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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



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FORM 10-KSB



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| | [X] | ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- | -------------------------------------------------------------------------------

For the fiscal year ended September 30, 2000

0-24012(Commission file number)

ALLIED DEVICES CORPORATION(Exact name of Registrant as specified in its charter)

| | Nevada
(State of incorporation) |  | 13-3087510
(IRS Employer ID No.) | 
| | ------------------------------- |  | -------------------------------- | 

| | 325 Duffy Avenue, Hicksville, New York
(Address of principal executive offices) |  | 11801
(Zip Code) | 
| | ------------------------------------------------------------------------------- |  | ---------------- | 

(516) 935-1300(Registrants telephone number, including area code)

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

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

|Title of Class                |  | Number of Shares Outstanding as of December 30, 2000
|----------------------------- |  | ----------------------------------------------------
|                              |  |                                                     
|Common Stock, $.001 par value |  |                                                     

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

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

Issuers revenues for its most recent fiscal year: $32,281,423

The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price on December 31, 2000 is
approximately $6,905,979.

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Item 1.   Business

Allied Devices Corporation (Allied Devices or the Company) is a broad-line manufacturer and distributor of high precision
mechanical components and sub-assemblies used in light duty control and transmission mechanisms in industrial and commercial instruments and equipment. The Company has the capability of producing close tolerance parts and intricate assemblies at
competitive cost and with short lead times. A part of the Companys business strategy is to provide prompt service and extensive technical support in certain industrial and high technology markets where customers generally expect extended lead times,
missed deadlines and otherwise mediocre customer service and technical support.

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

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

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

A typical customer is an OEM selling high-ticket capital goods equipment. The components supplied by Allied Devices going into such equipment
generally constitute a small percentage of the OEMs direct cost of manufacturing, typically less than $1,000 per unit. In many cases, however, the OEMs system or equipment is dependent on the reliability and/or precision of the Companys
components, despite their modest cost, for its functional integrity and competitive performance. Failure to deliver reliable quality in a timely manner can have an impact far in excess of the 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 always contractual requirements, they are critical determinants in the placement of repeat business.

Allied Devices has structured itself generally to be a one stop shopping resource for consumers of mechanical instrument assemblies and
components. In managements estimation, consumers of such products in US markets have a need for a set of integrated services, inclusive of mechanical engineering skills, manufacturing depth and know-how, and distribution support. It is
managements opinion that few, if any, companies in the US have been effective in providing such services on a well integrated basis, and so management has defined one stop to mean providing mechanical engineering expertise, prototype
manufacturing and testing, product improvement and value engineering, integrated component/sub-assembly production, contract manufacturing, and distribution support. The Companys organization, production facilities and inventory policies are
designed to provide fast and
 timely response to design issues as well as customer orders, large or small, and to support just in time (JIT) methods of material sourcing being used by more and more companies. Because the Companys lead times in response
to customer orders are generally short (four weeks or less), backlog is not considered a meaningful indicator of business trends; therefore, no effort is made to monitor backlog closely.

Allied Devices sales volume is not dependent on just a few large customers. The Company draws from a customer list of over 6,000, thereby
limiting its exposure to the fortunes of any one industry or group of customers. In each of the past three years, the Companys ten largest customers have represented as many as ten different industries and account collectively for only about 47% of
shipments. Despite this diversity in direct customer relationships, a meaningful share of overall demand in the United States for high precision motion control devices has been driven by the requirements of the semiconductor equipment industry (building
chip-making machinery).

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Cyclical fluctuation in demand for such equipment has an indirect but meaningful effect on the Companys shipping volume, as was evident from the severe downturn in that industry in the aftermath of the economic and
financial crises in East Asia in 1997-1998 and 1998-1999. Management estimates that customers serving, directly or indirectly, the semiconductor equipment markets account for approximately 50% of the Companys sales volume. Within the US, the
geographic concentration of the Companys customers is relatively low and fluctuates with conditions in each of the regions served. Allied Devices relies principally on independent multi-line manufacturers representatives to gain national
coverage, altogether fielding some 75 salespeople in virtually all significant territories in the United States.

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

Catalog Operations

The majority of product sold through Catalog Operations is either manufactured by Catalog Operations or procured from the Manufacturing Services
operations of the Company. The product mix includes standard products (as listed in the Companys catalogs) and customized or non-standard products manufactured to the specific requirements of a given customer. What is not manufactured internally is
purchased from a broad variety of reliable sources. This operations activities include telephone sales, inventory and shipping, gear-making, assembly and light duty manufacturing. This part of the Company also sells certain of its standard catalog
products to its major competitors on a wholesale basis. In the aggregate, revenues for the Catalog Operations were approximately as follows for the last five years ended September 30th.

|     |  |   |           
|---- |  | - | ----------
|2000 |  | $ | 15,892,000
|1999 |  | $ | 12,644,000
|1998 |  | $ | 14,507,000
|1997 |  | $ | 13,604,000
|1996 |  | $ | 15,145,000

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

Catalog Industry Competition

The Companys Catalog Operations compete principally with W.M. Berg Co., a subsidiary of Rexnord/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 built around a single set of
standards. In addition, there are many other companies offering a limited selection of materials or single product catalogs, often not adhering to any widely accepted standards. This marketplace is highly competitive, yet management believes,
based upon feedback from vendors and customers, that the Companys operating principles of immediate product availability, excellent quality control, competitive pricing, responsive customer service and technical support have permitted the Company to
maintain and im
prove its market position.

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Manufacturing Services Operations

The Companys strategy calls for manufacturing the majority of the products that it sells through the catalog. Management believes that vertical
integration ensures superior quality, timely deliveries, control of priorities and cost efficiencies. In addition, the Companys strategy calls for the development of direct contract manufacturing relationships with key accounts, OEMs
that enter into blanket or long-term purchasing arrangements with the Company as an outside contractor instead of manufacturing for themselves. In pursuit of this element of the Companys strategy, the Company has added significantly (beginning in
1998) to its manufacturing capacity through (1) acquisition of a state-of-the-art machine shop facility, (2) subsequent, complementary additions of new and highly productive capital equipment, (3) institution of various late stage manufacturing techniques
(such a
s cellular manufacturing), and (4) in November, 2000, (following the end of fiscal 2000) acquisition of another smaller machine shop, equally state-of-the-art. In seeking to improve its manufacturing responsiveness and flexibility, the Company, during
fiscal 2000, consolidated several smaller locations on Long Island into one new facility, adjusting and refining its manufacturing capabilities in the process. These refinements included elimination of its in-house screw machining operations, integration
of the various areas of expertise and proprietary know-how that were, before the consolidation, resident in different locations and expansion of sophisticated and highly efficient computer based machining capabilities and capacities. Thus, Allied now has
three manufacturing divisions, each with a particular focus and core competencies. In addition to the product each manufacturing operation manufactures in support of Catalog Operations, it markets and sells its capabilities direct to key customer accounts.

The following operations comprise Manufacturing Services:

|                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Allied Devices Corp.
Hicksville, New York                                               |  | Includes (1) a sophisticated computer numerically controlled (CNC) machining department specializing in close tolerance, intricate machining of small complex parts that are sold both direct to end
users in the instrument and fluid power industries and through Catalog Operations, and (2) a highly efficient secondary manufacturing operation that performs multi-step finishing on product that has been rough-finished by other divisions of the
Companys operations or by outside vendors. The output of this plant, both standard stock and non-standard components is sold to OEMs, jobbers, distributors and wholesalers. | 
|                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|Astro Instrument Co.
Joplin, Missouri                                                   |  | A general machine shop with diversified CNC and conventional capabilities, producing the Kay Pneumatics product line and manufacturing components for an established customer base in several industries.                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
|                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|APPI, Inc.
(Atlantic Precision Products)
Biddeford, Maine
Windham, Maine
Raymond, Maine |  | A state-of-the-art CNC machining operation with three facilities, specializing in close tolerance, intricate machining of complex parts, made from exotic and non-exotic materials, and used in the medical, fluid
flow control, instrument, and seal/gland industries.                                                                                                                                                                                                                                                                                                                                                                   | 

Manufacturing Services in Hicksville, NY, produces components sold both through Catalog Operations and to other catalog houses, generally at uniform
list prices. In addition, each Manufacturing Services operation bids for specialized custom manufacturing work in the open market, taking on machining jobs on fixed price contracts. While long production runs are periodically accepted, the structure of
Manufacturing Services organization and facilities is generally oriented to shorter runs with higher margins. Pricing is based on a combination of outside costs (for materials and processing services) and standard hourly shop rates (for labor and
overhead).

