listed market-makers, and trading
          during the fiscal year occurred at prices ranging from a low of $1.75
          to a high of $4.50.  The trading ranges by quarter for the year were
          as follows:

                                   High       Low
                                   ----       ---

               First Quarter       $4.00     $1.75
               Second Quarter      $4.25     $2.812
               Third Quarter       $4.50     $2.75
               Fourth Quarter      $4.00     $2.75


                                        9

<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.

                                           Year Ended September 30,
                                ----------------------------------------------
                                      1996           1995           1994
                                      ----           ----           ----

     STATEMENT OF
     OPERATIONS
     DATA:
     Net sales                    $17,793,072    $15,521,373    $12,180,122
     Net income                    $1,001,029       $787,302       $456,715
     Earnings per                 
      share                             $0.20          $0.15          $0.10
     Weighted average
     number of shares
     outstanding                    5,785,085      5,654,858      4,931,010

     BALANCE SHEET
     DATA:
     Total assets                 $10,337,840     $9,403,535     $8,724,025
     Working capital               $6,466,813     $3,428,117     $2,705,993
     Long-term debt                $2,642,401       $497,541       $548,031
     Stockholders'equity           $5,807,364     $4,749,963     $3,859,632


RESULTS OF OPERATIONS: YEAR ENDED SEPTEMBER 30, 1996, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1995.

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.


                                       10

<PAGE>

Net sales for fiscal 1996 were $17,793,000 as compared to $15,521,000 in fiscal
1995, an increase of 14.6%, with continuing growth materializing in both Catalog
Operations and Manufacturing Services.  Management continues to attribute this
strength to a combination of factors: (1) the cumulative effect of a continuing
series of advertisements running regularly in various industry/trade magazines,
helping to create more wide-spread awareness of the Company and its products and
services; (2) the carrying out of various programs of continuous improvement,
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) continued strength in certain sectors of the U.S. economy serviced by
the Company.  In particular, the aerospace instrumentation, medical equipment,
robotics and scientific instrumentation sectors remained strong throughout the
year.  This was partially offset during the fourth quarter of fiscal 1996 by a
downturn in the semiconductor equipment sector; the timing of a recovery of this
business is uncertain, but management projects that it will occur in the second
half of fiscal 1997.

The Company's gross margin was 33.60% of net sales in fiscal 1996, up from
32.87% in fiscal 1995.  This improvement is accounted for by the following
factors: (1) the Company shipped a higher volume of product on relatively stable
costs of factory operations, increasing gross margins by 2.10%; and (2) net
materials expense increased as a percentage of sales, reducing gross margins by
1.37%. The Company did not increase prices materially in fiscal 1996 but expects
to do so in fiscal year 1997.

Selling, general and administrative expenses as a percentage of net sales were
23.2% in fiscal 1996, as compared to 23.3% in fiscal 1995.  This improvement is
attributable to the following factors:  (1) selling and shipping expenses and
commissions increased by $131,000 over the prior year but decreased as a
percentage of net sales by approximately 0.2% as shipping volume rose at a
greater rate than spending on implementation of the Company's marketing
strategy; (2) administrative payroll, benefits, and expenses rose $244,000 as
compared to the prior year, but not at the same rate as shipping volume,
resulting in a decrease of such expenses of 0.2% as a percentage of net sales;
and (3) other administrative expenses (collectively) increased as a percentage
of net sales by approximately 0.3% or $125,000 as compared to the prior year.

Interest expense decreased by $50,000  in fiscal 1996, as the Company lowered
its borrowings and negotiated more favorable rates with its lending
institutions.

Provision for income taxes in fiscal 1996 was $593,000, or 37% of pre-tax
income.  See the notes to the consolidated financial statements for a
reconciliation to the federal statutory rate.


                                       11

<PAGE>

RESULTS OF OPERATIONS:  YEAR ENDED SEPTEMBER 30, 1995, COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1994.

Net sales for fiscal 1995 were $15,521,000 as compared to $12,180,000 in fiscal
1994, an increase of 27.4%, with continuing growth materializing in both Catalog
Operations and Manufacturing Services. Management attributes this strength to a
combination of factors: (1) the cumulative effect of a continuing series of
advertisements being run regularly in several industry/trade magazines, helping
to create more wide-spread awareness of the Company, its products and services;
(2) the carrying out of various programs of continuous improvement, 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)
continued strength in most of the sectors of the U.S. economy serviced by the
Company.

The Company's gross margin continued to improve to 32.87% of net sales in fiscal
1995, from 32.66% in fiscal 1994.  This improvement is accounted for by the
following factors: (1) the Company shipped a higher volume of product on
relatively stable costs of factory operations, increasing gross margins by 1.28%
and (2) net materials expense increased as a percentage of sales, reducing gross
margins by 1.07%.   The Company did not increase prices in fiscal 1995.

Selling, general and administrative expenses as a percentage of net sales were
23.3% in fiscal 1995, as compared to 24.6% in fiscal 1994.  This improvement is
attributable to the following factors: (1) administrative payroll, benefits, and
expenses rose, but not at the same rate as shipping volume, resulting in a
decrease of such expenses of 1.6% as a percentage of net sales and (2) selling
and shipping expenses and commissions rose as a percentage of net sales by
approximately 0.3% as the Company continued to carry out its marketing strategy.

Interest expense increased by $33,000 in fiscal 1995, as higher interest rates
during the year slightly more than offset lower levels of borrowings.

Provision for income taxes in fiscal 1995 was $381,615.  See the notes to the
consolidated financial statements for a reconciliation to the federal statutory
rate.


LIQUIDITY AND FINANCIAL RESOURCES

The Company's financial condition remained stable during fiscal 1996 as cash
generated from operations provided $38,000 over the course of the year and
borrowings (net) provided for $72,000.  In addition, $56,000 of new equity
capital was raised from the exercise of certain warrants issued by the Company.
These funds and cash on hand were used for capital expenditures amounting to
$310,000.  Net working capital increased by $3,039,000 to $6,467,000 during the
year.  This increase is principally attributable to the following changes in
current assets and current liabilities:

-  Accounts receivable (net of reserve for doubtful accounts) increased by
   $11,000.  While sales increased by 14.6%, credit management practices
   resulted in a reduction of the average collection period from 51 days at the
   end of fiscal 1995 to 45 days at the end of fiscal 1996, which resulted in a
   nominal increase in receivables.


                                       12


<PAGE>

-  Inventories increased 18.4%, or $914,000, during the fiscal year, with the 
   turnover rate decreasing from 2.1 times in fiscal 1995 to 2.0 times at the 
   end of fiscal 1996.  Of this increase, a portion ($275,000) was planned as 
   part of a strategy to increase sales of the Company's line of screw machine
   products.  A second portion ($350,000) was budgeted to support the growth in
   sales in Catalog Operations.  The balance ($289,000) built up in the fourth
   quarter of fiscal 1996 as certain orders from customers in the semiconductor
   equipment industry were rescheduled to be shipped during fiscal 1997.    
   Management expects all of these orders to be shipped by the end of the third
   quarter of fiscal 1997. As a general rule, prompt service, product 
   availability and quick turnaround of production orders are key factors in 
   gaining a strong competitive position in the Company's markets. Substantial
   inventories are, in management's judgment, a necessity in responding to 
   demanding delivery requirements imposed by the Company's customers.  As the 
   Company's growth continues, management expects to see improvement in the 
   inventory turnover rate.

-  Current liabilities, exclusive of current portions of long-term debt and
   capital lease obligations, decreased by $2,064,000, as the Company
   entered into a new credit facility (see below - $1,604,000), shortened its
   average payment period on accounts payable and accrued expenses from 45 days
   in fiscal 1995 to 36 days in fiscal 1996 ($229,000), and prepaid certain
   income taxes payable ($231,000).

-  Current portions of long-term debt and capital lease obligations, including
   notes payable to related parties, decreased by $204,000 (net) as the Company
   paid off the balance of related party obligations ($143,000) and reduced its
   current portion of other notes and leases ($61,000) primarily as a result of
   entering into the new credit facility (see below).  The related party debt
   that was paid off represented the repayment of funds advanced to the Company
   in 1987 by three members of management and one Director.

-  Cash balances decreased by $144,000.

Management believes that the Company's working capital as now constituted will
be adequate for the needs of the on-going core business.  During fiscal 1995,
management had concluded that its banking agreements would become a financial
constraint during fiscal 1996 if growth in sales volume continued at or above
the rates of fiscal 1995.  Thus, in January, 1996, the Company negotiated and
closed various improvements on certain asset-based lending agreements with its
bank.  As the year progressed, management concluded that asset-based borrowing
was inappropriate to the Company's size and stage of growth and negotiated an
agreement with another institution.  In September, 1996, the Company closed on a
three-year committed revolving credit agreement, providing for a credit line of
$4 million and an equipment line of $1.7 million, with rates 1/2 to 1-1/2 points
lower and with fewer and less restrictive covenants than in the old asset-based
line.  Using the new credit line, the Company paid off all borrowings under the
prior credit agreement and at fiscal year end was borrowing approximately
$2,366,000.


                                       13

<PAGE>

Management believed that, in light of the Company's expansion objectives, the
Company's working capital would not be adequate to provide for all of the on-
going cash needs of the business, particularly in funding acquisitions.
Therefore, in 1994, management undertook a campaign to raise new equity capital,
initially through a private placement of Common Stock.  During fiscal 1994, the
Company realized net proceeds of approximately $1,298,000 from this private
placement.  During fiscal 1995, the Company further realized net proceeds of
approximately $81,000 from the exercise (by public warrantholders) of 62,500
warrants to purchase Common Stock.  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 completion of
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 1996 amounted to $310,000 ($574,000
including capital lease acquisitions), as compared to $253,000 ($500,000
including capital lease acquisitions) in fiscal 1995.  These expenditures
represent three facets of the Company's capital spending program: (1) a
continuation of management's program of continuous improvement through
modernization and automation of facilities ($120,000), (2) additions to capacity
to allow for expanded volumes of business ($229,000), and (3) purchase and
installation of a comprehensive new computer system ($225,000).  Capital
spending plans for fiscal 1997 call for additional investment in software for
the Company's computer system and continued additions to high-efficiency
production machinery, with total expenditures projected to be approximately
$350,000.  Management expects to fund such spending plans out of working
capital.

VULNERABILITY TO RECESSION

The Company's cost structure is largely made up of "fixed costs", with "variable
costs" accounting for less than 42% 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.


                                       14

<PAGE>

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 but provide marketing,
operating and administrative synergies; and (4) raise additional equity capital
to reduce the Company's indebtedness, thereby lowering financial leverage while
expansion plans are being implemented.  Certain elements of management's
marketing plans have commenced (principally an advertising campaign and
publication of a new and expanded catalog), while others are in development.
Management is currently pursuing its acquisition strategy but has not yet
entered into any agreements with any potential acquisition candidates.  During
fiscal 1995, the Company raised approximately $81,000 of new equity capital
through the private placement of Common Stock, applying virtually all of the
funds raised to reduction of indebtedness.  During fiscal 1996, the Company
raised approximately $56,000 from the exercise of warrants, and options,
applying all of such funds to working capital.   Additional funds, if and when
raised, will 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 (see above).

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.

The Company's growth is directly related to the strength exhibited by its
customers in a range of industries. Early projections for fiscal 1997 indicate
that this pattern of customer strength will continue.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of."  The Company will adopt SFAS No. 121 as of October 1, 1996.

In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 established a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure.
Effective October 1, 1996, the Company intends to adopt the employee stock-based
compensation provisions of SFAS No. 123 by disclosing the pro forma net income
and pro forma net income per share amounts, assuming the fair value method was
adopted October 1, 1995.

The Company does not expect that the adoption of SFAS 121 and 123 will have a
material effect on the Company's financial statements or results of operations.