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

|                                  |  | Year Ended September 30, |           
|--------------------------------- |  | ------------------------ | ----------
|                                  |  |                          |           
|                                  |  | 2000                     |           
|                                  |  |                          |           
|Shipments to Catalog Operations * |  | $                        | 3,913,000 
|Sales to Outside Customers        |  | $                        | 16,389,000
|Total Revenues                    |  | $                        | 20,302,000

______________

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

Shipments to Catalog Operations increase or decrease commensurate with the overall volume of shipments by Catalog Operations. The larger increases in
Sales to Outside Customers in fiscal 1999 and 2000 were attributable principally to the acquisition of Atlantic Precision Products in July, 1998. The Company does not report results for Catalog Operations and Manufacturing Services separately, but
management believes that both areas of the business make a positive contribution to operations. While the Company is intensively marketing its Manufacturing Services capability, management believes that existing capacity will support increases in volume
without significant additions to current production facilities. Operations are now running with a partial second shift, representing an estimated 75% of capacity, giving the Company some flexibility to respond to increases in sales volume. While labor has
been scarc
e during fiscal 2000, the Company has been successful in filling its needs for skilled and semi-skilled production staff in responding to the growth in demand and shipments. Management intends, on a continuous basis, to examine its manufacturing methods,
equipment and tooling, seeking ways to improve the quality and responsiveness of its capacity while minimizing the labor and skill content (and related cost) in its product. The Company has embarked on a program specifically oriented to making such
improvements, and management intends to commit the capital necessary to carry out the program consistent with internal and confidential rate-of-return guidelines established by management.

Manufacturing Services Competition

Each of the divisions in Manufacturing Services faces intense competition from the many thousands of machine shops and screw machine houses
throughout the United States. Each division endeavors to differentiate itself from its competition on the basis of: i) accepting short-run work; ii) offering short lead times; iii) providing exceptional responsiveness to customer requirements; iv)
supporting demand-pull and JIT requirements; v) providing engineering and technical support not typically offered by machine shops; and vi) 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. In the 1980s, this led to the development of an internal quality control manual that sets forth both policies and procedures used throughout the Company. This manual meets or exceeds the requirements of
MIL-STD-45208A, which defines acceptable standards for small business suppliers to the U.S. Government. In fiscal 1999, the Company started the process of qualifying all of its operations for certification to ISO-9002, receiving certification for its
Atlantic Precision Products facilities in Biddeford and Windham, ME, in May, 1999. A project is underway for obtaining certification for the Companys New York operations to ISO-9002 during fiscal 2001. In 2000, the International Standards Board
undertook to revise
and update the ISO-9000 standards. Management believes that the revisions to such standards will not result in disqualification for any of the Companys facilities, nor does management believe that such changes will materially delay certification of
the facilities that are seeking certification. In managements opinion, loss of qualification under MIL-STD-45208A or ISO-9002 would not have a material impact on the Companys ability to do business; likewise, in managements opinion, such
qualification provides an indication to customers and potential customers of the degree of diligence that the Company exercises in adhering rigorously to high standards in pursuit of consistent quality and manufacturing excellence.

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Expansion Plans

Management is carrying out a plan to expand the size of the Company. The plan has four basic elements: (1) expand and diversify the core business
through more intensive marketing of assemblies and custom engineered products; (2) add selected standard products within the existing line of business; (3) expand beyond the Companys core business into related lines of business through an
acquisition program that will not only add volume and capacity but also provide marketing, operating and administrative synergies; and (4) raise additional equity capital as required to reduce the Companys indebtedness, thereby limiting financial
leverage while expansion plans are being implemented. Certain elements of managements marketing strategy have been implemented (principally an on-going advertising campaign and publication of an Internet catalog). In August, 1999, the Company
engaged the services of a
 marketing professional to oversee the implementation of the remaining elements of its marketing plan. In November, 1999, the Company leased a 60,000 square foot space in Hicksville, NY, to consolidate and expand its New York operations, allowing for
growth in Catalog Operations and Manufacturing Services over the next several years. At the same time, management has been pursuing its acquisition strategy, having completed two acquisitions in fiscal 1998 and one after the end of fiscal 2000, and having
targeted additional strategic candidates for acquisition in fiscal 2001. Management has raised (cumulatively) $2,163,000 in equity since the beginning of fiscal 1994, 60% in a private placement and the balance through the exercise of warrants and options.
All such equity funds have been applied to working capital. Additional equity funds, if and when raised, will also be applied, at managements discretion, to working capital, thus being available for use in routine operations or for carrying out the
Compa
ny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 is only just beginning to have widespread customer awareness in the markets it serves. Thus, the principal thrust of the Companys plan is to make its target customers and markets more fully aware of the
Companys range of capabilities and of the usefulness of standardized components in general. The program is divided into modules and is being implemented as management deems appropriate.

The plan includes a number of programs, including expansion and focusing of the Companys advertising campaign. In another program, management
has undertaken to improve, on a continuous basis, the standards of service and support provided to the Companys customers. Other facets of the plan include phasing in of expanded engineering support, expansion of assembly capabilities, introduction
of new products, and providing electronic accessibility for customers. The Companys website currently gives access to a digital version of the Allied Devices catalog, with drawing files available for downloading onto CAD systems. During fiscal 2001,
management plans to implement a customer-interactive system through its website that will enable customers to place inquiries, enter orders, view inventory status, and check on delivery status of existing orders. Management believes that implementation of
the
se plans, while not yet complete, has resulted in accelerated growth of sales and profits, and thus intends to undertake additional activities.

Acquisition Program

As part of its plans for growth, management intends to continue with its acquisition program. By its own assessment, management views the market in
which it competes as large (over $1 billion), highly fragmented, and poised for consolidation. Strategically, management intends to focus on acquiring businesses with the following characteristics: (a) significant potential for sales growth; (b) high
prospects for synergy and/or consolidation in marketing, manufacturing and administrative support functions; (c) relatively high gross margins (30% or more); (d) effective operating management in place; (e) a reputation for quality in its products; and
(f) represents lateral or vertical integration. Management completed two acquisitions in fiscal 1998, one after the end of fiscal 2000, and is assessing additional prospective candidates.

Other Factors

Raw materials for the Companys operations are normally 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 standard product line has resulted in general stability of demand in its markets
and of availability of raw materials at stable prices. No material portion

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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 243 hourly personnel. Wage rates and benefits are competitive in the labor markets from which the
Company draws. While management classifies the labor market as tight, the Company has been able to provide for all of its labor requirements in fiscal 2000. None of the Companys employees are represented by labor unions. The Company has had no
strikes, walkouts or other forms of business disruption attributable to poor labor relations. Relations with employees are open and constructive.

Capital Equipment

The Company uses a wide variety of machinery and equipment in the manufacturing and assembly of its product line. Although the Company or its
subsidiaries own much of the equipment, certain pieces of equipment are leased. Eighteen leases, covering certain specific CNC machines, have original lease terms of five years, with purchase options at the end of each lease. Rates vary from 7.2% to 9.6%,
and expiration dates range from 2003 to 2005. The aggregate value of these leases was $5,145,000 as of September 30, 2000.

Item 2.   Properties

Listed below are the principal plants and offices of the Company. All property occupied by the Company is leased except as otherwise noted.
Management consolidated operations from Baldwin, NY, Freeport, NY and Ronkonkoma, NY into one building in Hicksville, NY during fiscal year 2000. The lease for the new Hicksville, NY facility was executed in November, 1999, for a period of slightly over
ten years.

|Location       |  | Square Feet |        | Lease Expiration |  | Principal Activities | 
|-------------- |  | ----------- | ------ | ---------------- |  | -------------------- | 
|               |  |             |        |                  |  |                      | 
|Hicksville, NY |  |             | 60,000 |                  |  | June, 2010           | 
|               |  |             |        |                  |  |                      | 
|Biddeford, ME  |  |             | 30,000 |                  |  | June, 2003           | 
|Windham, ME    |  |             | 10,000 |                  |  | June, 2003           | 
|Joplin, MO     |  |             | 13,000 |                  |  | (Owned)              | 
|               |  |             |        |                  |  |                      | 

On November 15, 2000, after the end of fiscal 2000, the Company acquired Martin Machine, Inc., and entered into a lease on its buildings in Raymond,
ME, for 5 years with an option to renew for 5 years. The two buildings enclose 10,000 square feet of manufacturing and office space.