                                       15

<PAGE>

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


                                       16

<PAGE>

                                    PART III


ITEM 9   -     DIRECTORS AND EXECUTIVE OFFICERS

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

Name                         Age        Position(s) Held with Company

--------------------------------------------------------------------------------
Mark Hopkinson               49         Chairman of the Board of Directors


P.K. Bartow                  48         President and Director


Salvator Baldi               74         Executive Vice President
                                          and Director

Andrew J. Beck               48         Director and Assistant Secretary


Gail F. Lieberman            53         Director


Michael Michaelson           74         Director


Robert J. Smallacombe        63         Director



                                       17

<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 49, 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.

          P.K. Bartow, age 48, has been President of the Company since March
          1994. He also served as Vice President of the Company from when he and
          Mr. Hopkinson organized its acquisition in 1981 until March 1994.
          Prior to acquiring Allied Devices, Mr. Bartow had joined the Nicholson
          Group in 1978, and performed facility and feasibility studies for
          emerging growth companies.  While at Allied Devices, he has been the
          Director of Marketing from 1981 onwards, and in that capacity has set
          up a network of independent manufacturers' representatives across the
          United States and in the United Kingdom, Israel and selected regions
          in Canada.  He has also organized and published Allied Devices' 650+
          page catalog.  Mr. Bartow received a B.A. degree from Williams College
          in 1970, and a M.Arch degree from the University of Pennsylvania in
          1974.

          Salvator Baldi, age 74, 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 advanced from
          vendor to  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.


                                       18

<PAGE>

ITEM 9 -  DIRECTORS AND EXECUTIVE OFFICERS (Continued)

          Andrew J. Beck, age 48, has been a partner with the law firm of Haythe
          & Curley since prior to 1989.  He became a Director 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.

          Gail F. Lieberman, age 53, is currently Chief Financial Officer of The
          Thompson Corp. Financial & Professional Publishing Group.  She became
          a director of the Company in February 1994.  Prior to her current
          association, Ms. Lieberman was Managing Director of Moody's Investors
          Service, where she was employed from January 1994 to December 1996.
          Prior to that she was  Executive Vice President and Chief Financial
          Officer at Scali, McCabe, Sloves, Inc. since 1982.  She holds a B.A.
          in Mathematics and Physics and an M.B.A. in Finance from Temple
          University.

          Michael Michaelson, age 74, has been a Director of the Company since
          1990.  He has been President and sole stockholder of Rainwater
          Enterprises, Ltd. since 1979, providing management and marketing
          consultation services to clients principally in publishing and related
          industries.  He is also on the boards of directors of the following
          companies: Metro Tel Corp., a publicly held company in the
          telecommunications field; and Theater Crafts Associates, a magazine
          publisher.  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.

          Mr. Robert J. Smallacombe, age 63, has been a Director of the Company
          since August, 1996, when he was appointed to the Board by the
          unanimous vote of the other Directors.  For more than five years, he
          has been the principal of Executive Advisory Group, a management
          consulting firm.  In the capacity of consultant, he is currently
          serving as a Director of North Star Health Services Inc.  From 1994
          till May, 1996, as consultant, he served as President of O'Brien
          Environmental Energy and O'Brien Energy Services.  From February, 1993
          till July, 1994, as consultant, he served as CEO of Cardinal
          Publishing Co.  Prior to that, he was working as a management
          consultant and business broker.  He currently serves as a Director to
          Emons Transportation Company and to North Star Health Services Inc.

          SECTION 16 (a) REPORTING REQUIREMENTS

          Under Section 16 (a) of the Securities Exchange Act of 1934, directors
          and executive officers of the Company are required to make certain
          filings on a timely basis with the Securities and Exchange Commission.
          One director and executive officer, Mark Hopkinson, failed to make a
          timely filing of a statement on Form 4 regarding a transaction in the
          Company's stock.  Mr. Hopkinson has subsequently filed the necessary
          report.



                                       19

<PAGE>

ITEM 10 - EXECUTIVE COMPENSATION

          The following table sets forth the salary and bonus compensation paid
          during the fiscal years ended September 30, 1996, 1995 and 1994 to the
          Chairman and Chief Executive Officer of the Company.  No other
          Executive Officer of the Company received fiscal 1996 salary and bonus
          compensation which exceeded $100,000. The Company's Directors receive
          $1250 per meeting 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                                   Other Annual       Long Term Compensation
           Position              Fiscal Year      Salary        Compensation         Awards-Options SAR's
          ------------------------------------------------------------------------------------------------
           <S>                   <C>             <C>            <C>                <C>
           Mark Hopkinson,
           Chairman and Chief
           Executive Officer        1996         $98,098                 $0                        29,000
                                    1995         $90,116                 $0                         4,600
                                    1994         $86,918                 $0                       225,000
</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 1996.

<TABLE>
<CAPTION>

                                             Option/SAR Grants in Last Fiscal Year
          ------------------------------------------------------------------------------------------------
           Name                Number of Securities     % of Total Options      Exercise or     Expiration
                                Underlying Options     Granted to Employees     Base Price         Date
                                      Granted             in Fiscal Year          ($/Sh)
          ------------------------------------------------------------------------------------------------
           Mark Hopkinson              10,000                                      $2.50          3/18/06
                                       10,000                                      $2.25          4/19/06
                                        9,000                                      $3.00          6/21/06

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

                                                                            Number of
                                                                           Securities            Value of
                                                                           Underlying         Unexercised
                                                                          Unexercised        In-the-Money
                                                                      Options/SARs at     Options/SARs at
                                                                           FY-End (#)          FY-End ($)

                               Shares Acquired      Value Realized       Exercisable/        Exercisable/
           Name                on Exercise (#)            ($)           Unexercisable       Unexercisable
          ------------------------------------------------------------------------------------------------
           <S>                 <C>                  <C>                 <C>                 <C>
           Mark Hopkinson             -                  $  -               295,260/0          $240,885/0
</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.


                                       20

<PAGE>

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

          Under the terms of its employee stock option plan (adopted in October,
          1993 and amended in December, 1995), the Board of Directors is
          empowered at its discretion to award options to purchase an aggregate
          of 1,250,000 shares of the Company's common stock to key employees.
          Prior to fiscal 1996, the Company had granted options to purchase an
          aggregate of 939,600 shares to key employees and Directors, with
          exercise prices ranging from $.35 to $2.35 per share.  During fiscal
          1996, the Company granted options to purchase 148,000 shares the
          Company's common stock, at exercise prices ranging from $2.00 to $3.25
          per share to three individuals (one non-management member of the Board
          of Directors and two non-executive managers).

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

          The following table sets forth the number and percentage of the
          Company' 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: (i) at 9/30/96; and (ii)
          after the exercise of all Class B Warrants issued as part of the units
          sold to the public pursuant to the Illustrious Mergers, Inc. offering
          in February, 1991:

<TABLE>
<CAPTION>

           Name                                   Number of           Current             After Warrant
                                                  Shares              Percentage          Exercises (9)
                                                  Owned                                   Percentage
          ------------------------------------------------------------------------------------------------
           <S>                                    <C>                 <C>                 <C>
           Mark Hopkinson (1) (3) (8)
           2365 Milburn Avenue
           P.O. Box 502
           Baldwin, NY  11510                     1,011,671           21.54%              18.54%

           P.K. Bartow (1) (4) (8)
           2365 Milburn Ave.
           P.O. Box 502
           Baldwin, NY  11510                     856,655             18.39%              15.81%


           Salvator Baldi (1) (5) (8)
           2365 Milburn Ave.
           P.O. Box 502
           Baldwin, NY  11510                     787,157             16.99%              14.60%

           Michael Michaelson (2)(6)(8)
           2365 Milburn Ave.
           P.O. Box 502
           Baldwin, NY  11510                     250,084             5.38%               4.62%

           Walter S. Grossman
           277 North Avenue
           Westport, CT  06880                    231,549             5.38%               4.57%

           Gail F. Lieberman (2) (7)
           175 E. 79th Street
           New York, NY  10021                    110,000             2.44%               2.09%

           Andrew J. Beck (2) (10)
           71 Willow Street, Apt. 1
           Brooklyn, NY  11201                    10,000              0.23%               0.19%

           Robert J. Smallacombe (2) (11)
           98 Merrick Road
           Indiana, PA  15701                     43,000              0.97%               0.83%

           All Executive Officers and
           Directors as a Group (7 persons)       3,068,567           54.82%              48.26%
</TABLE>


                                       21

<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.  Mr. Hopkinson owns
               16,411 shares in his own name.  Also included in Mr. Hopkinson's
               shareholdings are 65,660 shares represented by warrants
               exercisable by Mr. Hopkinson until December 31, 1999 and 229,600
               shares represented by currently exercisable options.  Mr.
               Hopkinson disclaims beneficial ownership of 1,200 shares owned by
               his wife.

          (4)  Included in Mr. Bartow's shareholdings are 31,722 shares
               represented by warrants exercisable by Mr. Bartow until December
               31, 1999 and 225,000 shares represented by currently exercisable
               options.

          (5)  Included in Mr. Baldi's shareholdings are 5,898 shares
               represented by warrants exercisable by Mr. Baldi until December
               31, 1999 and 225,000 shares represented by currently exercisable
               options.

          (6)  Included in Mr. Michaelson's shareholdings are 140,084 shares
               represented by warrants exercisable by Mr. Michaelson until
               December 31, 1999 and 100,000 shares represented by currently
               exercisable options.  Mr. Michaelson disclaims ownership of
               97,500 shares owned by his wife.

          (7)  Consists of 100,000 shares represented by currently exercisable
               options.

          (8)  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 to $0.70 per share.

          (9)  These percentages do not include the exercise of any of the
               Allied Devices warrants or options other than the exercise of all
               of the Class B Warrants.

          (10) Consists of 10,000 shares represented by currently exercisable
               options.

          (11) Consists of 43,000 shares represented by options, 3,000 of which
               were exercisable at September 30, 1996, and 40,000 of which will
               vest by February, 1997.


                                       22

<PAGE>

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Inapplicable.


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 during the last quarter of
               fiscal 1996.


                                       23


<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



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


____________________      Chairman of the Board,
Mark Hopkinson             Principal Executive Officer,
                           and Director                     January ___, 1997



____________________
Philip Key Bartow         President and Director            January ___, 1997



____________________
Salvator Baldi            Director                          January ___, 1997



____________________
Michael Michaelson        Director                          January ___, 1997



____________________
Andrew J. Beck            Director                          January ___, 1997


                                       24

<PAGE>

Signatures                Title                             Date
----------                -----                             ----


______________________
Gail F. Lieberman         Director                          January ___, 1997




______________________
Robert J. Smallacombe     Director                          January ___, 1997



______________________    Principal Financial Officer
Paul Cervino              and Principal Accounting Officer  January ___, 1997


                                       25


<PAGE>


                               INDEX TO EXHIBITS


Exhibit Number           Exhibit Description                Page Number
--------------           -------------------                -----------

     10                  Revolving Credit Agreement
                         Dated as of September 4,
                         1996 between the Company
                         and The Chase Manhattan
                         Bank

     11.01               EPS Calculation

     27                  Financial Data Schedules


                 Copies of the exhibits filed with the Annual Report on
     Form 10-KSB do not accompany copies hereof for distribution to 
     stockholders of the Company. The Company will furnish a copy of 
     any of such exhibits to any stockholder requesting the same.




                                       26
<PAGE>





                           CONSENT OF BDO SEIDMAN, LLP



Allied Devices Corporation
Baldwin, New York


We hereby consent to the incorporation by reference and inclusion in the
Prospectus constituting part of this Registration Statement of our report dated
December 27, 1996 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, 1996.