Item 3.   Legal Proceedings

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

Item 4.   Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

The Companys common stock was originally listed on National Association of Securities Dealers Automated SmallCap Market (NASDAQ) as
of November 17, 1994. Trading in the Companys stock has been active and regular since then. A total of 7,844 trades representing 7,292,725 shares (as reported by NASDAQ in their routine statistical summaries) were completed during fiscal 2000. As of
September 30, 2000, the Company had 412 holders of record of its common stock. The Company has seven listed market makers, and the trading ranges by quarter for fiscal 2000 and 1999 were as follows:

|               |  | Fiscal 2000 |        | Fiscal 1999 |  
|-------------- |  | ----------- | ------ | ----------- | -
|               |  |             |        |             |  
|               |  | High        |        | Low         |  
|               |  |             |        |             |  
|First Quarter  |  | $           | 1.6875 |             | $
|Second Quarter |  | $           | 3.844  |             | $
|Third Quarter  |  | $           | 3.188  |             | $
|Fourth Quarter |  | $           | 4.625  |             | $

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, |           
|---------------------------------------------- |  | ------------------------ | ----------
|                                               |  |                          |           
|                                               |  | 2000                     |           
|                                               |  |                          |           
|Statement of Operations Data:                  |  |                          |           
|Net sales                                      |  | $                        | 32,281,423
|Net income                                     |  | $                        | 1,474,696 
|Earnings per share:                            |  |                          |           
|Basic                                          |  | $                        | .30       
|Diluted                                        |  | $                        | .27       
|Weighted average number of shares outstanding: |  |                          |           
|Basic                                          |  |                          | 4,847,592 
|Diluted                                        |  |                          | 5,537,748 
|                                               |  |                          |           
|Balance Sheet Data:                            |  |                          |           
|Total assets                                   |  | $                        | 31,563,773
|Working capital                                |  | $                        | 7,844,790 
|Long-term debt                                 |  | $                        | 11,257,491
|Stockholders equity                           |  | $                        | 10,956,620

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RESULTS OF OPERATIONS

Year Ended September 30, 2000, Compared with Year Ended September 30, 1999

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

Net sales for fiscal 2000 were $32,281,000 as compared to $22,827,000 in fiscal 1999. This increase of 41.4% was the result of a combination of
factors:

| | 1. |  | The sectors of the US economy served by the Company showed strength during the entire fiscal year. In particular, the semiconductor equipment sector grew at an estimated rate of 35%, while the medical equipment and gas flow
metering and control sectors also showed above average rates of growth. The Companys sales had been disappointing in fiscal 1999 as a result of especially weak conditions in the semiconductor equipment sector, so part of the strength in 2000
represented a return to more representative rates of growth.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | 
| | 2. |  | The Company continued to implement its marketing plans, intensifying its efforts to diversify and gain customers outside of the semiconductor equipment sector. It is managements opinion that some portion of the growth in
2000 may be attributed to success in these efforts.                                                                                                                                                                                                                                                              
| |    | 

Management continues to apply its marketing strategy consistently, in the belief that it will continue to result in above average growth in sales.
The principal contributors to such growth will be, in managements estimation, the following: (1) a continuing series of advertisements in various industry/trade magazines, designed to create more wide-spread awareness of the Company and its products
and services; (2) a series of programs of continuous improvement, including qualification for ISO-9002, particularly in the areas of customer service and support; (3) a program to develop key accounts by offering an expanded range of support
services, including contract manufacturing services; and (4) diversification of sales to reduce dependence on the semiconductor equipment sector.

During fiscal 2000, the Company moved into a new and larger facility in Hicksville, New York, consolidating four facilities on Long Island into one
location. There were a number of changes to the way the Company operates that resulted, the short-term effects of which resulted in higher costs. In managements opinion, the material effects were as follows:

- The process of moving caused a number of unusual expenses: short term disruptions to production flow; abnormally high levels of overtime; the direct costs of preparing the new building, vacating the old buildings,
physically moving, and starting up in a new location; and the additional project staffing retained for organizing the move.

- The disruptions to production flow resulted in a temporary spate of late deliveries. While management has no accurate means to quantify the dollar impact of this period of poor delivery performance, it is clear that
there were some customers who cancelled orders and awarded business elsewhere during the period of transition.

- The move took place during a period of very active demand; to avoid disappointing customer expectations any more than necessary, the Company subcontracted a higher amount of manufacturing work than normal during a
period of approximately six months.

- Following the move, management has launched a series of projects designed to realize the many improvements in production methods and efficiencies expected from the physical integration of four

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- Contemporaneous with the move, and as a result of the merging of four distinct and different costing systems, the Company adjusted its cost standards and cost accounting system to reflect lower standard costs. The
net effect was a deflationary revision to the current unit costs of many products in the Companys inventory. Thus, the FIFO valuation of inventories at the end of fiscal 2000, using revised standard costs, was approximately $895,000 lower than at
the end of fiscal 1999. However, as calculated on a LIFO basis (i.e., eliminating the deflationary effect of lower current unit costs), inventories grew during fiscal 2000 by approximately $567,000. The LIFO Reserve, therefore, decreased by $1,462,000 to
$151,000.

The Companys gross margin was 34.40% of net sales in fiscal 2000, as compared to 34.15% in fiscal 1999. This improvement was principally the
result of two offsetting factors: the pace of the increase in sales volume experienced in fiscal 2000 prompted higher levels of procurement and subcontracting while the Company ramped up its own manufacturing capacity to match demand, while the higher
level of manufacturing activity resulted in improved productivity. The move and consolidation of four plants on Long Island into one larger facility changed the flow of normal operations, resulting in a variety of temporary inefficiencies as operations
adapted to new surroundings and four formerly distinct operating entities were forged into one unit. The effects of these factors on the cost of goods sold were as follows:  (1) net materials expense increased as a percentage of sales, decreasing gross
margins by 3.
26%, as subcontracting temporarily increased to cover demanding customer delivery requirements while manufacturing capacity was being added; (2) payroll costs as a percentage of sales decreased, improving gross profit by 2.14%, as productivity improved
on the factory floor; (3) the Company shipped a higher volume of product on relatively stable costs of factory overhead, increasing gross margins by 0.58%; and (4) additions to production equipment increased depreciation (a non-cash expense) as an
absolute number, but due to increased shipping levels, as a percentage of sales depreciation decreased, improving gross margins by 0.79%. Management believes that the improvements in productivity of labor would have been higher and expenditures for
materials and services would have been lower had it not been for the move and attendant inefficiencies; however, management has not attempted to quantify these factors.

The Company did not increase prices materially in fiscal 2000.

Selling, general administrative and moving expenses as a percentage of net sales were 23.26% in fiscal 2000, as compared to 26.34% in fiscal 1999.
The following factors account for this change: (1) selling and shipping expenses and commissions increased as a percentage of net sales by approximately 0.15% as expenditures on marketing and sales representation were increased during the year; (2)
administrative payroll, benefits, and related expenses decreased as a percentage of net sales by 2.85%, principally as a result of the increases in sales levels without increased spending on administrative staffing; (3) other administrative expenses
(collectively, including depreciation and amortization) decreased as a percentage of net sales by approximately 0.38%, with sales increases outpacing increases in overhead expenses. Such administrative expenses in fiscal 2000 included approximately
$253,000 of one-time co
sts related to the move and consolidation.

Interest expense increased by $213,000 in fiscal 2000 as a function of higher borrowings incurred to finance new equipment acquired in fiscal 2000
and higher interest rates during the year.

Provision for income taxes in both fiscal 2000 and fiscal 1999 were 36.1% of pre-tax income. See the notes to the consolidated financial statements
for the reconciliation to the federal statutory rate.

Year Ended September 30, 1999, Compared with Year Ended September 30, 1998

Net sales for fiscal 1999 were $22,827,000 as compared to $18,448,000 in fiscal 1998. This increase of 23.7% was the result of a combination of
factors: (1) sales generated by the operations acquired in the second half of fiscal 1998 contributed approximately $6.7 million of incremental volume in fiscal 1999; (2) economic and financial instability in East Asia induced a sharp downturn in the
semiconductor equipment sector of the U.S. economy, with depressed conditions enduring for effectively all of fiscal 1999, resulting in a decrease in volume estimated by management to be approximately $4.2 million; and (3) continued intense marketing
efforts resulted in improved sales to companies in other sectors, adding an estimated $1.9 million to shipments during fiscal 1999. Management believes that the Companys marketing strategy, consistently applied, will continue to result in above
average

---

growth in sales. The principal contributors to such growth will be, in managements estimation, the following: (1) a continuing series of advertisements in various industry/trade magazines, designed to create more
wide-spread awareness of the Company and its products and services; (2) a series of programs of continuous improvement, including qualification for ISO-9002, particularly in the areas of customer service and support; (3) a program to expand the range of
support services provided to the Companys larger customers; and (4) diversification of sales to reduce dependence on the semiconductor equipment sector.

The Companys gross margin was 34.15% of net sales in fiscal 1999, up from 34.07% in fiscal 1998. The lower level of sales activity permitted
the Company to manufacture more and purchase less, resulting in the following changes from fiscal 1998: (1) net materials expense decreased as a percentage of sales, increasing gross margins by 3.57%; (2) careful management of wages and overtime through
the slowdown resulted in lower payroll costs as a percentage of sales, improving gross margins by 0.83%; (3) the Company shipped a lower volume of product on relatively stable costs of factory operations, decreasing gross margins by 2.43%; and (4)
additions to production equipment increased depreciation (a non-cash expense) as a percentage of sales, decreasing gross margins by 1.89%.

The Company did not increase prices materially in fiscal 1999.

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

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

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

Liquidity and Capital Resources

The Companys financial condition remained healthy during fiscal 2000 as operations generated net cash of $3,994,000. Financing activities (net)
used cash of $2,631,000 over the course of the year, capital expenditures (net) used $500,000, and deferred acquisition financing used $896,000, resulting in a decrease to cash on hand of $33,000. Net working capital decreased by $1,554,000 to $7,845,000
during the year. The following changes in current assets and current liabilities contributed to the decrease in working capital for the year ended September 30, 2000:

- Accounts receivable (net of reserve for doubtful accounts) increased by $1,888,000 during the year. This increase was a function of higher sales volume, while the average collection period stayed constant at 45 days.