BDO SEIDMAN, LLP

January 8, 1997




                                       S-1

<PAGE>


                           ALLIED DEVICES CORPORATION
                                     AND SUBSIDIARIES



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

                                              CONSOLIDATED FINANCIAL STATEMENTS
                                        YEARS ENDED SEPTEMBER 30, 1996 AND 1995


                                                                            F-1

<PAGE>

                                                     ALLIED DEVICES CORPORATION
                                                               AND SUBSIDIARIES

                                                                          INDEX
-------------------------------------------------------------------------------


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-18


                                                                             F-2

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Allied Devices Corporation
Baldwin, New York


We have audited the accompanying consolidated balance sheets of Allied Devices
Corporation and subsidiaries as of September 30, 1996 and 1995 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 financial statements referred to above present fairly, in
all material respects, the financial position of Allied Devices Corporation and
subsidiaries at September 30, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.





BDO Seidman, LLP


Mitchel Field, New York
December 27, 1996

                                                                             F-3

<PAGE>

                                                ALLIED DEVICES CORPORATION
                                                          AND SUBSIDIARIES

                                                            BALANCE SHEETS

<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30,                                                                                                 1996         1995
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                      <C>           <C>
ASSETS (NOTE 4)
CURRENT:
   Cash                                                                                                  $    54,919   $  198,486
   Accounts receivable, net of allowance for doubtful accounts of $58,080
     and $49,622, respectively (Notes 4 and 6)                                                             2,193,606    2,182,111
   Inventories (Notes 2, 4 and 6)                                                                          5,882,556    4,968,370
   Prepaid expenses and other current assets                                                                  41,619       52,993
---------------------------------------------------------------------------------------------------------------------------------
     TOTAL CURRENT ASSETS                                                                                  8,172,700    7,401,960
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED
  DEPRECIATION AND AMORTIZATION (NOTES 3, 4 AND 6)                                                         1,965,746    1,756,398
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET OF
  ACCUMULATED AMORTIZATION OF $327,748 AND $305,834                                                          110,577      132,491
OTHER ASSETS                                                                                                  88,817      112,686
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         $10,337,840   $9,403,535
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
   Revolving loan payable (Note 4)                                                                       $         -   $1,604,038
   Accounts payable                                                                                        1,092,758    1,368,391
   Income taxes payable (Note 9)                                                                              55,693      286,505
   Accrued expenses and other (Note 5)                                                                       438,035      391,137
   Notes payable to related parties                                                                                -      142,598
   Current portion of long-term debt and capital lease obligations (Note 6)                                  119,401      181,174
---------------------------------------------------------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES                                                                             1,705,887    3,973,843
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (NOTE 6)                                                      2,642,401      497,541
DEFERRED INCOME TAXES (NOTE 9)                                                                               182,188      182,188
---------------------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                                                     4,530,476    4,653,572
---------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTES 7 AND 8)
STOCKHOLDERS' EQUITY (NOTE 8)
   Common stock, $.001 par value, authorized 25,000,000 shares, issued
     and outstanding 4,401,842 and 4,296,842                                                                   4,402        4,297
   Additional paid-in capital                                                                              2,409,086    2,352,819
   Retained earnings                                                                                       3,393,876    2,392,847
---------------------------------------------------------------------------------------------------------------------------------
     TOTAL STOCKHOLDERS' EQUITY                                                                            5,807,364    4,749,963
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         $10,337,840   $9,403,535
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                            F-4

<PAGE>

                                                      STATEMENTS OF INCOME
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,                                   1996          1995
--------------------------------------------------------------------------------
 NET SALES                                             $17,793,072   $15,521,373
 COST OF SALES                                          11,815,271    10,418,976
--------------------------------------------------------------------------------
       GROSS PROFIT                                      5,977,801     5,102,397
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES            4,120,136     3,619,998
--------------------------------------------------------------------------------
       INCOME FROM OPERATIONS                            1,857,665     1,482,399
 INTEREST EXPENSE, NET                                     263,568       313,482
--------------------------------------------------------------------------------
       INCOME BEFORE PROVISION FOR TAXES ON INCOME       1,594,097     1,168,917
 TAXES ON INCOME (NOTE 9)                                  593,068       381,615
--------------------------------------------------------------------------------
 NET INCOME                                             $1,001,029      $787,302
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 NET INCOME PER SHARE                                         $.20          $.15
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING           5,785,085     5,654,858
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                            F-5

<PAGE>

                                        STATEMENTS OF STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                               Common-Stock $0.001 par
                                                        valuee
                                               -----------------------
                                                                               Additional                            Total
                                                Number of                        Paid-in           Retained      stockholders'
                                                 Shares        Amount            Capital           Earnings         equity
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>                <C>            <C>
BALANCE, OCTOBER 1, 1994                        4,234,342      $4,234          $2,249,853         $1,605,545      $3,859,632

   PROCEEDS FROM ISSUANCE OF
     COMMON STOCK (NOTE 8)                         62,500          63              80,720                  -          80,783

   ISSUANCE OF OPTIONS AND
     WARRANTS TO PURCHASE
     COMMON STOCK (NOTE 8)                              -           -              22,246                  -          22,246

   NET INCOME                                           -           -                   -            787,302         787,302
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995                     4,296,842       4,297           2,352,819          2,392,847       4,749,963

   NET INCOME                                           -           -                   -          1,001,029       1,001,029

   PROCEEDS FROM THE EXERCISE OF
     OPTIONS AND WARRANTS TO
     PURCHASE COMMON STOCK
     (NOTE 8)                                     105,000         105              56,267                  -          56,372
--------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996                     4,401,842      $4,402          $2,409,086         $3,393,876      $5,807,364
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                            F-6