- Inventories increased by $567,000 during the fiscal year, with the turnover rate increasing from 1.6 times in fiscal 1999 to 2.0 times in fiscal 2000. This increase was achieved because the Company was able to
support a 41% increase in sales volume with a 6% increase in inventories. Current industrial procurement practices, Kanban and demand-pull (JIT) systems in particular, leave manufacturers vulnerable to sudden slow-downs in demand, since
production manufactures on the basis of forecasted needs as much as three months in advance of actual demand. As an operating principle, management has made prompt service, product availability and quick turnaround of production orders key strategic
factors in gaining a strong competitive position in the Companys markets. Substantial inventories are, in managements judgment, a necessity in supporting this strategy and responding to demanding delivery requirements imposed by the
Companys customers.
As the Companys growth plan continues to unfold, management expects to see continued improvement in the inventory turnover rate.

- Prepaid expenses and other current assets decreased by $7,000.

---

- Current deferred income taxes increased by $389,000.

- Current liabilities, exclusive of current portions of long-term debt and capital lease obligations, increased by $3,039,000 (net), as higher levels of manufacturing activity increased accounts payable by $1,672,000,
the Companys average payment period on accounts payable and accrued expenses was increased from 29 days in fiscal 1999 to 37 days in fiscal 2000 (an increase of $766,000), and the Companys income taxes payable increased by $601,000.

- Current portions of long-term debt and capital lease obligations increased by $1,319,000 (net) as a function of the terms of the Companys bank debt and lease financings.

- Cash balances decreased by $33,000.

Management believes that the Companys working capital as now constituted will be adequate for the needs of the on-going core business
(inclusive of acquired entities). During fiscal 1999, the Company and its principal lending institutions mutually agreed to amend certain terms of its credit facility, reducing its revolving credit facility from $10 million to $7.5 million and modifying
certain financial covenants in recognition of industry-wide business conditions. The Company, at the end of fiscal 2000, was using $2,900,000 of its revolving credit facility.

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

Outlay for capital expenditures in fiscal 2000 amounted to $500,000 net ($3,855,000 including capital leases, net of equipment dispositions), as
compared to $210,000 net ($1,005,000 including capital leases, net of equipment dispositions) in fiscal 1999. These expenditures represent activity in all material facets of the Companys capital spending program: (1) a continuation of
managements program of continuous improvement through modernization and automation of facilities ($985,000), (2) expansion of productive capacity to service key accounts in contract manufacturing relationships ($2,758,000), and (3) upgrading,
support and installation of new computer and communications equipment ($112,000). Capital spending plans for fiscal 2001 call for similar levels of investment in software and hardware for the Companys computer system and roughly the same level of
additions and upgrades to prod
uction capacity. Management expects to fund such spending plans out of working capital, credit facilities, and customer financing agreements.

During fiscal 1998, the Company acquired effectively all of the assets, properties, business and rights of, and assumed specified liabilities of
Atlantic Precision Products, Inc. Consideration for the assets, net of liabilities, of APPI included a commitment to make supplemental payments of purchase consideration to the seller based on the performance of APPI during each of the first three
one-year operating periods following the closing. The supplemental consideration earned for the first two years following the closing (24 months ended June 30, 2000) amounted to approximately $2,731,000, of which $1,522,000 was paid in cash with the
balance due in notes payable over three years expiring June, 2003.

On November 15, 2000, shortly after the close of fiscal year 2000, the Company acquired effectively all of the assets of, and assumed specified
liabilities of, Martin Machine, Inc. (Martin), a small machine shop in Raymond, Maine, specializing in close tolerance, short run machining work. Consideration for the assets, net of liabilities, included cash of $400,000, five-year notes for
$300,000 (bearing interest at 7% per annum), assumption of equipment loans of approximately $265,000, and 100,000 shares of the common stock of the Company. While Martins sales were less than 4% of the Companys sales during the 12 months ended
September 30, 2000, management believes that the talent and know-how of the Martin employees remaining with the business will support a substantial expansion of volume through the facility in support of several facets of the Companys expansion plans.

---

Vulnerability to Recession

The Companys cost structure is largely made up of fixed costs, with variable costs accounting for less than 40% of net
sales. The Company could, therefore, experience materially adverse effects on profitability from any marked downturn in sales volume until management was able to reduce fixed costs. Because the Companys delivery lead-times are relatively short,
there is, as a result, little backlog at any given time, and the effect of a downturn in sales volume would be felt almost immediately. A material portion of the Companys sales are made to customers in the semiconductor equipment industry, an
industry noted for its highly cyclical nature. It is probable that there will be a downturn in that industry at some point in 2001 or 2002, with a duration of 18 months or more. The Company is making efforts to diversify the composition of its sales
profile to mitigate
 the impact of such a downturn on the Companys sales. If management is not successful in achieving such diversification, the Company is likely to see a material decrease in sales when such a downturn happens.

Expansion Plans

Management has developed a plan to expand the size of the Company. Basically, the plan has four elements: (1) expand the core business through more
intensive and focused marketing efforts; (2) add products within the existing line of business; (3) expand beyond the Companys core business into related lines of business through an acquisition program that will not only add volume and capacity but
also provide marketing, operating and administrative synergies; and (4) raise additional equity capital as required to reduce the Companys indebtedness, thereby limiting financial leverage while expansion plans are being implemented. In August,
1999, the Company engaged the services of a marketing professional to oversee and accelerate the implementation of the remaining elements of its marketing plan. In November, 1999, the Company leased a 60,000 square foot space in Hicksville, NY, to expand
and cons
olidate its New York operations, allowing for growth in Catalog Operations and Manufacturing Services over the next few years. At the same time, management is pursuing its acquisition strategy, having completed two acquisitions in fiscal 1998, another in
the first quarter of fiscal 2001, and having targeted additional strategic candidates for acquisition in fiscal 2001 and beyond. Plans to raise additional equity will be carried out when management considers it appropriate to do so and believes market
conditions to be favorable to existing stockholders.

Impact of Inflation and Other Business Conditions

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

Recent Accounting Pronouncements

A)   Investment Derivatives and Hedging Activities Income

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

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

B)   Revenue Recognition

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in
Financial Statements. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes that the effect, if any, will not be material to the Companys operating
results.

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Item 7.   Financial Statements

(1)   Financial Statements



Item 8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



---

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       |  | 53  |  | Chairman of the Board of Directors,Chief Executive Officer, Secretary                                       
|Salvator Baldi       |  | 78  |  | Executive Vice President, Director                                                                          
|Andrew J. Beck       |  | 52  |  | Assistant Secretary                                                                                         
|P.K. Bartow          |  | 53  |  | Director                                                                                                    
|Christopher T. Linen |  | 53  |  | Director                                                                                                    
|Michael Michaelson   |  | 78  |  | Director                                                                                                    
|Paul M. Cervino      |  | 46  |  | President, Principal Financial Officer, Principal Operating Officer, Principal Accounting Officer, Treasurer

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

Salvator Baldi, age 78, was one of the original founders of the Company in 1947. He has been a Director of the Company since February, 1994. The
business was started as a general machine shop and developed through the years as a supplier to certain principal competitors of the Company in the market for standardized precision mechanical parts. By the late 1970s, the Company had become a
competitor, offering its own catalog of components. He and his partners sold the Company to the investor group assembled by Mr. Hopkinson and Mr. Bartow in October, 1981, with Mr. Baldi remaining with the Company under an employment
contract. By the time his contract expired two years later, Mr. Baldi had negotiated to repurchase an interest in the Company. He currently works on an abbreviated work schedule.

Andrew J. Beck, age 52, has been a partner with the law firm of Torys since prior to 1989. He became Assistant Secretary of the Company in March,
1994. Mr. Beck holds a B.A. in economics from Carleton College and a J.D. from Stanford University Law School.

P.K. Bartow, age 53, is President of The InterBusiness Marketing Group. From March 1994 through November 1998, he was President of the Company. He
served as Vice President of the Company from when he and Mr. Hopkinson organized its acquisition in 1981 until March 1994. While active in management at Allied Devices, Mr. Bartow was Director of Marketing and Sales, and he continues to provide
marketing consulting services to the Company. Prior to acquiring Allied Devices, Mr. Bartow had joined the Nicholson Group in 1978, and performed facility and feasibility studies for emerging growth companies. Mr. Bartow received a B.A. degree
from Williams College in 1970, and a M.Arch degree from the University of Pennsylvania in 1974.

Christopher T. Linen, age 53, became a Director of the Company during fiscal 1997. He is currently principal of Christopher Linen & Company,
through which he has invested in a series of early stage, internet and technology-related enterprises. Prior to this, from 1975 until 1996, he was an executive with Time Inc. (later Time Warner Inc.) where he managed a series of six subsidiaries or
divisions in Asia, Latin America, the United States, and worldwide. Prior to that, he was Assistant Financial Director of the Italhai Holding Company, Ltd. (Bangkok), during which tenure he was Publisher of the Bangkok World, an English language daily
newspaper. He is a director

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of Starmedia Networks Inc., Chairman of Nirvana Soft Inc., and a Trustee of The Family Academy, an experimental public school. He holds a B.A. from Williams College and attended the Graduate School of Business Administration at
New York University.