<PAGE>

                                                  STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,                                       1996       1995
 CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                            $1,001,029   $787,302
--------------------------------------------------------------------------------
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Reserve on note receivable                                   -     50,000
     Provision for doubtful accounts                          8,458      9,518
     Depreciation and amortization                          387,009    336,428
     Deferred income taxes                                        -   (111,558)
     Compensation charge for warrants and options
       issued                                                     -     22,246
   (Increase) decrease in:
     Accounts receivable                                    (19,953)  (271,404)
     Inventories                                           (914,186)  (330,892)
     Prepaid expenses and other current assets               11,374      9,585
     Other assets                                            23,869    (11,484)
   Increase (decrease) in:
     Accounts payable and accrued expenses                 (228,735)   287,765
     Income taxes payable                                  (230,812)   133,096
--------------------------------------------------------------------------------
     Total adjustments                                     (962,976)   123,300
--------------------------------------------------------------------------------
     Net cash provided by (used in) operating
       activities                                            38,053    910,602
--------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                    (309,806)  (252,603)
--------------------------------------------------------------------------------
     NET CASH USED IN INVESTING ACTIVITIES                 (309,806)  (252,603)
--------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from sale of common stock, options
     and warrants                                            56,372     80,783
   Repayment of revolving loan and term loan             (2,275,500)  (360,004)
   Proceeds from revolving credit facility                2,366,338          -
   Principal payments on long-term debt and
     capital lease obligations                             (232,888)  (213,928)
   Proceeds from additional financing under old
     bank agreement and term loan                           356,462          -
   Payments under old borrowing agreement                         -   (360,004)
   Payment on related party debt                           (142,598)   (74,692)
--------------------------------------------------------------------------------
     NET CASH (USED IN) PROVIDED BY FINANCING
       ACTIVITIES                                           128,186   (567,841)
--------------------------------------------------------------------------------
 NET INCREASE (DECREASE) IN CASH                           (143,567)    90,158
 CASH, BEGINNING OF PERIOD                                  198,486    108,328
--------------------------------------------------------------------------------
 CASH, AT END OF PERIOD                                     $54,919   $198,486
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                           F-7

<PAGE>

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF            (a)  BUSINESS
   ACCOUNTING POLICIES
                              The Company is comprised of Allied Devices
                              Corporation (ADCO), and its wholly-owned
                              subsidiary, Empire Tyler Company (Empire and
                              collectively the Company).

                              The Company is engaged primarily in the
                              manufacture and distribution of standard precision
                              mechanical components and a line of screw machine
                              products.  The Company sells all 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 subsidiary.  All
                              significant intercompany balances and transactions
                              have been eliminated.

                         (c)  1INVENTORIES

                              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 useful lives are as
                              follows:

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

                                                                            F-8

<PAGE>

--------------------------------------------------------------------------------
                           (e)   INCOME TAXES

                                 The Company and its subsidiary 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 operating loss 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

                                 Earnings per share is based on the weighted
                                 average number of shares of common stock and
                                 common stock equivalents outstanding during
                                 each period.  Earnings per share is computed
                                 using the treasury stock method, modified for
                                 options and warrants outstanding in excess of
                                 20% of the outstanding shares of the Company's
                                 common stock.  Under the treasury stock method
                                 the number of shares outstanding reflects the
                                 use of the proceeds from the assumed exercise
                                 of stock options and warrants to repurchase
                                 shares of the Company's common stock at the
                                 average market value during the period.  The
                                 proceeds generated from the assumed exercise of
                                 options and warrants in excess of 20% of the
                                 outstanding shares of common stock are applied
                                 to the assumed repayment of company debt with
                                 the assumed related interest expense savings
                                 being included in the Company's results of
                                 operations for earnings per share computations.

                           (g)   INTANGIBLE ASSETS

                                 The excess of cost over the fair value of net
                                 assets acquired is being amortized over a
                                 period of 20 years.

                                                                            F-9

<PAGE>

                           (h)   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.  The Company provides an allowance
                                 for estimated returns when sales are recorded.
                                 Such allowances are not material.

                           (i)   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.  Actual
                                 results could differ from those estimates.

                           (j)   FAIR VALUE FINANCIAL INSTRUMENTS

                                 The carrying amounts of financial instruments,
                                 including cash and short-term debt,
                                 approximated fair value as of September 30,
                                 1996 and 1995.  The carrying value of long-term
                                 debt and obligations under capital leases,
                                 including the current portion, approximates
                                 fair value as of September 30, 1996 and 1995
                                 based upon the borrowing rates currently
                                 available to the Company for bank loans with
                                 similar terms and average maturities.

                           (k)   RECENT ACCOUNTING PRONOUNCEMENTS

                                 In March 1995, the Financial Accounting
                                 Standards Board (FASB) issued SFAS No. 121,
                                 Accounting for Impairment of Long-Lived Assets
                                 and for Long-Lived Assets to be Disposed of.
                                 The Company will adopt SFAS No. 121 as of
                                 October 1, 1996.


                                                                           F-10

<PAGE>
--------------------------------------------------------------------------------

                                 In October 1995, FASB issued SFAS No. 123,
                                 Accounting for Stock-Based Compensation. SFAS
                                 No. 123 established a fair value method for
                                 accounting for stock-based compensation plans
                                 either through recognition or disclosure.
                                 Effective October 1, 1996, the Company intends
                                 to adopt the employee stock-based compensation
                                 provisions of SFAS No. 123 by disclosing the
                                 pro forma net income and pro forma net income
                                 per share amounts, assuming the fair value
                                 method was adopted October 1, 1995.

                                 The Company does not expect that the adoption
                                 of SFAS 121 and 123 will have a material effect
                                 on the Company's financial statements or
                                 results of operations.

                           (l)   RECLASSIFICATIONS

                                 Certain 1995 balances were reclassified to
                                 conform with the 1996 presentation.

2.   INVENTORIES           Inventories are summarized as follows:

                           SEPTEMBER 30,                1996        1995
                           -----------------------------------------------
                           Raw materials              $238,325    $273,553
                           Work-in-process             512,527     538,730
                           Finished goods            6,404,976   5,328,138
                           -----------------------------------------------
                                                     7,155,828   6,140,421
                           Less: adjustment to LIFO  1,273,272   1,172,051
                           -----------------------------------------------
                                                    $5,882,556  $4,968,370
                           -----------------------------------------------
                           -----------------------------------------------

                           The adjustment to LIFO represents the excess of
                           current cost (valued at first-in, first-out
                           FIFO) over the LIFO value of the inventories.