Michael Michaelson, age 78, has been a Director of the Company since 1990. He has been President and sole stockholder of Rainwater Associates, Inc.
since 1979, providing management and marketing consultation services to clients principally in publishing and related industries. He is also on the board of directors of Retail Entertainment Group, Inc., a public company. From 1986 to 1989, he was
Chairman of the Council on Economic Priorities. From 1977 to 1979, he was co-founder and Chairman of the Board of Games Magazine, which was sold to Playboy magazine in 1979. From 1970 to 1978, Mr. Michaelson worked for Publishers Clearing House,
where he was Senior Vice President. From 1968 to 1970, he was President and Founder of Campus Subscriptions, Inc. Mr. Michaelson served in the United States Army in the South Pacific during World War II, where he was a Company Commander in the 35th
infantry, 25th di
vision and received the Bronze Star and the Purple Heart. He received a B.S. degree from New York University in 1948.

Paul M. Cervino, age 46, has been the President of the Company since August 2000 and Chief Operating Officer of the Company since November 1998. From
January 1996, until October 1998, he served as Chief Financial Officer of the Company. Prior to 1996, he was employed by Sothebys Holdings, Inc., an international art auction house. From 1992 to 1995, he was a member of the European Board of
Directors and Chief Financial Officer of Sothebys Europe and Asia, operating in London. From 1985 to 1992, he was a Director and Chief Financial and Administrative Officer of Sothebys North America. From 1976 to 1985, he worked for
Sothebys in various other financial capacities. Mr. Cervino received a B.S. in Accounting from St. Johns University, and a M.B.A. in Finance from Pace University.

Item 10.   Executive Compensation

The following table sets forth the salary and bonus compensation paid during the fiscal years ended September 30, 2000, 1999 and 1998 to the Chairman
and Chief Executive Officer of the Company. No other Executive Officer of the Company received fiscal 2000 salary and bonus compensation which exceeded $100,000. The Companys Directors receive $1,250 per quarter and 25,000 options per year for their
services as such and reimbursement for any expenses they may incur in connection with their services as Directors.

Summary Compensation Table

|Name and Principal Position          |  | Fiscal Year |      | Salary |   | Other AnnualCompensation |  | Long Term CompensationAwards-Options/ SARs |  
|------------------------------------ |  | ----------- | ---- | ------ | - | ------------------------ |  | ------------------------------------------- | -
|                                     |  |             |      |        |   |                          |  |                                             |  
|Mark Hopkinson                       |  |             | 2000 |        | $ | 128,535                  |  | $                                           | 0
|Chairman and Chief Executive Officer |  |             | 1999 |        | $ | 123,725                  |  | $                                           | 0
|                                     |  |             | 1998 |        | $ | 110,005                  |  | $                                           | 0

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 2000.

Option/SAR Grants in Last Fiscal Year

|Name           |  | Number of SecuritiesUnderlying Options Granted |         | % of Total OptionsGranted to Employees inFiscal Year |  | Exercise orBase Price($/Sh) |   | ExpirationDate |      
|-------------- |  | ---------------------------------------------- | ------- | ---------------------------------------------------- |  | --------------------------- | - | -------------- | -----
|               |  |                                                |         |                                                      |  |                             |   |                |      
|Mark Hopkinson |  |                                                | 225,000 |                                                      |  | 21                          | % | $              | 1.031

---

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

|               |  |                                |   |                    |   | Number ofSecuritiesUnderlyingUnexercisedOptions/SARs atFY-End (#) |  | Value ofUnexercisedIn-the-MoneyOptions/SARs atFY-End ($) |          
|-------------- |  | ------------------------------ | - | ------------------ | - | ----------------------------------------------------------------- |  | -------------------------------------------------------- | ---------
|               |  |                                |   |                    |   |                                                                   |  |                                                          |          
|Name           |  | Shares Acquiredon Exercise (#) |   | Value Realized ($) |   | Exercisable/Unexercisable                                         |  | Exercisable/Unexercisable                                |          
|               |  |                                |   |                    |   |                                                                   |  |                                                          |          
|Mark Hopkinson |  |                                |  |                    | $ |                                                                  |  |                                                          | 279,000/0

______________

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

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

Under the terms of its employee stock option plan (adopted in October, 1993 and amended in December, 1995 and March, 1998), the Board of Directors is
empowered at its discretion to award options to purchase an aggregate of 1,500,000 shares of the Companys common stock to key employees. Prior to fiscal 2000, the Company had granted options to purchase an aggregate of 454,100 shares to key
employees and Directors, with exercise prices ranging from $0.35 to $3.00 per share. During fiscal 2000, 12,000 such options were cancelled when an option-holder left the employment of the Company. Also during fiscal 2000, the Company granted options to
purchase 1,049,400 shares of the Companys common stock, at exercise prices ranging from $1.031 to $2.875, to 9 individuals (one executive, four Directors and four non-executive managers).

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Item 11.   Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the number and percentage of the shares of the Companys Common Stock owned of record and beneficially by each
person or entity owning more than 5% of such shares and by all executive officers and directors, as a group at September 30, 2000:

|Name                                           |  | Number of
Shares Owned |           | Current
Percentage | 
|---------------------------------------------- |  | ---------------------- | --------- | ------------------ | 
|                                               |  |                        |           |                    | 
|Mark Hopkinson (1) (3)                         |  |                        | 1,028,910 |                    | 
|325 Duffy AvenuePO Box 841Hicksville, NY 11801 |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|P.K. Bartow (2) (4)                            |  |                        | 841,866   |                    | 
|325 Duffy AvenuePO Box 841Hicksville, NY 11801 |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|Salvator Baldi (1) (5)                         |  |                        | 755,575   |                    | 
|325 Duffy AvenuePO Box 841Hicksville, NY 11801 |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|Michael Michaelson (2) (6)                     |  |                        | 185,000   |                    | 
|325 Duffy AvenuePO Box 841Hicksville, NY 11801 |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|Christopher T. Linen (2) (8)                   |  |                        | 186,000   |                    | 
|203 Poverty Hollow RoadRedding, CT 06896       |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|Andrew J. Beck (7)                             |  |                        | 16,000    |                    | 
|71 Willow Street, Apt. 1
Brooklyn, NY 11201    |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|Paul M. Cervino (7) (9)                        |  |                        | 288,000   |                    | 
|325 Duffy AvenuePO Box 841Hicksville, NY 11801 |  |                        |           |                    | 
|                                               |  |                        |           |                    | 
|All Executive Officers and                     |  |                        |           |                    | 
|Directors as a Group (7 persons)               |  |                        | 3,301,351 |                    | 

______________

| | (1) |  | Officer and Director                                                                                                                                                                                                                                                                                                         
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | 
| | (2) |  | Director only.                                                                                                                                                                                                                                                                                                               
| |     | 
| | (3) |  | Includes 279,000 shares represented by currently exercisable options. 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 disclaims beneficial ownership of 15,700 shares owned by his wife.
| |     | 
| | (4) |  | Includes 225,000 shares represented by currently exercisable options. Mr. Bartow disclaims ownership of 15,000 shares owned by members of his immediate family.                                                                                                                                                              
| |     | 
| | (5) |  | Includes 225,000 shares represented by currently exercisable options.                                                                                                                                                                                                                                                        
| |     | 
| | (6) |  | Includes 185,000 shares represented by currently exercisable options. Mr. Michaelson disclaims ownership of 216,000 shares owned by his wife.                                                                                                                                                                                
| |     | 
| | (7) |  | Officer only.                                                                                                                                                                                                                                                                                                                
| |     | 

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| | (8) |  | Includes 100,000 shares represented by currently exercisable options.                                                                    
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |     | 
| | (9) |  | Includes 272,400 shares represented by options, 136,400 currently exercisable and the balance vesting in periods out through fiscal 2004.
| |     | 

Item 12.   Certain Relationships and Related Transactions

Not applicable.

Item 13.   Exhibits and Reports on Form 8-K



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



No reports on Form 8-K were filed in the last quarter of fiscal 2000.

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SIGNATURES

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

| |  |  | ALLIED DEVICES CORPORATION         
| |  |  | -----------------------------------
| |  |  | /s/ Mark Hopkinson                 
| |  |  |                                    
| |  |  | Mark HopkinsonChairman 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.

|Signature                                    |  | Title                                                                                                      |  | Date
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----
|                                             |  |                                                                                                            |  |     
|/s/ Mark HopkinsonMark Hopkinson             |  | Chairman of the Board,Principal Executive Officer,and Director                                             |  |     
|                                             |  |                                                                                                            |  |     
|/s/ Salvator BaldiSalvator Baldi             |  | Executive Vice Presidentand Director                                                                       |  |     
|                                             |  |                                                                                                            |  |     
|/s/ Philip Key BartowPhilip Key Bartow       |  | Director                                                                                                   |  |     
|                                             |  |                                                                                                            |  |     
|/s/ Michael MichaelsonMichael Michaelson     |  | Director                                                                                                   |  |     
|                                             |  |                                                                                                            |  |     
|/s/ Christopher T. LinenChristopher T. Linen |  | Director                                                                                                   |  |     
|                                             |  |                                                                                                            |  |     
|/s/ Paul M. CervinoPaul M. Cervino           |  | President, Principal Operating Officer,Principal Financial Officer,Principal Accounting Officer, Treasurer |  |     
|                                             |  |                                                                                                            |  |     

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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors ofAllied Devices CorporationHicksville, New York

We hereby consent to the incorporation by reference and inclusion in the Prospectuses constituting part of the Registration Statements filed on Form
S-8 on April 6, 1994 and April 8, 1996 of our report dated January 10, 2001 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, 2000.

BDO SEIDMAN, LLP

Melville, New YorkJanuary 16, 2001

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ALLIED DEVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSYears Ended September 30, 2000 and 1999

|                                                   |  | Page
|-------------------------------------------------- |  | ----
|Report of independent certified public accountants |  |     
|Consolidated financial statements                  |  |     
|Balance sheets                                     |  |     
|Statements of income                               |  |     
|Statements of stockholders equity                 |  |     
|Statements of cash flows                           |  |     
|Notes to financial statements                      |  |     

---

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors ofAllied Devices CorporationHicksville, New York

We have audited the accompanying consolidated balance sheets of Allied Devices Corporation and subsidiaries as of September 30, 2000 and 1999 and the
related consolidated statements of income, stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied
Devices Corporation and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.

BDO Seidman, LLP

Melville, New YorkJanuary 10, 2001

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                   |  | September 30, |           
|------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----------
|                                                                                                                   |  |               |           
|                                                                                                                   |  | 2000          |           
|                                                                                                                   |  |               |           
|ASSETS                                                                                                             |  |               |           
|Current:                                                                                                           |  |               |           
|Cash                                                                                                               |  | $             | 410,186   
|Accounts receivable, net of allowance for doubtful accounts of $67,000 and       $57,000, respectively             |  |               | 4,939,164 
|Inventories                                                                                                        |  |               | 10,298,923
|Prepaid expenses and other current assets                                                                          |  |               | 119,961   
|Deferred income taxes                                                                                              |  |               | 554,000   
|                                                                                                                   |  |               |           
|Total current assets                                                                                               |  |               | 16,322,234
|Property, plant and equipment, at cost, net of accumulated depreciation and    amortization                        |  |               | 9,750,586 
|Excess of cost over fair value of net assets acquired, net of accumulated    amortization of $963,386 and $648,560 |  |               | 5,061,944 
|Other assets                                                                                                       |  |               | 429,009   
|                                                                                                                   |  |               |           
|                                                                                                                   |  | $             | 31,563,773
|                                                                                                                   |  |               |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                               |  |               |           
|Current:                                                                                                           |  |               |           
|Accounts payable                                                                                                   |  | $             | 3,539,960 
|Income taxes payable                                                                                               |  |               | 881,801   
|Accrued expenses and other                                                                                         |  |               | 1,158,941 
|Current portion of long-term debt and capital lease obligations                                                    |  |               | 2,896,742 
|                                                                                                                   |  |               |           
|Total current liabilities                                                                                          |  |               | 8,477,444 
|Long-term debt and capital lease obligations                                                                       |  |               | 11,257,491
|Other liabilities                                                                                                  |  |               | 91,218    
|Deferred income taxes                                                                                              |  |               | 781,000   
|                                                                                                                   |  |               |           
|Total liabilities                                                                                                  |  |               | 20,607,153
|                                                                                                                   |  |               |           
|Commitments (Notes 2, 5, 8, 9 And 10)                                                                              |  |               |           
|Stockholders equity                                                                                               |  |               |           
|Common stock, $.001 par value, authorized 25,000,000 shares, issued and       outstanding 4,947,942 and 4,947,942  |  |               | 4,948     
|Additional paid-in capital                                                                                         |  |               | 3,624,721 
|Retained earnings                                                                                                  |  |               | 7,456,122 
|                                                                                                                   |  |               |           
|Subtotal                                                                                                           |  |               | 11,085,791
|Treasury stock, at cost (100,350 shares)                                                                           |  |               | (129,171  
|                                                                                                                   |  |               |           
|Total stockholders equity                                                                                         |  |               | 10,956,620
|                                                                                                                   |  |               |           
|                                                                                                                   |  | $             | 31,563,773
|                                                                                                                   |  |               |           

See accompanying notes to consolidated financial statements.

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

|                                             |  | Year ended September 30, |           
|-------------------------------------------- |  | ------------------------ | ----------
|                                             |  |                          |           
|                                             |  | 2000                     |           
|                                             |  |                          |           
|Net sales                                    |  | $                        | 32,281,423
|Cost of sales                                |  |                          | 21,175,601
|                                             |  |                          |           
|Gross profit                                 |  |                          | 11,105,822
|Selling, general and administrative expenses |  |                          | 7,254,506 
|Moving expense                               |  |                          | 253,402   
|                                             |  |                          |           
|Income from operations                       |  |                          | 3,597,914 
|Other expense                                |  |                          | 69,503    
|Interest expense, net                        |  |                          | 1,220,592 
|                                             |  |                          |           
|Income before provision for taxes on income  |  |                          | 2,307,819 
|Taxes on income                              |  |                          | 833,123   
|                                             |  |                          |           
|Net income                                   |  | $                        | 1,474,696 
|                                             |  |                          |           
|Net income per sharebasic                   |  | $                        | .30       
|                                             |  |                          |           
|Net income per sharediluted                 |  | $                        | .27       
|                                             |  |                          |           

See accompanying notes to consolidated financial statements.

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                            |  | Common Stock $0.001 par value |           |        |   |                          |  |               |            |                  |  
|--------------------------- |  | ----------------------------- | --------- | ------ | - | ------------------------ |  | ------------- | ---------- | ---------------- | -
|                            |  |                               |           |        |   |                          |  |               |            |                  |  
|                            |  | Number ofShares               |           | Amount |   | AdditionalPaid-inCapital |  | TreasuryStock |            | RetainedEarnings |  
|                            |  |                               |           |        |   |                          |  |               |            |                  |  
|Balance, September 30, 1998 |  |                               | 4,947,942 |        | $ | 4,948                    |  |               | $3,624,721 |                  | $
|Net income                  |  |                               |          |        |   |                         |  |               |           |                  |  
|Treasury stock acquired     |  |                               |           |        |   |                          |  |               |            |                  |  
|                            |  |                               |           |        |   |                          |  |               |            |                  |  
|Balance, September 30, 1999 |  |                               | 4,947,942 |        |   | 4,948                    |  |               | 3,624,721  |                  |  
|Net income                  |  |                               |           |        |   |                          |  |               |            |                  |  
|                            |  |                               |           |        |   |                          |  |               |            |                  |  
|Balance, September 30, 2000 |  |                               | 4,947,942 |        | $ | 4,948                    |  |               | $3,624,721 |                  | $
|                            |  |                               |           |        |   |                          |  |               |            |                  |  

See accompanying notes to consolidated financial statements.

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(NOTE 12)

|                                                                                               |  | Year ended September 30, |           
|---------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                               |  |                          |           
|                                                                                               |  | 2000                     |           
|                                                                                               |  |                          |           
|Cash flows from operating activities:                                                          |  |                          |           
|Net income                                                                                     |  | $                        | 1,474,696 
|                                                                                               |  |                          |           
|Adjustments to reconcile net income to net cash provided by (used in) operating    activities: |  |                          |           
|Depreciation and amortization                                                                  |  |                          | 1,806,807 
|Deferred income taxes                                                                          |  |                          | 66,000    
|Loss (gain) on sale of equipment                                                               |  |                          | 78,012    
|Changes in assets and liabilities, net of effects from acquisitions:                           |  |                          |           
|(Increase) decrease in:                                                                        |  |                          |           
|Accounts receivable                                                                            |  |                          | (1,888,280
|Inventories                                                                                    |  |                          | (567,150  
|Prepaid expenses and other current assets                                                      |  |                          | 6,941     
|Other assets                                                                                   |  |                          | (114,043  
|Increase (decrease) in:                                                                        |  |                          |           
|Accounts payable and accrued expenses                                                          |  |                          | 2,438,551 
|Other liabilities                                                                              |  |                          | 91,218    
|Income taxes payable                                                                           |  |                          | 601,023   
|                                                                                               |  |                          |           
|Total adjustments                                                                              |  |                          | 2,519,079 
|                                                                                               |  |                          |           
|Net cash provided by operating activities                                                      |  |                          | 3,993,775 
|                                                                                               |  |                          |           
|Cash flows from investing activities:                                                          |  |                          |           
|Capital expenditures                                                                           |  |                          | (775,453  
|Business acquisitions, net of cash acquired                                                    |  |                          | (896,129  
|Proceeds from sale of equipment                                                                |  |                          | 275,450   
|                                                                                               |  |                          |           
|Net cash used in investing activities                                                          |  |                          | (1,396,132
|                                                                                               |  |                          |           
|Cash flows from financing activities:                                                          |  |                          |           
|Increase (decrease) in revolving credit borrowings                                             |  |                          | (500,000  
|Principal payments on long-term debt and capital lease obligations                             |  |                          | (2,105,496
|Treasury stock acquired                                                                        |  |                          |          
|Deferred financing costs                                                                       |  |                          | (25,000   
|                                                                                               |  |                          |           
|Net cash used in financing activities                                                          |  |                          | (2,630,496
|                                                                                               |  |                          |           
|Net (decrease) increase in cash                                                                |  |                          | (32,853   
|Cash, beginning of period                                                                      |  |                          | 443,039   
|                                                                                               |  |                          |           
|Cash, at end of period                                                                         |  | $                        | 410,186   
|                                                                                               |  |                          |           

See accompanying notes to consolidated financial statements

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Summary of Accounting Policies

(a)   Business

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

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

(b)   Basis of Presentation

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

(c)   Inventories

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

(d)   Depreciation and Amortization

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

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

(e)   Income taxes

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

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. 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.