                                                                           F-11

<PAGE>

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

3.   PROPERTY, PLANT       Property, plant and equipment consists of the
     AND EQUIPMENT         following:

                           SEPTEMBER 30,                       1996        1995
                           ----------------------------------------------------
                           Machinery and equipment       $4,552,650  $4,104,342
                           Tools, molds and dies          1,502,276   1,416,974
                           Furniture, fixtures and
                            office equipment                402,730     399,331
                           Leasehold improvements           167,180     152,249
                           Building and improvements         93,530      93,530
                           Land                               5,000       5,000
                           ----------------------------------------------------
                                                          6,723,365   6,171,426
                           Less:  accumulated
                             depreciation and
                             amortization                 4,757,620   4,415,028
                           ----------------------------------------------------
                                                         $1,965,746  $1,756,398
                           ----------------------------------------------------
                           ----------------------------------------------------

                           Included in machinery and equipment and office
                           equipment at September 30, 1996 and 1995 is
                           approximately $560,000 and $295,000, respectively of
                           equipment under capital lease agreements (see Note 6)
                           with related accumulated amortization amounts of
                           approximately $226,000 and $55,000, respectively.

4.   REVOLVING CREDIT      During most of fiscal 1996, the Company was party
     AGREEMENT             to an asset-based revolving demand loan agreement
                           with a bank, providing for borrowings of up to the
                           lesser of $2,500,000 or 80% of eligible receivables
                           and 20% of eligible inventory up to a maximum of
                           $850,000, as defined in the agreement.  Interest was
                           computed at 0.5% above the bank's commercial lending
                           rate, and principal amounts were collateralized by a
                           security interest in substantially all assets of the
                           Company.

                           In September, 1996, the Company entered into a new
                           credit agreement with a different bank and repaid all
                           amounts outstanding under the agreements with its
                           prior lender.  Under the terms of its new three-year
                           committed revolving credit agreement, the Company may
                           borrow up to the lesser of $4,000,000 or 85% of
                           eligible receivables and 30% of eligible inventory up
                           to a maximum of $2,000,000, and interest is computed
                           at the bank's prime lending rate (8.25% at September
                           30, 1996) or at 1.25% to 1.75% over the London
                           InterBank Over-night Rate (LIBOR), at the Company's
                           option, as defined in the agreement.  As part of the
                           same credit package, the Company may borrow
                           additional funds, secured by the Company's machinery
                           and equipment, with up to $700,000 available against
                           existing assets and up to $1,000,000 available for
                           new acquisitions of machinery and equipment.  The
                           credit facility is secured by a first priority
                           security interest in the Company's assets.   In
                           addition, the Company must meet certain financial
                           covenants.  As of the end of 1996, borrowings under
                           this credit agreement were approximately $2,366,000.

                                                                           F-12

<PAGE>

--------------------------------------------------------------------------------
5.   ACCRUED EXPENSES AND  Accrued expenses consist of the following:
     OTHER
                           SEPTEMBER 30,                      1996        1995
                           ----------------------------------------------------
                           Commissions                     $232,712    $232,679
                           Payroll and related               45,000      92,622
                           Other                            160,323      65,836
                           ----------------------------------------------------
                                                           $438,035    $391,137
                           ----------------------------------------------------
                           ----------------------------------------------------

6.   LONG-TERM DEBT AND    Long term debt consists of the following:
     CAPITAL LEASE
     OBLIGATIONS
                           SEPTEMBER 30,                      1996        1995
                           ----------------------------------------------------
                           Revolving credit facility,
                           due September, 1999
                           (Note 4)                      $2,366,338     $     -
                           Capital lease obligations
                             with varying monthly
                             payments and interest
                             rates ranging from 8.5%
                             to 13% per annum maturing
                             1996 through 2001; secured
                             by an interest in machinery
                             and equipment (Note 3)         395,464     243,715

                           $575,000 term promissory
                             note payable to a bank
                             repaid during fiscal 1996
                             (Note 4)                             -     435,000
                           ----------------------------------------------------
                                Subtotal                  2,761,802     678,715

                           Less:  current maturities        119,401     181,174
                           ----------------------------------------------------
                           Long-term debt and capital
                             lease obligations           $2,642,401    $497,541
                           ----------------------------------------------------
                           ----------------------------------------------------

                                                                           F-13

<PAGE>
--------------------------------------------------------------------------------

                           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, 1996:

                               1997                                    $152,615
                               1998                                     138,991
                               1999                                     104,988
                               2000                                      64,916
                               2001                                       3,448
                           ----------------------------------------------------
                           Total minimum lease payments                 464,958
                           Less:  amount representing interest           69,494
                           ----------------------------------------------------
                           Present value of net minimum
                             lease payments                            $395,464
                           ----------------------------------------------------
                           ----------------------------------------------------

                           The following is a schedule of long term debt
                           maturities (including capital lease obligations) as
                           of September 30, 1996:

                               1996                                    $119,401
                               1997                                     117,606
                               1998                                      93,330
                               1999                                   2,428,042
                               2000                                       3,423
                           ----------------------------------------------------
                                                                     $2,761,802
                           ----------------------------------------------------
                           ----------------------------------------------------

7.   LEASES                The Company rents facilities in Baldwin, Ronkonkoma
                           and Freeport, New York under various operating lease
                           agreements expiring through December 1996.  In
                           addition, the Company also leases certain machinery
                           and equipment and office equipment under various
                           capital lease agreements expiring through 2000 (see
                           Note 6).

                                                                           F-14

<PAGE>

--------------------------------------------------------------------------------
                           Most of the Company's operating leases are on a month
                           to month basis. Rent expense amounted to
                           approximately $256,000 and $250,000 for the fiscal
                           years ended September 30, 1996 and 1995,
                           respectively.

8.   STOCKHOLDERS' EQUITY  (a)   WARRANTS

                                 At September 30, 1996 and 1995, the Company had
                                 1,275,414 and 1,313,764 stock warrants
                                 outstanding, respectively.  The warrants to
                                 purchase the Company's common stock were held
                                 by the following parties:

                                 Officers/stockholders/consultants (1)  515,414
                                 Public (2)                             760,000
                                 ----------------------------------------------
                                                                      1,275,414
                                 ----------------------------------------------
                                 ----------------------------------------------

                                 (1)  Each warrant held by members of management
                                      and certain stockholders grants them the
                                      right to purchase one share of common
                                      stock at various prices between $0.30 and
                                      $0.70 per share.  These warrants were
                                      granted prior to September 30, 1987 and
                                      expire at various dates between April 15,
                                      1997 and April 15, 1998.