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(f)   Earnings per share

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

|                                            |  | Year ended September 30, |          
|------------------------------------------- |  | ------------------------ | ---------
|                                            |  |                          |          
|                                            |  | 2000                     |          
|                                            |  |                          |          
|Weighted average shares outstandingbasic   |  |                          | 4,847,592
|Dilutive effect of options and warrants     |  |                          | 690,156  
|                                            |  |                          |          
|Weighted average shares outstandingdiluted |  |                          | 5,537,748
|                                            |  |                          |          

Options and warrants totaling 143,500 and 282,864 at September 30, 2000 and 1999, respectively, were antidilutive and, accordingly, excluded from the
diluted calculation.

(g)   Intangible assets

The excess of cost over the fair value of net assets acquired is being amortized over periods of 15 and 20 years. Deferred financing costs are
amortized over the life of the related debt.

(h)   Long-lived assets

The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less cost to sell. To date, there have been no write-downs.

(i)   Revenue recognition

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

(j)   Advertising expenses

Advertising expenses are expensed as incurred and amounted to $203,000 and $151,000 for the years ended September 30, 2000 and 1999, respectively.

(k)   Stock based compensation

The Company accounts for stock based compensation using the intrinsic value method as permitted by SFAS No. 123 and will account for such
transactions in accordance with Accounting Principles Board (APB) No. 25 and, as required by SFAS No. 123, will provide pro forma information regarding net income as if compensation costs for the Companys stock plan had been determined
in accordance with the fair value method presented by SFAS No. 123.

(l)   Use of estimates

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

(m)   Fair value financial instruments

The carrying amounts of financial instruments, including cash and short-term debt, approximated fair value as of September 30, 2000 and 1999. The
carrying value of long-term debt, including the current portion, approximates

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

fair value as of September 30, 2000 and 1999 based upon the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.

(n)   Concentrations of credit risk

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

(o)   Recent accounting pronouncements











2.   Acquisition

On July 8, 1998, with an effective date of July 1, 1998, the Company acquired the assets and business of Atlantic Precision Products, Inc. (
APPI), a manufacturer of high precision, machined components for original equipment manufacturers with advanced engineering requirements. The price of net assets (including assumption of specified liabilities) was made up of cash, stock, and
performance consideration. The consideration was $7,237,500 in cash and 250,000 shares of the Companys common stock. The common stock portion of the consideration was recorded at the value guaranteed by the Company ($4 per share), discounted to its
present value. The Company also capitalized approximately $190,000 of costs related to the acquisition. The purchase price exceeded the fair value of the net assets acquired (principally machinery and equipment and inventory) by $2,846,026. This excess
has been recorde
d as goodwill that is being amortized over a (15) fifteen-year period.

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

The performance consideration is a stipulated percentage of the future earnings (as defined) for APPI for three years. The Companys policy with
respect to any such contingent consideration is to record a liability for such amounts as the defined earnings are achieved. As of September 30, 2000, contingent consideration of $ 2,731,061 has been recorded as additional goodwill. As of September 30,
2000, $1,521,998 has been paid and $ 1,209,063 has been delivered in the form of three year notes, subordinated to the bank credit facility (Note 5), due through September 30, 2003 bearing interest at 7% per annum, in accordance with the terms of the
asset purchase agreement. All such contingent consideration is subject to a subordination agreement between the seller and the lending institution (Note 5).

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.   Inventories

Inventories are summarized as:

|                         |  | September 30, |           
|------------------------ |  | ------------- | ----------
|                         |  |               |           
|                         |  | 2000          |           
|                         |  |               |           
|Raw materials            |  | $             | 1,076,603 
|Work-in-process          |  |               | 1,112,276 
|Finished goods           |  |               | 8,261,481 
|                         |  |               |           
|                         |  |               | 10,450,360
|Less: adjustment to LIFO |  |               | 151,437   
|                         |  |               |           
|                         |  | $             | 10,298,923
|                         |  |               |           

The adjustment to LIFO represents the excess of current cost ((valued at first-in, first-out) (FIFO)) over the LIFO value of the inventories. The
Companys LIFO reserve decreased $ 1,461,539 and increased $ 102,224 for the years ended September 30, 2000 and 1999, respectively.

4.   Property, Plant and Equipment

Property, plant and equipment consists of:

|                                                |  | September 30, |           
|----------------------------------------------- |  | ------------- | ----------
|                                                |  |               |           
|                                                |  | 2000          |           
|                                                |  |               |           
|Machinery and equipment                         |  | $             | 14,266,238
|Tools, molds and dies                           |  |               | 1,201,556 
|Furniture, fixtures and office equipment        |  |               | 608,324   
|Leasehold improvements                          |  |               | 289,740   
|Building and improvements                       |  |               | 94,520    
|Land                                            |  |               | 5,000     
|                                                |  |               |           
|                                                |  |               | 16,465,378
|Less: accumulated depreciation and amortization |  |               | 6,714,792 
|                                                |  |               |           
|Property, plant and equipment (net)             |  | $             | 9,750,586 
|                                                |  |               |           

Included in machinery and equipment and office equipment at September 30, 2000 and 1999 is approximately $6,742,000 and $3,712,000, respectively, of
equipment under capital lease agreements (Note 7). At September 30, 2000 and 1999, the related accumulated amortization amounts were approximately $1,136,000 and $533,000, respectively. Depreciation expense for the years ended September 30, 2000 and 1999
was approximately $603,000 and $402,000, respectively. Depreciation expense for all assets totaled $1,394,000 and
$1,188,000 for the fiscal years ended September 30, 2000 and 1999, respectively.

5.   Credit Facilities

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

Under the terms of the amended three-year revolving credit loan, the Company may borrow up to the lesser of $7,500,000 or 85% of eligible receivables
and 60% of eligible inventory to a maximum of $5,000,000. Interest is computed at the higher of the banks prime lending rate (9.50% at September 30, 2000) or the Federal Funds Rate plus 1⁄2%. The Company is required to pay a commitment fee on the
average unused portion of the revolving credit commitment of 1⁄4% per annum. Borrowings under the revolving credit loan were $2,900,000 and $3,400,000 at September 30, 2000 and 1999, respectively (Note 7). The revolving credit loan matures in June 2002.

Under the terms of the five and one-half year (66 months) term note, the Company originally borrowed $6,250,000. Interest thereon is computed at the
higher of the banks prime rate plus 1⁄4% or the Federal Funds Rate plus 1⁄2%. The term note is payable in twenty quarterly installments of principal, which began in March 1999. The quarterly principal installments increase ratably from
$150,000 per quarter during the first year to $400,000 per

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

quarter for the last year plus a final installment of $950,000 on December 31, 2003. The proceeds of the term note and a portion of the funds drawn against the revolving credit loan were used to finance the APPI acquisition
(Note 2). In conjunction with the issuance of the term note, the Company issued the lender warrants to purchase 125,000 shares of its common stock (Note 9). The value of the warrants totaled $97,000 and was accounted for as deferred financing costs
(included in other assets) and is being amortized over the term of the credit agreement.

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

6.   Accrued Expenses and Other

Accrued expenses consist of:

|                    |  | September 30,
|------------------- |  | -------------
|                    |  |              
|                    |  | 2000         
|                    |  |              
|Commissions         |  | $            
|Payroll and related |  |              
|Other               |  |              
|                    |  |              
|                    |  | $            
|                    |  |              

7.   Long-term Debt and Capital Lease Obligations

Long-term debt consists of:

|                                                                                                                                                                                                                        |  | September 30, |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------
|                                                                                                                                                                                                                        |  |               |           
|                                                                                                                                                                                                                        |  | 2000          |           
|                                                                                                                                                                                                                        |  |               |           
|Revolving credit loan (Note 5)                                                                                                                                                                                          |  | $             | 2,900,000 
|Term note (Note 5)                                                                                                                                                                                                      |  |               | 4,900,000 
|Acquisition note (Note 2)                                                                                                                                                                                               |  |               | 1,209,063 
|Capital lease obligations with varying monthly payments and    interest rates ranging from 7.2% to 9.6% per annum maturing    2003 through 2005; secured by an
interest in specific machinery    and equipment (Note 4) |  |               | 5,145,170 
|                                                                                                                                                                                                                        |  |               |           
|Subtotal                                                                                                                                                                                                                |  |               | 14,154,233
|Less: current maturities                                                                                                                                                                                                |  |               | 2,896,742 
|                                                                                                                                                                                                                        |  |               |           
|Long-term debt and capital lease obligations                                                                                                                                                                            |  | $             | 11,257,491
|                                                                                                                                                                                                                        |  |               |           

Deferred financing costs included in other assets amounted to $297,223 and $259,534 at September 30, 2000 and 1999, respectively. Accumulated
amortization amounted to $113,865 and $58,985 at September 30, 2000 and 1999, respectively.

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, 2000:

|                                            |  |   |          
|------------------------------------------- |  | - | ---------
|2001                                        |  | $ | 1,636,484
|2002                                        |  |   | 1,636,484
|2003                                        |  |   | 1,384,111
|2004                                        |  |   | 946,997  
|2005                                        |  |   | 451,425  
|                                            |  |   |          
|Total minimum lease payments                |  |   | 6,055,501
|Less: amount representing imputed interest  |  |   | 910,331  
|                                            |  |   |          
|Present value of net minimum lease payments |  | $ | 5,145,170
|                                            |  |   |          

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following is a schedule of long-term debt maturities (including capital lease obligations) as of September 30, 2000:

|     |  |   |           
|---- |  | - | ----------
|2001 |  | $ | 2,896,742 
|2002 |  |   | 5,966,917 
|2003 |  |   | 3,032,680 
|2004 |  |   | 1,820,053 
|2005 |  |   | 437,841   
|     |  |   |           
|     |  | $ | 14,154,233
|     |  |   |           

8.   Leases

The Company rents facilities in Hicksville, New York and in Biddeford and Windham, Maine under various operating lease agreements expiring through
June 2010. In addition, the Company also leases certain machinery and equipment and office equipment under various capital lease agreements expiring through 2005 (Note 7). Rent expense amounted to approximately $688,000 and $654,000 for the fiscal years
ended September 30, 2000 and 1999, respectively. Future minimum rental payments for operating leases as of September 30, 2000 are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2001       |  | $ | 651,000   | 
|2002       |  |   | 655,000   | 
|2003       |  |   | 618,000   | 
|2004       |  |   | 475,000   | 
|2005       |  |   | 491,000   | 
|Thereafter |  |   | 2,576,000 | 
|           |  |   |          
|Total      |  | $ | 5,466,000 | 
|           |  |   |          

9.   Stockholders Equity

(a)   Warrants

At September 30, 2000, the Company had 125,000 stock warrants outstanding. As further discussed in Note 5, the Company issued warrants to its secured
lender to purchase 125,000 shares of common stock at an exercise price of $2.00 per share. These warrants expire on July 7, 2003.

(b)   Incentive Stock Option Plan

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

As of September 30, 2000, the Company had issued options to purchase an aggregate of 1,491,500 shares of the Companys common stock to employees
and members of the Companys Board of Directors. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000 and
1999: no dividend yield, expected volatility of approximately 46.00% to 52.89%, risk free interest rates of 4.80% to 6.29%, with an expected life of 7.5 to 10 years. If compensation cost for the Companys Stock Option Plan had been determined in
accordance with SFAS No. 123, net income would have been reduced in 2000 and 1999 by approximately $ 375,000 and $94,000, respectively, and net income per diluted share would have been $ .20 and $.08 for each year, respectively.

---

ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes information about stock options outstanding at September 30, 2000:

|               |  | Options Outstanding |           | Options Exercisable                                 | 
|-------------- |  | ------------------- | --------- | --------------------------------------------------- | 
|               |  |                     |           |                                                     | 
|Exercise Price |  | Number Outstanding  |           | Weighted Average Remaining Contractual Life (years) | 
|               |  |                     |           |                                                     | 
|$.35           |  |                     | 4,600     |                                                     | 
|$2.00-3.00     |  |                     | 45,000    |                                                     | 
|$.35-2.44      |  |                     | 72,400    |                                                     | 
|$1.88-2.25     |  |                     | 49,000    |                                                     | 
|$1.06-1.31     |  |                     | 217,500   |                                                     | 
|$1.03-2.88     |  |                     | 1,049,400 |                                                     | 
|               |  |                     |           |                                                     | 
|               |  |                     | 1,437,900 |                                                     | 
|               |  |                     |           |                                                     | 

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

|                               |  | Warrants |         | Options        |  
|------------------------------ |  | -------- | ------- | -------------- | -
|                               |  |          |         |                |  
|                               |  | Shares   |         | Exercise Price |  
|                               |  |          |         |                |  
|Outstanding September 30, 1998 |  |          | 195,864 |                | $
|Granted                        |  |          |        |                |  
|Cancelled                      |  |          |        |                |  
|Exercised                      |  |          |        |                |  
|Expired                        |  |          | (60,000 | )              | $
|                               |  |          |         |                |  
|Outstanding September 30, 1999 |  |          | 135,864 |                | $
|Granted                        |  |          |        |                |  
|Cancelled                      |  |          |        |                |  
|Exercised                      |  |          |        |                |  
|Expired                        |  |          | (10,864 | )              | $
|                               |  |          |         |                |  
|Outstanding September 30, 2000 |  |          | 125,000 |                | $
|                               |  |          |         |                |  

At September 30, 2000, there were 1,260,967 options exercisable at a weighted average exercise price of $1.22. The weighted average fair value of
options granted during fiscal 2000 and 1999 was $ .70.

10.   Commitments

The Company has a discretionary 401(k) plan. For the years ended September 30, 2000 and 1999, the Company contributed $ 68,363 and $ 26,915,
respectively.

11.   Taxes on Income

Provisions for income taxes (benefit) on income in the consolidated statement of operations consist of the following:

|                      |  | Year ended September 30, |        
|--------------------- |  | ------------------------ | -------
|                      |  |                          |        
|                      |  | 2000                     |        
|                      |  |                          |        
|Current:              |  |                          |        
|Federal               |  | $                        | 678,156
|State                 |  |                          | 88,967 
|                      |  |                          |        
|Total current         |  |                          | 767,123
|                      |  |                          |        
|Deferred:             |  |                          |        
|Federal               |  |                          | 58,000 
|State                 |  |                          | 8,000  
|                      |  |                          |        
|                      |  |                          | 66,000 
|                      |  |                          |        
|Total taxes on income |  | $                        | 833,123
|                      |  |                          |        

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ALLIED DEVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred tax (assets) liabilities consist of the following:

|                                                        |  | Year ended September 30, |          
|------------------------------------------------------- |  | ------------------------ | ---------
|                                                        |  |                          |          
|                                                        |  | 2000                     |          
|                                                        |  |                          |          
|Tax depreciation in excess of book                      |  | $                        | 1,013,000
|Investment tax credit carryforward                      |  |                          | (198,000 
|Alternative minimum tax credit                          |  |                          |         
|Provision for accounts receivable                       |  |                          | (25,000  
|Provision on note receivable (included in other assets) |  |                          |         
|Inventory capitalization                                |  |                          | (84,000  
|Inventory reserve                                       |  |                          | (293,000 
|Accrued bonus                                           |  |                          | (141,000 
|Other temporary differences  net                       |  |                          | (45,000  
|                                                        |  |                          |          
|Net deferred tax liabilities                            |  | $                        | 227,000  
|                                                        |  |                          |          

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, |        
|--------------------------------------------------------- |  | ------------------------ | -------
|                                                          |  |                          |        
|                                                          |  | 2000                     |        
|                                                          |  |                          |        
|Provision for Federal income taxes at the statutory rates |  | $                        | 784,658
|Increase (decrease):                                      |  |                          |        
|State taxes, net of Federal tax benefit                   |  |                          | 63,998 
|Other                                                     |  |                          | (15,533
|                                                          |  |                          |        
|Provision for taxes on income                             |  | $                        | 833,123
|                                                          |  |                          |        

12.   Cash Flows

|                                                           |  | Year ended September 30, |          
|---------------------------------------------------------- |  | ------------------------ | ---------
|                                                           |  |                          |          
|                                                           |  | 2000                     |          
|                                                           |  |                          |          
|Supplemental disclosure of cash flow information           |  |                          |          
|Cash paid during the year:                                 |  |                          |          
|Interest                                                   |  | $                        | 1,168,000
|Income taxes                                               |  | $                        | 166,100  
|                                                           |  |                          |          
|Supplemental schedule of non-cash investing and financing: |  |                          |          
|Equipment acquired under capital lease                     |  | $                        | 3,355,000

In connection with the business acquisition (Note 2), the Company, in fiscal 2000 and 1999, incurred additional non-cash charges of $896,129 and
$588,803, respectively, relating to contingent consideration earned in connection with this acquisition.

13.   Subsequent Event

In November 2000, the Company acquired Martin Machine, Inc. (Martin), which is located in Raymond, Maine. The total purchase price
amounted to $1,031,000, including the value of 100,000 shares of common stock issued. The purchase price also includes a note in the amount of $300,000 payable over (5) five years beginning March 31, 2001. Prior to the acquisition, the Company was
Martins primary customer.