                                      During fiscal 1996 and 1995 the Company
                                      issued warrants to purchase 60,000 and
                                      200,000 shares of common stock,
                                      respectively, at prices ranging from $3.00
                                      to $4.25 per share to financial
                                      consultants to the Company.

                                 (2)  760,000 Class B stock warrants outstanding
                                      are registered securities originally
                                      issued in the Company's initial public
                                      offering and held by the public.  Each
                                      warrant grants the holder the right to
                                      purchase 1 share of common stock.  The
                                      exercise price per warrant is $2.50.  The
                                      warrants expire January 31, 1997.

                                                                           F-15

<PAGE>

--------------------------------------------------------------------------------
                            (b)  INCENTIVE STOCK OPTION PLAN

                                 In October 1993, the Board of Directors adopted
                                 an incentive stock option plan.  The Plan, as
                                 amended on December 11, 1995, allows the Board
                                 of Directors to issue options to purchase an
                                 aggregate of 1,250,000 shares of the Company's
                                 common stock to key employees.

                                 As of September 30, 1996, the Company had
                                 issued options to purchase an aggregate of
                                 1,087,600 shares of the Company's common stock
                                 to members of the Company's Board of Directors
                                 and employees.  The options expire 10 years
                                 from issuance and are exercisable at prices
                                 ranging from $.35 to $3.00.  During the year
                                 ended September 30, 1996, 10,000 options were
                                 exercised, 992,600 options were exercisable,
                                 and 162,400 options remain to be granted under
                                 the Plan.

                            Changes in qualified and non-qualified options and
                            warrants outstanding are summarized as follows:
<TABLE>
<CAPTION>

                                                          Warrants                             Options
                                             ----------------------------------------------------------------------
                                                                                                   Option price per
                                                   Shares        Exercise Price       Shares             share
                            ---------------------------------------------------------------------------------------
                            <S>                  <C>              <C>                 <C>          <C>
                            Outstanding
                               October 1,
                               1994              1,095,000        $.30 - $2.50        905,000       $1.00 - $2.35
                               Granted             285,864         2.00 - 3.00         34,600          .35 - 3.00
                               Cancelled            (4,600)               (.35)             -                   -
                               Exercised           (62,500)              (2.50)             -                   -
                               Expired                   -                   -              -                   -
                            ---------------------------------------------------------------------------------------
                            Outstanding
                               September 30
                               1995              1,313,764          .30 - 2.50        939,600          .35 - 3.00
                               Granted              60,000         3.25 - 4.25        148,000         2.00 - 3.00
                               Cancelled            (3,350)                .35
                               Exercised           (95,000)      (.35) - (2.50)       (10,000)               1.00
                               Expired
                            ---------------------------------------------------------------------------------------

                            Outstanding
                               September 30,
                               1996              1,275,414        $.30 - $4.25      1,077,600        $.35 - $3.00
                            ---------------------------------------------------------------------------------------
                            ---------------------------------------------------------------------------------------
</TABLE>

                                                                            F-16

<PAGE>
--------------------------------------------------------------------------------

9.   TAXES ON INCOME     Provisions for income taxes on income in the
                         consolidated statement of operations consist of the
                         following:

                         YEAR ENDED SEPTEMBER 30,           1996           1995
                         -------------------------------------------------------
                         Current:
                           Federal                      $546,143       $425,133
                           State                          46,925         68,050
                         -------------------------------------------------------
                         Total current                   593,068        493,183
                         -------------------------------------------------------
                         Deferred:
                           Federal                             -       (111,568)
                         -------------------------------------------------------
                                                               -       (111,568)
                         -------------------------------------------------------
                         Total taxes on income          $593,068       $381,615
                         -------------------------------------------------------
                         -------------------------------------------------------

                         Deferred tax (assets) liabilities consist of the
                         following:

<TABLE>
<CAPTION>
                         YEAR ENDED SEPTEMBER 30,                      1996                1995
                         -------------------------------------------------------------------------
                         <S>                                       <S>                 <C>
                         Tax depreciation in excess of book        $235,463            $232,600
                         Provision for bad debts                    (19,863)            (17,000)
                         Provision on note receivable
                           (included in other assets)               (34,000)            (34,000)
                         Investment tax credit carryforward         (15,000)            (15,000)
                         -------------------------------------------------------------------------
                         Deferred tax liabilities                   166,600             166,600
                         Valuation allowance                         15,588              15,588
                         -------------------------------------------------------------------------
                         Net deferred tax liabilities              $182,188            $182,188
                         -------------------------------------------------------------------------
                         -------------------------------------------------------------------------
</TABLE>

                                                                            F-17

<PAGE>

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

                         YEAR ENDED SEPTEMBER 30,               1996       1995
                         -------------------------------------------------------
                         Provision for Federal income
                           taxes at the statutory rate      $541,993   $397,432

                         Increase (decrease):

                           State taxes, net of Federal
                             tax benefit                      30,970     23,137

                           Other                              20,105    (38,954)
                         -------------------------------------------------------
                         Provision for taxes on income      $593,068   $381,615
                         -------------------------------------------------------
                         -------------------------------------------------------


10.  CASH FLOWS          YEAR ENDED SEPTEMBER 30,               1996       1995
                         -------------------------------------------------------
                         Supplemental disclosure of cash
                           flow information

                         Cash paid during the year:

                         Interest                           $249,168   $313,482
                         -------------------------------------------------------
                         -------------------------------------------------------
                         Income taxes                       $551,408   $360,077
                         -------------------------------------------------------
                         -------------------------------------------------------
                         Supplemental schedule of non-cash
                           investing and financing:

                         Equipment acquired under
                           capital lease                    $264,637   $126,500
                         -------------------------------------------------------
                         -------------------------------------------------------


                                                                            F-18